Western Union 2006 Annual Report Download - page 74

WESTERN UNION 2006 Annual Report 72
The estimated future aggregate amortization
expense for existing other intangible assets as of
December 31, 2006 is expected to be $75.0 million
in 2007, $45.7 million in 2008, $40.7 million in 2009,
$32.4 million in 2010, $26.6 million in 2011 and
$67.3 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, 2006, 2005 and 2004.
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, auto finance companies, mortgage
servicers, financial service providers and government
agencies (“billers”). 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,
generally five to seven years. 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 collected from the
Company’s agents 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 operating
expenses in the Consolidated Statements of Income.
Cost of Services
Cost of services consists of costs directly associated with
providing services to consumers, including commissions
paid to agents, which are 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.
The following table provides the components of other intangible assets (in millions):
December 31, 2006 December 31, 2005
Weighted-
Average
Amortization Net of Net of
Period Initial Accumulated Initial Accumulated
(in years) Cost Amortization Cost Amortization
Capitalized contract costs 6.0 $242.3 $155.6 $118.2 $ 56.7
Acquired contracts 9.2 74.1 49.7 58.2 30.0
Acquired trademarks 24.6 40.7 38.8 29.9 29.2
Developed software 3.1 66.0 12.6 57.2 16.0
Purchased or acquired software 3.2 50.4 18.8 38.4 15.8
Other intangibles 7.0 25.6 12.2 33.8 32.7
Total other intangibles 7.4 $499.1 $287.7 $335.7 $180.4