Western Union 2007 Annual Report Download - page 63

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61
Notes to Consolidated Financial Statements
The components of investment securities, all of which are classifi ed as available-for-sale, are as follows (in millions):
Gross Gross Net
Amortized Fair Unrealized Unrealized Unrealized
Cost Value Gains Losses Gains/(Losses)
DECEMBER 31, 2007
State and municipal obligations $187.3 $188.0 $0.7 $ — $ 0.7
Preferred stock of a government sponsored enterprise 6.9 5.8 — (1.1) (1.1)
$194.2 $193.8 $0.7 $(1.1) $(0.4)
Gross Gross Net
Amortized Fair Unrealized Unrealized Unrealized
Cost Value Gains Losses Gains/(Losses)
DECEMBER 31, 2006
State and municipal obligations $145.5 $146.4 $1.0 $(0.1) $0.9
Preferred stock of a government sponsored enterprise 6.9 7.8 0.9 — 0.9
$152.4 $154.2 $1.9 $(0.1) $1.8
No individual investment balance included within investment securities represents greater than 10% of total investment securities
as of December 31, 2007 and 2006.
The Company has $62.0 million in outstanding letters of credit
and bank guarantees at December 31, 2007 with expiration dates
through 2015, certain of which contain a one-year renewal option.
The letters of credit and bank guarantees are primarily held in
connection with lease arrangements and certain agent agree-
ments. The Company expects to renew the letters of credit prior
to expiration in most circumstances.
Pursuant to the separation and distribution agreement with
First Data in connection with the Spin-off (see Note 1), First Data
and the Company are each liable for, and agreed to perform, all
liabilities with respect to their respective businesses. In addition,
the separation and distribution agreement also provides for
cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of the Company’s
business with the Company and fi nancial responsibility for the
obligations and liabilities of First Data’s retained businesses with
First Data. The Company also entered into a tax allocation agree-
ment that sets forth the rights and obligations of First Data and
the Company with respect to taxes imposed on their respective
businesses both prior to and after the Spin-off as well as potential
tax obligations for which the Company may be liable in conjunc-
tion with the Spin-off (see Note 8).
||
6. Investment Securities
Investment securities, classifi ed within “Settlement assets” in the
Consolidated Balance Sheets, consist primarily of high-quality
state and municipal debt instruments. All of the Company’s
investment securities were marketable securities during all
periods presented. The Company is required to maintain specifi c
high-quality, investment grade securities and such investments
are restricted to satisfy outstanding settlement obligations in
accordance with applicable state regulations. Western Union
does not hold fi nancial instruments for trading purposes. All
investment securities are classifi ed as available-for-sale and
recorded at fair value, which are based on market quotations.
Investment securities are exposed to market risk due to changes
in interest rates and credit risk. Western Union regularly monitors
credit risk and attempts to mitigate its exposure by making high-
quality investments. At December 31, 2007, substantially all
investment securities had credit ratings of “AA-” or better from
a major credit rating agency.
Unrealized gains and losses on available-for-sale securities
are excluded from earnings and presented as a component of
accumulated other comprehensive income or loss, net of related
deferred taxes. There were no signifi cant realized gains or losses
transferred out of “Accumulated other comprehensive loss”
during the periods presented. Proceeds from the sale and maturity
of available-for-sale securities during the years ended December
31, 2007, 2006 and 2005 were $177.7 million, $62.6 million and
$49.0 million, respectively.
Gains and losses on investments are calculated using the
specifi c-identifi cation method and are recognized during the
period the investment is sold or when an investment experiences
an other-than-temporary decline in value below cost or amortized
cost. When an investment is deemed to have an other-than-
temporary decline in value it is reduced to its fair value, which
becomes the new cost basis of the investment. Western Union
considers both qualitative and quantitative indicators when
judging whether a decline in value of an investment is other-
than-temporary in nature, including, but not limited to, the length
of time the investment has been in an unrealized loss position,
the signifi cance of the unrealized loss relative to the carrying
amount of the investment and our intent and ability to hold the
investment until a forecasted recovery.