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As filed with the Securities and Exchange Commission on September 26, 2006.
Registration No. 333-137322

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

THE WESTERN UNION COMPANY
(Exact name of registrant as specified in its charter)

 
					
Delaware	 	7389	 	20-4531180	
(State or Other Jurisdiction of
Incorporation or Organization)	 	(Primary Standard Industrial
Classification Code Number)	 	(I.R.S. Employer
Identification No.)	

 
12500 East Belford Avenue
Englewood, Colorado 80112
Telephone: (303) 967-6756
 
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)

 
David Schlapbach
Executive Vice President, General Counsel and Secretary
THE WESTERN UNION COMPANY
12500 East Belford Avenue
Englewood, Colorado 80112
Telephone: (866) 405-5012
 
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For service)

 
Copies to:
Frederick C. Lowinger, Esq.
Paul L. Choi, Esq.
Sidley Austin LLP
1 South Dearborn Street
Chicago, Illinois 60603
Telephone: (312) 853-7000

 
Approximate date of commencement of proposed sale to public: From time to time after the effective date of this registration statement.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     þ
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     ¨
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not  permitted.
 
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 2006
 
PROSPECTUS
 
THE WESTERN UNION COMPANY
 
The Western Union Company 2006 Long-Term Incentive Plan

 
Common Stock, Par Value $0.01 Per Share
 
The 22,000,000 shares of common stock covered by this prospectus may be acquired by participants in The Western Union Company 2006 Long-Term Incentive Plan, which we refer to as the 2006 LTIP, upon the exercise of certain options to purchase shares of our common stock issued pursuant to the 2006 LTIP. All option exercises are subject to the terms of the 2006 LTIP and the applicable option agreement. Any proceeds received by us from the exercise of the stock options covered by the 2006 LTIP will be used for general corporate purposes.
 
We are currently a subsidiary of First Data Corporation, which has determined to spin off our company through a series of transactions by which First Data will contribute its money transfer and consumer payments businesses to Western Union and distribute to its stockholders all of the outstanding shares of Western Union common stock. Western Union common stock has been authorized for listing on the New York Stock Exchange under the symbol “WU.”
 
In reviewing this prospectus, you should carefully consider the risks under “ Risk Factors ” beginning on page 10 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. 

The date of this prospectus is [ · ], 2006.

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 TABLE OF CONTENTS

SUMMARY	  	1	
		
RISK FACTORS	  	10	
		
FORWARD-LOOKING STATEMENTS	  	24	
		
USE OF PROCEEDS	  	25	
		
DIVIDEND POLICY	  	25	
		
FINANCING	  	26	
		
CAPITALIZATION	  	28	
		
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS	  	29	
		
SELECTED HISTORICAL COMBINED FINANCIAL DATA	  	36	
		
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS	  	38	
		
OUR BUSINESS	  	63	
		
OUR RELATIONSHIP WITH FIRST DATA AFTER THE SPIN-OFF	  	79	
		
OUR MANAGEMENT	  	92	
		
EXECUTIVE COMPENSATION	  	100	
		
OWNERSHIP OF OUR STOCK	  	111	
		
PLAN OF DISTRIBUTION	  	112	
		
DETERMINATION OF OPTION EXERCISE PRICES	  	112	
		
THE 2006 LTIP	  	112	
		
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES	  	113	
		
DESCRIPTION OF OUR CAPITAL STOCK	  	115	
		
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	  	117	
		
CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS	  	118	
		
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OUR DIRECTORS AND OFFICERS	  	121	
		
LEGAL MATTERS	  	121	
		
EXPERTS	  	121	
		
WHERE YOU CAN FIND MORE INFORMATION	  	122	
 
In this prospectus, unless the context otherwise requires:
 
 	•	 	“Western Union,” “we,” “our,” “us” and “our company” refer to The Western Union Company, a Delaware corporation, and its subsidiaries, for all periods following the spin-off; and	
 
 	•	 	“First Data” refers to First Data Corporation, a Delaware corporation, and its subsidiaries, other than, for all periods following the spin-off, Western Union.	
 
We describe in this prospectus the businesses to be transferred to us by First Data in connection with the spin-off as though the transferred businesses were our business for all historical periods described. However, The Western Union Company is a newly formed entity that has not conducted any operations prior to the spin-off. References in this prospectus to the historical assets, liabilities, products, businesses or activities of our businesses are intended to refer to the historical assets, liabilities, products, businesses or activities of the transferred businesses as those businesses were conducted as part of First Data prior to the spin-off. Following
 
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the spin-off, we will be an independent, publicly traded company, and First Data will have no continuing stock ownership in us. Our historical combined financial information as part of First Data contained in this prospectus is not necessarily indicative of our future financial position, future results of operations or future cash flows, nor does it reflect what our financial position, results of operations or cash flows would have been had we been operated as a stand-alone company during the periods presented.
 
You should not assume that the information contained in this prospectus is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this prospectus may occur after that date, and we undertake no obligation to update the information.
 
Trademarks, Service Marks and Trade Names
 
We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks and service marks that we own or have rights to use that appear in this prospectus include the WESTERN UNION ® , VIGO SM , ORLANDI VALUTA ® , WESTERN UNION QUICK COLLECT ® , SPEEDPAY ® and PAYMAP ® marks. The trademarks are registered in the United States and other jurisdictions. Each trademark, trade name or service mark of any other company appearing in this prospectus is, to our knowledge, owned by such company.
 
Industry Data
 
This prospectus includes industry and trade association data, forecasts and information that we have prepared based, in part, upon data, forecasts and information obtained from independent trade associations, industry publications and surveys and other independent sources available to us. Some data also are based on our good faith estimates, which are derived from management’s knowledge of the industry and from independent sources. The primary sources for third-party industry data and forecasts are Aite Group, LLC, or “Aite,” the United Nations, the World Bank and other industry reports and articles. These third-party publications and surveys generally state that the information included therein is believed to have been obtained from sources believed to be reliable, but that the publications and surveys can give no assurance as to the accuracy or completeness of such information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions on which such data are based. Similarly, we believe our internal research is reliable, even though such research has not been verified by any independent sources.
 
Company Information
 
The Western Union Company was incorporated in Delaware in February 2006. Our principal executive offices are located at 12500 East Belford Avenue, Englewood, Colorado 80112. Our main telephone number is (866) 405-5012.
 
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  SUMMARY
 
The following summary contains certain information from this prospectus relating to us, the spin-off and the securities offered hereby. It does not contain all the details concerning us, our spin-off from First Data or our common stock, including information that may be important to you. To understand our business and financial position and the spin-off, you should carefully review this entire prospectus.
 
Our Company
 
Western Union, a leader in global money transfer, provides 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 270,000 agent locations that offer Western Union services 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 June 30, 2006, approximately 75% of our locations had experienced money transfer activity in the prior twelve 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 2005, we generated $4.0 billion in total combined revenues and $927.4 million in combined net income. Demand for our services has steadily increased over the past several years. Our consumer-to-consumer transactions grew at a compound annual growth rate of 21% from 2001 to 2005. We handled 119 million consumer-to-consumer money transfers in 2005, an increase of 23% over 2004. Our 215 million consumer-to-business transactions in 2005 represented a 12% increase over 2004.
 
We believe that brand strength, the size and reach of our global network, 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 broad access to an expanding portfolio of  payment and other financial services.
 
The Western Union Business
 
The Western Union business model is straight-forward. 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 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.
 
We operate primarily in two business segments.
 
 	•	 	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 out 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 high quality. We take little credit risk associated with consumer delinquency, because the vast majority of our transactions are initiated in cash.	
 
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 	•	 	In our consumer-to-business segment we offer consumers the option to make consumer-to-business payments electronically over the telephone or the Internet or cash payments in person at an agent location. We process electronic payments using the consumer’s credit card, debit card or bank account. We process cash payments much like we process consumer-to-consumer transactions.	
 
Our Strengths
 
We believe our strengths position us to continue as the provider of choice for millions of consumers when they send money. 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 that help define 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 an array of other consumer products and services, including postal services, groceries, banking, check cashing, travel and other daily necessities. Many are open during nontraditional banking hours, such as 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 more than 12 years; in 2005, these agents generated approximately 50% of our consumer-to-consumer combined revenues.
 
We have strong relationships with a number of 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”). These relationships are a core component of our consumer-to-business payment services. On average, we have provided bill payment services for our top 20 billers for more than 10 years.
 
Global distribution network . The Western Union ® , Orlandi Valuta ® and Vigo SM agent networks are the foundation of our international presence. Our agent locations include more than 5,000 offering Orlandi Valuta ® branded service and approximately 20,000 offering Vigo SM branded service, with the remainder offering Western Union branded service. A small number offer service under two or three brands. Our global footprint is based on 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. We have emphasized the development of our receive network around the world over the last five years 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 in key receive markets, such as China and India, to meet consumer demand as it evolves with shifts in migration patterns.
 
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.
 
Established brands . Our Western Union ® brand is built on a foundation of more than a century of history and consumer-focused service. Our consumers have told us that they believe the Western Union brand represents speed, reliability, trust, value and convenience. In the United States, where the brand has existed the longest, there is a very high level of brand awareness among money transfer users. The international expansion of our agent network over the past decade has made the Western Union brand visible today virtually everywhere
 
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consumers send and receive money. We are building the level of awareness in Europe and Asia. 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 SM brands. Over the past three years, Western Union branded transactions have grown the fastest of the three brands. Through our Western Union Quick Collect brand, as well as our Speedpay brand, 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 2005, we invested more than $270 million to market, advertise and promote our services and our agents made significant additional investments.
 
Consumer relationships . One of our strengths has been our focus on our consumers and offering them fast, reliable money transfer services. Our global loyalty card program, offered for both consumer-to-consumer and consumer-to-business services, is available in a growing number of countries. We launched our Gold Card, the principal feature of the program, in the United States in 2002. As of June 30, 2006, the loyalty program was available in 58 countries and had more than 6.5 million active cards, primarily in the United States. The Gold Card offers consumers faster service at the point-of-sale, rewards such as free telephone time and service enhancements including, on a pilot basis in select markets, remittance protection insurance. 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 more than 30% of consumer-to-consumer transactions are completed using a Gold Card. We are also seeing increases in usage in Europe and Asia where we began offering the Gold Card in 2004.
 
Operational excellence . An important part of operational excellence is steadfastly 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 dynamic computer host-to-host interfaces to our agents and billers 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 over 120 currencies.
 
Flexibility is another important component of operational excellence. We continue to work to implement consumer focused enhancements to our services. These efforts have resulted in offerings like telephone and Internet services, and money transfers paid directly to a bank account or to a stored-value card.
 
Attractive financial profile . While we expect to incur significant amounts of debt in connection with the spin-off, our significant revenue and net cash flow will provide us with opportunities to invest in our core business growth, in new services and in new markets. In 2005, we generated $4.0 billion in combined revenues and over $1.0 billion in combined net cash provided by operating activities. Our combined revenues have grown at a compound annual growth rate of 15% since 2001.
 
Experienced management team . Our management team is substantially the same team that managed the Western Union business for First Data before the spin-off. 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 8 years with us or First Data.
 
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Our Strategy
 
We believe that our strengths position us well to continue to pursue global markets and remain focused on our consumers and their needs. To do so, we developed a number of strategies, including:
 
Expand and diversify global distribution . We intend to continue to identify and create opportunities to generate new revenue from our existing distribution channels, including through acquisitions and by equity investments in our agents. We are focused on selectively expanding our agent network and relationships with billers.
 
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 like China, India and elsewhere in Asia. This increased presence in receive markets provides immigrants from these countries confidence that money they send home will be delivered to a convenient location they know. In the United States, western Europe and other predominantly send markets, we add agent locations in locales that tend to attract immigrants. While we continue to develop our global network, we expect the majority of our growth in the future to come from existing locations.
 
Today, we offer cash-based bill payment services primarily in the United States, and we offer consumer-to-business payment services to and from other countries served by our agent network. We intend to pursue continued global expansion of cash and electronic consumer-to-business payments services through our existing agent network and other channels.
 
Build our brands and enhance our consumers’ experience. We remain focused on our brands and make sizable investments to build our brands and enhance our consumers’ experience. In each of the last three years, we have spent approximately 7% of our combined revenues on marketing, including advertising, events, loyalty programs and employees dedicated to marketing activities. In addition, in each of the last three years we invested in consumer-to-consumer pricing decreases designed to meet consumer needs, maximize market opportunities and strengthen our overall competitive positioning. Building our brands and enhancing the consumer experience are strategies that are grounded in our global consumer relationship management, or “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.
 
Develop consumer convenience and choice . We focus our product development strategy on providing money transfer services that meet consumers’ needs for convenience, choice and control. Our Internet service (westernunion.com), Telephone Money Transfer (a service that allows consumers to speak with Western Union operators in a number of languages by phone to send funds), Money Transfer by Phone (a service that allows consumers to speak with Western Union operators in a number of languages by phone from agent locations to send funds), Direct to Bank (a service that allows consumers to send funds directly to a bank account), Account to Cash (a service that allows consumers to debit their bank accounts and send the money through Western Union for payment at any agent location), Home Delivery of remittances (a service that allows funds to be delivered to the recipient rather than picked up at an agent location) and Western Union@ATM (a service that allows consumers to transfer funds to or from an ATM) are all examples of service enhancements that address our consumers’ needs. We intend to continue to develop these types of enhancements, building on insights from our agents and the knowledge we gain from CRM activities.
 
In the United States, we offer consumers the ability to send payments to billers through a variety of channels, including walk-in locations, telephone service, interactive voice response units, or “IVR,” and Internet-based service. In order to pay their bills through these channels, consumers can use various means of payments—checks, credit cards, debit cards or cash. We intend to increase our consumer payments business in the United
 
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States by pursuing existing and emerging electronic payments services and technologies. Equally as important, we plan to expand this business outside the United States in ways that will vary from market to market.
 
Explore new service offerings . Western Union is exploring new ways to bring additional services to our consumers around the world. For example, Western Union International Bank, based in Vienna, Austria, has the ability to establish branches and offer money transfer and other financial services directly to consumers in each of the 25 member states of the European Union. We continue to investigate new services—either offered by our company directly or through   third parties—that are meaningful to our large consumer base.
 
The Offering

Securities Offered	  	22,000,000 shares of common stock	
		
Use of Proceeds	  	We intend to use any proceeds received by us from the exercise of the stock options covered by the 2006 LTIP for general corporate purposes.	
		
Listing	  	Our common stock has been authorized for listing on the New York Stock Exchange under the symbol “WU.”	
 
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Summary Historical Data and Unaudited Pro Forma Combined Financial Data
 
The following tables set forth our summary historical data and unaudited pro forma financial data prepared on a combined basis. The historical data present our business as it has historically been operated by First Data. You should read the information set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Statements” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus. The statements of income and cash flow data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data as of December 31, 2005 and 2004 set forth below are derived from our audited combined financial statements included elsewhere in this prospectus. The statements of income and cash flow data for the years ended December 31, 2002 and 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001 set forth below are derived from our unaudited combined financial statements not included in this prospectus. The statements of income and cash flow data for the six-month periods ended June 30, 2006 and 2005 and the balance sheet data as of June 30, 2006 set forth below are derived from our unaudited combined financial statements included elsewhere in this prospectus. The balance sheet data as of June 30, 2005 set forth below are derived from our unaudited combined financial statements not included in this prospectus. The unaudited interim combined financial statements are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2006. However, in the opinion of management, the unaudited interim combined financial statements include all adjustments (consisting of normal recurring accruals) that are necessary for the fair presentation of the results for the interim periods. See “Index to Combined Financial Statements and Schedule.”
 
Our historical financial, pro forma and other data included in this prospectus are not necessarily indicative of our future financial position, future results of operations or future cash flows, nor do they reflect what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented.
 
The unaudited pro forma combined financial data are derived from our unaudited pro forma combined financial statements. Our unaudited pro forma combined financial statements are derived from our historical combined financial statements and adjusted to give effect to the following transactions:
 
 	•	 	The contribution by First Data to us of specified assets related to First Data’s money transfer and consumer payments businesses and the assumption by us of specified liabilities related to such businesses.	
 
 	•	 	The issuance by us to First Data, in partial consideration for the contribution, of 765.2 million shares of our common stock.	
 
 	•	 	The distribution of 765.2 million shares of our common stock to holders of First Data common stock.	
 
 	•	 	The incurrence of $3.5 billion of combined indebtedness in connection with the spin-off and the payment to First Data of $3.5 billion in the form of a combination of cash and our debt securities.	
 
 	•	 	The distribution by us to First Data of $210.0 million in cash from existing cash balances.	
 
 	•	 	The cash settlement of $778.8 million of intercompany notes and related accrued interest of $32.4 million owed by First Data to us and $52.2 million of intercompany notes and related accrued interest of $2.2 million owed by us to First Data, and the payment by us to First Data of $16.8 million to settle certain foreign currency swap agreements with First Data related to certain notes receivable with affiliates on the date of spin-off.	
 
 	•	 	The forgiveness by us of $153.8 million of intercompany balances owed by First Data to us, and the forgiveness by an affiliate of First Data of an intercompany note owed by us to that affiliate of $11.3 million, which collectively will be treated as a net dividend to First Data for accounting and tax purposes.	
 
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 	•	 	Estimated incremental costs associated with operating as a stand-alone company of $60 million annually.	
 
The share numbers are based on First Data share numbers as of June 30, 2006, and the dollar and settlement amounts are based on our balances as of June 30, 2006.
 
Our unaudited pro forma combined statements of income do not include adjustments for certain other costs of operating as a stand-alone company which we estimate, subject to the finalization of our plans, to be between $5 million and $15 million annually, including higher corporate branding and global affairs, information technology, procurement and other expenses related to being a stand-alone company.
 
Our unaudited pro forma combined statements of income do not give effect to initial expenses directly attributable to the spin-off because of their non-recurring nature. A significant portion of these non-recurring charges to effect the separation will be incurred by First Data, such as investment banker fees, outside legal and accounting fees relating to the spin-off, office move costs, costs to separate information systems and temporary consulting costs. We will incur separation costs that have a future benefit to our company such as recruiting and relocation expenses associated with hiring key senior management positions new to our company, other employee compensation expenses and temporary labor used to develop ongoing processes. We estimate total non-recurring separation charges that our company will incur, which are not included in our unaudited pro forma combined statements of income, to be approximately $15 million to $25 million. We anticipate that substantially all of these costs will be incurred within 12 months of the spin-off. See “Our Relationship with First Data After the Spin-Off—Separation and Distribution Agreement—Expenses.”
 
The pro forma adjustments are based upon available information and assumptions that management believes are reasonable based on our current plans and expectations; however, such adjustments are subject to change based on the finalization of the terms of the spin-off and the transaction agreements. Additionally, this information is forward looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Forward-Looking Statements” and “Our Relationship with First Data After the Spin-Off—Separation and Distribution Agreement” on pages 24 and 79, respectively, for further information.
 
The unaudited pro forma combined statements of income data for the six months ended June 30, 2006 and the year ended December 31, 2005 have been prepared as though the spin-off had occurred as of January 1, 2005. The unaudited pro forma combined balance sheet data as of June 30, 2006 have been prepared as though the spin-off had occurred on June 30, 2006.
 
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Historical Data

 	 	Six Months Ended
June 30,	 	 	Years Ended December 31,	 	
(in millions)	 	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	 	2002	 	 	2001	 	
 	 	(unaudited)	 	 	 	 	 	 	 	 	 	 	 	(unaudited)	 	 	(unaudited)	 	
Statements of Income Data:	 				 				 				 				 				 				 				
Revenues (a)	 	$	2,156.6	 	 	$	1,900.4	 	 	$	3,987.9	 	 	$	3,547.6	 	 	$	3,151.6	 	 	$	2,743.4	 	 	$	2,314.4	 	
Operating expenses (a) (b) (c) (d)	 	 	1,517.5	 	 	 	1,287.8	 	 	 	2,718.7	 	 	 	2,435.5	 	 	 	2,148.6	 	 	 	1,919.9	 	 	 	1,651.0	 	
Operating income	 	 	639.1	 	 	 	612.6	 	 	 	1,269.2	 	 	 	1,112.1	 	 	 	1,003.0	 	 	 	823.5	 	 	 	663.4	 	
Other income/(expense), net (e)	 	 	9.6	 	 	 	42.0	 	 	 	74.9	 	 	 	(13.5	)	 	 	(40.4	)	 	 	(24.2	)	 	 	(1.1	)	
Net income (b) (c) (d)	 	 	438.7	 	 	 	451.6	 	 	 	927.4	 	 	 	751.6	 	 	 	633.7	 	 	 	494.1	 	 	 	407.9	 	
								
Cash Flow Data:	 				 				 				 				 				 				 				
Net cash provided by operating activities	 	 	481.9	 	 	 	467.9	 	 	 	1,002.8	 	 	 	930.2	 	 	 	792.8	 	 	 	607.5	 	 	 	526.1	 	
Dividends to parent company	 	 	—  	 	 	 	—  	 	 	 	417.2	 	 	 	659.8	 	 	 	324.2	 	 	 	486.8	 	 	 	1,047.3	 	
								
Key Indicators (unaudited):	 				 				 				 				 				 				 				
Consumer-to-consumer transactions (f)	 	 	69.89	 	 	 	54.09	 	 	 	118.52	 	 	 	96.66	 	 	 	81.04	 	 	 	67.84	 	 	 	55.78	 	
Consumer-to-business transactions (g)	 	 	120.71	 	 	 	102.30	 	 	 	215.11	 	 	 	192.57	 	 	 	179.39	 	 	 	145.01	 	 	 	113.79	 	
								
Growth Rates (unaudited):	 				 				 				 				 				 				 				
Revenue	 	 	13	%	 	 	12	%	 	 	12	%	 	 	13	%	 	 	15	%	 	 	19	%	 				
Operating income	 	 	4	%	 	 	16	%	 	 	14	%	 	 	11	%	 	 	22	%	 	 	24	%	 				
Net income	 	 	(3	)%	 	 	24	%	 	 	23	%	 	 	19	%	 	 	28	%	 	 	21	%	 				
Consumer-to-consumer transactions	 	 	29	%	 	 	19	%	 	 	23	%	 	 	19	%	 	 	19	%	 	 	22	%	 				
Consumer-to-business transactions	 	 	18	%	 	 	7	%	 	 	12	%	 	 	7	%	 	 	24	%	 	 	27	%	 				
			
 	 	As of June 30,	 	 	As of December 31,	 	
 	 	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	 	2002	 	 	2001	 	
 	 	(unaudited)	 	 	 	 	 	 	 	 	(unaudited)	 	 	(unaudited)	 	 	(unaudited)	 	
Balance Sheet Data:	 				 				 				 				 				 				 				
Total assets	 	$	4,995.6	 	 	$	3,770.5	 	 	$	4,606.4	 	 	$	3,330.2	 	 	$	3,029.9	 	 	$	2,472.4	 	 	$	2,189.8	 	
Total liabilities	 	 	1,742.1	 	 	 	1,390.3	 	 	 	1,794.6	 	 	 	1,395.7	 	 	 	1,201.0	 	 	 	1,001.7	 	 	 	846.4	 	
Net investment in The Western Union Company	 	 	3,253.5	 	 	 	2,380.2	 	 	 	2,811.8	 	 	 	1,934.5	 	 	 	1,828.9	 	 	 	1,470.7	 	 	 	1,343.4	 	
 
Unaudited Pro Forma Combined Financial Data

 	  	Six Months Ended
June 30,	  	Year Ended
December 31,	
(in millions, except per share amounts)	  	2006	  	2005	
Statements of Income Data:	  			  			
Revenues	  	$	2,156.6	  	$	3,987.9	
Operating expenses (d)	  	 	1,547.5	  	 	2,778.7	
Net income	  	 	341.1	  	 	749.3	
Pro forma earnings per share:	  			  			
Basic (h)	  	$	0.45	  	$	0.98	
Diluted (h)	  	$	0.44	  	$	0.96	
Pro forma shares outstanding:	  			  			
Basic (h)	  	 	765.2	  	 	765.2	
Diluted (h)	  	 	776.9	  	 	776.9	
 
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 	  	As of June 30, 2006	 	 	 	
Balance Sheet Data:	  				 		
Total assets	  	$	4,659.1	 	 		
Debt	  	 	3,500.0	 	 		
Total liabilities	  	 	5,345.7	 	 		
Stockholders’ deficiency	  	 	(686.6	)	 		

(a)	In January 2002, our company adopted Emerging Issues Task Force 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” or “EITF 01-14,” which requires that reimbursements received for “out-of-pocket” expenses be characterized as revenue. The year ended December 31, 2001 has been adjusted for this adoption. Operating expenses include cost of services and selling, general and administrative expenses.	
(b)	In January 2002, our company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” or “SFAS 142,” which requires that goodwill no longer be amortized effective January 1, 2002. Prior to our adoption of SFAS 142, goodwill was amortized on a straight-line basis over estimated useful lives ranging from 10 to 40 years.	
(c)	In 2002, our company recorded expenses of $41.0 million related to the settlement of certain class action litigation and regulatory matters.	
(d)	We adopted SFAS No. 123R, “Share-Based Payment,” or “SFAS 123R,” following the modified prospective method effective January 1, 2006. SFAS 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant date fair values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. Stock-based compensation expense, including the impact of adopting SFAS 123R, was $6.1 million for the six months ended June 30, 2006.	
(e)	Primarily includes derivative gains and losses, the net foreign exchange effect on notes receivable from affiliates and related foreign currency swaps with First Data, and net interest income due from affiliates. We anticipate volatility with respect to derivative gains and losses until we have redesignated our foreign currency forward contracts by modifying all hedge documentation to allow for cash flow hedge accounting with respect to these and future foreign currency forward positions, which we intend to do as expeditiously as possible. We also anticipate volatility with respect to the revaluation of our euro denominated notes receivable from affiliates and related foreign currency swap agreements with First Data until we have settled our notes receivable from affiliates and related foreign currency swap agreements as part of the spin-off. During the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003, the pre-tax derivative gain (loss) was $(27.2) million, $36.8 million, $45.8 million, $(30.2) million, and $(37.9) million, respectively. During the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005 and 2004, the pre-tax gain (loss) on foreign exchange translation of notes receivable from affiliates and valuation of related foreign currency swap agreements was $(4.1) million, $(9.8) million, $(5.9) million, and $7.5 million, respectively. There was no gain or loss during 2003.	
(f)	Consumer-to-consumer transactions include consumer-to-consumer money transfer services worldwide. Amounts include Vigo Remittance Corp. transactions since the acquisition date of October 21, 2005.	
(g)	Consumer-to-business transactions include Quick Collect, Convenience Pay, Speedpay and Equity Accelerator transactions processed by us. Amounts include E Commerce Group, Inc. (Speedpay) transactions since its acquisition in June 2002 and Paymap Inc. (Equity Accelerator and Just-in-Time) transactions since its acquisition in April 2002.	
(h)	The calculation of pro forma basic earnings per share and shares outstanding is based on the number of shares of First Data common stock outstanding as of June 30, 2006 adjusted for the distribution ratio of one share of our common stock for every share of First Data common stock. The calculation of pro forma diluted earnings per share and shares outstanding for the periods presented is based on the number of shares of First Data common stock outstanding as of June 30, 2006 and diluted shares of common stock outstanding as of June 30, 2006 adjusted for the same distribution ratio. This calculation may not be indicative of the dilutive effect that will actually result from the replacement of First Data stock-based awards held by our employees and employees of First Data or the grant of new stock-based awards. The number of dilutive shares of our common stock that will result from First Data stock options, restricted stock awards and restricted stock units held by our employees will not be determined until immediately after the spin-off. However, we currently expect the number of dilutive shares resulting from the replacement of our employees’ First Data stock options, restricted stock awards and restricted stock units could be greater than one dilutive share of our common stock after the spin-off for each dilutive share of First Data common stock held prior to the spin-off. See “Our Relationship with First Data After the Spin-Off—Employee Matters Agreement” beginning on page 85 for further information.	
 
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 RISK FACTORS
 
You should carefully consider each of the following risks and all of the other information contained in this prospectus. Some of these risks relate principally to our business and the industry in which we operate, while others relate principally to our spin-off from First Data, and other risks relate to the securities markets generally and ownership of our common stock.
 
Our business, financial position, results of operations or liquidity could be adversely affected by any of these risks, and, as a result, the trading price of our common stock could decline.
 
Risks Relating to the Spin-Off
 
We may not realize the potential benefits from the spin-off.
 
We may not realize the potential benefits that we expect from our spin-off from First Data. We have described those anticipated benefits elsewhere in this prospectus. In addition, we will incur significant costs, including those described below, which may exceed our estimates, and we will incur some negative effects from our separation from First Data, including loss of access to the financial, managerial and professional resources from which we have benefited in the past.
 
Our historical combined and pro forma financial information are not necessarily indicative of our future financial position, future results of operations or future cash flows nor do they reflect what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented.
 
Our historical combined financial information included in this prospectus does not reflect what our 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 financial position, future results of operations or future cash flows. This is primarily a result of the following factors:
 
 	•	 	Our historical combined financial results reflect allocation of expenses from First Data. Those allocations may be lower than the comparable expenses we would have incurred as a stand-alone company.	
 
 	•	 	Our working capital requirements historically have been satisfied as part of First Data’s corporate-wide cash management policies. Our cost of debt and our capitalization will be significantly different from that reflected in our historical combined financial statements.	
 
 	•	 	Significant changes will occur in our cost structure, financing and business operations as a result of our spin-off from First Data, including the costs for us to establish our operating infrastructure and costs related to being a stand-alone company.	
 
The pro forma adjustments are based upon available information and assumptions that we believe are reasonable; however, our assumptions may not prove to be accurate. In addition, our unaudited pro forma combined financial statements do not give effect to certain on-going additional costs that we expect to incur in connection with being a stand-alone company. Nor do the unaudited pro forma combined statements of income give effect to initial separation costs. Accordingly, our unaudited pro forma combined financial statements do not reflect what our financial position or results of operations would have been as a stand-alone company and are not necessarily indicative of our future financial position or future results of operations. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Statements” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus.
 
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We will incur significant expenses to create the infrastructure necessary to operate as a stand-alone company, and we will experience increased on-going costs in connection with being a stand-alone company.
 
We have historically used First Data’s infrastructure to support our business functions, including the telecommunications system supporting our operations and the systems that provide for accounting and financial reporting, accounts payable and receivable processing, procurement and human resource management. The expenses related to establishing and maintaining this infrastructure were spread among all of the First Data businesses. Following the spin-off, we will no longer have access to First Data’s infrastructure, and we will need to establish our own. We expect to incur costs in 2006 to establish the necessary infrastructure. See “Unaudited Pro Forma Combined Financial Statements.”
 
First Data also performs many important corporate functions for us, including treasury, tax administration, accounting, financial reporting, human resources, employee benefits and incentives, legal, procurement and other services. We currently pay First Data for these services on a cost-allocation basis. Following the spin-off, First Data will continue to provide some of these services to us on a transitional basis for a period of up to one year, pursuant to a transition services agreement we will enter into with First Data. For more information regarding the transition services agreement, see “Our Relationship with First Data After the Spin-Off—Transition Services Agreement.” At the end of this transition period, we will need to perform these functions ourselves or hire third parties to perform these functions on our behalf. The costs associated with performing or outsourcing these functions may exceed those charged by First Data when we were part of First Data or during the transition period. A significant increase in the costs of performing or outsourcing these functions could adversely affect our business, financial position and results of operations.
 
Prior to the spin-off, our business benefited from First Data’s purchasing power when procuring goods and services, including telecommunications service, computer hardware and software licenses, office supplies and equipment and travel services. As a stand-alone company, we may be unable to obtain goods and services at comparable prices or on terms as favorable as those obtained prior to the spin-off, which could decrease our overall profitability.
 
If the spin-off does not qualify as a tax-free transaction, you and First Data could be subject to material amounts of taxes and, in certain circumstances, our company could be required to indemnify First Data for material taxes pursuant to indemnification obligations under the tax allocation agreement.
 
First Data has received a private letter ruling from the Internal Revenue Service to the effect that, among other things, the spin-off (including certain related transactions) qualifies as tax-free to First Data, us and First Data stockholders for United States federal income tax purposes under sections 355, 368 and related provisions of the Internal Revenue Code, assuming, among other things, the accuracy of the representations made by First Data with respect to the matters on which the Internal Revenue Service does not rule. Although a private letter ruling from the Internal Revenue Service generally is binding on the Internal Revenue Service, if the factual assumptions or representations made in the private letter ruling request, including those described above, are untrue or incomplete in any material respect, then First Data will not be able to rely on the ruling. Furthermore, the Internal Revenue Service will not rule on whether a distribution such as the spin-off satisfies certain requirements necessary to obtain tax-free treatment under section 355 of the Internal Revenue Code. Rather, the private letter ruling is based upon representations by First Data that those requirements have been satisfied, and any inaccuracy in such representations could invalidate the ruling.
 
The spin-off is conditioned upon First Data’s receipt of an opinion of Sidley Austin LLP, counsel to First Data (or other nationally recognized tax counsel), in form and substance satisfactory to First Data, to the effect that, with respect to the requirements referred to above on which the Internal Revenue Service will not rule, those requirements will be satisfied. The opinion will assume the effectiveness of the Internal Revenue Service private letter ruling as to matters covered by the ruling. The opinion will be based on, among other things, certain assumptions and representations as to factual matters made by First Data and us which, if untrue or incomplete in
 
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any material respect, would jeopardize the conclusions reached by counsel in its opinion. The opinion will not be binding on the Internal Revenue Service or the courts, and the Internal Revenue Service or the courts may not agree with the opinion.
 
Neither First Data nor Western Union is aware of any facts or circumstances that would cause the assumptions or representations relied upon in the private letter ruling or to be relied upon in the opinion of counsel to be untrue or incomplete in any material respect. If, notwithstanding receipt of the private letter ruling and opinion of counsel, the spin-off were determined to be a taxable transaction, each holder of First Data common stock who receives shares of our common stock in connection with the spin-off would generally be treated as receiving a taxable distribution in an amount equal to the fair market value of our common stock received. First Data would recognize taxable gain equal to the excess of the fair market value of the consideration received by First Data in the contribution over First Data’s tax basis in the assets contributed to us in the contribution.
 
With respect to taxes and other liabilities that could be imposed in connection with the spin-off (and certain related transactions) as a result of a final determination that is inconsistent with the anticipated tax consequences, as set forth in the private letter ruling, under the terms of the tax allocation agreement we will enter into with First Data prior to the spin-off, we will be liable to First Data for any such taxes or liabilities attributable solely to actions taken by or with respect to us, one of our affiliates, or any person that, after the spin-off, is an affiliate thereof. See “Our Relationship with First Data After the Spin-Off—Tax Allocation Agreement” beginning on page 87. In addition, we will be liable for 50% of any such taxes or liabilities (i) that would not have been imposed but for the existence of both an action by us and an action by First Data or (ii) where we and First Data each take actions that, standing alone, would have resulted in the imposition of such tax liabilities. We may be similarly liable if we breach certain representations or covenants set forth in the tax allocation agreement. If we are required to indemnify First Data for taxes incurred as a result of the spin-off being taxable to First Data, it would have a material adverse effect on our business, financial position and results of operations.
 
Our separation from First Data could have negative consequences on our effective tax rate.
 
Following the spin-off, we will not be able to file a consolidated United States federal income tax return with First Data. As a consequence, following the spin-off, net operating and capital losses, credits and other tax attributes generated by the First Data group will not be available to offset income earned or taxes owed by our consolidated group for United States federal income tax purposes. Any benefits relating to taxes arising from being part of the larger First Data group also may not be available. As a result of these and other inefficiencies, the aggregate amount of United States federal income tax that we pay may increase after the spin-off, and, in addition, we may not be able to realize fully certain of our deferred tax assets.
 
We have accumulated approximately $552.5 million of foreign earnings at December 31, 2005, which were reinvested indefinitely outside the United States primarily through certain First Data international acquisitions. As a result, no provision has been made for United States federal income taxes on those foreign earnings. As a result of the spin-off, the opportunity to use those foreign earnings to fund First Data international acquisitions will no longer exist. In addition, it is likely that First Data will repay those foreign earnings to us for reinvestment in our foreign businesses. At this time, we intend to reinvest those funds in foreign business as investment needs and opportunities arise. If such foreign investment needs and opportunities are not sufficient at some point in the future, we could be required to report incremental United States federal income tax on the excess foreign earnings whether or not actually repatriated. Under such circumstances, our effective tax rate would increase.
 
Under some circumstances, we could be prevented from engaging in strategic or capital raising transactions, and we could be liable to First Data for any resulting adverse tax consequences.
 
Even if the spin-off otherwise qualifies as a tax-free distribution under section 355 of the Internal Revenue Code, the spin-off may result in significant United States federal income tax liabilities to First Data if 50% or more of First Data’s stock or our stock (in each case, by vote or value) is treated as having been acquired,
 
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directly or indirectly, by one or more persons as part of a plan (or series of related transactions) that includes the spin-off. For purposes of this test, any acquisitions of First Data stock or our stock, or any understanding, arrangement or substantial negotiations regarding an acquisition of First Data stock or our stock, within two years before or after the spin-off are subject to special scrutiny.
 
The process for determining whether a change in control prohibited under the foregoing rules has occurred is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. If a direct or indirect acquisition of First Data stock or our stock resulted in a change in control prohibited under those rules, First Data (but not its stockholders) would recognize taxable gain. Under the tax allocation agreement, we will be required to indemnify First Data against any such tax liabilities attributable solely to actions taken by or with respect to us (including certain of our affiliates). In addition, we will be liable for 50% of any such taxes or liabilities (i) that would not have been imposed but for the existence of both an action by us and an action by First Data or (ii) where we and First Data each take actions that, standing alone, would have resulted in the imposition of such tax liabilities. We may be similarly liable if we breach certain representations or covenants set forth in the tax allocation agreement. See “Our Relationship with First Data After the Spin-Off—Tax Allocation Agreement” beginning on page 87. As a result, we may be unable to engage in strategic or capital raising transactions that our stockholders might consider favorable, or to structure potential transactions in the manner most favorable to us.
 
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the spin-off. If we are unable to achieve and maintain effective internal controls, our business, financial position and results of operations could be adversely affected.
 
Our financial results previously were included within the consolidated results of First Data, and our reporting and control systems were appropriate for those of subsidiaries of a public company. However, we were not directly subject to reporting and other requirements of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. As a result of the spin-off, we will be directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which will require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. Furthermore, we will need to compile and submit data for financial service regulators (such as various state banking regulators and European central banks). These reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources. To comply with these requirements, we anticipate that we will need to upgrade our systems, including information technology, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. If we are unable to upgrade our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to achieve and maintain effective internal controls could have an adverse effect on our business, financial position and results of operations.
 
Following the spin-off, we will have substantial debt obligations that could restrict our operations. In addition, our business, financial position and results of operations could be harmed by adverse rating actions by credit rating agencies.
 
Historically, Western Union has relied on First Data for its capital needs. Following the spin-off, we will have direct access to the capital markets and will need to finance our company’s capital needs. In connection with the spin-off we will incur substantial indebtedness. Giving effect to the debt we will incur in connection with the spin-off, our total combined indebtedness for borrowed money will be approximately $3.5 billion. We may also incur additional substantial indebtedness in the future.
 
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Our indebtedness could have adverse consequences, including:
 
 	•	 	limiting our ability to pay dividends to our stockholders;	
 
 	•	 	increasing our vulnerability to changing economic, regulatory and industry conditions;	
 
 	•	 	limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry;	
 
 	•	 	limiting our ability to borrow additional funds; and	
 
 	•	 	requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures, acquisitions and other purposes.	
 
There would be adverse tax consequences associated with using earnings generated outside the United States to pay the interest and principal on our indebtedness. Accordingly, this portion of our cash flow will be unavailable under normal circumstances to service our debt obligations.
 
It is important to our business to receive and maintain an investment grade long-term credit rating. We have had conversations with each of the major credit ratings agencies about our credit profile. At this time we are targeting to have, following the spin-off, debt with an investment grade rating. If our debt does not receive this rating, if our initial rating is downgraded, or if ratings agencies indicate that a downgrade may occur, our business, financial position and results of operations could be adversely affected and perceptions of our financial strength could be damaged. This could adversely affect our relationships with our agents, particularly those agents that are financial institutions or post offices. In addition, a downgrade or an indication that a downgrade may occur also could result in regulators imposing additional capital and other requirements on us, including imposing restrictions on the ability of our regulated subsidiaries to pay dividends. Also, a downgrade could increase our costs of borrowing money, adversely affecting our business, financial position and results of operations.
 
After the spin-off, our balance sheet as a stand-alone company may not contain sufficient amounts or types of regulatory capital to meet the changing requirements of our various regulators worldwide, which could adversely affect our business, financial position and results of operations.
 
In connection with the spin-off we will incur substantial indebtedness. As a result, our pro forma stockholders’ deficiency as of June 30, 2006 was $(686.6) million. Our regulators likely will expect us, as a stand-alone company, to possess sufficient financial soundness and strength to adequately support our regulated subsidiaries. In addition, although we will not be a bank holding company for purposes of United States law or the law of any other jurisdiction, as a global provider of payments services and in light of the changing regulatory environment in various jurisdictions, we could be subject to new capital requirements introduced or imposed by our regulators that could require us to issue securities that would qualify as Tier 1 regulatory capital under the Basel Committee accords or retain earnings over a period of time. Any of these requirements could adversely affect our business, financial position and results of operations.
 
We may have received better terms from unaffiliated third parties than the terms we receive in our agreements with First Data.
 
The agreements we will enter into with First Data in connection with the spin-off, including the separation and distribution agreement, tax allocation agreement, employee matters agreement, retail money order issuance and management services agreement and transition services agreement, were negotiated in the context of the spin-off while we were still part of First Data and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements we negotiated in the context of the spin-off related to, among other things, the allocation of assets, liabilities, rights and other obligations between First Data and us. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business. See “Our Relationship with First Data After the Spin-Off.”
 
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Regulators may impose conditions in connection with approving the spin-off which may have an adverse effect on our business, financial position and results of operations.
 
The transfer of some of the money transfer and consumer payment businesses to us will require filings to be made with some regulators in and outside of the United States. In some jurisdictions, the regulators will need to approve aspects of the transfer that occur within, or otherwise affect, their jurisdictions before the transfers or spin-off can take place. In other jurisdictions, regulators will need to be notified after the spin-off. It is possible that one or more approvals may not be given, or may be delayed, or a jurisdiction notified after the fact could raise objections or concerns which could affect our ability to operate in the affected jurisdiction. Regulatory conditions placed on the transfers or the spin-off may have an adverse effect on our business, financial position and results of operations.
 
Risks Relating to Our Business and Industry
 
If we are unable to maintain our agent network, our business, financial position and results of operations would be adversely affected.
 
Most of our revenue is derived through our agent network. Transaction volumes at existing agent locations often increase over time and new agents provide us with additional revenue. If agents decide to leave our network, or if we are unable to sign new agents, our revenue and profit growth rates may be adversely affected. Agent attrition might occur for a number of reasons, including a competitor engaging an agent or an agent’s dissatisfaction with its relationship with us or the revenue derived from that relationship. In addition, agents may generate fewer transactions or less revenue for various reasons, including the appearance of competitors close to our agent locations or increased competition. Because an agent is a third party that engages in a variety of activities in addition to providing our services, it may encounter business difficulties unrelated to its provision of our services, which could cause the agent to reduce its number of locations, hours of operation, or cease doing business altogether.
 
Our business is subject to a wide variety of laws and regulations, especially laws designed to prevent money laundering and terrorist financing. Failure by us or our agents to comply with those laws and regulations could have an adverse effect on our business, financial position and results of operations.
 
As described under “Our Business—Regulation,” our business is subject to a wide range of laws and regulations. These include financial services regulations, consumer disclosure and consumer protection laws, currency control regulations, money transfer and payment instrument licensing regulations, escheat laws and laws covering consumer privacy, data protection and information security. Our services also are subject to an increasingly strict set of legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing and other illicit activity. For example, certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations. As federal and state legislative and regulatory scrutiny and action in these areas increase, we expect that our costs of complying with these requirements will increase, perhaps substantially. Failure to comply with any of these requirements—by either us or our agents (which are third parties, over which we have limited legal and practical control)—could result in the suspension or revocation of a license or registration required to provide money transfer services, the limitation, suspension or termination of services and/or the imposition of civil and criminal penalties, including fines. In addition to those direct costs, a failure by us or our agents to comply with applicable laws and regulations also could seriously damage our reputation and brands, and result in diminished revenue and profit and increased operating costs.
 
In connection with governmental efforts to prevent money laundering and terrorist financing and pursuant to legal obligations and authorizations, Western Union makes information available to United States federal and state, as well as certain foreign, law enforcement agencies. In recent years, government agencies have increased
 
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their requests for such information from Western Union and other companies (both financial service providers and others), particularly in connection with efforts to prevent terrorist financing. During the same period, there has also been increased public attention to concerns about consumer privacy, accompanied by legislation and regulations intended to address issues of data protection, information security and privacy. These two policy goals—the prevention of money laundering and terrorist financing and the protection of consumer privacy—may conflict, and the law in these areas is not consistent or settled. While we believe that Western Union is compliant with its legal responsibilities, the legal, political and business environments in this area are rapidly evolving, and subsequent legislation, regulation, litigation, court rulings or other events could expose Western Union to liability and reputational damage.
 
As noted above, most of our revenue is derived through our agent network. The types of enterprises that are legally authorized to act as our agents vary significantly from one country to another. Changes in the laws affecting the kinds of entities that are permitted to act as money transfer agents (such as changes in requirements for capitalization or ownership) could adversely affect our ability to distribute our services and the cost of providing such services, both by us and our agents. For example, a requirement that a money transfer provider be a bank or other highly regulated financial entity could increase significantly the cost of providing our services in many countries where that requirement does not exist today or could prevent us from offering our services in an affected country. Further, any changes in law that would require us to provide directly the money transfer services to consumers as opposed to through an agent network—effectively changing our business model—could significantly adversely impact our ability to provide our services, and/or the cost of our services, in the relevant jurisdiction.
 
Our fees may be reduced because of regulatory initiatives or proceedings that are either industry wide or specifically targeted at our company. For example, recent initiatives both in the United States and at G-8 summit meetings have focused on lowering international remittance costs. These initiatives may have an adverse impact on our business, financial position and results of operations.
 
Our agents are subject to a variety of regulatory requirements, which differ from jurisdiction to jurisdiction and are subject to change. A material change in the regulatory requirements necessary to offer money transfer services in a jurisdiction important to our business could mean increased costs and/or operational demands on our agents, which could result in the attrition of agents, a decrease in the number of locations at which money transfer services are offered and other negative consequences. The regulatory status of our agents could affect their ability to offer our services. For example, our agents in the United States are considered Money Service Businesses, or “MSBs,” under the Bank Secrecy Act. An increasing number of financial institutions view MSBs, as a class, as higher risk customers for purposes of their anti-money laundering programs. As a result, several financial institutions have terminated their banking relationships with some of our agents and with us. If a significant number of agents are unable to maintain existing or establish new banking relationships, they may not be able to continue to offer our services.
 
Virtually all of the Western Union branded agents offer our services on an exclusive basis—that is, they have agreed by contract not to provide any non-Western Union branded money transfer services. While we believe that these agreements generally are valid and enforceable, changes in laws regulating competition or in the interpretation of those laws could undermine our ability to enforce them in the future. For example, Russia and Ukraine have each enacted laws that effectively prohibit payment service providers, such as money transfer companies, from agreeing to exclusive arrangements with banks in those countries. The inability to enforce our exclusivity rights under our contracts could adversely affect our operations and revenue by, for example, allowing competitors to benefit from the goodwill associated with the Western Union brand at our agent locations.
 
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We face competition from global and niche or corridor money transfer providers, United States and international banks, card associations, card-based payments providers and a number of other types of service providers. Our continued growth depends on our ability to compete effectively in the industry.
 
Money transfer and consumer payments are highly competitive industries comprised of players from a variety of financial and non-financial business groups. Our competitors include banks, credit unions, automated teller machine or “ATM” providers and operators, card associations, card-based payments providers such as issuers of e-money, travel cards or stored-value cards, informal remittance systems, web-based services, telephone payment systems (including mobile phone networks), postal organizations, retailers, check cashers, mail and courier services, currency exchanges and traditional money transfer companies. These services are differentiated by features and functionalities such as speed, convenience, network size, hours of operations, loyalty programs, reliability and price. Our continued growth depends on our ability to compete effectively in these industries. We have made periodic pricing decreases in response to competition and to implement our brand investment strategy, which includes better meeting consumer needs, maximizing market opportunities and strengthening our overall competitive positioning. Net consumer-to-consumer price decreases have been approximately 3% of our annual combined revenues in each of the last two years. In addition, failure to compete on service differentiation could significantly affect our future growth potential and related profitability.
 
Recently, card associations have become more active in promoting stored-value cards and other services that compete with our money transfer and consumer payments businesses. These associations, as well as debit networks, can be effective competitors because of the ubiquity of their brands, their large number of financial institution issuers and their extensive merchant networks. In addition, we offer consumers the option of using credit or debit cards in connection with certain of our services. The card associations and debit networks set the charge, known as an interchange fee, that we as a merchant must pay for accepting their cards. Their association and network rules also categorize transactions or cause us to categorize transactions in a manner that can affect the cost of the transaction to us or the consumer. Changes to interchange fees could increase our costs to accept cards in payment for services, while changes in how our services are categorized could make the use of cards to pay for our services less attractive to the consumer.
 
Many of our agents outside the United States are national post offices. These entities are usually governmental organizations that may enjoy special privileges or protections that could allow them to simultaneously develop their own money transfer businesses. International postal organizations could agree to establish a money transfer network among themselves. Due to the size of these organizations and the number of locations they have, any such network could represent significant competition to us. Because these entities are governmental organizations, they may be able to—or be required to—offer their money transfer services at, near or below their cost of providing such services.
 
Risks associated with operations outside the United States could adversely affect our business, financial position and results of operations.
 
Because an increasing portion of our revenue is generated in currencies other than the United States dollar, we are subject to risks related to changes in currency rates and foreign exchange regulation (such as the ability to repatriate funds to the United States, and the cost of repatriation). We intend to use foreign currency forward contracts to mitigate the risks associated with changes in foreign currency by properly designating future foreign currency forward contracts as hedges as well as redesignating certain existing contracts as hedges as expeditiously as possible. However, these derivative contracts do not eliminate all of the risks related to foreign currency translation.
 
Money transfers to, from or within or between countries may be limited or prohibited by law. At times in the past, we have been required to cease operations in particular countries due to political uncertainties or government restrictions imposed by foreign governments or the United States. Additionally, economic or political instability or natural disasters may make money transfers to, from or within a particular country difficult, such as when banks are closed, when currency devaluation makes exchange rates difficult to manage or
 
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when natural disasters or civil unrest makes access to agent locations unsafe. These risks could negatively impact our ability to make payments to or receive payments from international agents or our ability to recoup funds that have been advanced to international agents and could adversely affect our business, financial position and results of operations. In addition, the general state of telecommunications and infrastructure in some lesser developed countries creates operational risks for us and our agents that generally are not present in our operations in the United States and other more developed countries.
 
As noted above, many of our agents outside the United States are post offices, which are usually owned and operated by national governments. These governments may decide to change the terms under which they allow post offices to offer remittances and other financial services. For example, governments may decide to separate financial service operations from postal operations, or mandate the creation or privatization of a “post bank.” These changes could have an adverse effect on our ability to distribute and offer our services in countries that are material to our business.
 
Interruptions in international migration patterns could adversely affect our business, financial position and results of operations.
 
The money transfer business relies in part on migration patterns, which bring workers into countries with greater economic opportunities than their native countries. A significant portion of money transfers is initiated by immigrants. Changes in immigration laws, such as those currently being considered by the United States Congress, economic development patterns that discourage international migration and political or other events (such as war, terrorism or health emergencies) that would make it more difficult for workers to migrate or work abroad could adversely affect our remittance volume or growth rate and could each have an adverse effect on our business, financial position and results of operations. For example, in the three months ended June 30, 2006, transaction growth in our consumer-to-consumer business, primarily the United States to Mexico and Latin American corridors, and to a lesser extent the domestic money transfer business, was adversely impacted by what we believe is uncertainty created by immigration reform activities in the United States.
 
Unfavorable resolution of tax contingencies could adversely affect our tax expense.
 
All of our operations have been included in the consolidated income tax returns of First Data. Our tax returns and positions are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax costs, thereby negatively impacting our results of operations. In particular, we currently are in discussions with the Internal Revenue Service pursuant to the Internal Revenue Service’s Advance Pricing Agreement, or “APA,” Program. These discussions relate to certain tax aspects of a 2003 legal restructuring of our international operations. If an APA is negotiated successfully, during its term, generally we will avoid further examination by the Internal Revenue Service of the transfer pricing methods applicable to, and valuations of, the covered transactions. We continue to negotiate with the Internal Revenue Service in the APA process, and while we hope to reach a resolution through the process, there can be no assurances that the APA negotiations will be resolved in a manner acceptable to our company. If not so resolved, the matter would then likely proceed to other forums within the Internal Revenue Service. We have established contingency reserves for material, known tax exposures, including the potential for tax audit adjustments with respect to taxes associated with our foreign business that is the subject of the 2003 legal restructuring and the Internal Revenue Service’s APA Program discussions referenced above. These tax reserves reflect what we believe to be reasonable assumptions as to the likely resolution of the issues involved if subject to judicial review. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve. Regarding the 2003 legal restructuring, we have benefited by having our income from certain foreign-to-foreign money transfer transactions taxed at relatively low foreign tax rates rather than the United States statutory tax rate. The amount of taxes attributable to such rate differential is included in the “Foreign rate differential” line in the effective rate reconciliation in Note 9—“Income Taxes” to our historical combined financial statements and cumulatively totaled $131.6 million through December 31, 2005. Any
 
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differences from our positions as recorded in our financial statements upon resolution of these issues will be reflected as a part of the income tax expense in the period during which the issues are resolved. Such resolution could also affect our effective tax rate for future periods.
 
Acquisitions and integrating new businesses create risks and may affect operating results.
 
We occasionally acquire businesses both inside and outside the United States. The acquisition and integration of businesses involve a number of risks. The core risks involve valuation (negotiating a fair price for the business based on inherently limited due diligence) and integration (managing the complex process of integrating the acquired company’s people, products and services, technology and other assets in an effort to realize the projected value of the acquired company and the projected synergies of the acquisition). In addition, international acquisitions often involve additional or increased risks including, for example:
 
 	•	 	managing geographically separated organizations, systems and facilities;	
 
 	•	 	integrating personnel with diverse business backgrounds and organizational cultures;	
 
 	•	 	integrating systems that may not have been designed or maintained to the same standards as those in the United States;	
 
 	•	 	complying with foreign regulatory requirements;	
 
 	•	 	fluctuations in currency exchange rates;	
 
 	•	 	enforcement of intellectual property rights in some foreign countries;	
 
 	•	 	difficulty entering new markets due to, among other things, customer acceptance and business knowledge of these new markets; and	
 
 	•	 	general economic and political conditions, including legal and other barriers to cross-border investment in general, or by United States companies in particular.	
 
Integrating operations could cause an interruption of, or divert resources from, one or more of our businesses and could result in the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with an acquisition and the integration of the acquired company’s operations could have an adverse effect on our business, financial position and results of operations.
 
Our ability to adopt technology in response to changing industry and consumer needs or trends poses a challenge to our business.
 
Our ability to compete in the markets we serve may be threatened by change, including changes in technology, changes with respect to consumer needs, competition and industry standards. We actively seek solutions that respond in a timely manner to new technology-based money transfer services such as Internet, land and mobile phone based money transfer services and prepaid, stored-value and other card-based money transfer services. Failure to respond well to these challenges could adversely impact our business, financial position and results of operations.
 
Western Union has been the subject of class-action litigation, and remains the subject of other litigation as well as consent agreements with or enforcement actions by regulators.
 
Western Union has been the subject of class-action litigation in the United States, alleging that its foreign exchange rate disclosures failed to adequately inform consumers about the revenue that Western Union and its agents derive from international remittances. These suits all have been settled without an admission of liability, and we have made certain changes in our advertising and consumer forms. It is possible that because of changes in law or future litigation or regulatory action, we could be required to modify our disclosures or our practices further. These modifications could be costly to implement, restrict our ability to advertise or promote our services and/or limit the amount of our foreign exchange income.
 
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In addition, as a company that provides global financial services primarily to consumers, we could be subject to future class-action or other litigation alleging violations of consumer protection or other laws. We also are subject to claims asserted by consumers based on individual transactions.
 
We are subject to unclaimed or abandoned property (escheat) laws in the United States and abroad which require us to turn over to certain government authorities the property of others held by us that has been unclaimed for a specified period of time, such as unredeemed money transfers. We hold property subject to escheat laws and we have an ongoing program to comply with those laws. In addition, we are subject to audit with regard to our escheatment practices. Any difference between the amounts we have accrued for unclaimed property and amounts that are claimed by a state or foreign jurisdiction could have a significant impact on our results of operations and cash flows. See “Our Business—Regulation—Escheat Regulations.”
 
Our consumer payments business is subject to various United States federal, state and local laws and regulations, as well as laws and regulations outside the United States. Our United States business is subject to reporting, recordkeeping and anti-money laundering provisions of the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, and to regulatory oversight and enforcement by the United States Department of Treasury’s Financial Crimes Enforcement Network, or “FinCEN.” In addition, as a money transmitter, we are subject to licensing, regulation and examination by almost all the states and the District of Columbia.
 
Over the past several years, we have entered into a number of consent agreements with federal and state authorities, including FinCEN, the New York State Banking Department, the California Department of Financial Institutions and the Arizona Department of Financial Institutions, relating to the Bank Secrecy Act and anti-money laundering requirements and related consumer identification matters. These agreements required us to pay civil penalties and to take certain measures to enhance our compliance with recordkeeping, reporting, training and agent oversight requirements under applicable state and federal law. The financial services industry and businesses like ours continue to be under significant federal and state regulatory scrutiny with respect to the Bank Secrecy Act and anti-money laundering compliance matters. It is possible that as a result of periodic examinations or otherwise, we could be subject to deficiency findings, fines, criminal penalties, enforcement actions or similar consent agreements in the future that could adversely affect our business, financial position and results of operations.
 
Our ability to remain competitive depends in part on our ability to protect our brands and our other intellectual property rights and to defend ourselves against potential patent infringement claims.
 
The Western Union ® brand, consisting of trademark registrations in various countries, is material to our company. The loss of the Western Union trademark or a diminution in the perceived quality associated with the name would harm our business. Similar to the Western Union trademark, the Vigo SM service mark and the Orlandi Valuta ® , Speedpay ® , Western Union Quick Collect ® and Paymap ® trademarks are important to our company and a loss of the service mark or trademarks or a diminution in the perceived quality associated with these names could harm our business.
 
The laws of certain foreign countries in which we do business either do not recognize intellectual property rights or do not protect them to the same extent as do the laws of the United States. Adverse determinations in judicial or administrative proceedings in the United States or in foreign countries could impair our ability to sell our services or license or protect our intellectual property, which could adversely affect our business, financial position and results of operations.
 
We have been, and in the future may be, subject to claims alleging that our technology or business methods infringe patents owned by others, both in and outside the United States. Unfavorable resolution of these claims could require us to change how we deliver a service, result in significant financial consequences, or both, which could adversely affect our business, financial position and results of operations.
 
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Interruptions in our systems may have a significant effect on our business.
 
Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of our computer information systems. Any significant interruptions could harm our business and reputation and result in a loss of consumers. Our systems and operations could be exposed to damage or interruption from fire, natural disaster, power loss, telecommunications failure, terrorism, vendor failure, unauthorized entry and computer viruses or other causes, many of which may be beyond our control. Although we have taken steps to prevent a system failure, our measures may not be successful and we may experience problems other than system failures. We also may experience software defects, development delays, installation difficulties and other systems problems, which would harm our business and reputation and expose us to potential liability which may not be fully covered by our business interruption insurance. Our data applications may not be sufficient to address technological advances, changing market conditions or other developments.
 
Breaches of our information security policies or safeguards could adversely affect our ability to operate and could damage our reputation, business, financial position and results of operations.
 
We collect, transfer and retain consumer data as part of our business. These activities are subject to laws and regulations in the United States and other jurisdictions in which our services are available. These requirements, which often differ materially among the many jurisdictions, are designed to protect the privacy of consumers’ personal information and to prevent that information from being inappropriately disclosed. We have developed and maintain technical and operational safeguards designed to comply with applicable legal requirements. However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies or others could improperly access our systems or improperly obtain or disclose data about our consumers. Any breach of our security policies or applicable legal requirements resulting in a compromise of consumer data could expose us to regulatory enforcement action, limit our ability to provide services, subject us to litigation and/or damage our reputation.
 
We face credit and fraud risks from our agents and from consumers that could adversely affect our business, financial position and results of operations.
 
The vast majority of our global funds transfer business is conducted through third-party agents that provide our services to consumers at their retail locations. These agents sell our services, collect funds from consumers and are required to pay the proceeds from these transactions to us. As a result, we have credit exposure to our agents. In some countries, our agent networks are comprised of agents that establish subagent relationships; these agents must collect funds from their subagents in order to pay us. We are not insured against credit losses, except in certain circumstances (generally only limited instances and only in the United States) related to agent theft or fraud. If an agent becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to pay money order or money transfer proceeds to us, we must nonetheless pay the money order or complete the money transfer on behalf of the consumer.
 
From time to time, we have made, and may in the future make, short term advances and longer term loans to our agents. These advances and loans generally are secured by settlement funds payable by us to these agents. However, the failure of these borrowing agents to repay these advances and loans constitutes a credit risk to us.
 
We offer consumers the ability to transfer money utilizing their credit or debit card, through various distribution channels such as the Internet or telephone. Because they are not face-to-face transactions, these transactions involve a greater risk of fraud. We apply verification and other tools to help authenticate transactions and protect against fraud. However, these tools may not be successful in protecting us against fraud. As the merchant of these transactions, we are not insured for losses and bear the financial risk of the full amount sent.
 
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We have identified a material weakness in the design and operation of our internal control related to compliance with SFAS No. 133.
Based upon an evaluation of our initial documentation of hedging arrangements in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS No. 133”), we have concluded that certain of our foreign exchange forward contracts did not qualify for cash flow hedge accounting since the initial documentation with respect to these instruments did not meet the technical requirements of SFAS No. 133. Accordingly, we previously restated our historical combined financial statements and, as expeditiously as possible, we intend to redesignate the affected derivative instruments as hedges with revised documentation and to account for them as hedging instruments in accordance with SFAS No. 133 so as to remove this source of potential volatility in reported financial results. We believed our initial accounting treatment for the derivative instruments properly reflected the intent and economics of the underlying transactions; however, the interpretations of how to apply SFAS No. 133 and how to adequately provide documentation for such instruments so as to qualify for hedge accounting are very complex. We have concluded that the way we have documented and accounted for those certain derivative instruments relating to our foreign exchange forward contracts is technically a material weakness in our internal controls. Although we believe that we have identified the problem and taken adequate steps to cause our accounting practices to comply with SFAS No. 133, there can be no assurance that these steps are sufficient to eliminate this material weakness or that additional significant deficiencies or material weaknesses in our internal controls will not be discovered in the future. Any failure to sufficiently address this material weakness, or the identification of additional significant deficiencies or material weaknesses, could have an adverse effect on our business, reputation, financial position and results of operation.
 
Risks Relating to Our Common Stock
 
There has been no prior market for our common stock, the trading price of our common stock may be volatile and you may not be able to sell your shares at or above the initial market price for our common stock following the spin-off.
 
There has been no prior trading market for our common stock. On or about the record date, our common stock will begin to trade on a “when-issued” basis. We have not and will not set the initial price of our common stock; that price will instead be established by the public markets.
 
We cannot predict the price at which our common stock will trade after the spin-off. In fact, the combined trading prices of a share of our common stock and a share of First Data common stock after the spin-off may not equal or exceed the trading price of a share of First Data common stock immediately prior to the spin-off. The price at which our common stock trades likely will fluctuate significantly, particularly until an orderly market develops. Prices for our common stock will be determined in the public markets and may be influenced by many factors, many of which are beyond our control, including:
 
 	•	 	lack of a trading history;	
 
 	•	 	changes in expectations concerning our future financial performance and the future performance of the money transfer and consumer payments industries in general, including financial estimates and recommendations by securities analysts;	
 
 	•	 	our financial results and differences between our actual financial and operating results and those expected by investors and analysts;	
 
 	•	 	strategic moves by us or our competitors, such as acquisitions or restructurings;	
 
 	•	 	changes in the regulatory environment governing our business;	
 
 	•	 	our capital structure, including the amount of our indebtedness;	
 
 	•	 	general economic, industry and market conditions;	
 
 	•	 	the depth and liquidity of the market for our common stock;	
 
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 	•	 	fluctuations in currency exchange rates;	
 
 	•	 	our dividend policy;	
 
 	•	 	investor perceptions of our business and us; and	
 
 	•	 	the impact of the factors referred to elsewhere in “Risk Factors.”	
 
Substantial sales of our common stock could occur in connection with the spin-off, which could cause our stock price to decline.
 
Shares of our common stock distributed in connection with the spin-off generally may be sold in the public markets immediately following the spin-off. Some First Data stockholders who receive shares of our common stock in connection with the spin-off may sell our shares shortly after the spin-off for any number of reasons. In particular, index funds tied to the Standard & Poor’s 500 Index and other indices hold shares of First Data common stock. To the extent our common stock is not included in these indices, certain of these index funds likely will be required to sell the shares of our common stock they receive in connection with the spin-off. The sale of significant amounts of our common stock, or the perception in the market that this will occur, may lower the market price of our common stock.
 
Certain provisions of our certificate of incorporation and by-laws will make it difficult for stockholders to change the composition of our board of directors and may discourage hostile takeover attempts that some of our stockholders may consider to be beneficial.
 
Certain provisions of our certificate of incorporation and by-laws could have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of us and our stockholders. These provisions include, among other things, the following:
 
 	•	 	a classified board of directors with three-year staggered terms;	
 
 	•	 	the size of the board of directors may be set only by the board of directors;	
 
 	•	 	our board of directors will have the ability to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;	
 
 	•	 	stockholder action may be taken only at a special or regular meeting;	
 
 	•	 	stockholders may not call a special meeting of stockholders;	
 
 	•	 	advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;	
 
 	•	 	directors may be removed only for cause; and	
 
 	•	 	vacancies on our board of directors may only be filled by our board of directors.	
 
While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our board of directors, they could enable our board of directors to hinder or frustrate a transaction that some, or a majority, of our stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. For more information, see “Description of Our Capital Stock” and “Certain Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and By-Laws.”
 
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 FORWARD-LOOKING STATEMENTS
 
This prospectus and other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in our other written or oral statements) contain, or will contain, disclosures which are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts, and generally can be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “could,” “would,” “likely,” “intend” or “continue.” These forward-looking statements address, among other things, the anticipated effects of the spin-off. These forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These factors include, but are not limited to:
 
 	•	 	the impact of our spin-off from First Data;	
 
 	•	 	changes in immigration laws, patterns and other factors related to immigrants;	
 
 	•	 	the integration of significant businesses and technologies we acquire and realization of anticipated synergies from these acquisitions;	
 
 	•	 	technological changes, particularly with respect to e-commerce;	
 
 	•	 	our ability to attract and retain qualified key employees;	
 
 	•	 	changes in laws, regulations or industry standards affecting our businesses;	
 
 	•	 	changes in foreign exchange spreads on money transfer transactions;	
 
 	•	 	changes in the political or economic climate in countries in which we operate;	
 
 	•	 	unanticipated developments relating to lawsuits, investigations or similar matters;	
 
 	•	 	catastrophic events;	
 
 	•	 	any material breach of security of any of our systems; and	
 
 	•	 	the other factors described under “Risk Factors.”	
 
You are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this prospectus. We assume no obligation to update any forward-looking statements contained in this prospectus.
 
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 USE OF PROCEEDS
 
Any proceeds received by us from the exercise of Western Union options covered by the 2006 LTIP will be used for general corporate purposes. These proceeds represent the exercise prices for the Western Union options.
 
 DIVIDEND POLICY
 
It is currently contemplated that following the spin-off, we will pay a cash dividend on our common stock with respect to the first full fiscal quarter following the date the spin-off is completed in an amount to be determined prior to the spin-off. However, the declaration and amount of future dividends will be determined by our board of directors and will depend on our financial condition, earnings, capital requirements, legal requirements, regulatory constraints, industry practice and any other factors that our board of directors believes are relevant. In addition, we will be a holding company with no material assets other than the capital stock of our subsidiaries. Accordingly, our ability to pay dividends will be dependent on our receiving dividends from our operating subsidiaries. Many of our operating subsidiaries are highly regulated and may be subject to restrictions on their ability to pay dividends to us.
 
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 FINANCING
 
We currently expect that in connection with the spin-off, and in consideration for the contribution, we will transfer to First Data:
 
 	•	 	approximately $100.0 million in cash, which will be financed through borrowings under the revolving credit facility we expect to enter into on the distribution date;	
 
 	•	 	notes to be transferred to First Data by Western Union, which we refer to as the Western Union notes, with an aggregate principal amount of approximately $1.0 billion; and	
 
 	•	 	shares of our common stock sufficient to effect the distribution.	
 
We will also distribute to First Data approximately $210.0 million in cash from existing cash balances. In addition, two days prior to the distribution date, FFMC will pay a dividend to First Data in the form of a promissory note in an aggregate principal amount of approximately $2.4 billion.
 
The following is a description of some of the anticipated material terms of the revolving credit facility, the FFMC 364-day bridge loan facility and the indenture which will govern the Western Union notes. Negotiation of these agreements is ongoing and subject to the completion of definitive documentation. We cannot assure you that the terms described below will not change or be supplemented.
 
Western Union Notes
 
As noted above, we will transfer to First Data the Western Union notes with an aggregate principal amount of approximately $1.0 billion. First Data has informed us that, shortly after the distribution, it expects to exchange the Western Union notes with investment banks for indebtedness of First Data that the investment banks will hold at that time. First Data expects that, shortly after completion of the expected debt exchange, the investment banks will sell the Western Union notes in a private offering. We will not receive any proceeds from the issuance of the Western Union notes to First Data, their transfer to the investment banks or their subsequent sale by the investment banks.
 
The Western Union notes will have a maturity of at least 10 years from the date of issue. We currently expect that the Western Union notes will be investment grade on the date of issue and will contain customary covenants which are not expected to significantly affect our operations. Such covenants may include limitations or restrictions on the incurrence of significant subsidiary indebtedness, the incurrence of liens and entry into sales and leasebacks, in each case, subject to certain exceptions. We also expect that the Western Union notes will require us to cause FFMC to guarantee the obligations of The Western Union Company with respect to the Western Union notes if, among other things, indebtedness outstanding under the FFMC bridge loan described below is in excess of a to be determined amount within a specified time period after the distribution date.
 
FFMC Bridge Loan
 
FFMC will enter into a 364-day unsecured term loan facility to repay the $2.4 billion promissory note on or shortly after the distribution date. We expect that the bridge loan will contain customary covenants similar to the revolving credit facility for The Western Union Company (described below), including an interest coverage ratio to be determined in negotiations with our lenders. We do not expect any restrictions under FFMC’s bridge loan to significantly affect its operations.
 
The Western Union Company is considering and, subject to market and other conditions following the spin-off, expects to refinance the amounts borrowed by FFMC under the bridge loan with proceeds from debt The Western Union Company will issue or amounts The Western Union Company will otherwise borrow following
 
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the distribution date. However, we do not have any agreements or arrangements with any financial institution or other third parties with respect to any such refinancing and there can be no assurance that The Western Union Company will be able to refinance the borrowings under the FFMC bridge loan.
 
Credit Facility
We anticipate that in connection with the spin-off The Western Union Company will enter into a $1.5 billion five-year unsecured revolving credit facility. The revolving facility is expected to include a letter of credit subfacility in an amount up to $250 million and a swing line subfacility in an amount up to $150 million and permit borrowings in euros and British pounds sterling up to $250 million. The revolving credit facility is also expected to provide for additional incremental revolving credit or term facilities in an aggregate principal amount of up to an additional $500 million.
 
The borrowings under the revolving credit facility would be available to The Western Union Company to support a commercial paper program and for working capital and other general corporation purposes, including acquisitions. Borrowings under the revolving credit facility will be used to finance the $100.0 million cash payment to First Data in connection with the spin-off.
 
The interest rates for borrowings under the facility will be based on market rates and we expect that the facility will contain customary covenants which are not expected to significantly affect our operations. Such covenants may include limitations or restrictions on the incurrence of significant subsidiary indebtedness, the incurrence of liens and entry into sales and leasebacks, the sale (by merger, consolidation or otherwise) of all or substantially all assets and certain transactions limiting the ability of subsidiaries to pay dividends, in each case, subject to certain exceptions. The revolving credit facility may also require compliance with an interest coverage ratio to be determined in negotiations with our lenders. We also expect that the revolving credit facility will require us to cause FFMC to guarantee the obligations of The Western Union Company under the revolving credit facility if, among other things, indebtedness outstanding under the FFMC bridge loan is in excess of a to be determined amount within a specified time period after the distribution date. The Western Union Company is expected to have the right to prepay borrowings under the revolving facility at any time without penalty or premium (except for eurodollar breakage fees, if any).
 
Aggregate Indebtedness
 
As a result of the transactions described above, following the spin-off we will have approximately $3.5 billion in combined indebtedness. First Data has informed us that it determined the amount of indebtedness that we would incur based on estimates of what it believed were the amounts of debt needed to be allocated to us and retained by First Data in order to achieve what it considered to be the desirable credit ratings from the credit rating agencies with respect to Western Union’s and First Data’s debt. The estimate took into account that the expected exchange of the Western Union notes by First Data for indebtedness of First Data held by the investment banks will result in the cancellation of $1.0 billion of First Data indebtedness and assumed that First Data would use the $100.0 million cash payment from us to repay indebtedness of First Data as required by the separation and distribution agreement. Our transfer to First Data of approximately $3.5 billion in the form of cash and our debt securities does not reflect an analysis by First Data of the value of our assets or business.
 
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 CAPITALIZATION
 
The following table sets forth our capitalization as of June 30, 2006 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in our unaudited pro forma combined financial statements. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable; however, such adjustments are subject to change based on the finalization of the terms of the spin-off and the transaction agreements. In addition, such adjustments are estimates and may not prove to be accurate.
 
You should read this table together with “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Statements” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus.

  	  	As of June 30, 2006	 	
 	  	Historical	 	 	Pro
Forma	 	
(in millions, except per share amounts)	  	(unaudited)	 	
Liabilities:	  				 				
Debt (a)	  	$	—  	 	 	$	3,500.0	 	
			
Net investment in The Western Union Company (stockholders’ deficiency):	  				 				
Preferred stock, $1.00 par value; 10 shares authorized pro forma; no shares issued and outstanding pro forma	  	 	—  	 	 	 	—  	 	
Common stock, $0.01 par value; 2,000 shares authorized pro forma; 765.2 shares issued and outstanding pro forma (b)	  	 	—  	 	 	 	7.7	 	
Capital deficiency (c)	  	 	—  	 	 	 	(635.2	)	
Net investment in The Western Union Company (c)	  	 	3,312.6	 	 	 	—  	 	
Accumulated other comprehensive loss	  	 	(59.1	)	 	 	(59.1	)	
	  	 	 	 	 	 	 	 	
Total net investment in The Western Union Company (stockholders’ deficiency) (d)	  	 	3,253.5	 	 	 	(686.6	)	
	  	 	 	 	 	 	 	 	
Total capitalization	  	$	3,253.5	 	 	$	2,813.4	 	

(a)	Represents the incurrence of $3.5 billion in combined indebtedness in connection with the spin-off.	
(b)	Represents the distribution of 765.2 million shares of our common stock to holders of First Data common stock based on the number of shares of First Data common stock outstanding at June 30, 2006.	
(c)	Represents the elimination of First Data’s net investment in us and the capital deficiency that will result based on the payment to First Data of $3.5 billion in the form of a combination of cash and our debt securities, the forgiveness of certain intercompany balances between First Data and us and the distribution by us to First Data of $210.0 million in cash from existing cash balances.	
(d)	Certain of our historical net assets are restricted and are included within the accounts of companies combined in our historical combined financial statements. These restricted net assets do not exceed $60 million.	
 
Our ability to issue additional stock will be constrained because the issuance of additional stock might cause the spin-off to be taxable to First Data if 50% or more of our stock (by vote or value) is treated as having been acquired, directly or indirectly, by one or more persons as part of a plan (or series of related transactions) that includes the spin-off. Under the tax allocation agreement we might be required to indemnify First Data against any such tax imposed on First Data as a result of acquisitions of our stock.
 
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 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
The unaudited pro forma combined financial statements of Western Union presented below have been derived from our audited combined financial statements for the year ended December 31, 2005 and from our unaudited combined financial statements for the six months ended June 30, 2006. The pro forma adjustments and notes to the pro forma combined financial statements give effect to the distribution of Western Union common stock by First Data and the other transactions contemplated by the separation and distribution agreement. These unaudited pro forma combined financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and the notes to those statements included elsewhere in this prospectus.
 
The unaudited pro forma combined statements of income for the year ended December 31, 2005 and the six months ended June 30, 2006 have been prepared as though the spin-off had occurred as of January 1, 2005. The unaudited pro forma combined balance sheet at June 30, 2006 has been prepared as though the spin-off had occurred on June 30, 2006. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable; however, such adjustments are subject to change based on the finalization of the terms of the spin-off and the transaction agreements. See “Our Relationship with First Data After the Spin-off—Separation and Distribution Agreement.” In addition, such adjustments are estimates and may not prove to be accurate.
 
The pro forma adjustments include the following items:
 
 	•	 	The contribution by First Data to us of specified assets related to First Data’s money transfer and consumer payments businesses and the assumption by us of specified liabilities related to such businesses.	
 
 	•	 	The issuance by us to First Data, in partial consideration for the contribution, of 765.2 million shares of our common stock.	
 
 	•	 	The distribution of 765.2 million shares of our common stock to holders of First Data common stock.	
 
 	•	 	The incurrence of $3.5 billion of combined indebtedness in connection with the spin-off and the payment to First Data of $3.5 billion in the form of a combination of cash and our debt securities.	
 
 	•	 	The distribution by us to First Data of $210.0 million in cash from existing cash balances.	
 
 	•	 	The cash settlement of $778.8 million of intercompany notes and related accrued interest of $32.4 million owed by First Data to us and $52.2 million of intercompany notes and related accrued interest of $2.2 million owed by us to First Data, and the payment by us to First Data of $16.8 million to settle certain foreign currency swap agreements with First Data related to certain notes receivable with affiliates on the date of spin-off.	
 
 	•	 	The forgiveness by us of $153.8 million of intercompany balances owed by First Data to us, and the forgiveness by an affiliate of First Data of an intercompany note owed by us to that affiliate of $11.3 million, which collectively will be treated as a net dividend to First Data for accounting and tax purposes.	
 
 	•	 	Estimated incremental costs associated with operating as a stand-alone company of $60 million annually.	
 
The share numbers are based on First Data share numbers as of June 30, 2006, and the dollar and settlement amounts are based on our balances as of June 30, 2006.
 
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Our unaudited pro forma combined statements of income do not include adjustments for certain other costs of operating as a stand-alone company which we estimate, subject to the finalization of our plans, to be between $5 million and $15 million annually, including higher corporate branding and global affairs, information technology, procurement and other expenses related to being a stand-alone company.
 
Our unaudited pro forma combined statements of income do not give effect to initial expenses directly attributable to the spin-off because of their non-recurring nature. A significant portion of these non-recurring charges to effect the separation will be incurred by First Data, such as investment banker fees, outside legal and accounting fees relating to the spin-off, office move costs, costs to separate information systems and temporary consulting costs. We will incur separation costs that have a future benefit to our company such as recruiting and relocation expenses associated with hiring key senior management positions new to our company, other employee compensation expenses and temporary labor used to develop ongoing processes. We estimate total non-recurring separation charges that our company will incur, which are not included in our unaudited pro forma combined statements of income, to be approximately $15 million to $25 million. We anticipate that substantially all of these costs will be incurred within 12 months of the spin-off. See “Our Relationship with First Data After the Spin-Off—Separation and Distribution Agreement—Expenses.”
 
The pro forma adjustments are based upon available information and assumptions that management believes are reasonable based on our current plans and expectations; however, such adjustments are subject to change based on the finalization of the terms of the spin-off and the transaction agreements. Additionally, this information is forward looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Forward-Looking Statements” and “Our Relationship with First Data After the Spin-Off—Separation and Distribution Agreement” on pages 24 and 79, respectively, for further information.
 
The unaudited pro forma combined financial statements are for illustrative purposes only and do not reflect what our financial position and results of operations would have been had the spin-off occurred on the dates indicated and are not necessarily indicative of our future financial position and future results of operations.
 
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THE WESTERN UNION COMPANY
Unaudited Pro Forma Combined Statements of Income
Year Ended December 31, 2005

 	  	Historical	 	 	Pro Forma
Adjustments	 	 	Pro Forma	 	
(in millions, except per share amounts)	  	 	 	 	 	 	 	 	 	
Revenues:	  				 				 				
Transaction fees	  	$	3,354.8	 	 	$	—  	 	 	$	3,354.8	 	
Foreign exchange revenue	  	 	531.0	 	 	 	—  	 	 	 	531.0	 	
Commission and other revenues	  	 	102.1	 	 	 	—  	 	 	 	102.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	3,987.9	 	 	 	—  	 	 	 	3,987.9	 	
Expenses:	  				 				 				
Cost of services	  	 	2,118.9	 	 	 	—  	 	 	 	2,118.9	 	
Selling, general and administrative	  	 	599.8	 	 	 	60.0	(d)	 	 	659.8	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	2,718.7	 	 	 	60.0	 	 	 	2,778.7	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	1,269.2	 	 	 	(60.0	)	 	 	1,209.2	 	
Derivative gains/(losses), net	  	 	45.8	 	 	 	—  	 	 	 	45.8	 	
Foreign exchange effect on notes receivable from affiliates, net	  	 	(5.9	)	 	 	5.9	(a)	 	 	—  	 	
Interest income from affiliates, net	  	 	24.3	 	 	 	(24.3	)(a)	 	 	—  	 	
Interest expense	  	 	—  	 	 	 	(202.3	)(b)	 	 	(202.3	)	
Other income, net	  	 	10.7	 	 	 	—  	 	 	 	10.7	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	1,344.1	 	 	 	(280.7	)	 	 	1,063.4	 	
Provision for income taxes	  	 	416.7	 	 	 	(102.6	)(c)	 	 	314.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	927.4	 	 	$	(178.1	)	 	$	749.3	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Pro forma earnings per share:	  				 				 				
Basic (e)	  				 				 	$	0.98	 	
Diluted (e)	  				 				 	$	0.96	 	
Pro forma shares outstanding:	  				 				 				
Basic (e)	  				 				 	 	765.2	 	
Diluted (e)	  				 				 	 	776.9	 	
 
See accompanying notes.
 
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THE WESTERN UNION COMPANY
Unaudited Pro Forma Combined Statements of Income
Six Months Ended June 30, 2006

 	  	Historical	 	 	Pro Forma
Adjustments	 	 	Pro
Forma	 	
(in millions, except per share amounts)	  	 	 	
Revenues:	  				 				 				
Transaction fees	  	$	1,791.6	 	 	$	—  	 	 	$	1,791.6	 	
Foreign exchange revenue	  	 	309.6	 	 	 	—  	 	 	 	309.6	 	
Commission and other revenues	  	 	55.4	 	 	 	—  	 	 	 	55.4	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	2,156.6	 	 	 	—  	 	 	 	2,156.6	 	
Expenses:	  				 				 				
Cost of services	  	 	1,153.4	 	 	 	—  	 	 	 	1,153.4	 	
Selling, general and administrative	  	 	364.1	 	 	 	30.0	(d)	 	 	394.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	  	 	1,517.5	 	 	 	30.0	 	 	 	1,547.5	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	639.1	 	 	 	(30.0	)	 	 	609.1	 	
Derivative (losses)/gains, net	  	 	(27.2	)	 	 	—  	 	 	 	(27.2	)	
Foreign exchange effect on notes receivable from affiliates, net	  	 	(4.1	)	 	 	4.1	(a)	 	 	—  	 	
Interest income from affiliates, net	  	 	23.5	 	 	 	(23.5	)(a)	 	 	—  	 	
Interest expense	  	 	—  	 	 	 	(101.2	)(b)	 	 	(101.2	)	
Other income, net	  	 	17.4	 	 	 	—  	 	 	 	17.4	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	648.7	 	 	 	(150.6	)	 	 	498.1	 	
Provision for income taxes	  	 	210.0	 	 	 	(53.0	)(c)	 	 	157.0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	438.7	 	 	$	(97.6	)	 	$	341.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Pro forma earnings per share:	  				 				 				
Basic (e)	  				 				 	$	0.45	 	
Diluted (e)	  				 				 	$	0.44	 	
Pro forma shares outstanding:	  				 				 				
Basic (e)	  				 				 	 	765.2	 	
Diluted (e)	  				 				 	 	776.9	 	
 
See accompanying notes.
 
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THE WESTERN UNION COMPANY
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2006
 	 	
(in millions, except per share amounts)	  	Historical	 	 	Pro Forma
Adjustments	 	 	Pro
Forma	 	
Assets	  				
Cash and cash equivalents	  	$	655.8	 	 	$
 	740.0
(210.0	(f)
)(m)	 	$	1,185.8	 	
Settlement assets	  	 	982.1	 	 	 	—  	 	 	 	982.1	 	
Receivables from affiliated companies, net	  	 	167.2	 	 	 
 
 	(32.4
(153.8
16.8	)(f)
)(g)
(f)	 	 	—  	 	
	  				 	 	2.2	(f)	 				
Notes receivable from affiliated companies	  	 	778.8	 	 	 	(778.8	)(f)	 	 	—  	 	
Property and equipment, net	  	 	89.4	 	 	 	65.5	(h)	 	 	154.9	 	
Goodwill	  	 	1,599.3	 	 	 	—  	 	 	 	1,599.3	 	
Other intangible assets, net	  	 	232.9	 	 	 	—  	 	 	 	232.9	 	
Other assets	  	 	490.1	 	 	 	14.0	(i)	 	 	504.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total assets	  	$	4,995.6	 	 	$	(336.5	)	 	$	4,659.1	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Liabilities and net investment in The Western Union Company (stockholders’ deficiency)	  				 				 				
Liabilities:	  				 				 				
Accounts payable and accrued liabilities	  	$	220.5	 	 	$	167.1	(j)	 	$	387.6	 	
Settlement obligations	  	 	980.9	 	 	 	—  	 	 	 	980.9	 	
Pension obligations	  	 	68.9	 	 	 	—  	 	 	 	68.9	 	
Deferred tax liability, net	  	 	269.5	 	 	 	—  	 	 	 	269.5	 	
Notes payable to affiliated companies	  	 	63.5	 	 	 
 	(52.2
(11.3	)(f)
)(g)	 	 	—  	 	
Other liabilities	  	 	138.8	 	 	 	—  	 	 	 	138.8	 	
Debt	  	 	—  	 	 	 	3,500.0	(k)	 	 	3,500.0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	1,742.1	 	 	 	3,603.6	 	 	 	5,345.7	 	
				
Net investment in The Western Union Company (stockholders’ deficiency):	  				 				 				
Preferred stock, $1.00 par value; 10 shares authorized pro forma; no shares issued and outstanding pro forma	  	 	—  	 	 	 	—  	 	 	 	—  	 	
Common stock, $0.01 par value; 2,000 shares authorized pro forma; 765.2 shares issued and outstanding pro forma	  	 	—  	 	 	 	7.7	(l)	 	 	7.7	 	
Capital deficiency	  	 	—  	 	 	 	(635.2	)(m)	 	 	(635.2	)	
Net investment in The Western Union Company	  	 	3,312.6	 	 	 	(3,312.6	)(m)	 	 	—  	 	
Accumulated other comprehensive loss	  	 	(59.1	)	 	 	—  	 	 	 	(59.1	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total net investment in The Western Union Company (stockholders’ deficiency) (n)	  	 	3,253.5	 	 	 	(3,940.1	)	 	 	(686.6	)	
	  	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and net investment in The Western Union Company (stockholders’ deficiency)	  	$	4,995.6	 	 	$	(336.5	)	 	$	4,659.1	 	

See accompanying notes.
 
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THE WESTERN UNION COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
(a)	Represents interest income and expense and fluctuations in foreign exchange during the period on notes receivable due from First Data to us and notes payable due to First Data from us.	
 
(b)	Reflects the adjustment to record interest expense on $3.5 billion of combined indebtedness to be incurred in connection with the spin-off. Pro forma interest expense was calculated based on an assumed blended interest rate of 5.7% derived by utilizing a ten-year treasury note rate plus an anticipated credit spread for the Western Union notes and a one-month LIBOR rate plus an anticipated credit spread for the revolving credit and FFMC bridge loan facilities. Interest expense also includes estimated amortization on approximately $14.0 million of assumed debt issuance costs. The calculation of interest expense assumes constant debt levels throughout the period; actual interest expense may be higher or lower depending on fluctuations in interest rates and actual credit ratings. A 1/8% change in interest rates would result in a $4.4 million change in annual interest expense.	
 
(c)	Represents the tax effect of pro forma adjustments using our statutory tax rate of 37.6% for the six months ended June 30, 2006 and 37.5% for the year ended December 31, 2005 for United States transactions, which represent the majority of the pro forma adjustments, and the applicable international tax rate for the international portion of the pro forma adjustments.	
 
(d)	Represents the estimated incremental costs associated with operating as a stand-alone company ($77 million for the six months ended June 30, 2006 and $129 million for the year ended December 31, 2005, partially offset by the elimination of related 2005 corporate overhead allocated by First Data of $47 million for the six months ended June 30, 2006 and $69 million for the year ended December 31, 2005 resulting in an adjustment to our unaudited pro forma combined statements of income of $30 million for the six months ended June 30, 2006 and $60 million for the year ended December 31, 2005). The estimated costs associated with operating as a stand-alone company include for the six months ended June 30, 2006 and the year ended December 31, 2005:	
 
 	(i)	$49 million and $76 million, respectively, related to staff additions and increases in salaries to replace First Data support, which were calculated based on approved headcounts, expected compensation plans and current market compensation assumptions;	
 
 	(ii)	$10 million and $19 million, respectively, related to corporate governance, including board of directors compensation and expenses, insurance costs, audit fees, annual report and proxy printing and filing fees, stock exchange fees, corporate compliance fees, and tax advisory fees, which were estimated using First Data historical costs, and adjusted for expected variations as applicable, or from insurance premium cost projections received from our insurance broker based on current market conditions;	
 
 	(iii)	$6 million and $13 million, respectively, related to increased depreciation, amortization and maintenance costs in connection with information technology infrastructure investments resulting from the spin-off, which were calculated from a plan approved by management using vendor quotes as a basis;	
 
 	(iv)	$6 million and $12 million, respectively, related to corporate branding and global affairs, including increased costs to our company associated with assuming full support of the First Data/Western Union charitable foundation, other charitable contributions and other consulting costs, which were based on the foundation’s approved operating plans and historical costs of First Data and adjusted for expected variations as applicable;	
 
 	(v)	$2 million and $2 million, respectively, related to the administration of our benefit plans and payroll functions, which were estimated based upon written quotes received from potential providers; and	
 
 	(vi)	$4 million and $7 million, respectively, related to other corporate costs, including ongoing costs associated with treasury, mergers and acquisitions and corporate security activities and increased depreciation relating to additional property and equipment purchases in connection with the spin-off, which were estimated using First Data’s historical costs and adjusted for expected variations as applicable.	
 
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    	The information provided in the pro forma adjustment described in this footnote is forward looking information based on our current plans and expectations and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Forward-Looking Statements” on page 24 for further information.	
 
(e)	The calculation of pro forma basic earnings per share and shares outstanding is based on the number of shares of First Data common stock outstanding as of June 30, 2006 adjusted for the distribution ratio of one share of our common stock for every share of First Data common stock. The calculation of pro forma diluted earnings per share and shares outstanding for the periods presented is based on the number of shares of First Data common stock outstanding as of June 30, 2006 and diluted shares of common stock outstanding as of June 30, 2006 adjusted for the same distribution ratio. This calculation may not be indicative of the dilutive effect that will actually result from the replacement of First Data stock-based awards held by our employees and employees of First Data or the grant of new stock-based awards. The number of dilutive shares of our common stock that will result from First Data stock options, restricted stock awards and restricted stock units held by our employees will not be determined until immediately after the spin-off. However, we currently expect the number of dilutive shares resulting from the replacement of our employees’ First Data stock options, restricted stock awards and restricted stock units could be greater than one dilutive share of our common stock after the spin-off for each dilutive share of First Data common stock held prior to the spin-off. See “Our Relationship with First Data After the Spin-Off—Employee Matters Agreement” beginning on page 85 for further information.	
 
(f)	Represents the cash settlement of $778.8 million of intercompany notes and related accrued interest of $32.4 million owed by First Data to us and $52.2 million of intercompany notes and related accrued interest of $2.2 million owed by us to First Data based on balances outstanding at June 30, 2006. We currently plan to invest the net repayments on these notes overseas; however, repatriating these funds to the United States could result in additional taxes. Also represents the payment by us to First Data of $16.8 million to settle certain foreign currency swap agreements with First Data related to certain notes receivable from affiliates on the date of spin-off.	
 
(g)	Represents the forgiveness by us of $153.8 million of intercompany balances owed by First Data to us, and the forgiveness by an affiliate of First Data of an intercompany note owed by us to that affiliate of $11.3 million, which collectively will be treated as a net dividend to First Data for accounting and tax purposes, based on balances outstanding at June 30, 2006.	
 
(h)	Represents the contribution by First Data to us of our headquarters in Englewood, Colorado currently occupied by both First Data and us.	
 
(i)	Represents assumed debt issuance costs of $14.0 million.	
 
(j)	Represents the reclassification by us of certain tax and employee-related obligations from intercompany liabilities, including $148.2 million of federal, state and international tax liabilities and $18.9 million of accrued employee benefits and related administration costs, property taxes, and other accrued liabilities, which we will retain subsequent to the spin-off.	
 
(k)	Represents the incurrence of $3.5 billion of combined indebtedness in connection with the spin-off.	
 
(l)	Represents the distribution of 765.2 million shares of our common stock to holders of First Data common stock.	
 
(m)	Represents the elimination of First Data’s net investment in us and the capital deficiency that will result based on the payment to First Data of $3.5 billion in the form of a combination of cash and our debt securities, the forgiveness of certain intercompany balances between First Data and us for the items noted in (g), (h) and (j) above and the distribution by us to First Data of $210.0 million in cash from existing cash balances.	
 
(n)	Certain of our historical net assets are restricted and are included within the accounts of companies combined in our historical combined financial statements. These restricted net assets do not exceed $60 million.	
 
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 SELECTED HISTORICAL COMBINED FINANCIAL DATA
 
The historical financial data have been prepared on a combined basis from First Data’s consolidated financial statements using the historical results of operations and assets and liabilities of First Data’s businesses and give effect to allocations of expenses from First Data. Our selected historical combined financial data are not necessarily indicative of our future financial position, future results of operations or future cash flows and do not reflect what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented.
 
The following tables set forth our selected historical financial data prepared on a combined basis. These tables present our money transfer and consumer payments businesses as they historically have been operated by First Data. You should read the information set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus. The statements of income and cash flow data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data as of December 31, 2005 and 2004 set forth below are derived from our audited combined financial statements included elsewhere in this prospectus. The statements of income and cash flow data for the years ended December 31, 2002 and 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001 set forth below are derived from our unaudited combined financial statements not included in this prospectus. The statements of income and cash flow data for the six-month periods ended June 30, 2006 and 2005 and the balance sheet data as of June 30, 2006 set forth below are derived from our unaudited combined financial statements included elsewhere in this prospectus. The balance sheet data as of June 30, 2005 set forth below are derived from our unaudited combined financial statements not included in this prospectus. The unaudited interim combined financial statements are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 31, 2006. However, in the opinion of management, the unaudited interim combined financial statements include all adjustments (consisting of normal recurring accruals) that are necessary for the fair presentation of the results for the interim periods.

 	 	Six Months Ended
June 30,	 	Years Ended December 31,	 	
 	 	    2006    	 	    2005    	 	2005	 	2004	 	 	2003	 	 	2002	 	 	2001	 	
 	 	(unaudited)	 	 	 	 	 	 	 	 	 	(unaudited)	 	 	(unaudited)	 	
(in millions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Statements of Income Data:	 			 			 			 				 				 				 				
Revenues (a)	 	$	2,156.6	 	$	1,900.4	 	$	3,987.9	 	$	3,547.6	 	 	$	3,151.6	 	 	$	2,743.4	 	 	$	2,314.4	 	
Operating expenses (a) (b) (c) (d)	 	 	1,517.5	 	 	1,287.8	 	 	2,718.7	 	 	2,435.5	 	 	 	2,148.6	 	 	 	1,919.9	 	 	 	1,651.0	 	
Operating income	 	 	639.1	 	 	612.6	 	 	1,269.2	 	 	1,112.1	 	 	 	1,003.0	 	 	 	823.5	 	 	 	663.4	 	
Other income/(expense), net (e)	 	 	9.6	 	 	42.0	 	 	74.9	 	 	(13.5	)	 	 	(40.4	)	 	 	(24.2	)	 	 	(1.1	)	
Income before income taxes (b) (c) (d)	 	 	648.7	 	 	654.6	 	 	1,344.1	 	 	1,098.6	 	 	 	962.6	 	 	 	799.3	 	 	 	662.3	 	
Net income (b) (c) (d)	 	 	438.7	 	 	451.6	 	 	927.4	 	 	751.6	 	 	 	633.7	 	 	 	494.1	 	 	 	407.9	 	
Depreciation and amortization (b)	 	 	49.1	 	 	39.0	 	 	79.5	 	 	79.2	 	 	 	78.4	 	 	 	60.2	 	 	 	92.9	 	
Cash Flow Data:	 			 			 			 				 				 				 				
Net cash provided by operating activities	 	 	481.9	 	 	467.9	 	 	1,002.8	 	 	930.2	 	 	 	792.8	 	 	 	607.5	 	 	 	526.1	 	
Dividends to parent company	 	 	—  	 	 	—  	 	 	417.2	 	 	659.8	 	 	 	324.2	 	 	 	486.8	 	 	 	1,047.3	 	
Key Indicators (unaudited):	 			 			 			 				 				 				 				
Consumer-to-consumer transactions (f)	 	 	69.89	 	 	54.09	 	 	118.52	 	 	96.66	 	 	 	81.04	 	 	 	67.84	 	 	 	55.78	 	
Consumer-to-business transactions (g)	 	 	120.71	 	 	102.30	 	 	215.11	 	 	192.57	 	 	 	179.39	 	 	 	145.01	 	 	 	113.79	 	
 
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 	 	As of June 30,	 	As of December 31,	
 	 	2006	 	2005	 	2005	 	2004	 	2003	 	2002	 	2001	
 	 	(unaudited)	 	 	 	 	 	(unaudited)	 	(unaudited)	 	(unaudited)	
Balance Sheet Data:	 			 			 			 			 			 			 			
Settlement assets	 	$	982.1	 	$	745.7	 	$	929.1	 	$	716.9	 	$	586.4	 	$	475.9	 	$	445.5	
Total assets	 	 	4,995.6	 	 	3,770.5	 	 	4,606.4	 	 	3,330.2	 	 	3,029.9	 	 	2,472.4	 	 	2,189.8	
Settlement obligations	 	 	980.9	 	 	741.3	 	 	926.7	 	 	711.0	 	 	576.1	 	 	463.3	 	 	441.2	
Total liabilities	 	 	1,742.1	 	 	1,390.3	 	 	1,794.6	 	 	1,395.7	 	 	1,201.0	 	 	1,001.7	 	 	846.4	
Net investment in The Western Union Company	 	 	3,253.5	 	 	2,380.2	 	 	2,811.8	 	 	1,934.5	 	 	1,828.9	 	 	1,470.7	 	 	1,343.4	

(a)	In January 2002, our company adopted Emerging Issues Task Force 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” or “EITF 01-14,” which requires that reimbursements received for “out-of-pocket” expenses be characterized as revenue. The year ended December 31, 2001 has been adjusted for this adoption. Operating expenses include cost of services and selling, general and administrative expenses.	
(b)	In January 2002, our company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” or “SFAS 142,” which requires that goodwill no longer be amortized effective January 1, 2002. Prior to our adoption of SFAS 142, goodwill was amortized on a straight-line basis over estimated useful lives ranging from 10 to 40 years.	
(c)	In 2002, our company recorded expenses of $41.0 million related to the settlement of certain class action litigation and regulatory matters.	
(d)	We adopted SFAS No. 123R, “Share-Based Payment,” or “SFAS 123R,” following the modified prospective method effective January 1, 2006. SFAS 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant date fair values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. Stock-based compensation expense, including the impact of adopting SFAS 123R, was $6.1 million for the six months ended June 30, 2006.	
(e)	Primarily includes derivative gains and losses, the net foreign exchange effect on notes receivable from affiliates and related foreign currency swaps with First Data, and net interest income due from affiliates. We anticipate volatility with respect to derivative gains and losses until we have redesignated our foreign currency forward contracts by modifying all hedge documentation to allow for cash flow hedge accounting with respect to these and future foreign currency forward positions, which we intend to do as expeditiously as possible. We also anticipate volatility with respect to the revaluation of our euro denominated notes receivable from affiliates and related foreign currency swap agreements with First Data until we have settled our notes receivable from affiliates and related foreign currency swap agreements as part of the spin-off. During the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003, the pre-tax derivative gain (loss) was $(27.2) million, $36.8 million, $45.8 million, $(30.2) million, and $(37.9) million, respectively. During the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005 and 2004, the pre-tax gain (loss) on foreign exchange translation of notes receivable from affiliates and valuation of related foreign currency swap agreements was $(4.1) million, $(9.8) million, $(5.9) million, and $7.5 million, respectively. There was no gain or loss during 2003.	
(f)	Consumer-to-consumer transactions include consumer-to-consumer money transfer services worldwide. Amounts include Vigo Remittance Corp. transactions since the acquisition date of October 21, 2005.	
(g)	Consumer-to-business transactions include Quick Collect, Convenience Pay, Speedpay and Equity Accelerator transactions processed by us. Amounts include E Commerce Group, Inc. (Speedpay) transactions since its acquisition in June 2002 and Paymap Inc. (Equity Accelerator and Just-in-Time) transactions since its acquisition in April 2002.	
 
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 MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion in conjunction with the combined financial statements and the notes to those statements included elsewhere in this prospectus. 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 prospectus. See “Risk Factors” and “Forward-Looking Statements.”
 
Overview
 
We are a leading provider of money transfer services, operating in two business segments. We provide consumer-to-consumer money transfer services, primarily through a global network of third-party agents using our multi-currency, real-time money transfer processing systems. In most countries, this service is available for both intra-country transfers—that is, money transfers from one location to another in the same country—and internationally—that is, the transfer of funds into or out of a country. We also provide consumer-to-business payment services, which allow consumers to send funds to businesses, government agencies and other organizations that receive consumer payments, including utilities, auto finance companies, mortgage servicers and other financial service providers (all sometimes referred to as “billers”) through our network of third-party agents and various electronic channels. Consumer-to-business payment services are generally available only inside a particular country, although in some instances we provide the ability for consumers to make payments from one country to another. Businesses not considered part of the segments described above are categorized as “Other” and generated approximately 3% of our total combined revenue for the year ended December 31, 2005.
 
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 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, and includes locations offering any of our three 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, and in some instances through the Internet or by telephone. In 2005, substantially all of our consumer-to-business segment revenue was generated from transactions in the United States.
 
Factors that we believe are important to our long-term success include increasing international growth by expanding and diversifying our consumer-to-consumer global distribution network, building our brands, enhancing the consumer experience, expanding the channels by which consumers can send or receive money and diversifying our consumer-to-consumer service offerings, expanding into new biller and other business and government relationships, and expanding the international presence of our consumer-to-business offerings. Significant factors affecting our financial position and results of operations include:
 
 	•	 	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 anticipate the demand for money transfer services will be strong as individuals continue to migrate to countries outside of their countries of origin. As noted elsewhere in this prospectus, a reduction in the size of the migrant population, interruptions in migration patterns or reduced employment opportunities including	
 
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 	those resulting from any changes in immigration laws, economic development patterns or political events, could adversely affect our transaction volume. For example, in the three months ended June 30, 2006, transaction growth in our consumer-to-consumer business, primarily the United States to Mexico and Latin American corridors, and to a lesser extent the domestic money transfer business, was adversely impacted by what we believe is uncertainty created by immigration reform activities in the United States. Since the end of the second quarter, we have seen this trend continue, and as uncertainty about immigration reform persists, we anticipate our businesses will continue to be similarly impacted for some period of time.	
 
 	•	 	Revenue is also impacted by prices charged to the consumer, the amount of money sent, and by changes in the exchange rate between foreign currencies, particularly the euro, and the United States dollar. We have made periodic pricing decreases in response to competition and to implement our brand investment strategy, which includes better meeting consumer needs, maximizing market opportunities and strengthening our overall competitive positioning. Net price decreases have been approximately 3% of our annual combined revenues in each of the last two years, a trend that is expected to continue.	
 
 	•	 	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, variety of payment methods and price.	
 
 	•	 	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.	
 
 	•	 	We have historically intended to use derivative instruments to mitigate changes in foreign currency exchange rates. We had intended to apply hedge accounting to these derivatives, which produced financial statement results that appeared to be consistent with the economics of these transactions. However, based upon an evaluation of our initial hedge documentation, we determined that our hedge documentation was not adequate at the inception of the derivative agreements to qualify for hedge accounting treatment and accordingly, have previously restated our combined financial statements. As a result, changes in the fair market value of our outstanding derivative instruments, which are impacted primarily by fluctuations in the euro, are currently recognized in our combined statements of income. Had these instruments qualified for hedge accounting treatment, changes to the fair value of our derivative instruments would have been recognized on our combined balance sheets and would not directly impact our net income until such instruments matured. The failure of these instruments to qualify for hedge accounting treatment has resulted in volatility in our net income for the periods presented. For example, during the six months ended June 30, 2006, we had pre-tax derivative losses of $27.2 million, and for the six months ended June 30, 2005 we had pre-tax derivative gains of $36.8 million. In addition, during the year ended December 31, 2005, we had pre-tax derivative gains of $45.8 million, and we had pre-tax derivative losses of $30.2 million and $37.9 million during the years ended December 31, 2004 and 2003, respectively. We anticipate our results will be subject to volatility as a result of this change until we are able to redesignate the affected forward contracts as hedges with revised documentation to allow for hedge accounting treatment, which we intend to do as expeditiously as possible. We also intend to have the appropriate documentation required for future foreign currency forward positions to qualify for hedge accounting treatment.	
 
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 	•	 	We also previously restated our combined financial statements to reflect foreign currency translation adjustments of certain notes receivable from affiliates denominated in euros and changes in the market value of certain foreign currency swap agreements with First Data in the combined statements of income. These notes and foreign currency swap agreements will be settled in connection with the spin-off.	
 
 	•	 	Our consumer-to-business segment continues to experience a shift in demand from cash-based walk-in payment services to lower margin, higher volume electronic payment services.	
 
Significant Financial and Other Highlights
 
Significant financial and other highlights for the year ended December 31, 2005 and the six months ended June 30, 2006 include:
 
 	•	 	For the year ended December 31, 2005, we generated $3,987.9 million in total combined revenues and $927.4 million in combined net income. This resulted in year-over-year growth of 12% in total combined revenues and 23% in combined net income.	
 
 	•	 	For the six months ended June 30, 2006, we generated $2,156.6 million in total combined revenues and $438.7 million in combined net income.	
 
 	•	 	For the year ended December 31, 2005, we completed 119 million consumer-to-consumer transactions worldwide, an increase of 23% over 2004. Consumer-to-consumer transactions grew 29% in the six months ended June 30, 2006 compared to the same period in 2005. Excluding transactions attributable to Vigo Remittance Corporation, or “Vigo,” consumer-to-consumer transactions increased 21% in 2005 compared to 2004 and 20% for the six months ended June 30, 2006 compared to the same period in 2005.	
 
 	•	 	Consumer-to-business transactions increased 12% from 2004 to 2005 to 215 million transactions, and increased 18% to 121 million transactions in the six months ended June 30, 2006 over the corresponding period in 2005.	
 
In October 2005, First Data acquired Vigo, a provider of consumer-to-consumer money transfer services primarily from the United States to Latin America, which First Data will contribute to Western Union as part of the spin-off.
 
Adoption of SFAS 123R
 
We adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” or “SFAS 123R,” following the modified prospective method effective January 1, 2006. SFAS 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant date fair values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. Stock-based compensation expense, including the impact of adopting SFAS 123R, was $6.1 million for the six months ended June 30, 2006.
 
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 123R. We recognized compensation expense of $1.8 million during the fourth quarter of 2005 related to accelerated vesting.
 
Refer to Note 15—“Stock Compensation Plans” of our historical combined financial statements for a more detailed discussion of First Data’s stock-based compensation plans and the adoption of SFAS 123R.
 
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The Separation of Western Union from First Data
 
On January 26, 2006, First Data announced its intention to separate its money transfer and consumer payments businesses into an independent, publicly-traded company through a spin-off of 100% of our stock to First Data stockholders. The spin-off is intended to be tax-free to First Data’s stockholders and to First Data and Western Union. Completion of the spin-off is expected on September 29, 2006, subject to certain conditions, including necessary regulatory approvals, continued validity of the private letter ruling First Data received from the Internal Revenue Service, receipt of a favorable tax opinion of outside tax counsel and final approval from First Data’s board of directors to complete the spin-off.
 
Basis of Presentation
 
The combined financial statements are comprised of entities included in First Data’s consolidated financial statements and accounting records, principally representing the consumer-to-consumer money transfer and consumer-to-business payment services businesses, and reflect the historical results of operations and the historical basis of assets and liabilities as if such businesses had been combined for all periods presented. All significant intercompany transactions and accounts have been eliminated. The combined 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 will enter into with First Data prior to the spin-off, First Data will continue to provide Western Union with certain of these services at prices agreed upon by First Data and Western Union for a period of up to one year from the date of the spin-off. Western Union will arrange to procure other services pursuant to arrangements with third parties. See “Our Relationship with First Data After the Spin-Off” for a description of the transition services agreement. The costs historically allocated to us by First Data for the services it has provided us may not be indicative of the costs we will incur to obtain these services following the spin-off. In addition to the transition services agreement, we will enter into a number of commercial agreements with First Data in connection with the spin-off, many of which are expected to have terms longer than a year. See “Our Relationship with First Data After the Spin-Off—Other Spin-Off Agreements.”
 
Our businesses have used a number of First Data corporate functions as described above to support our business functions. Following completion of the spin-off, we will no longer use those functions (other than those provided under the transition services agreement) and will need to establish our own. We expect to incur initial costs in 2006 to establish the necessary corporate infrastructure.
 
We expect that certain expenses related to being a stand-alone company will be higher in the future than the historical amounts reflected in the combined statements of income. The financial information presented in this document 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.
 
We also have prepared unaudited pro forma combined financial statements to make adjustments for and give effect to the spin-off. See “Unaudited Pro Forma Combined Financial Statements.”
 
New Financing
 
We expect that in connection with the spin-off, we will transfer to First Data approximately $3.5 billion in the form of a combination of cash and our debt securities, which will include a dividend paid to First Data in the form of a promissory note from our subsidiary, FFMC, in an aggregate principal amount of approximately $2.4
 
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billion, the issuance by The Western Union Company to First Data of an aggregate principal amount of approximately $1.0 billion in Western Union notes and a cash payment by Western Union to First Data of approximately $100.0 million, which will be financed through borrowings under the revolving credit facility we expect to enter into on the distribution date. In addition, we will distribute to First Data approximately $210.0 million in cash from existing cash balances.
 
We expect that FFMC will repay the promissory note on the distribution date or shortly thereafter with borrowings under a 364-day bridge loan facility it will enter into on or shortly after the distribution date. The Western Union Company is considering and, subject to market and other conditions following the spin-off, expects to refinance the amounts borrowed by FFMC under the bridge loan with proceeds from debt The Western Union Company will issue or amounts The Western Union Company will otherwise borrow following the distribution date. However, we do not have any arrangements with any financial institution or other third parties with respect to such debt and there can be no assurance that The Western Union Company will be able to refinance the borrowings under the FFMC bridge loan. We expect that the Western Union notes and the revolving credit facility will require us to cause FFMC to guarantee the obligations of The Western Union Company with respect to the Western Union notes and the revolving credit facility if, among other things, indebtedness outstanding under the FFMC bridge loan described above is in excess of a to be determined amount within a specified time period after the distribution date.
 
We also expect to enter into a $1.5 billion revolving credit facility with certain financial institutions on the distribution date that will be used to finance the $100.0 million cash payment to First Data and for general corporate purposes.
 
While we expect to incur significant amounts of debt in connection with the spin-off, our significant revenue and cash flow will provide us with opportunities to invest in our core business, new services and in new markets.
 
Components of Revenue and Expenses
 
The following briefly describes the components of revenue and expenses as presented in the combined statements of income. Descriptions of our revenue recognition policies are included in Note 2—“Summary of Significant Accounting Policies” of our historical combined 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 84% and 83% of Western Union’s total combined revenues for the year ended December 31, 2005 and for the six months ended June 30, 2006, respectively, 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 cross-currency transactions rather than changes to the foreign exchange spread. Foreign exchange revenue represented 13% of Western Union’s total combined revenues for the year ended December 31, 2005 and 14% for the six months ended June 30, 2006.
 
Commission and other revenues —Commission and other revenues represented approximately 3% of our total combined revenue for both the year ended December 31, 2005 and for the six months ended June 30, 2006. Commission and other revenues consist of commissions we receive in connection with the sale of money orders, enrollment fees received when consumers enroll in the 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 settlement assets as well as realized net gains and losses from such assets.
 
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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 advertising and promotional costs and other selling and administrative expenses. SG&A also includes allocations of general corporate overhead costs from First Data.
 
Derivative (losses)/gains, 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 during the periods presented and do not mitigate exposures related to settlement assets and settlement obligations. Fluctuations in foreign currency forward contracts that mitigate exposures related to the settlement activities of our money transfer business, along with the gains and losses on the revaluation of the related settlement assets and obligations, are recorded to operating expenses.
 
Foreign exchange effect on notes receivable from affiliates , net —Certain of the notes receivable from affiliates in our combined balance sheets are repayable in euros, and certain of those euro denominated notes also have foreign currency swap agreements associated with them. These notes receivable are 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 are recorded based on current market valuations. The effect of translation adjustments and recording the foreign currency swaps to market is reflected in our combined statements of income as foreign exchange effect on notes receivable from affiliates.
 
Interest income from affiliates, net —Interest income from affiliates, net consists of interest income earned on notes receivable from affiliates of First Data net of interest expense incurred on notes payable to affiliates of First Data. In connection with the spin-off, all notes receivable and payable are expected to be settled.
 
Results of Operations
 
The following discussion for both combined results of operations and segment results refers to the six months ended June 30, 2006 compared to the same period in 2005, the year ended December 31, 2005 compared to the same period in 2004, and the year ended December 31, 2004 compared to the same period in 2003. Combined results of operations should be read in conjunction with segment results of operations, which provide more detailed discussions concerning certain components of the combined statements of income. All significant intercompany accounts and transactions have been eliminated.
 
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The following table sets forth our combined results of operations for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

 	 	Six Months
Ended
June 30,	 	 	% Change	 	 	Years Ended December 31,	 	 	% Change	 	
 	 	2006	 	 	2005	 	 	YTD 2006
vs. YTD 2005	 	 	2005	 	 	2004	 	 	2003	 	 	2005
vs. 2004	 	 	2004
vs. 2003	 	
 	 	(unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(in millions)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues:	 				 				 			 				 				 				 			 			
Transaction fees	 	$	1,791.6	 	 	$	1,604.2	 	 	12	%	 	$	3,354.8	 	 	$	3,006.1	 	 	$	2,679.0	 	 	12	%	 	12	%	
Foreign exchange revenue	 	 	309.6	 	 	 	248.6	 	 	25	%	 	 	531.0	 	 	 	449.6	 	 	 	380.9	 	 	18	%	 	18	%	
Commission and other revenues	 	 	55.4	 	 	 	47.6	 	 	16	%	 	 	102.1	 	 	 	91.9	 	 	 	91.7	 	 	11	%	 	—	 	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Total revenues	 	 	2,156.6	 	 	 	1,900.4	 	 	13	%	 	 	3,987.9	 	 	 	3,547.6	 	 	 	3,151.6	 	 	12	%	 	13	%	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Expenses:	 				 				 			 				 				 				 			 			
Cost of services	 	 	1,153.4	 	 	 	995.3	 	 	16	%	 	 	2,118.9	 	 	 	1,859.4	 	 	 	1,618.6	 	 	14	%	 	15	%	
Selling, general and administrative	 	 	364.1	 	 	 	292.5	 	 	24	%	 	 	599.8	 	 	 	576.1	 	 	 	530.0	 	 	4	%	 	9	%	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Total expenses	 	 	1,517.5	 	 	 	1,287.8	 	 	18	%	 	 	2,718.7	 	 	 	2,435.5	 	 	 	2,148.6	 	 	12	%	 	13	%	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Operating income	 	 	639.1	 	 	 	612.6	 	 	4	%	 	 	1,269.2	 	 	 	1,112.1	 	 	 	1,003.0	 	 	14	%	 	11	%	
Derivative (losses)/gains, net	 	 	(27.2	)	 	 	36.8	 	 	*	 	 	 	45.8	 	 	 	(30.2	)	 	 	(37.9	)	 	*	 	 	20	%	
Foreign exchange effect on notes receivable from affiliates, net	 	 	(4.1	)	 	 	(9.8	)	 	*	 	 	 	(5.9	)	 	 	7.5	 	 	 	—  	 	 	*	 	 	*	 	
Interest income from affiliates, net	 	 	23.5	 	 	 	9.2	 	 	*	 	 	 	24.3	 	 	 	9.1	 	 	 	—  	 	 	*	 	 	*	 	
Other income (expense), net	 	 	17.4	 	 	 	5.8	 	 	*	 	 	 	10.7	 	 	 	0.1	 	 	 	(2.5	)	 	*	 	 	*	 	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Income before income taxes	 	 	648.7	 	 	 	654.6	 	 	(1	)%	 	 	1,344.1	 	 	 	1,098.6	 	 	 	962.6	 	 	22	%	 	14	%	
Provision for income taxes	 	 	210.0	 	 	 	203.0	 	 	3	%	 	 	416.7	 	 	 	347.0	 	 	 	328.9	 	 	20	%	 	6	%	
	 	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Net income	 	$	438.7	 	 	$	451.6	 	 	(3	)%	 	$	927.4	 	 	$	751.6	 	 	$	633.7	 	 	23	%	 	19	%	

*	Calculation not meaningful	
 
Revenues overview
 
The following provides highlights of revenue growth while a more detailed discussion is included in “Segment Discussion”:
 
Transaction fees and foreign exchange revenue
 
The majority of transaction fees and foreign exchange revenue are contributed from our consumer-to-consumer segment, which is discussed in greater detail in “Segment Discussion.” Transaction fee and foreign exchange revenue grew 13% in the six months ended June 30, 2006 due to increased money transfers at existing agent locations and, to a lesser extent, new agent locations. Our acquisition of Vigo in October 2005 contributed $68.4 million in transaction fee and foreign exchange revenue to the six months ended June 30, 2006 compared
 
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to no revenue for the first half of 2005. In addition, for the six months ended June 30, 2006, the exchange rates between the euro and the United States dollar resulted in a reduction to revenue of $20.5 million, compared to a benefit to revenue of $20.3 million for the same period in 2005, assuming a constant exchange ratio between the euro and the United States dollar (i.e., as if there was no change in exchange rates from the same periods in the previous year). On a euro adjusted basis, and excluding Vigo, fee and foreign exchange revenue increased 11% for the six months ended June 30, 2006 and June 30, 2005. On a euro-adjusted basis and excluding Vigo, fee revenue grew 9% in the six months ended June 30, 2006 and foreign exchange revenue grew 21% over the prior year period. In the second quarter of 2006, Western Union’s business was adversely impacted by what we believe is uncertainty created by immigration reform activities in the United States.
 
Transaction fee and foreign exchange revenue increased 12% and 13%, respectively, for the years ended December 31, 2005 and 2004. Increased money transfers at existing agent locations and, to a lesser extent, new agent locations contributed to increased consumer-to-consumer transaction volume and fee revenue for the years ended December 31, 2005 and 2004. Vigo contributed $24.2 million of revenue in 2005. Exchange rates between the euro and United States dollar resulted in a negative year over year impact of $1.4 million for the year ended December 31, 2005 compared to a benefit of $73.4 million in 2004. On a euro adjusted basis and excluding Vigo, transaction fee and foreign exchange revenue increased 12% and 11%, respectively, for the years ended December 31, 2005 and 2004. On a euro-adjusted basis and excluding Vigo, fee revenue growth improved from 10% for 2004 over 2003 to 11% in 2005 over 2004 and foreign exchange revenue growth was 13% and 17% in 2004 and 2005, respectively. Consumer-to-business transaction fees increased for the year ended December 31, 2005 compared to 2004 due to increased consumer-to-business payment transactions. For the year ended December 31, 2004 consumer-to-business transaction fees were impacted by a decline in cash-based consumer-to-business payments.
 
Foreign exchange revenue increased for the six months ended June 30, 2006 and the years ended December 31, 2005 and 2004 over each respective previous period due to an increase in cross-currency transactions primarily as a result of strong growth in international consumer-to-consumer transactions and the acquisition of Vigo. Foreign exchange revenue growth generally corresponds to international revenue growth from cross-border transactions, which increased 21% in the first six months of 2006, 23% in 2005 and 22% in 2004, excluding Vigo.
 
Transaction fees and foreign exchange revenue for the six months ended June 30, 2006 were impacted by the seasonal nature of the consumer-to-consumer segment. 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 the United States and other countries during the fourth quarter. This trend occurred in 2004 and 2005 and is expected to continue.
 
Commission and other revenues
 
During the six months ended June 30, 2006, commission and other revenues increased as a result of increased money order commissions due to higher investment balances and increased enrollment fees from our Equity Accelerator program.
 
The increase in commission and other revenues for the year ended December 31, 2005 compared to the year ended December 31, 2004 was driven primarily by an increase in money order commissions due to higher investment balances in the money order investment portfolio and more consumers participating in the Equity Accelerator program. Commission and other revenues in 2004 remained consistent with 2003 as increases in money order commissions were offset by lower investment income on money transfer settlement assets and lower enrollment fees from the Equity Accelerator program.
 
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Expenses overview
 
The following provides highlights of expenses:
 
Cost of services
 
Cost of services as a percentage of revenue was 53% and 52% for the six months ended June 30, 2006 and 2005, respectively, and 53%, 52% and 51% the years ended December 31, 2005, 2004 and 2003, respectively.
 
The majority of the increase in cost of services in the six months ended June 30, 2006 compared to the same period in 2005 was attributable to an increase in agent commissions corresponding to revenue growth as well as the October 2005 acquisition of Vigo.
 
The majority of the increase in cost of services for the year ended December 31, 2005 compared to 2004 and 2004 compared to 2003 was attributable to an increase in agent commissions corresponding to the increase in revenue. In addition, an $8.7 million impairment charge was recorded in 2005 due to a change in strategic direction related to Eposs Limited, or “Eposs,” a United Kingdom-based seller of cellular prepaid services. We sold our majority interest in Eposs on April 28, 2006. We also recognized an $8.2 million charge in the fourth quarter of 2005 related to an additional accrual of domestic and international escheatment liabilities as further discussed in Note 12—“Commitments and Contingencies” to our combined financial statements.
 
The year ended December 31, 2005 included lower employee incentive compensation expense compared to 2004 primarily as a result of certain internal performance targets for First Data not being achieved in 2005 whereas all targeted discretionary incentive compensation was paid in 2004. Based on the internal performance targets that have been established in 2006, and the related performance so far, we anticipate recording higher employee incentive compensation accruals in 2006 compared to 2005 when such accruals were lower in anticipation that certain 2005 internal performance targets would not be achieved. If recorded, these accruals in 2006 will negatively impact our results of operations.
 
The increase in cost of services for the year ended December 31, 2004 compared to 2003 was driven by a similar increase in agent commissions as a result of increased revenues as noted above.
 
Selling, general and administrative
 
In line with our strategic objective of building the Western Union brand, marketing related expenditures increased during the six months ended June 30, 2006 over the comparable period in 2005 and were approximately 7% of combined revenue. Contributing to the growth in SG&A for the first half of 2006 were the October 2005 acquisition of Vigo, the accrual of additional expenses related to a consent agreement with the Arizona Department of Financial Institutions, and increased corporate overhead allocations from First Data, including allocated stock compensation in connection with the adoption of SFAS 123R.
 
SG&A expenses increased for the years ended December 31, 2005 and 2004 due to an increase in marketing related expenses over that in the prior years. In each of the last three years, we spent approximately 7% of our combined revenue on marketing, including advertising, events, loyalty programs and employees dedicated to marketing activities.
 
The year ended December 31, 2005 included lower employee incentive compensation expense compared to 2004 primarily as a result of certain internal performance targets for First Data not being achieved in 2005 whereas all targeted discretionary incentive compensation was paid in 2004. Based on the internal performance targets that have been established in 2006, and the related performance so far, we anticipate recording higher employee incentive compensation accruals in 2006 compared to 2005 when such accruals were lower in anticipation that certain 2005 internal performance targets would not be achieved. If recorded, these accruals in 2006 will negatively impact our results of operations.
 
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SG&A expenses increased for the year ended December 31, 2004 compared to December 31, 2003 due to increased marketing related expenses, increased corporate overhead allocations from First Data and increased employee incentive compensation.
 
Derivative (losses)/gains, net
 
Our foreign currency forward contracts that are not held to mitigate foreign exchange rate fluctuations in settlement assets and settlement obligations are held primarily in four currencies, the euro, British pound, Canadian dollar and Swiss franc, and typically have a maturity of one year. Gains and losses are recognized as a result of variations between foreign currency market exchange rates and the forward contract rates. Our euro denominated forward contracts represented approximately 79%, 88% and 87% of the total unrealized gains and losses on these foreign currency forwards as of June 30, 2006 and December 31, 2005 and 2004, respectively. Notional amounts of our euro denominated currency forwards as of June 30, 2006 and December 31, 2005 and 2004 were 261.5 million, 243.0 million and 219.7 million euro, respectively. We anticipate our results will be subject to volatility until we are able to redesignate the affected forward contracts as hedges with revised documentation to allow for hedge accounting treatment, which we intend to do as expeditiously as possible. We also intend to have the appropriate documentation required for future foreign currency forward positions to qualify for hedge accounting treatment.
 
Foreign exchange effect on notes receivable from affiliates, net
 
The revaluation to fair market value of notes receivable from affiliates and the related foreign currency swap arrangements that are denominated in euro benefited income before income taxes in the six months ended June 30, 2006 compared to 2005 by $5.7 million. For the years ended 2005 compared to 2004 and 2004 compared to 2003, these mark-to-market valuations resulted in decreased income before income taxes of $13.4 million and increased income before income taxes of $7.5 million, respectively. Such, fluctuations typically correspond to changes in the value of the euro. The fair market value of all notes receivable from affiliates and related foreign currency swap agreements will be settled in cash in connection with the spin-off.
 
Interest income from affiliates, net
 
Interest income from affiliates increased for all periods presented due to increased net affiliate borrowings.
 
Income taxes
 
Our effective tax rates on pretax income were 32.4% and 31.0% for the six months ended June 30, 2006 and 2005, respectively, and 31.0%, 31.6% and 34.2% for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in the effective tax rate in the six months ended June 30, 2006 over the comparable period in 2005 is attributable to certain state tax adjustments that benefited the tax provision in 2005 and the impact of certain non-deductible 2006 foreign exchange losses related to currency swap agreements with First Data. The effective tax rate in 2005 compared to 2004 remained relatively constant but benefited slightly from the state tax adjustments previously noted. The decrease in the effective tax rate in 2004 compared to 2003 resulted from the legal restructuring of our international operations in 2003 only being in place during the latter half of 2003 versus the full year in 2004, resulting in higher foreign income taxed at lower rates for 2004 compared to 2003.
 
To address certain tax aspects of a 2003 legal restructuring of our company’s international operations, First Data initiated discussions with the Internal Revenue Service pursuant to the Internal Revenue Service’s Advance Pricing Agreement, or “APA,” Program. If an APA is negotiated successfully, during its term, our company generally will avoid further examination of the transfer pricing methods applicable to, and valuations of, the covered transactions. We continue to negotiate with the Internal Revenue Service in the APA process, and while we hope to reach a resolution through the process, there can be no assurances that the APA negotiations will be resolved in a manner acceptable to us. If not so resolved, the matter likely would proceed to other forums
 
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within the Internal Revenue Service. We have established contingency reserves for material, known tax exposures, including the potential for tax audit adjustments with respect to taxes associated with our foreign business that is the subject of the 2003 legal restructuring and the Internal Revenue Service’s APA Program discussions referenced above. These tax reserves reflect what we believe to be reasonable assumptions as to the likely resolution of the issues involved if subject to judicial review. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve. Regarding the 2003 legal restructuring, we have benefited by having our income from certain foreign-to-foreign money transfer transactions taxed at relatively low foreign tax rates rather than the United States statutory tax rate. The amount of taxes attributable to such rate differential is included in the “Foreign rate differential” line in the effective rate reconciliation in Note 9—“Income Taxes” to our historical combined financial statements and cumulatively totaled $131.6 million through December 31, 2005. Any differences from our company’s positions as recorded in its financial statements upon resolution of these issues will be reflected as a part of income tax expense in the period during which the issues are resolved. Such resolution could also affect our effective tax rate in future periods.
 
Segment Discussion
 
We manage our business around the consumers we serve and the types of services we offer. Each segment addresses a different combination of consumer groups, distribution networks, and services offered. Our segments are:
 
 	•	 	Consumer-to-consumer—provides money transfer services between consumers, primarily through a global network of third-party agents using our multi-currency, real-time money transfer processing systems.	
 
 	•	 	Consumer-to-business—focuses on payments from consumers to billers through our networks of third-party agents and various electronic channels. In 2005, substantially all of our consumer-to-business segment revenue was generated from transactions in the United States.	
 
The business segment measurements provided to, and evaluated by, our chief operating decision maker are computed in accordance with the following principles:
 
 	•	 	The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies.	
 
 	•	 	Segment revenue includes intersegment revenue.	
 
 	•	 	Corporate overhead is allocated to the segments based on a percentage of the segments’ revenue.	
 
 	•	 	Costs incurred to effect the spin-off are not allocated to reporting segments.	
 
 	•	 	Exclude all items not included in operating income.	
 
The following table sets forth the different components of segment revenues as a percentage of the combined total for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

  	  	Six Months Ended
June 30,	 	 	Years Ended
December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Consumer-to-consumer	  	83	%	 	82	%	 	82	%	 	81	%	 	78	%	
Consumer-to-business	  	15	%	 	16	%	 	15	%	 	16	%	 	19	%	
Other	  	2	%	 	2	%	 	3	%	 	3	%	 	3	%	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	100	%	 	100	%	 	100	%	 	100	%	 	100	%	

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Consumer-to-Consumer Segment
 
The following table sets forth our consumer-to-consumer segment results of operations for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

 	  	Six Months
Ended
June 30,	 	 	% Change	 	 	Years Ended December 31,	 	 	% Change	 	
 	  	2006	 	 	2005	 	 	YTD 2006
vs. YTD 2005	 	 	2005	 	 	2004	 	 	2003	 	 	2005
vs. 2004	 	 	2004
vs. 2003	 	
(in millions)	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues:	  				 				 			 				 				 				 			 			
Transaction fees	  	$	1,469.4	 	 	$	1,290.0	 	 	14	%	 	$	2,724.0	 	 	$	2,390.9	 	 	$	2,050.8	 	 	14	%	 	17	%	
Foreign exchange revenue	  	 	308.9	 	 	 	248.0	 	 	25	%	 	 	529.6	 	 	 	448.3	 	 	 	379.7	 	 	18	%	 	18	%	
Other revenues	  	 	15.5	 	 	 	11.3	 	 	37	%	 	 	25.6	 	 	 	22.5	 	 	 	23.4	 	 	14	%	 	(4	)%	
	  	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Total revenues	  	$	1,793.8	 	 	$	1,549.3	 	 	16	%	 	$	3,279.2	 	 	$	2,861.7	 	 	$	2,453.9	 	 	15	%	 	17	%	
	  	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Operating income	  	$	516.6	 	 	$	495.0	 	 	4	%	 	$	1,047.9	 	 	$	886.5	 	 	$	765.2	 	 	18	%	 	16	%	
Operating margin	  	 	29	%	 	 	32	%	 			 	 	32	%	 	 	31	%	 	 	31	%	 			 			
Key indicators:	  				 				 			 				 				 				 			 			
Consumer-to-consumer transactions (unaudited)	  	 	69.89	 	 	 	54.09	 	 	29	%	 	 	118.52	 	 	 	96.66	 	 	 	81.04	 	 	23	%	 	19	%	
 
Since 2003, international, domestic and Mexico revenue represented approximately 70%, 20% and 10% of our consumer-to-consumer revenue, respectively. The table below sets forth performance indicators for the consumer-to-consumer segment for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

 	  	Six Months Ended
June 30,	 	 	Years Ended
December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Consumer-to-consumer transaction growth (a)	  			 			 			 			 			
International (c)	  	33	%	 	24	%	 	27	%	 	24	%	 	25	%	
Domestic (d)	  	3	%	 	3	%	 	5	%	 	8	%	 	6	%	
Mexico (e)	  	49	%	 	20	%	 	28	%	 	16	%	 	22	%	
Consumer-to-consumer revenue growth (b)	  			 			 			 			 			
International	  	16	%	 	18	%	 	16	%	 	21	%	 	25	%	
Domestic	  	3	%	 	2	%	 	4	%	 	8	%	 	3	%	
Mexico	  	45	%	 	23	%	 	33	%	 	6	%	 	16	%	

(a)	Transaction growth for the six months ended June 30, 2006, excluding Vigo, was 26% for International, 3% for Domestic and 12% for Mexico. Transaction growth from 2004 to 2005, excluding Vigo, was 26% for International, 5% for Domestic, and 21% for Mexico.	
(b)	Revenue growth for the six months ended June 30, 2006, excluding Vigo, was 13% for International, 2% for Domestic and 15% for Mexico. Revenue growth from 2004 to 2005, excluding Vigo, was 15% for International, 4% for Domestic, and 27% for Mexico.	
(c)	Represents transactions between and within foreign countries (excluding Canada and Mexico), transactions originated in the United States or Canada destined for foreign countries and foreign country transactions destined for 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 (d) and (e) below.	
(d)	Represents all transactions between and within the United States and Canada.	
(e)	Represents all transactions to and from Mexico.	
 
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Transaction fees and foreign exchange revenue
 
Consumer-to-consumer money transfer revenue growth in the six months ended June 30, 2006 over the same period in 2005 was driven by international revenue growth and the acquisition of Vigo, which was completed in the fourth quarter 2005. Vigo contributed $68.4 million in transaction fee and foreign exchange revenue for the six months ended June 30, 2006. In the three months ended June 30, 2006, transaction growth in our consumer-to-consumer business, primarily the United States to Mexico and Latin American corridors, and to a lesser extent the domestic money transfer business, was adversely impacted by what we believe is uncertainty created by immigration reform activities in the United States. Since the end of the second quarter, we have seen this trend continue, and as uncertainty about immigration reform persists, we anticipate our businesses will continue to be similarly impacted for some period of time.
 
International revenue growth in the six months ended June 30, 2006 compared to the same period in 2005 resulted from money transfer transaction growth and the acquisition of Vigo. International money transfer transaction growth in the six months ended June 30, 2006 compared to the prior year period was driven most significantly by growth in the United States and European outbound businesses. The key inbound markets of India and China continue to grow, with transactions in India doubling for the six month period in 2006 compared to the same period in 2005, and a transaction growth rate for the same period of 40% in China. Growth in international intra-country transactions of 94% for the six months ended June 30, 2006, mostly driven by the Philippines and Chile, also contributed to international transaction growth. These intra-country transactions deliver lower average revenue per transaction than cross-border transactions.
 
For the six months ended June 30, 2006, the exchange rates between the euro and the United States dollar resulted in a reduction to consumer-to-consumer revenue of $20.5 million compared to a benefit to revenue of $20.3 million for the same period in 2005, assuming a constant exchange ratio between the euro and the United States dollar (i.e., as if there was no change in exchange rates from the same periods in the previous year). On a euro-adjusted basis, international revenue grew 18% for the six months ended June 30, 2006, compared to 16% in the comparable period in 2005, with Vigo contributing 3% to the 2006 growth rates.
 
The difference between international transaction growth and revenue growth increased by 11 percentage points in the six months ended June 30, 2006 compared to the same period in 2005, with Vigo accounting for approximately 4 percentage points of the increase. The difference was also impacted by the decline in the exchange rate between the euro and the United States dollar, as noted above and strong growth in lower revenue-per-transaction international intra-country transactions.
 
Growth in Mexico money transfer transactions for the six months ended June 30, 2006 compared to the same period in 2005 was driven by the acquisition of Vigo and growth in Western Union branded transactions, partially offset by a decline in Orlandi Valuta branded transactions, primarily in the second quarter of 2006. Revenues from Western Union branded Mexico transactions grew 20% for the six months ended June 30, 2006, compared to 30% for the same period in 2005. The decline in revenue growth was primarily due to what we believe is uncertainty created by immigration reform activities in the United States. Domestic transaction growth rates, including westernunion.com, in the first six months of 2006 over the same period in 2005 were lower from the growth rates observed for the full year 2005 primarily due to the immigration reform factors discussed above.
 
A key driver of our growth continues to be existing agent locations. Our United States and Canada same-store-sales transaction growth, which includes domestic transactions, transactions destined for Mexico and other countries, and westernunion.com, was 14% for both the six month periods ended June 30, 2006 and 2005. Contributing to the increase in total consumer-to-consumer money transfer revenue and transaction growth was the growth in transactions at existing agent locations, the number of agent locations and marketing campaigns promoting Western Union services. In line with our strategic objective of building the Western Union brand, marketing expenditures increased during the first six months of 2006.
 
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Foreign exchange revenue increased for the six months ended June 30, 2006 due to the acquisition of Vigo and an increase in cross-currency transactions.
 
The majority of transaction growth is derived from more mature agent locations as new agent locations typically contribute only marginally to revenue growth in the first few years of their operation. Increased productivity, measured by transactions per location, often is experienced as locations mature. We believe that new agent locations will help drive growth by increasing the number of locations available to send and receive money. We generally refer to locations with more than 50% of transactions being initiated versus paid out as “send locations” and to the balance of locations as “receive locations.” Send locations are the engine that drives consumer-to-consumer revenue. They contribute more transactions per location than receive locations. However, a wide network of receive locations is necessary to build each corridor and help ensure global distribution. The number of send and receive transactions at an agent location can vary significantly due to such factors as customer demographics around the location, immigration patterns, the location’s class of trade, hours of operation, length of time the location has been offering Western Union services, regulatory limitations and competition. Each of the over 270,000 agent locations in our agent network is capable of providing one or more of our services; however not every location completes a transaction in a given period. For example, as of June 30, 2006, approximately 85% of the combined locations in the United States, Canada and Western Europe experienced money transfer activity in the last 12 months. In the developing regions of Asia and other areas where there are predominantly receive locations, approximately 65% of locations experienced money transfer activity in the last 12 months. We periodically review locations to determine whether they remain enabled to complete money transfer transactions.
 
Consumer-to-consumer revenue growth in 2005 was driven by growth in consumer-to-consumer transactions and the acquisition of Vigo in October 2005. International transaction growth benefited from growth in the United States and European outbound businesses and strong growth in China, India and the Philippines, including the Philippines intra-country business. Consumer-to-consumer revenue growth was also impacted by exchange rates. For the year ended December 31, 2005, the exchange rates between the euro and the United States dollar resulted in a year-over-year negative impact to revenue of $1.4 million compared to benefits of $73.4 million and $109.7 million in 2004 and 2003, respectively, assuming a constant exchange ratio (i.e., as if there were no change in exchange rates from the same period in the previous year) between the euro and the United States dollar. Changes in exchange rates primarily impact international revenue. On a euro-adjusted basis, international revenue growth was 16%, 17% and 17% for the years ended December 31, 2005, 2004 and 2003, respectively. Growth in Mexico transactions for the year ended December 31, 2005 was driven by growth in Western Union branded transactions. The lower transaction and revenue growth rates in domestic money transfer for the year ended December 31, 2005 compared to 2004 are not attributable to any specific event. Domestic transaction growth increased from 3% in the first quarter of 2005 to 6% in the third and fourth quarters of 2005.
 
Consumer-to-consumer revenue growth for the year ended December 31, 2004 was driven by growth in the international business. Growth in international transactions resulted from continued strength in the United States outbound business and the performance of the international business outside the United States. The growth from the maturing of existing locations and new international locations also contributed to sustained growth. International revenue and transaction growth rates in 2004 were negatively impacted, although not significantly, by political events, economic conditions and compliance related activity when compared to 2003. Growth in Mexico transactions in 2004 was 16%. We were able to achieve this growth rate in this highly competitive market by implementing next day service offerings, executing marketing programs and offering payment services at over 7,000 Western Union branded and Orlandi Valuta branded locations in Mexico. Domestic transaction growth in 2004 was driven by increased marketing.
 
The difference between international transaction growth and revenue growth increased in 2005 compared to 2004 primarily as a result of the negative currency conversion impact of the euro compared to the benefit in the prior year as noted above, which negatively impacted revenue growth compared to the prior year. Intra-country business is incremental to both transactions and revenue but benefited transaction growth more than revenue growth. Consumer-to-consumer net pricing decreases, as a percentage of our total revenue, were consistent from 2004 to 2005.
 
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Western Union’s United States and Canada same-store-sales transaction growth which includes domestic transactions and westernunion.com, as well as transactions destined for Mexico and other countries, was 15% in 2005 compared to 2004 and 16% in 2004 compared to 2003.
 
Contributing to the increase in consumer-to-consumer revenue and transaction growth in all periods presented were the maturing of existing agent locations, the increased number of agent locations and targeted marketing campaigns promoting Western Union services.
 
Foreign exchange revenue increased in 2005 compared to 2004 and in 2004 compared to 2003 due to an increase in cross-currency transactions. In addition, growth in 2005 was impacted by the acquisition of Vigo.
 
Operating income
 
The consumer-to-consumer segment’s operating income increased for the six months ended June 30, 2006 compared to the same period in 2005 as a result of the items noted in “Transaction Fees and Foreign Exchange Revenue” above. Operating income growth of 4% was adversely impacted by the October 2005 acquisition of Vigo, the accrual of additional expenses related to a consent agreement with the Arizona Department of Financial Institutions, and increased corporate overhead allocations from First Data, including allocated stock compensation in connection with the adoption of SFAS 123R.
 
Consumer-to-consumer operating income increased for the year ended December 31, 2005 versus 2004 and for the year ended December 31, 2004 compared to 2003 due to the increase in revenue. Also benefiting 2005 operating income was significantly lower employee incentive compensation due to a certain First Data performance measure not being met, which positively impacted operating margins in 2005 compared to 2004. Marketing expenses increased in 2005 and 2004, but remained relatively consistent as a percentage of total revenue.
 
Consumer-to-Business Segment
 
The following table sets forth our consumer-to-business segment results of operations for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

 	  	Six Months Ended
June 30,	 	 	% Change	 	 	Years Ended December 31,	 	 	% Change	 	
 	  	2006	 	 	2005	 	 	YTD 2006
vs. YTD 2005	 	 	2005	 	 	2004	 	 	2003	 	 	2005
vs. 2004	 	 	2004
vs. 2003	 	
(in millions)	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues:	  				 				 			 				 				 				 			 			
Transaction fees	  	$	297.7	 	 	$	279.8	 	 	6	%	 	$	565.0	 	 	$	545.4	 	 	$	553.7	 	 	4	%	 	(1	)%	
Other revenues	  	 	18.6	 	 	 	16.5	 	 	13	%	 	 	35.2	 	 	 	30.9	 	 	 	32.4	 	 	14	%	 	(5	)%	
	  	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Total revenues	  	$	316.3	 	 	$	296.3	 	 	7	%	 	$	600.2	 	 	$	576.3	 	 	$	586.1	 	 	4	%	 	(2	)%	
	  	 	 	 	 	 	 	 	 			 	 	 	 	 	 	 	 	 	 	 	 	 			 			
Operating income	  	$	112.2	 	 	$	112.0	 	 	—	%	 	$	220.4	 	 	$	219.5	 	 	$	230.0	 	 	—	%	 	(5	)%	
Operating margin	  	 	35	%	 	 	38	%	 			 	 	37	%	 	 	38	%	 	 	39	%	 			 			
Key indicators:	  				 				 			 				 				 				 			 			
Consumer-to-business transactions (unaudited)	  	 	120.71	 	 	 	102.30	 	 	18	%	 	 	215.11	 	 	 	192.57	 	 	 	179.39	 	 	12	%	 	7	%	
 
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Transaction fees
 
Strong transaction growth in electronic payments drove transaction fee growth for the six months ended June 30, 2006 versus the same period in 2005, including strong transaction growth of our Speedpay and Equity Accelerator services. The growth rate also benefited, compared to the prior periods, from the Western Union Quick Collect ® cash payments service experiencing a slower rate of decline in the first half of 2006 versus the first half of 2005 resulting from new business. In addition, our Convenience Pay ® business benefited from the addition of a large new biller in the third quarter of 2005 which had a positive impact to transaction and revenue growth rates for the six months ended June 30, 2006 as compared to the same period in 2005.
 
Transaction fee growth for the year ended December 31, 2005 was driven by growth in our electronic payment services as well as the new Convenience Pay biller relationship and the factors related to Western Union Quick Collect discussed above. Transaction fee revenue decreased for the year ended December 31, 2004 compared to 2003 as a result of a decline in the cash payments business due to the shift in demand from cash-based walk-in payment services to electronic payment services.
 
Operating income
 
Operating income for the six months ended June 30, 2006 was consistent with the same period in 2005 despite growth in electronic-based transactions. The shift to electronic-based products from cash-based products, which have higher operating margins than electronic products, negatively impacted operating income in the six month period in 2006. Operating income in the six months ended June 30, 2006 was also impacted by increased corporate overhead allocations from First Data including allocated stock compensation in connection with the adoption of SFAS No.123R.
 
The same factors impacted the operating income increase from 2004 to 2005. The consumer shift from cash-based walk-in payment services to electronic payment services contributed to the decline in operating income from 2003 to 2004. Recent trends in consumer-to-business operating margins are impacted by the  shift from cash-based services to electronic payment services.
 
Other
 
The following table sets forth other results for the six months ended June 30, 2006 and 2005 and for the years ended December 31, 2005, 2004 and 2003.

 	  	Six Months
Ended
June 30,	  	% Change	 	 	Years Ended December 31,	  	% Change	 	
 	  	2006	  	2005	  	YTD 2006
vs. YTD 2005	 	 	2005	  	2004	  	2003	  	2005
vs. 2004	 	 	2004
vs. 2003	 	
(dollars in millions)	  	(unaudited)	  	 	 	 	 	  	 	  	 	  	 	 	 	 	 	
Revenues	  	$	47.4	  	$	57.5	  	(18	)%	 	$	113.7	  	$	115.6	  	$	113.1	  	(2	)%	 	2	%	
Operating income	  	 	10.3	  	 	5.6	  	*	 	 	 	0.9	  	 	6.1	  	 	7.8	  	*	 	 	*	 	

*	Calculation not meaningful	
 
Revenues
 
Our money order and prepaid services businesses accounted for 70%, 64% and 65% of other revenue in 2005, 2004 and 2003, respectively, and 89% and 67% of other revenue for the six months ended June 30, 2006 and 2005, respectively. These two businesses are the only businesses classified in “Other” with expected recurring revenue. Revenue was driven by the money order business offset by declines in revenue realized by all of the businesses shut down or disposed of described in operating income below.
 
Operating Income
 
For the six months ended June 30, 2006 and 2005, operating income growth was driven by the money order business and the elimination of operating losses of the businesses shut down or disposed of described below.
 
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The decrease in operating income during the year ended December 31, 2005 from the year ended December 31, 2004 was due primarily to a goodwill impairment charge recognized in 2005 of $8.7 million due to a change in strategic direction relating to our majority interest in Eposs. The decrease in operating income during the year ended December 31, 2004 from the year ended December 31, 2003 was due to declines in operating performance of Eposs and our auction payments and messaging businesses. Aggregate operating losses related to these businesses for the years ended December 31, 2005, 2004 and 2003 were $16.2 million, $8.2 million and $1.4 million, respectively.
 
Capital Resources and Liquidity
 
Historically, our source of liquidity was cash generated from our operating activities. Management believes that Western Union’s current level of cash and future cash flows from operating activities are sufficient to meet the needs of its existing business.
 
As an integral part of our business, we receive funds from money transfers and certain other payment processing services sold in advance of settlement with payment recipients. These funds (referred to as “Settlement assets” on our combined balance sheets) are not used to support our operations. However, we do have the opportunity to earn income from investing these funds. We maintain a portion of these settlement assets in highly liquid investments (classified as “Cash and cash equivalents” within “Settlement assets”) to fund settlement obligations.
 
We expect that in connection with the spin-off we will transfer to First Data approximately $3.5 billion in the form of a combination of cash and our debt securities, which will include a dividend paid to First Data in the form of a promissory note from our subsidiary, FFMC, in an aggregate principal amount of approximately $2.4 billion, the issuance by The Western Union Company to First Data of approximately $1.0 billion in Western Union notes and a cash payment by The Western Union Company to First Data of approximately $100.0 million in cash, which will be financed through borrowings under the revolving credit facility we expect to enter into on the distribution date. In addition, we will distribute to First Data approximately $210.0 million in cash from existing cash balances.
 
We expect that FFMC will repay the promissory note on the distribution date or shortly thereafter with borrowings under a bridge loan facility it will enter into on or shortly after distribution date. The Western Union Company is considering and, subject to market and other conditions following the spin-off, expects to refinance the amounts borrowed by FFMC under the bridge loan with proceeds from debt The Western Union Company will issue or amounts The Western Union Company will otherwise borrow following the distribution date. However, we do not have any agreements or arrangements with any financial institution or other third parties with respect to such refinancing and there can be no assurance that The Western Union Company will be able to refinance the borrowings under the FFMC bridge loan. We expect that the Western Union notes and the revolving credit facility will require us to cause FFMC to guarantee the obligations of The Western Union Company with respect to the Western Union notes and the revolving credit facility if, among other things, indebtedness outstanding under the FFMC bridge loan described above is in excess of a to be determined amount within a specified time period after the distribution date.
 
We also expect to enter into a $1.5 billion revolving credit facility with certain financial institutions on the distribution date that will be used to finance the $100.0 million cash payment to First Data and for general corporate purposes.
 
We generated cash flow from operations in 2005 of $1,002.8 million, issued dividends to First Data of $417.2 million and loaned First Data affiliates $504.7 million. We believe historical cash flow generated from operations provides a reasonable expectation of future cash flows. In addition, we anticipate dividends paid to our stockholders after the spin-off will be significantly less than historical dividends paid to First Data, and we will not make loans to First Data after the spin-off. Considering 2005 pro forma interest expense of $202.3
 
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million, estimated capital expenditures in 2006 of between approximately $200 million and $225 million (excluding capital expenditures relating to the spin-off) and estimated additional costs associated with being a stand-alone company of between $65 million and $75 million annually, our cash flow will provide us with opportunities to invest in our core business growth, new services and new markets. The timing of these investments will be based on specific opportunities. See “Unaudited Pro Forma Combined Financial Statements” beginning on page 29 for further discussion of our pro forma interest expense and incremental costs associated with being a stand-alone company.
 
The following discussion highlights our cash flow activities during the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003.
 
Cash and Cash Equivalents
 
Highly liquid investments (other than those included in Settlement assets) with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates market value. At June 30, 2006, December 31, 2005 and 2004, we held $655.8 million, $510.2 million and $469.7 million in cash and cash equivalents, respectively.
 
At June 30, 2006, December 31, 2005 and 2004, $328.4 million, $187.7 million and $167.8 million, respectively, of our cash and cash equivalents were held outside the United States. We currently plan to invest these funds overseas; however repatriating these funds to the United States  could result in additional taxes.
 
Cash Flows from Operating Activities

 	  	Six Months Ended
June 30,	 	 	Years Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Source (use) (in millions)	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	438.7	 	 	$	451.6	 	 	$	927.4	 	 	$	751.6	 	 	$	633.7	 	
Depreciation and amortization	  	 	49.1	 	 	 	39.0	 	 	 	79.5	 	 	 	79.2	 	 	 	78.4	 	
Deferred income tax provision	  	 	21.5	 	 	 	18.2	 	 	 	24.9	 	 	 	47.6	 	 	 	63.3	 	
Realized (gain)/loss on derivative instruments	  	 	(7.9	)	 	 	7.7	 	 	 	0.5	 	 	 	23.2	 	 	 	30.8	 	
Other non-cash items, net	  	 	18.9	 	 	 	8.9	 	 	 	25.8	 	 	 	13.9	 	 	 	18.7	 	
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:	  				 				 				 				 				
Other assets	  	 	(39.4	)	 	 	(9.1	)	 	 	(8.8	)	 	 	(13.8	)	 	 	(27.5	)	
Accounts payable and accrued liabilities	  	 	(10.4	)	 	 	(14.2	)	 	 	(17.9	)	 	 	(6.3	)	 	 	(11.8	)	
Other liabilities	  	 	11.4	 	 	 	(34.2	)	 	 	(28.6	)	 	 	34.8	 	 	 	7.2	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	$	481.9	 	 	$	467.9	 	 	$	1,002.8	 	 	$	930.2	 	 	$	792.8	 	

Cash provided by operating activities increased during the six months ended June 30, 2006 compared to the six months ended June 30, 2005 despite a decrease in net income during the six months as a result of increases to non-cash expenses, including depreciation and amortization and other non-cash items.
 
Cash provided by operations has historically been driven by net income, and increased in 2005 compared to 2004, and 2004 compared to 2003, primarily due to consumer-to-consumer transaction growth as previously discussed. Changes in components of working capital are subject to fluctuations based on the timing of cash transactions related to settlements of certain liabilities.
 
Other non-cash items include impairments, bad debt reserves, gains and losses on disposals of fixed assets and other non-cash items.
 
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Cash Flows from Investing Activities

 	  	Six Months Ended
June 30,	 	 	Years Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Source (use) (in millions)	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Capitalization of contract costs	  	$	(79.9	)	 	$	(3.7	)	 	$	(22.5	)	 	$	(7.3	)	 	$	(57.7	)	
Capitalization of software development costs	  	 	(2.0	)	 	 	(1.8	)	 	 	(7.7	)	 	 	(15.7	)	 	 	(18.5	)	
Purchases of property and equipment	  	 	(32.5	)	 	 	(14.2	)	 	 	(34.8	)	 	 	(26.5	)	 	 	(23.6	)	
Notes receivable issued to agents	  	 	(140.0	)	 	 	(4.4	)	 	 	(8.4	)	 	 	—  	 	 	 	—  	 	
Acquisition of businesses, net of cash acquired, and contingent purchase consideration paid	  	 	—  	 	 	 	—  	 	 	 	(349.1	)	 	 	(28.7	)	 	 	(43.7	)	
Cash received (paid) on maturity of foreign currency forwards	  	 	7.9	 	 	 	(7.7	)	 	 	(0.5	)	 	 	(23.2	)	 	 	(30.8	)	
Purchase of equity method investments	  	 	—  	 	 	 	(5.4	)	 	 	(5.4	)	 	 	(42.0	)	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	  	$	(246.5	)	 	$	(37.2	)	 	$	(428.4	)	 	$	(143.4	)	 	$	(174.3	)	

Capital expenditures
 
Total aggregate payments capitalized for purchases of property and equipment, software development and contract costs were $65.0 million, $49.5 million and $99.8 million in 2005, 2004 and 2003, respectively. Amounts capitalized for contract costs relate to initial payments for new and renewed agent contracts and vary depending on the timing of when contracts are executed or renewed. The decrease in software development costs during 2005 compared to 2004 relates primarily to the timing of internally developed software projects. We estimate that capital expenditures in 2006 will be between approximately $200 million and $225 million, excluding capital expenditures relating to the spin-off. The increase in capital expenditures expected is primarily due to the initiation and renewal of certain large strategic agent contracts in 2006.
 
During the six months ended June 30, 2006, the increased property and equipment cash outflow was driven by the purchase of an office building. Also, in the first quarter of 2006, we executed certain large strategic agent contracts for which initial payments were made which drove the six months ended June 30, increase in capitalized contract costs.
 
Notes receivable issued to agents
 
From time to time, we make advances and loans to agents. In January 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. The terms of the loan agreement require that a percentage of commissions earned by the agent (39% in 2006, 52% in 2007, 61% in 2008 and 64% in 2009) be withheld by us as repayment of the loan and the agent remains obligated to repay the loan if commissions earned are not sufficient. The loan receivable was recorded in “other assets” in the combined balance sheets as of June 30, 2006. We impute interest on this below market rate note receivable and have recorded this note net of a discount of $45.9 million as of June 30, 2006.
 
Acquisition of businesses, net of cash acquired, and contingent purchase consideration paid
 
During 2005, First Data acquired 100% of Vigo for $349.1 million, net of cash acquired. In 2004 and 2003, the majority of contingent consideration payments were made by First Data in connection with the acquisitions of Paymap Inc., or “Paymap,” and E Commerce Group, Inc., or “ECG,” made in the second quarter of 2002. First Data will contribute Vigo, Paymap and ECG to us as part of the spin-off.
 
Cash received (paid) on maturity of foreign currency forwards
 
Our foreign currency forward contracts that are not held to mitigate foreign currency exchange rate fluctuations in settlement assets and settlement obligations usually have maturities of one year, and the amounts received or paid on maturity for such contracts are driven primarily by variations in the market foreign exchange rate at the time of maturity and the forward contract rate.
 
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Purchase of equity method investments
 
In 2004, we purchased 30% interests in two of our international money transfer agents. The aggregate purchase price paid was $42.0 million, net of $5.4 million of holdback reserves to cover claims arising from the acquisitions. The holdback reserves were paid in the first quarter of 2005.
 
Cash Flows from Financing Activities

 	  	Six Months
Ended
June 30,	 	 	Years Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Source (use) (in millions)	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Advances from/(to) affiliated companies	  	$	17.7	 	 	$	(282.8	)	 	$	(153.2	)	 	$	250.0	 	 	$	(359.0	)	
Capital contributed by parent in connection with acquisitions	  	 	—  	 	 	 	—  	 	 	 	369.2	 	 	 	28.7	 	 	 	44.1	 	
Proceeds from notes payable issued to affiliated companies	  	 	—  	 	 	 	—  	 	 	 	400.1	 	 	 	255.0	 	 	 	9.9	 	
Repayments of notes payable to affiliated companies	  	 	(100.0	)	 	 	—  	 	 	 	(246.5	)	 	 	(255.0	)	 	 	—  	 	
Additions to notes receivable from affiliated companies	  	 	(7.5	)	 	 	(25.1	)	 	 	(504.7	)	 	 	(270.7	)	 	 	—  	 	
Proceeds from repayments of notes receivable from affiliated companies	  	 	—  	 	 	 	—  	 	 	 	18.4	 	 	 	—  	 	 	 	—  	 	
Dividends to parent company	  	 	—  	 	 	 	—  	 	 	 	(417.2	)	 	 	(659.8	)	 	 	(324.2	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities	  	$	(89.8	)	 	$	(307.9	)	 	$	(533.9	)	 	$	(651.8	)	 	$	(629.2	)	

Advances from/(to) affiliated companies
 
As part of First Data, excess cash generated from our domestic operations, not required to meet certain regulatory requirements, is paid periodically to First Data and is reflected as a receivable from affiliated companies. In addition, First Data and its subsidiaries provide a number of services on behalf of our businesses, including shared services, which are reimbursed periodically. The net payable to and receivable from affiliated companies is a function of the timing of cash sweeps to First Data net of any services First Data and its affiliates have provided.
 
Capital contributed by parent in connection with acquisitions
 
In 2005, Western Union received a contribution of capital in connection with the acquisition of Vigo. In 2004 and 2003, First Data contributed capital in connection with contingent consideration payments made by First Data in connection with the acquisitions of Paymap and ECG, both of which will be contributed to Western Union as part of the spin-off.
 
Notes payable to and receivable from affiliated companies
 
In 2005 and 2004, we made advances to affiliates of First Data in the form of notes of $504.7 million and $270.7 million, respectively, to finance certain international acquisitions made by those First Data affiliates. These notes were funded primarily through cash generated from our international operations and notes payable issued to affiliates of First Data with balances of $153.6 million at December 31, 2005. The notes payable were partially repaid in the first half of 2006. As part of the spin-off, substantially all notes payable and notes receivable to or from affiliates of First Data are expected to be settled in cash.
 
Dividends to parent company
 
In 2005, 2004 and 2003, we paid dividends to First Data from profit generated from operations. The amount of dividends distributed in each year was impacted by the cash balances available as a result of loans made to affiliates.
 
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Incremental Costs Associated with Being a Stand-Alone Company
 
Following the spin-off, we will incur recurring costs associated with being a stand-alone company that we did not incur as a part of First Data and are therefore not included in our historical combined financial statements. The following table reflects our annual estimates of such additional costs and variations in cost resulting from our separation from First Data, in each case, as if the spin-off had occurred on January 1, 2005:

  	  	(in millions)	 	
Estimated additional costs of being a stand-alone company as if the spin-off had occurred on January 1, 2005:	  				
Staffing additions and related costs to replace First Data support	  	$	76	 	
Corporate governance	  	 	19	 	
Information technology	  	 	13	 	
Corporate branding and global affairs	  	 	12	 	
Benefits and payroll administration	  	 	2	 	
Other	  	 	7	 	
	  	 	 	 	
Total estimated new costs of being a stand-alone company	  	 	129	 	
		
Less: First Data general corporate overhead allocation	  	 	(69	)	

Estimated incremental costs	  	$	60	 	

In addition to the costs noted above, subject to the finalization of our plans, we estimate additional costs of between $5 million and $15 million annually, including higher corporate branding and global affairs, information technology, procurement and other expenses related to being a stand-alone company. 
 
Our unaudited pro forma combined statements of income do not give effect to initial expenses directly attributable to the spin-off because of their non-recurring nature. A significant portion of these non-recurring charges to effect the separation will be incurred by First Data, such as investment banker fees, outside legal and accounting fees relating to the spin-off, office move costs, costs to separate information systems and temporary consulting costs. We will incur separation costs that have a future benefit to our company such as recruiting and relocation expenses associated with hiring key senior management positions new to our company, other employee compensation expenses and temporary labor used to develop ongoing processes. We estimate total non-recurring separation charges that our company will incur, which are not included in our unaudited pro forma combined statements of income, to be approximately $15 million to $25 million. We anticipate that substantially all of these costs will be incurred within 12 months of the spin-off. See “Our Relationship with First Data After the Spin-Off—Separation and Distribution Agreement—Expenses.”
 
Significant Non-cash Transactions
 
During the six months ended June 30, 2006 and the years ended December 31, 2005 and 2004, approximately 244,000, 50,000 and 50,000 shares, respectively, of restricted common stock of First Data were issued to certain Western Union employees in conjunction with First Data’s incentive compensation plans. There were no restricted shares of First Data common stock issued to Western Union employees during 2003.
 
Off-Balance Sheet Arrangements
 
Other than facility and equipment leasing arrangements, we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
 
Pension Plans
 
We have two frozen defined benefit plans that together were underfunded by $69.8 million as of September 30, 2005. In 2005, we did not make a contribution to these plans and we do not intend to contribute to these plans
 
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in 2006 since, based on current asset return calculations and minimum funding requirements, no such contribution is required. We do not believe that recently enacted legislation relating to pension plans will have an impact on our funding requirement until at least 2008.
 
Letters of Credit
 
We had $32.8 million in outstanding letters of credit at December 31, 2005 with expiration dates through 2010, certain of which contain a one-year renewal option. The letters of credit are held in connection with lease arrangements and agent settlement agreements. We expect to renew the letters of credit prior to their expiration.
 
Contractual Obligations
 
The following table summarizes our contractual obligations to third parties as of December 31, 2005 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions).

 	  	Payments Due by Period	
 	  	Total	  	Less than 1 Year	  	1–3 Years	  	4-5 Years	  	After 5 Years	
Notes payable to affiliates (a):	  	$	163.5	  	$	163.5	  	$	—  	  	$	—  	  	$	—  	
Operating leases	  	 	99.3	  	 	25.1	  	 	43.4	  	 	7.0	  	 	23.8	
Purchase obligations (b)	  	 	23.8	  	 	14.9	  	 	6.2	  	 	2.7	  	 	—  	
	  	 	 	  	 	 	  	 	 	  	 	 	  	 	 	
	  	$	286.6	  	$	203.5	  	$	49.6	  	$	9.7	  	$	23.8	

(a)	Expected remaining balances to be paid in full or forgiven at the time of the spin-off.	
(b)	Many of our contracts contain clauses that allow us to terminate the contract with notice, and with or without a termination penalty. Termination penalties are generally an amount less than the original obligation. Certain contracts also have an automatic renewal clause if we do not provide written notification of our intent to terminate the contract. Obligations under certain contracts are usage-based and are, therefore, estimated in the above amounts. Historically, we have not had any significant defaults of our contractual obligations or incurred significant penalties for termination of our contractual obligations.	
 
Critical Accounting Policies
 
Management’s discussion and analysis of results of operations and financial condition is based on our combined financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities and other related disclosures. Actual results may or may not differ from these estimates. We believe that the understanding of certain key accounting policies and estimates are essential in achieving more insight into our operating results and financial condition. These key accounting policies include stock-based compensation, income taxes, derivative financial instruments and capitalized costs.
 
Stock-Based Compensation
 
We adopted SFAS 123R effective January 1, 2006. SFAS 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant date fair values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. We selected the modified-prospective method of adoption and straight-line amortization of compensation cost over the requisite service period. We currently utilize the Black-Scholes option pricing model to measure the fair value of stock options granted to employees and directors. While SFAS No. 123R permits entities to continue to use such a model, the standard also permits the use of a more complex binomial, or “lattice” model. Based upon the type and number of stock options expected to be issued in the future, we have determined that we will continue to use the Black-Scholes model for option valuation. Option-pricing models require us to estimate a number of key valuation inputs including expected volatility, expected dividend yield,
 
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expected term and risk-free interest rate. The most subjective estimates are the expected volatility of the underlying stock and the expected term. Accordingly, the fair value of stock options are affected by the assumptions we select. Stock-based compensation expense, including the impact of adopting SFAS 123R, was $6.1 million for the six months ended June 30, 2006.
 
Refer to Note 15—“Stock Compensation Plans” of our historical combined financial statements for a discussion of First Data’s stock-based compensation plans and the adoption of SFAS 123R.
 
Income taxes
 
Income taxes, as reported in our combined financial statements, represent the net amount of income taxes we expect to pay or receive from various taxing jurisdictions in connection with our operations. We provide for income taxes based on amounts that we believe we will ultimately owe. Inherent in the provision for income taxes are estimates and judgments regarding the tax treatment of certain items and the realization of certain offsets and credits. In the event that the ultimate tax treatment of items or the realizations of offsets or credits differ from our estimates, we may be required to significantly change the provision for income taxes recorded in our financial statements.
 
To address certain aspects of a 2003 legal restructuring of our international operations, First Data initiated discussions with the Internal Revenue Service pursuant to the Internal Revenue Service’s APA Program. If an APA is successfully negotiated, we generally will avoid further examination, during the term of the APA, of the transfer pricing methods applicable to, and valuations of, the covered transactions. We continue to negotiate with the Internal Revenue Service in the APA process, and while we hope to reach a resolution through the process, there can be no assurances that the APA negotiations will be resolved in a manner acceptable to us. If not so resolved, the matter would then likely proceed to other forums within the Internal Revenue Service. We have established contingency reserves for material, known tax exposures, including the potential for tax audit adjustments with respect to taxes associated with our foreign business that is the subject of the 2003 legal restructuring and the Internal Revenue Service’s APA Program discussions referenced above. These tax reserves reflect what we believe to be reasonable assumptions as to the likely resolution of the issues involved if subject to judicial review. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed the Company’s related reserve. Regarding the 2003 legal restructuring, we have benefited by having our income from certain foreign-to-foreign money transfer transactions taxed at relatively low foreign tax rates rather than the United States statutory tax rate. The amount of taxes attributable to such rate differential is included in the “Foreign rate differential” line in the effective tax rate reconciliation in Note 9—“Income Taxes” to our historical combined financial statements and cumulatively totaled $131.6 million through December 31, 2005. Any differences from our positions as recorded in our financial statements upon resolution of these issues will be reflected as a part of income tax expense in the period during which the issues are resolved. Such resolution could also affect our effective tax rate in future periods.
 
Derivative Financial Instruments
 
We use foreign currency forward contracts to mitigate the risks associated with changes in foreign currency. As required, these instruments are reflected in our combined balance sheets at fair value. Although our intent was for these derivatives to qualify for hedge accounting, during an evaluation of the documentation requirements under applicable derivative accounting rules, we determined that our hedge documentation was not adequate at the inception of the derivative agreements to qualify for hedge accounting. As a result, all increases or decreases in the fair market value of the derivative instruments are recognized in the combined statements of income whereas increases and decreases to such derivatives were previously recognized in accumulated other comprehensive income or loss on our combined balance sheets.
 
We intend to enter into foreign currency forward contracts in the future, which we intend to designate as cash flow hedges. We also intend to redesignate existing forward contracts with revised documentation to allow
 
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for hedge accounting treatment for such existing and future foreign currency forward positions, which we intend to do as expeditiously as possible. To the extent these hedges do not qualify as cash flow hedges, or if we cease to believe that forecasted transactions would occur, the changes in the fair value of those derivatives used as hedges would be reflected in earnings. Our company does not believe it is exposed to more than a nominal amount of credit risk with respect to its currency forward contracts, as the counterparties are established, well-capitalized financial institutions. The estimated fair value of our derivative financial instruments is based on market and dealer quotations. Accordingly, these estimated values may not be representative of actual values that could have been realized as of December 31, 2005 or 2004 or that will be realized in the future.
 
Capitalized Costs
 
We capitalize initial payments for new contracts and contract renewals associated with agent contracts and software costs. Capitalization of these costs is subject to strict accounting policy criteria and requires management judgment as to the appropriate time to initiate capitalization.
 
Our accounting policy is to limit the amount of capitalized costs for a given contract to the lesser of the estimated ongoing future cash flows from the contract or the termination fees we would receive in the event of early termination of the contract.
 
We develop software used in providing services. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when we have completed all planning, designing, coding and testing activities that are necessary to determine that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is available for general use. Currently unforeseen circumstances in software development could require us to implement alternative plans with respect to a particular effort, which could result in the impairment of previously capitalized software development costs.
 
New Accounting Pronouncement
 
The Financial Accounting Standards Board (“FASB”) has issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact FIN 48 will have on our combined results of operations and financial position.
 
Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency, exchange rates and interest rates.
 
Foreign Currency Risk
 
We are exposed to changes in currency rates as a result of our investments in foreign operations and from transactions in currencies other than the United States dollar. A risk management program is in place to manage these risks.
 
We provide money transfer services in more than 200 countries and territories. Foreign exchange risk is managed through the structure of the business and an active risk management process. We settle with the vast
 
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majority of our agents in United States dollars or euros. However, in certain circumstances, we settle in the agents’ local currencies. We typically require the agent to obtain local currency to pay recipients. Thus, we generally are not reliant on international currency markets to obtain and pay illiquid currencies. The foreign currency exposure that does exist is limited by the fact that the majority of transactions are paid within 24 hours after they are initiated. 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 helping to further provide protection against currency fluctuations. Our policy is not to speculate in foreign currencies and we promptly buy and sell foreign currencies as necessary to cover our net payables and receivables which are denominated in foreign currencies.
 
We use foreign currency forward exchange contracts to mitigate risks associated with changes in foreign currency exchange rates on transactions denominated primarily in the euro, British Pound, Canadian dollar and Swiss franc. Although historically it has been our intent for these foreign currency forward contracts to qualify as cash flow hedges, during an evaluation of the documentation requirements under applicable derivative accounting rules, we determined that our hedge documentation was not adequate at the inception of the derivative agreements to qualify for hedge accounting. As a result, changes in the fair market value of our outstanding derivative instruments, which are impacted primarily by fluctuations in the euro, are now recognized in our combined statements of income. Previously, changes to the fair value of our derivative instruments were recognized on our combined balance sheets and did not directly impact our net income. This change has resulted in volatility in our net income for the periods presented. For example, during the six months ended June 30, 2006, we had pre-tax derivative losses of $27.2 million, and for the six months ended June 30, 2005 we had pre-tax derivative gains of $36.8 million. In addition, during the year ended December 31, 2005, we had pre-tax derivative gains of $45.8 million, and we had pre-tax derivative losses of $30.2 million and $37.9 million during the years ended December 31, 2004 and 2003, respectively. We anticipate our results will be subject to volatility as a result of this change until we are able to redesignate the affected forward contracts as hedges, with revised documentation to allow for hedge accounting treatment, which we intend to do as expeditiously as possible. We also intend to have the appropriate documentation required for future foreign currency forward positions to qualify for hedge accounting treatment.
 
A hypothetical uniform 10% strengthening or weakening in the value of the United States dollar relative to all the currencies in which our profits are denominated would result in a decrease/increase to pretax income of approximately $16.6 million as of December 31, 2005. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumption that foreign exchange rate movements are linear and instantaneous. As a result, the analysis is unable to reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect income.
 
Interest Rate Risk
 
Our company is exposed to market risk from changes in interest rates. Our investment securities are primarily fixed rate interest-bearing securities. These investments arise primarily from cash received and invested relating to money transfers and other payment services awaiting redemption. We have classified these investments as available-for-sale. Accordingly, they are carried on our Combined Balance Sheets at fair market value. The interest rate risk is not considered significant to our financial position or results of operations. Our exposure to market risk for changes in interest rates will change based on the terms of the financing and the expected repayment of notes receivable and payable to affiliates in connection with the spin-off. A change in interest rates would likely impact both interest income earned by our company and interest expense incurred by our company. The net impact of a 1/8% increase in interest rates is estimated to reduce net income by approximately $2 million.
 
In order to mitigate the risk from fluctuating interest rates from our debt, we intend to pursue a strategy of balancing fixed and floating rate components.
 
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 OUR BUSINESS
 
Overview
 
Western Union, a leader in global money transfer, provides 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 270,000 agent locations that offer Western Union services 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 June 30, 2006, approximately 75% of our locations had experienced money transfer activity in the prior twelve 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 2005, we generated $4.0 billion in total combined revenues and $927.4 million in combined net income. Demand for our services has steadily increased over the past several years. Our consumer-to-consumer transactions grew at a compound annual growth rate of 21% from 2001 to 2005. We handled 119 million consumer-to-consumer money transfers in 2005, an increase of 23% over 2004. Our 215 million consumer-to-business transactions in 2005 represented a 12% increase over 2004.
 
We believe that brand strength, the size and reach of our global network, 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 broad access to an expanding portfolio of payment and other financial services.
 
History and Development
 
The Western Union Company has roots back to 1851. It first traded on the New York Stock Exchange in 1865. In 1884, Western Union was one of the original 11 companies included on the first Dow Jones average listing. We have a long history of providing innovative services, including creating the universal stock ticker and launching the first United States commercial communications satellite service. We introduced our consumer-to-consumer money transfer service in 1871. We began offering consumer-to-business payment services in 1989 when we introduced Western Union Quick Collect, providing consumers in the United States with convenient walk-in access to our agent network to pay bills in cash.
 
Since First Data acquired us in 1995, we have become a leader in the development of a formal global remittance market. Today, we offer money transfer services under the Western Union, Orlandi Valuta and Vigo brands in over 200 countries and territories.
 
The Western Union Business
 
The Western Union business model is straight-forward. 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 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.
 
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 out 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 high quality. We take little credit risk associated with consumer delinquency, because the vast majority of our transactions are initiated in cash.
 
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In our consumer-to-business segment we offer consumers the option to make consumer-to-business payments electronically over the telephone or the Internet or cash payments in person at an agent location. We process electronic payments using the consumer’s credit card, debit card or bank account. We process cash payments much like we process consumer-to-consumer transactions.
 
Geographic Presence
 
Approximately 80% of our agent locations are outside the United States. Our services are available in almost every country or territory. We have offices in more than 40 countries. In the United States, Costa Rica, Russia and Australia, our offices include customer service centers, where our employees answer operational questions from agents. Other offices, including regional management offices in Denver, Dublin, Miami, Vienna 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 dozens of 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 France, Germany, Spain, Russia, Argentina, Australia, China, India, New Zealand and elsewhere. Our services are offered through banks such as Société Générale, 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 Travelex and DHL International. Many of our agents have multiple locations. Our agents know the markets they serve. They work with our management to develop strategic plans for their markets, and many of our larger agents contribute financial resources to marketing the business.
 
Our Strengths
 
We believe our strengths position us to continue as the provider of choice for millions of consumers when they send money. 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 that help define 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 an array of other consumer products and services, including postal services, groceries, banking, check cashing, travel and other daily necessities. Many are open during nontraditional banking hours, such as 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 more than 12 years; in 2005, these agents generated approximately 50% of our consumer-to-consumer combined revenue. We occasionally acquire equity interests in certain of our agents to align their long-term interests with ours. Currently we hold minority interests in agents that have a presence in Ireland, the United Kingdom, Spain, Greece and Italy.
 
We have relationships with more than 4,500 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”). These relationships are a core component of our consumer-to-business payment services. In 2005, our top 20 billers represented approximately 45% 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. Our agent locations include more than 5,000 offering Orlandi Valuta branded service and approximately 20,000 offering Vigo branded service, with the remainder offering Western Union branded service. A small number offer service under two or three brands. Our global footprint is based on more than a decade of building relationships with agents worldwide.
 
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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. We have emphasized the development of our receive network around the world over the last five years 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 in key receive markets, such as China and India, to meet consumer demand as it evolves with shifts in migration patterns.
 
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. For financial information regarding our foreign and United States operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus.
 
Established brands. Our Western Union ® brand is built on a foundation of more than a century of history and consumer-focused service. Our consumers have told us that they believe the Western Union brand represents speed, reliability, trust, value and convenience. In the United States, where the brand has existed the longest, there is a very high level of brand awareness among money transfer users. The international expansion of our agent network over the past decade has made the Western Union brand visible today virtually everywhere consumers send and receive money. We are building the level of awareness in Europe and Asia. 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 SM brands. Over the past three years, Western Union branded transactions have grown the fastest of the three brands. Through our Western Union Quick Collect brand, as well as our Speedpay brand, 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 2005, we invested more than $270 million to market, advertise and promote our services and our agents made significant additional investments.
 
Consumer relationships . One of our strengths has been our focus on our consumers and offering them fast, reliable money transfer services. Our global loyalty card program, offered for both consumer-to-consumer and consumer-to-business services, is available in a growing number of countries. We launched our Gold Card, the principal feature of the program, in the United States in 2002. As of June 30, 2006, the loyalty program was available in 58 countries and had more than 6.5 million active cards, primarily in the United States. The Gold Card offers consumers faster service at the point-of-sale, rewards such as free telephone time and service enhancements including, on a pilot basis in select markets, remittance protection insurance. 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 more than 30% of consumer-to-consumer transactions are completed using a Gold Card. We are also seeing 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 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 steadfastly 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 dynamic computer host-to-host interfaces to our agents and billers 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.
 
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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 over 120 currencies. Many of our agents can also pay in multiple currencies at a single location, a function that is being utilized in a number of locations in the agent network.
 
Flexibility is another important component of operational excellence. We continue to work to implement consumer focused enhancements to our services. These efforts have resulted in offerings like telephone and Internet services, and money transfers paid directly to a bank account or to a stored-value card.
 
Attractive financial profile . While we expect to incur significant interest costs in connection with the debt we will incur as part of the spin-off, our revenue and net cash flow will provide us with opportunities to invest in our core business growth, in new services and in new markets. In 2005, we generated $4.0 billion in combined revenues and over $1.0 billion in combined net cash provided by operating activities. Our combined revenue has grown at a compound annual growth rate of 15% since 2001.
 
Experienced management team . Our management team is substantially the same team that managed the Western Union business for First Data before the spin-off. 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 8 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 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:
 
 	•	 	Using existing agent locations to launch new services, such as outbound service from Mexico in 2004, which generated over $10 million of revenue in 2005.	
 
 	•	 	Adding or enhancing services allowing consumers in many countries to send and receive money transfers within the same country. Excluding the United States and Canada, these intra-country transactions generated over $50 million in revenue in 2005.	
 
 	•	 	Launching our Internet service, westernunion.com, outside the United States and Canada, beginning with the United Kingdom in 2004. Our Internet service generated nearly $70 million in revenue in 2005, up 47% from 2004, and is profitable.	
 
 	•	 	Expanding our network in key receive markets, such as China and India. Combined, China and India represented about 3% of our total combined revenue in 2005.	
 
We intend to continue to identify and create opportunities to generate new revenue from our existing distribution channels, including through acquisitions and by equity investments in our agents.
 
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 like China, India and elsewhere in Asia. This increased presence in receive markets provides immigrants from these countries confidence that money they send home will be delivered to a convenient location they know. In the United States, western Europe and other predominantly send markets, we add agent locations in locales that tend to attract immigrants. While we continue to develop our global network, we expect the majority of our growth in the future to come from existing locations.
 
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Today, we offer cash-based bill payment services primarily in the United States, and we offer consumer-to-business payment services to and from other countries served by our agent network. We intend to pursue continued global expansion of cash and electronic consumer-to-business payments services, through our existing agent network and other channels.
 
Build our brands and enhance our consumers’ experience . We remain focused on our brands and make sizable investments to build our brands and enhance our consumers’ experience. In each of the last three years, we have spent approximately 7% of our combined 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 satisfaction and loyalty by offering consumer recognition, added convenience at the point-of-sale and rewards for multiple 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 addition, in each of the last three years we have invested in consumer-to-consumer pricing decreases designed to meet consumer needs, maximize market opportunities and strengthen our overall competitive position. Pricing decreases are implemented in selected corridors or zip codes. The impact of each pricing decrease and any offsetting increase in volume is shared with our agents through commissions.
 
Develop consumer convenience and choice . We focus our product development strategy on providing money transfer services that meet consumers’ needs for convenience, choice and control. Our Internet service (westernunion.com), Telephone Money Transfer (a service that allows consumers to speak with Western Union operators in a number of languages by phone to send funds), Money Transfer by Phone (a service that allows consumers to speak with Western Union operators in a number of languages by phone from agent locations to send funds), Direct to Bank (a service that allows consumers to send funds directly to a bank account), Account to Cash (a service that allows consumers to debit their bank accounts and send the money through Western Union for payment at any agent location), Home Delivery of remittances (a service that allows funds to be delivered to the recipient rather than picked up at an agent location) and Western Union@ATM (a service that allows consumers to transfer funds to or from an ATM) are all examples of service enhancements that address our consumers’ needs. We intend to continue to develop these types of enhancements, building on insights from our agents and the knowledge we gain from CRM activities.
 
In the United States, we offer consumers the ability to send payments to billers through a variety of channels, including walk-in locations, telephone service, IVR and Internet-based service. In order to pay their bills through these channels, consumers can use various means of payments—checks, credit cards, debit cards or cash. We intend to increase our consumer payments business in the United States by pursuing existing and emerging electronic payments services and technologies. Equally as important, we plan to expand this business outside the United States, in ways that will vary from market to market.
 
Explore new service offerings . Western Union is exploring new ways to bring additional services to our consumers around the world. For example, Western Union International Bank, based in Vienna, Austria, has the ability to establish branches and offer money transfer and other financial services directly to consumers in each of the 25 member states of the European Union. We continue to investigate new services—either offered by our company directly or through third parties—that are meaningful to our large consumer base.
 
Our Segments
 
We manage our business around the consumers we serve and the type of services we offer. Each segment addresses a different combination of consumer needs, distribution networks and services.
 
 	•	 	Consumer-to-consumer—provides money transfer services between consumers, primarily through a global network of third-party agents using our multi-currency, real-time money transfer processing systems.	
 
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 	•	 	Consumer-to-business—focuses on payments from consumers to billers through our networks of third-party agents and various electronic channels. In 2005, substantially all of the revenue from this segment was generated from transactions in the United States.	
 
Our other businesses not included in these segments include Western Union branded money orders, available through a network of third-party agents, and prepaid services. Prepaid services include a Western Union branded phone card and top-up services for third parties that allow consumers to pay in advance for mobile phone and other services.
 
Consumer-to-Consumer Segment
 
Individual money transfers from one consumer to another are the core of our business, representing 82% of our total combined revenues for 2005. We offer consumers a choice of ways to send money. Although most remittances are sent in cash at one of our hundreds of thousands of agent locations worldwide, in some countries we also offer the ability to send money over the Internet or the telephone, using a credit or debit card or, in some cases, through bank debits (automated clearing house, or “ACH,” withdrawals). Some agent locations also accept credit or 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 a stored-value card.
 
Operations
 
Our revenue is derived primarily from transaction fees charged to consumers to transfer money. 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.
 
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 from and to which the funds are to be transferred.
 
We maintain three separate multi-currency, real-time money transfer processing systems through which a consumer can transfer money from a location within that system. Money transfer services are available under the Western Union ® , Orlandi Valuta ® and Vigo SM brands, at least one of which is available in each location in the agent network. The development and maintenance of certain of our money transfer processing systems are outsourced to a third party.
 
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Approximately 80% of our consumer-to-consumer transactions involve at least one non-United States location. No individual country outside the United States and Mexico accounted for more than 10% of the segment’s revenue for the six months ended June 30, 2006 or the years ended December 31, 2005, 2004 and 2003. Mexico, shown separately in the table below, accounted for the largest single source of foreign country revenue in the segment. 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. The table below presents the geographic components of segment revenue as a percentage of the combined total.

 	  	 	 	 	Year Ended December 31,	 	
 	  	Six Months Ended
June 30, 2006	 	 	2005	 	 	2004	 	 	2003	 	
International (a)	  	72	%	 	72	%	 	71	%	 	69	%	
Domestic (b)	  	17	%	 	19	%	 	21	%	 	23	%	
Mexico (c)	  	11	%	 	9	%	 	8	%	 	8	%	

(a)	Represents transactions between and within foreign countries (excluding Canada and Mexico), transactions originated in the United States or Canada destined for foreign countries and foreign country transactions destined for 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.	
 
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 the United States and other countries during the fourth quarter.
 
Services
 
We offer money transfer services worldwide. The different ways consumers can send or receive money include the following:
 
Walk-in money transfer service. Walk-in money transfer service is available at each of our sending agent locations around the world. The majority of Western Union, Orlandi Valuta and Vigo remittances are “will call” 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.
 
Western Union continues to develop new services that enhance consumer convenience and choice and that 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, Western Union provides 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, Western Union offers payout options through a debit or stored-value card, or through a money order. In a number of countries in Latin America and the Caribbean, Western Union 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. Vigo also offers Direct to Bank and home delivery service in certain receive countries.
 
Our “Next Day Delivery” option is a money transfer that is available for payment 24 hours after it 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. The service still offers the convenience, reliability and ease-of-use that the Western Union brand represents.
 
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Our “Money Transfer by Phone” service is available in select Western Union 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 Western Union representative in one of several languages. Typically the sender provides the information necessary to complete the transaction to the Western Union 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 any of our Western Union branded agent locations around the world. Transaction capability at westernunion.com was launched in the United States in 2000 and in Canada in 2002. Since 2004, Western Union has expanded the service to additional 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 or the United Kingdom and use a debit card or credit card to initiate a transaction. The money transfer is paid at an agent location in the ordinary way.
 
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 correction, marketing support and customer relationship management to our agents.
 
Some of our Western Union agents outside the United States manage subagents. Although these subagents are under contract with our primary agents (and not with Western Union directly), the subagent locations have access to the same technology and services that our 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 our agents also market our services.
 
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. Western Union International Bank holds a full credit institution license, allowing it to offer a range of financial services throughout the 25 member states of the European Union. Today, the bank offers retail and online money transfer services in a few 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. In 2006, the United Nations reported that there were 191 million people living outside their country of origin in 2005. We anticipate that demand for money transfer services will continue to grow as individuals continue to migrate to countries outside of their country of origin.
 
Aite, an independent research and advisory firm, estimated in a January 2005 report that the total value of remittances sent by workers to developed and emerging regions would be $249 billion in 2005 and that this amount would grow annually at a rate of 8% through 2007. These figures were estimated primarily by using balance of payments data reported by the International Monetary Fund, the Inter-American Development Bank, central banks and money transmitters. They do not capture money transfers sent through informal channels and do not measure the size of the intra-country market. The World Bank estimates that unrecorded remittances are at least half as large as recorded remittances.
 
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By comparison, in 2005, consumers transferred $42 billion in consumer-to-consumer transactions through our company in both cross-border and intra-country transactions. Funds transferred through our agent network have increased at a compound annual growth rate of 24% from 2003 to 2005.
 
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 financing compliance efforts. Regulations require money transfer providers, banks and other financial institutions, to develop systems to monitor and report appropriately on certain transactions. One of the goals of increased regulation is to find ways to move consumers away from informal, unregulated networks into formal and reported channels where transactions can be recorded, monitored and, when required, reported to law enforcement or other public authorities.
 
Competition
 
We face robust competition in the highly-fragmented consumer-to-consumer money transfer industry. We compete with a variety of money transfer service providers, including:
 
 	•	 	Global money transfer providers —Global money transfer providers allow consumers to send money to a wide variety of locations, in both their home countries and abroad.	
 
 	•	 	Regional money transfer providers —Regional money transfer companies, or “niche” players, provide the same services as global money transfer providers, but focus on a small group of corridors or services within one region, such as North America to the Caribbean, Central or South America, or western Europe to north Africa.	
 
 	•	 	Banks —Banks of all sizes compete with us in a number of ways, including bank wire services and card-based services. We believe that banks often use wire transfer services and other money transfer methods to attract immigrant consumers to open bank accounts.	
 
 	•	 	Informal networks —Informal networks enable people to transfer funds without formal mechanisms, such as receipts, and, often, without compliance with government reporting requirements.	
 
 	•	 	Alternative channels —Alternative channels, including mail and commercial courier services, online money transfer services that allow consumers to send money over the Internet and card-based options, such as ATM cards and stored-value cards, allow consumers to send or receive money.	
 
The most significant competitive factors in consumer-to-consumer remittances relate to brand recognition, distribution network, consumer experience and price.
 
For additional details regarding our consumer-to-consumer segment, including financial information regarding our international and United States operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus.
 
Consumer-to-Business Segment
 
We provide a portfolio of electronic and cash payment options that provide consumers with fast and convenient ways to make one-time or recurring payments. These services facilitate payments to billers. Revenues from this segment represented 15% of our combined revenue for 2005.
 
Operations
 
Our revenue in this segment is derived primarily from transaction fees paid by the consumer or the biller. These fees are typically less than the fees charged in our consumer-to-consumer segment. In order to make an electronic payment, the consumer or biller initiates a transaction over the telephone or the Internet which we
 
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process using the consumer’s credit card, debit card or bank account (processed through the ACH). In order to make a cash payment, the consumer goes to an agent location and makes the payment to the agent. While we continue to pursue international expansion of our offerings in select markets, substantially all of the segment’s 2005 revenue was generated in the United States. No individual biller accounted for greater than 10% of this segment’s revenue during all periods presented.
 
Services
 
Our consumer-to-business services strive to give consumers choices as to the payment type and method of payment, and include the following:
 
Electronic payments. Consumers and billers use our Speedpay service in the United States and the United Kingdom to make consumer payments to a variety of billers using credit cards and debit cards and ACH. Payments are initiated through a number of channels, including biller hosted websites, IVR units and call centers.
 
Our Equity Accelerator service is provided in the mortgage service industry, enabling consumers to make mortgage payments by ACH. It is marketed as a convenient way for homeowners to schedule additional recurring principal payments on their mortgages. Consumers enroll in the service, customize their payment schedule and make payments through one or more bank accounts.
 
Cash payments. Consumers use our Quick Collect service to send guaranteed funds to businesses and government agencies from over 50,000 Western Union agent locations across the United States and Canada, using cash and, in select locations, a debit card. Increasingly, correctional institutions are using the Quick Collect service as a way for relatives to fund the commissary accounts of inmates. This service is also available on our website, and on a limited basis under the Quick Pay name at agent locations outside the United States and Canada. Consumers use our Convenience Pay service to send payments by cash or check from a smaller number of Convenience Pay agent locations primarily to utilities and telecommunication providers. We also offer Quick Cash, a cash disbursement service used by businesses and government agencies to send money to employees or individuals with whom they have accounts or other business relationships.
 
Distribution and Marketing Channels
 
Our electronic payment services are available primarily through IVR and over the Internet, while our cash-based services are available through our agent networks. Billers market our services to consumers in a number of ways, and we market our services directly to consumers using a variety of means, including advertising materials and promotional activities at our agent locations. Consumers can also participate in the Western Union Gold Card program when making cash payments to billers.
 
Industry Trends
 
The consumer-to-business payment industry has evolved with technological innovations that created new methods of processing payments from individuals to businesses. We believe that the United States is in the midst of a trend away from paper checks toward electronic payment methods accessible through multiple technologies. We believe that the market will reward those companies that are able to provide consumers with fast and reliable ways to make payments by the method and through the means of their choice. Historically, the majority of bills in the United States was paid through checks in the mail. In 1989, Western Union began offering an agent-based cash bill payment solution called “Quick Collect,” which provided consumers with a convenient, walk-in, cash-based way to pay their bills. Further innovation in the industry led to the creation of electronic options for consumer payments including telephone and online services. In a February 2005 report, Aite estimated that more than 18 billion bill payments would be made in 2005 in the United States alone.
 
The consumer-to-business payment industry outside the United States is at varying stages of development. In some countries, walk-in cash payments at a biller’s office or through a third party network are widely used, while in other countries electronic payment options are finding ready acceptance by consumers and businesses alike.
 
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Competition
 
We face robust competition in the highly-fragmented consumer-to-business payment industry. Competition in electronic payments includes financial institutions (which may offer bill-payment services in their own name or may “host” payment services operated under the names of their clients), billers offering their own or third-party services to their own customers, and third-party providers of all sizes offering services directly to consumers. In many cases, competitors specialize in a small number of industries. Competitors for cash payments include a biller’s own walk-in locations, or those provided by others, some only on a regional basis, as well as mail and courier services. There is also competition between electronic and cash-based payments methods.
 
The most significant competitive factors in this segment relate to brand recognition, convenience, variety of payment methods and price.
 
For additional details regarding our consumer-to-business segment, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical combined financial statements and the notes to those statements included elsewhere in this prospectus.
 
Other
 
The remainder of our business units are grouped in the “Other” category, which includes money orders and prepaid services.
 
We sell Western Union branded money orders, issued by IPS, to consumers at non-bank retail locations. IPS pays us a commission based on an investment yield on the outstanding balances in the investment portfolio derived from the money orders sold. To a lesser extent, we also make money on per item fees charged for money order sales. In a money order transaction, a consumer purchases a money order from an agent. The agent selling the money order generally remits the funds collected from the consumer to IPS promptly following the sale date. Agents generally receive no commissions from us on money order sales, but rather are compensated by charging a fee to the consumer for the purchase of the money order.
 
Western Union’s prepaid services market:
 
 	•	 	a Western Union branded prepaid debit card (issued by a third party);	
 
 	•	 	a Western Union branded telephone card; and	
 
 	•	 	third-party top-up services (that, for example, allow mobile phone users to “top-up” or prepay for mobile service).	
 
The Western Union branded prepaid debit card is sold through our agent network and the Internet. Our “top-up” services allow consumers to pre-pay for mobile phone or other services, and otherwise store value with service providers that can be accessed by the consumer in the future. In each of these transactions, the consumer pays a fee that is set by us and recorded as revenue. The agent earns a fixed commission per transaction.
 
Properties and Facilities
 
As of June 30, 2006, we owned or leased 100 domestic and international properties. Following the spin-off, four of our leased properties will be subleased from First Data. Our owned and leased facilities are used for operational, sales and administrative purposes, and are all currently being utilized.

 	  	Leased
Facilities	  	Owned
Facilities	 	
United States Facilities	  	35	  	3	*	
International Facilities	  	62	  	—	 	

*	Of these facilities, two represent our corporate headquarters that will be transferred to us in connection with the spin-off.	
 
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Our United States facilities encompass approximately 825,000 square feet. Our international facilities encompass approximately 300,000 square feet, primarily for marketing, sales and management activities, and include our European shared services center in Dublin, Ireland.
 
Our owned facilities will include our corporate headquarters, located in Englewood, Colorado. We believe that our facilities are suitable and adequate for our current business; however, we periodically review our space requirements and may acquire new space to meet the needs of our businesses or consolidate and dispose of or sublet facilities which are no longer required. See “Our Relationship with First Data After the Spin-Off—Subleases.”
 
Intellectual Property
 
The Western Union brand, consisting of trademark registrations in many countries, is material to our company. The loss of the Western Union ® trademark or a diminution in the perceived quality associated with the name would harm our growth. The Vigo SM service mark and the Orlandi Valuta ® , Speedpay ® , Western Union Quick Collect ® and Paymap ® trademarks are also important to our company. We own patents and patent applications covering aspects of our processes and services, but our business is not dependent on them.
 
We have been, and in the future may be, subject to claims and suits alleging that our technology or business methods infringe patents owned by others, both in and out of the United States. Unfavorable resolution of these claims could require us to change how we deliver services, result in significant financial consequences, or both, which could adversely affect our business, financial position and results of operations.
 
Risk Management
 
Our company has a substantial credit risk management department that evaluates and monitors our credit and fraud risks. We are exposed to credit risk related to receivable balances from agents in the money transfer and money order settlement process. We also are exposed to a small amount of credit risk directly from consumer transactions particularly through our online services and electronic consumer-to-business channels, where transactions are originated through means other than cash, and therefore are subject to “chargebacks,” insufficient funds or other collection impediments. The credit risk management team performs a credit investigation before each agent signing and conducts on-going analysis throughout each relationship. As a result, our company’s losses associated with bad debts have been less than 1% of our annual revenue in each of the last three fiscal years.
 
A key component of the Western Union business model is our ability to manage risk associated with conducting financial transactions worldwide. We settle accounts with the majority of our agents in United States dollars and euros. We utilize currency exchange contracts, primarily forward contracts, to mitigate the risks associated with currency fluctuations. Limited foreign currency risk arises with respect to the agent settlement process. The foreign currency exchange risk is limited because the majority of money transfer transactions are paid within 24 hours after they are initiated and agent settlements occur in a few days in most instances.
 
International Investment
 
We expect to receive net cash proceeds on the spin-off date in connection with the settlement of the intercompany note balances with First Data classified as “Notes receivable from affiliated companies” and “Notes payable to affiliated companies” in our historical combined balance sheets. The net funding for these notes was generated through our international operations, and no provision has been made for United States federal and state income taxes on approximately $552.5 million of these foreign earnings as of December 31, 2005, as we expect to reinvest these earnings outside the United States indefinitely. We believe the investment of these proceeds over a number of years will assist us in executing on our international strategies, including expanding and diversifying global distribution and exploring new service offerings, as follows:
 
 	•	 	providing the necessary capital to expand our international bank, which has the ability to establish branches and offer money transfer and other financial services directly to consumers in each of the 25 member states of the European Union;	
 
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 	•	 	providing us with the ability to acquire companies outside the United States that complement our existing businesses worldwide;	
 
 	•	 	developing new or enhancing existing software to support the expansion of our international agent network;	
 
 	•	 	expanding our international call center operations; and	
 
 	•	 	funding our operating cash requirements outside the United States.	
 
The timing of these investments will be based on specific opportunities.
 
Regulation
 
Our operations are subject to a wide range of laws and regulations enacted by the United States, states and localities and other countries. These include financial services regulations, consumer disclosure and consumer protection laws, currency control regulations, money transfer and payment instrument licensing regulations, escheat laws and laws covering consumer privacy, data protection and information security. Our services also are subject to an increasingly strict set of legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing and other illicit activity. Failure to comply with any of these requirements—by either Western Union or its agents (who are third parties, over which Western Union has limited legal and practical control)—could result in the suspension or revocation of a license or registration required to provide money transfer services, the limitation, suspension or termination of services, and/or the imposition of civil and criminal penalties, including fines. We continue to implement policies and programs and adapt our business practices and strategies to help us comply with current legal standards, as well as with new and changing legal requirements affecting particular services, or the conduct of our business in general. These programs include dedicated compliance personnel, training and monitoring programs, as well as support and guidance to our agent network on compliance programs.
 
Money Transfer and Payment Instrument Licensing and Regulation
 
In the United States, most states license money transfer services providers and issuers of payment instruments. Many states exercise authority over the operations of our services related to money transmission and the sale of payment instruments and, as part of this authority, subject us to periodic examinations. Many states require, among other things, that proceeds from the sales of payment instruments and money transfers be invested in high-quality marketable securities prior to the settlement of the transactions. These licensing laws also may cover matters such as regulatory approval of controlling shareholders, including our company, regulatory approval of agent locations and consumer forms, consumer disclosures and the filing of periodic reports by the licensee, and require the licensee to demonstrate and maintain certain net worth levels. Many states also require money transmitters, issuers of payment instruments, and their agents to comply with federal and/or state anti-money laundering laws and regulations.
 
Our money transfer and money order services are subject to anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (collectively, the “BSA”) and similar state laws and regulations. In addition, certain economic and trade sanctions programs that are administered by the Treasury Department’s Office of Foreign Assets Control prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially-designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations. Through our third party agents, we provide limited services to Cuba, Syria, and Sudan pursuant to advisory opinions of, or specific authority granted under licenses from, the United States Department of the Treasury Office of Foreign Assets Control and in territories under the Palestinian Authority. Services in those areas are limited to small dollar amount money transfers in many cases only into these territories to approved individuals. The BSA, among other things, requires money transfer companies and the issuers and sellers of money orders, to develop and implement risk-based anti-money laundering programs,
 
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report large cash transactions and suspicious activity, in some cases, to collect and maintain certain information about the sender and receiver, and to maintain transaction records. States impose similar and, in some cases more stringent, requirements. These requirements also apply to our agents. The Treasury Department has interpreted these requirements to include due diligence and risk based monitoring of agents inside and outside the United States.
 
In addition, our money transfer business is subject to some form of regulation in the more than 200 countries and territories in which those services are offered. These regulations may include limitations on what types of entities may offer money transfer services, limitations on the amount of principal that can be moved into or out of a country, limitations on the number of money transfers that may be sent or received by a consumer, agreements on the rates of exchange between currencies, and laws and regulations intended to help detect and prevent money laundering and criminalize money laundering activity.
 
We have developed and are enhancing global compliance programs to monitor and address various aspects of legal and regulatory requirements and developments. Our money transfer network operates through third-party agents in most countries, and our legal and practical ability to control those agents’ compliance activities is limited. To assist in managing and monitoring money laundering risks, we have developed and continue to enhance an anti-money laundering compliance program comprised of policies, procedures, systems and internal controls. At present, we have over 200 employees in a number of our offices around the world dedicated to these efforts.
 
Government agencies both inside and outside the United States may impose new or additional rules on money transfers and sales of payment instruments affecting us or our agents, including regulations that:
 
 	•	 	prohibit transactions in, to or from certain countries, governments, nationals and individuals and entities;	
 
 	•	 	impose additional identification, reporting or recordkeeping requirements;	
 
 	•	 	limit the entities capable of providing money transfer services and/or the sale of payment instruments, or imposing additional licensing or registration requirements;	
 
 	•	 	impose minimum capital or other financial requirements;	
 
 	•	 	limit or restrict the revenue which may be generated from money transfers, including transaction fees and revenue derived from foreign exchange;	
 
 	•	 	require additional disclosures to consumers; or	
 
 	•	 	limit the number or principal amount of money transfers which may be sent to or from the jurisdiction.	
 
Over the past several years, as part of its investigation into illegal immigration and drug smuggling activities, the Arizona Attorney General’s Office has occasionally obtained warrants for the seizure of certain fund transfers sent to Arizona. We were recently advised that the Attorney General intended to request a warrant seizing certain fund transfers from a number of states other than Arizona to locations in Sonora, Mexico. On September 20, 2006, we requested a federal court to issue a temporary restraining order against the Arizona Attorney General’s proposed seizure plan. We challenged the plan’s application to money transfers initiated and completed outside of Arizona. The federal court declined to grant the temporary restraining order on technical and procedural grounds, including, among other things, that we could seek a remedy in the state courts in the event the seizure warrant was issued.
 
On September 21, 2006, the Arizona Attorney General’s Office obtained from an Arizona state court a seizure warrant relating to person-to-person money transfers originating from Arizona and 28 other states with intended recipients in 26 locations in the Mexican state of Sonora. The warrant applies to money transfers which exceed a certain dollar threshold. This threshold is higher than the average amount transferred to Mexico. The
 
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seizure warrant requires that Western Union, in lieu of making such transfers to the intended recipients in Sonora, Mexico, pay the funds to a designated detention account. The warrant states that it becomes effective on September 22, 2006 and continues through October 6, 2006. We intend to seek a stay of the seizure warrant and other judicial review and otherwise to pursue vigorously its legal remedies, including remedies to appropriately protect the rights and privacy of its consumers. Although the issuance of the warrant, whether or not sustained, may adversely affect the volume of money transfers, we do not believe the ultimate impact on our company will be material.
 
Escheat Regulations
 
Our company is subject to unclaimed or abandoned property (escheat) laws in the United States and abroad which require us to turn over to certain government authorities the property of others held by our company that has been unclaimed for a specified period of time. A number of our subsidiaries hold property subject to escheat laws and we have an ongoing program to comply with those laws. We are subject to audit by the states with regard to our escheatment practices.
 
In 2002, Affiliated Computer Services (“ACS”) notified First Data of its intent to audit First Data’s escheatment practices on behalf of 19 states (the “ACS States”). The ACS States subsequently increased to 44 states. The ACS States agreed to allow First Data to conduct an internal examination of its escheatment practices utilizing third party experts. First Data also entered into Voluntary Disclosure Agreements with four other states (the “VDA States”). Like the ACS States, the VDA States agreed to allow First Data to conduct its own internal review in place of an audit by the states.
 
First Data completed the majority of the internal review in December 2005. As a result of that review and in addition to amounts already recorded, Western Union recognized a $8.2 million pretax charge in the fourth quarter of 2005 for domestic and international escheatment liabilities. Portions of this charge are not scheduled to be remitted until periods beyond 2006.
 
Western Union plans to complete its internal review and discuss the results thereof with the ACS States and the VDA States in 2006. Any difference between the amounts accrued by our company and those claimed by a state or foreign jurisdiction will be reflected in the periods in which any resolutions occur.
 
Privacy and Information Security Regulations
 
Our services are subject to privacy laws and regulations of the United States, states and other countries. United States privacy laws include the federal Gramm-Leach-Bliley Act, which applies directly to a broad range of financial institutions and indirectly to companies that provide services to financial institutions. Laws in other countries include those adopted by the member states of the European Union under Directive 95/46 EC of the European Parliament and of the Council of 24 October 1995, as well as the laws of other countries. In some cases, the laws of a member state may be more restrictive than the Directive and may impose additional duties on companies. Each of these laws restricts the collection, processing, storage, use and disclosure of personal information, requires notice to individuals of privacy practices and provides individuals with certain rights to prevent use and disclosure of protected information. These laws also impose requirements for safeguarding personal information through the issuance of data security standards or guidelines. Certain state laws impose similar privacy obligations, as well as, in certain circumstances, obligations to provide notification to affected individuals, state officers and consumer reporting agencies, as well as businesses and governmental agencies that own data, of security breaches of computer databases that contain personal information.
 
In connection with governmental efforts to prevent money laundering and terrorist financing and pursuant to legal obligations and authorizations, Western Union makes information available to United States federal and state, as well as certain foreign, law enforcement agencies. In recent years, government agencies have increased their requests for such information from Western Union and other companies (both financial service providers
 
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and others), particularly in connection with efforts to prevent terrorist financing. During the same period, there has also been increased public attention to concerns about consumer privacy, accompanied by legislation and regulations intended to address issues of data protection, information security and privacy. These two policy goals—the prevention of money laundering and terrorist financing and the protection of consumer privacy—may conflict, and the law in these areas is not consistent or settled. While we believe that Western Union is compliant with its legal responsibilities, the legal, political and business environments in this area are rapidly evolving, and subsequent legislation, regulation, litigation, court rulings or other events could expose Western Union to liability and reputational damage.
 
Banking Regulation
 
Western Union International Bank operates under a banking license granted by the Austrian Financial Market Authority (“FMA”), allowing the bank to offer a range of financial services in the 25 member states of the European Union. The banking license subjects our bank to the Austrian Banking Act and the Austrian Financial Market Authority Act and regulation by the FMA. The bank also is subject to regulation, examination and supervision by the New York State Banking Department (the “Banking Department”), which has regulatory authority over our subsidiary that controls the bank, a limited liability investment company organized under Article XII of the New York Banking Law. An Agreement of Supervision with the Banking Department imposes various regulatory requirements including operational limitations, capital requirements, affiliate transaction limitations, and notice and reporting requirements. Banking Department approval is required under the Banking Law and the Agreement of Supervision prior to any change in control of the Article XII investment company.
 
Since Western Union International Bank does not, among other things, operate any banking offices in the United States and does not conduct business in the United States except as may be incidental to its activities outside the United States, our company’s affiliation with Western Union International Bank does not cause it to be subject to the provisions of the Bank Holding Company Act.
 
Other
 
Stored-value services offered by Western Union prepaid services are subject to federal and state laws and regulations related to consumer protection, licensing, escheat, money laundering, and payment of wages. These laws are evolving, unclear and sometimes inconsistent, and the extent to which these laws apply to Western Union or its consumers is in flux. We are unable to determine the impact that the clarification of these laws and their future interpretations may have on these services.
 
Legal Proceedings
 
We are party to a variety of legal proceedings that arise in the normal course of our business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our consolidated results of operations or financial position.
 
Employees and Labor
 
As of June 30, 2006, our businesses employed approximately 4,700 employees. Western Union has two four-year labor contracts (both expiring August 6, 2008) with the Communications Workers of America, AFL-CIO representing approximately 990 employees located primarily in Dallas, Texas; Bridgeton, Missouri and St. Charles, Missouri. Our United States based employees are not otherwise represented by any labor organization.

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OUR R  ELATIONSHIP WITH FIRST DATA AFTER THE SPIN-OFF
 
General
 
Immediately prior to the spin-off, we will be a wholly-owned subsidiary of First Data. After the spin-off, First Data will not have any ownership interest in our common stock, and we will be an independent, publicly traded company.
 
We will enter into agreements with First Data prior to the spin-off to govern the terms of the spin-off and to define our ongoing relationship following the spin-off, allocating responsibility for obligations arising before and after the spin-off, including obligations with respect to liabilities relating to First Data’s business and to Western Union’s business and obligations with respect to our employees, certain transition services and taxes. We will enter into these agreements with First Data while we are still a wholly-owned subsidiary of First Data and certain terms of these agreements are not necessarily the same as could have been obtained from an independent third party.
 
The following descriptions are summaries of the terms of the agreements we believe to be material. We encourage you to read, in their entirety, each of the agreements when they become available. The terms of these agreements have not yet been finalized; changes, some of which may be material, may be made prior to the spin-off.
 
Transactions Occurring Prior to the Distribution Date
 
Several days prior to the distribution date, we will distribute to First Data approximately $210.0 million in cash from existing cash balances.
 
Two days prior to the distribution date, FFMC will declare and pay to First Data, as its sole stockholder, a dividend in the form of a promissory note of approximately $2.4 billion. Simultaneously with the payment of the dividend by FFMC, First Data will contribute to FFMC the outstanding capital stock of the subsidiary of First Data that owns Vigo.
 
One day prior to the distribution date, FFMC will declare a dividend to First Data of the outstanding capital stock of First Data Commercial Services Holdings, Inc., or FDCS, with a record date as of the close of business on the date it is declared and a payment date of the distribution date. As described below, pursuant to the separation and distribution agreement, prior to the payment of such dividend, FFMC will contribute to FDCS the outstanding capital stock of CESI Holdings, Inc. and Telecheck International, Inc., and other subsidiaries currently owned by FFMC that operate businesses not a part of the money transfer and consumer payments businesses.
 
Separation and Distribution Agreement
 
The separation and distribution agreement will provide, among other things, for the principal corporate transactions required to effect the contribution by First Data of the subsidiaries that operate our businesses, the distribution of our common stock to the holders of record of First Data common stock and certain other agreements governing our relationship with First Data after the spin-off.
 
The Recapitalization, Contribution and Separation. The separation and distribution agreement is expected to provide that, subject to the terms and conditions in the separation and distribution agreement,
 
 	•	 	First Data will increase the authorized number of shares of our common stock to 2,000,000,000;	
 
 	•	 	FFMC will contribute to FDCS the outstanding capital stock of CESI Holdings, Inc. and Telecheck International, Inc. and other subsidiaries currently owned by FFMC that operate businesses not a part of the money transfer and consumer payments business;	
 
 	•	 	FFMC will distribute to First Data the outstanding capital stock of FDCS and we will transfer to First Data other assets related to the businesses of First Data that are not a part of the money transfer and consumer payments businesses;	
 
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 	•	 	First Data will contribute to us the outstanding capital stock of (i) FFMC, (ii) Paymap, (iii) Western Union Services, Inc. and (iv) ECG, as well as certain patents and real estate and First Data’s interest in one of our agents;	
 
 	•	 	in consideration for the contribution, we will transfer to First Data (i) approximately $100.0 million in cash, which will be financed through borrowings under the revolving credit facility we expect to enter into on the distribution date, (ii) the Western Union notes with an aggregate principal amount of approximately $1.0 billion and (iii) shares of our common stock sufficient to effect the distribution;	
 
 	•	 	First Data will use commercially reasonable efforts to have us released from all financial instruments that are primarily for its benefit and on which we are primarily or secondarily liable and we will use commercially reasonable efforts to have First Data released from all financial instruments that are primarily for our benefit and on which First Data is primarily or secondarily liable;	
 
 	•	 	First Data will pay us $778.8 million to repay intercompany notes and related accrued interest of $32.4 million owed by First Data to us;	
 
 	•	 	We will pay First Data $52.2 million to repay intercompany notes and related accrued interest of $2.2 million owed by us to First Data;	
 
 	•	 	We will pay First Data $16.8 million to settle certain foreign currency swap arrangements with First Data related to certain notes receivable from affiliates;	
 
 	•	 	We will forgive $153.8 million of intercompany balances owed by First Data to us, and an affiliate of First Data will forgive an intercompany note owed by us to that affiliate of $11.3 million, which collectively will be treated as a net dividend to First Data for accounting and tax purposes; and	
 
 	•	 	First Data will use the cash and debt securities received from The Western Union Company as consideration for the contribution to pay creditors of First Data in full or partial satisfaction of amounts owed by First Data that do not relate to Western Union’s operations.	
 
The share numbers are based on First Data share numbers as of June 30, 2006, and the dollar and settlement amounts are based on our balances as of June 30, 2006.
 
First Data’s contribution to us of the subsidiaries that operate our business and related assets will occur prior to the distribution of our common stock to First Data’s stockholders. The contribution by First Data will be made on an “as is, where is” basis without any representations or warranties, and we will bear the economic and legal risks of the contribution. First Data generally will not retain any of the liabilities of the subsidiaries contributed to us or liabilities associated with the related assets contributed to us and we and the contributed subsidiaries will agree to perform and fulfill all of the liabilities arising out of the operation of the money transfer and consumer payments businesses. Similarly, our transfer to First Data of CESI Holdings and Telecheck and other assets not a part of the money transfer and consumer payments businesses will occur prior to the contribution and the distribution of our common stock to First Data’s stockholders. The transfer to First Data will be made on an “as is, where is” basis without any representations or warranties, and First Data will bear the economic and legal risks of the transfer. We generally will not retain any of the liabilities of the subsidiaries transferred to First Data or liabilities associated with other assets transferred to First Data and First Data and those subsidiaries will agree to perform and fulfill all of the liabilities arising out of the operation of their respective businesses.
 
The Distribution. First Data has reserved sole and absolute discretion to determine whether to proceed with the distribution of our common stock to First Data’s stockholders, the timing of the distribution and whether to alter any and all terms of the distribution at any time prior to the distribution date. The distribution also is subject to the satisfaction of certain conditions including that,
 
 	•	 	the SEC has declared effective our registration statement on Form 10 relating to the distribution, which we refer to as the Form 10 registration statement, under the Exchange Act and no stop order relating to the Form 10 registration statement is in effect;	
 
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 	•	 	the SEC has declared effective under the Securities Act the registration statement on Form S-1, of which this prospectus is a part, registering the shares of Western Union common stock covered by this prospectus, and no stop order relating to the registration statement is in effect;	
 
 	•	 	First Data and Western Union have received all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of foreign jurisdictions in connection with the distribution;	
 
 	•	 	First Data and Western Union have received all material permits, registrations, clearances and consents from governmental authorities and third persons necessary to effect the spin-off and to permit the operation of our business thereafter;	
 
 	•	 	First Data has received a private letter ruling from the Internal Revenue Service (which has not been revoked or modified in any material respect), in form and substance satisfactory to First Data, to the effect that, among other things, the spin-off (including certain related transactions) will be tax-free to First Data, us and First Data stockholders for United States federal income tax purposes under sections 355, 368 and related provisions of the Internal Revenue Code and, with respect to certain requirements necessary to obtain tax-free treatment under section 355 of the Internal Revenue Code on which the Internal Revenue Service will not rule, an opinion of Sidley Austin LLP, counsel to First Data (or other nationally recognized tax counsel), in form and substance satisfactory to First Data, to the effect that such requirements will be satisfied;	
 
 	•	 	the New York Stock Exchange has approved our common stock for listing, subject to official notice of issuance;	
 
 	•	 	our subsidiary, FFMC, has paid a dividend to First Data in the form of a promissory note in an aggregate principal amount of approximately $2.4 billion, which dividend is expected to be paid two days prior to the distribution date;	
 
 	•	 	simultaneously with the payment of such dividend by FFMC, First Data has transferred to FFMC the capital stock of the subsidiary of First Data that owns Vigo;	
 
 	•	 	First Data has completed the contribution to us of the other subsidiaries that own and/or operate our money transfer and consumer payments businesses and related assets and we have assumed the related liabilities and transferred to First Data (i) approximately $100.0 million in cash, which will be financed through borrowings under the revolving credit facility we expect to enter into on the distribution date, (ii) the Western Union notes with an aggregate principal amount of approximately $1.0 billion and (iii) shares of our common stock sufficient to effect the distribution;	
 
 	•	 	we have distributed to First Data approximately $210.0 million in cash from existing cash balances;	
 
 	•	 	we have transferred to First Data the subsidiaries and related assets we own that are not part of our money transfer and consumer payments businesses and First Data has assumed the liabilities associated with such related assets;	
 
 	•	 	all of the conditions under the agreement to effect the exchange by First Data and the investment banks of the Western Union notes for indebtedness of First Data that the investment banks will hold at that time have been satisfied (other than the condition that the spin-off has occurred and other than those which can only be satisfied at the consummation of such exchange);	
 
 	•	 	an independent firm acceptable to First Data, in its sole and absolute discretion, has delivered one or more opinions to the board of directors of each of First Data and Western Union confirming the solvency and financial viability of Western Union and First Data, which opinions will be in form and substance satisfactory to First Data, in its sole and absolute discretion, and shall not have been withdrawn or rescinded;	
 
 	•	 	no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the spin-off or any of the transactions related thereto, including the transfers of assets and liabilities contemplated by the separation and distribution agreement, is in effect;	
 
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 	•	 	First Data and Western Union have each received credit ratings from the credit rating agencies that are satisfactory to First Data in its sole and absolute discretion; and	
 
 	•	 	no other events or developments shall have occurred that, in the judgment of the board of directors of First Data, in its sole and absolute discretion, would result in the spin-off having a material adverse effect on First Data or its stockholders.	
 
Even if all of the conditions to the distribution are satisfied, First Data has the right to amend or terminate the separation and distribution agreement and the related transactions at any time prior to the spin-off. Although First Data can waive any condition to the distribution, First Data has informed us that its board of directors has no intention to proceed with the distribution unless each condition is satisfied.
 
Releases, Allocation of Liabilities Indemnification and Insurance Matters . The separation and distribution agreement provides for a full and complete release and discharge of all liabilities existing or arising from or based on facts existing prior to the spin-off, between or among us or any of our affiliates, on the one hand, and First Data or any of its affiliates (other than us), on the other hand, except as set forth in the separation and distribution agreement.
 
We will be liable for and agree to perform all liabilities with respect to our business, which we refer to as the “Western Union liabilities.” Those liabilities will include, (i) all liabilities of Western Union and its subsidiaries to the extent based upon or arising out of our money transfer and consumer payments businesses, (ii) all liabilities of First Data and its subsidiaries to the extent based upon or arising out of our money transfer and consumer payments businesses or businesses we have disposed of, (iii) all liabilities based upon or arising out of financial instruments of Western Union and its subsidiaries, (iv) all outstanding liabilities on our unaudited pro forma combined balance sheet and (v) all liabilities that are of a nature or type that would have resulted in such liabilities being included on a consolidated balance sheet of Western Union as of the time of the spin-off.
 
First Data will be liable for and agree to perform all liabilities with respect to its business, which we refer to as the “First Data liabilities.” Those liabilities will include, (i) all liabilities of First Data and its subsidiaries to the extent based upon or arising out of the First Data retained business, (ii) all liabilities of Western Union and its subsidiaries to the extent based upon or arising out of the First Data retained business or businesses First Data has disposed of, (iii) all liabilities based upon or arising out of financial instruments of First Data and its subsidiaries, (iv) all outstanding liabilities on the First Data unaudited consolidated balance sheet as of June 30, 2006, other than Western Union liabilities, and (v) all liabilities that are of a nature or type that would have resulted in such liabilities being included on a consolidated balance sheet of First Data as of the time of the spin-off, other than Western Union liabilities.
 
In addition, the separation and distribution agreement will provide for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of First Data’s retained businesses with First Data. Specifically, subject to certain exceptions set forth in the separation and distribution agreement, we have agreed to assume liability for, and to indemnify and hold harmless First Data, its affiliates and its directors, officers and employees against, certain liabilities relating to our business and the spin-off, including all liabilities relating to, arising out of or resulting from:
 
 	•	 	the failure by Western Union or any other person to pay, perform or otherwise promptly discharge any Western Union liability;	
 
 	•	 	any Western Union liability;	
 
 	•	 	our business (including any businesses or assets that have been divested prior to the spin-off or thereafter) as conducted on, at any time prior to or at any time after the spin-off;	
 
 	•	 	except to the extent provided in the separation and distribution agreement, any claim that the information included in the Form 10 registration statement, or the information statement forming a part	
 
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 	thereof, is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;	
 
 	•	 	except to the extent provided in the separation and distribution agreement, any claim that the information included in the offering memorandum with respect to the Western Union notes to be sold by the investment banks is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statement therein, in light of the circumstances under which they were made, not misleading;	
 
 	•	 	except to the extent provided in the separation and distribution agreement, any claim that the information included in the registration statement on Form S-1 registering the shares of Western Union common stock covered by this prospectus, or this prospectus, is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;	
 
 	•	 	the use by us after the spin-off of the name First Data or any variation thereof, or other trademarks, trade names, logos or identifiers using any of such names or otherwise owned by or licensed to First Data;	
 
 	•	 	the breach by us of any covenant or agreement set forth in any agreement entered into in connection with the spin-off; and	
 
 	•	 	our financial instruments.	
 
First Data has agreed to indemnify and hold harmless us, our affiliates and our directors, officers and employees from and against all liabilities relating to, arising out of or resulting from:
 
 	•	 	the failure by First Data or any other person to pay, perform or otherwise promptly discharge any First Data liability;	
 
 	•	 	any First Data liability;	
 
 	•	 	First Data’s retained business (including any businesses or assets that have been divested prior to the spin-off, or thereafter) as conducted on, at any time prior to or at any time after the spin-off;	
 
 	•	 	solely with respect to information identified in the schedules to the separation and distribution agreement as being supplied by or the responsibility of First Data, any claim that the information included in the Form 10 registration statement on Form 10, or the information statement forming a part thereof, is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;	
 
 	•	 	solely with respect to information identified in the schedules to the separation and distribution agreement as being supplied by or the responsibility of First Data, any claim that the information included in the offering memorandum with respect to the Western Union notes to be sold by the investment banks is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;	
 
 	•	 	solely with respect to information identified in the schedules to the separation and distribution agreement as being supplied by or the responsibility of First Data, any claim that the information included in the registration statement on Form S-1 registering the shares of Western Union common stock covered by this prospectus, or this prospectus, is or was false or misleading with respect to any material fact or omits or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading;	
 
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 	•	 	the use by First Data after the spin-off of the name Western Union or any variation thereof, or other trademarks, trade names, logos or identifiers using any of such names or otherwise owned by or licensed to Western Union;	
 
 	•	 	the breach by First Data of any covenant or agreement set forth in any agreement entered into in connection with the spin-off; and	
 
 	•	 	First Data’s financial instruments.	
 
The separation and distribution agreement also will establish procedures with respect to claims subject to indemnification and related matters. Indemnification with respect to taxes and employee benefits will be governed by the tax allocation agreement and the employee matters agreement, respectively.
 
The separation and distribution agreement will provide for the allocation of benefits between First Data and us under existing insurance policies following the spin-off for occurrences prior to the spin-off and will set forth procedures for the administration of insured claims.
 
Termination . The separation and distribution agreement will provide that it may be terminated and the spin-off may be modified or abandoned at any time prior to the spin-off in the sole discretion of First Data without our approval or the approval of First Data’s stockholders. In the event of a termination of the separation and distribution agreement, no party will have any liability of any kind to any other party or any other person. After the spin-off, the agreement may not be terminated except by an agreement in writing signed by both First Data and us.
 
Expenses . Except as provided in the separation and distribution agreement or in any related agreement, each of First Data and Western Union will pay all third-party fees, costs and expenses paid or incurred by it in connection with the preparation, execution, delivery and implementation of the separation and distribution agreement, any related agreement, the Form 10 registration statement, the offering memorandum with respect to the Western Union notes, the registration statement on Form S-1 registering the shares of Western Union common stock covered by this prospectus and the distribution and the completion of the transactions contemplated thereby, provided that First Data generally will pay any non-recurring third-party fees, costs and expenses in connection with the foregoing incurred prior to the spin-off that First Data deems necessary to effect the spin-off, such as investment banker fees, outside legal and accounting fees relating to the spin-off, office move costs, costs to separate information systems and temporary consulting costs, and Western Union generally will pay any non-recurring third-party fees, costs and expenses in connection with the foregoing incurred prior to the spin-off that are expected to benefit Western Union following the spin-off in the ordinary course of business, such as recruiting and relocation expenses associated with hiring key senior management positions new to Western Union, other employee compensation expenses and temporary labor used to develop ongoing processes. Except as provided in the separation and distribution agreement or any related agreement, all fees, costs and expenses incurred by a party after the spin-off will be borne by that party.
 
Dispute Resolution . The separation and distribution agreement contains provisions that govern, except as otherwise provided in any related agreement, the resolution of disputes, controversies or claims that may arise between us and First Data. These provisions contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to senior management or other mutually agreed representatives of us and First Data. Disputes remaining unresolved are then to be submitted to mandatory mediation. If such efforts are not successful, any party may submit the dispute, controversy or claim to mandatory, binding arbitration, subject to the provisions of the separation and distribution agreement. The separation and distribution agreement contains procedures for the selection of one or more arbitrators of the dispute, controversy or claim and for the conduct of the arbitration hearing, including limitations on discovery rights of the parties. These procedures are intended to produce an expeditious resolution of any such dispute, controversy or claim.
 
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Employee Non Solicitation . Western Union and First Data will each agree, subject to certain exceptions, that for a period of six months following the spin-off, it will not solicit for employment any employee of the other party.
 
Transition Services Agreement
 
We will enter into a transition services agreement with First Data pursuant to which First Data and Western Union will provide each other with a variety of administrative services for a period of time following the spin-off. Among the principal services First Data will provide to us are:
 
 	•	 	data center hosting;	
 
 	•	 	disaster recovery, monitoring services;	
 
 	•	 	call center support, network connectivity, system support (e.g., financial, legal, human resources, treasury and audit systems);	
 
 	•	 	information security system support;	
 
 	•	 	payroll;	
 
 	•	 	benefits; and	
 
 	•	 	human resources.	
 
Among the principal services we will provide to First Data are:
 
 	•	 	call center support;	
 
 	•	 	benefits resource support;	
 
 	•	 	finance resource support;	
 
 	•	 	software development and support; and	
 
 	•	 	network connectivity.	
 
Western Union and First Data will agree to make each service available to the other on an as-needed basis for a period of time not to exceed one year following the date the spin-off is completed, or such shorter periods as may be provided in the transition services agreement. We expect that the costs of these services previously allocated by First Data will be reflective of amounts charged going forward. The total estimated costs we expect to incur for these services is approximately $15 million which, following the spin-off, will be charged based on either cost plus or local market conditions for comparable services.
 
The transition services agreement will provide that either party may terminate the provision of a particular service it is being provided only upon obtaining the prior written consent of the other party, which consent may not be unreasonably withheld or delayed.
 
Employee Matters Agreement
 
First Data and Western Union will enter into an employee matters agreement, providing for their respective obligations to employees and former employees who are or were associated with Western Union (including those employees who transfer employment from First Data to Western Union immediately prior to the spin-off) and for other employment and employee benefits matters. The employee matters agreement also provides for sharing of specific employee and former employee information to enable First Data and Western Union to comply with their respective obligations. The terms described below are based on our current expectations but are subject to approval by the First Data compensation and benefits committee.
 
Treatment of Retirement and Welfare Plans . Western Union will establish a defined contribution plan for the benefit of eligible non-union employees of Western Union in the United States (including employees
 
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transferred to Western Union and its subsidiaries prior to the spin-off). Subject to any adjustments required by applicable law, First Data and Western Union presently intend that the assets and liabilities of the First Data Corporation Incentive Savings Plan attributable to transferring employees, other than certain employees whose employment has terminated prior to the distribution date and Western Union employees located in Puerto Rico, be transferred to and assumed by the defined contribution plan established by Western Union. Eligible union employees will continue to participate in the Western Union Financial Services, Inc. Retirement Savings Plan for Bargaining Union Employees after the spin-off. Western Union Financial Services, Inc., or “Western Union Financial Services,” will also continue to sponsor the frozen pension plans for which it has been the plan sponsor for periods prior to the spin-off. Western Union’s retirement plans will grant credit for service which was recognized under the First Data plans for certain purposes.
 
For the period beginning on the date of completion of the spin-off and ending on December 31, 2006, eligible Western Union employees will continue to participate in the First Data welfare plans. Effective as of January 1, 2007, Western Union will establish welfare plans for the benefit of its eligible employees and their respective eligible dependents. Following the date of completion of the spin-off, Western Union Financial Services will continue to be the plan sponsor of the Western Union Financial Services, Inc. Health and Welfare Benefit Plan.
 
In several locations outside the United States, it likely will not be feasible to establish such retirement or welfare plans due to the small number of employees at these locations. In such situations, Western Union will establish alternative compensation and/or benefit programs to comply with its obligations to affected employees.
 
Treatment of Stock Options . The employee matters agreement will provide that each outstanding option to purchase First Data common stock held by a person who is or will be an employee or director of Western Union immediately after the spin-off will be replaced with a substitute option to purchase Western Union common stock. The substitute option will preserve the intrinsic value of the option and the ratio of the exercise price to the fair market value of the stock by adjusting the number of shares purchasable and the exercise price, based on a comparison of the trading price of First Data common stock prior to the spin-off, which includes the value of Western Union, and the trading price of Western Union common stock immediately after the spin-off. The substitute option will take into account all employment with both First Data and Western Union for purposes of determining when the option becomes exercisable and when it terminates. All other terms of the substitute option will be the same as the First Data option. Fractional shares underlying substitute options will be adjusted or compensated by First Data as appropriate in its judgment. As of June 30, 2006, there were outstanding options to purchase 8.1 million shares of First Data common stock that would be replaced in this manner.
 
The employee matters agreement will provide that outstanding options to purchase First Data common stock held by current and former employees and directors of First Data who do not become employees or directors of Western Union after the spin-off will be replaced with both an adjusted First Data option and a substitute Western Union option. This replacement will be implemented in a manner such that immediately following the spin-off (i) the number of shares subject to the adjusted First Data option will be equal to the number of shares subject to the option prior to the spin-off, (ii) the number of shares subject to the substitute Western Union stock option will be equal to the number of shares of Western Union common stock that the option holder would have received in the spin-off had the First Data shares subject to the option represented outstanding shares of First Data common stock (i.e., a ratio of one share of Western Union common stock for each share of First Data common stock), and (iii) the per share option exercise price of the original First Data stock option will be proportionally allocated between the two different stock options based upon the relative per share trading prices of First Data and Western Union stock immediately following the spin-off. Both options, when combined, will preserve the intrinsic value of the original First Data option, and each will preserve the ratio of the exercise price to the fair market value of the stock subject to the option. The substitute Western Union option will take into account all employment with First Data for purposes of determining when the option becomes exercisable and when it terminates. All other terms of the substitute option will be the same as the current First Data option, except that references to “Board” and “Compensation Committee” shall mean the Western Union board of
 
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directors and compensation and benefits committee. Fractional shares will be adjusted or compensated by First Data as appropriate in its judgment. As of June 30, 2006, there were outstanding options to purchase 54.1 million shares of First Data common stock that would be replaced in this manner.
 
Treatment of Restricted Stock . The employee matters agreement will provide that each holder of a First Data restricted stock award that is outstanding at the time of the spin-off will receive the distribution of Western Union common stock in the form of restricted stock. The First Data restricted stock awards of persons who are or will be employees or directors of Western Union immediately after the spin-off will be replaced with substitute Western Union restricted stock awards. The number of substitute shares of Western Union restricted stock will be adjusted to preserve the intrinsic value of the First Data restricted stock award. These restricted stock awards will be subject to the same vesting conditions as the First Data restricted stock award. If any shares of Western Union restricted stock are forfeited by the holder, whether a current or former Western Union employee or a current or former First Data employee, the shares will revert to Western Union. Similarly, if any shares of First Data restricted stock are forfeited by the holder the shares will revert to First Data. In addition, to the extent applicable and permitted by law, for both groups of employees, any noncompetition and other restrictive covenants will apply for the benefit of both Western Union and First Data.
 
Treatment of Restricted Stock Units . The employee matters agreement will provide that each outstanding First Data restricted stock unit held by a person who is or will be an employee or director of Western Union immediately after the spin-off will be cancelled at the time of the spin-off and Western Union will issue replacement Western Union restricted stock units that immediately following the spin-off have the same economic value as of the spin-off date as the cancelled First Data restricted stock units. The employee matters agreement will provide that each outstanding First Data restricted stock unit held by a person who was or is an employee or director of First Data prior to the spin-off (and does not become an employee or director of Western Union at the time of the spin-off) will be adjusted at the time of the spin-off to preserve the intrinsic value of the original First Data restricted stock units by adjusting the number of restricted stock units based on a comparison of the trading price of First Data common stock prior to the spin-off, which includes the value of Western Union, and the trading price of Western Union common stock after the spin-off. The substitute restricted stock units will take into account all employment with both First Data and Western Union for purposes of determining when the restricted stock units vest.
 
The spin-off will not constitute a change in control for purposes of the First Data equity plans, and therefore no vesting of awards will occur as a result of the spin-off.
 
Western Union will be entitled to claim all tax deductions for compensation arising after the spin-off from the exercise of substitute Western Union options, the vesting of Western Union restricted stock or the vesting of restricted stock units held by current or former Western Union employees, and First Data will not claim any such deduction. First Data will be entitled to claim all tax deductions for compensation arising after the spin-off from the exercise of adjusted First Data options or Western Union options, the vesting of First Data restricted stock or Western Union restricted stock or the vesting of First Data restricted stock units or Western Union restricted stock units held by current or former First Data employees, and Western Union will not claim any such deduction.
 
Tax Allocation Agreement
 
We will enter into a tax allocation agreement with First Data setting forth the rights and obligations of First Data and us with respect to:
 
 	•	 	taxes imposed on our respective businesses both prior to and after the spin-off, which we refer to as “General Taxes”; and	
 
 	•	 	taxes and other liabilities that could be imposed as a result of a final determination that is inconsistent with the anticipated tax consequences, as set forth in the private letter ruling, in connection with the spin-off (and certain related transactions) if such transactions do not qualify for tax-free treatment under the Internal Revenue Code, which we refer to as “Restructuring Taxes.”	
 
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Under the terms of the tax allocation agreement, we will be liable for General Taxes attributable to or imposed in respect of us or our affiliates, our business, or any employees, assets or transactions of our business, with respect to periods before and after the spin-off, adjusted to reflect the results of any audit (including any adjustments with respect to taxes associated with our foreign business that is the subject of the 2003 legal restructuring and the APA discussions with the Internal Revenue Service referred to under “Risk Factors—Risks Relating to the Spin-Off—Our separation from First Data could have negative consequences on our effective tax rate”). The portion of any General Taxes determined on a consolidated, combined or unitary basis that is attributable to us will be determined using a methodology consistent with the methodology currently used in making such allocation.
 
First Data generally will be liable for all Restructuring Taxes, except that we will be liable for (i) Restructuring Taxes attributable solely to actions taken by us; and (ii) 50% of Restructuring Taxes (A) that would not have been imposed but for the existence of both an action by us and an action by First Data or (B) where we and First Data each take actions that, standing alone, would have resulted in the imposition of such Restructuring Taxes.
 
First Data will prepare and file the consolidated federal and applicable combined or unitary state and local income tax returns in which we or one of our affiliates, on the one hand, and First Data or one of its affiliates, on the other hand, are included. Tax controversies generally will be controlled by the party bearing economic responsibility (directly or through indemnification) for the underlying tax liability, subject, in certain cases, to certain rights retained by the other party to protect its interests where appropriate.
 
Money Order Agreement
 
Currently, we manage the consumer-facing aspects of our money order business, including managing the agents who sell the Western Union ® branded money orders that are issued by IPS. IPS also conducts the First Data ® official check and financial institution money order businesses. Following the spin-off, IPS will remain a subsidiary of First Data; however, in connection with the spin-off we will enter into an agreement with IPS that will permit us to continue to conduct our money order business. In general, under this arrangement, IPS will continue to issue the money orders used in, and collect the revenue generated by, selling Western Union branded money orders, and will continue to manage the investment portfolio consisting of the proceeds from the sale of money orders that are held until the money orders are cashed and will perform the processing and clearing services necessary for payment of the money orders. Western Union will provide a number of services, including product management, sales, marketing and relationship management, supply management (i.e., the purchase and distribution of the paper on which the money orders are printed), consumer and agent support, distribution and maintenance of POS equipment, data processing and programming. For these services, IPS will agree to pay us a fee at market based rates based on the outstanding balances in the investment portfolio derived from the money orders sold, subject to reduction based on the size of the investment portfolio.
 
Patent Ownership Agreement
 
We will enter into a patent ownership agreement with First Data which will govern the ownership of and rights relating to certain patents. Under the patent ownership agreement, (i) First Data will transfer to Western Union all right, title and interest in certain specified patents, including the right to sue for past infringement, (ii) First Data will retain ownership of certain other patents and (iii) certain other patents will be jointly owned by First Data and Western Union. First Data and Western Union will each grant to the other immunity from infringement claims for the patents owned by that party. Patents that are jointly owned by First Data and Western Union will be designated as controlled by either First Data or Western Union. Except as provided in the patent ownership agreement, each party will have the exclusive right to grant licenses to the patents controlled by that party, to sue third parties for infringement of those patents and to prosecute and maintain those patents.
 
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Other Spin-Off Agreements
 
In addition to the separation related agreements, Western Union and First Data will also enter into a number of commercial service agreements in connection with the spin-off. We expect that the costs of the services previously allocated by First Data will be reflective of amounts charged going forward under the agreements pursuant to which First Data or its subsidiaries will provide services to us. The annual estimated costs we expect to incur for these services is approximately $13 million which, following the spin-off, will be charged based on either cost plus or local market conditions for comparable services.
 
Output Services Agreement . Under this agreement, First Data Resources Inc., a First Data subsidiary, will produce and mail cards and other material on behalf of Western Union. This agreement is expected to have a term of three years.
 
Remittance Processing Agreement s. Under two agreements, First Data will provide check printing services to Speedpay and remittance processing and check clearing for Western Union. Each of these agreements is expected to have a term of one year.
 
Check Clearing Agreement . Under this agreement, IPS, a First Data subsidiary, will provide check clearing and processing services, as well as lockbox services, to support our money transfer checks and other items. This agreement is expected to have a term of five years.
 
POS Deployment Agreement . Under this agreement, TASQ Technology, Inc., a First Data subsidiary, will deploy and provide maintenance services for the FDX-400 ® automated transaction terminals used in certain Western Union businesses. This agreement is expected to have a term of three years.
 
Voice Services Agreements. Under two agreements First Data Voice Services, a First Data subsidiary, will provide interactive voice response support for the Western Union call centers located in the United States and develop and provide interactive voice response maintenance services for Western Union. These agreements are expected to have a term of two years.
 
Transaction Authorization Agreement . Under this agreement, TeleCheck Services, Inc., a First Data subsidiary, will provide transaction validation services for Western Union Money Transfer ® and consumer payment transactions initiated over the Internet, by telephone or by any other method that does not involve a physical location, referred to as “card not present” transactions. This agreement is expected to have a term of three years.
 
Payment Services Agreement . Our Convenience Pay service is currently offered jointly through Western Union and IPS. Under this agreement Western Union Financial Services, Inc. will assume responsibility for, and perform IPS’s obligations under, contracts with billers. This agreement is expected to have a term of six years.
 
Processing Services Agreement. Under this agreement, IPS, a First Data subsidiary, will provide check production, lockbox and escheatment services for Paymap. The agreement is expected to have a term of two years.
 
Risk Management Workstation Agreement. Under this agreement, First Data Merchant Services Corporation, a First Data subsidiary, will provide access, support and development services to Western Union related to a First Data risk management application. The agreement is expected to have a term of three years.
 
Virtual Application Development Agreement. Under this agreement, First Data will provide software development services to complete development of a virtual application system for Western Union. The agreement is expected to have a term of one year.
 
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Call Center Services Agreement. Under this agreement, First Data Iberica, S.A. will provide call center services to Western Union for its loyalty card program in Europe. The agreement is expected to have a term of one year.
 
Payroll Card Services Agreement. Under this agreement, Money Network, LLC, a joint venture majority owned by First Data, will provide payroll card services to Western Union. This agreement is expected to have a term of three years.
 
Existing Agreements
 
In addition to the commercial service agreements we expect to enter into with First Data in connection with the spin-off, we have several existing agreements with First Data that we expect to continue following the spin-off. The material terms of those agreements are described below.
 
Agreements with First Data as Service Provider
 
Consumer Identification Agreements. Under these agreements, entered into as of April 1, 1997, First Data Solutions, LLC, a First Data subsidiary, makes available consumer identification validation services to Western Union for its call centers. These agreements expire on April 1, 2007, unless renewed.
 
Suntrust Merchant Processing Agreement . Under this agreement, entered into as of August 2000, Suntrust Merchant Services, LLC, a joint venture in which First Data is a member, provides merchant processing services for E Commerce Group’s electronic and consumer payment transactions. This agreement expires annually on the anniversary of the effective date, unless renewed.
 
Chase Merchant Processing Agreement . Under this agreement, entered into on or about September 2000, Chase Paymentech Solutions, LLC, a joint venture in which First Data is a member, provides merchant processing services for ECG’s electronic and consumer payment transactions. This agreement expires annually on the anniversary of the effective date, unless renewed.
 
Chase Merchant Processing Agreement for Westernunion.com. Under this agreement, entered into as of August 2002, Chase Paymentech Solutions, LLC provides merchant processing services for money transfer and consumer payment transactions made through westernunion.com. This agreement expires in August 2007, unless renewed.
 
Payer Authentication Agreement . Under this agreement, entered into as of December 1, 2004, Chase Paymentech Solutions, LLC will provide payer authentication services for “card not present” transactions. The term of this agreement is month to month.
 
Chase Multicurrency Processing Agreement. Under this agreement, entered into as of October 2005, Chase Paymentech Solutions, LLC provides multicurrency processing services. This agreement expires in October 2008, unless renewed.
 
PIN-less Debit Sponsorship Agreement . Under this agreement, entered into as of June 5, 2003, First Financial Bank, a First Data subsidiary, provides PIN-less debit sponsorship services to Western Union. This agreement may be terminated by either party on 30 days notice.
 
Stored Value Program and Processing Agreements . Under these agreements, entered into as of November 1, 2004, Concord Financial Technologies, Inc., a First Data subsidiary, provides stored value transaction authorization and related services to Western Union in connection with a stored value card program sponsored by a third party bank. The agreements expire in November 2007, unless renewed. These agreements may be amended in connection with the spin-off to effect changes with respect to pricing and/or service levels.
 
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Card Sponsorship Agreement . Under this agreement, entered into as of March 11, 1999, First Financial Bank provides card sponsorship services to Western Union. This agreement continues in effect from year to year unless terminated by either party upon 180 days notice.
 
Taxware License Agreement . Under this agreement, Taxware, LP, a joint venture in which First Data is a majority owner, licenses tax calculation software for Western Union. This agreement expires in December 2006, unless renewed. In connection with the spin-off, this agreement has been amended to add additional software until December 2007 to the scope of the license.
 
WUIB Data Center Agreement . Under this agreement, entered into as of April 2006, First Data Austria, GmbH, a First Data subsidiary, hosts the Western Union International Bank banking software and money-transfer host-to-host application and connection in its data center. This agreement may be terminated at the end of each calendar year upon six months notice beginning December 31, 2008.
 
WUIB Website Agreement. Under this agreement, entered into as of November 2005, First Data Austria hosts the Western Union International Bank internet website. This agreement may be terminated at the end of each calendar year upon six months notice beginning December 31, 2008.
 
Agreement with Western Union as Service Provider
 
Quick Collect Processing Services Subcontracting Agreement . Under this agreement, entered into as of February 28, 2006, Western Union provides processing services as a subcontractor to First Data for cash and Internet transactions for California child support services. The agreement has a term ending in December 2009, unless renewed.
 
Quick Collect Processing Services Agreement s . Western Union provides Quick Collect processing services to First Data and several of its subsidiaries pursuant to several individual agreements. The agreements generally have a term of one year and renew annually unless terminated upon 90 days prior notice. In connection with the spin-off, the Quick Collect agreement with EFS Transportation Services, Inc., a First Data subsidiary, entered into as of May 2004, is expected to be amended to specify the service fee applicable through August 31, 2007. Thereafter, the agreement may be terminated by EFS Transportation Services, Inc. upon 90 days notice in the event of a price increase.
 
Payment Service s Agreement. Under this agreement, entered into as of March 2006, Western Union allows Money Network payroll cardholders to initiate Orlandi Valuta money transfers remotely by authorizing debits to their bank issued debit account. This agreement has an initial term of three years and, thereafter, will continue in effect from year to year unless terminated by either party upon 90 days notice.
 
Subleases
 
First Data and Western Union expect to continue following the spin-off or enter into agreements with respect to the lease or sublease of certain properties to the other. All subleases, the majority of which are subject to renewal within the next two years, will be priced at levels reflecting either market rates or the pro rata share of square footage utilized. The locations of these leases or subleases are as follows:
 
Leases or Subleases with First Data as Landlord or Sublandlord
 
First Data will lease or sublease property to Western Union in Atlanta, Georgia; Hunt Valley, Maryland; Auckland, New Zealand; and Dublin, Ireland.
 
Leases or Subleases with Western Union as Landlord or Sublandlord
 
Western Union will lease or sublease property to First Data in Cerritos, California; Englewood, Colorado; Hollywood, Florida; Alpharetta, Georgia; Plano, Texas; Mumbai, India; Tokyo, Japan; Johannesburg, South Africa; and Dubai, United Arab Emirates.
 
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 OUR MANAGEMENT
 
Our Directors and Executive Officers
 
We expect that our board of directors following the spin-off will be comprised of nine directors, at least a majority of whom will be considered independent under the independence requirements of the New York Stock Exchange.
 
Set forth below is information concerning those persons that we expect will become our directors and executive officers as of the distribution date. Our board of directors will be divided into three classes with staggered terms, which means that the directors in one of these classes will be elected each year for a new three-year term. We expect that Class I directors will have an initial term expiring in 2007, Class II directors will have an initial term expiring in 2008 and Class III directors will have an initial term expiring in 2009. For more information, see “Certain Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and By-Laws.”

Name	  	Age	  	Position	  	Director
Class	
Christina A. Gold	  	58	  	Chief Executive Officer and Director	  	Class I	
Richard Badler	  	55	  	Executive Vice President, Corporate Communications and Public
Affairs	  		
David Barnes	  	45	  	Executive Vice President, Finance and Strategic Development	  		
Guy A. Battista	  	58	  	Executive Vice President and President of Western Union Financial
Services, Inc.	  		
Royal Cole III	  	45	  	Executive Vice President and General Manager, Western Union
Payment Services	  		
Hikmet Ersek	  	46	  	Executive Vice President, Europe/Middle East/Africa/South Asia	  		
Robin Heller	  	41	  	Executive Vice President, Operations and IT	  		
Ian Marsh	  	53	  	Executive Vice President and Managing Director, Asia Pacific Region	  		
Scott Scheirman	  	43	  	Executive Vice President and Chief Financial Officer	  		
David Schlapbach	  	47	  	Executive Vice President, General Counsel and Secretary	  		
William D. Thomas	  	54	  	Executive Vice President and President of The Americas	  		
Grover Wray	  	45	  	Executive Vice President of Human Resources	  		
Jack M. Greenberg	  	63	  	Non-Executive Chairman of the Board of Directors	  	Class II	
Dinyar S. Devitre	  	59	  	Director	  	Class I	
Betsy D. Holden	  	50	  	Director	  	Class I	
Alan J. Lacy	  	52	  	Director	  	Class II	
Linda Fayne Levinson	  	64	  	Director	  	Class II	
Roberto G. Mendoza	  	61	  	Director	  	Class III	
Michael A. Miles	  	44	  	Director	  	Class III	
Dennis Stevenson	  	60	  	Director	  	Class III	
 
Christina A. Gold will be our Chief Executive Officer and one of our directors. Prior to the spin-off, she was a Senior Executive Vice President of First Data and President of Western Union from May 2002 to 2006. 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 1969 she joined Avon Products, Inc., serving as President and Chief Executive Officer of Avon Canada from 1989 to 1993 and 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 Industries, Inc., Torstar Corporation and New York Life Insurance Company.
 
Richard Badler will be our Executive Vice President, Corporate Communications and Public Affairs. Prior to the spin-off, he served in a similar capacity with Western Union from June 2006. From July 1998 to May 2006, he was the Senior Vice President, Corporate Communications of Unisys Corporation, a computer services, hardware and software company.
 
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David Barnes will be our Executive Vice President, Finance and Strategic Development. Mr. Barnes is expected to be a co-Principal Financial Officer of our company. Prior to joining Western Union in 2006, Mr. Barnes was Chief Financial Officer of Radio Shack Corporation starting in April 2005. In March 1999, Mr. Barnes joined Adolph Coors Company as Vice President and Treasurer of Adolph Coors and Vice President of Finance and Treasurer of Coors Brewing Company. In 2002, he became Chief Financial Officer of Coors U.S.
 
Guy A. Battista will be our Executive Vice President and President of Western Union Financial Services, Inc. Prior to the spin-off, he was an Executive Vice President and Chief Information Officer of First Data from March 2001 to 2006. Mr. Battista joined First Data in 1990.
 
Royal Cole III will be our Executive Vice President and General Manager, Western Union Payment Services. Prior to the spin-off, Mr. Cole had responsibility for Western Union’s Payment Services including Retail Money Orders and Prepaid Services from December 2005 to 2006. From December 2001 to December 2005, he was Senior Vice President and General Manager of Agent Network Management for Western Union. Prior to that time, Mr. Cole was Senior Vice President and General Manager of ValueLink from November 1999 to November 2001. Prior to joining Western Union in 1991, Mr. Cole held sales and sales management positions with the Pepsi-Cola Company.
 
Hikmet Ersek will be our Executive Vice President, Europe/Middle East/Africa/South Asia. Prior to the spin-off, Mr. Ersek held various positions with Western Union. From March 2004 to 2006 he was Senior Vice President, Europe/Middle East/Africa/South Asia and from October 2002 to March 2004 he was Senior Vice President, Europe/Middle East/Africa. Prior to that time, Mr. Ersek was Regional Vice President, Central and Eastern Europe from July 2001 to October 2002. Prior to joining Western Union in September 1999, Mr. Ersek was with GE Capital specializing in European payment systems and consumer finance.
 
Robin Heller will be our Executive Vice President, Operations and IT. Prior to the spin-off, she was Senior Vice President, Global Operations for First Data from November 2004 until 2006. From July 2003 to November 2004, Ms. Heller served in a similar capacity with Western Union. Prior to that time, she was Senior Vice President, Sales, Marketing and Operations for Western Union Commercial Services from July 2002 until June 2003 and Senior Vice President, Operations and Client Management for IPS, a First Data subsidiary, from July 2000 until June 2002. Ms. Heller joined First Data in 1988.
 
Ian Marsh will be our Executive Vice President and Managing Director, Asia Pacific Region. Prior to the spin-off, he served in a similar capacity in Western Union from March 2004 to 2006. Prior to joining Western Union in 2004, Mr. Marsh was President, Reader’s Digest Europe from May 2001 to February 2003 and had a 30-year career with American Express, most recently serving as President and Chief Executive Officer, Japan. 
 
Scott Scheirman will be our Executive Vice President and Chief Financial Officer. Mr. Scheirman is expected to be a co-Principal Financial Officer of our company. Prior to the spin-off, Mr. Scheirman held a variety of positions with First Data, most recently serving as the Senior Vice President and Chief Financial Officer for Western Union from 1999 to 2006. Prior to joining First Data, Mr. Scheirman was with Ernst & Young LLP where he was responsible for leading multiple audit and business advisory services. Mr. Scheirman serves as the Chairman of the First Data Corporation/Western Union Foundation. Mr. Scheirman joined First Data in 1992.
 
David Schlapbach will be our Executive Vice President, General Counsel and Secretary. Prior to the spin-off Mr. Schlapbach held a variety of positions at First Data since joining it in 1996, including Deputy General Counsel - International, with responsibility for First Data’s legal matters outside the United States. In this capacity, he worked in First Data’s Paris office for four years, returning in 2004 to become General Counsel for Western Union. Prior to joining First Data, Mr. Schlapbach was an attorney at the law firm of Blackwell Sanders Peper Martin LLP in St. Louis, Missouri.
 
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William D. Thomas will be our Executive Vice President and President of The Americas. Prior to the spin-off, he served as the President of The Americas for Western Union from June 2003 to 2006. Mr. Thomas joined Western Union in August 2000 as President of Western Union Financial Services International, based in Paris, France, a position he held until June 2003. Prior to joining Western Union, Mr. Thomas worked for Bristol-Meyers Squibb’s Mead Johnson Nutritional Division, where he spent 13 years and most recently held the position of President, International Operations.
 
Grover Wray will be our Executive Vice President of Human Resources. He served in a similar capacity for Western Union since joining us in October 2005. Prior to joining Western Union, Mr. Wray held senior human resources positions for Janus Capital Group from 2004 to 2005, Heidrick & Struggles from 2003 to 2004 and Arthur Andersen LLP from 1988 to 2003.
 
Jack M. Greenberg will be our Non-Executive Chairman of our 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 Corporation from 2003 to 2006. Mr. Greenberg is a Director of Abbott Laboratories, The Allstate Corporation, Hasbro, Inc., Innerworkings, Inc. and Manpower Inc.
 
Dinyar S. Devitre will be one of our directors. He has been 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, Chief Executive Officer Philip Morris, Japan, and Senior Vice President, Corporate Planning, Philip Morris Companies, Inc. from 1995 to 1998. Mr. Devitre is a Director of Kraft Foods Inc.
 
Betsy D. Holden will be one of our directors. She served as President-Global Marketing and Category Development of Kraft Foods Inc., a food business unit of Altria Group Inc., from January 2004 through June 2005; Co-Chief Executive Officer of Kraft Foods Inc. from March 2001 until December 2003; and President and Chief Executive Officer of Kraft Foods North America from May 2000 until December 2003. Ms. Holden began her career at General Foods in 1982. She has been Director of Tribune Company since 2002.
 
Alan J. Lacy will be one of our directors. Mr. Lacy is the former Vice Chairman and Chief Executive Officer of Sears Holding Corporation which formed as a result of the merger of Sears, Roebuck and Co. and Kmart Holding Corporation. He served in those positions from March 2005 through July 2006. He previously served Sears as Chairman of the Board since December 2000, and as President and Chief Executive Officer since October 2000. Also for Sears, Mr. Lacy was President, Services, from 1999 to October 2000, President of Sears Credit from 1997 to 1999 (additionally Chief Financial Officer from 1998 to 1999) and Executive Vice President and Chief Financial Officer from 1995 to 1997.
 
Linda Fayne Levinson will be one of our directors. Ms. Levinson is an advisor to professionally funded, privately held ventures. She is presently Chair of the Board of VendareNetblue, a privately held internet media company. From February through July 2006, Ms. Levinson was also Interim CEO of that company. From 1997 until May 2004, Ms. Levinson was a partner at GRP Partners, a venture capital firm, investing in early stage technology companies in the financial services, internet media and online retail sectors. Earlier in her career, Ms. Levinson was an executive at American Express and a partner at McKinsey & Co. She is a Director of NCR Corporation, Jacobs Engineering Group and Ingram Micro, Inc.
 
Roberto G. Mendoza will be one of our directors. Mr. Mendoza has been Chairman of the Board and Managing Director of Integrated Finance Limited, a financing advisory company he co-founded, since 2002. He has also served as Managing Director of Goldman Sachs. From 1967 to 1972 and from 1975 to 2000, Mr. Mendoza held positions at J.P. Morgan & Co. Inc., serving from 1990 to 2000 as Director and Vice Chairman of the Board. He is a Director of Prudential plc.
 
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Mike Miles will be one of our directors. He has served Staples, Inc. as President since January 2006 and as Chief Operating Officer since September 2003. Prior to that, Mr. Miles was Chief Operating Officer, Pizza Hut for Yum! Brands, Inc. from January 2000 to August 2003. From 1996 to 1999 he served Pizza Hut as Senior Vice President of Concept Development & Franchise.
 
Dennis Stevenson will be one of our directors. Lord Stevenson has been Chairman of HBOS plc, based in the United Kingdom, since June 2001 and was Chairman of Pearson plc until October 2005. He has been an Honorary President of St James’s Place Capital plc since 1997 and the first Chancellor of The University of the Arts London since 2000. He is also currently Chairman of the House of Lords Appointments Commission.
 
Annual Meeting
 
Our amended and restated by-laws will provide that an annual meeting of stockholders will be held each year on a date specified by our board of directors. We expect the first annual meeting of our stockholders following the spin-off to be held in 2007.
 
Committees of the Board of Directors
 
Pursuant to our amended and restated by-laws, our board of directors will be permitted to establish committees from time to time as it deems appropriate. Initially, to facilitate independent director review and to make the most effective use of the directors’ time and capabilities, our board of directors will establish the following committees: audit committee, corporate governance committee and compensation and benefits committee. The membership and function of each committee are described below.
 
Audit Committee
 
The audit committee will be comprised solely of directors who meet the independence requirements of the New York Stock Exchange and the Exchange Act, and are financially literate, as required by the New York Stock Exchange. At least one member of the audit committee will be a financial expert, as defined by the rules and regulations of the SEC. No director will be permitted to serve as a member of the audit committee if such director serves on the audit committee of more than two other public companies unless our board of directors determines that such simultaneous service would not impair the ability of such director to serve effectively on the audit committee. The audit committee will assist the board of directors in fulfilling its oversight responsibilities with respect to:
 
 	•	 	the integrity of our financial statements;	
 
 	•	 	our disclosure controls and procedures;	
 
 	•	 	the independence and qualification of our independent registered public accounting firm;	
 
 	•	 	the performance of our internal auditors and our independent registered public accounting firm;	
 
 	•	 	our contingency plans for business continuity;	
 
 	•	 	preparing the report of the audit committee to be included in our annual proxy statement;	
 
 	•	 	reviewing any significant legal, compliance or regulatory matters that may have a material effect on us;	
 
 	•	 	consulting with our management, internal auditors and independent registered public accounting firm regarding the procedures to insure compliance with laws and regulations to which we are subject; and	
 
 	•	 	reviewing the program established by our management to monitor compliance with our code of conduct and approving any waiver of the code for our directors and executive officers.	
 
We expect that our audit committee will establish a policy to pre-approve all audit and non-audit services provided by our independent registered public accounting firm and all accounting firms. These services may
 
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include audit services, audit-related services, tax services and other services. We expect that the policy will provide that pre-approval will generally provided for up to one year and that any pre-approval must be detailed as to the particular service or category of services and is subject to a specific budget. We also expect that the policy will provide that once pre-approved, the services and pre-approved amounts will be monitored against actual charges incurred and modified if appropriate. The audit committee will be governed by the audit committee charter, which will be available at our website www.westernunion.com.
 
Corporate Governance Committee
 
The corporate governance committee will be comprised solely of directors who meet the independence requirements of the New York Stock Exchange. The corporate governance committee will be responsible for:
 
 	•	 	recommending to our board of directors criteria for selecting new directors and committee members;	
 
 	•	 	assessing, considering and recruiting candidates to fill positions on our board of directors;	
 
 	•	 	evaluating current directors for re-nomination to our board of directors;	
 
 	•	 	recommending the director nominees for approval by our board of directors and our stockholders;	
 
 	•	 	recommending to our board of directors appointments to committees;	
 
 	•	 	reviewing at least annually and recommending modifications to our board of directors corporate governance guidelines;	
 
 	•	 	advising our board of directors with respect to the charters, structure, operations and membership qualifications for the various committees of our board of directors;	
 
 	•	 	overseeing the development and implementation of an orientation and continuing education program for our directors;	
 
 	•	 	establishing and implementing self-evaluation procedures for our board of directors and its committees and overseeing the reporting to our board of directors by the committees; and	
 
 	•	 	reviewing and advising our board of directors regarding stockholder proposals submitted for inclusion in our proxy statement.	
 
The corporate governance committee will be governed by the corporate governance committee charter, which will be available at our website www.westernunion.com.
 
Compensation and Benefits Committee
 
The compensation and benefits committee will be comprised solely of directors who meet the independence requirements of the New York Stock Exchange, meet the requirements for “Non-Employee Directors” under the Exchange Act, and meet the requirements for “outside directors” under the Internal Revenue Code. The compensation and benefits committee will be responsible for:
 
 	•	 	overseeing our compensation and benefit plans generally;	
 
 	•	 	recommending to our board of directors compensation for outside directors;	
 
 	•	 	establishing our general compensation philosophy and overseeing the development and implementation of compensation and benefit programs;	
 
 	•	 	with input from our board of directors, reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and other executive officers, evaluating the performance of our chief executive officer and other executive officers in light of those goals and objectives, and setting our chief executive officer’s and other executive officers’ compensation levels based on this evaluation;	
 
 	•	 	establishing, overseeing and delegating authority to employee committees with respect to our employee compensation and benefit plans;	
 
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 	•	 	overseeing our regulatory compliance with respect to compensation matters;	
 
 	•	 	reviewing and approving severance or similar termination payments to any of our current or former executive officers;	
 
 	•	 	preparing reports on executive compensation;	
 
 	•	 	reporting activities of the compensation and benefits committee to our board of directors on a regular basis and reviewing issues with our board of directors as the compensation and benefits committee deems appropriate;	
 
 	•	 	preparing and reviewing with our board of directors an annual performance evaluation of the compensation and benefits committee; and	
 
 	•	 	reviewing our management succession planning.	
 
The compensation and benefits committee will be governed by the compensation and benefits committee charter, which will be available at our website www.westernunion.com.
 
Corporate Governance
 
Communications with the Board of Directors
 
After the spin-off, any holder of our stock who desires to contact the non-management directors or the other members of our board of directors may do so by writing to: The Western Union Company, Non-Executive Chairman of the Board of Directors, 12500 East Belford Avenue, Englewood, Colorado 80112. Communications that are intended specifically for non-management directors, whom we refer to as outside directors, should be addressed to the attention of the chairperson of the corporate governance committee. All communications will be forwarded to the chairperson of the corporate governance committee unless the communication is specifically addressed to another member of the board of directors, in which case, the communication will be forwarded to that director.
 
Presiding Director of Outside Director Meetings
 
We expect that the outside directors will meet in regularly scheduled executive sessions without management to promote open and honest discussion. We expect that the non-executive chairperson of our board of directors or, if there is no non-executive chairperson, the chairperson of the corporate governance committee, will be the presiding director at these meetings.
 
Nomination of Directors
 
The board of directors is responsible for nominating directors for election by the stockholders and filling any vacancies on the board of directors that may occur. The corporate governance committee will be responsible for identifying, screening and recommending candidates to the board of directors for membership. In formulating its recommendations, the corporate governance committee will consider recommendations offered by any stockholder, director or officer of Western Union.
 
Director Qualifications
 
General criteria for the nomination of director candidates include experience, integrity, skills, diversity, ability to make independent analytical inquiries, understanding of our business environment, international experience and willingness to devote adequate time to board of directors duties—all in the context of an assessment of the perceived needs of the board of directors at that point in time. It is expected that in exercising its director nomination responsibilities, the corporate governance committee will consider women and minority candidates consistent with our nondiscrimination policies. Each director will be expected to ensure that other existing and planned future commitments do not materially interfere with the member’s service as a director or committee member.
 
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Code of Ethics
 
We expect that our Director Code of Conduct, Code of Ethics for Senior Financial Officers, Employee Complaint Policy for Accounting and Auditing Matters, Professional Conduct Policy for Attorneys, and the Employee Code of Conduct will be available without charge through the “Governance” portion of our web site, www.westernunion.com, or by writing to the attention of: Investor Relations, The Western Union Company, 12500 East Belford Avenue, Englewood, Colorado 80112.
 
Compensation of Directors
 
Cash Compensation
 
We expect that each outside director (other than our Non-Executive Chairman) will receive the following cash compensation for service on our board of directors and committees of our board of directors:
 
 	•	 	an annual retainer fee of $70,000;	
 
 	•	 	an annual retainer fee of $15,000 for the chairperson of each committee of our board of directors other than the audit committee; and	
 
 	•	 	an annual retainer fee of $25,000 for the chairperson of the audit committee of our board of directors and $10,000 for each other member of the audit committee of our board of directors.	
 
Directors who also are our employees will not receive any of the compensation described above.
 
Equity Compensation
 
Each outside director will have the option of electing to receive such director’s annual retainer fees described above in the form of (a) all cash, (b) a combination of 75% stock options and 25% fully vested stock units or (c) all fully vested stock units, with the equity awards being made pursuant to the 2006 Non-Employee Director Compensation Equity Plan (the “2006 Director’s Plan”), which we intend to adopt, subject to the approval of First Data in its capacity as our sole stockholder. All stock units will be settled in shares of Western Union common stock and may be subject to a deferral election consistent with Internal Revenue Code Section 409A.
 
The purpose of the 2006 Director’s Plan will be to advance the interest of Western Union and its stockholders by encouraging increased stock ownership by our outside directors, in order to promote long-term stockholder value through continuing ownership of our common stock.
 
We expect that each outside director (other than our Non-Executive Chairman) will receive the following equity compensation under the 2006 Director’s Plan for service on our board of directors and committees of our board of directors:
 
 	•	 	an annual grant of options to purchase shares of our common stock with a value of $75,000;	
 
 	•	 	an annual grant of fully vested stock units with a value of $25,000; and	
 
 	•	 	options to purchase shares of our common stock with a value of $75,000 and fully vested stock units with a value of $25,000 upon initially becoming a director and three years after initially becoming a director, if they are still a director at that time.	
 
Directors who also are our employees will not receive any of the compensation described above.
 
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Compensation of Our Non-Executive Chairman
 
In lieu of the compensation outlined above for other outside directors, we expect that our Non-Executive Chairman will receive the following compensation:
 
 	•	 	an annual retainer fee of $100,000;	
 
 	•	 	an annual grant of options to purchase shares of our common stock with a value of $262,500;	
 
 	•	 	an annual grant of fully vested stock units with a value of $87,500; and	
 
 	•	 	options to purchase shares of our common stock with a value of $75,000 and fully vested stock units with a value of $25,000 upon initially becoming our Non-Executive Chairman and upon reelection to serve in such capacity.	
 
Our Non-Executive Chairman will have the option to receive his annual retainer fee in the form of (a) all cash, (b) a combination of 75% stock options and 25% fully vested stock units, or (c) entirely in the form of fully vested stock units, with the equity awards being made pursuant to our 2006 Director’s Plan.
 
Reimbursements
 
Directors will be reimbursed for their expenses incurred in attending board of directors, committee and stockholder meetings, including those for travel, meals and lodging.
 
Indemnification Agreements
 
We will enter into director indemnification agreements with each of our outside directors. Consistent with the indemnification rights that will be provided to all of our directors under our amended and restated certificate of incorporation, we will indemnify and hold harmless each outside director to the fullest extent permitted or authorized by the General Corporation Law of the State of Delaware in effect on the date of the agreement or as such laws may be amended or replaced to increase the extent to which a corporation may indemnify its directors.
 
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 EXECUTIVE COMPENSATION
 
Historical Compensation of Executive Officers
 
The following table contains compensation information for our Chief Executive Officer and four other persons who are our executive officers and who, based on employment with First Data, were the most highly compensated for the year ended December 31, 2005. We will refer to these executive officers as the “named executive officers.” All of the information included in this table reflects compensation earned by the named executive officers for services rendered to First Data and its subsidiaries. Unless the context suggests otherwise, references to “restricted stock,” “restricted stock units” and “stock options” mean shares of First Data common stock and options to purchase First Data common stock, respectively. Amounts shown are for the individuals in their last position with First Data and do not necessarily reflect the compensation which these individuals will earn in their new capacities as our executive officers.
 
Summary Compensation Table

 	 	 	 	Annual Compensation	 	 	Long Term Compensation	 	 	All Other
Compensation
($)(1)	
Name and Principal Position	 	Year	 	Salary($)	 	Bonus($)	 	Other Annual
Compensation($)	 	 	Restricted
Stock
Awards($)	 	 	Securities
Underlying
Options (#)(3)	 	LTIP
Payouts($)	 	 		
Christina A. Gold	 	2005	 	625,000	 	0	 	0	 	 	2,003,750	(2)	 	150,000	 	0	 	 	45,295	
Chief Executive Officer	 	2004	 	500,000	 	600,000	 	0	 	 	2,040,750	(2)	 	100,000	 	0	 	 	24,487	
	 	2003	 	500,000	 	480,000	 	0	 	 	0	 	 	75,000	 	0	 	 	11,004	
									
Guy A. Battista	 	2005	 	520,833	 	0	 	0	 	 	1,402,625	(4)	 	100,000	 	963,346	(5)	 	205,972	
Executive Vice President and	 	2004	 	487,500	 	450,000	 	0	 	 	2,040,750	(4)	 	100,000	 	1,031,293	(6)	 	168,034	
President, Western Union
Financial Services, Inc.	 	2003	 	420,833	 	235,025	 	0	 	 	0	 	 	60,000	 	492,558	(7)	 	121,363	
									
William D. Thomas	 	2005	 	397,500	 	120,000	 	0	 	 	0	 	 	50,000	 	578,008	(5)	 	43,090	
President of The Americas	 	2004	 	383,333	 	280,000	 	296,228	(8)	 	0	 	 	100,000	 	0	 	 	17,661	
	 	2003	 	350,000	 	209,371	 	540,248	(8)	 	0	 	 	50,000	 	0	 	 	18,729	
									
Hikmet Ersek(9)	 	2005	 	355,712	 	99,367	 	0	 	 	0	 	 	0	 	0	 	 	25,354	
Executive Vice President, Europe/	 	2004	 	368,028	 	197,081	 	0	 	 	0	 	 	80,000	 	0	 	 	25,710	
Middle East/Africa/South Asia	 	2003	 	324,956	 	117,601	 	0	 	 	0	 	 	36,600	 	0	 	 	20,899	
									
Ian Marsh(9)	 	2005	 	291,420	 	75,065	 	360,762	(10)	 	0	 	 	0	 	0	 	 	29,142	
Executive Vice President and	 	2004	 	245,007	 	167,558	 	287,901	(10)	 	0	 	 	55,000	 	0	 	 	0	
Managing Director, Asia
Pacific Region	 	2003	 	0	 	0	 	0	 	 	0	 	 	0	 	0	 	 	0	

(1)	Amounts shown for the named executive officers include contributions by us to defined contribution plans and the dollar value of above market interest accrued in First Data’s Supplemental Incentive Savings Plan. For 2005, these amounts were, respectively, as follows: Ms. Gold: $36,750/$8,545, Mr. Battista: $181,813/$24,159, Mr. Thomas: $39,665/$3,425, Mr. Ersek: $25,354/$0 and Mr. Marsh: $29,142/$0.	
(2)	The value at December 31, 2005 of Ms. Gold’s 100,000 shares of restricted stock was $4,288,000. 50,000 shares of Ms. Gold’s restricted stock award vest, if she is still employed by our company at the time, at 25% per year on the anniversary date of the grant (February 23, 2005). The remaining 50,000 shares vest, if she is still employed by our company at the time, on the earlier of (i) February 25, 2009 or (ii) at any time after February 25, 2007 if on each trading day during the previous 30-day period the highest intra-day trading price of the First Data’s common stock on the New York Stock Exchange is equal to or greater than $70.00 per share. Vesting may be accelerated pursuant to the terms of First Data’s 2002 Long-Term Incentive Plan. Dividends on all restricted shares are paid at the same rate as paid to all stockholders; however, the cash dividends accrue during the restriction period(s) and are paid at the time the restrictions on the shares lapse.	
(3)	Vesting of these options was accelerated on December 22, 2005.	
(4)	The value at December 31, 2005 of Mr. Battista’s 85,000 shares of restricted stock was $3,644,800. 35,000 shares of Mr. Battista’s restricted stock award vest, if he is still employed by our company at the time, at	
 
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 	25% per year on the anniversary date of the grant (February 23, 2005). The remaining 50,000 shares vest, if he is still employed by our company at the time, on the earlier of (i) February 25, 2009 or (ii) at any time after February 25, 2007 if on each trading day during the previous 30-day period the highest intra-day trading price of First Data’s common stock on the New York Stock Exchange is equal to or greater than $70.00 per share. Vesting may be accelerated pursuant to the terms of First Data’s 2002 Long-Term Incentive Plan. Dividends on all restricted shares are paid at the same rate as paid to all stockholders; however, the cash dividends accrue during the restriction period(s) and are paid at the time the restrictions on the shares lapse.	
(5)	2005 LTIP Payout Awards for Mr. Battista and Mr. Thomas represent amounts for the two-year performance period ended December 31, 2002, as adjusted for the performance of First Data common stock in the following two years.	
(6)	2004 LTIP Payout Awards for Mr. Battista represent amounts for the two-year performance period ended December 31, 2001, as adjusted for the performance of First Data common stock in the following two years.	
(7)	2003 LTIP Payout Awards for Mr. Battista represent amounts for the two-year performance period ended December 31, 2000, as adjusted for the performance of First Data common stock in the following two years.	
(8)	2004 amount includes payment of ex-patriate expenses associated with Mr. Thomas’ international assignment which totaled $235,739 and relocation expenses which totaled $59,165. 2003 amount includes payment of ex-patriate expenses associated with Mr. Thomas’ international assignment which totaled $480,436 and relocation expenses which totaled $24,150.	
(9)	Compensation for Mr. Ersek and Mr. Marsh is paid in foreign currency which has been converted to U.S. dollars for each year at the exchange rate in effect for the last business day of each year.	
(10)	Includes payment of ex-patriate expenses, such as housing, utilities, cost of living allowance and travel, associated with Mr. Marsh’s international assignment which totaled $354,784 in 2005 and $282,934 in 2004.	
 
Stock Option Grants
 
The following table contains information relating to the First Data stock option grants made in 2005 to the named executive officers. The options are subject to the terms of the First Data 2002 Long-Term Incentive Plan. In connection with the spin-off, we intend to adopt, with the approval of First Data in its capacity as our sole stockholder, the 2006 Western Union Company Long-Term Incentive Plan and, subject to the approval of First Data’s compensation and benefits committee, options to acquire First Data common stock that are outstanding immediately prior to the spin-off and are held by the named executive officers will be replaced with substitute options to purchase our common stock.
 
Options Grants in 2005

 	  	Number of
Securities
Underlying
Option
Granted(1)	  	Percent of
Total Options
Granted to
Employees in
Fiscal
Year(2)	  	Exercise or
Base Price
($/sh)	  	Expiration
Date	  	 	
 	  		  		  		  		  	Grant Date Present Value(3)	
Christina A. Gold	  	150,000	  	3.67	  	40.0750	  	02/23/2015	  	$	2,699,385	
Guy A. Battista	  	100,000	  	2.45	  	40.0750	  	02/23/2015	  	$	1,799,590	
William D. Thomas	  	50,000	  	1.22	  	40.0750	  	02/23/2015	  	$	614,105	
Hikmet Ersek	  	0	  	N/A	  	N/A	  	N/A	  	 	N/A	
Ian Marsh	  	0	  	N/A	  	N/A	  	N/A	  	 	N/A	

(1)	Options were granted under the First Data 2002 Long-Term Incentive Plan and carry an exercise price of 100% of the fair-market value of the underlying First Data common stock on the date of grant and vesting was accelerated on December 22, 2005.	
(2)	Based on options to purchase an aggregate of 4,084,600 shares granted to employees of First Data under the First Data 2002 Long-Term Incentive Plan during 2005.	
 
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(3)	These values were calculated using the Black-Scholes single option-pricing model, a formula widely used and accepted for valuing traded stock options. Any ultimate value will depend on the market value of our common stock at a future date. First Data uses assumptions that consider all substantive characteristics of the options and are based on an analysis of historical information, external data, and other factors. Assumptions used are based on grant date of the options. The following assumptions were used to calculate the values for grants under the First Data 2002 Long-Term Incentive Plan with the exception of Mr. Thomas: estimated future dividend yield of .567%; expected price volatility of 37.00%; weighted average risk-free rate of return of 4.143%. Estimated future dividend yield of .567%; expected price volatility of 31.40%; weighted average risk-free rate of return of 3.749% was used for Mr. Thomas. See Note 15—“Stock Compensation Plans” to our historical combined financial statements.	
 
Stock Option Exercises
 
The following table contains information relating to the exercise of options to purchase First Data common stock by the named executive officers in 2005, as well as the number and value of their unexercised options to purchase First Data common stock as of March 31, 2006.

Name and Principal Position	  	Shares
Acquired
on
Exercise
(#)	  	Value
Realized
($)	  	Shares Subject to Options
at March 31, 2006 (#)	  	Value of Unexercised
In-The-Money Options at
March 31, 2006(1)	
	  		  		  	Exercisable	  	Unexercisable	  	Exercisable ($)	  	Unexercisable ($)	
Christina A. Gold	  	0	  	0	  	475,000	  	250,000	  	3,425,250	  	341,250	
Guy A. Battista	  	3,000	  	71,525	  	588,332	  	150,000	  	8,415,218	  	204,750	
William D. Thomas	  	84,500	  	1,064,744	  	0	  	32,000	  	0	  	88,480	
Hikmet Ersek	  	0	  	0	  	167,698	  	40,000	  	1,566,196	  	110,600	
Ian Marsh	  	0	  	0	  	55,000	  	17,000	  	296,975	  	47,005	

(1)	The amounts shown for options granted under the First Data 2002 Long-Term Incentive Plan reflect the $46.6950 average high and low prices of First Data common stock on March 31, 2006 less the option exercise price, but they do not reflect the impact of taxes.	
 
Restricted Stock
 
The following table contains information relating to grants of First Data restricted stock made in 2005 to the named executive officers. We expect that, subject to the approval of First Data’s compensation and benefits committee, in connection with the spin-off, outstanding restricted stock awards granted to the named executive officers under the First Data equity compensation plans will be replaced with substitute Western Union restricted stock awards and continue to vest on the same schedule. See “Our Relationship with First Data After the Spin-Off—Employee Matters Agreement.”

 	  	Individual Grants	  	 	  	 	
Name	  	Number of
Restricted
Stock
Awards
Issued	 	 	% of Total
Restricted
Stock Issued
in 2005(1)	  	Market Value
($/share)	  	Total Issue Date
Market Value ($)	
Christina A. Gold	  	50,000	(2)	 	9.09	  	40.0750	  	2,003,750	
Guy A. Battista	  	35,000	(2)	 	6.36	  	40.0750	  	1,402,625	
William D. Thomas	  	0	 	 	0.00	  	N/A	  	N/A	
Hikmet Ersek	  	0	 	 	0.00	  	N/A	  	N/A	
Ian Marsh	  	0	 	 	0.00	  	N/A	  	N/A	

(1)	Based on aggregate of 550,000 restricted stock awards granted to employees under the First Data Corporation 2002 Long-Term Incentive Plan during 2005.	
(2)	Restricted stock award vests, if the executive is still employed by the company at the time, at 25% per year on the anniversary date of the grant. Vesting may be accelerated pursuant to the terms of First Data Corporation’s 2002 Long-Term Incentive Plan.	
 
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Defined Benefit Retirement Plan
 
First Data’s defined benefit retirement plans were frozen in 1997. Mr. Battista has a frozen benefit, which would provide for an annual payment at age 65 of approximately $6,052.32.
 
Employment Agreement
 
Western Union Hong Kong Limited, one of our subsidiaries, is party to an employment agreement with Mr. Marsh, pursuant to which Mr. Marsh has served as our Senior Vice President and Managing Director, Asia Pacific, since February 2004. The terms of Mr. Marsh’s employment agreement provide for (i) annual base salary of $280,000, (ii) eligibility to participate in health and welfare benefits programs, (iii) vacation leave, (iv) a car allowance, (v) an international service allowance, (vi) certain allowances related to maintaining a residence, (vii) club membership fees, (viii) certain travel expenses for Mr. Marsh’s children and (ix) tax preparation assistance. Mr. Marsh’s employment agreement also includes non-solicitation and confidentiality provisions. Mr. Marsh has also agreed, for a period of twelve months following termination of his employment for any reason, not to compete against Western Union in Taiwan, Hong Kong, China or any other country in which Mr. Marsh worked during the two-year period prior to the date of termination of his employment. Mr. Marsh will be paid one month’s salary for each month of his non-competition agreement. The employment agreement does not have a fixed term but either party may terminate the agreement upon one month’s prior written notice, provided that Western Union Hong Kong may terminate the employment agreement for justifiable cause (as defined in the agreement) without prior written notice to Mr. Marsh. The employment agreement does not provide for any severance payments upon termination of employment, other than the payments described above in connection with the non-competition provisions of the agreement.
 
Western Union Financial Services GmbH, one of our subsidiaries, is party to an employment agreement with Mr. Ersek, pursuant to which Mr. Ersek has served in various positions, most recently as Senior Vice President, Europe/Middle East/Africa/South Asia. The terms of Mr. Ersek’s employment agreement provide for (i) annual base salary of euro 232,217, (ii) a target bonus of euro 100,000, (iii) participation in a pension plan, (iv) vacation leave and (v) a company car. Mr. Ersek’s employment agreement also includes non-competition and confidentiality provisions. During his employment, Mr. Ersek is prohibited from competing with Western Union and from engaging in any activity outside of his employment with Western Union, even if the activity is not competitive with Western Union. Mr. Ersek has also agreed, for a period of one year following termination of his employment for any reason, not to compete against Western Union within Austria, provided that if Mr. Ersek is terminated without cause Western Union will be required to pay Mr. Ersek the amounts to which he was most recently entitled under his employment agreement. The employment agreement does not have a fixed term but either party may terminate the agreement upon six months’ prior notice. The employment agreement does not provide for any severance payments upon termination of employment, other than the payments described above in connection with the non-competition provisions of the agreement.
 
Executive Severance Plan
 
Effective as of the time of the spin-off, we intend to establish and adopt an executive severance plan for the payment of certain benefits to senior executives, including our named executive officers, upon termination of employment from Western Union and upon a change in control of Western Union. The purpose of the severance plan will be to promote uniform treatment of senior executives who are involuntarily terminated other than for “cause” or who, following a change in control of Western Union, are involuntarily terminated other than for “cause” or terminated for good reason, and to afford such executives and other employees the opportunity to protect the share value they have helped create in the event of any change in control. The plan will provide for the following severance benefits, which will be the same in the event of a change in control or involuntary termination other than for “cause” except as indicated below:
 
 	•	 	A cash payment equal to the senior executive’s base pay plus target bonus for the year in which the termination occurs, multiplied by two.	
 
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 	•	 	A cash payment equal to the senior executive’s prorated bonus at target for the year in which the termination occurs.	
 
 	•	 	Provided that the senior executive properly elects continued health care coverage under applicable law, a lump sum payment equal to the difference between active employee premiums and continuation coverage premiums for eighteen months of coverage.	
 
 	•	 	Upon a change in control only, all equity compensation awards that were made pursuant to the 2006 LTIP, including those that are performance based, will become fully vested and exercisable on the date of the change of control and the right to exercise awards will continue twenty-four months (thirty-six months in the case of the Chief Executive Officer) after the senior executive’s termination (but not beyond their original terms).	
 
 	•	 	If a senior executive is involuntarily terminated without cause and no change in control has occurred, stock options granted pursuant to the 2006 LTIP will continue to vest and be exercisable for twenty-four months (thirty-six months in the case of the Chief Executive Officer) after the senior executive’s termination (but not beyond their original terms), and restricted stock awards and restricted stock unit awards will vest on a prorated basis based on the period from the grant date to the termination date.	
 
 	•	 	If severance benefits payable after a change in control exceed 110% of the maximum amount of such benefits that would not be subject to the excise tax imposed by section 280G of the Internal Revenue Code of 1986, an additional cash payment in an amount that after payment of all taxes on such benefits (and on such amount) provides the senior executive with the amount necessary to pay such tax. (If the severance benefits so payable do not exceed such 110% threshold, the amount thereof will be reduced to the maximum amount not subject to such excise tax.)	
 
Senior Executive Incentive Plan
 
Prior to completion of the spin-off, we intend to adopt a Senior Executive Incentive Plan pursuant to which we will make annual incentive awards to eligible participants to provide them with an incentive to carry out our business plan and to reward them for having done so. We expect that the compensation and benefits committee intend to set performance goals in each year at the beginning of the year, and that it will determine the bonuses based on an evaluation of our performance in light of those goals. Amounts payable under the Senior Executive Incentive Plan are intended to qualify as qualified performance-based compensation under Section 162(m) of the Internal Revenue Code such that amounts payable under the Senior Executive Incentive Plan would be fully deductible, to the extent permitted by applicable law.
 
The 2006 LTIP
 
We intend to adopt, subject to the approval of First Data, in its capacity as our sole stockholder, the 2006 LTIP. The purposes of the 2006 LTIP will be (i) to advance the interests of Western Union by attracting and retaining high caliber employees and other key individuals, (ii) to align the interests of Western Union’s stockholders and recipients of awards under the 2006 LTIP by increasing the proprietary interest of such recipients in Western Union’s growth and success and (iii) to motivate award recipients to act in the long-term best interests of Western Union and its stockholders.
 
Shares Available.  120.0 million shares of our common stock may be subject to awards under the 2006 LTIP (the “Plan Share Limit”), subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar event. Awards for shares of our common stock subject to stock options and stock appreciation rights shall apply against and reduce the Plan Share Limit as one share for every one share subject thereto. Shares of our common stock subject to restricted stock, bonus stock or restricted stock unit awards and performance grants shall also reduce the Plan Share Limit by one share for every one share subject thereto, except that to the extent such
 
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awards exceed 25% of the Plan Share Limit, such awards shall reduce the Plan Share Limit by three shares for every one share subject thereto. If with respect to any award that is cancelled, forfeited, or terminates or expires unexercised, shares subject to such award may again be issued under the 2006 LTIP in a manner that is consistent with the Plan Share Limit reductions described above in effect at the time such increase occurs.
 
Eligibility.  All employees of Western Union, its subsidiaries and their respective affiliates and other individuals who perform services for Western Union, a subsidiary of Western Union or any of their respective affiliates will be eligible to receive awards. Our compensation and benefits committee will have discretion to select participants and determine the form, amount and timing of each award to such persons, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of an award.
 
Forms of Awards. Awards under the 2006 LTIP may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights (“SARs”), (iii) restricted stock awards, (iv) restricted stock unit awards, (v) phantom stock units, (vi) performance grants and (vii) bonus awards.
 
Options are rights to purchase a specified number of shares of our common stock at a price fixed by our compensation and benefits committee. In the case of purchased stock options, a specified number of nonqualified
stock options are offered for grant to selected participants in exchange for a purchase price that is payable at the time of grant. Options generally expire no later than ten years after the date of grant. Options will become exercisable at such time and in such installments as our compensation and benefits committee will determine; however, the minimum vesting period is generally six months. Payment of the option price (sometimes called the exercise price or strike price) must be made in full at the time of exercise in such form as our compensation and benefits committee shall determine. Payment methods will include cash, the exchange of shares already owned, broker-cashless exercise, or a combination of cash and exchange of shares. Incentive stock options may not be granted to any person who is not an employee of Western Union or any parent or subsidiary, as defined in section 424 of the Internal Revenue Code. All incentive stock options must be granted within ten years of the date the 2006 LTIP is approved by our compensation and benefits committee.
 
A SAR entitles the holder to receive, upon exercise, an amount equal to the positive difference between the fair market value of one share of common stock on the date the SAR is exercised and the exercise price, multiplied by the number of shares of common stock with respect to which the SAR is exercised. The compensation and benefits committee will have the power to determine whether the amount to be paid upon exercise of a SAR will be paid in cash, common stock (including restricted stock) or a combination of cash and common stock.
 
Restricted stock awards provide for a specified number of shares of common stock subject to a restriction against transfer during a period of time or until performance measures are satisfied, as established by our compensation and benefits committee. Unless otherwise set forth in the agreement relating to a restricted stock award, the holder has all rights as a stockholder of Western Union, including voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of common stock.
 
A restricted stock unit award is a right to receive a specified number of shares of our common stock (or the fair market value thereof in cash, or any combination of our common stock and cash, as determined by our compensation and benefits committee), subject to the expiration of a specified restriction period and/or the achievement of any performance measures selected by the compensation and benefits committee, consistent with the terms of the 2006 LTIP. The minimum restriction period is generally one year. The restricted stock unit award agreement will specify whether the award recipient is entitled to receive dividend equivalents with respect to the number of shares of our common stock subject to the award. Prior to the settlement of a restricted stock unit award in our common stock, the award recipient will have no rights as a stockholder of our company with respect to our common stock subject to the award.
 
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Phantom stock units are rights to receive a cash or stock bonus based on the performance of our common stock.
 
Performance grants are awards whose final value, if any, is determined by the degree to which specified performance measures have been achieved during a performance period set by our compensation and benefits committee. Performance measures that may be used include one or more of the following: the attainment by a share of common stock of a specified value within or for a specified period of time, earnings per share, earnings before interest expense and taxes, return to stockholders (including dividends), return on equity, earnings, revenues, cash flow or cost reduction goals, operating profit, pretax return on total capital, economic value added or any combination of the foregoing. Such criteria and objectives may relate to results obtained by the individual, Western Union, a subsidiary, or an affiliate, or any business unit or division thereof, or may relate to results obtained relative to a specific industry or a specific index. Payment may be made in the form of cash, common stock, restricted stock, restricted stock units or a combination thereof, as specified by our compensation and benefits committee.
 
Bonus stock awards are shares of our common stock which are vested at the time of grant and are not subject to a restriction period or performance measures.
 
The 2006 LTIP also provides for replacement and substitute awards for certain current and former employees and directors of First Data in connection with the spin-off of Western Union; provided however, that any such replacement or substitute award shall be subject to the same terms and conditions as the original First Data award to which it relates (other than its administration by Western Union’s compensation and benefits committee). In exercising its power and authority with respect to replacement and substitute stock-based awards held by current and former employees and directors of First Data, its subsidiaries and affiliates (and their respective transferees), Western Union shall (i) act in good faith and (ii) cooperate with and give due regard to any information provided by First Data.
 
In addition, with respect to such replacement and substitute stock-based awards, Western Union shall not, without the prior written consent of the First Data compensation committee, take any discretionary action to accelerate vesting of any such awards.
 
We expect to make grants of stock-based awards to employees, including the named executive officers, immediately after the distribution. The amounts of such grants have not yet been determined but will be determined prior to the spin-off.
 
Termination of Employment.  The effect of a participant’s termination of employment on his or her award depends on the reason for such termination. For stock options and SARs, unless otherwise specified in the agreement, termination of employment due to disability or death will result in the option becoming fully vested and exercisable for a period of one year from the date employment terminates or, if earlier, the date on which the option or SAR expires; involuntary termination without cause will result in the option or SAR being exercisable, to the extent vested on the date employment terminates, for a period of three months thereafter or, if earlier, the date on which the option or SAR expires; termination of employment due to retirement will result in the award continuing to vest and will be exercisable until four years following the date of retirement or, if earlier, the date on which the option or SAR expires; termination of employment for reasons other than disability, death, retirement or involuntary termination without cause will result in the option or SAR ceasing to vest, and to the extent vested, such stock option or SAR may be exercised until the close of the New York Stock Exchange on the date which is the thirtieth day following the date of termination, provided that if the New York Stock Exchange is closed on such date, then such stock option or SAR will be forfeited and canceled by Western Union effective with the close of the New York Stock Exchange on the next following day on which the New York Stock Exchange is open; termination of employment for cause will result in the option or SAR ceasing to vest, and to the extent vested, such option or SAR may be exercised until the close of the New York Stock Exchange on the date of termination, provided that if the New York Stock Exchange is closed on such date, then the option or SAR shall be forfeited and cancelled by Western Union at the time of termination.
 
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For restricted stock or restricted stock unit awards, unless otherwise specified in the agreement, termination of employment due to disability or death will cause the restriction period to lapse on the date employment terminates and will result in any performance measures applicable to such award being deemed to have been satisfied at the maximum level; termination of employment for reasons other than disability or death will result in the award being immediately forfeited and canceled.
 
For performance grants, unless otherwise set forth in the agreement, if a participant’s employment with or service to Western Union terminates during the performance period by reason of disability, retirement or death, the performance period will continue and the participant (or the participant’s executor, administrator, legal representative, beneficiary or similar person, as applicable) may be entitled to a prorated award. The prorated award, if any, will be equal to the value of the award at the end of the performance period multiplied by a fraction, the numerator of which will equal the number of months the participant was employed with or performing services for Western Union during the performance period (fractional months will be ignored) and the denominator of which will equal the number of months in the performance period; provided, however, that such holder, or such holder’s executor, administrator, legal representative, beneficiary or similar person, as applicable, will not be entitled to payment or distribution of such performance grant earlier than the date set forth in the agreement. Unless the agreement specifies otherwise, if a participant’s employment with or service to Western Union terminates during the performance period for a reason other than disability, retirement or death, any unvested portion of the performance grant will be immediately forfeited.
 
Maximum Award.  To the extent necessary for an award to be qualified performance-based compensation under section 162(m) of the Internal Revenue Code, the maximum aggregate number of shares of common stock with respect to which stock options, SARs, restricted stock, restricted stock units, bonus stock awards or performance grants may be issued to any individual during a calendar year is one-half of one percent of the total number of outstanding shares of common stock of Western Union as of the preceding December 31 st . The maximum amount of cash payable during a calendar year to any person in connection with a performance grant is $8,000,000.
 
Change in Control.  As of the effective date of a change in control (a) each outstanding stock option and SAR granted under the 2006 LTIP shall become fully vested and exercisable, (b) the restriction period applicable to each outstanding restricted stock award or restricted stock unit award granted under the plan shall lapse, (c) the performance period applicable to any outstanding performance grant issued under the plan shall lapse, and (d) the performance measures applicable to any outstanding award under the plan shall be deemed to be satisfied at the target level (or if greater, at the performance level actually attained). Each stock option or SAR granted to a holder whose employment is terminated for an eligible reason according to the terms of the Western Union severance policy applicable to the holder as of the effective date of a change in control during the period commencing on and ending twenty-four months after the effective date of the change in control shall remain exercisable by such holder (or his or her legal representative or similar person) until the earlier of (y) the end of the severance period applicable to the holder under such severance policy or, if later, the end of the otherwise applicable post-termination exercise period, or (z) the expiration date of the term of the stock option or SAR.
 
Federal Income Tax Consequences.  A participant to whom a nonqualified stock option is granted will recognize no income at the time of the grant. When the participant exercises a nonqualified stock option, he or she will generally recognize ordinary income equal to the excess, if any, of the fair market value (determined as of the date of exercise) of the common stock received over the option exercise price. The tax basis of such shares to the participant will be equal to the exercise price paid plus the amount includable in his or her gross income as compensation. The holding period for purposes of determining whether a subsequent sale of such shares by the participant results in the recognition of short-term or long-term capital gain or loss will commence on the day after the date Western Union transfers the shares to the participant. A participant to whom a purchased stock option is granted will recognize no income at the time of grant. When the participant exercises a purchased stock option, he or she will generally recognize ordinary compensation income equal to the difference, if any, between the fair market value of the common stock he or she receives at such time and the sum of the exercise price for such shares plus the amount of any cash paid for such shares in satisfaction of the purchased stock option purchase price.
 
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A participant to whom an incentive stock option which qualifies under section 422 of the Internal Revenue Code is granted will generally recognize no income at the time of grant or at the time of exercise. However, upon the exercise of an incentive stock option, the excess of the fair market value of the common stock over the exercise price thereof may result in the participant being subject to an alternative minimum tax under applicable provisions of the Internal Revenue Code. In order to obtain incentive stock option treatment for federal income tax purposes, the participant (i) must be an employee of Western Union, a subsidiary of Western Union, or any of their respective affiliates continuously from the date of grant until any termination of employment and (ii) in the event of such a termination, must generally exercise an incentive stock option within three months after such termination. When a participant sells the common stock received upon exercise of an incentive stock option (more than one year after exercise and more than two years after the date of grant of such incentive stock option), he or she will normally recognize a long-term capital gain or loss equal to the difference, if any, between the sale price of such shares at such time and the exercise price. If the participant does not hold such shares for either period, when the participant sells such shares the participant will recognize ordinary compensation income equal to the lesser of (i) the difference, if any, between the fair market value of such shares on the date of exercise and the exercise price, or (ii) the difference, if any, between the sale price and the exercise price. Any other gain or loss on such sale (in addition to the ordinary income mentioned above), will normally be capital gain or loss. The tax basis of such shares to the participant, for purposes of computing such other gain or loss, should be equal to the exercise price paid (plus the amount includable in his gross income as compensation, if any).
 
The inclusion of SARs in a nonqualified stock option or an incentive stock option will normally not result in taxable income to the participant. At the time of exercise, the participant will normally recognize ordinary compensation income in an amount equal to the cash and the fair market value of the common stock he or she receives to satisfy his or her SAR. The tax basis of any such shares received by the participant pursuant to a SAR should be equal to the amount includable in his gross income as compensation in respect of such shares, and the participant’s holding period therefore should normally commence on the day after the date on which he or she recognizes taxable income in respect of such shares.
 
A participant granted shares of restricted stock will not recognize taxable income at the time of grant and Western Union will not be allowed a deduction for federal income tax purposes at that time. However, a participant granted such shares may elect to recognize taxable compensation in the year of the grant in an amount equal to the fair market value of the shares at the time of grant by filing a “Section 83(b) election” to such effect with the Internal Revenue Service within 30 days after the date of grant. If shares with respect to which a participant has made the above-described Section 83(b) election are forfeited, no deduction will be allowed to the participant with respect to such forfeiture. If no Section 83(b) election is made, a participant granted shares of restricted stock will recognize taxable compensation in an amount equal to the fair market value of the shares at the time the shares first become transferable. Any dividends paid on shares of restricted stock prior to the date on which the participant recognizes taxable compensation with respect to the shares will be taxable to the participant as additional compensation rather than as ordinary dividends. Subject to a limit on the amount of compensation that can be deducted by Western Union for payments to its senior officers, Western Union will be allowed a deduction for federal income tax purposes at the time the holder of restricted stock recognizes taxable compensation equal to the amount of compensation recognized by such participant. A participant’s basis for shares of restricted stock will be the amount recognized as taxable compensation. A participant’s holding period for such shares will begin on the day after the date the participant recognizes taxable compensation with respect to the shares.
 
A person who has been granted a restricted stock unit award will not recognize taxable income on the date of grant and Western Union will not be entitled to a deduction at that time. When the restricted stock unit award vests and shares are transferred to the holder, the holder will recognize ordinary income in an amount equal to the fair market value of the transferred shares at such time less any cash consideration which the holder paid for the shares, and Western Union will be entitled to a corresponding deduction. Any gain or loss realized upon the holder’s sale or exchange of the shares will be treated as long-term or short-term capital gain or loss. The holder’s basis for the shares will be the amount recognized as taxable compensation plus any cash consideration
 
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which the holder paid for the shares. The holder’s holding period for the shares will begin on the day after the date the shares are transferred to the holder.
 
A person who has been granted a phantom stock unit will not recognize taxable income on the date of grant and Western Union will not be entitled to a deduction at that time. The recipient will have ordinary income when the cash or stock payment based on the performance of the common stock is payable to the participant upon vesting.
 
A participant to whom a performance grant award is made should recognize no taxable income at the time such award is made. The participant should recognize taxable income, however, at the time cash, common stock or other Western Union securities or property is paid to the participant pursuant to such award, and the amount of such income should be the amount of such cash and the fair market value at such time of such shares or securities, or property. The tax basis of any such shares, securities or property received by the participant pursuant to a performance grant award should be equal to the amount includable in the participant’s gross income as compensation in respect of such shares, securities or property, and the holding period therefor should normally commence on the day following the date on which the participant recognizes taxable income in respect of such shares, securities or property. Any income equivalents paid to a recipient with respect to his or her performance grant award should generally be regarded for federal income tax purposes as compensation. A participant who receives a bonus stock award will recognize taxable income at the time the bonus stock is awarded.
 
If the participant is subject to section 16 of the Exchange Act, the tax consequences may be different than those described above. Generally, such a participant will not recognize income on receipt of property such as common stock until he or she is no longer subject to liability with respect to the disposition of such common stock. However, by filing an election under section 83(b) of the Internal Revenue Code with the Internal Revenue Service no later than 30 days after the date of transfer of property, such a participant may elect to be taxed at the time of such transfer.
 
Any compensation includable in the gross income of a recipient will be subject to appropriate federal income tax withholding.
 
The company for which a participant is performing services will generally be allowed to deduct amounts that are includable in the income of the participant as ordinary compensation income at the time such amounts are so includable, provided that the amounts qualify as reasonable compensation for personal services actually rendered.
 
The discussion set forth above is a brief overview of certain United States federal income tax consequences of awards made under the 2006 LTIP. This overview should not be relied upon as being a complete description of the applicable United States federal income tax consequences. In addition, this overview does not address the state, local, foreign or other tax aspects of awards made under the 2006 LTIP or the effect on such awards of guidance that may be issued by the United States Treasury under section 409A of the Internal Revenue Code.
 
Retirement Savings Plans
 
Certain of our union employees participate in the Western Union Financial Services, Inc. Retirement Savings Plan for Bargaining Unit Employees (the “Western Union Financial Services 401(k) Plan”). Effective as of the time of distribution, the obligations and assets of the Western Union Financial Services 401(k) Plan will be transferred to a trust maintained by Western Union. The Western Union Financial Services 401(k) Plan is a tax qualified plan under section 401 of the Internal Revenue Code. The Western Union Financial Services 401(k) Plan permits participants to make pre-tax deferrals of up to 16% of their eligible compensation. Under the Western Union Financial Services 401(k) Plan, we make contributions of 4% of eligible employee compensation. In addition, union employees who make voluntary contributions receive up to a 1.5% matching contribution and a $650 per employee lump-sum contribution per year. In general, participants become vested in these matching and additional contributions over a five-year service period.
 
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Effective as of the time of spin-off, we expect to adopt a defined contribution retirement plan (the “Western Union 401(k) Plan”) for our United States non-union employees, including our executive officers, which will be structured with the intention of qualifying under section 401(a) of the Internal Revenue Code. Under the Western Union 401(k) Plan, participants will be permitted to make pre-tax deferrals of up to the maximum allowable amount under the Internal Revenue Code. In addition, we will make matching contributions equal to 100% of the first 3% of eligible compensation deferred and 50% of the next 2% of eligible compensation deferred.
 
Supplemental Incentive Savings Plan
 
Effective as of the time of distribution, we expect to adopt a non-qualified supplemental savings compensation plan (the “Savings Plan”) to provide participants with a contribution equal to the difference between the contributions payable to a participant under our 401(k) plan, calculated without regard to the annual benefit and compensation limitations imposed by the Internal Revenue Code, and the maximum contribution allowable to the participant under our 401(k) plan. The Savings Plan will be unfunded. Each of the named executive officers will be eligible to participate in the Savings Plan.
 
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 OWNERSHIP OF OUR STOCK
 
The following table sets forth the anticipated beneficial ownership of our common stock immediately following the distribution date by each of our directors and named executive officers, and all directors and executive officers as a group, based upon information available to us concerning ownership of First Data common stock on May 15, 2006 (and based on the distribution ratio of one share of our common stock for each share of First Data common stock except for shares representing First Data stock based awards). The mailing address of each of these individuals is c/o The Western Union Company, 12500 East Belford Avenue, Englewood, CO 80112. As used in this prospectus, “beneficial ownership” means that a person has, or may have within 60 days, the sole or shared power to vote or direct the voting of a security and/or the sole or shared investment power with respect to a security (i.e., the power to dispose or direct the disposition of a security). It is expected that, subject to approval by First Data’s compensation and benefits committee, in connection with the spin-off, First Data stock based awards held by these individuals will be replaced with our stock-based awards pursuant to the First Data Corporation 1992 and 2002 Long-Term Incentive Plans and 1993 Director Stock Option Plan. The number of shares of First Data restricted stock and shares of First Data common stock covered by options subject to replacement will not equal the number of shares of Western Union restricted stock and shares of Western Union common stock covered by options to be issued to each individual upon completion of the spin-off. Pursuant to the employee matters agreement, (i) the number of shares of Western Union stock purchasable and the exercise price under a Western Union substitute option will be adjusted from the terms of the First Data option to preserve the intrinsic value of the First Data option and the ratio of the exercise price to the fair market value of the First Data common stock and (ii) the number of substitute shares of Western Union restricted stock under a replacement restricted stock award will be adjusted to preserve the intrinsic value of the First Data restricted stock award being replaced. Based on ownership of First Data common stock as of May 15, 2006, no person is expected to be a beneficial owner of five percent or more of our common stock immediately following the distribution date.

Name	  	Shares to
be Owned(1)	 	 	First Data Restricted
Stock Owned Subject
to Replacement(1)	  	First Data Options
Beneficially Owned
Subject to
Replacement(1)	  	Percent of
Class(2)	
Richard D. Badler	  	0	 	 	0	  	0	  	*	
David G. Barnes	  	0	 	 	0	  	0	  	*	
Guy A. Battista	  	2,893	 	 	76,250	  	588,332	  	*	
Royal W. Cole	  	103	 	 	1,545	  	107,450	  	*	
Hikmet Ersek	  	1,324	 	 	2,184	  	167,698	  	*	
Christina A. Gold	  	11,528	(3)	 	87,500	  	475,000	  	*	
Robin S. Heller	  	1,529	 	 	1,669	  	164,350	  	*	
Ian K. Marsh	  	0	 	 	1,708	  	55,000	  	*	
Scott T. Scheirman	  	665	 	 	1,655	  	182,240	  	*	
David L. Schlapbach	  	176	 	 	1,765	  	70,000	  	*	
William D. Thomas	  	0	 	 	3,310	  	0	  	*	
Grover Wray	  	0	 	 	1,269	  	30,000	  	*	
Jack M. Greenberg	  	1,514	 	 	0	  	86,646	  	*	
Dinyar S. Devitre	  	0	 	 	0	  	0	  	*	
Betsy D. Holden	  	0	 	 	0	  	0	  	*	
Alan J. Lacy	  	0	 	 	0	  	0	  	*	
Linda Fayne Levinson	  	0	 	 	0	  	0	  	*	
Roberto G. Mendoza	  	0	 	 	0	  	0	  	*	
Michael A. Miles	  	0	 	 	0	  	0	  	*	
Dennis Stevenson	  	0	 	 	0	  	0	  	*	
All directors and executive officers as a group (20 persons)	  	19,732	 	 	178,855	  	1,926,716	  	*	

(1)	Except as otherwise noted, the directors and named executive officers, and all directors and executive officers as a group, have sole voting power and sole investment power over the shares listed.	
 
(2)	An asterisk indicates that the percentage of common stock projected to be beneficially owned by the named individual does not exceed one percent of our common stock.	
 
(3)	Includes 20 shares held by Ms. Gold’s husband in a broker-directed account.	
 
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 PLAN OF DISTRIBUTION
 
In connection with the spin-off, current and former employees and directors of First Data who do not become employees or directors of Western Union immediately after the spin-off (or their respective transferees) will have each of their existing First Data stock options replaced with (i) a First Data stock option with an adjusted exercise price and (ii) a substitute Western Union stock option, and we will grant the Western Union stock options directly to those individuals. Upon exercise of a Western Union stock option by its holder, we will issue shares of our common stock to the holder in accordance with the terms and conditions of the 2006 LTIP. The registration statement of which this prospectus is a part covers only shares of our common stock that may be issued upon exercise of options granted to current and former employees and directors of certain First Data subsidiaries who do not become employees or directors of Western Union.
 
 DETERMINATION OF OPTION EXERCISE PRICES
 
In connection with the spin-off, we will enter into an employee matters agreement with First Data that will provide, among other things, that outstanding options to purchase First Data common stock held by current and former employees and directors of First Data who do not become employees or directors of Western Union immediately after the spin-off (or their respective transferees) will be replaced with both an adjusted First Data option and a substitute Western Union option. This replacement will be implemented in a manner such that immediately following the spin-off (i) the number of shares subject to the adjusted First Data option will be equal to the number of shares subject to the option prior to the spin-off, (ii) the number of shares subject to the substitute Western Union stock option will be equal to the number of shares of Western Union common stock that the option holder would have received in the spin-off had the First Data shares subject to the option represented outstanding shares of First Data common stock (i.e., a ratio of one share of Western Union common stock for each share of First Data common stock), and (iii) the per share option exercise price of the original First Data stock option will be proportionally allocated between the two different stock options based upon the relative per share trading prices of First Data and Western Union stock immediately following the spin-off. Both options, when combined, will preserve the intrinsic value of the original First Data option, and each will preserve the ratio of the exercise price to the fair market value of the stock subject to the option. The substitute Western Union option will take into account all employment with First Data for purposes of determining when the option becomes exercisable and when it terminates. All other terms of the substitute option will be the same as the current First Data option, except that references to “Board” and “Compensation Committee” shall mean the Western Union board of directors and compensation and benefits committee.
 
 THE 2006 LTIP
 
The 22,000,000 shares of common stock covered by this prospectus may be acquired by current and former employees and directors of First Data who do not become employees or directors of Western Union immediately after the spin-off (or their respective transferees). All of the shares to which this prospectus relates will be issued pursuant to substitute Western Union options granted pursuant to the 2006 LTIP. Options may be nonqualified stock options, purchased options (which are nonqualified stock options that were sold rather than awarded) and incentive stock options. The terms of each option are set forth in the option agreement relating to each award. 
 
Additional information concerning the 2006 LTIP may be obtained, upon written or oral request, from David Schlapbach, General Counsel, The Western Union Company, 12500 E. Belford Ave., M21A4, Englewood, Colorado 80112, telephone number (866) 405-5012.
 
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 CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
 
The following discussion of certain anticipated U.S. federal income tax consequences to recipients of options to purchase shares of Western Union common stock is based on the Internal Revenue Code of 1986, as amended, which we refer to as the Code, as currently in effect, and existing laws, judicial decisions and administrative rulings and regulations, all of which are subject to change, prospectively or retroactively. In addition to being subject to the federal income tax consequences described below, the recipient of an option may also be subject to other U.S. federal taxes and state, local and non-U.S. taxes in the jurisdiction in which he works and/or resides. EACH RECIPIENT MUST CONSULT HIS OR HER PERSONAL TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES APPLICABLE TO PARTICIPATION IN THE 2006 LTIP.
 
A person who receives a substitute Western Union option that is a nonqualified stock option or purchased stock option will not recognize any taxable income at the time of receipt. When a nonqualified stock option (other than a purchased stock option) is exercised, the holder will recognize compensation taxable as ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the shares of Western Union common stock for which the option is exercised over their exercise price. The tax basis of such shares will be equal to the exercise price paid plus the amount of compensation recognized by the holder, and the holding period for such shares will begin on the day after such shares are transferred to the holder. A person who receives a substitute Western Union option that is a purchased stock option will not recognize any taxable income at the time of receipt. When a purchased stock option is exercised, the holder will recognize compensation taxable as ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the shares of Western Union common stock for which the purchased stock option is exercised over the sum of the exercise price for such shares plus the amount of any cash paid for such shares in satisfaction of the purchased stock option purchase price.
 
A person who receives a substitute Western Union option that is an incentive stock option will not recognize taxable income at the time of receipt or at the time of exercise thereof and neither Western Union nor First Data will be allowed a deduction for federal income tax purposes at either time. However, the excess, if any, of the fair market value (determined as of the date of exercise) of the shares acquired by exercise over the option exercise price is included in alternative minimum taxable income subject to the alternative minimum tax.
 
If a holder exercises an incentive stock option and does not dispose of the shares so acquired within the period ending on the later of (i) two years after the option was granted and (ii) one year after the date of transfer of the shares to the holder (any disposition within such period being called a “disqualifying disposition”), then upon disposition of the shares: (1) the amount, if any, realized in excess of the option exercise price will be treated as long-term capital gain; (2) the amount, if any, by which the option exercise price exceeds the amount realized upon such disposition will be treated as long-term capital loss; and (3) neither Western Union nor First Data will be allowed any deduction for federal income tax purposes with respect to the sale of the shares.
 
If a holder exercises an incentive stock option and disposes of the shares so acquired in a disqualifying disposition, then upon such disposition of such shares:
 
 	1.	if the amount realized upon the disposition is equal to or greater than the fair market value of the shares on the date of exercise: (a) the amount, if any, by which such fair market value exceeds the option exercise price of the shares will be treated as compensation taxable as ordinary income to the holder in the year of the disposition; and (b) the amount, if any, realized in excess of such fair market value will be treated as short-term or long-term capital gain;	
 
 	2.	if the amount realized upon the disposition is less than the fair market value of the shares on the date of exercise but not less than the option exercise price of the shares, the excess of the amount realized upon the disposition over the option exercise price will be treated as compensation taxable as ordinary income to the holder in the year of the disposition;	
 
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 	3.	if the amount realized upon the disposition is less than the option exercise price of the shares, the excess of the option exercise price over the amount realized will be treated as short-term or long-term capital loss;	
 
 	4.	notwithstanding subparagraphs (2) and (3) above, if the disqualifying disposition is a transaction (such as a sale between related parties or a gift) in which any loss, if sustained, would not have been recognized under the Internal Revenue Code, the difference between the fair market value of the shares on the date of exercise and the option exercise price of the shares will be treated as compensation taxable as ordinary income to the holder in the year of the disposition; and	
 
 	5.	First Data will be allowed a deduction for federal income tax purposes in the year of the disposition to the extent the holder realizes ordinary income therefrom.	
 
If a holder pays the option exercise price for shares acquired by exercise of an incentive stock option in cash, the basis for the shares will be equal to the amount paid plus, in the case of a disqualifying disposition, the amount of ordinary income recognized by the holder, and the holding period will commence on the day after the date the shares are transferred to the holder.
 
Any compensation includable in the gross income of a recipient will generally be subject to applicable federal, state and local income tax withholding.
 
Except with respect to certain incentive stock options satisfying the requirements of Section 422 of the Internal Revenue Code, First Data will be allowed a deduction for amounts of compensation recognized by option holders at the time of such recognition.
 
The discussion set forth above is intended only as a summary and does not purport to be a complete enumeration or analysis of all potential tax effects relevant to recipients of awards under the 2006 LTIP. Accordingly, all holders should consult their own tax advisors concerning the federal, state, local and non-U.S. income and other tax considerations relating to awards and rights thereunder.
 
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 DESCRIPTION OF OUR CAPITAL STOCK
 
Introduction
 
The following is a summary of information concerning our capital stock. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of our certificate of incorporation and our by-laws, and are entirely qualified by those documents, which you must read for complete information on the terms of our capital stock and which are included as exhibits to the registration statement of which this prospectus is a part.
 
Authorized Capital Stock
 
Immediately following the spin-off, our authorized capital stock will consist of 2,000,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $1.00 per share. Based on approximately 765 million shares of First Data common stock that we expect to be outstanding on the record date, approximately 765 milion shares of our common stock will be outstanding immediately following the spin-off. All of the shares of our common stock distributed to First Data stockholders in the spin-off will be validly issued, fully paid and non-assessable.
 
Common Stock
 
The holders of our common stock are entitled to one vote per share of common stock held on all matters voted on by our stockholders, including the election of directors, and except as otherwise required by law or provided in any resolution adopted by our board of directors with respect to any series of preferred stock, the holders of our common stock will possess all voting power. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available for that purpose. See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, subject to preferences that may be applicable to any outstanding preferred stock, the holders of our common stock would be entitled to share ratably in all assets available for distribution to stockholders.
 
The holders of our common stock have no preemptive rights. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of shares of any outstanding preferred stock.
 
Our common stock has been authorized for listing on the New York Stock Exchange under the symbol “WU.”
 
Wells Fargo Bank, National Association will serve as the transfer agent and registrar for our common stock.
 
Preferred Stock
 
Our certificate of incorporation will authorize our board of directors, without the approval of our stockholders, to fix the designation, powers, preferences and rights of one or more series of preferred stock, which may be greater than those of our common stock.
 
We believe that the ability of our board of directors to issue one or more series of preferred stock will provide us with flexibility in structuring possible future financings and acquisitions and in meeting other corporate needs that might arise.
 
The issuance of shares of our preferred stock, or the issuance of rights to purchase shares of preferred stock, could be used to satisfy certain regulatory requirements or to discourage an unsolicited acquisition proposal. See
 
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“Certain Anti-Takeover Effects of Provisions of Our Certificate of Incorporation and By-Laws.” In addition, under some circumstances, the issuance of preferred stock could adversely affect the voting power of holders of our common stock.
 
Immediately following the spin-off, no shares of preferred stock will be outstanding and we have no present plans to issue any shares of our preferred stock.
 
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 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
First Data has historically provided us with a number of corporate functions, including many shared services that we benefit from such as treasury, tax, accounting and reporting, mergers and acquisitions, risk management, legal, internal audit, procurement, human resources, investor relations and information technology. We also participate in certain First Data insurance, benefit and incentive plans, and receive services directly related to the operations of our businesses, such as call center services, credit card processing, printing and mailing. First Data and its affiliates charged us $97.1 million and $87.2 million for these services in the six months ended June 30, 2006 and 2005, respectively, and $166.3 million, $158.3 million and $142.2 million for these services in the years ended December 31, 2005, 2004 and 2003, respectively.
 
As of December 31, 2005 and 2004, we had notes payable to First Data of approximately $163.5 million and $9.9 million, respectively. These notes bear interest at rates ranging from 3.89% to 8.375% annually. As of December 31, 2005 and 2004, we had notes receivable from First Data of approximately $751.5 million and $278.2 million, respectively. These notes bear interest at rates ranging from 3.45% to 7.0% annually. As noted elsewhere in this prospectus, we expect that all notes between us, on the one hand, and First Data, on the other hand, will be paid in connection with the spin-off. Certain of these notes receivable also have related foreign currency swap arrangements to mitigate the foreign exchange impact to us of certain euro denominated notes receivable with affiliates. The fair market value of these swaps is recorded in “Receivables from affiliated companies, net” in our combined balance sheets and will be settled in cash along with the related notes receivable in connection with the spin-off.
 
During the years ended December 31, 2005, 2004 and 2003, we received transaction fee and commission revenue from IPS in connection with the sale and distribution of money orders through its agent network of approximately $63.9 million, $60.5 million and $61.4 million, respectively.
 
We have ownership interests in certain of our agents, all of which are accounted for under the equity method of accounting. We pay these agents, as we do our other agents, commissions for money transfer and other services provided on our behalf. Commissions paid to these agents, from the date of investment, for the six months ended June 30, 2006 and 2005 totaled $99.4 million and $84.0 million, respectively, and for the years ended December 31, 2005, 2004 and 2003 totaled $177.7 million, $105.1 million and $69.0 million, respectively.
 
Also, in connection with the spin-off, we will enter into certain other agreements with First Data to define our ongoing relationship with First Data after the spin-off. These other agreements will define responsibility for obligations arising before and after the distribution date, including, among others, obligations relating to our employees, certain transition services and taxes. See “Our Relationship with First Data After the Spin-Off.”
 
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 CERTAIN ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS
 
Some provisions of our certificate of incorporation and by-laws will contain certain provisions that could make the acquisition of our company by means of a tender offer, proxy contest or otherwise more difficult. These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions also are designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire us and outweigh the disadvantages of discouraging those proposals because negotiation of them could result in an improvement in their terms.
 
Certificate of Incorporation and By-Laws
 
The following is a summary of information concerning our certificate of incorporation and by-laws as they will be in effect immediately following the spin-off. The summaries and descriptions below do not purport to be complete statements of the relevant provisions of our certificate of incorporation and our by-laws, and are entirely qualified by those documents, which you must read for complete information on the terms of our certificate of incorporation and by-laws and which are included as exhibits to the registration statement of which this prospectus is a part.
 
Classified board of directors
 
Our certificate of incorporation will provide that our board of directors will be divided into three classes as nearly equal in number as possible. Class I will initially be elected for a one year term, Class II will initially be elected for a two year term and Class III will initially be elected for a three year term. At each succeeding annual meeting of stockholders beginning in 2007, successors to the class of directors will serve for a three-year term, with each director to hold office until his successor is duly elected and qualified. This structure of electing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of us because the staggered terms, together with the removal and vacancy provisions of our certificate of incorporation discussed below, would make it more difficult for a potential acquirer to gain control of our board of directors.
 
Number of Directors; Filling Vacancies; Removal
 
Our certificate of incorporation will provide that the number of directors will be between one and fifteen and our board of directors will fix the exact number of directors to comprise our board of directors. A director may only be removed from office for cause by the affirmative vote of holders of a majority of shares of common stock entitled to vote at an election of directors. Additionally, only our board of directors will be authorized to fill any vacancies resulting in our board of directors. As discussed above, these provisions, in combination with the classified board of directors, have the effect of making it difficult for a potential acquirer to gain control of our board of directors.
 
No Stockholder Action by Written Consent; Special Meetings
 
Our certificate of incorporation will provide that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such stockholders and may not be effected by any consent in writing of such stockholders. Further, our by-laws will provide that special meetings may be called only by the chairman of our board of directors, our chief executive officer, our president, our secretary or any officer at the request of our board of directors pursuant to a resolution adopted by the affirmative vote of a majority of the entire board of directors. These provisions may have the effect of delaying consideration of a stockholder proposal until the next annual meeting unless a special meeting is called by an officer at the request of our board of directors or one of the other persons named above.
 
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Advance Notice of Stockholder Nominations and Stockholder Proposals
 
Our by-laws will have advance notice procedures for stockholders to make nominations of candidates for election as directors or to bring other business before a meeting of the stockholders. The business to be conducted at an annual meeting will be limited to (i) business specified in the notice of meeting (or supplement to the notice) given by or at the direction of our board of directors or a duly authorized committee thereof or (ii) business properly brought before the annual meeting by or at the direction of our board of directors or a duly authorized committee thereof or by a stockholder of record who has given timely written notice to our secretary of that stockholder’s intention to bring such business before such meeting.
 
Our by-laws will govern stockholder nominations of candidates for election as directors except with respect to the rights of holders of our preferred stock. Under our by-laws, nominations of persons for election to our board of directors may be made at an annual meeting by a stockholder of record on the date of giving notice to our secretary and as of the record date for the determination of stockholders entitled to vote at the meeting if the stockholder submits a timely notice of nomination. A notice of a stockholder nomination will be timely only if it is delivered to us at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. However, if the annual meeting is called for a date that is not within 30 days prior to or after that anniversary date (or if there has not been an annual meeting in the previous year), notice by the stockholder must be received not later than the close of business on the 10 th day following the earlier of the day on which such notice of the date of the annual meeting was mailed or the day of public disclosure of the date of the annual meeting was made.
 
The notice of a stockholder nomination must contain specified information, including, without limitation:
 
 	•	 	the name and address of the stockholder of record making the nomination;	
 
 	•	 	the class or series and number of shares of capital stock owned beneficially or of record by the stockholder;	
 
 	•	 	a description of all arrangements or understandings between the stockholder and each candidate to serve as a director and any other person pursuant to which such nomination is made by the stockholder;	
 
 	•	 	a representation that the stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice;	
 
 	•	 	the name, age, business and residence addresses and principal occupation or employment of the stockholder’s candidate;	
 
 	•	 	the class or series and number of shares of capital stock owned beneficially or of record by the stockholder’s candidate;	
 
 	•	 	the consent of each candidate to serve as a director if so elected; and	
 
 	•	 	such other information that would be required to be included in a proxy statement or other filings pursuant to the proxy rules of the SEC.	
 
Our by-laws will govern the notification process of all other stockholder proposals to be brought before an annual meeting. Under our by-laws, notice of a stockholder proposal will be timely only if it is delivered to us at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the date of the immediately preceding annual meeting of stockholders. However, if the annual meeting is called for a date that is not within 30 days prior to or after that anniversary date (or if there has not been an annual meeting in the previous year), notice by the stockholder must be received not later than the close of business on the 10 th day following the earlier of the day on which such notice of the date of the annual meeting was mailed or the day of public disclosure of the date of the annual meeting was made.
 
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The notice of a stockholder proposal must contain specified information, including, without limitation:
 
 	•	 	a brief description of the business to be brought before the annual meeting and the reasons for conducting such business at the annual meeting;	
 
 	•	 	the name and address of the stockholder of record making the proposal;	
 
 	•	 	the class or series and number of shares of capital stock owned beneficially or of record by the stockholder;	
 
 	•	 	a description of all arrangements or understandings between the stockholder and any other person in connection with the proposal of such business by the stockholder and any material interest of the stockholder in the business; and	
 
 	•	 	a representation that the stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the annual meeting.	
 
If the chairman of the meeting determines that the stockholder nomination or proposal was not properly brought before the meeting in accordance with the provisions of our certificate of incorporation or by-laws, as the case may be, that person will not be eligible for election as a director or that business will not be conducted at the meeting, as the case may be.
 
The advance notice provisions may preclude a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed. Additionally, the advance notice provisions may deter a third party from conducting a solicitation to elect its own slate of directors or approve its own proposal, without regard to whether consideration of those nominees or proposals might be harmful or beneficial to us and our stockholders.
 
Preferred Stock
 
Our certificate of incorporation will authorize our board of directors, without the approval of our stockholders, to provide for the issuance of all or any shares of our preferred stock in one or more classes or series and to fix the designation, powers, preferences, rights, qualifications, limitations or restrictions of such series of preferred stock, which may be greater than those of our common stock. The issuance of shares of our preferred stock, or the issuance of rights to purchase shares of preferred stock, could be used to discourage an unsolicited acquisition proposal. In addition, under some circumstances, the issuance of preferred stock could adversely affect the voting power of our common stockholders.
 
Amendment of the Certificate of Incorporation and By-Laws
 
Under Delaware law, the stockholders of a corporation have the right to adopt, amend or repeal the by-laws and, with the approval of the board of directors, the certificate of incorporation of a corporation. In addition, under Delaware law, if the certificate of incorporation so provides, the by-laws may be adopted, amended or repealed by the board of directors.
 
Under Delaware law, the affirmative vote of the holders of a majority of the voting power of all shares of capital stock entitled to vote on the amendment will be required to amend our certificate of incorporation. Our certificate of incorporation also will provide that our board of directors may amend our by-laws.
 
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 LIMITATION OF LIABILITY AND INDEMNIFICATION
OF OUR DIRECTORS AND OFFICERS
 
Limitation of Liability of Directors
 
Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of their fiduciary duties as directors, except for liability:
 
 	•	 	for any breach of their duty of loyalty to the corporation or its stockholders;	
 
 	•	 	for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;	
 
 	•	 	under Section 174 of the Delaware General Corporation Law relating to unlawful payments of dividends or unlawful stock repurchases or redemptions; or	
 
 	•	 	for any transaction from which the director derived an improper personal benefit.	
 
The limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies, such as injunctive relief or rescission.
 
Indemnification of Officers and Directors
 
Our certificate of incorporation provides that each person who was or is a director shall be indemnified to the fullest extent permitted by Delaware law and further provides that we may, to the extent deemed appropriate by our board of directors and as authorized under Delaware law, indemnify any officers, employees and agents of Western Union. Our by-laws provide that each person who is, or was an officer or employee of Western Union, and each person who is, or was, serving at our request as an officer or employee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, will be indemnified by us, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interest of Western Union, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The certificate of incorporation provides that this right to indemnification will not be exclusive of any other right which any person may otherwise have or acquire. The certificate of incorporation also permits us to secure and maintain insurance on behalf of any director, officer, employee or agent of Western Union and each person who is, or was, serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against and incurred by such person in any such capacity.
 
We intend to obtain directors’ and officers’ liability insurance providing coverage to our directors and officers. In addition, we intend to enter into indemnification agreements with each of our outside directors. See “Our Management—Compensation of Directors—Indemnification Agreements.”
 
 LEGAL MATTERS
 
The validity of the securities issued under this prospectus will be passed upon for us by Sidley Austin LLP, Chicago, Illinois.
 
 EXPERTS
 
Ernst & Young LLP, independent registered public accounting firm, has audited our combined financial statements and schedule at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, as set forth in their report. We have included our combined financial statements and schedule in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.
 
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 WHERE YOU CAN FIND MORE INFORMATION
 
We have filed with the SEC a registration statement on Form S-1, of which this prospectus constitutes a part, under the Securities Act with respect to the issuance of the securities contemplated by this prospectus. This prospectus does not contain all of the information set forth in the registration statement. For further information with respect to our business and our common stock, please refer to the registration statement. While we have provided a summary of the material terms of certain agreements and other documents, the summary does not describe all of the details of the agreements and other documents. In each instance where a copy of an agreement or other document has been filed as an exhibit to the registration statement, please refer to the registration statement. Each statement in this prospectus regarding an agreement or other document is qualified in all respects by such exhibit. You may read and copy all or any portion of the registration statement at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. The SEC maintains a Web site, http://www.sec.gov, that contains reports, proxy and information statements and other information regarding registrants, such as First Data and Western Union, that file electronically with the SEC. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference rooms and the SEC’s Web site.
 
You also can find additional information about Western Union at www.westernunion.com. The information contained in that website does not constitute a part of this prospectus.
 
We intend to furnish our stockholders with annual reports containing consolidated financial statements (beginning with the year ending December 31, 2006) audited by our independent registered public accounting firm.
 
You should rely only on the information contained in this prospectus and other documents referred to in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is not, and it is not to be construed as, an inducement or encouragement to buy or sell any Western Union securities. We believe that the information presented herein is accurate as of the date hereof. Changes will occur after the date of this prospectus, and we will not update the information except to the extent required in the normal course of our public disclosure practice and as required pursuant to the federal securities laws.
 
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  THE WESTERN UNION COMPANY
Index To Combined Financial Statements and Schedule

Report of Independent Registered Public Accounting Firm	  	F-2	
Combined Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005 and 2004	  	F-3	
Combined Statements of Income for the six months ended June 30, 2006 and 2005 (unaudited) and for each of the three years in the period ended December 31, 2005	  	F-4	
Combined Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited) and for each of the three years in the period ended December 31, 2005	  	F-5	
Combined Statements of Net Investment in The Western Union Company for each of the three years in the period ended December 31, 2005 and for the six months ended June 30, 2006 (unaudited)	  	F-6	
Notes to Combined Financial Statements	  	F-7	
Schedule II—Valuation and Qualifying Accounts	  	F-40	
 
All other financial statement schedules for The Western Union Company have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective financial statements or notes thereto.
 
F-1

Table of Contents
 Report of Independent Registered Public Accounting Firm
 
The Stockholders and Board of Directors of
First Data Corporation
 
We have audited the accompanying Combined Balance Sheets of The Western Union Company as of December 31, 2005 and 2004, and the related Combined Statements of Income, Net Investment in The Western Union Company, and Cash Flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index to Combined Financial Statements and Schedule at page F-1. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of The Western Union Company at December 31, 2005 and 2004, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
/s/ Ernst & Young LLP
 
Denver, Colorado
June 1, 2006, except for Note 14,
as to which the date is August 22, 2006
 
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 THE WESTERN UNION COMPANY
Combined Balance Sheets
(Dollars in millions, except per share amounts)

 	  	June 30,
2006	 	 	Pro Forma
June 30,
2006	 	 	December 31,	 	
 	  			 			 	2005	 	 	2004	 	
 	  	(unaudited)	 	 	(unaudited)	 	 	 	 	 	 	 	
Assets	  				 				 				 				
Cash and cash equivalents	  	$	655.8	 	 	$	1,185.8	 	 	$	510.2	 	 	$	469.7	 	
Settlement assets	  	 	982.1	 	 	 	982.1	 	 	 	929.1	 	 	 	716.9	 	
Receivables from affiliated companies, net	  	 	167.2	 	 	 	—  	 	 	 	192.8	 	 	 	42.6	 	
Notes receivable from affiliated companies	  	 	778.8	 	 	 	—  	 	 	 	751.5	 	 	 	278.2	 	
Property and equipment, net	  	 	89.4	 	 	 	154.9	 	 	 	82.4	 	 	 	70.7	 	
Goodwill	  	 	1,599.3	 	 	 	1,599.3	 	 	 	1,618.0	 	 	 	1,343.6	 	
Other intangible assets, net	  	 	232.9	 	 	 	232.9	 	 	 	180.4	 	 	 	119.9	 	
Other assets	  	 	490.1	 	 	 	504.1	 	 	 	342.0	 	 	 	288.6	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	  	$	4,995.6	 	 	$	4,659.1	 	 	$	4,606.4	 	 	$	3,330.2	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities and net investment in The Western Union Company (stockholders’ deficiency)	  				 				 				 				
Liabilities:	  				 				 				 				
Accounts payable and accrued liabilities	  	$	220.5	 	 	$	387.6	 	 	$	238.6	 	 	$	218.2	 	
Settlement obligations	  	 	980.9	 	 	 	980.9	 	 	 	926.7	 	 	 	711.0	 	
Pension obligations	  	 	68.9	 	 	 	68.9	 	 	 	69.8	 	 	 	82.9	 	
Deferred tax liability, net	  	 	269.5	 	 	 	269.5	 	 	 	248.1	 	 	 	204.5	 	
Notes payable to affiliated companies	  	 	63.5	 	 	 	—  	 	 	 	163.5	 	 	 	9.9	 	
Other liabilities	  	 	138.8	 	 	 	138.8	 	 	 	147.9	 	 	 	169.2	 	
Debt	  	 	—  	 	 	 	3,500.0	 	 	 	—  	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities	  	 	1,742.1	 	 	 	5,345.7	 	 	 	1,794.6	 	 	 	1,395.7	 	
					
Commitments and contingencies (Notes 11 and 12)	  				 				 				 				
					
Net investment in The Western Union Company (stockholders’ deficiency):	  				 				 				 				
Preferred stock, $1.00 par value; 10 shares authorized pro forma; no shares issued and outstanding pro forma	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	
Common stock, $0.01 par value; 2,000 shares authorized pro forma; 765.2 shares issued and outstanding pro forma	  	 	—  	 	 	 	7.7	 	 	 	—  	 	 	 	—  	 	
Capital deficiency	  	 	—  	 	 	 	(635.2	)	 	 	—  	 	 	 	—  	 	
Net investment in The Western Union Company	  	 	3,312.6	 	 	 	—  	 	 	 	2,873.9	 	 	 	1,994.5	 	
Accumulated other comprehensive loss	  	 	(59.1	)	 	 	(59.1	)	 	 	(62.1	)	 	 	(60.0	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total net investment in The Western Union Company (stockholders’ deficiency)	  	 	3,253.5	 	 	 	(686.6	)	 	 	2,811.8	 	 	 	1,934.5	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total liabilities and net investment in The Western Union Company (stockholders’ deficiency)	  	$	4,995.6	 	 	$	4,659.1	 	 	$	4,606.4	 	 	$	3,330.2	 	

 
See accompanying notes.
 
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Table of Contents
 THE WESTERN UNION COMPANY
Combined Statements of Income
(Dollars in millions)

 	  	Six Months
Ended
June 30,	 	 	Year Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
 	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Revenues:	  				 				 				 				 				
Transaction fees	  	$	1,791.6	 	 	$	1,604.2	 	 	$	3,354.8	 	 	$	3,006.1	 	 	$	2,679.0	 	
Foreign exchange revenue	  	 	309.6	 	 	 	248.6	 	 	 	531.0	 	 	 	449.6	 	 	 	380.9	 	
Commission and other revenues	  	 	55.4	 	 	 	47.6	 	 	 	102.1	 	 	 	91.9	 	 	 	91.7	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	2,156.6	 	 	 	1,900.4	 	 	 	3,987.9	 	 	 	3,547.6	 	 	 	3,151.6	 	
Expenses:	  				 				 				 				 				
Cost of services	  	 	1,153.4	 	 	 	995.3	 	 	 	2,118.9	 	 	 	1,859.4	 	 	 	1,618.6	 	
Selling, general and administrative	  	 	364.1	 	 	 	292.5	 	 	 	599.8	 	 	 	576.1	 	 	 	530.0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses *	  	 	1,517.5	 	 	 	1,287.8	 	 	 	2,718.7	 	 	 	2,435.5	 	 	 	2,148.6	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	639.1	 	 	 	612.6	 	 	 	1,269.2	 	 	 	1,112.1	 	 	 	1,003.0	 	
Derivative (losses)/gains, net	  	 	(27.2	)	 	 	36.8	 	 	 	45.8	 	 	 	(30.2	)	 	 	(37.9	)	
Foreign exchange effect on notes receivable from affiliates, net	  	 	(4.1	)	 	 	(9.8	)	 	 	(5.9	)	 	 	7.5	 	 	 	—  	 	
Interest income from affiliates, net	  	 	23.5	 	 	 	9.2	 	 	 	24.3	 	 	 	9.1	 	 	 	—  	 	
Other income/(expense), net	  	 	17.4	 	 	 	5.8	 	 	 	10.7	 	 	 	0.1	 	 	 	(2.5	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	648.7	 	 	 	654.6	 	 	 	1,344.1	 	 	 	1,098.6	 	 	 	962.6	 	
Provision for income taxes	  	 	210.0	 	 	 	203.0	 	 	 	416.7	 	 	 	347.0	 	 	 	328.9	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	438.7	 	 	$	451.6	 	 	$	927.4	 	 	$	751.6	 	 	$	633.7	 	

*	As further described in Note 3, total expenses include amounts paid to related parties of $196.5 million and $171.2 million for the six months ended June 30, 2006 and 2005, respectively, and $344.0 million, $263.4 million and $211.2 million for the years ended December 31, 2005, 2004 and 2003, respectively.	

 
See accompanying notes.
 
F-4

Table of Contents
 THE WESTERN UNION COMPANY
Combined Statements of Cash Flows
(Dollars in millions)

 	 	Six Months Ended
June 30,	 	 	Year Ended December 31,	 	
 	 	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
 	 	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Cash flows from operating activities	 				 				 				 				 				
Net income	 	$	438.7	 	 	$	451.6	 	 	$	927.4	 	 	$	751.6	 	 	$	633.7	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 				 				 				 				 				
Depreciation and amortization	 	 	49.1	 	 	 	39.0	 	 	 	79.5	 	 	 	79.2	 	 	 	78.4	 	
Deferred income tax provision	 	 	21.5	 	 	 	18.2	 	 	 	24.9	 	 	 	47.6	 	 	 	63.3	 	
Realized (gain)/loss on derivative instruments	 	 	(7.9	)	 	 	7.7	 	 	 	0.5	 	 	 	23.2	 	 	 	30.8	 	
Other non-cash items, net	 	 	18.9	 	 	 	8.9	 	 	 	25.8	 	 	 	13.9	 	 	 	18.7	 	
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:	 				 				 				 				 				
Other assets	 	 	(39.4	)	 	 	(9.1	)	 	 	(8.8	)	 	 	(13.8	)	 	 	(27.5	)	
Accounts payable and accrued liabilities	 	 	(10.4	)	 	 	(14.2	)	 	 	(17.9	)	 	 	(6.3	)	 	 	(11.8	)	
Other liabilities	 	 	11.4	 	 	 	(34.2	)	 	 	(28.6	)	 	 	34.8	 	 	 	7.2	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash provided by operating activities	 	 	481.9	 	 	 	467.9	 	 	 	1,002.8	 	 	 	930.2	 	 	 	792.8	 	
						
Cash flows from investing activities	 				 				 				 				 				
Capitalization of contract costs	 	 	(79.9	)	 	 	(3.7	)	 	 	(22.5	)	 	 	(7.3	)	 	 	(57.7	)	
Capitalization of software development costs	 	 	(2.0	)	 	 	(1.8	)	 	 	(7.7	)	 	 	(15.7	)	 	 	(18.5	)	
Purchases of property and equipment	 	 	(32.5	)	 	 	(14.2	)	 	 	(34.8	)	 	 	(26.5	)	 	 	(23.6	)	
Notes receivable issued to agents	 	 	(140.0	)	 	 	(4.4	)	 	 	(8.4	)	 	 	—  	 	 	 	—  	 	
Acquisition of businesses, net of cash acquired, and contingent purchase consideration paid	 	 	—  	 	 	 	—  	 	 	 	(349.1	)	 	 	(28.7	)	 	 	(43.7	)	
Cash received (paid) on maturity of foreign currency forwards	 	 	7.9	 	 	 	(7.7	)	 	 	(0.5	)	 	 	(23.2	)	 	 	(30.8	)	
Purchase of equity method investments	 	 	—  	 	 	 	(5.4	)	 	 	(5.4	)	 	 	(42.0	)	 	 	—  	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in investing activities	 	 	(246.5	)	 	 	(37.2	)	 	 	(428.4	)	 	 	(143.4	)	 	 	(174.3	)	
						
Cash flows from financing activities	 				 				 				 				 				
Advances from (to) affiliated companies	 	 	17.7	 	 	 	(282.8	)	 	 	(153.2	)	 	 	250.0	 	 	 	(359.0	)	
Capital contributed by parent in connection with acquisitions	 	 	—  	 	 	 	—  	 	 	 	369.2	 	 	 	28.7	 	 	 	44.1	 	
Proceeds from notes payable issued to affiliated companies	 	 	—  	 	 	 	—  	 	 	 	400.1	 	 	 	255.0	 	 	 	9.9	 	
Repayments of notes payable to affiliated companies	 	 	(100.0	)	 	 	—  	 	 	 	(246.5	)	 	 	(255.0	)	 	 	—  	 	
Additions to notes receivable from affiliated companies	 	 	(7.5	)	 	 	(25.1	)	 	 	(504.7	)	 	 	(270.7	)	 	 	—  	 	
Proceeds from repayments of notes receivable from affiliated companies	 	 	—  	 	 	 	—  	 	 	 	18.4	 	 	 	—  	 	 	 	—  	 	
Dividends to parent company	 	 	—  	 	 	 	—  	 	 	 	(417.2	)	 	 	(659.8	)	 	 	(324.2	)	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cash used in financing activities	 	 	(89.8	)	 	 	(307.9	)	 	 	(533.9	)	 	 	(651.8	)	 	 	(629.2	)	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in cash and cash equivalents	 	 	145.6	 	 	 	122.8	 	 	 	40.5	 	 	 	135.0	 	 	 	(10.7	)	
Cash and cash equivalents at beginning of period	 	 	510.2	 	 	 	469.7	 	 	 	469.7	 	 	 	334.7	 	 	 	345.4	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	655.8	 	 	$	592.5	 	 	$	510.2	 	 	$	469.7	 	 	$	334.7	 	

Supplemental cash flow information	 				 				 				 				 				
Interest paid	 	$	1.3	 	 	$	0.1	 	 	$	3.5	 	 	$	5.5	 	 	$	0.1	 	
Income taxes paid (primarily to parent company)	 	 	188.5	 	 	 	184.8	 	 	 	391.8	 	 	 	299.4	 	 	 	265.6	 	
 
See accompanying notes.
 
F-5

Table of Contents
 THE WESTERN UNION COMPANY
Combined Statements of Net Investment in The Western Union Company
(Dollars in millions)

 	 	Net Investment
in The Western
Union Company	 	 	Accumulated
Other
Comprehensive
Income (Loss)	 	 	Total Net
Investment in The
Western Union
Company	 	 	Comprehensive
Income (loss)	 	
Balance at December 31, 2002	 	 	1,520.4	 	 	 	(49.7	)	 	 	1,470.7	 	 				
Net Income	 	 	633.7	 	 				 	 	633.7	 	 	$	633.7	 	
Dividends	 	 	(324.2	)	 				 	 	(324.2	)	 				
Capital contributed by parent in connection with acquisitions	 	 	44.1	 	 				 	 	44.1	 	 				
Other comprehensive income (loss):	 				 				 				 				
Unrealized losses on investment securities, net of tax	 				 	 	(1.4	)	 	 	(1.4	)	 	 	(1.4	)	
Foreign currency translation adjustment, net of tax	 				 	 	11.1	 	 	 	11.1	 	 	 	11.1	 	
Minimum pension plan liability, net of tax	 				 	 	(5.1	)	 	 	(5.1	)	 	 	(5.1	)	
	 				 				 				 	 	 	 	
Comprehensive income	 				 				 				 	$	638.3	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2003	 	 	1,874.0	 	 	 	(45.1	)	 	 	1,828.9	 	 				
Net income	 	 	751.6	 	 				 	 	751.6	 	 	$	751.6	 	
Dividends	 	 	(659.8	)	 				 	 	(659.8	)	 				
Capital contributed by parent in connection with acquisitions	 	 	28.7	 	 				 	 	28.7	 	 				
Other comprehensive income (loss):	 				 				 				 				
Unrealized losses on investment securities, net of tax	 				 	 	(3.0	)	 	 	(3.0	)	 	 	(3.0	)	
Foreign currency translation adjustment, net of tax	 				 	 	1.7	 	 	 	1.7	 	 	 	1.7	 	
Minimum pension plan liability, net of tax	 				 	 	(13.6	)	 	 	(13.6	)	 	 	(13.6	)	
	 				 				 				 	 	 	 	
Comprehensive income	 				 				 				 	$	736.7	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2004	 	 	1,994.5	 	 	 	(60.0	)	 	 	1,934.5	 	 				
Net income	 	 	927.4	 	 				 	 	927.4	 	 	 	927.4	 	
Dividends	 	 	(417.2	)	 				 	 	(417.2	)	 				
Capital contributed by parent in connection with acquisitions	 	 	369.2	 	 				 	 	369.2	 	 				
Other comprehensive income (loss):	 				 				 				 				
Unrealized losses on investment securities, net of tax	 				 	 	(2.2	)	 	 	(2.2	)	 	 	(2.2	)	
Foreign currency translation adjustment, net of tax	 				 	 	(4.8	)	 	 	(4.8	)	 	 	(4.8	)	
Minimum pension plan liability, net of tax	 				 	 	4.9	 	 	 	4.9	 	 	 	4.9	 	
	 				 				 				 	 	 	 	
Comprehensive income	 				 				 				 	$	925.3	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2005	 	 	2,873.9	 	 	 	(62.1	)	 	 	2,811.8	 	 				
Net income (unaudited)	 	 	438.7	 	 				 	 	438.7	 	 	 	438.7	 	
Other comprehensive income (loss) (unaudited):	 				 				 				 				
Unrealized losses on investment securities, net of tax	 				 	 	(0.8	)	 	 	(0.8	)	 	 	(0.8	)	
Foreign currency translation adjustment, net of tax	 				 	 	3.8	 	 	 	3.8	 	 	 	3.8	 	
	 				 				 				 	 	 	 	
Comprehensive income (unaudited)	 				 				 				 	$	441.7	 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at June 30, 2006 (unaudited)	 	$	3,312.6	 	 	$	(59.1	)	 	$	3,253.5	 	 				

 

See accompanying notes.
 
F-6

Table of Contents
 THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
1. Distribution, Description of Business and Basis of Presentation
 
Distribution and Description of the Business
 
On January 26, 2006, First Data Corporation (“First Data”) announced that its board of directors had authorized in principle the separation of its money transfer and consumer payments businesses into an independent publicly traded company, The Western Union Company, through a spin-off of 100% of the common stock of The Western Union Company to the holders of record of First Data’s common stock (the “Distribution”). The Distribution will be pursuant to a separation and distribution agreement by which First Data will contribute to The Western Union Company the subsidiaries that operate its money transfer and consumer payments businesses and its interest in a Western Union money transfer agent, as well as related assets, including intellectual property and real estate (together with the subsidiaries and other assets to be contributed by First Data, “Western Union” or the “Company”). The spin-off is intended to be tax free to the stockholders and to First Data and Western Union. First Data will distribute all of the shares of Western Union common stock as a dividend on First Data common stock as of the record date for the Distribution. First Data and Western Union will each be independent and have separate public ownership, boards of directors and management. The Distribution is subject to final approval by First Data’s board of directors, which approval is subject to, among other things, receipt of a private letter ruling from the Internal Revenue Service and an opinion of Sidley Austin LLP, counsel to First Data (or other nationally recognized tax counsel), in each case with respect to the tax-free nature of the spin-off. Completion is expected on September 29, 2006. The Western Union Company was incorporated in Delaware as a wholly owned subsidiary of First Data on February 17, 2006; 1,000 shares of the common stock of Western Union, par value $0.01 per share, were authorized and 100 shares are issued and outstanding. The Company will increase the number of shares of its common stock to facilitate the Distribution.
 
The Western Union business consists of the following services:
 
 	•	 	Consumer-to-consumer provides money transfer services between consumers, primarily through a global network of third-party agents using its multi-currency, real-time money transfer processing systems. This service is available for both intra-country transfers—that is, money transfers from one location to another in the same country—and internationally—that is, the transfer of funds into or out of the country.	
 
 	•	 	Consumer-to-business focuses on payments from consumers to businesses and other organizations that receive consumer payments, including utilities, auto finance companies, mortgage servicers, financial service providers and government agencies, through Western Union networks of third-party agents and various electronic channels. This service is generally available only inside a particular country, although in some instances Western Union provides the ability for senders to make payments from one country to another.	
 
 	•	 	Other includes the Company’s money order business and prepaid services. The Company sells Western Union branded money orders issued by Integrated Payment Systems Inc. (“IPS”), a subsidiary of First Data, to consumers at non-bank retail locations. Western Union’s prepaid service business markets a Western Union branded prepaid debit card, and a Western Union branded phone card, and provides top-up services for third parties that allow consumers to pay in advance for mobile phone and other services.	
 
The primary entities providing the services described above to be distributed in connection with the spin-off are Western Union Financial Services, Inc. (“WUFSI”), Vigo Remittance Corp. (“Vigo”), Orlandi Valuta, E Commerce Group and Paymap Inc., as well as the Convenience Pay and money order services. There are
 
F-7

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
additional legal entities included with the Distribution that do not have significant operating activity including First Financial Management Corporation (“FFMC”), WUFSI’s parent company.
 
Various aspects of the Company’s services and businesses are subject to U.S. federal, state and local regulation, as well as regulation by foreign jurisdictions, including banking regulations in certain foreign countries.
 
As of June 30, 2006, Western Union has two four-year labor contracts (both expiring August 6, 2008) with the Communications Workers of America, AFL-CIO representing approximately 20% of the Company’s workforce.
 
Basis of Presentation
 
The accompanying combined financial statements were prepared in connection with the Distribution. The accompanying combined financial statements reflect the combined historical results of operations, financial position and cash flows of the First Data subsidiaries that operate its money transfer and consumer payments businesses and a Western Union money transfer agent in which First Data holds an interest, as described above under the caption “Distribution and Description of the Business,” as if such businesses had been combined for all periods presented. All significant intercompany transactions and accounts have been eliminated. The assets and liabilities have been reflected in these combined financial statements on a historical basis, as prior to the Distribution all of the assets and liabilities presented are 100% owned by First Data and are being transferred within the First Data consolidated group. Management believes the assumptions underlying the combined financial statements, including the assumptions around allocating general corporate overhead costs from First Data (Note 3), are reasonable. However, these combined financial statements do not include all of the actual expenses that would have been incurred had Western Union been a stand-alone entity during the periods presented and do not reflect Western Union’s combined results of operations, financial position and cash flows had Western Union been a stand-alone company during the periods presented.
 
Due to the limited number of shares outstanding of Western Union prior to the Distribution, earnings per share has not been presented in these combined financial statements.
 
The accompanying Combined Balance Sheets are unclassified due to the short-term nature of Western Union’s settlement obligations, contrasted with its ability to invest cash awaiting settlement in long-term investment securities.
 
Unaudited Interim Financial Information
 
The accompanying unaudited combined financial statements as of June 30, 2006 and for the six months ended June 30, 2006 and 2005 have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited combined financial statements as of June 30, 2006 and for the six month periods ended June 30, 2006 and 2005 have been prepared on the same basis as the combined financial statements as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005 included herein, and in the opinion of management, reflect all adjustments, consisting only of normal and recurring accruals, considered necessary to present fairly the Company’s combined financial position as of June 30, 2006 and the combined results of its operations and its cash flows for the six month periods ended June 30, 2006 and 2005. The combined results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006 or for any other period.
 
F-8

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Unaudited Pro Forma Information
 
The unaudited Pro Forma Combined Balance Sheet as of June 30, 2006 displays the pro forma effect of the Distribution as if it had occurred on June 30, 2006. Such unaudited Pro Forma Combined Balance Sheet gives effect to the issuance by Western Union of $3.5 billion in combined indebtedness, the distribution to First Data of $210.0 million in cash from existing cash balances, the satisfaction of the amounts contributed/owed between First Data and Western Union, the issuance by Western Union to First Data shares of Western Union common stock, the distribution of such shares to the holders of First Data common stock, and the transfer between First Data and Western Union of certain assets and liabilities related to the Company’s and First Data’s businesses.
 
2. Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of combined financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ from those estimates.
 
Principles of Consolidation
 
Western Union utilizes the equity method of accounting when it has an ownership interest of between 20% and 50% in an entity, provided it is able to exercise significant influence over the entity’s operations.
 
Western Union consolidates financial statements when it will absorb a majority of an entity’s expected losses or residual returns or when it has the ability to exert control over the entity. Control is normally established when ownership interests exceed 50% in an entity. However, when Western Union does not have the ability to exercise control over a majority-owned entity as a result of other investors having contractual rights over the management and operations of the entity, it accounts for the entity under the equity method. As of December 31, 2005 and 2004, there were no greater-than-50%-owned affiliates whose financial statements were not consolidated.
 
Fair Value of Financial Instruments
 
Carrying amounts for Western Union financial instruments, including cash and cash equivalents, settlement assets (other than investment securities) and settlement obligations, approximate fair value due to their short maturities. Investment securities, included in settlement assets, are carried at fair market value and are considered available for sale (Note 6).
 
Cash and Cash Equivalents
 
Highly liquid investments (other than those included in settlement assets) with maturities of three months or less at the date of purchase (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates market value.
 
Western Union maintains cash and cash equivalent balances with various financial institutions. Western Union limits the concentration of its cash and cash equivalents with any one institution; however, such balances may at times exceed federal insurance limits. Western Union periodically evaluates the credit worthiness of these institutions to minimize risk.
 
F-9

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Allowance for Doubtful Accounts
 
Western Union records an allowance for doubtful accounts when it is probable that the related receivable balance will not be collected based on its history of collection experience, known collection issues, such as agent suspensions and bankruptcies, and other matters the Company identifies in its routine collection monitoring. The allowance for doubtful accounts was $8.4 million and $13.3 million at December 31, 2005 and 2004, respectively.
 
Settlement Assets and Obligations
 
Settlement assets represent funds received or to be received from agents for unsettled money transfers and consumer payments. Western Union records corresponding settlement obligations relating to amounts payable under money transfer and payment service arrangements.
 
Settlement assets are comprised of cash and cash equivalents, receivables from selling agents and investment securities. Cash received by Western Union agents generally becomes available to Western Union within one week after initial receipt by the agent. Cash equivalents consist of short-term time deposits, commercial paper and other highly liquid investments. Receivables from selling agents represent funds collected by such agents, but in transit to Western Union. Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent. In addition, Western Union performs ongoing credit evaluations of its agents’ financial condition and credit worthiness. See Note 6 for information concerning the Company’s investment securities.
 
Settlement obligations consist of money transfer and payment service payables and payables to agents. Money transfer payables represent amounts to be paid to transferees when they request their funds. Payment service payables represent amounts to be paid to utility companies, collection agencies, finance companies, mortgage servicers, government entities and others. Most agents typically settle with transferees first and then obtain reimbursement from Western Union. Due to the agent funding and settlement process, payables to agents represent amounts due to agents for money transfers that have been settled with transferees.
 
Property and Equipment
 
Property and equipment are stated at cost, less accumulated depreciation, which is computed using the straight-line method over the lesser of the estimated life of the related assets (generally three to 10 years) or the lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred.
 
Deferred Customer Set Up Costs
 
The Company capitalizes direct incremental costs associated with the enrollment of customers in the Equity Accelerator program, a service that allows consumers to complete ACH transactions to make recurring mortgage payments. Deferred customer set up costs, included in “Other assets” in the Combined Balance Sheets, are amortized to “Cost of services” in the Combined Statements of Income over the length of the customer’s expected participation in the program (generally five to seven years). Actual customer attrition data is assessed at least annually and the amortization period is adjusted prospectively.
 
F-10

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Goodwill
 
Goodwill represents the excess of purchase price over the fair value of tangible and other intangible assets acquired, less liabilities assumed arising from business combinations. The Company’s annual goodwill impairment test did not identify any goodwill impairment in 2004 or 2003; however, Western Union recorded a goodwill impairment charge of $8.7 million in 2005 due to a change in strategic direction relating to one of its majority owned prepaid businesses (Note 4). The majority of goodwill on Western Union’s Combined Balance Sheets arose in connection with FFMC’s acquisition of WUFSI in November 1994. FFMC is WUFSI’s direct parent company and was acquired by First Data in October 1995.
 
Other Intangible Assets
 
Other intangible assets primarily consist of contract costs (primarily amounts paid to agents in connection with establishing and renewing long-term contracts) and software. Other intangible assets are amortized on a straight-line basis over the length of the contract or benefit periods. Included in “Cost of services” in the Combined Statements of Income is amortization expense of approximately $47.5 million, $45.2 million and $42.6 million for the years ended December 31, 2005, 2004 and 2003, respectively.
 
The Company capitalizes initial payments for new and renewed agent contracts to the extent recoverable through future operations, contractual minimums and/or penalties in the case of early termination. The Company’s accounting policy is to limit the amount of capitalized costs for a given contract to the lesser of the estimated ongoing future cash flows from the contract or the termination fees the Company would receive in the event of early termination of the contract.
 
The Company develops software that is used in providing services. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all planning, designing, coding and testing activities that are necessary to determine that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is available for general use. Software development costs and purchased software are amortized over a term of three to five years.
 
The following table provides the components of other intangible assets (in millions):

  	  	December 31, 2005	  	December 31, 2004	
 	  	Weighted-
Average
Amortization
Period
(in years)	  	Initial
Cost	  	Net of
Accumulated
Amortization	  	Initial
Cost	  	Net of
Accumulated
Amortization	
Capitalized contract costs	  	5.3	  	$	118.2	  	$	56.7	  	$	105.5	  	$	56.1	
Acquired contracts	  	8.8	  	 	55.0	  	 	42.0	  	 	21.7	  	 	12.1	
Acquired trademarks	  	25.0	  	 	28.6	  	 	28.0	  	 	—  	  	 	—  	
Developed software	  	4.2	  	 	57.2	  	 	16.0	  	 	57.2	  	 	25.0	
Purchased or acquired software	  	3.4	  	 	38.4	  	 	15.9	  	 	28.0	  	 	12.4	
Other intangibles	  	8.9	  	 	38.3	  	 	21.8	  	 	27.0	  	 	14.3	
	  		  	 	 	  	 	 	  	 	 	  	 	 	
Total other intangibles	  	7.8	  	$	335.7	  	$	180.4	  	$	239.4	  	$	119.9	

F-11

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The estimated future aggregate amortization expense for existing other intangible assets as of December 31, 2005 is expected to be $50.4 million in 2006, $36.5 million in 2007, $19.3 million in 2008, $12.5 million in 2009, $8.9 million in 2010 and $52.8 million thereafter.
 
Other intangible assets are reviewed for impairment on an annual basis and whenever events indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted cash flows associated with these assets or operations are compared with their carrying values to determine if a write-down to fair value (normally measured by the present value technique) is required. Western Union did not record any impairment related to other intangible assets during the years ended December 31, 2005, 2004 and 2003.
 
Revenue Recognition
 
The majority of the Company’s revenues are comprised of consumer money transfer transaction fees that are based on the principal amount of the money transfer and the locations from and to which funds are transferred. Consumer money transfer transaction fees are set by the Company and recorded as revenue at the time of sale. In certain consumer money transfer transactions involving different send and receive currencies, the Company generates revenue based on the difference between the exchange rate set by Western Union to the consumer and the rate at which Western Union or its agents are able to acquire currency. This foreign exchange revenue is recorded at the time the related transaction fee revenue is recognized.
 
The Company also offers several consumer-to-business payment services, including payments from consumers to utility companies, collection agencies, finance companies, mortgage servicers, government entities and others. Revenues for these services are primarily derived from transaction fees, which are recorded as revenue when payments are sent to the intended recipients.
 
The Company’s Equity Accelerator service requires a consumer to pay an upfront enrollment fee to participate in this mortgage payment service. These enrollment fees are deferred and recognized into income over the length of the customer’s expected participation in the program. Actual customer attrition data is assessed at least annually and the period over which revenue is recognized is adjusted prospectively. Many factors impact the duration of the expected customer relationship, including interest rates, refinance activity and trends in consumer behavior.
 
The Company sells money orders issued by IPS under the Western Union brand and manages the agent network through which such money orders are sold. Western Union recognizes monthly commissions from IPS based on an investment yield on the average investable balance resulting from the sale of money orders. Western Union also recognizes transaction fees received, collected by IPS and remitted to Western Union at the time a money order is issued to the consumer.
 
Loyalty Program
 
Western Union operates a loyalty program which consists of points that are awarded to program participants. Such points may be redeemed for either a discount on future money transfers or merchandise. The Company estimates the distribution between awards of merchandise and discounts based on recent redemption history and trends, measured on a quarterly basis. Revenue is deferred for the portion of points expected to be ultimately redeemed for discounts in a manner that reflects the consumer’s progress toward earning such discounts. Costs associated with the redemption of merchandise are reflected in “Selling, general and administrative” expenses in the Combined Statements of Income.
 
F-12

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Cost of Services
 
Cost of services consists of costs directly associated with providing services to consumers, including commissions paid to agents, which are generally recognized at the time of sale. Some agents outside the U.S. also receive additional commissions based on a portion of the foreign exchange revenue associated with money transfer transactions. Other costs included in costs of services include personnel, software, equipment, telecommunications, bank fees, depreciation and amortization, and other operating expenses incurred in connection with providing money transfers and other payment services.
 
Advertising Costs
 
Advertising costs, which are included in “Selling, general and administrative” expenses in the Combined Statements of Income, are expensed as incurred or at the time the advertising first takes place. Advertising costs for the years ended December 31, 2005, 2004 and 2003 were $243.3 million, $227.9 million and $183.5 million, respectively.
 
Income Taxes
 
Western Union’s taxable income has historically been included in the consolidated U.S. federal income tax return of First Data and also in a number of state income tax returns, which are filed as consolidated returns. Western Union files its own separate tax returns in foreign jurisdictions. Western Union’s provision for income taxes has been computed as if it were a separate tax-paying entity. Federal and state income taxes payable are remitted to First Data. The state and other income tax provisions represent applicable taxes payable to the various jurisdictions in which Western Union operates. Foreign taxes are paid in each respective jurisdiction locally.
 
Western Union accounts for income taxes under the liability method, which requires that deferred tax assets and liabilities be determined based on the expected future income tax consequences of events that have been recognized in the combined financial statements.
 
Deferred tax assets and liabilities are recognized based on temporary differences between the combined financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
 
Foreign Currency Translation
 
The U.S. dollar is the functional currency for all of Western Union’s businesses except certain investments located primarily in the United Kingdom, Ireland and Argentina. Foreign currency denominated assets and liabilities for those entities for which the local currency is the functional currency are translated into U.S. dollars based on exchange rates prevailing at the end of the period. Revenues and expenses are translated at average exchange rates prevailing during the period. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of those entities where the functional currency is not the U.S. dollar are included as a component of accumulated other comprehensive income or loss. Foreign currency translation gains and losses on assets and liabilities of foreign operations in which the U.S. dollar is the functional currency are recognized in operations.
 
F-13

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Derivative Financial Instruments
 
Western Union utilizes derivative instruments to mitigate foreign currency risk. Western Union recognizes all derivative financial instruments as assets or liabilities at fair value and has reported such amounts with nonaffiliated parties in the “Other assets” or “Other liabilities” captions in the accompanying Combined Balance Sheets. These derivatives do not meet the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138 and SFAS No. 149 (“SFAS No. 133”) to be accounted for as hedges. Accordingly, the change in fair value of these derivatives is included in net income in the accompanying Combined Statements of Income.
 
Certain of the Company’s derivatives are short-term, generally less than two weeks, and others have longer terms, generally one year. The change in the fair value of the derivatives with longer maturities are recorded in the caption “Derivative (losses)/gains, net” in the accompanying Combined Statements of Income. Derivatives with shorter maturities are reported in operating expenses in the accompanying Combined Statements of Income as such derivatives are used to mitigate the risk of foreign exchange rate fluctuations on settlement assets and settlement obligations. Foreign exchange rate fluctuations on settlement assets and settlement obligations are also recorded in operating expenses.
 
The Company also has certain other foreign currency swap arrangements with First Data to mitigate the foreign exchange impact on certain euro denominated notes receivable with affiliates. These foreign currency swaps do not qualify for hedge accounting and, accordingly, the fair value changes of these agreements are reported in the accompanying Combined Statements of Income as “Foreign exchange effect on notes receivable from affiliates, net.” The fair market value of these swaps is recorded in “Receivables from affiliated companies, net” in the accompanying Combined Balance Sheets and they will be settled in cash along with the related notes receivable in connection with the spin-off.
 
The estimated fair value of Western Union’s derivative financial instruments is based on market and dealer quotations. Accordingly, these estimated values may not be representative of actual values that could have been realized as of December 31, 2005 or 2004 or that will be realized in the future.
 
Stock-Based Compensation
 
Western Union participates in First Data’s stock-based compensation plans that provide for the granting of First Data stock options, restricted stock awards and employee stock purchase plan rights to employees and other key individuals who perform services for the Company.
 
Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), using the modified prospective method. SFAS 123R requires all stock-based compensation to employees be measured at fair value and expensed over the requisite service period and also requires an estimate of forfeitures when calculating compensation expense. The Company recognizes compensation cost on awards with graded vesting on a straight-line basis over the requisite service period for the entire award. In accordance with the Company’s chosen method of adoption, results for prior periods have not been adjusted. Prior to the adoption of SFAS 123R, the Company followed Accounting Principles Board (“APB”) Opinion No. 25 which accounts for stock-based payments to employees using the intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. Refer to Note 15 for additional discussion regarding details of the Company’s stock-based compensation plans and the adoption of SFAS 123R.

F-14

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
New Accounting Pronouncement
 
The Financial Accounting Standards Board (“FASB”) has issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109” (“FIN 48”), regarding accounting for, and disclosure of, uncertain tax positions. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact FIN 48 will have on its combined results of operations and financial position.
 
3. Related Party Transactions
 
Related Party Transactions with First Data
 
The Combined Statements of Income include expense allocations for certain corporate functions historically provided 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 appropriate methods depending on the nature of each item of 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 benefits from such as treasury, tax, accounting and reporting, mergers and acquisitions, risk management, legal, internal audit, procurement, human resources, investor relations and information technology. The Company also participates in certain First Data insurance, benefit and incentive plans, and it receives services directly related to the operations of its businesses such as call center services, credit card processing, printing and mailing. The Combined Statements of Income reflect charges from First Data and its affiliates for these services of $97.1 million and $87.2 million for the six months ended June 30, 2006 and 2005, respectively, and $166.3 million, $158.3 million and $142.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. Certain of these services will continue to be provided subsequent to the Distribution for varying periods. Included in the charges above are amounts recognized for stock-based compensation expense (Note 15), as well as net periodic benefit income associated with the Company’s pension plans (Note 10).
 
As of December 31, 2005 and 2004, the Company has notes payable to First Data subsidiaries of approximately $163.5 million and $9.9 million, respectively. Included in “Receivables from affiliated companies, net” in the Combined Balance Sheets, the Company has accrued interest payable on these notes of $4.1 and $1.0 million as of December 31, 2005 and 2004, respectively. Included in “Interest income from affiliates, net” in the Combined Statements of Income for the years ended December 31, 2005 and 2004 was interest expense of $4.5 million and $6.4 million, respectively. No interest expense was incurred for the year ended December 31, 2003. These notes bear interest at rates ranging from 3.89% to 8.375% annually.
 
As of December 31, 2005 and 2004, the Company has notes receivable from First Data subsidiaries of approximately $751.5 million and $278.2 million, respectively. These notes were made to finance certain international acquisitions made by these First Data subsidiaries. Included in “Receivables from affiliated companies, net” in the Combined Balance Sheets, the Company has accrued interest receivable on these notes of
 
F-15

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
$7.8 million and $8.3 million as of December 31, 2005 and 2004, respectively. Included in “Interest income from affiliates, net” in the Combined Statements of Income for the years ended December 31, 2005 and 2004 was interest income of $28.8 million and $15.5 million, respectively. There was no interest income on notes receivable from affiliates during 2003. These notes bear interest at rates ranging from 3.45% to 7.0% annually. Certain of these notes receivable also have related foreign currency swap arrangements to mitigate the foreign exchange impact to the Company on certain euro denominated notes receivable with affiliates (Note 14). The fair market value of these swaps is recorded in “Receivables from affiliated companies, net” in the Combined Balance Sheets and will be settled in cash along with the related notes receivable in connection with the spin-off.
 
During the years ended December 31, 2005, 2004 and 2003, Western Union received transaction fee and commission revenue from IPS in connection with the sale and distribution of money orders through its agent network of approximately $63.9 million, $60.5 million and $61.4 million,  respectively.
 
Other Related Party Transactions
 
The Company has ownership interests in certain of its agents, all of which are accounted for under the equity method of accounting. The Company pays these agents, as it does its other agents, commissions for money transfer and other services provided on the Company’s behalf. Commissions paid to these agents, from the date of investment, for the six months ended June 30, 2006 and 2005 totaled $99.4 million and $84.0 million, respectively, and for the years ended December 31, 2005, 2004 and 2003 totaled $177.7 million, $105.1 million and $69.0 million, respectively.
 
Richard Kiphart, a director of First Data, is the manager of the corporate finance department and a principal at William Blair & Company, L.L.C. (“William Blair”). Prior to First Data’s acquisition of GMT Group, Inc. (“GMT”), the parent company of Vigo, in October 2005 (Note 4), GMT hired William Blair to advise it in connection with its consideration of the proposed acquisition and to provide a fairness opinion in connection with the acquisition. GMT paid William Blair a fee of $2.8 million upon completion of the acquisition and reimbursed William Blair for all of its out of pocket expenses reasonably incurred by it in connection with its services (including fees and expenses of its counsel). GMT has also agreed to indemnify William Blair against potential liabilities arising out of its engagement.
 
4. Acquisitions
 
In October 2005, First Data acquired 100% of GMT, the owner of Vigo, a provider of consumer-to-consumer money transfer services to various countries with nearly 18,000 agent locations, for approximately $369.2 million, including cash acquired of $20.1 million. GMT is being contributed to Western Union in connection with the Distribution and the purchase price is reflected as a capital contribution in the Combined Statements of Net Investment in The Western Union Company. The results of Vigo’s operations have been included in the combined financial statements since the acquisition date. The purchase price allocation resulted in $78.4 million of identifiable intangible assets, which are being amortized over 3.5 to 11 years, except for acquired trademarks aggregating $28.6 million, which are being amortized over 25 years. Goodwill of $283.7 million was recorded in connection with the acquisition of GMT, none of which is expected to be deductible for tax purposes. The purchase price allocation is preliminary and subject to the finalization of certain liabilities.
 
In 2004, the Company purchased 30% equity interests in two of its international money transfer agents. The aggregate consideration paid during 2004 for these agents was $42.0 million, net of $5.4 million of holdback
 
F-16

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
reserves to cover claims arising from the acquisitions, which was paid in 2005 upon successful resolution of the related claims. The aggregate purchase price allocation for these acquisitions resulted in $12.9 million of identifiable intangible assets, which are being amortized over three to seven years. Western Union’s investments in these agents are accounted for under the equity method of accounting.
 
In August 2003, the Company acquired a 51% ownership interest in Eposs Limited (“Eposs”), a United Kingdom-based seller of cellular prepaid products in Europe, for approximately $12.2 million, including cash acquired of $9.2 million. The purchase price allocation resulted in identifiable intangible assets of $7.2 million, which were being amortized over three to nine years, and goodwill of $28.0 million. In the fourth quarter of 2005, Western Union recorded a goodwill impairment charge of $8.7 million due to a change in strategic direction. The Company’s majority interest in Eposs was sold on April 28, 2006 and the fair value of net assets on disposition approximated the net book value subsequent to the recognition of the impairment charge noted above.
 
The pro forma impact of all acquisitions on net income in 2005, 2004 and 2003 was immaterial.
 
The following table presents changes to goodwill for the years ended December 31, 2005 and 2004 (in millions):

  	  	Consumer-to-
Consumer	  	Consumer-to-
Business	  	Other	 	 	Total	 	
January 1, 2004 balance	  	$	1,107.6	  	$	159.5	  	$	29.2	 	 	$	1,296.3	 	
Purchase price adjustments and contingent consideration paid	  	 	—  	  	 	35.6	  	 	11.7	 	 	 	47.3	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
December 31, 2004 balance	  	 	1,107.6	  	 	195.1	  	 	40.9	 	 	 	1,343.6	 	
Acquisitions	  	 	283.1	  	 	—  	  	 	—  	 	 	 	283.1	 	
Impairments	  	 	—  	  	 	—  	  	 	(8.7	)	 	 	(8.7	)	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
December 31, 2005 balance	  	$	1,390.7	  	$	195.1	  	$	32.2	 	 	$	1,618.0	 	

The terms of certain of the Company’s acquisition agreements provide for additional consideration to be paid if the acquired entity’s results of operations exceed certain targeted levels. Such additional consideration is paid in cash and is recorded as additional purchase price when targeted levels are achieved. Additional consideration paid in 2004 and 2003 totaled $28.7 million and $40.7 million, respectively. There was no additional consideration paid in 2005, and there are no potential additional consideration payments remaining as of December 31, 2005.
 
5. Settlement Assets and Settlement Obligations
 
Settlement assets represent funds received or to be received from agents for unsettled money transfers and consumer payments. Western Union records corresponding settlement obligations relating to amounts payable under money transfer and payment service arrangements. The difference in the aggregate amount of settlement assets and obligations is primarily due to unrealized net investment gains and losses, which are reported as a component of other comprehensive income or loss.
 
F-17

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Settlement assets and obligations are comprised of the following (in millions):

 	  	December 31,	
 	  	2005	  	2004	
Settlement Assets:	  			  			
Cash and cash equivalents	  	$	183.9	  	$	215.1	
Receivables from selling agents, net	  	 	593.4	  	 	331.6	
Investment securities	  	 	151.8	  	 	170.2	
	  	 	 	  	 	 	
	  	$	929.1	  	$	716.9	

							
Settlement Obligations:	  			  			
Money transfer and payment services payables	  	$	535.9	  	$	430.7	
Payables to agents	  	 	390.8	  	 	280.3	
	  	 	 	  	 	 	
	  	$	926.7	  	$	711.0	

6. Investment Securities
 
Investment securities consist primarily of high-quality state and municipal debt instruments. All of the Company’s investment securities were marketable securities during all periods presented. The Company is required to maintain specific grades of investments and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state regulations. Western Union does not hold financial instruments for trading purposes, and all investment securities are classified as available-for-sale and recorded at fair value, which is based primarily on market quotations. Investment securities are exposed to market risk due to changes in interest rates and credit risk. Western Union regularly monitors credit risk and attempts to mitigate its exposure by making high quality investments. At December 31, 2005, all investment securities had credit ratings of “AA” or better from a major credit rating agency.
 
Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive income or loss, net of related deferred income taxes. There were no significant realized gains transferred out of other comprehensive income during the periods presented.
 
Realized gains and losses on investments are calculated using the specific-identification method and are recognized during the period the investment is sold or when an investment experiences an other than temporary decline in value below cost or amortized cost. When an investment is deemed to have an other than temporary decline in value it is reduced to its fair value, which becomes the new cost basis of the investment. Western Union considers both qualitative and quantitative indicators, including, but not limited to, the length of time the investment has been in an unrealized loss position, when judging whether a decline in value is other than temporary in nature.
 
F-18

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The components of investment securities, all of which are classified as available-for-sale, are as follows (in millions):

December 31, 2005	  	Amortized
Cost	  	Fair
Value	  	Gross
Unrealized
Gains	  	Gross
Unrealized
Losses	 	 	Net
Unrealized
Gains
(Losses)	
State and municipal obligations	  	$	142.4	  	$	144.9	  	$	2.6	  	$	(0.1	)	 	$	2.5	
Preferred stock	  	 	6.9	  	 	6.9	  	 	—  	  	 	—  	 	 	 	—  	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	
	  	$	149.3	  	$	151.8	  	$	2.6	  	$	(0.1	)	 	$	2.5	

																		
December 31, 2004	  	Amortized
Cost	  	Fair
Value	  	Gross
Unrealized
Gains	  	Gross
Unrealized
Losses	 	 	Net
Unrealized
Gains
(Losses)	 	
State and municipal obligations	  	$	156.3	  	$	162.9	  	$	6.9	  	$	(0.3	)	 	$	6.6	 	
Preferred stock	  	 	8.0	  	 	7.3	  	 	—  	  	 	(0.7	)	 	 	(0.7	)	
	  	 	 	  	 	 	  	 	 	  	 	 	 	 	 	 	 	
	  	$	164.3	  	$	170.2	  	$	6.9	  	$	(1.0	)	 	$	5.9	 	

No individual investment balance included within investment securities represents greater than 10% of total investment securities as of December 31, 2005 and 2004.
 
The following summarizes contractual maturities of state and municipal obligations as of December 31, 2005 (in millions):

  	  	Amortized
Cost	  	Fair
Value	
Due within 1 year	  	$	24.7	  	$	25.0	
Due after 1 year through 5 years	  	 	104.8	  	 	107.0	
Due after 5 years	  	 	12.9	  	 	12.9	
	  	 	 	  	 	 	
	  	$	142.4	  	$	144.9	

Preferred stock is not included above because the securities do not have fixed maturities. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations.
 
The following tables present the gross unrealized losses and fair value of Western Union’s investment securities with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2005 and 2004 (in millions):

  	  	Less than 12 months	 	 	Greater than 12 months	  	Total
Fair Value	  	Total
Unrealized
Losses	 	
December 31, 2005	  	Fair Value	  	Unrealized
Losses	 	 	Fair Value	  	Unrealized
Losses	  		  			
State and municipal obligations	  	$	18.5	  	$	(0.1	)	 	$	—  	  	$	—  	  	$	18.5	  	$	(0.1	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	  	 	 	  	 	 	 	
	  	$	18.5	  	$	(0.1	)	 	$	—  	  	$	—  	  	$	18.5	  	$	(0.1	)	

F-19

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003

 	  	Less than 12 months	 	 	Greater than 12 months	 	 	Total
Fair Value	  	Total
Unrealized
Losses	 	
December 31, 2004	  	Fair Value	  	Unrealized
Losses	 	 	Fair Value	  	Unrealized
Losses	 	 		  			
State and municipal obligations	  	$	—  	  	$	—  	 	 	$	3.3	  	$	(0.3	)	 	$	3.3	  	$	(0.3	)	
Preferred stock	  	 	3.3	  	 	(0.3	)	 	 	3.9	  	 	(0.4	)	 	 	7.2	  	 	(0.7	)	
	  	 	 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	  	 	 	 	
	  	$	3.3	  	$	(0.3	)	 	$	7.2	  	$	(0.7	)	 	$	10.5	  	$	(1.0	)	

The Company’s unrealized losses related to the following:
 
State and municipal obligations—The unrealized losses as of December 31, 2005 and 2004 on the Company’s investments in state and municipal obligations were the result of increases in interest rates and were not related to credit quality. These unrealized losses were deemed to be not other-than-temporary because the Company has the ability and intent to hold these investments until a recovery of fair value occurs, which may be upon maturity.
 
Preferred stock—The majority of the Company’s investments in preferred stock are in government sponsored mortgage entities. The unrealized losses on preferred stock as of December 31, 2004 resulted primarily from the illiquidity of such investments and a decline in interest rates and were not related to credit quality. Analyses of the unrealized losses on preferred stock performed during 2005 and 2004 indicated other-than-temporary impairments on a portion of the Company’s investments, resulting in impairment charges of $1.1 million and $1.0 million for 2005 and 2004, respectively.
 
7. Property and Equipment
 
Property and equipment consists of the following (in millions):

  	  	December 31,	 	
 	  	2005	 	 	2004	 	
Equipment	  	$	222.0	 	 	$	197.6	 	
Leasehold improvements	  	 	27.1	 	 	 	25.1	 	
Furniture and fixtures	  	 	16.6	 	 	 	13.5	 	
Projects in process	  	 	0.3	 	 	 	0.3	 	
	  	 	 	 	 	 	 	 	
	  	 	266.0	 	 	 	236.5	 	
Less accumulated depreciation	  	 	(183.6	)	 	 	(165.8	)	
	  	 	 	 	 	 	 	 	
Property and equipment, net	  	$	82.4	 	 	$	70.7	 	

Amounts charged to expense for depreciation of property and equipment were $32.0 million, $34.0 million and $35.8 million during the years ended December 31, 2005, 2004 and 2003, respectively.
 
F-20

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
8. Other Assets and Liabilities
 
The following table summarizes the components of other assets and other liabilities (in millions):

  	  	December 31,	
 	  	2005	  	2004	
Other assets:	  			  			
Equity method investments	  	$	150.2	  	$	156.4	
Deferred customer set up costs	  	 	46.2	  	 	40.7	
Amounts advanced to agents	  	 	46.0	  	 	7.1	
Accounts receivable, net	  	 	24.8	  	 	22.3	
Prepaid expenses	  	 	9.0	  	 	6.4	
Derivative financial instruments	  	 	19.4	  	 	—  	
Other	  	 	46.4	  	 	55.7	
	  	 	 	  	 	 	
Total other assets	  	$	342.0	  	$	288.6	

							
Other liabilities:	  			  			
Deferred revenue	  	$	87.1	  	$	82.1	
Derivative financial instruments	  	 	1.1	  	 	31.1	
Due to minority interest holder	  	 	23.8	  	 	24.6	
Other liabilities	  	 	35.9	  	 	31.4	
	  	 	 	  	 	 	
Total other liabilities	  	$	147.9	  	$	169.2	

Amounts advanced to agents
 
From time to time the Company makes advances and loans to agents. These advances and loans generally are secured by settlement funds payable by the Company to these agents. In January 2006, the Company signed a six year agreement with one of its existing agents which included a four year loan of $140.0 million to the agent. The terms of the loan agreement require that a percentage of commissions earned by the agent (39% in 2006, 52% in 2007, 61% in 2008 and 64% in 2009) be withheld by the Company as repayment of the loan and the agent remains obligated to repay the loan if commissions earned are not sufficient. The loan receivable was recorded in “Other assets” in the Combined Balance Sheets as of June 30, 2006. The Company imputes interest on this below market rate note receivable and has recorded the note net of a discount of $45.9 million as of June 30, 2006.
 
9. Income Taxes
 
The components of pretax income are as follows (in millions):

  	  	Year ended December 31,	
 	  	2005	  	2004	  	2003	
Components of pretax income:	  			  			  			
Domestic	  	$	801.9	  	$	689.7	  	$	861.9	
Foreign	  	 	542.2	  	 	408.9	  	 	100.7	
	  	 	 	  	 	 	  	 	 	
	  	$	1,344.1	  	$	1,098.6	  	$	962.6	

F-21

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The provision for income taxes is as follows (in millions):

 	  	Year ended December 31,	
 	  	2005	  	2004	  	2003	
Federal	  	$	322.0	  	$	276.2	  	$	273.7	
State and local	  	 	45.1	  	 	35.7	  	 	31.3	
Foreign	  	 	49.6	  	 	35.1	  	 	23.9	
	  	 	 	  	 	 	  	 	 	
	  	$	416.7	  	$	347.0	  	$	328.9	

The Company’s effective tax rates differ from statutory rates as follows:

  	  	Year ended December 31,	 	
 	  	2005	 	 	2004	 	 	2003	 	
Federal statutory rate	  	35.0	%	 	35.0	%	 	35.0	%	
State income taxes, net of federal income tax benefits	  	2.0	%	 	2.0	%	 	2.1	%	
Foreign rate differential	  	(5.8	)%	 	(4.7	)%	 	(1.3	)%	
Federal tax credits	  	(0.4	)%	 	(0.5	)%	 	(0.5	)%	
Other	  	0.2	%	 	(0.2	)%	 	(1.1	)%	
	  	 	 	 	 	 	 	 	 	
Effective tax rate	  	31.0	%	 	31.6	%	 	34.2	%	

Western Union’s income tax provision consists of the following components (in millions):

  	  	Year ended December 31,	 	
 	  	2005	  	2004	 	 	2003	 	
Current:	  			  				 				
Federal	  	$	310.5	  	$	228.9	 	 	$	213.8	 	
State and local	  	 	41.9	  	 	30.7	 	 	 	26.6	 	
Foreign	  	 	39.4	  	 	39.8	 	 	 	25.2	 	
	  	 	 	  	 	 	 	 	 	 	 	
Total current taxes	  	 	391.8	  	 	299.4	 	 	 	265.6	 	
				
Deferred:	  			  				 				
Federal	  	 	11.6	  	 	47.2	 	 	 	60.0	 	
State and local	  	 	3.1	  	 	5.0	 	 	 	4.7	 	
Foreign	  	 	10.2	  	 	(4.6	)	 	 	(1.4	)	
	  	 	 	  	 	 	 	 	 	 	 	
Total deferred taxes	  	 	24.9	  	 	47.6	 	 	 	63.3	 	
	  	 	 	  	 	 	 	 	 	 	 	
	  	$	416.7	  	$	347.0	 	 	$	328.9	 	

F-22

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book and tax bases of Western Union’s assets and liabilities. The following table outlines the principal components of deferred tax items (in millions):

 	  	December 31,	
 	  	2005	  	2004	
Deferred tax assets related to:	  			  			
Reserves and accrued expenses	  	$	15.1	  	$	4.4	
Pension obligations	  	 	25.6	  	 	30.3	
Deferred revenue	  	 	6.2	  	 	3.4	
Other	  	 	11.0	  	 	10.4	
	  	 	 	  	 	 	
Total deferred tax assets	  	 	57.9	  	 	48.5	
	  	 	 	  	 	 	
Deferred tax liabilities related to:	  			  			
Property, equipment and intangibles	  	 	292.8	  	 	239.3	
Net undistributed earnings	  	 	—  	  	 	3.0	
Other	  	 	13.2	  	 	10.7	
	  	 	 	  	 	 	
Total deferred tax liabilities	  	 	306.0	  	 	253.0	
	  	 	 	  	 	 	
Net deferred tax liability	  	$	248.1	  	$	204.5	

At December 31, 2005, no provision had been made for U.S. federal and state income taxes on foreign earnings of approximately $552.5 million, which are expected to be reinvested outside the U.S. indefinitely. Upon distribution of those earnings in the form of dividends or otherwise, Western Union would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. tax liability is not practicable because of the complexities associated with its hypothetical calculation.
 
To address certain aspects of a 2003 legal restructuring of Western Union’s international operations, First Data initiated discussions with the Internal Revenue Service (“IRS”) pursuant to the IRS’s Advance Pricing Agreement (“APA”) Program. If an APA is successfully negotiated, the Company generally will avoid further examination, during the term of the APA, of the transfer pricing methods applicable to, and valuations of, the covered transactions. The Company continues to negotiate with the IRS in the APA process, and while it is hopeful of reaching resolution through the process, there can be no assurances that the APA negotiations will be resolved in a manner acceptable to the Company. If not so resolved, the matter would then likely proceed to other forums within the IRS. The Company has established contingency reserves for material, known tax exposures, including the potential for tax audit adjustments with respect to taxes associated with its foreign business that is the subject of the 2003 legal restructuring and the IRS’s APA Program discussions referenced above. These tax reserves reflect what the Company believes to be reasonable assumptions as to the likely resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed the Company’s related reserve. Regarding the 2003 legal restructuring, the Company has benefited by having its income from certain foreign-to-foreign money transfer transactions taxed at relatively low foreign tax rates rather than the United States statutory tax rate. The amount of taxes attributable to such rate differential is included in the “Foreign rate differential” line in the effective tax rate reconciliation above and cumulatively totaled $131.6 million through December 31, 2005. Any differences
 
F-23

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
from Western Union’s positions as recorded in its financial statements upon resolution of these issues will be reflected as a part of income tax expense in the period during which the resolution occurs. Such resolution could also affect Western Union’s effective tax rate for future periods.
 
Western Union is subject to other tax matters which management believes will not result in a material adverse effect on Western Union’s financial position, results of operations or cash flows. Western Union accrues for loss contingencies as they become probable and estimable.
 
10. Employee Benefit Plans
 
Defined Contribution Plans
 
Eligible full-time employees of Western Union are covered under one of two defined contribution retirement and savings plans. Non-union employees participate in a First Data sponsored plan. Non-union employees make voluntary contributions to this plan and receive up to a 3% Western Union matching contribution, service related contributions of 1.5% to 3% of eligible employee compensation and additional discretionary Western Union contributions. Union employees receive a contribution from the Company of 4% of eligible employee compensation, and those union employees who make voluntary contributions receive up to a 1.5% matching contribution and a $650 per employee lump-sum contribution per year. In addition, First Data provides non-qualified deferred compensation plans for certain highly compensated employees. These plans provide tax-deferred contributions, matching and the restoration of Company contributions under the defined contribution plans otherwise limited by IRS or plan limits. The aggregate amount charged to expense in connection with these plans was $8.1 million, $7.5 million and $6.5 million during the years ended December 31, 2005, 2004 and 2003, respectively.
 
Defined Benefit Plans
 
FFMC’s acquisition of WUFSI in November 1994 included the assumption of $304.0 million of underfunded pension obligations related to two frozen defined benefit pension plans. Benefit accruals under these plans were frozen in 1988. First Data reduced these underfunded obligations by contributing $35.6 million in 2004 and $20.2 million in 2003 to the plans. No contributions were made by First Data in 2005. As part of the Distribution, Western Union will be responsible for any remaining underfunded pension obligations. Western Union does not expect to contribute to the pension plans in 2006. A September 30 measurement date is used for the Company’s plans.
 
F-24

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The following table provides a reconciliation of the changes in the pension plans’ benefit obligations and fair value of assets for the plan years ended September 30, 2005 and 2004, and a statement of the funded status of the plans as of September 30, 2005 and 2004 (in millions):

  	  	September 30,	 	
 	  	2005	 	 	2004	 	
Change in benefit obligation	  				 				
Benefit obligation at October 1,	  	$	515.7	 	 	$	515.0	 	
Interest costs	  	 	25.6	 	 	 	29.0	 	
Actuarial loss	  	 	0.4	 	 	 	20.8	 	
Benefits paid	  	 	(47.6	)	 	 	(49.1	)	
	  	 	 	 	 	 	 	 	
Benefit obligation at September 30,	  	 	494.1	 	 	 	515.7	 	
			
Change in plan assets	  				 				
Fair value of plan assets at October 1,	  	 	432.8	 	 	 	411.9	 	
Actual return on plan assets	  	 	39.1	 	 	 	34.4	 	
Benefits paid	  	 	(47.6	)	 	 	(49.1	)	
Contributions	  	 	—  	 	 	 	35.6	 	
	  	 	 	 	 	 	 	 	
Fair value of plan assets at September 30,	  	 	424.3	 	 	 	432.8	 	
	  	 	 	 	 	 	 	 	
Funded status of the plan	  	 	(69.8	)	 	 	(82.9	)	
Unrecognized amounts, principally net loss	  	 	114.2	 	 	 	121.8	 	
	  	 	 	 	 	 	 	 	
Total recognized	  	$	44.4	 	 	$	38.9	 	

According to SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), the pension obligations and changes in the value of plan assets to meet those obligations are not recognized as actuarial gains and losses of the plan as they occur but are recognized systematically over subsequent periods. These differences are treated as an unrecognized net gain/loss and not an immediate recognized amount.
 
The following table provides the amounts recognized in the Combined Balance Sheets (in millions):

  	  	December 31,	 	
 	  	2005	 	 	2004	 	
Accrued benefit liability	  	$	(69.8	)	 	$	(82.9	)	
Accumulated other comprehensive income	  	 	114.2	 	 	 	121.8	 	
	  	 	 	 	 	 	 	 	
Net amount recognized	  	$	44.4	 	 	$	38.9	 	

For the plan years ended September 30, 2005 and 2004, the projected benefit obligation was equal to the accumulated benefit obligation.
 
The following table provides the components of net periodic benefit income for the plans (in millions):

  	  	Six Months Ended
June 30,	 	 	Year ended December 31,	 	
 	  	  2006  	 	 	  2005  	 	 	2005	 	 	2004	 	 	2003	 	
 	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Interest cost	  	$	12.4	 	 	$	12.8	 	 	$	25.6	 	 	$	29.0	 	 	$	31.9	 	
Expected return on plan assets	  	 	(14.9	)	 	 	(16.9	)	 	 	(33.8	)	 	 	(35.3	)	 	 	(35.1	)	
Amortization	  	 	2.1	 	 	 	1.3	 	 	 	2.7	 	 	 	0.7	 	 	 	—  	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic benefit income	  	$	(0.4	)	 	$	(2.8	)	 	$	(5.5	)	 	$	(5.6	)	 	$	(3.2	)	

F-25

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The minimum pension liability included in other comprehensive income (loss), net of tax, decreased $4.9 million in 2005, increased $13.6 million in 2004 and increased $5.1 million in 2003.
 
The weighted-average rate assumptions used in the measurement of the Company’s benefit obligation are as follows:

 	  	2005	 	 	2004	 	
Discount rate	  	5.25	%	 	5.18	%	
 
The weighted-average rate assumptions used in the measurement of the Company’s net cost (income) are as follows:

 	  	2005	 	 	2004	 	 	2003	 	
Discount rate	  	5.19	%	 	5.90	%	 	6.40	%	
Expected long-term return on plan assets	  	7.75	%	 	8.00	%	 	8.00	%	
 
SFAS 87 requires the sponsor of a defined benefit plan to measure the plan’s obligations and annual expense using assumptions that reflect best estimates and are consistent to the extent that each assumption reflects expectations of future economic conditions. As the bulk of the pension benefits will not be paid for many years, the computation of pension expenses and benefits is based on assumptions about future interest rates and expected rates of return on plan assets. In general, pension obligations are most sensitive to the discount rate assumption, and it is set based on the rate at which the pension benefits could be settled effectively.
 
Western Union employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term portfolio return is established using a building block approach with proper consideration of diversification and re-balancing. Peer data and historical returns are reviewed to check for reasonableness and appropriateness.
 
Pension plan asset allocation at September 30, 2005 and 2004, and target allocations based on investment policies, are as follows:

  	  	Percentage of Plan Assets
at Measurement Date	
Asset Category	  	2005	 	2004	
Equity securities	  	44%	 	44%	
Debt securities	  	55%	 	54%	
Other	  	    1%	 	    2%	
	  	 	 	 	
	  	100%	 	100%	

				
   	  	Target Allocation	 	
Equity securities	  	30-50	%	
Debt securities	  	50-60	%	
Other	  	0-10	%	
 
F-26

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The following table details plan assets invested in related party securities:

 	  	2005	 	
Plan Asset Holdings	  	Shares
(in thousands)	  	Fair Market
Value
(in millions)	  	% of Total
Plan Assets	 	
First Data common stock	  	18.1	  	$	0.7	  	0.16	%	
Bank of New York common stock	  	23.8	  	$	0.7	  	0.16	%	
Hewitt Associates, Inc. common stock	  	5.5	  	$	0.1	  	0.02	%	

 	  	2004	 	
Plan Asset Holdings	  	Shares
(in thousands)	  	Fair Market
Value
(in millions)	  	% of Total
Plan Assets	 	
First Data common stock	  	54.2	  	$	2.4	  	0.55	%	
Bank of New York common stock	  	42.8	  	$	1.2	  	0.28	%	
Hewitt Associates, Inc. common stock	  	11.8	  	$	0.3	  	0.07	%	
 
The maturities of debt securities at September 30, 2005 range from current to 49 years with a weighted-average maturity of 14 years.
 
Western Union employs a total return investment approach whereby a mix of equities and fixed income investments are used in an effort to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as securities deemed to be growth, value, and small and large capitalizations. Other assets, primarily private equity, are used judiciously in an effort to enhance long-term returns while improving portfolio diversification. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset and liability studies.
 
The estimated future benefit payments are expected to be $46.2 million in 2006, $45.0 million in 2007, $44.0 million in 2008, $42.9 million in 2009, $41.8 million in 2010 and $189.8 million in 2011 through 2015.
 
Western Union administers a post-retirement health care plan to union employees that was in effect when First Data acquired FFMC. Generally, retired employees bear the entire cost of the premiums. Western Union also offers a short-term disability plan for union employees.
 
11. Operating Lease Commitments
 
Western Union leases certain real properties for use as customer service centers and administrative and sales offices. Western Union also leases data communications terminals, computers and office equipment. Certain of these leases contain renewal options and escalation provisions. Total rent expense under operating leases was $28.6 million, $26.3 million and $21.8 million during the years ended December 31, 2005, 2004 and 2003, respectively.
 
F-27

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
As of December 31, 2005, the minimum aggregate rental commitments under all noncancelable operating leases, net of sublease income commitments, are as follows (in millions):

Year Ending December 31,	  	 	
2006	  	$	25.1	
2007	  	 	19.1	
2008	  	 	15.6	
2009	  	 	8.7	
2010	  	 	7.0	
Thereafter	  	 	23.8	
	  	 	 	
Total future minimum lease payments	  	$	99.3	

12. Commitments and Contingencies
 
In the normal course of business, Western Union is subject to claims and litigation. Management of Western Union believes such matters involving a reasonably possible chance of loss will not, individually or in the aggregate, result in a materially adverse effect on Western Union’s combined financial position, results of operations or cash flows. Western Union accrues for loss contingencies as they become probable and estimable.
 
Western Union is subject to unclaimed or abandoned property (escheat) laws in the United States and abroad which require the Company to turn over to certain government authorities the property of others held by the Company that has been unclaimed for a specified period of time, such as unredeemed money transfers. The Company holds property subject to escheat laws and the Company has an ongoing program to comply with those laws. The Company is subject to audit with regard to its escheatment practices.
 
In 2002, Affiliated Computer Services (“ACS”) notified First Data of its intent to audit First Data’s escheatment practices (and those of all its subsidiaries) on behalf of 19 states (the “ACS States”). The ACS States have subsequently increased to 44 states. However, the ACS States have agreed to allow First Data and its subsidiaries to conduct an internal examination of their escheatment practices utilizing third-party experts. First Data has independently entered into Voluntary Disclosure Agreements with four other states (the “VDA States”). Like the ACS States, the VDA States agreed to allow First Data and its subsidiaries to conduct their own internal review in place of an audit by the states.
 
First Data completed the majority of its internal review in December 2005. As a result of that review, and in addition to amounts already recorded, the Company recognized an $8.2 million pretax charge in the fourth quarter of 2005 for domestic and international escheatment liabilities (portions of this charge are not scheduled to be remitted until periods beyond 2006).
 
Western Union plans to complete the internal review and discuss the results thereof with the ACS States and the VDA States in 2006. Any difference between the amounts accrued by the Company and that claimed by a state or foreign jurisdiction will be reflected in the periods in which any resolutions occur.
 
The Company has $32.8 million in outstanding letters of credit at December 31, 2005 with expiration dates through 2010, certain of which contain a one-year renewal option. The letters of credit are held in connection with lease arrangements and agent settlement agreements. The Company expects to renew the letters of credit prior to expiration.
 
F-28

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
13. Accumulated Other Comprehensive Loss
 
The income tax effects allocated to and the cumulative balance of each component of accumulated other comprehensive loss are as follows (in millions):

December 31, 2005	  	Beginning
Balance	 	 	Pretax Gain
(Loss)	 	 	Tax Benefit
(Expense)	 	 	Net of Tax
Amount	 	 	Ending
Balance	 	
Unrealized gains (losses) on investment securities	  	$	3.8	 	 	$	(3.4	)	 	$	1.2	 	 	$	(2.2	)	 	$	1.6	 	
Foreign currency translation adjustment	  	 	15.3	 	 	 	(7.2	)	 	 	2.4	 	 	 	(4.8	)	 	 	10.5	 	
Minimum pension liability	  	 	(79.1	)	 	 	7.6	 	 	 	(2.7	)	 	 	4.9	 	 	 	(74.2	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(60.0	)	 	$	(3.0	)	 	$	0.9	 	 	$	(2.1	)	 	$	(62.1	)	

December 31, 2004	  	Beginning
Balance	 	 	Pretax Gain
(Loss)	 	 	Tax Benefit
(Expense)	 	 	Net of Tax
Amount	 	 	Ending
Balance	 	
Unrealized gains (losses) on investment securities	  	$	6.8	 	 	$	(4.6	)	 	$	1.6	 	 	$	(3.0	)	 	$	3.8	 	
Foreign currency translation adjustment	  	 	13.6	 	 	 	2.7	 	 	 	(1.0	)	 	 	1.7	 	 	 	15.3	 	
Minimum pension liability	  	 	(65.5	)	 	 	(20.8	)	 	 	7.2	 	 	 	(13.6	)	 	 	(79.1	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(45.1	)	 	$	(22.7	)	 	$	7.8	 	 	$	(14.9	)	 	$	(60.0	)	

December 31, 2003	  	Beginning
Balance	 	 	Pretax Gain
(Loss)	 	 	Tax Benefit
(Expense)	 	 	Net of Tax
Amount	 	 	Ending
Balance	 	
Unrealized gains (losses) on investment securities	  	$	8.2	 	 	$	(2.1	)	 	$	0.7	 	 	$	(1.4	)	 	$	6.8	 	
Foreign currency translation adjustment	  	 	2.5	 	 	 	17.1	 	 	 	(6.0	)	 	 	11.1	 	 	 	13.6	 	
Minimum pension liability	  	 	(60.4	)	 	 	(7.9	)	 	 	2.8	 	 	 	(5.1	)	 	 	(65.5	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	(49.7	)	 	$	7.1	 	 	$	(2.5	)	 	$	4.6	 	 	$	(45.1	)	

14. Derivative Financial Instruments and Financial Statement Restatement
 
Western Union is exposed to risk relating to fluctuations in foreign currency exchange rates, primarily the euro, Swiss franc, British pound and Canadian dollar. Western Union utilizes longer term foreign currency forward contracts, generally with maturities of one year, to mitigate some of this risk. In addition, Western Union utilizes short-term foreign exchange forward contracts to offset foreign exchange rate fluctuations on settlement assets and settlement obligations. The Company’s policy is to minimize its exposure related to adverse changes in foreign currency exchange rates. The Company’s objective is to engage in risk management strategies that provide adequate downside protection.
 
The Company had intended to account for certain derivatives as cash flow hedges under SFAS No. 133. There are specific documentation requirements that must be met for derivatives to qualify as cash flow hedges pursuant to SFAS No. 133, which the Company previously believed were being met. However, the Company determined based on an evaluation of such documentation requirements that it did not have adequate documentation at the inception of its derivative agreements to qualify for hedge accounting. In addition, the Company determined that the Combined Financial Statements did not properly reflect translation gains and losses related to certain notes receivable from affiliates repayable in euros (Note 3) or the changes in fair value of certain related foreign currency swap agreements with First Data. Accordingly, the accompanying Combined
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Financial Statements as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 were previously restated and filed with the Securities and Exchange Commission to account for changes in the fair value of the Company’s foreign currency forward contracts in the Combined Statements of Income rather than accumulated other comprehensive income (loss) pursuant to SFAS No. 133 and record the translation of the euro denominated notes receivable from affiliates and the change in fair value of the related foreign currency swap agreements with First Data in the Combined Statements of Income. For all periods presented, the Company had no foreign currency derivatives that qualified as hedges under SFAS No. 133.
 
Western Union does not believe its derivative financial instruments expose it to more than a nominal amount of credit risk as the counterparties are established, well-capitalized financial institutions with credit ratings of “A” or better from major rating agencies. The credit risk inherent in these agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. Western Union performs a review at inception of the hedge, as circumstances warrant, and at least on a quarterly basis of the credit risk of these counterparties. Western Union also monitors the concentration of its contracts with any individual counterparty. Western Union anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. Western Union’s exposures are in liquid currencies so there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future.
 
The aggregate notional amount of foreign currency forward contracts held by the Company with external third parties as of the balance sheet dates (denominated in the respective foreign currency) are as follows (in millions):

 	  	December 31,	
 	  	2005	  	2004	
Euro	  	243.0	  	219.7	
British pound	  	27.7	  	26.7	
Swiss franc	  	18.2	  	—  	
Canadian dollar	  	35.9	  	30.8	
 
As of December 31, 2005 and 2004, the carrying value and fair value of Western Union’s foreign currency forward contracts with external third parties was an $18.3 million net asset and a $31.1 million net liability, respectively, which are included in the “other assets” and “other liabilities” captions in the accompanying Combined Balance Sheets.
 
The aggregate notional amount of foreign currency swap arrangements held by the Company with affiliates (Note 3) totaled 238.1 million euros at December 31, 2005. No such foreign currency swap arrangements existed at December 31, 2004. The fair market value of these swaps ($7.2 million asset as of December 31, 2005) will be settled in cash along with the related notes receivable in connection with the spin-off.
 
15. Stock Compensation Plans
 
Stock Options and Employee Stock Purchase Plan Rights
 
Western Union participates in the First Data plans that provide for the granting of stock options to employees and other key individuals who perform services for the Company. A total of 237.8 million shares of First Data common stock have been reserved for issuance under the plans and a total of 44.8 million and
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
34.4 million shares remain available for future grant at December 31, 2005 and June 30, 2006, respectively. The options have been issued at prices equivalent to or in excess of the fair market value of First Data common stock at the dates of grant, have 10-year terms and become exercisable in three or four equal annual increments beginning 12 months after the dates of grant. The requisite service period for stock options is the same as the vesting period, with the exception of retirement eligible employees who have shorter requisite service periods ending when the employees become retirement eligible. Compensation expense related to stock options is recognized over the requisite service period, except as discussed further below for certain options granted prior to the adoption of SFAS 123R (Note 2).
 
In October 1996, First Data instituted an employee stock purchase plan (“ESPP”) for which a total of 24.0 million First Data shares have been reserved for issuance, of which 7.0 million and 6.0 million shares remain available for future purchase at December 31, 2005 and June 30, 2006, respectively. Amounts accumulated through payroll deductions elected by eligible employees are used to make quarterly purchases of First Data common stock at a 15% discount from the lower of the market price at the beginning or end of the quarter. The fair value of these awards was recognized as compensation expense in the Combined Statements of Income for the six months ended June 30, 2006 in accordance with the provisions of SFAS 123R.
 
First Data received all cash proceeds and realized and retained all tax benefits related to the exercise of stock options and ESPP purchases by Western Union employees during all periods presented.
 
A summary of First Data stock option activity relating to Western Union employees for the years ended December 31, 2005, 2004 and 2003 is as follows (options in millions):

  	  	2005	  	2004	  	2003	
 	  	Options	 	 	Weighted-Average
Exercise Price	  	Options	 	 	Weighted-Average
Exercise Price	  	Options	 	 	Weighted-Average
Exercise Price	
Outstanding at January 1,	  	8.1	 	 	$	36	  	6.3	 	 	$	33	  	6.0	 	 	$	32	
Granted	  	0.5	 	 	 	40	  	3.2	 	 	 	40	  	1.6	 	 	 	35	
Exercised	  	(0.8	)	 	 	29	  	(0.6	)	 	 	26	  	(0.9	)	 	 	25	
Canceled	  	(0.4	)	 	 	39	  	(0.4	)	 	 	39	  	(0.6	)	 	 	35	
Net employee transfers from (to) other FDC businesses	  	0.5	 	 	 	35	  	(0.4	)	 	 	34	  	0.2	 	 	 	34	
	  	 	 	 			  	 	 	 			  	 	 	 			
Outstanding at December 31,	  	7.9	 	 	$	37	  	8.1	 	 	$	36	  	6.3	 	 	$	33	
	  	 	 	 			  	 	 	 			  	 	 	 			
Options exercisable at December 31,	  	7.0	 	 	$	37	  	2.5	 	 	$	31	  	1.8	 	 	$	26	

F-31

Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
A summary of First Data stock option activity relating to Western Union employees for the six months ended June 30, 2006 is as follows (options and aggregate intrinsic value in millions):

  	  	Six Months Ended June 30, 2006	
 	  	Options	 	 	Weighted-
Average
Exercise
Price	  	Weighted-
Average
Remaining
Contractual
Term	  	Aggregate
Intrinsic Value	
Outstanding at January 1,	  	7.9	 	 	$	37	  		  			
Granted	  	1.8	 	 	$	44	  		  			
Exercised	  	(1.5	)	 	$	36	  		  			
Net employee transfers from (to) other FDC businesses	  	(0.1	)	 	$	43	  		  			
	  	 	 	 			  		  			
Outstanding at June 30,	  	8.1	 	 	$	39	  	7 years	  	$	54.7	
	  	 	 	 			  		  			
Options exercisable at June 30,	  	6.0	 	 	$	37	  	7 years	  	$	50.2	

The total intrinsic value of stock options exercised by Western Union employees during the six months ended June 30, 2006 and 2005 was $16.2 million and $1.7 million, respectively.
 
The following summarizes information about First Data stock options outstanding at December 31, 2005 for Western Union employees (options in millions):

  	  	Options Outstanding	  	Options Exercisable	
Range of
Exercise Prices	  	Number
Outstanding
at 12/31/05	  	Weighted-
Average
Remaining
Contractual
Life	  	Weighted-
Average Exercise
Price	  	Number
Exercisable
at 12/31/05	  	Weighted-
Average
Exercise Price	
$12.02–$17.00	  	0.2	  	3	  	$	14	  	0.2	  	$	14	
$18.28–$22.44	  	0.3	  	4	  	$	22	  	0.3	  	$	22	
$24.06–$29.83	  	0.7	  	5	  	$	29	  	0.7	  	$	29	
$32.45–$35.95	  	1.4	  	7	  	$	34	  	1.3	  	$	34	
$36.04–$91.37	  	5.3	  	8	  	$	40	  	4.5	  	$	40	
	  	 	  		  			  	 	  			
	  	7.9	  	7	  	$	37	  	7.0	  	$	37	

Restricted Stock Awards and Restricted Stock Units
 
In February 2005, First Data awarded 50,000 shares of restricted stock to the Chief Executive Officer of Western Union. The stock award vests at 25% per year on the anniversary date of the grant if the Chief Executive Officer is still employed by First Data at the time. The fair value of the 2005 grant of $2.0 million was recorded based on the market value of the shares on the date of grant and is being amortized over four years.
 
In February 2004, First Data awarded 50,000 shares of restricted stock to the Chief Executive Officer of Western Union. The stock award vests if the Chief Executive Officer is still employed on the earlier of (i) February 25, 2009 or (ii) at any time after February 25, 2007 if on each trading day during the previous 30-day period the highest intra-day trading price of the First Data’s common stock on the New York Stock Exchange is
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
equal to or greater than $70.00 per share. The fair value of the 2004 grant of $2.0 million was recorded based on the market value of the shares on the date of grant and is being amortized over five years.
 
During the first quarter of 2006, First Data implemented a new incentive compensation plan for certain employees which provides for the issuance of restricted stock awards or restricted stock units upon the achievement of certain performance criterion. Once the performance criterion are met, which First Data currently deems probable, the awards will vest at 33% per year on the anniversary date of the grant. The fair value of the awards granted in February 2006 was measured based on the market value of the shares on the date of grant and is being amortized over three years.
 
A summary of First Data restricted stock award and restricted stock unit activity relating to Western Union employees for the six-month period ended June 30, 2006 is as follows (awards/units in millions):

  	  	Six Months Ended
June 30, 2006	
 	  	Number
Outstanding	  	Weighted-
Average
Grant-Date
Fair Value	
Non-vested at January 1,	  	0.1	  	$	40.45	
Granted	  	0.2	  	$	47.80	
Vested	  	—  	  	$	40.08	
Forfeited	  	—  	  	$	47.80	
	  	 	  			
Non-vested at June 30,	  	0.3	  	$	43.39	

Stock-Based Compensation
 
In December 2005, First Data accelerated vesting of all outstanding unvested stock options granted by First Data to its officers and employees under First Data’s 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 be recorded in future periods following the adoption of SFAS 123R, which became effective January 1, 2006. The Company recognized compensation expense of $1.8 million during the fourth quarter of 2005 resulting from accelerated vesting. The Company must recognize compensation expense related to any awards outside of the 2002 Long-Term Incentive Plan that are not fully vested as of January 1, 2006, as well as options granted after that date.
 
As discussed in Note 2, effective January 1, 2006, the Company adopted SFAS 123R following the modified prospective method. The following table sets forth total stock-based compensation expense (benefit) recognized in the noted line items of the Combined Statements of Income resulting from First Data stock options, restricted stock awards, restricted stock units, as well as ESPP rights for Western Union employees for the six month period ended June 30, 2006 (in millions):

  	  	Six Months ended
June 30,
2006	 	
Income before income taxes	  	$	6.1	 	
Income tax benefit from stock-based compensation expense	  	 	(1.8	)	
	  	 	 	 	
Net income	  	$	4.3	 	

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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
There was no stock-based compensation capitalized during the six months ended June 30, 2006.
 
For periods prior to the adoption of SFAS 123R, pro forma information regarding the Company’s net income is required by SFAS No. 123, “Accounting for Stock Based Compensation” (“SFAS 123”), as if the Company had accounted for its employee stock options under the fair value method prescribed by SFAS 123. The Company’s pro forma information for the six month period ended June 30, 2005 and the years ended December 31, 2005, 2004 and 2003 under SFAS 123, which reflects compensation expense equal to the fair value of the options, restricted stock awards and ESPP rights for Western Union Employees recognized over their vesting periods, is as follows (in millions):

  	  	Six Months
Ended
June 30,
2005	 	 	Year Ended December 31,	 	
 	  			 	2005	 	 	2004	 	 	2003	 	
Reported net income	  	$	451.6	 	 	$	927.4	 	 	$	751.6	 	 	$	633.7	 	
Restricted stock expense and effect of accelerated vesting included in reported net income, net of tax	  	 	0.2	 	 	 	1.9	 	 	 	—  	 	 	 	—  	 	
SFAS No. 123 expense, net of tax	  	 	(8.2	)	 	 	(37.7	)	 	 	(14.9	)	 	 	(14.1	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pro forma net income	  	$	443.6	 	 	$	891.6	 	 	$	736.7	 	 	$	619.6	 	

Certain of the Company’s employee stock-based compensation awards have terms that provide for vesting to continue after retirement. Prior to the adoption of SFAS 123R, the Company accounted for this type of arrangement by recognizing pro forma compensation cost over the stated vesting period for the SFAS 123 pro forma disclosures. Upon adoption of SFAS 123R, compensation cost is being recognized over a shorter period that ends with retirement eligibility. The impact of applying SFAS 123R requirements for accelerated expense recognition would have impacted pro forma SFAS 123 compensation expense, net of tax, by benefits of $0.2 million and $1.7 million during the six-month period ended June 30, 2005 and year ended December 31, 2005, respectively, and charges of $1.0 million and $0.7 million for the years ended December 31, 2004 and 2003, respectively.
 
As of June 30, 2006, there was $14.9 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of four years. As of June 30, 2006, there was $10.3 million of total unrecognized compensation cost related to non-vested restricted stock awards and restricted stock units which is expected to be recognized over a weighted-average period of 3 years.
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The fair value for First Data stock options and ESPP rights granted to Western Union employees for the six months ended June 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003 was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

 	  	Six Months ended
June 30,	 	 	Year ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
Stock Options Granted:	  			 			 			 			 			
Weighted average risk-free interest rate	  	4.61	%	 	4.01	%	 	4.14	%	 	3.25	%	 	2.95	%	
Weighted average dividend yield	  	0.58	%	 	0.57	%	 	0.58	%	 	0.20	%	 	0.22	%	
Volatility	  	23.6	%	 	34.8	%	 	32.7	%	 	30.5	%	 	37.0	%	
Expected term (in years)	  	5.0	 	 	6.0	 	 	6.0	 	 	5.0	 	 	5.0	 	
Weighted average fair value	  	$12	 	 	$16	 	 	$15	 	 	$13	 	 	$13	 	
						
ESPP:	  			 			 			 			 			
Weighted average risk-free interest rate	  	4.77	%	 	2.62	%	 	3.12	%	 	1.69	%	 	2.89	%	
Weighted average dividend yield	  	0.56	%	 	0.58	%	 	0.58	%	 	0.20	%	 	0.22	%	
Volatility	  	23.0	%	 	19.0	%	 	19.1	%	 	20.5	%	 	35.9	%	
Expected term (in years)	  	0.25	 	 	0.25	 	 	0.25	 	 	0.25	 	 	0.25	 	
Weighted average fair value	  	$  9	 	 	$  8	 	 	$  8	 	 	$  8	 	 	$  7	 	
 
Expected volatility —Prior to 2006, the Company used historical volatility to estimate the grant-date fair value of stock options and ESPP rights. The Company changed its method of estimating expected volatility for all stock options granted and ESPP rights after January 1, 2006 to implied volatility. The change in assumption, made in conjunction with the adoption of SFAS 123R, is expected to result in a more accurate estimate of the grant-date fair value of employee stock options. The Company calculates implied volatility on a daily basis using a Black-Scholes option pricing model. This calculation incorporates the market prices of a variety of traded options, the market price of the Company’s stock, the exercise price and remaining term of the traded options, the expected dividends, and the risk-free rate. The traded options used are similar in exercise price to awards granted to employees, are near-the-money, and typically have a remaining maturity of greater than one year. For each grant, the Company uses the average of the daily implied volatilities for the six months preceding the grant date. Using implied volatility versus historical volatility to value the stock options granted in the six months ended June 30, 2006 resulted in a decrease in the total grant-date fair value, to be recognized over the requisite service period, of approximately $4.6 million.
 
Expected dividend yield —The dividend yield is the calculation of a rolling 12-month average First Data stock price divided by the annualized First Data dividend rate of $0.24 as of June 30, 2006.
 
Expected term —The Company has aggregated stock option awards into classes. For each class, the expected term is primarily based on the results of a study performed on the historical exercise and post-vesting employment termination behavior for similar grants. The expected terms are as follows: 4.5 year life for employees (Non-Board of Directors, Non-Executive Committee), 7 year life for the Board of Directors and 7.5 year life for the Executive Committee. The expected term of ESPP rights is determined to be 0.25 years as purchase rights are achieved over the course of the quarter in which the employee participates in the ESPP. Once the shares have been purchased, the employee can sell their respective shares.
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Risk-free interest rate —The risk-free rate for stock options granted during the period is determined by using a zero-coupon U.S. Treasury rate for the period that coincides with the expected terms listed above. The risk-free rate for ESPP rights is determined by using a 3-month maturity U.S. Treasury bond rate for the 90 day period that coincides with the expected terms listed above.
 
16. Segment Information
 
The Company classifies its businesses into two reportable segments: consumer-to-consumer and consumer-to-business (Note 1). Operating segments are defined by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information,” as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.
 
The consumer-to-consumer reporting segment is viewed as one global network where a money transfer can be sent from one location to another, anywhere in the world. The segment is managed as three regions, primarily to coordinate agent network management and marketing activities. The Company’s CODM makes decisions regarding resource allocation and monitors performance based on specific corridors within and across these regions, but also reviews total revenue and operating profit of each region. Each region and corridor offer the same services distributed by the same agent network, have the same types of customers, are subject to similar regulatory requirements, are processed on the same system, and have similar economic characteristics, allowing the geographic regions to be aggregated into one reporting segment. 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 the United States and other countries in the fourth quarter.
 
All businesses that have not been classified into consumer-to-consumer or consumer-to-business, primarily the Company’s money order business and prepaid services, are reported as “Other.” The Company previously operated internet auction payments, messaging and international prepaid cellular top-up businesses. These three businesses, representing aggregated revenues in 2005, 2004 and 2003 of $28.9 million, $35.4 million and $38.1 million, respectively, and operating loss before taxes of $16.2 million, $8.2 million and $1.4 million, respectively, were shut down or sold in 2005 and early 2006. Due to the immaterial nature of these three businesses, they have not been presented separately as discontinued operations.
 
The Company’s reportable segments are reviewed separately below because each reportable segment represents a strategic business unit that offers different products and serves different markets. The business segment measurements provided to, and evaluated by, the Company’s CODM are computed in accordance with the following principles:
 
 	•	 	The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.	
 
 	•	 	Segment revenue includes intersegment revenue.	
 
 	•	 	Corporate overhead is allocated to the segments based on a percentage of each segment’s revenue.	
 
 	•	 	Costs incurred to effect the spin-off are not allocated to the segments.	
 
 	•	 	Excluded all items not included in operating income.	
 
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Table of Contents
THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
The following tables present the Company’s reportable segment results for the six month periods ended June 30, 2006 and 2005 and the years ended December 31, 2005, 2004 and 2003, respectively (in millions):

  	  	Six Months Ended
June 30,	 	 	Year Ended December 31,	 	
 	  	2006	 	 	2005	 	 	2005	 	 	2004	 	 	2003	 	
 	  	(unaudited)	 	 	 	 	 	 	 	 	 	 	
Revenues:	  				 				 				 				 				
Consumer-to-Consumer:	  				 				 				 				 				
External revenue	  				 				 				 				 				
Transaction fees	  	$	1,469.4	 	 	$	1,290.0	 	 	$	2,724.0	 	 	$	2,390.9	 	 	$	2,050.8	 	
Foreign exchange revenue	  	 	308.9	 	 	 	248.0	 	 	 	529.6	 	 	 	448.3	 	 	 	379.7	 	
Other revenues	  	 	15.5	 	 	 	11.3	 	 	 	25.6	 	 	 	22.5	 	 	 	23.4	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	1,793.8	 	 	 	1,549.3	 	 	 	3,279.2	 	 	 	2,861.7	 	 	 	2,453.9	 	
Consumer-to-Business:	  				 				 				 				 				
External revenue	  				 				 				 				 				
Transaction fees	  	 	297.7	 	 	 	279.8	 	 	 	565.0	 	 	 	545.4	 	 	 	553.7	 	
Foreign exchange revenue	  	 	0.7	 	 	 	0.6	 	 	 	1.4	 	 	 	1.3	 	 	 	1.2	 	
Other revenues	  	 	17.9	 	 	 	15.9	 	 	 	33.8	 	 	 	29.6	 	 	 	31.2	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	316.3	 	 	 	296.3	 	 	 	600.2	 	 	 	576.3	 	 	 	586.1	 	
Other:	  				 				 				 				 				
External revenue	  				 				 				 				 				
Transaction fees	  	 	24.5	 	 	 	34.4	 	 	 	65.8	 	 	 	69.8	 	 	 	74.5	 	
Commission and other revenues	  	 	22.0	 	 	 	20.4	 	 	 	42.7	 	 	 	39.8	 	 	 	37.1	 	
Internal revenue	  	 	0.9	 	 	 	2.7	 	 	 	5.2	 	 	 	6.0	 	 	 	1.5	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	47.4	 	 	 	57.5	 	 	 	113.7	 	 	 	115.6	 	 	 	113.1	 	
Eliminations	  	 	(0.9	)	 	 	(2.7	)	 	 	(5.2	)	 	 	(6.0	)	 	 	(1.5	)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	$	2,156.6	 	 	$	1,900.4	 	 	$	3,987.9	 	 	$	3,547.6	 	 	$	3,151.6	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income:	  				 				 				 				 				
Consumer-to-Consumer	  	$	516.6	 	 	$	495.0	 	 	$	1,047.9	 	 	$	886.5	 	 	$	765.2	 	
Consumer-to-Business	  	 	112.2	 	 	 	112.0	 	 	 	220.4	 	 	 	219.5	 	 	 	230.0	 	
Other	  	 	10.3	 	 	 	5.6	 	 	 	0.9	 	 	 	6.1	 	 	 	7.8	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating income	  	$	639.1	 	 	$	612.6	 	 	$	1,269.2	 	 	$	1,112.1	 	 	$	1,003.0	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	  				 				 				 				 				
Consumer-to-Consumer	  	$	4,258.2	 	 	$	2,987.0	 	 	$	3,774.0	 	 	$	2,548.0	 	 	$	2,330.8	 	
Consumer-to-Business	  	 	535.8	 	 	 	568.6	 	 	 	587.0	 	 	 	565.8	 	 	 	504.4	 	
Other	  	 	201.6	 	 	 	214.9	 	 	 	245.4	 	 	 	216.4	 	 	 	194.7	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	4,995.6	 	 	$	3,770.5	 	 	$	4,606.4	 	 	$	3,330.2	 	 	$	3,029.9	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization:	  				 				 				 				 				
Consumer-to-Consumer	  	$	37.7	 	 	$	25.7	 	 	$	54.0	 	 	$	51.4	 	 	$	49.4	 	
Consumer-to-Business	  	 	9.2	 	 	 	10.1	 	 	 	19.8	 	 	 	21.2	 	 	 	23.4	 	
Other	  	 	2.2	 	 	 	3.2	 	 	 	5.7	 	 	 	6.6	 	 	 	5.6	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	49.1	 	 	$	39.0	 	 	$	79.5	 	 	$	79.2	 	 	$	78.4	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures:	  				 				 				 				 				
Consumer-to-Consumer	  	$	100.7	 	 	$	13.8	 	 	$	48.3	 	 	$	31.6	 	 	$	70.2	 	
Consumer-to-Business	  	 	10.8	 	 	 	4.5	 	 	 	12.7	 	 	 	12.8	 	 	 	24.7	 	
Other	  	 	2.9	 	 	 	1.4	 	 	 	4.0	 	 	 	5.1	 	 	 	4.9	 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	114.4	 	 	$	19.7	 	 	$	65.0	 	 	$	49.5	 	 	$	99.8	 	

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THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
Information concerning principal geographic areas was as follows (in millions):

 	  	Year Ended December 31,	
 	  	2005	  	2004	  	2003	
Revenue:	  			  			  			
United States	  	$	1,842.7	  	$	1,708.3	  	$	1,640.7	
International	  	 	2,145.2	  	 	1,839.3	  	 	1,510.9	
	  	 	 	  	 	 	  	 	 	
Total	  	$	3,987.9	  	$	3,547.6	  	$	3,151.6	
	  	 	 	  	 	 	  	 	 	
Long-lived assets:	  			  			  			
United States	  	$	73.4	  	$	64.0	  	$	70.7	
International	  	 	9.0	  	 	6.7	  	 	9.0	
	  	 	 	  	 	 	  	 	 	
Total	  	$	82.4	  	$	70.7	  	$	79.7	

The geographic split of revenue above has been determined based upon the country where a money transfer is initiated and the country where a money transfer is paid with revenue being split 50% between the two countries. Long-lived assets, consisting of “Property and equipment, net,” are presented based upon the location of the assets.
 
A majority of Western Union’s consumer-to-consumer transactions involve at least one non-United States location. Based on the method used to attribute revenue between countries described in the paragraph above, no individual country outside the United States accounted for more than 10% of segment revenue for the six months ended June 30, 2006 or the years ended December 31, 2005, 2004 and 2003. In addition, no individual agent or biller accounted for greater than 10% of consumer-to-consumer or consumer-to-business segment revenue, respectively, during these periods.
 
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THE WESTERN UNION COMPANY
 
NOTES TO COMBINED FINANCIAL STATEMENTS—(Continued)
 
Six Months Ended June 30, 2006 and 2005 (unaudited) and
the Years Ended December 31, 2005, 2004 and 2003
 
17. Quarterly Financial Information (Unaudited)
 
Summarized quarterly results for the six months ended June 30, 2006 and the years ended December 31, 2005 and 2004 are as follows (in millions):

2006 by Quarter:	  	Q1	  	Q2	 	
Revenues	  	$	1,043.0	  	$	1,113.6	 	
Expenses	  	 	730.3	  	 	787.2	 	
Other income, net	  	 	12.2	  	 	(2.6	)	
	  	 	 	  	 	 	 	
Income before income taxes	  	 	324.9	  	 	323.8	 	
Income tax expense	  	 	105.1	  	 	104.9	 	
	  	 	 	  	 	 	 	
Net income	  	$	219.8	  	$	218.9	 	

																			
2005 by Quarter:	  	Q1	  	Q2	  	Q3	 	 	Q4	 	 	Year Ending
December 31,
2005	 	
Revenues	  	$	919.6	  	$	980.8	  	$	1,019.3	 	 	$	1,068.2	 	 	$	3,987.9	 	
Expenses	  	 	624.0	  	 	663.8	  	 	676.6	 	 	 	754.3	 	 	 	2,718.7	 	
Other income, net	  	 	20.1	  	 	21.9	  	 	8.6	 	 	 	24.3	 	 	 	74.9	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	315.7	  	 	338.9	  	 	351.3	 	 	 	338.2	 	 	 	1,344.1	 	
Income tax expense	  	 	97.9	  	 	105.1	  	 	109.4	 	 	 	104.3	 	 	 	416.7	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	217.8	  	$	233.8	  	$	241.9	 	 	$	233.9	 	 	$	927.4	 	

2004 by Quarter:	  	Q1	  	Q2	  	Q3	 	 	Q4	 	 	Year Ending
December 31,
2004	 	
Revenues	  	$	829.3	  	$	866.6	  	$	903.5	 	 	$	948.2	 	 	$	3,547.6	 	
Expenses	  	 	568.8	  	 	599.3	  	 	601.7	 	 	 	665.7	 	 	 	2,435.5	 	
Other income (expense), net	  	 	0.7	  	 	2.4	  	 	(1.4	)	 	 	(15.2	)	 	 	(13.5	)	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	261.2	  	 	269.7	  	 	300.4	 	 	 	267.3	 	 	 	1,098.6	 	
Income tax expense	  	 	82.5	  	 	85.2	  	 	94.9	 	 	 	84.4	 	 	 	347.0	 	
	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	178.7	  	$	184.5	  	$	205.5	 	 	$	182.9	 	 	$	751.6	 	

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 THE WESTERN UNION COMPANY
SCHEDULE II—Valuation and Qualifying Accounts
(Dollars in Millions)

Description	  	Balance at
Beginning
of Year	  	Charged to
Costs and
Expenses	  	Deductions	 	 	Balance at
End of Year	
Allowance for doubtful accounts for the years ended:	  			  			  				 			
December 31, 2005	  	$	13.3	  	$	16.1	  	$	(21.0	)	 	$	8.4	
December 31, 2004	  	$	16.3	  	$	13.6	  	$	(16.6	)	 	$	13.3	
December 31, 2003	  	$	18.9	  	$	13.7	  	$	(16.3	)	 	$	16.3	
 
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PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13. Other Expenses of Issuance and Distribution
 
The following table sets forth the costs and expenses payable by the registrant in connection with the issuance of the securities being registered. All amounts are estimates except the Securities and Exchange Commission registration fee.

Item	  	Amount	
Securities and Exchange Commission registration fee	  	$	10,005	
Legal fees and expenses	  	 	50,000	
Accounting fees and expenses	  	 	50,000	
Printing expenses	  	 	40,000	
	  	 	 	
Total	  	$	150,005	
 
Item 14. Indemnification of Directors and Officers
 
The registrant’s certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable to the corporation or its stockholders for monetary damages for breach of their fiduciary duties as directors, except for liability:
 
 	•	 	for any breach of their duty of loyalty to the corporation or its stockholders;	
 
 	•	 	for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;	
 
 	•	 	under Section 174 of the Delaware General Corporation Law relating to unlawful payments of dividends or unlawful stock repurchases or redemptions; or	
 
 	•	 	for any transaction from which the director derived an improper personal benefit.	
 
The limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies, such as injunctive relief or rescission.
 
The registrant’s certificate of incorporation provides that each person who was or is a director shall be indemnified to the fullest extent permitted by Delaware law and further provides that the registrant may, to the extent deemed appropriate by the registrant’s board of directors and as authorized under Delaware law, indemnify any officers, employees and agents of the registrant. The registrant’s by-laws provide that each person who is, or was, an officer or employee of the registrant, and each person who is, or was, serving at the registrant’s request as an officer or employee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, will be indemnified by the registrant, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interest of the registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The registrant’s certificate of incorporation provides that this right to indemnification will not be exclusive of any other right which any person may otherwise have or acquire. The registrant’s certificate of incorporation also permits the registrant to secure and maintain insurance on behalf of any director, officer, employee or agent of the registrant and each person who is, or was, serving at the registrant’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against and incurred by such person in any such capacity.
 
The registrant intends to obtain directors’ and officers’ liability insurance providing coverage to its directors and officers. In addition, the registrant intends to enter into indemnification agreements with each of the
 
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registrant’s outside directors that will require the registrant to indemnify and hold harmless each outside director to the fullest extent permitted or authorized by the Delaware General Corporation Law in effect on the date of the agreement or as such laws may be amended or replaced to increase the extent to which a corporation may indemnify its directors.
 
The separation and distribution agreement between the registrant and First Data Corporation (“First Data”) is expected to provide for indemnification by First Data of the registrant’s directors and officers and employees for certain liabilities, including liabilities under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, related to filings in connection with the spin-off of the registrant from First Data.
 
Item 15. Recent Sales of Unregistered Securities
 
On May 31, 2006 the registrant issued 100 shares of its common stock, par value $0.01 per share, to First Data for an aggregate consideration of $1.00 paid to the registrant by First Data. That issuance was not registered under the Securities Act of 1933, as amended, in reliance on the exemption provided by Section 4(2) of such Act.
 
Item 16. Exhibits and Financial Statement Schedules
 
(a)	Exhibits	
 
See Exhibit Index.
 
(b)	Financial Statement Schedules	
 
Financial statement schedule II is included on page F-40. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required, are not applicable or the information is included in the financial statements or notes thereto.
 
Item 17. Undertakings
 
The undersigned registrant hereby undertakes:
 
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
 
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
 
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
 
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
 
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
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(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
 
(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
 
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
 
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
 
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
 
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
 
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Englewood, State of Colorado, on September 26, 2006.

THE WESTERN UNION COMPANY
(Registrant)	
		
By:	 	/s/    C HRISTINA A. G OLD	
	 	Christina A. Gold
President and Chief Executive Officer	
 
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on September 26, 2006.

Name	  	Title	
		
/s/    C HRISTINA A. G OLD	  	President and Chief Executive Officer and Director (Principal Executive Officer)	
Christina A. Gold	  		
		
*	  	Executive Vice President, Finance and Strategic Development (Co-Principal Financial Officer)	
David Barnes	  		
		
*	  	Senior Vice President, Chief Accounting Officer
and Controller (Principal Accounting Officer)	
Amintore Schenkel	  		
		
*
Scott Scheirman	  	Executive Vice President and Chief Financial Officer and Director (Co-Principal Financial Officer)	

		
*By: 	 	/s/    M ICHAEL R ODIN        	
	 	Michael Rodin, as Attorney-in-fact	
 
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EXHIBIT INDEX

Exhibit
No.	  	Description	
		
2.1	  	Form of Separation and Distribution Agreement (filed as Exhibit 2.1 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
3.1	  	Form of Amended and Restated Certificate of Incorporation of The Western Union Company (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
3.2	  	Form of Amended and Restated By-laws of The Western Union Company (filed as Exhibit 3.2 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
5.1	  	Opinion of Sidley Austin LLP.	
		
10.1	  	Form of Tax Allocation Agreement (filed as Exhibit 10.1 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.2	  	Form of Employee Matters Agreement (filed as Exhibit 10.2 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.3	  	Form of Transition Services Agreement (filed as Exhibit 10.3 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.4	  	Form of Patent Ownership Agreement (filed as Exhibit 10.4 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.5	  	Form of Retail Money Order Issuance and Management Services Agreement (filed as Exhibit 10.5 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.6	  	Form of The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.6 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.7	  	Form of The Western Union Company Executive Severance Plan (filed as Exhibit 10.7 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.8	  	Form of The Western Union Company Supplemental Incentive Savings Plan (filed as Exhibit 10.8 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.9	  	Form of The Western Union Company 2006 Non-Employee Director Equity Compensation Plan (filed as Exhibit 10.9 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.10	  	Form of Director Indemnification Agreement (filed as Exhibit 10.10 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.11	  	Employment Agreement, dated as of January 30, 2004, between Western Union Hong Kong Limited and Ian Marsh (filed as Exhibit 10.11 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.12	  	Employment Agreement, dated as of April 29, 1999, between Western Union Financial Services GmbH and Hikmek Ersek (filed as Exhibit 10.12 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
 
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Exhibit
No.	  	Description	
		
10.13	  	Form of The Western Union Company Grandfathered Supplemental Incentive Savings Plan (filed as Exhibit 10.13 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.14	  	Form of The Western Union Company Non-Employee Director Deferred Compensation Plan (filed as Exhibit 10.14 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
10.15	  	Form of The Western Union Company Senior Executive Incentive Plan (filed as Exhibit 10.15 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
21.1	  	Subsidiaries of The Western Union Company (filed as Exhibit 21.1 to the Company’s Registration Statement on Form 10 (file no. 001-32903) and incorporated herein by reference thereto).	
		
23.1	  	Consent of Independent Registered Public Accounting Firm.	
		
23.2	  	Consent of Sidley Austin LLP (included in the opinion filed as Exhibit 5.1 to this Registration Statement).	
		
24.1*	  	Powers of Attorney (contained in the signature page to this Registration Statement).	
		
99.1*	  	Consent of Jack M. Greenberg to being named as a director.	
		
99.2*	  	Consent of Dinyar S. Denitre to being named as a director.	
		
99.3*	  	Consent of Betsy D. Holden to being named as a director.	
		
99.4*	  	Consent of Alan J. Lacy to being named as a director.	
		
99.5*	  	Consent of Linda Fayne Levinson to being named as a director.	
		
99.6*	  	Consent of Roberto G. Mendoza to being named as a director.	
		
99.7*	  	Consent of Michael A. Miles to being named as a director.	
		
99.8*	  	Consent of Lord Dennis Stevenson to being named as a director.	

*	Previously filed.	
 
II-6
 
Exhibit 5.1

	 	SIDLEY AUSTIN LLP
ONE SOUTH DEARBORN
CHICAGO, IL 60603
(312) 853 7000
(312) 853 7036 FAX	  	BEIJING
BRUSSELS
CHICAGO
DALLAS
FRANKFURT	 	GENEVA
HONG KONG
LONDON
LOS ANGELES
NEW YORK	  	SAN FRANCISCO
SHANGHAI
SINGAPORE
TOKYO
WASHINGTON, DC	
					
	 		  	FOUNDED 1866	 		  		
 
September 26, 2006
 
The Western Union Company
12500 East Belford Avenue
Englewood, CO 80112
 
Re:	22,000,000 Shares of Common Stock, par value $0.01 per share	
 
Ladies and Gentlemen:
 
We refer to the Registration Statement on Form S-1 (the “Registration Statement”) filed by The Western Union Company, a Delaware corporation (the “Company”), with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”), relating to the registration of an aggregate of 22,000,000 shares of Common Stock, par value $0.01 per share, of the Company (the “Plan Shares”) to be issued under The Western Union Company 2006 Long-Term Incentive Plan (the “Plan”).
 
In rendering this opinion letter, we have examined and relied upon a copy of the Registration Statement and the exhibits filed therewith (including the Plan). We have also examined and relied upon originals, or copies of originals certified to our satisfaction, of such agreements, documents, certificates and statements of governmental officials and other instruments, and have examined such questions or law and have satisfied ourselves as to such matters of fact, as we have considered relevant and necessary as a basis for this opinion letter. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of all natural persons and the conformity with the original documents of any copies thereof submitted to us for our examination.
 
Based on the foregoing, and subject to the qualifications and limitations hereinafter set forth, we are of the opinion that:
 
1. The Company is duly incorporated and validly existing under the laws of the State of Delaware.
 
2. Each Plan Share that is newly issued under the Plan will be legally issued, fully paid and nonassessable when (i) the Plan shall have been duly approved by the Company’s Board of Directors and the sole stockholder of the Company; (ii) the Registration Statement shall have become effective under the Securities Act; (iii) the Company’s Board of Directors or a duly authorized committee thereof shall have duly adopted final resolutions authorizing the issuance and sale of such Plan Share as contemplated by the Plan; and (iv) such Plan Share shall have been duly delivered upon payment of the agreed consideration therefor (not less than the par value thereof) determined in accordance with the terms of the Plan.
 
Sidley Austin LLP is a limited liability partnership practicing in affiliation with other Sidley Austin partnerships

 
The Western Union Company
September 26, 2006
Page 2
 
This opinion letter is limited to the General Corporation Law of the State of Delaware.
 
We do not find it necessary for the purposes of this opinion letter to cover, and accordingly we express no opinion as to, the application of the securities or “blue sky” laws of the various states or the District of Columbia to the issuance or sale of the Plan Shares.
 
We hereby consent to the filing of this opinion letter as an Exhibit to the Registration Statement and to all references to our firm included in or made a part of the Registration Statement or related prospectus. In giving such consent, we do not thereby admit that we are within the category of persons for whom consent is required by Section 7 of the Securities Act or the related rules promulgated by the SEC thereunder.
 
Very truly yours,
 
/s/ Sidley Austin LLP
 
EXHIBIT 23.1
 
Consent of Independent Registered Public Accounting Firm
 
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated June 1, 2006, except for Note 14, as to which the date is August 22, 2006, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-137322) and related Prospectus of The Western Union Company for the registration of shares of its common stock to be issued upon the exercise of certain options to purchase shares of its common stock pursuant to The Western Union Company 2006 Long-Term Incentive Plan.
 
/s/ Ernst & Young LLP
 
Denver, Colorado
September 26, 2006