Western Union 2011 Annual Report Download - page 134

THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company executes derivatives with established financial institutions, with the substantial majority of these
financial institutions having credit ratings of “A–” or better from a major credit rating agency. The Company also
executes global business payments derivatives mostly with small and medium size enterprises. The primary
credit risk inherent in derivative agreements represents the possibility that a loss may occur from the
nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these
counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the
concentration of its contracts with any individual counterparty. The Company anticipates that the counterparties
will be able to fully satisfy their obligations under the agreements, but takes action (including termination of
contracts) when doubt arises about the counterparties’ ability to perform. The Company’s hedged foreign
currency exposures are in liquid currencies; consequently, there is minimal risk that appropriate derivatives to
maintain the hedging program would not be available in the future.
Foreign Currency—Consumer-to-Consumer
The Company’s policy is to use longer-term foreign currency forward contracts, with maturities of up to
36 months at inception and a targeted weighted-average maturity of approximately one year, to mitigate some of
the risk that changes in foreign currency exchange rates compared to the United States dollar could have on
forecasted revenues denominated in other currencies related to its business. As of December 31, 2011, the
Company’s longer-term foreign currency forward contracts had maturities of a maximum of 24 months with a
weighted-average maturity of approximately one year. These contracts are accounted for as cash flow hedges of
forecasted revenue, with effectiveness assessed based on changes in the spot rate of the affected currencies
during the period of designation. Accordingly, all changes in the fair value of the hedges not considered effective
or portions of the hedge that are excluded from the measure of effectiveness are recognized immediately in
“Derivative gains/(losses), net” within the Company’s Consolidated Statements of Income.
The Company also uses short duration foreign currency forward contracts, generally with maturities from a
few days up to one month, to offset foreign exchange rate fluctuations on settlement assets and obligations
between initiation and settlement. In addition, forward contracts, typically with maturities of less than one year,
are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash positions.
None of these contracts are designated as accounting hedges.
The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of
December 31, 2011 were as follows (in millions):
Contracts not designated as hedges:
Euro ......................................................................... $ 159.9
British pound .................................................................. 48.4
Other ......................................................................... 142.6
Contracts designated as hedges:
Euro ......................................................................... $ 500.1
Canadian dollar ................................................................ 116.8
British pound .................................................................. 106.4
Other ......................................................................... 117.0
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