Western Union 2012 Annual Report Download - page 56

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Components of Revenues and Expenses
The following briefly describes the components of revenues and expenses as presented in the Consolidated Statements of
Income. Descriptions of our revenue recognition policies are included in Part II, Item 8, Financial Statements and Supplementary
Data, Note 2, “Summary of Significant Accounting Policies” in our Consolidated Financial Statements.
Transaction fees - Transaction fees are fees that consumers pay when they send money or make payments. Consumer-to-
Consumer transaction fees generally vary according to the principal amount of the money transfer and the locations from and to
which the funds are sent and received. Transaction fees represented 74% of our total consolidated revenues for the year ended
December 31, 2012.
Foreign exchange revenues - In certain Consumer-to-Consumer money transfer and Business Solutions payment transactions
involving different currencies, we generate revenues based on the difference between the exchange rate set by us to the consumer
or business and the rate at which we or our agents are able to acquire the currency. In our Consumer-to-Consumer business, foreign
exchange revenue is primarily driven by international Consumer-to-Consumer cross-currency transactions. Also, as a result of the
acquisition of TGBP, our foreign exchange revenues have increased. Foreign exchange revenues represented 24% of our total
consolidated revenues for the year ended December 31, 2012.
Other revenues - Other revenues primarily consist of 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 fees we receive in connection with the sale of money orders. Other revenues represented 2% of our
total consolidated revenue for the year ended December 31, 2012.
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, amortization and other expenses
incurred in connection with providing money transfer and other payment services.
Selling, general and administrative - Selling, general and administrative 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 Solutions 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 equity earnings from equity method investments and
miscellaneous income and expenses. Other income, net also includes gains on revaluation of equity interests.