Western Union 2011 Annual Report Download - page 57

Other revenues—Other revenues primarily consist of commissions and fees we receive in connection with the
sale of money orders, investment income primarily derived from interest generated on consumer-to-consumer
money transfer, money order and payment services settlement assets as well as realized net gains and losses from
such assets and enrollment fees received when consumers enroll in our Equity Accelerator program (a recurring
mortgage payment service program). Other revenues represented 2% of our total consolidated revenue for the
year ended December 31, 2011. Prior to October 1, 2009, our money orders were issued by Integrated Payment
Systems Inc. (“IPS”), a subsidiary of First Data, 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 consumer-to-consumer money transfer and
payment services settlement assets.
Cost of services—Cost of services primarily consists of agent commissions, which represent approximately
70% 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 loans previously made to certain existing agents.
Interest expense—Interest expense represents interest incurred in connection with outstanding borrowings,
including applicable amounts associated with interest rate swaps.
Derivative gains/(losses), 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. We also include in this line item
changes in the fair value of derivative contracts, consisting of forward contracts with maturities of less than one
year entered into to reduce the economic variability related to the cash amounts used to fund acquisitions of
businesses with purchase prices denominated in foreign currencies. 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 business-to-business payments
operations. The impact of these contracts is classified within “Foreign exchange revenues” in the Consolidated
Statements of Income.
Other income, net—Other income, net is comprised primarily of gains on revaluation of equity interests,
equity earnings from equity method investments and miscellaneous 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, 2011 compared to the same period in 2010 and the year ended December 31, 2010 compared to the
same period in 2009. The results of operations should be read in conjunction with the discussion of our segment
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