Western Union 2010 Annual Report Download - page 68

Download and view the complete annual report

Please find page 68 of the 2010 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 144

  • 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
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144

Description Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
Derivative Financial Instruments
We utilize derivatives to
(a) minimize our exposure related
to changes in foreign currency
exchange rates and interest rates
and (b) facilitate cross-currency
business-to-business payments by
writing derivatives to customers.
We recognize all derivatives in
other assets and other liabilities in
our consolidated balance sheets at
their fair value. Certain of our
derivative arrangements are
designated as either cash flow
hedges or fair value hedges at the
time of inception, and others are
not designated as accounting
hedges.
Cash Flow hedges—Cash flow
hedges consist of foreign currency
hedging of forecasted money
transfer revenues and hedges of
anticipated fixed rate debt
issuances. Derivative fair value
changes that are captured in
accumulated other comprehensive
loss are reclassified to earnings in
the same period or periods the
hedged item affects earnings, to
the extent the change in the fair
value of the instrument is effective
in offsetting the change in fair
value of the hedged item. The
portion of the change in fair value
that is either considered ineffective
or is excluded from the measure
of effectiveness is recognized
immediately in “Derivative
(losses)/gains, net.”
Fair Value hedges—Fair value
hedges consist of hedges of fixed
rate debt, through interest rate
swaps. The changes in fair value
of these hedges, along with
offsetting changes in fair value of
the related debt instrument are
recorded in interest expense.
The accounting guidance related
to derivative accounting is
complex and contains strict
documentation requirements.
The details of each designated
hedging relationship must be
formally documented at the
inception of the arrangement,
including the risk management
objective, hedging strategy, hedged
item, specific risks being hedged,
the derivative instrument, how
effectiveness is being assessed and
how ineffectiveness, if any, will be
measured. The derivative must be
highly effective in offsetting the
changes in cash flows or fair value
of the hedged item, and
effectiveness is evaluated
quarterly.
If the hedge is no longer deemed
effective, we discontinue applying
hedge accounting to that
relationship prospectively.
While we expect that our
derivative instruments that
currently qualify for hedge
accounting will continue to meet
the conditions for hedge
accounting, if hedges do not
qualify for hedge accounting, the
changes in the fair value of the
derivatives used as hedges would
be reflected in earnings which
could have a significant impact on
our reported results.
As of December 31, 2010, the
cumulative pre-tax unrealized
losses classified within
accumulated other comprehensive
loss from such cash flow hedges
that would be reflected in earnings
if our hedges were disqualified
from hedge accounting was $31.8
million.
As of December 31, 2010, the
cumulative debt adjustments from
our fair value hedges that would
be reflected in earnings if such
hedges were disqualified from
hedge accounting was a $36.6
million gain.
66