Western Union 2008 Annual Report Download - page 57

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Notes to Consolidated
Financial Statements
The estimated future aggregate amortization expense
for existing other intangible assets as of December 31,
2008 is expected to be $81.6 million in 2009, $72.9 million
in 2010, $59.9 million in 2011, $39.4 million in 2012,
$26.8 million in 2013 and $70.0 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, 2008, 2007 and 2006.
Revenue Recognition
The Company’s revenues are primarily derived from con-
sumer money transfer transaction fees that are based on
the principal amount of the money transfer and the loca-
tions 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 differ-
ent 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
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 net-
work through which such money orders are sold. Western
Union recognizes monthly commissions from IPS based
on a fixed 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. See Note 7, “Investment Securities” for dis-
cussion regarding the agreement executed between the
Company and IPS on July 18, 2008 whereby the Company
will assume the responsibility for issuing money orders
effective October 1, 2009.
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 dis-
counts 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 prog-
ress toward earning such discounts. Costs associated with
the redemption of merchandise are reflected in operat-
ing expenses in the Consolidated Statements of Income.
Cost of Services
Cost of services primarily consists of agent commissions
and expenses for call centers, settlement operations, and
related information technology costs. Expenses within
these functions include personnel, software, equipment,
telecommunications, bank fees, depreciation and amor-
tization and other expenses incurred in connection with
providing money transfer and other payment services.
Advertising Costs
Advertising costs are charged to operating expenses as
incurred or at the time the advertising first takes place.
Advertising costs for the years ended December 31, 2008,
2007 and 2006 were $247.1 million, $264.2 million and
$261.4 million, respectively.
Income Taxes
For periods subsequent to the Spin-off, Western Union
files its own United States federal and state income tax
returns. Western Union files its own separate tax returns in
foreign jurisdictions for periods prior to and subsequent
to the Spin-off, and foreign taxes are paid in each respec-
tive jurisdiction locally.
Prior to the Spin-off, Western Union’s taxable income
was included in the consolidated United States federal
income tax return of First Data and also in a number of state
income tax returns filed with First Data on a combined or
unitary basis. Western Union’s provision for income taxes
was computed as if it were a separate tax-paying entity
for periods prior to the Spin-off, and federal and state
income taxes payable were remitted to First Data prior
to the Spin-off.