Western Union 2009 Annual Report Download - page 59

employees received converted Western Union stock-based awards. All converted stock-based awards,
which had not vested prior to September 24, 2007, were subject to the terms and conditions
applicable to the original First Data stock-based awards, including change of control provisions
which require full vesting upon a change of control of First Data. Accordingly, upon the completion
of the acquisition of First Data on September 24, 2007 by an affiliate of KKR, all of these remaining
converted unvested Western Union stock-based awards vested. In connection with this accelerated
vesting, we incurred a non-cash pre-tax charge of $22.3 million during the third quarter of 2007.
Approximately one-third of this charge was recorded within “cost of services” and two-thirds was
recorded within “selling, general and administrative” expenses in the consolidated statements of
income.
Cost of services
Cost of services decreased for the year ended December 31, 2009 compared to the corresponding period
in 2008 primarily due to agent commissions, which decreased due to revenue declines, as well as reduced
commissions resulting from the acquisition of FEXCO and other selective consumer-to-consumer commission
initiatives. Also impacting cost of services was the strengthening of the United States dollar for most of 2009
compared to most other foreign currencies, which resulted in a favorable impact on the translation of our
expenses, and restructuring costs incurred in 2008 which did not recur in 2009 and the related 2009 cost
savings. These costs were offset by incremental operating costs, including increased technology costs and costs
associated with Custom House. Cost of services as a percentage of revenue was 57% and 59% for the years
ended December 31, 2009 and 2008, respectively. The decrease in cost of services as a percentage of revenue
for the year ended December 31, 2009 compared to the corresponding period in 2008 was generally due to
reduced commissions resulting from the acquisition of FEXCO and selective consumer-to-consumer agent
commission initiatives, restructuring costs incurred in 2008 which did not recur in 2009 and the related 2009
cost savings, offset somewhat by incremental operating costs, including increased technology costs and costs
associated with Custom House.
In addition to the restructuring costs described above, cost of services increased for the year ended
December 31, 2008 compared to the corresponding period in 2007 primarily due to agent commissions which
increase as revenues increase. Cost of services as a percentage of revenue was 59% and 57% for the years
ended December 31, 2008 and 2007, respectively. The majority of the increase in cost of services as a
percentage of revenue for the year ended December 31, 2008 compared to the corresponding period in 2007
was primarily due to restructuring and related expenses of $62.8 million as described above, and the shift in
our business mix reflecting stronger growth from our international consumer-to-consumer business, which
carries higher cost of services compared to our United States originated businesses. Selected
consumer-to-consumer international agent commissions have been lowered but were partially offset by certain
higher commissions in the United States. In addition, a higher percentage of our global business payments
services were generated from our United States electronic-based payments and payments related to Pago Fácil,
each of which had higher cost of services as a percentage of revenue compared to our United States cash-
based payments business. The increase was partially offset by lower stock compensation charges for the year
ended December 31, 2008 compared to the corresponding period in 2007, as described above and below, that
did not recur in 2008.
Selling, general and administrative
SG&A increased for the year ended December 31, 2009 compared to the same period in the prior year
due to the settlement accrual described below, incremental costs associated with the acquisitions of FEXCO
and Custom House including costs related to evaluating and closing these acquisitions and other increased
operating expenses, offset by better leveraging of our marketing expenses, and restructuring costs incurred in
2008 which did not recur in 2009.
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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