Western Union 2009 Annual Report Download - page 128

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Undesignated Hedges
The following table presents the location and amount of net gains/(losses) from undesignated hedges for
the years ended December 31, 2009, 2008 and 2007 (in millions):
Derivatives 2009 2008 2007
Amount
(Loss)/Gain Recognized in Income on Derivatives
Income Statement Location
Foreign currency contracts (e) ............ Foreign exchange revenue $ 4.5 $ — $ —
Foreign currency contracts (a) ............ Selling, general and administrative (7.4) 13.0 (21.1)
Foreign currency contracts (f) ............ Derivative (losses)/gains, net (2.8) 3.9 (2.9)
Total gain/(loss) ...................... $(5.7) $16.9 $(24.0)
(a) 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. The (loss)/
gain of ($7.4) million, $13.0 million, and ($21.1) million generated by the undesignated foreign currency
contracts in 2009, 2008 and 2007, respectively, was offset by a foreign exchange gain/(loss) on settlement
assets and obligations and cash balances of $2.8 million, ($24.9) million and $39.1 million, respectively.
(b) The 2009 gain of $11.1 million is comprised of a loss in value on the debt of $12.9 million and
amortization of hedge accounting adjustments of $24.0 million. The 2008 loss of $54.6 million is
comprised of a loss in value on the debt of $58.5 million and amortization of hedge accounting
adjustments of $3.9 million.
(c) The portion of the 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.
(d) The Company incurred an $18.0 million loss on the termination of these swaps in 2006 which is included
in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets and is reclassified as an
increase to “Interest expense” over the life of the related notes.
(e) The Company uses foreign currency forward and option contracts as part of its international
business-to-business payments operation. The derivative contracts are managed as part of a broader
currency portfolio that includes non-derivative currency exposures.
(f) The derivative contracts used in the Company’s revenue hedging program are not designated as hedges in
the final month of the contract.
An accumulated other comprehensive pre-tax loss of ($3.9) million related to the foreign currency
forward contracts is expected to be reclassified into revenue within the next 12 months as of December 31,
2009. 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, 2009. 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.
114
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)