Western Union 2011 Annual Report Download - page 135

Download and view the complete annual report

Please find page 135 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—Global Business Payments
The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly
with small and medium size enterprises and derives a currency spread from this activity as part of its global
business payments operations. The Company aggregates its global business payments foreign currency exposures
arising from customer contracts, including the derivative contracts described above, and hedges the resulting net
currency risks by entering into offsetting contracts with established financial institution counterparties (economic
hedge contracts). The derivatives written are part of the broader portfolio of foreign currency positions arising
from its cross-currency business-to-business payments operations, which primarily include spot exchanges of
currency in addition to forwards and options. Foreign exchange revenues from the total portfolio of positions
were $154.6 million, $105.0 million, and $28.8 million for the years ended December 31, 2011, 2010 and 2009,
respectively. None of the derivative contracts used in global business payments operations are designated as
accounting hedges. The duration of these derivative contracts is generally nine months or less.
The aggregate equivalent United States dollar notional amounts of foreign currency derivative customer
contracts held by the Company in its global business payments operations as of December 31, 2011 were
approximately $3.3 billion. The significant majority of customer contracts are written in major currencies such as
the euro, Canadian dollar, British pound, and Australian dollar.
The Company has forward contracts to offset foreign exchange rate fluctuations on a Canadian dollar denominated
intercompany loan. These contracts, which are not designated as accounting hedges, had a notional amount of
approximately 240 million and 245 million Canadian dollars as of December 31, 2011 and 2010, respectively.
Interest Rate Hedging—Corporate
The Company utilizes interest rate swaps to effectively change the interest rate payments on a portion of its
notes from fixed-rate payments to short-term LIBOR-based variable rate payments in order to manage its overall
exposure to interest rates. The Company designates these derivatives as fair value hedges utilizing the short-cut
method, which permits an assumption of no ineffectiveness if certain criteria are met. The change in fair value of
the interest rate swaps is offset by a change in the carrying value of the debt being hedged within the Company’s
“Borrowings” in the Consolidated Balance Sheets and “Interest expense” in the Consolidated Statements of
Income has been adjusted to include the effects of interest accrued on the swaps.
The Company, at times, utilizes derivatives to hedge the forecasted issuance of fixed rate debt. These
derivatives are designated as cash flow hedges of the variability in the fixed rate coupon of the debt expected to
be issued. The effective portion of the change in fair value of the derivatives is recorded in “Accumulated other
comprehensive loss.”
As of December 31, 2011 and 2010, the Company held interest rate swaps in an aggregate notional amount of
$500.0 million and $1,195.0 million, respectively. The aggregate notional amount held at December 31, 2011
related to notes due in 2014.
128