Western Union 2013 Annual Report Download - page 170

2013 FORM 10-K
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Operating expenses overview
Enhanced Regulatory Compliance
The financial services industry, including money services businesses, continues to be subject to increasingly strict legal and
regulatory requirements, and we regularly review our compliance programs. In connection with these reviews, and in light of
growing and rapidly evolving regulatory complexity and heightened attention of, and increased dialogue with, governmental and
regulatory authorities related to our compliance activities, we have made, and continue to make enhancements to our processes
and systems designed to deter and prevent money laundering, terrorist financing, and fraud and other illicit activity, along with
enhancements to improve consumer protection related to the Dodd-Frank Act and other matters. In coming periods we expect
these enhancements will 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.
Productivity and Cost-Savings Initiatives
In the fourth quarter of 2012 and throughout 2013, we implemented additional initiatives to improve productivity and reduce
costs. We incurred $56.9 million and $30.9 million of expenses related to these initiatives for the years ended December 31, 2013
and 2012, respectively. We expect these initiatives to result in approximately $45 million of estimated incremental cost savings in
2014.
TGBP integration expenses
During the years ended December 31, 2013, 2012 and 2011, we incurred $19.3 million, $42.8 million and $4.8 million,
respectively, of integration expenses related to the acquisition of TGBP. TGBP integration expense consists of severance and other
benefits, retention, direct and incremental expense consisting of facility relocation, consolidation and closures; IT systems
integration; amortization of a transitional trademark license; and other expenses such as training, travel and professional fees.
Integration expense does not include costs related to the completion of the TGBP acquisition.
Cost of services
Cost of services primarily consists of agent commissions, which represented approximately two-thirds of total cost of services
for the year ended December 31, 2013 and generally fluctuate as revenues fluctuate.
Cost of services increased for the year ended December 31, 2013 compared to the prior year due to investments in our strategic
initiatives, primarily in information technology, increased variable costs that increase as transactions increase, costs associated
with our productivity and cost-savings initiatives, and increased compliance program costs (see "Enhanced Regulatory Compliance"
described above), partially offset by reduced agent commissions, which decrease as revenue decreases, 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, and savings from our productivity and cost-savings initiatives. We currently expect agent commission rates for our walk-
in services of our Consumer-to-Consumer segment to increase primarily due to the recent renewal of certain strategic agent
agreements.
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 S.r.l ("Finint") and Angelo Costa S.r.l ("Costa"), and a net decrease in bank
fees due to the Durbin Amendment to the Dodd-Frank Act (the "Durbin Legislation").