MoneyGram 2009 Annual Report Download - page 103

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
follows at December 31, 2009 and 2008: 91 percent and 93 percent, respectively, used a third party pricing service; 4 percent and
3 percent, respectively, used broker pricing; and 5 percent and 4 percent, respectively, used internal pricing.
Assessment of Unrealized Losses — At December 31, 2009 and 2008, the Company had nominal unrealized losses in its available-for-sale
portfolio, with no unrealized losses aged 12 months or more, after the recognition of other-than-temporary impairment charges.
Note 7 — Derivative Financial Instruments
The Company uses forward contracts to hedge income statement exposure to foreign currency exchange risk arising from its assets and
liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as
hedges for accounting purposes. The "Transaction and operations support" line in the Consolidated Statements of Loss reflects losses of
$5.3 million, $5.5 million and $1.5 million in 2009, 2008 and 2007, respectively, from the effect of changes in foreign exchange rates on
foreign-denominated receivables and payables, which is net of a loss of $5.2 million, a gain of $4.3 million and a loss of $8.3 million
from the related forward contracts for 2009, 2008 and 2007, respectively. As of December 31, 2009 and 2008, the Company had
$59.4 million and $98.4 million, respectively, of outstanding notional amounts relating to its forward contracts.
At December 31, the Company reflects the following fair values of derivative forward contract instruments in its Consolidated Balance
Sheets:
Balance Sheet Derivative Assets Derivative Liabilities
(Amounts in thousands) Location 2009 2008 2009 2008
Forward contracts Other assets $ 5,361 $ 3,765 $ 29 $ 2,512
The Company is exposed to credit loss in the event of non-performance by counterparties to its derivative contracts. Collateral generally
is not required of the counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms of the
derivative contract, the Company's risk is limited to the fair value of the instrument. The Company actively monitors its exposure to
credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as
counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any
future instances of non-performance.
Historically, the Company entered into foreign currency forward contracts of 12 months to hedge forecasted foreign currency money
transfer transactions. The Company designated these forward contracts as cash flow hedges. The Company recognized a $2.4 million gain
and a $2.8 million loss for the years ended December 31, 2009 and 2008, respectively, in the "Fee and other revenue" line of the
Consolidated Statements of Loss, including $0.8 million of unrealized gains and $2.2 million of unrealized losses reclassified from
"Accumulated other comprehensive loss" upon the final settlement of these cash flow hedges for the years ending December 31, 2009
and 2008. As of December 31, 2008, the Company had $0.8 million of unrealized gains on its cash flow hedges recorded in
"Accumulated other comprehensive loss" in the Consolidated Balance Sheets. The notional amount of outstanding cash flow hedges as of
December 31, 2008 was $18.1 million, all of which matured in 2009. There were no outstanding cash flow hedges as of December 31,
2009.
The Company historically used interest rate swaps to hedge the variability of cash flows from its floating rate debt, as well as its floating
rate commission payments to financial institution customers in the Financial Paper Products segment, primarily relating to the official
check product. In connection with its restructuring of the official check business in 2008, the Company terminated certain of its financial
institution customer relationships. The termination of the relationships led the Company to discontinue hedge accounting treatment in
2008 as the forecasted
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