Western Union 2012 Annual Report Download - page 60

55
Cost of services
Cost of services increased for the year ended December 31, 2012 compared to the prior year primarily due to incremental
costs associated with the TGBP acquisition, including depreciation and amortization, investments in our strategic initiatives and
compliance program costs, and increased bad debt losses, partially offset by the strengthening of the United States dollar compared
to most other foreign currencies, which resulted in a positive impact on the translation of our expenses, net commission savings,
including the impact from the acquisitions of Finint and Costa, and a net decrease in bank fees due to the Durbin Amendment to
the Dodd-Frank Act (the “Durbin Legislation”). We expect agent commissions as a percentage of revenue to increase in 2013
primarily due to the renewal of certain strategic agent agreements. Cost of services as a percentage of revenue was 56% for both
years ended December 31, 2012 and 2011.
Cost of services increased for the year ended December 31, 2011 compared to the prior year primarily due to agent commissions,
which increase in relation to revenue increases, the weakening of the United States dollar compared to most other foreign currencies,
which resulted in a negative impact on the translation of our expenses, and incremental operating costs associated with TGBP,
partially offset by commission savings resulting from the acquisitions of Finint and Costa, and the lowering of certain other agent
commission rates. Cost of services as a percentage of revenue was 56% and 57% for the years ended December 31, 2011 and
2010, respectively. The decrease in cost of services as a percentage of revenue was primarily due to commission savings resulting
from the acquisitions of Finint and Costa, offset by negative currency impacts.
Selling, general and administrative
Selling, general and administrative expenses (“SG&A”) increased for the year ended December 31, 2012 compared to the
prior year primarily due to increased expenses resulting from the acquisitions of TGBP, Finint and Costa, including integration
costs, investments in our strategic initiatives and compliance program costs, and costs associated with the productivity and cost-
savings initiatives implemented in the fourth quarter of 2012, partially offset by the strengthening of the United States dollar
compared to most other foreign currencies, which resulted in a positive impact on the translation of our expenses, the restructuring
costs incurred in 2011, which did not recur in 2012, and decreased compensation expenses.
SG&A increased for the year ended December 31, 2011 compared to the prior year primarily due to increased expenses
resulting from the acquisitions of TGBP, Finint and Costa, including deal and integration costs associated with these acquisitions,
investments in strategic initiatives, and the weakening of the United States dollar compared to most other foreign currencies, which
resulted in a negative impact on the translation of our expenses, partially offset by restructuring savings.
During the years ended December 31, 2012, 2011 and 2010, marketing-related expenditures, principally classified within
SG&A, were approximately 4.2%, 4.1% and 4.1%, of revenue, respectively. Marketing-related expenditures include advertising,
events, costs related to administering our loyalty programs, and the cost of employees dedicated to marketing activities. When
making decisions with respect to marketing investments, we review opportunities for advertising and other marketing-related
expenditures together with opportunities for fee adjustments, as discussed in “Segment Discussion,” for Consumer-to-Consumer
revenues and other initiatives in order to best maximize the return on these investments.
Enhanced Regulatory Compliance
We regularly review our compliance programs. In connection with that review, and in light of growing global regulatory
complexity and heightened attention of and increased dialogue with governmental and regulatory authorities relating to our
compliance activities, we have made, and continue to make, enhancements to our processes and systems designed to detect and
prevent money laundering, terrorist financing, and fraud and other illicit activity. These enhancements, along with other
enhancements to improve consumer protection related to the Dodd-Frank Act and other matters, have resulted in, and in coming
quarters we expect them to continue to result in, changes to certain of our business practices and increased costs. Some of these
changes have had, and we believe will continue to have, an adverse effect on our business, financial condition and results of
operations.