Western Union 2008 Annual Report Download - page 73

7171
Notes to Consolidated
Financial Statements
The Company also uses short duration foreign cur-
rency forward contracts, generally with maturities from a
few days up to one month, to offset foreign exchange rate
fluctuations on settlement assets and obligations between
initiation and settlement. In addition, forward contracts,
typically with maturities of less than one year, are utilized
to offset foreign exchange rate fluctuations on certain
foreign currency denominated cash positions. None of
these contracts are designated as hedges pursuant to
SFAS No. 133.
The aggregate United States dollar notional amount of
foreign currency forward contracts held by the Company
as of December 31, 2008 are (in millions):
Contracts not designated as hedges:
Euro $276.2
British pound $34.6
Other $26.6
Contracts designated as hedges:
Euro $556.3
British pound $106.8
Canadian dollar $101.3
Other $75.2
Interest Rate Hedging
The Company utilizes interest rate swaps to effectively
change the interest rate payments on a portion of its notes
due 2011 and 2016 from fixed-rate payments to short-term
LIBOR-based variable rate payments in order to manage
its overall exposure to interest rates. The Company des-
ignates these derivatives as fair value hedges utilizing
the short-cut method in SFAS No. 133, which permits an
assumption of no ineffectiveness if certain criteria are met.
The change in fair value of the interest rate swaps is offset
by a change in the balance of the debt being hedged
within the Company’s “Borrowings” in the Consolidated
Balance Sheets and interest expense has been adjusted
to include the effects of payments made and received
under the swaps.
At December 31, 2008 and 2007, the Company held
interest rate swaps in an aggregate notional amount of
$660 million and $75 million, respectively. The notional
amounts outstanding at December 31, 2008 included
interest rate swaps entered into by the Company to reduce
the economic exposure from fluctuations in interest rates
that will impact the return on pretax income the Company
receives under its existing agreement with IPS (Note 7).
During the fourth quarter of 2008, the Company ter-
minated an aggregate notional amount of $195 million
of interest rate swaps. The Company received cash of
$10.7 million on the termination of these swaps, the off-
set of which was recognized in “Borrowings” and will be
reclassified as a reduction to “Interest expense” over the
life of the 2011 notes.
In 2006, the Company executed forward starting inter-
est rate swaps designated as cash flow hedges to fix the
interest rate in connection with an anticipated issuance
of fixed rate debt securities. The Company terminated
the interest rate swaps in conjunction with the November
2006 issuance of the 2011 and 2036 Notes described in
Note 15 by paying cash of approximately $18.6 million
to the counterparties, resulting in ineffectiveness of
$0.6 million, which was immediately recognized in
“Derivative gains/(losses), net” in the Consolidated
Statements of Income. The remaining $18.0 million loss
on the hedges was included in “Accumulated other
comprehensive loss” and is being reclassified as an increase
to “Interest expense” over the life of the related notes.
Balance Sheet
The following table summarizes the fair value of derivatives reported in the Consolidated Balance Sheets as of
December 31, 2008 and 2007 (in millions).
Asset Derivatives Liability Derivatives
Fair Value Fair Value
Balance Sheet Location 2008 2007 Balance Sheet Location 2008 2007
Derivatives—hedges:
Interest rate fair value hedges Otherassets $ 48.9 $3.6 Otherliabilities $ — $ —
Foreign currency cash flow hedges Other assets 65.0 1.6 Other liabilities 6.7 34.7
Total $113.9 $5.2 $ 6.7 $34.7
Derivatives—undesignated:
Foreign currency Other assets $ 2.9 $2.9 Other liabilities $ 4.1 $ 2.5
Total $ 2.9 $2.9 $ 4.1 $ 2.5
Total derivatives $116.8 $8.1 $10.8 $37.2
The following table summarizes the fair value of derivatives held at December31, 2008 and their expected maturi-
ties (in millions):
Total 2009 2010 2011 2012 2013 Thereafter
Foreign currency hedges—cash flow $ 58.3 $40.5 $17.8 $ — $ — $ — $ —
Foreign currency hedges—undesignated (1.2) (1.2) — — — — —
Interest rate hedges—fair value 48.9 16.0 15.2 10.6 1.8 1.5 3.8
Total $106.0 $55.3 $33.0 $10.6 $1.8 $1.5 $3.8