Western Union 2008 Annual Report Download - page 74

Download and view the complete annual report

Please find page 74 of the 2008 Western Union annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 84

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84

WESTERN UNION
2008 Annual Report
72
The following tables summarize the location and amount of gains and losses of derivatives in the Consolidated
Statements of Income segregated by designated, qualifying SFAS No.133 hedging instruments and those that are
not, for the years ended December31, 2008, 2007 and 2006 (in millions).
Fair Value Hedges – Gain/(Loss)
Gain/(Loss) Recognized in Gain/(Loss) Recognized in
Income on Derivative Income on Related Hedged Item
Amount Amount
Derivatives Location 2008 2007 2006 Hedged Items Location 2008 2007 2006
Interest rate contracts
(a) Interest expense $58.5 $3.6 $ — Fixed-rate debt Interest expense $(54.6) $(3.6) $ —
Total gain/(loss) $58.5 $3.6 $ — $(54.6) $(3.6) $ —
Cash Flow Hedges – Gain/(Loss)
Amount of Gain/(Loss)
Gain/(Loss) Reclassified from Gain/(Loss) Recognized in Income
Recognized in OCI on
Accumulated OCI into Income on Derivative (Ineffective Portion and Amount
Derivative (Effective Portion)
(Effective Portion) Excluded from Effectiveneess Testing) (b)
Amount Amount
Derivatives 2008 2007 2006 Location 2008 2007 2006 Location 2008 2007 2006
Foreign currency Derivative
contracts $82.6 $(55.9) $(11.4) Revenue $(23.4) $(29.6) $ 1.8 (losses)/gains,net $(9.9) $8.7 $ 1.3
Interest rate Derivative
contracts
(c) — — (18.0) Interest expense (1.7) (1.7) (0.2) (losses)/gains,net — — (0.6)
Total gain/(loss) $82.6 $(55.9) $(29.4) $(25.1) $(31.3) $ 1.6 $(9.9) $8.7 $ 0.7
Undesignated – Gain/(Loss)
Gain/(Loss) Recognized in Income on Derivative
Amount
Derivatives Location 2008 2007 2006
Foreign currency contracts
(d) Costofservices $13.0 $(21.1) $(19.9)
Foreign currency contracts
(e) Derivative(losses)/gains,net 3.9 (2.9) (22.7)
Total gain/(loss) $16.9 $(24.0) $(42.6)
(a) The net gain of $3.9 million in interest expense in 2008 from the fair value hedges represents the net interest received on the swaps during the year. The fair value of
all future receipts and payments on the swaps are completely offset by changes in the value of the hedged debt.
(b) The portion of change in fair value of a derivative excluded from the effectiveness assessment for foreign currency forward contracts designated as cash flow hedges
represents the difference between changes in forward rates and spot rates. The ineffectiveness recognized in interest rate contracts is attributable to certain forecasted
debt hedges and the timing of the related debt issuance changing from original expectation.
(c) The Company incurred an $18.0 million loss on the termination of these swaps which is included in “Accumulated other comprehensive loss” and is reclassified as an
increase to interest expense over the life of the related notes.
(d) The Company uses foreign currency forward contracts to offset foreign exchange rate fluctuations on settlement assets and obligations as well as certain foreign currency
denominated positions.
(e) The derivative contracts used in the Company’s revenue hedging program are not designated as hedges in the final month of the contract. In 2006, the loss also includes
losses associated with certain foreign currency forward contracts that did not qualify as hedges under derivative accounting rules prior to September 29, 2006.
An accumulated other comprehensive pretax gain of $44.5 million related to the foreign currency forward contracts
is expected to be reclassified into revenue within the next 12 months as of December 31, 2008. Approximately
$1.7 million of losses on the forecasted debt issuance hedges are expected to be recognized in interest expense
within the next 12 months as of December 31, 2008. No amounts have been reclassified into earnings as a result of
the underlying transaction being considered probable of not occurring within the specified time period.
72