Western Union 2012 Annual Report Download - page 101

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THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
96
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, 2012, 2011 and 2010 were $177.5 million, $174.8 million and $163.9 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.
Foreign Currency Translation
The United States dollar is the functional currency for substantially all of the Company's businesses. Revenues and expenses
are translated at average exchange rates prevailing during the period. Foreign currency denominated assets and liabilities for those
entities for which the local currency is the functional currency are translated into United States dollars based on exchange rates at
the end of the year. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of these
entities are included as a component of “Accumulated other comprehensive loss.” Foreign currency denominated monetary assets
and liabilities of operations in which the United States dollar is the functional currency are remeasured based on exchange rates
at the end of the period and are recognized in operations. Non-monetary assets and liabilities of these operations are remeasured
at historical rates in effect when the asset was recognized or the liability was incurred.
Derivatives
The Company uses derivatives to (a) minimize its exposures related to changes in foreign currency exchange rates and interest
rates and (b) facilitate cross-currency Business Solutions payments by writing derivatives to customers. The Company recognizes
all derivatives in the “Other assets” and “Other liabilities” captions in the accompanying Consolidated Balance Sheets at their fair
value. All cash flows associated with derivatives are included in cash flows from operating activities in the Consolidated Statements
of Cash Flows, except for cash flows associated with foreign currency forward contracts entered into in order to reduce the economic
variability related to the cash amounts used to fund acquisitions of businesses with purchase prices denominated in foreign
currencies, which are recorded in investing activities.
• Cash Flow hedges - Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are
recorded in “Accumulated other comprehensive loss.” Cash flow hedges consist of foreign currency hedging of forecasted
revenues, as well as hedges of the forecasted issuance of fixed rate debt. Derivative fair value changes that are captured
in “Accumulated other comprehensive loss” are reclassified to earnings in the same period or periods the hedged item
affects earnings, to the extent the change in the fair value of the instrument is effective in offsetting the change in fair
value of the hedged item. The portions of the change in fair value that are either considered ineffective or are excluded
from the measure of effectiveness are recognized immediately in “Derivative gains/(losses), net.”
• Fair Value hedges - Changes in the fair value of derivatives that are designated as fair value hedges of fixed rate debt are
recorded in “Interest expense.” The offsetting change in value of the related debt instrument attributable to changes in
the benchmark interest rate is also recorded in “Interest expense.”