Western Union 2009 Annual Report Download - page 55

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Commission and other revenues—Commission and other revenues primarily consist of commissions and
fees 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
primarily derived from interest generated on money transfer, money order and payment services settlement
assets as well as realized net gains and losses from such assets. As described above, prior to October 1, 2009,
our money orders were issued by IPS, from whom we received a commission. Effective October 1, 2009, we
assumed the responsibility for issuing money orders and no longer receive a commission from IPS. We now
recognize fees and investment income derived from interest generated on money order settlement assets as
well as realized net gains and losses from such assets similar to our money transfer and payment services
settlement assets. Commission and other revenues represented 3% of our total consolidated revenue for the
year ended December 31, 2009.
Cost of services—Cost of services primarily consists of agent commissions, which represent
approximately 75% of total cost of services, 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 amortization and other expenses incurred in connection with
providing money transfer and other payment services.
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 certain
advertising and promotional costs and other selling and administrative expenses.
Interest income—Interest income consists of interest earned on cash balances not required to satisfy
settlement obligations and in connection with a loan made to several existing agents.
Interest expense—Interest expense represents interest incurred in connection with outstanding borrowings,
including applicable amounts associated with interest rate swaps.
Derivative (losses)/gains, net—Represents the portion of the change in fair value of foreign currency
accounting hedges that is excluded from the measurement of effectiveness, which includes (a) differences
between changes in forward rates and spot rates and (b) gains or losses on the contract and any offsetting
positions during periods in which the instrument is not designated as a hedge. Although the majority of
changes in the value of our hedges are deferred in accumulated other comprehensive income or loss until
settlement (i.e., spot rate changes), the remaining portion of changes in value are recognized in income as they
occur. Derivative gains and losses do not include fluctuations in foreign currency forward contracts intended to
mitigate exposures on settlement activities of our consumer-to-consumer money transfer business or on certain
foreign currency denominated cash positions. Gains and losses associated with those foreign currency forward
contracts are included in selling, general and administrative expenses. Derivative gains and losses also do not
include fluctuations in foreign currency forward and option contracts used in our international
business-to-business payments operations. The impact of these contracts is classified within foreign exchange
revenue in the consolidated statements of income.
Other income, net—Other income, net is comprised primarily of equity earnings from equity method
investments 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, 2009 compared to the same period in 2008 and the year ended December 31, 2008
compared to the same period in 2007. The results of operations should be read in conjunction with the
discussion of our segment results of operations, which provide more detailed discussions concerning certain
components of the consolidated statements of income. All significant intercompany accounts and transactions
between our company’s segments have been eliminated.
During the year ended December 31, 2009, we recorded an accrual of $71.0 million for an anticipated
agreement and settlement with the State of Arizona. On February 11, 2010, we signed this agreement and
settlement, which resolved all outstanding legal issues and claims with the State and requires us to fund a
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