Western Union 2008 Annual Report Download - page 21

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are sent. Transaction fees represented 80% of Western
Union’s total consolidated revenues for the year ended
December 31, 2008.
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 inter-
national cross-currency transactions. Foreign exchange
revenue represented 17% of Western Union’s total con-
solidated revenues for the year ended December 31, 2008.
COMMISSION AND OTHER REVENUES—Commission and
other revenues represented 3% of our total consoli-
dated revenue for the year ended December 31, 2008.
Commission and other revenues primarily consist of com-
missions we receive in connection with the sale of money
orders, enrollment fees received when consumers enroll
in our Equity Accelerator® program (a recurring mortgage
payment service program), and investment income primar-
ily derived from interest generated on money transfer and
payment services settlement assets as well as realized net
gains and losses from such assets.
COST OF SERVICES—Cost of services primarily consists of
agent commissions and expenses for call centers, settle-
ment operations, and related information technology
costs. Expenses within these functions include personnel,
software, equipment, telecommunications, bank fees,
depreciation and amortization and other expenses incurred
in connection with providing money transfer and other
payment services.
SELLING, GENERAL AND ADMINISTRATIVE—Selling, gen-
eral and administrative, or “SG&A,” primarily consists of
salaries, wages and related expenses paid to sales and
administrative personnel, as well as certain advertising
and promotional costs and other selling and administra-
tive expenses. Prior to September 29, 2006, the date of
the spin-off, SG&A also included allocations of general
corporate overhead costs from First Data.
INTEREST INCOME— Interest income consists of interest
earned on cash balances not required to satisfy settlement
obligations and in connection with loans made to several
agents.
INTEREST EXPENSE—Interest expense represents inter-
est incurred in connection with outstanding borrowings
payable, including applicable amounts associated with
interest rate swaps, to third parties.
INTEREST INCOME FROM FIRST DATA, NET—Interest income
from First Data, net consists of interest income earned on
notes receivable from First Data, net of interest expense
incurred on notes payable to First Data. All notes receivable
and payable were settled in connection with the spin-off
on September 29, 2006.
DERIVATIVE (LOSSES)/GAINS, NET— Represents the portion
of the change in fair value that is excluded from the measure
of effectiveness related to contracts designated as account-
ing hedges entered into on or after September 29,
2006. Those amounts include (a) differences between
changes in forward rates and spot rates, and (b) gains or
losses on the contract and any offsetting positions during
the periods in which the instrument is not designated as
a hedge. Derivative gains and losses do not include fluc-
tuations in foreign currency forward contracts intended to
mitigate exposures on settlement activities of our money
transfer business or on certain foreign currency denomi-
nated cash positions. Gains and losses associated with
those foreign currency forward contracts are included
in cost of services, consistent with exchange rate fluctua-
tions on the related settlement assets, obligations and
cash positions. Derivative gains and losses also include
realized and unrealized gains and losses associated with
certain foreign currency forward contracts that did not
qualify as hedges under derivative accounting rules prior
to September 29, 2006.
FOREIGN EXCHANGE EFFECT ON NOTES RECEIVABLE FROM
FIRST DATA , NET—Certain of the notes receivable from
First Data in our consolidated balance sheets prior to
September 29, 2006, the spin-off date, were repayable in
euros, and certain of those euro denominated notes also
had foreign currency swap agreements associated with
them. These notes receivable were translated based on
current exchange rates between the euro and the United
States dollar, and changes in fair value of the related for-
eign currency swap agreements were recorded based
on current market valuations. The effect of translation
adjustments and recording the foreign currency swaps
to market is reflected in our consolidated statements of
income as foreign exchange effect on notes receivable
from First Data. All notes receivable and payable with
First Data were settled in connection with the spin-off on
September 29, 2006.
OTHER INCOME, NET— Other income, net is comprised
primarily of equity earnings from equity method invest-
ments and other income and expenses.
Results of Operations
The following discussion of our consolidated results of
operations and segment results refers to the year ended
December 31, 2008 compared to the same period in 2007
and the year ended December 31, 2007 compared to the
same period in 2006. The results of operations should be
read in conjunction with the discussion of our segment
results of operations, which provide more detailed discus-
sions concerning certain components of the consolidated
statements of income. All significant intercompany accounts
and transactions between our company’s segments have
been eliminated.
We incurred expenses of $82.9 million for the year
ended December 31, 2008 for restructuring and related
activities, which have not been allocated to our segments.
While these items are identifiable to our segments, they
are not included in the measurement of segment operat-
ing profit provided to the chief operating decision maker
(“CODM”) for purposes of assessing segment performance
and decision making with respect to resource allocation.
For additional information on restructuring and related
activities refer to “Operating expenses overview.”
For the year ended December 31, 2007, we incurred
a $22.3 million accelerated stock-based compensation
vesting charge related to KKR’s acquisition of First Data,
which was allocated to our segments. For additional infor-
mation refer to “Operating expenses overview.”
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Management’s
Discussion and
Analysis of Financial
Condition and
Results of Operations