Western Union 2014 Annual Report Download - page 199

2014 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 detect and prevent money laundering, terrorist financing, and fraud and other illicit activity, along with
enhancements to improve consumer protection related to the Dodd-Frank Wall Street Reform and Consumer Protection Act and
similar regulations outside the United States, 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.
TGBP integration expenses
During the years ended December 31, 2013 and 2012, we incurred $19.3 million and $42.8 million, respectively, of integration
expenses related to the acquisition of Travelex Global Business Payments ("TGBP"). TGBP integration expense consists primarily
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, 2014 and generally fluctuate with revenues.
Cost of services increased for the year ended December 31, 2014 compared to the prior year due to variable costs that generally
fluctuate with revenues and transactions, such as agent commissions and bank-related fees. Additionally, cost of services increased
due to higher bank-related fees in our Consumer-to-Business and Business Solutions segments and higher agent commission rates
in the walk-in services of our Consumer-to-Consumer segment, primarily from the renewal of certain strategic agent agreements.
These increases were partially offset by benefits from our productivity and cost-savings initiatives. For further discussion of our
productivity and cost-savings initiatives, see Note 3 to Part II, Item 8, Financial Statement and Supplementary Data. Additionally,
fluctuations in the exchange rate between the United States dollar and other currencies resulted in a positive impact on the translation
of our expenses.
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, 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.
Selling, general and administrative
Selling, general and administrative expenses decreased for the year ended December 31, 2014 compared to the prior year due
to benefits from our productivity and cost-savings initiatives and decreased integration costs related to the acquisition of TGBP,
partially offset by increased compliance program (see "Enhanced Regulatory Compliance" described above) and legal costs.
Additionally, fluctuations in the exchange rate between the United States dollar and other currencies resulted in a positive impact
on the translation of our expenses.