Western Union 2011 Annual Report Download - page 107

Download and view the complete annual report

Please find page 107 of the 2011 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 169

  • 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
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Translation
The United States dollar is the functional currency for substantially all of the Company’s businesses. Revenues
and expenses are translated at average exchange rates prevailing during the period. Foreign currency
denominated assets and liabilities for those entities for which the local currency is the functional currency are
translated into United States dollars based on exchange rates at the end of the period. The effects of foreign
exchange gains and losses arising from the translation of assets and liabilities of these entities are included as a
component of “Accumulated other comprehensive loss.” Foreign currency denominated monetary assets and
liabilities of operations in which the United States dollar is the functional currency are remeasured based on
exchange rates at the end of the period and are recognized in operations. Non-monetary assets and liabilities of
these operations are remeasured at historical rates in effect when the asset was recognized or the liability was
incurred.
Derivatives
The Company utilizes derivatives to (a) minimize its exposures 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. The Company recognizes all derivatives in the “Other assets” and “Other liabilities”
captions in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with
derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows,
except for cash flows associated with foreign currency forward contracts entered into in order to reduce the
economic variability related to the cash amounts used to fund acquisitions of businesses with purchase prices
denominated in foreign currencies, which are recorded in investing activities.
• Cash Flow hedges—Changes in the fair value of derivatives that are designated and qualify as cash flow
hedges are recorded in “Accumulated other comprehensive loss.” Cash flow hedges consist of foreign
currency hedging of forecasted revenues, as well as hedges of the forecasted issuance of fixed rate debt.
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. The portions of the
change in fair value that are excluded from the measure of effectiveness are recognized immediately in
“Derivative gains/(losses), net.”
• Fair Value hedges—Changes in the fair value of derivatives that are designated as fair value hedges of
fixed rate debt are recorded in “Interest expense.” The offsetting change in value of the related debt
instrument attributable to changes in the benchmark interest rate is also recorded in “Interest expense.”
• Undesignated—Derivative contracts entered into to reduce the variability related to (a) money transfer
settlement assets and obligations, generally with maturities of a few days up to one month, and (b) certain
money transfer related foreign currency denominated cash positions and intercompany loans, generally
with maturities of less than one year, are not designated as hedges for accounting purposes and changes in
their fair value are included in “Selling, general and administrative.” In addition, changes in fair value of
derivative contracts, consisting of forward contracts with maturities of less than one year entered into to
reduce the economic variability related to the cash amounts used to fund acquisitions of businesses with
purchase prices denominated in foreign currencies, are recorded in “Derivative gains/(losses), net.” The
Company is also exposed to risk from derivative contracts written to its customers arising from its cross-
currency business-to-business payments operations. These contracts have durations generally of nine
months or less. The Company aggregates its foreign exchange exposures in its cross-currency
business-to-business payments operations, including the exposure generated by the derivative contracts it
100