西聯匯款 (WU) 2006 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fourth Quarter 2006 Western Union Earnings Conference Call. My name is [Minosha] and I will be your coordinator for today. [Operator Instructions].

I would now like to turn the presentation over to your host for today's call, Mr. Gary Kohn, Vice President, Investor Relations. Please go ahead sir.

Thank you Minosha. Good morning everybody. Welcome to our fourth quarter earnings call and thank you for joining us. With me today, as always, are Christina Gold, Chief Executive Officer, David Barnes, our Executive Vice President of Finance and Strategic Development, and Scott Scheirman, EVP and CFO.

The agenda for today's call is going to be this -- first, Christina will be discussing the current state of our business, then David will provide an update on our strategic initiatives, Scott will take you through the numbers and provide updates on key financial assumptions related to the '07 guidance, and as always we'll have time for Q&A at the end.

As a reminder, today's call is being recorded. Our comments today include forward-looking statements and I ask that you refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission, including the Information Statement contained in the Western Union Company Form 10 and the third quarter 2006 10-Q, for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

During the call we will discuss items that do not conform to generally accepted accounting principals. We have reconciled those non-GAAP measures to GAAP measures on WesternUnion.com under the Investor Relations section.

Just as a reminder, all statements made by Western Union officers on this call are the property of the Western Union Company and subject to copyright protection. Other than the replay, Western Union is not authorized and disclaims responsibility for any recording, replay, or distribution of any transcription of this call.

With that, it is my great pleasure to turn the call over to our President and CEO, Christina Gold.

Thank you Gary and welcome. I would like to thank everyone for joining us on the call today. The fourth quarter concluded an eventful year for Western Union. We are extremely pleased to have completed the spin successfully, and even more excited to have delivered financial results that are in line with the guidance we shared with you back in September.

Full year revenue was $4.5 billion -- up 12%. We handled nearly 150 million consumer-to-consumer money transfers, 24% more than last year, and generated cash flow in excess of $1.1 billion. These accomplishments are the direct result of the outstanding employees and agents that are part of the Western Union team and I thank them.

We have an exceptional business. The markets that we serve are extremely attractive. Demand for money transfer service around the globe is strong and growing. It is driven by global economic growth and strong migration trends. Western Union is a clear leader in this market and our growth continues to outpace the market. We now have a 17.4% share of the estimated $269 billion global cross boarder remittance market -- up from 10% in 2003.

We remain committed to making Western Union a unique global company. The investments we have made in prior years around the globe in our brand and distribution network are paying off nicely.

We have built the industry-leading network, which is now nearly 300,000 agent locations strong. We are unmatched in our ability to connect almost every country in the world with every other country.

The Western Union brand is among the most recognizable in the world and represents speed, trust, reliability, and convenience to consumers everywhere.

People choose our services because they can find a location that crosses their daily path and is open at the hours they need. Consumers trust Western Union, Orlandi Valuta, and Vigo to send their family's crucial financial resources and they know that their cash will arrive on the other end safely and quickly every time.

Bringing this level of convenience and service to our consumers has driven many years of strong growth, and more importantly it will provide sustainable growth into the future.

Our relationship with our consumers is very important to our business and it is built on trust. During the past year that relationship was tested by specific events in the United States. Immigration related activities across the U.S., and money transfer seizures required by Arizona State authorities caused some of our customers to question their trust in Western Union. We are very pleased to have obtained a very positive court ruling in Arizona in January. We can now focus even more keenly on rebuilding Western Union's strong brand attributes -- speed, trust, reliability, and convenience -- and ensuring our customers' do not face unnecessary and unfair disruptions.

However, these challenges created implications for our domestic, our U.S. to Mexico, and to a lesser extent our U.S. outbound transaction growth rates. Additionally, in Q4 we saw broader market softness within the U.S. marketplace.

When we issued 2007 guidance last year, we articulated our expectation that the Mexico and domestic businesses would stabilize and begin to improve in the second quarter. There are many things we did and are doing differently in the Mexico and domestic businesses to bring customers to the brand. These efforts fall into four distinct buckets -- distribution, promotions and advertising, pricing and FX, and community outreach. I'd like to highlight for you specific actions we have taken in each of these areas.

First, in the area of distribution we continue to build on our already strong network adding more than 500 agent locations throughout Mexico in Q4. Between our three brands there are now more than 12,000 agent locations in Mexico, and 7500 of those locations offer the Western Union Black and Yellow.

We are also now offering all three brands at both Banamex and Electra in Mexico.

Second, in the fourth quarter we invested in two new advertising and promotional campaigns. In support of the U.S. to Mexico corridor we launched a national media campaign featuring special pricing for the December holiday season. Advertising ran on the Univision and Telemondo networks reaching an audience of more than 12.5 million Hispanic adults in the United States.

Our growth trends in the U.S. to Mexico corridor improved in December compared to the first two months of the quarter, giving us confidence in the effectiveness of this campaign and other initiatives. In fact, fourth quarter Mexico organic transaction growth was 4% including Vigo from October 21, in both years.

We will be making similar investments and running similar promotions around important holidays throughout this year.

Simultaneously, we rolled out a new brand building campaign focused on Hispanic consumers in the United States. The theme of this advertising is Confianza, the Spanish word which embodies confidence and trust. This campaign also ran on the major Spanish networks and was supported by media spending.

In 2007, and especially in the first half of the year, we will continue to invest aggressively in support of the Mexico and domestic businesses with investments in TV, radio, and print.

Third, we have taken a number of steps to improve our competitiveness in our domestic and U.S. outbound corridor. For example, we have made targeted reductions in FX spreads and consumer fees in select markets in the United States. We have also initiated various tests of price and service offerings in our domestic money transfer business.

We continue to use Orlandi Valuta and Vigo brands to meet the needs of different consumer segments. We anticipate that our global pricing investment will be approximately 3% of revenues in 2007, a level consistent with 2006.

Our price reductions will continue to be targeted based on our assessment of local markets and competitive factors.

And finally, we are very focused on consumer and grass roots community outreach both in the United States and in Mexico. We are working hard at a local level to reach the Hispanic consumers. The input that we have received for more than 30 immigrant leaders representing key states within the US and Mexico regarding the Arizona ruling has been very positive and complimentary of Western Union.

We are recognized for fighting for the rights of our customers. The office of Mexico's ambassador to the United States has echoed these positive sentiments.

As an example of our grass roots initiatives, I recently took a trip to Zacatecas, Mexico, to meet with the governor to launch a program to promote job creation and improve economic conditions in Mexico. There were several hundred local residents, government officials, and media representatives there as well.

Other Mexican states in key remittance corridors are interested in participating in similar programs and we are exploring these possibilities.

We have also just begun a 10-city media tour, emphasizing the philanthropic activities towards the Mexican Hispanic community.

These are just a few examples of what we are doing to reinvigorate the Mexico and domestic businesses. While we have much more progress to make in these corridors, we are committed to continuing to invest throughout 2007 and especially in the first half, and anticipate we will see improved transaction trends beginning in the second quarter.

I want to be sure to highlight a very strong characteristic of Western Union. We have an extremely balanced portfolio of businesses. While the domestic and Mexico markets have recently garnered a lot of attention, I would like to reiterate that nearly 80% of total revenue comes from other markets and channels. This revenue diversity is a strength unique to Western Union in our marketplace. The international business has grown transactions at a 26% compounded annual growth rate since 2001.

To achieve this consistent growth we continue to invest in locations and brand awareness in important international markets. In India we saw transactions nearly double from the fourth quarter 2005. In China, another important market, we delivered 30 plus percent transaction growth in the fourth quarter.

We are celebrating a lot of significant milestones around the world this year. I was just in France commemorating our tenth anniversary of working with La Poste. To mark the occasion we extended the relationship an additional five years.

Later in the first quarter we will dedicate our 300,000th agent location, which is in India. We just opened our 4000th agent location in the United Kingdom. And we just renewed our agreements with Agricultural Bank of China, Paul Merchant, and Weizmann Forex in India.

We now have Travelex Western Union agent locations in 18 countries and the performance of this relationship continues to exceed our expectations. We formed new relationships this year including one with GE Money in Austria and Switzerland.

Driven by an outstanding team and world-class agents, the international consumer-to-consumer business has continued its strong performance and has helped ensure that we meet our financial targets.

We took a significant step toward our goal of growing our consumer-to-business segment outside of the U.S. through our acquisition of SEPSA, which was completed in December 2006 for $70 million.

SEPSA is the largest walk-in bill payment company in Argentina and operates under the well-known Pago Facil brand. The consumer-to-business segment, which represents nearly 15% of total revenue, increased 7%. We saw the electronic payment transactions grow at a nice pace and we also saw stabilization within our quick collect and other cash payment businesses.

I remain as excited as ever in our business and the money transfer industry. We accomplished a great deal in 2006. We delivered on the financial expectations we set in September. We posted strong revenue growth and generated cash flow in excess of $1.1 billion, we made an important acquisition to expand our bill payment business outside of the U.S., and, most importantly, we continued to grow our share of the global remittance market -- all of this in the year of our spin-off with significant complexity of becoming a public company.

Western Union is extremely well positioned in the marketplace and trends around the world are favorable as migrants continue to move freely around most of the world and send money home.

We are proud of the results we have achieved by staying true to our long term strategies, expanding and diversifying global distribution, building our brands and enhancing consumers' experience, developing consumer convenience and choice, exploring new service offerings both internally developed and through acquisitions.

More importantly, our continued execution of these proven strategies and the resource we have to invest in the brand give me great confidence in reaffirming our 2007 guidance.

Now I'd like to turn to David Barnes to review the progress we made in 2006 in support of these strategies.

David Barnes. Thank you Christina and good day everybody. As Christina mentioned, our strategy places a strong emphasis on expanding our network, both its size and the convenience and choice we offer consumers. In 2007 we expect to continue to grow our network, adding approximately 25,000 locations around the world.

While the total size of our network is important, equally important is ensuring that we are adding distribution in the right places. By opening agent locations that focus on the specific needs of our diverse consumer base we will increase transactions per location.

I'd like to share with you today some perspectives in the direction we are heading in implementing that strategy.

In our major send markets our most productive locations are largely in places close to where our consumers live and work, are staffed with people who speak the same language as our customers, and are open during the hours when our consumers want to transact with western Union.

Together with many of our largest agents we have significantly expanded the number of locations in immigrant communities. In France, for instance, we formed several years ago a joint venture with our agent La Poste to open and acquire dedicated locations in ethnic neighborhoods. The first focus of this venture was the expansion of the France to Turkey corridor through a flagship location in Paris. As a result, we have more than doubled our volume through this corridor since early 2004.

In 2006, this joint venture expanded through the acquisition of several more neighborhood-based locations. These newly acquired locations account for a significant percentage of outbound transactions to key markets like China, India, and Bangladesh.

Consumers clearly place a high value in the greater convenience and higher service levels which these neighborhood locations offer.

Our second strategy centers around building our brands and improving our customer experience. One key lever to improve the experience of customers with our brands is our Gold Card. Among the core benefits our Gold Card consumers receive is faster service at the point of sale, as one swipe of the card provides the sending agent with most of the information needed to initiate the transaction. The Gold Card also provides rewards to our most loyal consumers.

The number of worldwide Gold cardholders expanded to over 8 million in 2006. Gold Card customers are very loyal and transact more frequently than non-Gold Card members.

In the United States, for example, Gold Card customers conducted 45% of consumer-to- consumer transactions in 2006.

Another advantage to the Gold Card program and other loyalty programs we utilize is that we get to know our customers better. This helps develop relevant products and services as well as supporting our compliance efforts.

Our plans for 2007 call for a continued expansion of our Gold Card program, both in the number of cardholders and in the benefits these holders receive.

We believe firmly that our loyalty program is a core enabler of our competitive advantage in the money transfer business.

Another area of strategic focus is in expansion of our service offerings. Our acquisition of SEPSA in Argentina is a good example of how we intend to use acquisitions to complement and expand our existing business.

SEPSA is the company we know well having owned a minority stake in the business since its founding in the early 1990s. It is a growing business with a leadership position in meeting consumers' bill payment needs in Argentina.

There are a number of potential synergies between SEPSA and our existing business in Argentina, primarily resulting from the growth potential of offering a broader array of services through agents there.

We also believe that SEPSA's people and technology will provide a platform for further expansion of the bill payment business into other Latin American countries.

Going into 2006, our bill payment business was almost entirely focused on the United States. We now have made an important breakthrough into the bill payment space internationally. The international bill payment industry continues to be a significant focus of our acquisition efforts.

Closer to our core money transfer business, we made a number of steps this last year to expand the scope of our product offerings. We added direct to bank service in select corridors, both from our WesternUnion.com site and from our traditional send agent locations.

In situations where the receiver would prefer to receive funds directly into a bank account this new service offering allows us to meet customer needs in situations where we previously could not compete effectively. Our research shows that direct-to-bank consumers are very different from the traditional cash-to-cash customers so we believe that this new offering will in time provide meaningful incremental business.

During 2006 WesternUnion.com grew revenue at a rate of over 30%. In the fourth quarter we added online outbound service from Sweden, bringing the total number of countries with online service to 10. For 2007 we expect to connect five more countries and see revenue of approximately $120 million.

There are a number of other areas where we're working on new offerings to leverage our brand, systems, and distribution network to meet new consumer needs. We will be testing and refining these ideas with an eye toward adding meaningful new sources of profit and revenue in the years ahead.

2006 was a year of significant change for our Company. This period of change did not slow our progress in implementing our strategy, which while under refinement represents the continuation of the direction that has produced so much success over many years.

Our success in managing our capital structure this year has put us in a place to capitalize on the strategic opportunities ahead. As part of the spin and becoming an independent company we raised $3.5 billion in debt financing. More importantly, we generated cash and reduced debt significantly after the spin-off and are modestly ahead of our debt reduction goals.

We enter 2007 with a strengthened balance sheet giving us the ability to continue to invest in our business. I'd now like to turn to Scott Scheirman to review our financial performance. Scott.

Thank you David. Good morning. As you review our financial performance, please keep in mind that the profit and cash flow comparisons with prior years are meaningfully impacted by the fact that up until September 29, 2006, Western Union was a segment of First Data Corporation, while we're now an independent public company.

In particular, interest expense and corporate overhead costs are substantially different going forward than they were in the past. In fourth quarter 2006, Western Union delivered $1.2 billion of revenue, up 10% over fourth quarter of 2005. Revenue growth, excluding the impact of the Vigo and SEPSA acquisitions, was 9%.

The Euro benefited revenues by approximately $21 million during the fourth quarter.

Fourth quarter operating income on a GAAP basis was $335 million, up 7% compared to fourth quarter 2005. Please remember in fourth quarter 2005, operating income was adversely impacted by about $17 million of expenses related to the impairment of foreign prepaid services business and the accrual of additional [inaudible] liabilities

Operating income, excluding $9 million of incremental public company expenses, increased 10% over fourth quarter of 2005. The $9 million was better than our previous estimates. The improvement is attributable to less separation related spending in the quarter due to better visibility into our cost structure and better understanding of the cost associated with being an independent public company.

It is with this better visibility and understanding that we are comfortable providing a range for these expenses of $60 to $65 million in 2007.

Fourth quarter earnings per share was $0.28.

Fourth quarter represented our first full quarter of interest expense related to the debt incurred in connection with the spin-off. Our total interest expense for the quarter amounted to $52 million. The fourth quarter tax rate was 29% compared to 32% in prior quarters.

The tax rate was lower in the fourth quarter primarily due to favorable resolutions of certain tax matters.

There were 782 million weighted average diluted shares outstanding in the fourth quarter.

Full year 2006 revenues were $4.5 billion, an increase of 12% over 2005.

Operating income in 2006 on a GAAP basis was $1.3 billion. 2006 operating income, excluding $25 million of incremental public company expenses, was $1,337,000,000, up 5%.

Revenue and operating income, excluding incremental public company expenses, were in line with the guidance provided on September 18, 2006.

The operating income margin for the fourth quarter and full year 2006 was 29% compared to 32% for the full year 2005. The 2006 operating income margin has been impacted primarily by three factors. First, the ongoing mix shift from the higher margin domestic and Mexico businesses to the faster growing lower margin international business. Second, Vigo contributed $141 million in revenue with a modest loss on the operating profit line. And third, $25 million of incremental public company expenses.

In the fourth quarter, consumer-to-consumer transactions increased 16%, or 14% excluding Vigo. Consumer-to-consumer revenue was $1 billion, up 11%, and operating income margin was 28%.

During the fourth quarter, consumer-to-business transactions increased 20%, or 3% excluding the acquisition of SEPSA.

Consumer-to-business revenue was $162 million, up 7%, or 4% excluding SEPSA, which contributed about $4 million in revenue in December.

Fourth quarter operating income margin was 35%.

In 2006, Western Union generated $1.1 billion in cash flow from operating activity, slightly better than anticipated in part as a result of the timing of a tax payment.

At December 31, 2006, Western Union had $1.4 billion in cash. About $1 billion of this cash is invested in our international structure and available for acquisitions.

Total capital expenditures were $202 million in 2006.

In the fourth quarter we repurchased $20 million in stock at an average price per share of $22.79. We have $980 million remaining under the current board authorized stock buyback program.

In December, the board declared a quarterly cash dividend of $0.01 per common share, which was paid on December 28, 2006. For 2007, subject to board approval, we intend to pay a single annual dividend in the fourth quarter.

At year-end we had debt of $3.3 billion. The debt consisted of $300 million of commercial paper, $500 million in floating rate notes, and $2.5 billion in notes with maturities from five to 30 years.

Our 2007 estimated weighted average interest rate will be slightly less than 6% and we plan to pay down our debt to $3 billion by year-end 2007.

In yesterday's press release we reaffirmed our existing 2007 guidance of revenue growth of 10% to 12% excluding acquisitions, and operating income growth of 6% to 9% excluding incremental public company expenses. Operating income growth on a GAAP basis is expected to be 3% to 6%.

Revenue from Western Union's recently announced acquisition of SEPSA will add approximately 1 percentage point to revenue growth in 2007, and will be slightly accretive to earnings per share.

We expect 2007 and total company GAAP revenue growth to be 11% to 13%. We expect 2007 GAAP earnings per share to be in the range of $1.07 to $1.11.

I want to provide you with additional perspective on a few items. Western Union began experiencing challenges in its domestic and Mexico businesses during second quarter 2006. We won't begin to lap these issues until second quarter 2007.

In addition, we plan to increase our marketing spending in 2007, to have a total market investment remain around our historical 7% of revenues. More debt investment will come in the first half of 2007. As a result, we estimate that revenue and profit growth will be stronger in the second half of 2007 than early in the year.

As I mentioned earlier, for 2007 we are now estimating that incremental public company expenses will be approximately $60 to $65 million -- down from our prior estimate. These costs are primarily made up of spends for staff additions, IT infrastructure, corporate governance, and corporate branding.

Interest expense, interest income, and other non-operating income and expense items are estimated to be a net expense of approximately $110 million in 2007.

Our 2007 tax rate is estimated at 32%. The 2006 full year tax rate was 32%.

Based on our experience from the last 90 days, and considering our plans for 2007 stock buyback programs, we are estimating 2007 weighted average diluted shares in the range of 780 to 785 million. We are estimating 2007 capital expenditures in the range of $200 to $250 million.

In 2007, cash flow from operating activities is expected to be at $900 million, including the impact of a full year of interest expense and incremental public company expenses, and a tax payment that was deferred from 2006 until 2007.

Our priorities for the use of cash remain unchanged. First, paying down debt. We anticipate that our debt will be paid down to approximately $3 billion by the end of 2007. The second priority is to invest in the future growth of our business both internally and through acquisition. And third, returning capital to our shareholders through stock repurchases and dividends.

With that, we would like to take the first question. Minosha, could we take the first question?

[Operator Instructions] Elizabeth Grausam of Goldman Sachs.

Minosha, this is Gary. Before we take that call, we're getting some background noise that isn't coming from here. Can we be sure all the other lines are closed?

Hi guys it's Liz. I just wanted to discuss, you mentioned the trends improved in the month of December, and trying to model through the year we know we're going to lap some trends in the second quarter. But looking into the first quarter, should we expect that transactions look a little bit better in the first quarter of this year as they did in the fourth quarter of '06?

And then going into June should we actually see growth reemerge, positive growth reemerge in the domestic market?

Hi Liz, it's Christina; it's nice talking to you. Just to put it into perspective, it's important to remember when we look at the December timeframe that that's a gift-giving occasion which creates a lot of demand. And we saw in '06, both at Mother's Day and at Christmas, an up-tick in demand. So we're basically saying that we feel that we'll see an up-tick in transactions in second quarter, but I wouldn't say that we're going to-- that we have everything buttoned down to exactly what number it will be.

Second quarter we're going to start to see ourselves come out of it. I think in Mexico we saw in fourth quarter the organic growth across all our brands with 4%, so we're very pleased by that.

So we're going to continue to invest. We've got some things that we're working on in the domestic side to see that improvement there. So we're comfortable with our full year guidance and, again, coming back to second quarter with the up-tick.

And we've heard from competitors of yours there's been deteriorating pricing perhaps in the Mexico market and also that the overall macro trends in Mexico have deteriorated some. Can you comment on that relative to what you're seeing in the market?

Sure. I think obviously we have talked about this issue going back much further than some of our competitors because we did feel the impact early on as we saw the immigration debate and also some of the situation in Arizona.

We did see from the Central Bank of Mexico in the month of November about a 2% growth in transaction, so, again, you can see there has been some compression. We've built that into our model as we look to 2007. And in terms of pricing I think where we really looked at it we see some pressure on the FX, which we've talked about, but that's been built into our plans and that's part of our 3% investment in pricing for '07.

Great. And then just lastly on the international corridor, the spread between transactions and pricing actually tightened some. Can you help us understand the dynamics in what we're seeing there with better pricing?

I think that's great news. I mean obviously we're seeing tremendous growth in the power of the brand and our distribution network. And there's more stabilization in price and we're very targeted in terms of where we go with price. So we're very pleased to see that. And it shows the investments we made going back about 24 months ago, 18 months ago are really paying off now.

Great, thank you.

Liz, it's David Barnes. The only thing I'd add is the Euro helped us a little bit on the international revenue trends as well.

Adam Frisch of UBS.

Good morning, thanks for taking my question. A couple of things Christina. On December, you said the numbers started to pick up a little bit there. Two questions on that. First, in terms of the promotion and advertising in the month, in the past when you cut pricing volumes would grow significantly more I think than low to mid-single digits. So what caused the lower return, so to speak, in the fourth quarter? I think you said it was around 4%.

And then the second question is, was the growth in December a sharper improvement than the pick up you reported seeing in October on your last conference call or was there seasonality related to the holidays which skews the comparison on that?

It's a tough one to answer succinctly because it was a combination of all of the things. But I think what we did see, Adam, is that the investment did pay off. We did see the up-tick in December. And so we know that at certain times of the year you have that demand. We saw that in Mother's Day in May. Even though we had the difficult April we saw a big pick up in May. So, we're monitoring that very carefully.

But is pricing becoming-- why wouldn't you see the bigger up-tick in pricing in December? Why was it only 4%? Is there anything you can offer?

In terms of pricing we were really focused on FX. We did a little pricing on our next day but our money in minutes really stayed consistent. So we're very careful to monitor how we were pricing. It's not-- we look at all of our brands, we look at all of our price points and try to find what's the best solution for our customers.

Okay, maybe I can follow up with you offline on that one. One more question that I had on-- the revenue growth guidance was ticked up a little bit for '07, net interest expense was reduced, the operating as a public company costs were reduced a little bit, but net income guidance was unchanged. What went into your thinking on--?.

Let me give you the revenue and then Scott can give you the net income. Just on the revenue it's still 10 to 12 without acquisitions. The 1% up-tick is really because of the acquisition of SEPSA that drives it to 11 to 13 and Scott can talk to the net income numbers.

Sure. The guidance we gave on the earnings per share was $1.07 to $1.11 and that really contemplates the operating income growth range of 6% to 9% excluding public company expenses.

The net interest income, other income, is a little bit better. Our cash balances are a little bit higher. We were able to refinance our bridge loan at a little bit favorable interest rate so that has helped the bottom line there.

But really the $1.07 to the $1.09 contemplates all of those things in our guidance.

And if I could just sneak in a couple of housekeeping items. In terms of pricing pressure, what are you seeing at the point of sale and at your receiving agents? And also, Scott, why was the share count up?

Let me start with the share count. The diluted shares were 782 million shares for the fourth quarter. The guidance we've given for next year range from 780 to 785. The factors, Adam, that would impact that is obviously the timing of our stock buyback and then key components of the diluted shares of both your basic and the diluted, and we have almost 80 million stock options outstanding and there were some stock options exercised in the fourth quarter. So we're projecting that into 2007. And then also depending upon the share price, that impacts your diluted shares.

So the fact that the price went up a little bit triggered some options and that's why the share count went up in the quarter?

Yes, it increases your diluted shares outstanding.

And then on the pricing pressure at point of sale and then receiving agents?

Yes, the pricing pressure-- and I assume you're referring to our agents, Adam, the agent commissions?

Yes.

It's relatively been stable. You've seen that our capital expenditure was a little bit higher in '06, will be a little bit higher in '07. We've had some large contracts that we renewed in '06 and will be in '07. But it's relatively stable. It might be a little bit higher here and there but directionally the trends aren't changing dramatically.

What you do see on the cost of service line is just the mix shift where we're getting more of the international business come through versus the domestic and the Mexico, so that's driving the cost of sales line up a little bit.

Thank you.

Patrick Burton of Citigroup.

Hi good morning. My question relates to the value of the network. Could you perhaps, Christina, go into new opportunities in terms of strategic alliances or products that you could introduce for incremental revenue opportunities? And then I have a follow up. Thanks.

Sure. And it's nice talking with you. I think, obviously, we see opportunities in different markets in terms of different products. The consumer-to-business clearly is one that we see has tremendous add-on to our network. So with the SEPSA acquisition that really gives us the first step out of the United States. And if you look at the size of the CtoB business in the U.S. we really-- if we model that around the globe that's a huge opportunity.

Also with the bank that we have in Europe, the Western Union Bank, we have the ability now to drive WesternUnion.com through the bank but also prepaid services, direct-to-bank services. We've actually done some lending to agents. So we're looking at that -- how can we help our agents in terms of managing their funds. And we're also looking in the area of some concept of micro loans but these are things that are a little bit more in the planning stage.

We've also talked to you about insurance. We have some of those programs as part of our loyalty in the Middle East and in different parts of the world.

And, David, I don't know if you want to add a bit more on the strategic side on this part, some of the other DtoB and other products?

Yes, I mean we're certainly looking hard at that question. Some of the things we mentioned were rolling out more direct to bank offerings, which is effectively a new product that we can use to leverage our distribution network.

We're doing-- looking at some prepaid things. We have a variety of activities other than the consumer-to-business area. None are individually meaningful to our total results, but we've got ideas in incubation across a number of areas and we'll continue that process this year.

And one other thing I'd like to add, Pat, is also as we look at some of the alliances that we've made, like with GE and with Travelex, they have some products that we don't have and we're also exploring how can we build on those relationships using our money transfer brand with their strong brand to see what we can create in the future.

Thank you. The follow up is in terms of the international agent relationships, are there any opportunities there that perhaps are new now that you're outside of the prior parent, First Data, or is it pretty much the same as it was pre the separation internationally?

I think it's really pretty much the same because obviously the whole globe is always available to us, I think. And we continue to expand that network now that we're almost at 300,000 agent locations. So we feel-- we don't feel any kind-- we never felt limited so we just see a huge opportunity to continue to grow that network.

Thank you.

Bryan Keane of Prudential.

Hi, good morning. Just a couple of questions. First, I guess December there was a little bit of a pickup. January, I guess, we've just closed that out, did you still see the same pickup from a December carry over?

One thing that we are doing is we're giving annual guidance but we are not going to do quarterly or weekly or monthly guidance, and that's kind of how we're going to work going forward on all of our guidance positioning.

Can you help us then understand your confidence in three months or so that the volumes will rebound or begin to rebound in the U.S. and Mexico.

Yes. I think the thing is that we're not looking at a hockey stick here, we're looking at gradual step by step improvement. I think the real thing to go back to is 80% of our business is outside of the United States, outside of the corridors where we're experiencing some challenges. And if you look at the international growth rate at 23% and 17% of revenues to get to 10 to 12, you can see how strong that is. And then looking at how our CtoB business is starting to really come together, we feel very good about the portfolio of businesses that we have, the countries and the different products that we have in the Western Union family.

Does the profitability improve as well as you get into the second quarter because I know it's higher profitability domestically than it is internationally?

Yes, I think you're-- we've always got this shift right now that we're dealing with, but as we start to see that come back that will improve. As well we will be investing more in the first half of '07 and that's important to remember because we are doing a lot of things right now to drive that turnaround and to drive what we're looking for in the business growth.

And then finally, is it more competitive to keep a group of agents and resign retailers and banks and post offices than it's been in the past? Because- or is upfront CapEx payments rising in the industry? Can you just give me some comments on that?

You know, I think there's a little bit in terms of the CapEx but I think the other thing too is we have great relationships with our agents and most of them have been with us for 12 years or more. And the other thing is, it is about relationships but it's also about the power of the brand. They know what we bring to the party, they know that we carry 17.4% of the global money around the globe and they want to be part of that. So their opportunity is also with our opportunity and that's very important in the relationship.

Okay, and I just had two housekeeping for Scott. I didn't hear the U.S. to Mexico transaction and revenue growth in the fourth quarter. And also how much of the Euro helped the international revenue? How many points of growth was that?

The Euro was about $21 million. I'll let you do the math if that's okay Bryan. But the international's about 60% of our business so you could back into that math there.

And then on the Mexico business, the U.S. Mexico and the Western Union brand it was about flat for the fourth quarter.

That's in transactional revenue?

Transactions.

And revenue was down slightly?

Yes, it was down a little bit more than that yes.

Okay, thank you very much.

Andrew Jeffrey of Robinson Humphrey.

Thanks, good morning. Could you talk a little bit about the loss of branded Western Union customers, especially in the Mexico business, and if you think that that was the primary cause of disruption. And then just at least qualitatively can you speak to maybe some of the success you've had in wooing them and bringing them back and if you have any color on that.

Yes, I mean I think we've talked about clearly the issues of immigration and the seizures did have an impact on the Western Union customers. But we did lose some of our customers due to that.

I think as we look at what happened in December, especially in the last two weeks where we had some very targeted promotions both on the pricing and just also on the whole concept of the brand and Western Union and the relationship, we saw that up-tick come. And so we can see that as we move these different parameters it will work well.

The other part of it though is the outreach programs that we're doing. We're getting a lot of very good feedback from a lot of different associations. I've been spending time in Mexico. Also even with government officials we're getting very, very positive response. So the word is coming out, our people are out in the neighborhoods, in the hometown associations talking to consumers. So, we know this is not going to be a quick fix but we see signs of recovery and we also see very positive signs about Western Union.

But we also know that as this compression occurred-- because it's not just Western Union, the market did shrink at a 2% growth rate. For the whole of the Central Bank number you can see that there has been some compression. Then there has been more of the pricing pressure as it related to the FX and we've taken steps on that to make sure that we're competitive in there and in the right place for our customers.

And so some of it will come back to Western Union and those who are more price sensitive may come back to an Orlandi or a Vigo.

But we will make sure that we will capture that market.

Did you see your primary competitors in the Mexico corridor opportunistically going after some of what you might have previously considered your rock solid base? Has that contributed to some of the pricings on a predatory basis in your view?

No, I don't think so. I respect our competitors. They're good competitors. I think it was more an issue the consumers and their uncertainty and they were saying, hey I'm not sure about this, and so they made that decision. And so that was an issue that we had to face and that's one of the reasons why we went to court in Arizona because we wanted to stand up for our customers and our business.

And then on the international business, can you talk a little bit about your efforts to cross sell some of the value added products with which you've had success, starting with the Gold Card, maybe some of the functionality in the United States, and whether that is potentially a driver of international profitability in '07 or maybe '08?

Sure, I'll give you a little color and then I'll pass it over to David. Obviously the Gold Card is expanding in Europe and that is a key component of developing our database and our knowledge about the consumers so we can cross sell, because we have to know a lot more to do really targeted marketing and understanding the needs of the customers.

Clearly, there's some prepaid products in the market, direct-to-bank, but I think that's where we see tremendous opportunities going forward in the business. And David--

Yes. Andrew without helping our competitors too much, I would point out that there are some markets around the world where we've expanded the functionality of the loyalty program, actually providing more access on the receive side of the transaction. We're partnering with merchants who value access to our customer base. In fact, they share or bear most of the cost of some of the offerings that are going on.

And it's just a way-- we're finding partners out there who find value in connection with our brand and our consumers and it's one more way to build loyalty. And we've got a variety of initiatives around the world like that and we'll see what works and what does work we'll work to spread it around the world.

And just a quick housekeeping. You said $110 million in other income items in '07?

Yes. Net interest expense, net interest income, and other income -- $110 million expense.

$110 million in expense, net?

Net, yes.

Great. Thank you very much.

Jim Kissane of Bear Stearns.

It seems like India's performing somewhat better than China. What are some of the factors behind that? And can you give us an update on the size of India and China in terms of revenue?

Both of them are tremendous markets and we've seen phenomenal growth. I mean I think between the two markets we're almost at 60,000 locations so it's a huge market for us.

I think there is some differences in the market and one of them is that we've been in India a lot longer. Okay? And so we have a higher level of brand awareness. We've seen a tremendous ramp up in the brand awareness, in excess of 75%.

The other thing that's different in India is that there is a difference in the type of network that one can have. In China it's very regulated and we have the post- the Post Bank and the Agricultural Bank but in India we can have a much wider diversity in terms of network. And that has given us more access to consumers and a wider reach across the country.

We also have tremendous marketing teams in both countries though, and I'm very proud of the accomplishments of both teams because they really are very, very sharp in terms of ethnic marketing not only in country but from too. And I think we just see different markets, different growth rates but both very important to the future of Western Union.

Based on your market research, what are some of the specific factors around immigration? I mean is more money going underground? Are there less immigrants coming to the country? People just saving more?

You know what, it's very hard to put a finger on all of it. I think it's a combination of those. There is some question about are there as many people in the country now as there were let's say 12 months ago. Because of some of the uncertainty are people holding back because they may not have a job or they need the funds. And then also the fear that there have been some raids and some issues that have concerned people obviously, and we've been concerned as well because we have very good customers who are part of our network and who became somewhat concerned in terms of what would happen to them.

So it's a combination of all of these factors. It's not one thing that's really making this happen.

And can you talk specifically about market share and domestic U.S. and U.S. to Mexico?

We've done some broad-based looking at it but we don't really talk to that. But I think 17.4%, that growth rate, and coming from 10% about a few years ago shows you just how powerful our brand is.

Great, thanks Christina.

Tien-Tsin Huang of J.P. Morgan.

Good morning and thanks for all the disclosure -- disclosure's great. A question about the incremental public company cost of $9 million. Does that compare to the full $60 to $65 million that's budgeted for '07? 'Cause it implies a pretty big step up in '07 given the fourth quarter run rate.

Yes, the $9 million does compare to the $60 to $65 that we're heading for in 2007. What we're looking at is some ramping up of the hiring; some of those came on later in the fourth quarter. We got some things around corporate branding, corporate communications that we'll probably go a little bit heavier at in '07.

Another example I would give you is we're going to be Sarbanes-Oxley 404 compliant in '07. First year as a public company you're exempt from it but we'll have to do that in '07 so there'll be some expenses there.

So there's a number of things that will lead to the ramp up of that $60 to $65 million.

And then sorry if I missed this, but did you call out how accretive SEPSA will be to the operating profit growth and did you change your organic operating growth-- operating profit growth assumption for '07?

Yes, what we shared with everyone on SEPSA that it would be slightly accretive, but our operating income guidance x the public company cost is in the range of 6% to 9% still.

And then I guess lastly on the foreign exchange revenue goes up nicely, are foreign exchange spreads holding firm or actually increasing outside of the U.S. to Mexico, or in Mexico, and what are your expectations going forward on the For Ex spread?

I think really the spreads are like pricing. It's one of the levers that we use. But I think what you're seeing is really a mix of business so that we have more business in international where you see more revenue coming from the FX.

Okay. And just wanted to clarify that you do share the foreign exchange spread with your agents, correct?

It varies. We have different relationships around the world and different agreements.

So it's somewhat different than in terms of what you share on the send fee versus the For Ex spread?

It varies.

It varies, yes. Each relationship could be a little bit different; it varies around the globe by country.

Okay, very good. Thank you.

Craig Maurer of Soleil Securities.

Yes, good morning. On some of your competitors' conference calls they discuss specific actions by Western Union causing pressure on them in the markets. One specifically, MoneyGram, called out specific markets in California where you had put in place pricing initiatives that were specifically impacting their business. I was wondering if you can discuss that in a little more detail.

I think these are just practices in terms of we do street corner pricing, we look at opportunities, we look at markets and then we decide what we need to do to grow our business so that's very targeted marketing. So that's really a matter that we-- our marketing team looks at and just says this is where we need to go.

And just a follow up to something you mentioned earlier. While I know you're looking at it on an exploratory basis, you had mentioned micro loans. Given your traditional customer base, how do you go about judging credit worthiness of that customer base for the micro loan? And I know that this is far off to ever impacting your financials but I'm curious as to how you look at them.

I mean I think this is--first I'll say it's far off and it's probably something that we would not look at in the United States, we'd be looking at another part of the world but maybe--you know, I'd ask Scott to really give a bit of a color on the risk kind of issue.

Sure. What-- if you think about our consumer database, our loyalty card, we've got a lot of rich history as far as how our customers remit the money they either send or receive. And utilizing that information, this is kind of down the road here in the future, but you could almost develop our own credit score of a customer and utilize that to make micro lending with both customers.

And if I can follow up with one last question. Back to the China topic, is there-- can you update us on any progress you might be making with perhaps negotiations with the Chinese post office or similar organization to increase penetration within the market?

We're very pleased with the infrastructure that we have in China because obviously it's a balance between growing up the network and also the-- where the customers are and where the needs are. So, I meet with them frequently and I know our team is there quite often and so we're very happy with that bench. And we're also looking at some other opportunities with other banks in China to see if that also can help extend our network in China.

Okay, thank you.

Greg Smith of Merrill Lynch.

Good morning. Regarding the CtoB business internationally, you've talked a lot about doing acquisitions to grow that business but is it something you can grow organically or are there special relationships that you're really going to need acquisitions to get?

I think it's a bit of both. And I think what we've done now by taking the first step in the acquisition of SEPSA it really gives us the ground sort of to start with and some size that we can scale, plus functionality, capability, skill sets of people, who have skills that we can use them to help us grow that business into other parts of Latin America. So that's really the beginning.

Now, as we look around the globe in other parts of the globe there may be other opportunities in that segment which would have-- we would acquire again to give us a beachhead in another part of the world.

And then just lastly, the Bank of Mexico data, do you view that as reliable and accurate picture of the market so should we hang our hat on that as it comes out?

No, I wouldn't say-- I would not say that. I think it's a variable but I think it gives you directionally some sense of what's going on so that it shows in relationship to the market where am I, am I really in a different position. So I think it's really just giving you a sense. It's not a finite number that's perfect.

Okay, thank you.

Well, I just would like to thank everybody for being on the call today. And as we close out 2006, I would again really like to thank the employees of the Western Union Company, all of our agents for a tremendous effort in 2006, and, again, I am very, very excited about 2007 and have every confidence that we will achieve our objectives for the year.

So thank you again, and we'll talk to you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.