Western Union 2010 Annual Report Download - page 116

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Cash Flow Hedges
Derivatives 2010 2009 2008
Income Statement
Location 2010 2009 2008
Income Statement
Location 2010 2009 2008
Amount Amount
Amount of Gain/(Loss)
Recognized in OCI on
Derivatives
(Effective Portion)
Gain/(Loss) Reclassified from Accumulated OCI into
Income (Effective Portion)
Gain/(Loss) Recognized in Income on Derivative
(Ineffective Portion and Amount
Excluded from Effectiveness Testing) (b)
Foreign currency
contracts ................ $ 20.0 $ (43.6) $ 82.6 Revenue $ 24.5 $ 34.6 $ (23.4) Derivative losses, net $ (1.5) $ (1.2) $ (9.9)
Interest rate contracts
(c) ......................... (4.2) — — Interest expense (1.5) (1.7) (1.7) Interest expense (0.1) — —
Total gain/(loss) ......... $ 15.8 $ (43.6) $ 82.6 $ 23.0 $ 32.9 $ (25.1) $ (1.6) $ (1.2) $ (9.9)
Undesignated Hedges
Derivatives 2010 2009 2008
AmountIncome Statement Location
Gain/(Loss) Recognized in Income on Derivatives
Foreign currency contracts (d) ............ Foreign exchange revenues $ 25.8 $ 4.5 $ —
Foreign currency contracts (e) ............ Selling, general and administrative (1.0) (7.4) 13.0
Foreign currency contracts (f) ............ Derivative losses, net 0.6 (2.8) 3.9
Total gain/(loss) ................................ $ 25.4 $ (5.7) $ 16.9
(a) The 2010 gain of $10.5 million is comprised of a loss in value on the debt of $13.3 million and amortization of
hedge accounting adjustments of $23.8 million. 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.
(b) 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.
(c) The Company uses derivatives to hedge the forecasted issuance of fixed rate debt and records the effective
portion of the derivative’s fair value in “Accumulated other comprehensive loss” in the Consolidated Balance
Sheets. These amounts are reclassified to “Interest expense” over the life of the related notes.
(d) 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.
(e) 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. Foreign
exchange gain/(loss) on settlement assets and obligations and cash balances were ($2.5) million,
$2.8 million and ($24.9) million in 2010, 2009 and 2008, respectively.
(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 ($9.1) million related to the foreign currency forward
contracts is expected to be reclassified into revenue within the next 12 months as of December 31, 2010.
Approximately $1.5 million of net losses on the forecasted debt issuance hedges are expected to be recognized in
interest expense within the next 12 months as of December 31, 2010. 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