Western Union 2011 Annual Report Download - page 138

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THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(a) The 2011 gain of $12.6 million is comprised of a loss in value on the debt of $11.8 million and amortization
of hedge accounting adjustments of $24.4 million. 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.
(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 business-to-business
payments operations. These derivative contracts are excluded from this table as they are managed as part of
a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these
derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed
above.
(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 ($20.5) million,
($2.5) million and $2.8 million in 2011, 2010 and 2009, 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. Additionally, in the year ended December 31, 2011, the Company entered
into derivative contracts, consisting of foreign currency forward contracts with maturities of less than one
year, to reduce the economic variability related to the cash amounts used to fund acquisitions of businesses
with purchase prices denominated in foreign currencies, primarily for the TGBP acquisition, and recorded a
net gain of $20.8 million in “Derivative gains/(losses), net.”
An accumulated other comprehensive pre-tax gain of $15.4 million related to the foreign currency forward
contracts is expected to be reclassified into revenue within the next 12 months as of December 31, 2011.
Approximately $3.6 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, 2011. 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.
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