Western Union 2011 Annual Report Download - page 106

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue Recognition
The Company’s revenues are primarily derived from 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. The
Company also offers several global business payments services, including payments from consumers or
businesses to other businesses. Transaction fees are set by the Company and recorded as revenue at the time of
sale.
In certain consumer money transfer and global business payments transactions involving different currencies,
the Company generates revenue based on the difference between the exchange rate set by the Company to the
customer and the rate at which the Company or its agents are able to acquire currency. This foreign exchange
revenue is recorded at the time the related consumer money transfer transaction fee revenue is recognized or at
the time a customer initiates a transaction through the Company’s business-to-business payment service
operations.
The Company’s Equity Accelerator service generally 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.
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, amortization 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, 2011, 2010, and 2009 were $174.8 million, $163.9 million
and $201.4 million, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, which requires that deferred tax assets and
liabilities be determined based on the expected future income tax consequences of events that have been
recognized in the consolidated financial statements. Deferred tax assets and liabilities are recognized based on
temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not,
based on the technical merits of the position, the tax position will be sustained upon examination, including the
resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial
statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate resolution.
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