WESTERN UNION CO, 10-Q filed on 5/1/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 27, 2012
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Western Union CO 
 
Entity Central Index Key (CIK)
0001365135 
 
Company Fiscal Year End Date
--12-31 
 
Accelerated Filing Status
Large Accelerated Filer 
 
Form Type
10-Q 
 
Report Period
Mar. 31, 2012 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q1 
 
Amendment Flag
false 
 
Company Well-known Seasoned Issuer (WKSI)
Yes 
 
Entity Voluntary Filers
No 
 
Current with Filings
Yes 
 
Entity Common Stock, Shares Outstanding
 
612,951,394 
Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Revenues:
 
 
Transaction fees
$ 1,040.9 
$ 998.0 
Foreign exchange revenues
322.6 
256.1 
Other revenues
29.9 
28.9 
Total revenues
1,393.4 
1,283.0 
Expenses:
 
 
Cost of services
783.0 
745.4 
Selling, general and administrative
277.9 
224.7 
Total expenses
1,060.9 
970.1 
Operating income
332.5 
312.9 
Other income/(expense):
 
 
Interest income
1.5 
1.2 
Interest expense
(44.4)
(43.4)
Derivative gains, net
1.6 
1.9 
Other income/(expense), net
(1.1)
2.1 
Total other expense, net
(42.4)
(38.2)
Income before income taxes
290.1 
274.7 
Provision for income taxes
42.8 
64.5 
Net income
$ 247.3 
$ 210.2 
Earnings per share:
 
 
Basic (in dollars per share)
$ 0.40 
$ 0.32 
Diluted (in dollars per share)
$ 0.40 
$ 0.32 
Weighted-average shares outstanding:
 
 
Basic (in shares)
619.1 
646.9 
Diluted (in shares)
621.9 
652.1 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
Net income
$ 247.3 
$ 210.2 
Other comprehensive income/(loss):
 
 
Unrealized gains
5.9 
0.4 
Tax expense
(2.2)
(0.1)
Reclassification of gains into earnings
(1.4)
(0.2)
Tax expense
0.5 
0.1 
Net unrealized gains on investment securities
2.8 
0.2 
Unrealized losses on hedging activities:
 
 
Unrealized losses
(23.0)
(35.6)
Tax benefit
3.4 
5.2 
Reclassification of (gains)/losses into earnings
(1.6)
6.2 
Tax benefit
(1.4)
Net unrealized losses on hedging activities
(21.2)
(25.6)
Foreign currency translation adjustments:
 
 
Foreign currency translation adjustments
3.3 
4.5 
Tax expense
(0.5)
(1.0)
Net foreign currency translation adjustments
2.8 
3.5 
Defined benefit pension plan:
 
 
Reclassification of losses into earnings
2.6 
2.0 
Tax benefit
(1.0)
(0.7)
Net defined benefit pension plan adjustments
1.6 
1.3 
Total other comprehensive loss
(14.0)
(20.6)
Comprehensive income
$ 233.3 
$ 189.6 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Assets
 
 
Cash and cash equivalents
$ 1,395.9 
$ 1,370.9 
Settlement assets
3,185.1 
3,091.2 
Property and equipment, net of accumulated depreciation of $445.2 and $429.7, respectively
196.3 
198.1 
Goodwill
3,166.3 
3,198.9 
Other intangible assets, net of accumulated amortization of $433.6 and $462.5, respectively
878.3 
847.4 
Other assets
375.9 
363.4 
Total assets
9,197.8 
9,069.9 
Liabilities:
 
 
Accounts payable and accrued liabilities
498.3 
535.0 
Settlement obligations
3,185.1 
3,091.2 
Income taxes payable
259.6 
302.4 
Deferred tax liability, net
392.0 
389.7 
Borrowings
3,633.7 1
3,583.2 1
Other liabilities
261.7 
273.6 
Total liabilities
8,230.4 
8,175.1 
Commitments and contingencies (Note 6)
   
   
Stockholders' equity:
 
 
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
Common stock, $0.01 par value; 2,000 shares authorized; 613.9 shares and 619.4 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively
6.1 
6.2 
Capital surplus
298.9 
247.1 
Retained earnings
794.9 
760.0 
Accumulated other comprehensive loss
(132.5)
(118.5)
Total stockholders' equity
967.4 
894.8 
Total liabilities and stockholders' equity
$ 9,197.8 
$ 9,069.9 
Condensed Consolidated Balance Sheet (Unaudited) (Parentheticals) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Assets
 
 
Accumulated depreciation
$ 445.2 
$ 429.7 
Accumulated amortization
$ 433.6 
$ 462.5 
Stockholders' equity:
 
 
Preferred stock, par value (in dollars per share)
$ 1 
$ 1 
Preferred stock, shares authorized (in shares)
10,000,000 
10,000,000 
Preferred stock, shares issued (in shares)
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized (in shares)
2,000,000,000 
2,000,000,000 
Common stock, shares issued (in shares)
613,900,000 
619,400,000 
Common stock, shares outstanding (in shares)
613,900,000 
619,400,000 
Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Cash flows from operating activities
 
 
Net income
$ 247.3 
$ 210.2 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation
15.3 
15.0 
Amortization
48.6 
29.7 
Other non-cash items, net
1.6 
(7.2)
Increase/(decrease) in cash, excluding the effects of acquisitions, resulting from changes in:
 
 
Other assets
(10.1)
(11.5)
Accounts payable and accrued liabilities
(35.7)
(20.2)
Income taxes payable (Note 12)
(40.1)
41.0 
Other liabilities
(11.9)
(5.4)
Net cash provided by operating activities
215.0 
251.6 
Cash flows from investing activities
 
 
Capitalization of contract costs
(55.8)
(7.1)
Capitalization of purchased and developed software
(5.8)
(2.5)
Purchases of property and equipment
(14.2)
(12.3)
Net cash used in investing activities
(75.8)
(21.9)
Cash flows from financing activities
 
 
Proceeds from exercise of options
41.2 
72.3 
Cash dividends paid
(61.6)
(44.7)
Common stock repurchased
(146.8)
(498.4)
Net proceeds from commercial paper
53.0 
Net proceeds from issuance of borrowings
299.5 
Net cash used in financing activities
(114.2)
(171.3)
Net change in cash and cash equivalents
25.0 
58.4 
Cash and cash equivalents at beginning of period
1,370.9 
2,157.4 
Cash and cash equivalents at end of period
1,395.9 
2,215.8 
Supplemental cash flow information:
 
 
Interest paid
23.1 
23.6 
Income taxes paid (Note 12)
89.5 
24.6 
Unsettled repurchases of common stock
$ 0 
$ 26.8 
Business and Basis of Presentation
Business and Basis of Presentation
Business and Basis of Presentation
Business
The Western Union Company (“Western Union” or the “Company”) is a leader in global money movement and payment services, providing people and businesses with fast, reliable and convenient ways to send money and make payments around the world. The Western Union® brand is globally recognized. The Company’s services are available through a network of agent locations in more than 200 countries and territories. Each location in the Company’s agent network is capable of providing one or more of the Company’s services.
The Western Union business consists of the following segments:
 
Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company's multi-currency, real-time money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers - that is, the transfer of funds from one country to another - and, in certain countries, intra-country transfers - that is, money transfers from one location to another in the same country. This segment also includes money transfer transactions that can be initiated through the Company's websites and account based money transfers.

Consumer-to-Business - The Consumer-to-Business operating segment facilitates bill payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. This segment primarily consists of U.S. bill payments, Pago Fácil (bill payments in Argentina), and international bill payments. The significant majority of the segment's revenue was generated in the United States during all periods presented.

Business Solutions - The Business Solutions operating segment facilitates business-to-business payment solutions, primarily cross-border, cross-currency transactions, mainly for small and medium size enterprises, and other organizations. The majority of the segment's business relates to exchanges of currency at the spot rate which enables customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments. Travelex Global Business Payments (“TGBP”), which was acquired in November 2011 (see Note 3), is also included in this segment.
All businesses that have not been classified in the above segments are reported as “Other” and include the Company's money order, prepaid services, mobile money transfer, and other businesses and services, in addition to costs for the investigation and closing of acquisitions.
The Company's previously reported segments were Consumer-to-Consumer, Global Business Payments, and Other. The changes in the Company's segment structure primarily relate to the separation of the Global Business Payments segment into two new reportable segments, Consumer-to-Business and Business Solutions. All prior segment information has been reclassified to reflect these new segments.
There are legal or regulatory limitations on transferring certain assets of the Company outside of the countries where these assets are located, or which constitute undistributed earnings of affiliates of the Company accounted for under the equity method of accounting. However, there are generally no limitations on the use of these assets within those countries. Additionally, the Company must meet minimum capital requirements in some countries in order to maintain operating licenses. As of March 31, 2012, the amount of net assets subject to these limitations totaled approximately $265 million.
Various aspects of the Company’s services and businesses are subject to United States federal, state and local regulation, as well as regulation by foreign jurisdictions, including certain banking and other financial services regulations.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted.
The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts have been eliminated.
In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position and cash flows as of March 31, 2012 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Consistent with industry practice, the accompanying Condensed Consolidated Balance Sheets are unclassified due to the short-term nature of the Company’s settlement obligations contrasted with the Company’s ability to invest cash awaiting settlement in long-term investment securities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Earnings Per Share and Dividends
Earnings Per Share and Dividends
Earnings Per Share and Dividends
Earnings Per Share
The calculation of basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Unvested shares of restricted stock are excluded from basic shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested, using the treasury stock method. The treasury stock method assumes proceeds from the exercise price of stock options, the unamortized compensation expense and assumed tax benefits of options and restricted stock are available to acquire shares at an average market price throughout the period, and therefore, reduce the dilutive effect.
For the three months ended March 31, 2012 and 2011, there were 20.5 million and 7.8 million, respectively, of outstanding options to purchase shares of Western Union stock excluded from the diluted earnings per share calculation, as their effect was anti-dilutive.
The following table provides the calculation of diluted weighted-average shares outstanding (in millions):
 
Three Months Ended
March 31,
 
2012
 
2011
Basic weighted-average shares outstanding
619.1

 
646.9

Common stock equivalents
2.8

 
5.2

Diluted weighted-average shares outstanding
621.9

 
652.1


Cash Dividends Paid

During the first quarter of 2012 and 2011, the Company's Board of Directors declared quarterly cash dividends of $0.10 and $0.07 per common share, respectively, representing $61.6 million and $44.7 million, respectively, in total dividends, which were paid on March 30, 2012 and March 31, 2011, respectively.
Acquisitions
Acquisitions
Acquisitions
2011 Acquisitions

On November 7, 2011, the Company acquired the business-to-business payment business known as Travelex Global Business Payments from Travelex Holdings Limited for cash consideration of £603 million ($967.8 million). The acquisition of the French assets of TGBP for cash consideration of £3 million (approximately $5.2 million based on currency exchange rates at March 31, 2012) has not been finalized as of March 31, 2012. This acquisition is expected to close in 2012, subject to satisfaction of closing conditions. The final consideration and the final purchase price allocation for TGBP are subject to a working capital adjustment, further analysis of tax balances, final valuation of identifiable intangible assets, and other items. With the acquisition of TGBP and the Company's existing Business Solutions business, the Company has the ability to leverage TGBP's business-to-business payments market expertise, distribution, product and capabilities with Western Union's brand, existing Business Solutions operations, global infrastructure and relationships, and financial strength. The results of operations for TGBP have been included in the Company's consolidated financial statements from the date of acquisition.

On October 31, 2011 and April 20, 2011, the Company acquired the remaining 70% interests in European-based Finint S.r.l. (“Finint”) and Angelo Costa S.r.l. (“Costa”), respectively, two of the Company's largest agents providing services in a number of European countries. The Company previously held a 30% equity interest in each of these agents. The Company expects these acquisitions will help accelerate the introduction of additional Western Union products and services and will leverage its existing European infrastructure to build new opportunities across the European Union. The acquisitions do not impact the Company's money transfer revenue, because the Company was already recording all of the revenue arising from money transfers originating at Finint's and Costa's subagents. As of the acquisition dates, the Company no longer incurs commission costs for transactions related to Finint and Costa; rather the Company now pays commissions to Finint and Costa subagents, resulting in lower overall commission expense. The Company's operating expenses include costs attributable to Finint's and Costa's operations subsequent to the acquisition dates.

The Company acquired the remaining 70% interest in Finint for cash consideration of €99.6 million ($139.4 million). The Company revalued its previous 30% equity interest to fair value of approximately $47.7 million on the acquisition date, resulting in total value of $187.1 million.

The Company acquired the remaining 70% interest in Costa for cash consideration of €95 million ($135.7 million). The final consideration is subject to the resolution of a working capital adjustment. The Company revalued its previous 30% equity interest to fair value of approximately $46.2 million on the acquisition date, resulting in total value of $181.9 million.

All assets and liabilities have been recorded at fair value, excluding deferred tax liabilities. The following table summarizes the final allocations of purchase price for Finint and Costa and the preliminary allocation of purchase price for TGBP (in millions):
 
Travelex Global Business
Payments
 
Finint S.r.l
 
Angelo Costa
S.r.l
Assets:
 
 
 
 
 
Cash and cash equivalents
$
25.3

 
$

 
$

Settlement assets
171.6

 
52.2

 
46.3

Property and equipment
4.9

 
0.5

 
3.0

Goodwill
688.3

 
153.6

 
174.2

Other intangible assets
321.3

 
64.8

 
51.4

Other assets
66.5

 
2.0

 
1.5

Total assets
$
1,277.9

 
$
273.1

 
$
276.4

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Accounts payable and accrued liabilities
$
39.6

 
$
6.1

 
$
10.8

Settlement obligations
171.6

 
57.5

 
55.7

Income taxes payable
1.1

 
3.1

 
10.3

Deferred tax liability, net
76.0

 
15.8

 
15.5

Other liabilities
21.8

 
3.5

 
2.2

Total liabilities
310.1

 
86.0

 
94.5

Total purchase price (a)
$
967.8

 
$
187.1

 
$
181.9

____________________
(a)
Total purchase price includes cash consideration transferred and the revaluation of the Company's previous equity interest, if any, to fair value on the acquisition date.

The preliminary valuation of assets acquired for TGBP and the final valuation of assets acquired for Finint and Costa were derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation, and resulted in identifiable intangible assets as follows (in millions):
 
Travelex Global Business
Payments
 
Finint S.r.l
 
Angelo Costa
S.r.l
Customer and other contractual relationships
$
270.3

 
$

 
$

Network of subagents

 
53.9

 
44.6

Other
51.0

 
10.9

 
6.8

Total identifiable intangible assets
$
321.3

 
$
64.8

 
$
51.4



Customer and other contractual relationships and network of subagents identifiable intangible assets were valued using an income approach and are being amortized over 9 to 15 years, subject to valuation completion for TGBP. Other intangibles were valued using both income and cost approaches and are being amortized over one to five years. For the remaining assets and liabilities excluding goodwill and deferred tax liabilities, fair value approximated carrying value.

The goodwill recognized for TGBP of $688.3 million is attributable to expected synergies, the projected long-term business growth in current and new markets and an assembled workforce and relates entirely to the Business Solutions segment. The goodwill recognized for Finint and Costa of $153.6 million and $174.2 million, respectively, is attributable to growth opportunities that will arise from the Company directly managing its agent relationships, expected synergies, projected long-term business growth and an assembled workforce and relates entirely to the Consumer-to-Consumer segment. Based on the preliminary allocation of purchase price, goodwill expected to be deductible for income tax purposes for TGBP, Finint and Costa is approximately $440.0 million, $97.0 million and $104.9 million, respectively.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
Fair value, as defined by the relevant accounting standards, represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Company measures fair value, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The following tables reflect assets and liabilities that were measured at fair value on a recurring basis (in millions):
  
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
March 31, 2012
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
931.1

 
$

 
$
931.1

State and municipal variable rate demand notes

 
553.6

 

 
553.6

Corporate debt and other
0.1

 
88.0

 

 
88.1

Derivatives

 
110.9

 

 
110.9

Total assets
$
0.1

 
$
1,683.6

 
$

 
$
1,683.7

Liabilities:
 
 
 
 
 
 
 
Commercial paper
$

 
$
350.0

 
$

 
$
350.0

Notes and other borrowings

 
3,579.4

 

 
3,579.4

Total borrowings

 
3,929.4

 

 
3,929.4

Derivatives

 
90.6

 

 
90.6

Total liabilities
$

 
$
4,020.0

 
$

 
$
4,020.0

 
 
 
 
 
 
 
 
 
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
December 31, 2011
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
866.5

 
$

 
$
866.5

State and municipal variable rate demand notes

 
376.9

 

 
376.9

Corporate debt and other
0.1

 
88.5

 

 
88.6

Derivatives

 
124.8

 

 
124.8

Total assets
$
0.1

 
$
1,456.7

 
$

 
$
1,456.8

Liabilities:
 
 
 
 
 
 
 
Commercial paper
$

 
$
297.0

 
$

 
$
297.0

Notes and other borrowings

 
3,563.5

 

 
3,563.5

Total borrowings

 
3,860.5

 

 
3,860.5

Derivatives

 
86.6

 

 
86.6

Total liabilities
$

 
$
3,947.1

 
$

 
$
3,947.1


No non-recurring fair value adjustments were recorded during the three months ended March 31, 2012, except those associated with acquisitions, as disclosed in Note 3. No non-recurring fair value adjustments were recorded during the three months ended March 31, 2011.
Other Fair Value Measurements

The carrying amounts for many of the Company's financial instruments, including cash and cash equivalents, settlement cash and cash equivalents, settlement receivables and settlement obligations, and commercial paper approximate fair value due to their short maturities. The aggregate fair value of the Company's borrowings, excluding commercial paper, was based on quotes from multiple banks and excluded the impact of related interest rate swaps. All the assets and liabilities in the above tables were carried at fair value in the Company's Condensed Consolidated Balance Sheets, with the exception of borrowings, which had a carrying value of $3,633.7 million and $3,583.2 million as of March 31, 2012 and December 31, 2011, respectively (see Note 11).
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
Letters of Credit and Bank Guarantees
The Company had approximately $95 million in outstanding letters of credit and bank guarantees as of March 31, 2012 with expiration dates through 2015, the majority of which contain a one-year renewal option. The letters of credit and bank guarantees are primarily held in connection with lease arrangements and certain agent agreements. The Company expects to renew the letters of credit and bank guarantees prior to expiration in most circumstances.
Litigation and Related Contingencies

In the second quarter of 2009, the Antitrust Division of the United States Department of Justice (“DOJ”) served one of the Company's subsidiaries with a grand jury subpoena requesting documents in connection with an investigation into money transfers, including related foreign exchange rates, from the United States to the Dominican Republic from 2004 through the date of subpoena. The Company is cooperating fully with the DOJ investigation. Due to the stage of the investigation, the Company is unable to predict the outcome of the investigation, or the possible loss or range of loss, if any, which could be associated with the resolution of any possible criminal charges or civil claims that may be brought against the Company. Should such charges or claims be brought, the Company could face significant fines, damage awards or regulatory consequences which could have a material adverse effect on the Company's business, financial condition and results of operations.

The Company and one of its subsidiaries are defendants in two purported class action lawsuits: James P. Tennille v. The Western Union Company and Robert P. Smet v. The Western Union Company, both of which are pending in the United States District Court for the District of Colorado. The original complaints asserted claims for violation of various consumer protection laws, unjust enrichment, conversion and declaratory relief, based on allegations that the Company waits too long to inform consumers if their money transfers are not redeemed by the recipients and that the Company uses the unredeemed funds to generate income until the funds are escheated to state governments. The Tennille complaint was served on the Company on April 27, 2009. The Smet complaint was served on the Company on April 6, 2010. On September 21, 2009, the Court granted the Company's motion to dismiss the Tennille complaint and gave the plaintiff leave to file an amended complaint. On October 21, 2009, Tennille filed an amended complaint. The Company moved to dismiss the Tennille amended complaint and the Smet complaint. On November 8, 2010, the Court denied the motion to dismiss as to the plaintiffs' unjust enrichment and conversion claims. On February 4, 2011, the Court dismissed plaintiffs' consumer protection claims. On March 11, 2011, the plaintiffs filed an amended complaint that adds a claim for breach of fiduciary duty, various elements to its declaratory relief claim and Western Union Financial Services, Inc. as a defendant. On April 25, 2011, the Company and Western Union Financial Services, Inc. filed a motion to dismiss the breach of fiduciary duty and declaratory relief claims. Western Union Financial Services, Inc. also moved to compel arbitration of the plaintiffs' claims and to stay the action pending arbitration. On November 21, 2011, the Court denied the motion to compel arbitration and the stay request. Both companies appealed the decision. On January 24, 2012, the United States Court of Appeals for the Tenth Circuit granted the companies' request to stay the District Court proceedings pending their appeal. The plaintiffs have not sought and the Court has not granted class certification. The Company and Western Union Financial Services, Inc. intend to vigorously defend themselves against both lawsuits. However, due to the preliminary stages of these lawsuits, the fact the plaintiffs have not quantified their damage demands, and the uncertainty as to whether they will ever be certified as class actions, the potential outcome cannot be determined.

On February 11, 2010, the Company signed an agreement and settlement, which resolved all outstanding legal issues and claims with the State of Arizona and required the Company to fund a multi-state not-for-profit organization promoting safety and security along the United States and Mexico border, in which California, Texas and New Mexico are participating with Arizona. The accrual included amounts for reimbursement to the State of Arizona for its costs associated with this matter. In addition, as part of the agreement and settlement, the Company has made and expects to make certain investments in its compliance programs along the United States and Mexico border and a monitor has been engaged for those programs. The costs of the investments in the Company's programs and for the monitor are expected to reach up to $23.0 million over the period from signing to 2013.

In the normal course of business, the Company is subject to claims and litigation. Management of the Company believes such matters involving a reasonably possible chance of loss will not, individually or in the aggregate, result in a material adverse effect on the Company's financial condition, results of operations and cash flows. The Company accrues for loss contingencies as they become probable and estimable.

On January 26, 2006, the First Data Corporation (“First Data”) Board of Directors announced its intention to pursue the distribution of all of its money transfer and consumer payments business and its interest in a Western Union money transfer agent, as well as its related assets, including real estate, through a tax-free distribution to First Data shareholders (the “Spin-off”). The Spin-off resulted in the formation of the Company and these assets and businesses no longer being part of First Data. Pursuant to the separation and distribution agreement with First Data in connection with the Spin-off, First Data and the Company are each liable for, and agreed to perform, all liabilities with respect to their respective businesses. In addition, the separation and distribution agreement also provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of First Data's retained businesses with First Data. The Company also entered into a tax allocation agreement that sets forth the rights and obligations of First Data and the Company with respect to taxes imposed on their respective businesses both prior to and after the Spin-off as well as potential tax obligations for which the Company may be liable in conjunction with the Spin-off (see Note 12).
Related Party Transactions
Related Party Transactions
Related Party Transactions
The Company has ownership interests in certain of its agents accounted for under the equity method of accounting. The Company pays these agents, as it does its other agents, commissions for money transfer and other services provided on the Company’s behalf. Commission expense recognized for these agents for the three months ended March 31, 2012 and 2011 totaled $16.1 million and $44.0 million, respectively. Commission expense recognized for Finint prior to October 31, 2011 and Costa prior to April 20, 2011, the date of the acquisitions (see Note 3), was considered a related party transaction.

The Company has a director who is also a director for a company holding significant investments in two of the Company's existing agents. These agents had been agents of the Company prior to the director being appointed to the board. The Company recognized commission expense of $14.0 million and $13.4 million for the three months ended March 31, 2012 and 2011, respectively, related to these agents.
Settlement Assets and Obligations
Settlement Assets and Obligations
Settlement Assets and Obligations
Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders and consumer payments. The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from and payable to businesses for the value of customer cross-currency payment transactions related to the Business Solutions segment.
Settlement assets and obligations consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
Settlement assets:
 
 
 
Cash and cash equivalents
$
483.2

 
$
712.5

Receivables from selling agents and Business Solutions customers
1,129.1

 
1,046.7

Investment securities
1,572.8

 
1,332.0

 
$
3,185.1

 
$
3,091.2

Settlement obligations:
 
 
 
Money transfer, money order and payment service payables
$
2,283.6

 
$
2,242.3

Payables to agents
901.5

 
848.9

 
$
3,185.1

 
$
3,091.2



Investment securities consist primarily of highly-rated state and municipal debt securities, including variable rate demand notes. Variable rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but that have varying maturities through 2050. Generally, these securities are used by the Company for short-term liquidity needs and are held for short periods of time, typically less than 30 days. The Company is required to hold specific highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state and foreign country requirements. The substantial majority of the Company's investment securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification. As of March 31, 2012, the majority of the Company's investment securities had credit ratings of “AA-” or better from a major credit rating agency.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive income or loss, net of related deferred taxes. Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Proceeds from the sale and maturity of available-for-sale securities during the three months ended March 31, 2012 and 2011 were $3.0 billion and $3.3 billion, respectively.
The components of investment securities are as follows (in millions):
March 31, 2012
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/
(Losses)
State and municipal debt securities (a)
$
919.1

 
$
931.1

 
$
13.3

 
$
(1.3
)
 
$
12.0

State and municipal variable rate demand notes
553.6

 
553.6

 

 

 

Corporate debt and other
87.7

 
88.1

 
0.8

 
(0.4
)
 
0.4

 
$
1,560.4

 
$
1,572.8

 
$
14.1

 
$
(1.7
)
 
$
12.4

December 31, 2011
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/
(Losses)
State and municipal debt securities (a)
$
858.5

 
$
866.5

 
$
10.4

 
$
(2.4
)
 
$
8.0

State and municipal variable rate demand notes
376.9

 
376.9

 

 

 

Corporate debt and other
88.7

 
88.6

 
0.6

 
(0.7
)
 
(0.1
)
 
$
1,324.1

 
$
1,332.0

 
$
11.0

 
$
(3.1
)
 
$
7.9

____________________ 
(a)
The majority of these securities are fixed-rate instruments.
The following summarizes the contractual maturities of investment securities as of March 31, 2012 (in millions):
 
Fair
Value
Due within 1 year
$
210.9

Due after 1 year through 5 years
750.8

Due after 5 years through 10 years
124.1

Due after 10 years
487.0

 
$
1,572.8



Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations or the Company may have the right to put the obligation prior to its contractual maturity, as with variable rate demand notes. Variable rate demand notes, having a fair value of $1.2 million, $64.6 million, $22.7 million and $465.1 million, are included in the “Due within 1 year,” “Due after 1 year through 5 years,” “Due after 5 years through 10 years” and “Due after 10 years” categories, respectively, in the table above.
Employee Benefit Plan
Employee Benefit Plan
Employee Benefit Plan

The Company has a frozen defined benefit pension plan (the “Plan”) for which it had a recorded unfunded pension obligation of $102.2 million and $112.7 million as of March 31, 2012 and December 31, 2011, respectively, included in “Other liabilities” in the Condensed Consolidated Balance Sheets. The Company is required to fund $20 million to the Plan in 2012. Through March 2012, the Company has made contributions of $9 million to the Plan, including a discretionary contribution of approximately $5 million.

The following table provides the components of net periodic benefit cost for the Plan (in millions):
 
Three Months Ended
March 31,
 
2012
 
2011
Interest cost
$
3.7

 
$
4.5

Expected return on plan assets
(5.2
)
 
(5.3
)
Amortization of actuarial loss
2.6

 
2.0

Net periodic benefit cost
$
1.1

 
$
1.2

Derivatives
Derivatives
Derivatives

The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and to a lesser degree the British pound, Canadian dollar and other currencies, related to forecasted money transfer revenues and on money transfer settlement assets and obligations. The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency business-to-business payments operations. Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt. The Company uses 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 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 writes Business Solutions 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 March 31, 2012, 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 Condensed 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 March 31, 2012 were as follows (in millions):
Contracts not designated as hedges:
 
Euro
$
149.7

Australian dollar
48.1

Canadian dollar
43.6

British pound
42.5

Other
67.6

Contracts designated as hedges:
 
Euro
$
503.2

Canadian dollar
117.4

British pound
104.1

Australian dollar
48.2

Other
78.5



Foreign Currency — Business Solutions

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 Business Solutions operations. The Company aggregates its business-to-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 $80.1 million and $27.7 million for the three months ended March 31, 2012 and 2011, respectively. None of the derivative contracts used in Business Solutions 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 Business Solutions operations as of March 31, 2012 were approximately $3.5 billion. The significant majority of customer contracts are written in major currencies such as the Canadian dollar, euro, Australian dollar, and British pound.

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 Condensed Consolidated Balance Sheets and “Interest expense” in the Condensed 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” in the Condensed Consolidated Balance Sheets.

The Company held interest rate swaps in an aggregate notional amount of $500.0 million, related to notes due in 2014, as of both March 31, 2012 and December 31, 2011.

Balance Sheet
The following table summarizes the fair value of derivatives reported in the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Fair Value
 
 
 
Fair Value
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
Derivatives — hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate fair value hedges — Corporate
Other assets
 
$
3.9

 
$
4.4

 
Other liabilities
 
$

 
$

Foreign currency cash flow hedges — Consumer-to-Consumer
Other assets
 
18.3

 
37.0

 
Other liabilities
 
13.4

 
6.6

Total
 
 
$
22.2

 
$
41.4

 
 
 
$
13.4

 
$
6.6

Derivatives — undesignated:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency — Business Solutions
Other assets
 
$
87.2

 
$
79.8

 
Other liabilities
 
$
69.4

 
$
67.6

Foreign currency —Consumer-to-Consumer
Other assets
 
1.5

 
3.6

 
Other liabilities
 
7.8

 
12.4

Total
 
 
$
88.7

 
$
83.4

 
 
 
$
77.2

 
$
80.0

Total derivatives
 
 
$
110.9

 
$
124.8

 
 
 
$
90.6

 
$
86.6


Income Statement
The following tables summarize the location and amount of gains and losses of derivatives in the Condensed Consolidated Statements of Income segregated by designated, qualifying hedging instruments and those that are not, for the three months ended March 31, 2012 and 2011 (in millions):
Fair Value Hedges
The following table presents the location and amount of gains/(losses) from fair value hedges for the three months ended March 31, 2012 and 2011 (in millions):
 
Gain/(Loss) Recognized in Income on
Derivatives
 
 
 
Gain/(Loss) Recognized in Income on
Related Hedged Item (a)
 
Income
Statement
Location
 
Amount
 
 
 
Income
Statement
Location
 
Amount
Derivatives
 
March 31,
2012
 
March 31,
2011
 
Hedged Items
 
 
March 31,
2012
 
March 31,
2011
Interest rate contracts
Interest expense
 
$
1.7

 
$
(0.2
)
 
Fixed-rate debt
 
Interest expense
 
$
0.2

 
$
7.3

Total gain/(loss)
 
 
$
1.7

 
$
(0.2
)
 
 
 
 
 
$
0.2

 
$
7.3


Cash Flow Hedges
The following table presents the location and amount of gains/(losses) from cash flow hedges for the three months ended March 31, 2012 and 2011 (in millions):
 
Amount of Gain/(Loss)
Recognized in OCI on
Derivatives (Effective
Portion)
 
Gain/(Loss) Reclassified from
Accumulated OCI
into Income
(Effective Portion)
 
Gain/(Loss) Recognized in Income on
Derivatives (Ineffective Portion and Amount
Excluded from Effectiveness Testing) (b)
 
 
Income
Statement
 
Amount
 
Income
Statement
 
Amount
 
March 31,
 
March 31,
 
 
March 31,
 
March 31,
 
 
March 31,
 
March 31,
Derivatives
2012
 
2011
 
Location
 
2012
 
2011
 
Location
 
2012
 
2011
Foreign currency contracts
$
(23.0
)
 
$
(35.6
)
 
Revenue
 
$
2.5

 
$
(5.8
)
 
Derivative
gains, net
 
$
1.4

 
$
2.3

Interest rate contracts (c)

 

 
Interest expense
 
(0.9
)
 
(0.4
)
 
Interest expense
 

 

Total gain/(loss)
$
(23.0
)
 
$
(35.6
)
 
 
 
$
1.6

 
$
(6.2
)
 
 
 
$
1.4

 
$
2.3


Undesignated Hedges
The following table presents the location and amount of net losses from undesignated hedges for the three months ended March 31, 2012 and 2011 (in millions):
 
Gain/(Loss) Recognized in Income on Derivatives (d)
 
Income Statement Location
 
Amount
 
 
 
Three Months Ended
March 31,
Derivatives
 
 
2012
 
2011
Foreign currency contracts (e)
Selling, general and administrative
 
$
(14.8
)
 
$
(22.7
)
Foreign currency contracts (f)
Derivative gains, net
 
0.2

 
(2.0
)
Total loss
 
 
$
(14.6
)
 
$
(24.7
)
 ____________________
(a)
The gain of $0.2 million and $7.3 million in the three months ended March 31, 2012 and 2011, respectively, was comprised of a (loss)/gain in value on the debt of $(1.7) million and $0.2 million, respectively, and amortization of hedge accounting adjustments of $1.9 million and $7.1 million, respectively.
(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 Condensed Consolidated Balance Sheets. These amounts are reclassified to “Interest expense” in the Condensed Consolidated Statements of Income 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 on settlement assets and obligations and cash balances for the three months ended March 31, 2012 and 2011, were $16.1 million and $20.2 million, 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.
An accumulated other comprehensive pre-tax loss of $1.4 million related to the foreign currency forward contracts is expected to be reclassified into revenue within the next 12 months as of March 31, 2012. Approximately $3.6 million of net losses on the forecasted debt issuance hedges are expected to be recognized in "Interest expense" in the Condensed Consolidated Statements of Income within the next 12 months as of March 31, 2012. 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.
Borrowings
Borrowings
Borrowings
The Company’s outstanding borrowings consisted of the following (in millions):
 
March 31, 2012
 
December 31, 2011
Due in less than one year:
 
 
 
Commercial paper
$
350.0

 
$
297.0

Floating rate notes (effective rate of 1.1%) due 2013
300.0

 
300.0

Due in greater than one year (a):
 
 
 
6.500% notes (effective rate of 5.6%) due 2014
500.0

 
500.0

5.930% notes due 2016 (b)
1,000.0

 
1,000.0

3.650% notes (effective rate of 4.4%) due 2018
400.0

 
400.0

5.253% notes due 2020 (b)
324.9

 
324.9

6.200% notes due 2036 (b)
500.0

 
500.0

6.200% notes due 2040 (b)
250.0

 
250.0

Other borrowings
5.8

 
8.8

Total borrowings at par value
3,630.7

 
3,580.7

Fair value hedge accounting adjustments, net (a)
23.8

 
23.9

Unamortized discount, net
(20.8
)
 
(21.4
)
Total borrowings at carrying value (c)
$
3,633.7

 
$
3,583.2

____________________ 
(a)
The Company utilizes interest rate swaps designated as fair value hedges 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 changes in fair value of these interest rate swaps result in an offsetting hedge accounting adjustment recorded to the carrying value of the related note. These hedge accounting adjustments will be reclassified as reductions to or increases in “Interest expense” in the Condensed Consolidated Statements of Income over the life of the related notes, and cause the effective rate of interest to differ from the notes’ stated rate.
(b)
The difference between the stated interest rate and the effective interest rate is not significant.
(c)
As of March 31, 2012, the Company's weighted-average effective rate on total borrowings was approximately 4.8%.

The Company's maturities of borrowings at par value as of March 31, 2012 are $350.0 million in 2012, $300.0 million in 2013, $500.0 million in 2014, $1.0 billion in 2016 and approximately $1.5 billion thereafter.

The Company's obligations with respect to its outstanding borrowings, as described above, rank equally.

Commercial Paper Program
 
Pursuant to the Company's commercial paper program, the Company may issue unsecured commercial paper notes in an amount not to exceed $1.5 billion outstanding at any time, reduced to the extent of borrowings outstanding on the Company's Revolving Credit Facility. The Commercial Paper Notes may have maturities of up to 397 days from date of issuance. The Company's commercial paper borrowings as of March 31, 2012 had a weighted-average annual interest rate of approximately 0.5% and a weighted-average term of 5 days. During the three months ended March 31, 2012, the average commercial paper balance outstanding was $141.7 million and the maximum balance outstanding was $350.0 million. Proceeds from the Company's commercial paper borrowings were used for general corporate purposes. The Company had $350.0 million and $297.0 million of commercial paper outstanding as of March 31, 2012 and December 31, 2011, respectively.
Income Taxes
Income Taxes
Income Taxes
The Company's effective tax rates on pre-tax income for the three months ended March 31, 2012 and 2011 were 14.8% and 23.5%, respectively. The significant decrease in the Company's effective tax rate for the three months ended March 31, 2012 is primarily due to an agreement with the United States Internal Revenue Service (“IRS Agreement”) resolving substantially all of the issues related to the Company's restructuring of its international operations in 2003, as described below. The Company also continues to benefit from an increasing proportion of its profits being foreign-derived, and therefore taxed at lower rates than its combined federal and state tax rates in the United States. For the three months ended March 31, 2012, 85.0% of the Company's pre-tax income was from foreign sources. However, certain portions of the Company's foreign source income are subject to U.S. federal and state income tax as earned due to the nature of the income, and dividend repatriations of the Company's foreign source income are generally subject to U.S. federal and state income tax.
Uncertain Tax Positions

The Company has established contingency reserves for a variety of material, known tax exposures. The Company's tax reserves reflect management's judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While the Company believes its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company's income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue and (ii) any difference from the Company's tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in the Company's consolidated financial statements in future periods and could impact operating cash flows.

Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company's financial statements, and are reflected in “Income taxes payable” in the Condensed Consolidated Balance Sheets. The total amount of unrecognized tax benefits as of March 31, 2012 and December 31, 2011 was $120.2 million and $123.7 million, respectively, excluding interest and penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $113.9 million and $115.6 million as of March 31, 2012 and December 31, 2011, respectively, excluding interest and penalties.

The Company recognizes interest and penalties with respect to unrecognized tax benefits in “Provision for income taxes” in its Condensed Consolidated Statements of Income, and records the associated liability in “Income taxes payable” in its Condensed Consolidated Balance Sheets. The Company recognized $(1.5) million and $3.0 million in interest and penalties during the three months ended March 31, 2012 and 2011, respectively. The Company has accrued $19.3 million and $20.7 million for the payment of interest and penalties as of March 31, 2012 and December 31, 2011, respectively.

The unrecognized tax benefits accrual at March 31, 2012 consists of federal, state and foreign tax matters. It is reasonably possible that the Company's total unrecognized tax benefits will decrease by approximately $50 million during the next 12 months in connection with various matters which may be resolved.

The Company and its subsidiaries file tax returns for the United States, for multiple states and localities, and for various non-United States jurisdictions, and the Company has identified the United States as its major tax jurisdiction, as the income tax imposed by any one foreign country is not material to the Company. The United States federal income tax returns of First Data, which include the Company, are eligible to be examined for 2005 and 2006. The Company's United States federal income tax returns since the Spin-off are also eligible to be examined. The United States Internal Revenue Service (“IRS”) completed its examination of the United States federal consolidated income tax returns of First Data for 2003 and 2004, which included the Company, and issued a Notice of Deficiency in December 2008. In December 2011, the Company reached an agreement with the IRS resolving substantially all of the issues related to the Company's restructuring of its international operations in 2003. As a result of the IRS Agreement, the Company expects to make cash payments of approximately $190 million, of which approximately $65 million were made in the three months ended March 31, 2012. An examination of the United States federal consolidated income tax returns of First Data that cover the Company's 2005 and pre-Spin-off 2006 taxable periods is ongoing, as is an examination of the Company's United States federal consolidated income tax returns for the 2006 post-Spin-off period through 2009.

As of March 31, 2012, no provision had been made for United States federal and state income taxes on certain of the Company's outside tax basis differences, which primarily relate to accumulated foreign earnings of approximately $3.8 billion, which are expected to be reinvested outside the United States indefinitely. Upon distribution of those earnings to the United States in the form of actual or constructive dividends, the Company would be subject to United States income taxes (subject to an adjustment for foreign tax credits), state income taxes and possible withholding taxes payable to various foreign countries. Such taxes could be significant. Determination of this amount of unrecognized deferred United States tax liability is not practicable because of the complexities associated with its hypothetical calculation.

Tax Allocation Agreement with First Data

The Company and First Data each are liable for taxes imposed on their respective businesses both prior to and after the Spin-off. If such taxes have not been appropriately apportioned between First Data and the Company, subsequent adjustments may occur that may impact the Company's financial condition or results of operations.

Also under the tax allocation agreement, with respect to taxes and other liabilities that result from a final determination that is inconsistent with the anticipated tax consequences of the Spin-off (as set forth in the private letter ruling and relevant tax opinion) (“Spin-off Related Taxes”), the Company will be liable to First Data for any such Spin-off Related Taxes attributable solely to actions taken by or with respect to the Company. In addition, the Company will also be liable for half of any Spin-off Related Taxes (i) that would not have been imposed but for the existence of both an action by the Company and an action by First Data or (ii) where the Company and First Data each take actions that, standing alone, would have resulted in the imposition of such Spin-off Related Taxes. The Company may be similarly liable if it breaches certain representations or covenants set forth in the tax allocation agreement. If the Company is required to indemnify First Data for taxes incurred as a result of the Spin-off being taxable to First Data, it likely would have a material adverse effect on the Company's business, financial condition and results of operations. First Data generally will be liable for all Spin-off Related Taxes, other than those described above.
Stock Compensation Plans
Stock Compensation Plans
Stock Compensation Plans
For the three months ended March 31, 2012 and 2011, the Company recognized stock-based compensation expense of $10.5 million and $7.5 million, respectively, resulting from stock options, restricted stock awards, restricted stock units, performance-based restricted stock units, deferred stock units and bonus stock units in the Condensed Consolidated Statements of Income. During the three months ended March 31, 2012, the Company granted 2.5 million options at a weighted-average exercise price of $17.86, 1.7 million restricted stock units at a weighted-average grant date fair value of $16.76 and 0.5 million performance-based restricted stock units at a weighted-average grant date fair value of $16.70. The performance-based restricted stock units granted in 2012 are restricted stock awards, primarily granted to the Company's executives, which require certain financial and strategic performance objectives to be met over the next two years plus an additional one year vesting period. Achievement is also limited if certain total shareholder return metrics are not met over the three year vesting period.

As of March 31, 2012, the Company had 29.6 million outstanding options at a weighted-average exercise price of $18.45, and had 24.0 million options exercisable at a weighted-average exercise price of $18.71. Approximately 26% of the outstanding options as of March 31, 2012 were held by employees of First Data. The Company had 5.3 million non-vested restricted stock awards and units at a weighted-average grant date fair value of $17.42 as of March 31, 2012.
The Company used the following assumptions for the Black-Scholes option pricing model to determine the value of Western Union options granted in the three months ended March 31, 2012:
Stock options granted:
 
Weighted-average risk-free interest rate
1.2
%
Weighted-average dividend yield
1.7
%
Volatility
33.3
%
Expected term (in years)
6.09

Weighted-average grant date fair value
$
4.94


All assumptions used to calculate the fair value of Western Union’s stock options granted during the three months ended March 31, 2012 were determined on a consistent basis with those assumptions disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Segments
Segments
Segments

As previously described in Note 1, the Company classifies its businesses into three segments: Consumer-to-Consumer, Consumer-to-Business and Business Solutions. Operating segments are defined as components of an enterprise that engage in business activities, about which separate financial information is available that is evaluated regularly by the Company's CODM in deciding where to allocate resources and in assessing performance.

The Consumer-to-Consumer operating segment facilitates money transfers between two consumers. The Company's money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world, including related transactions that can be initiated through the Company's websites and account based money transfers. The segment includes six regions whose functions are limited to generating, managing and maintaining agent relationships and localized marketing activities. These regions interact on transactions with consumers and share common processes, systems and licenses, thereby constituting one global Consumer-to-Consumer money transfer business and one operating segment.

The Consumer-to-Business operating segment facilitates bill payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses.

The Business Solutions operating segment facilitates business-to-business payment solutions, primarily cross-border, cross-currency transactions, mainly for small and medium size enterprises, and other organizations.

All businesses that have not been classified in the above segments are reported as “Other” and include the Company's money order, prepaid services, mobile money transfer, and other businesses and services.

There were no restructuring and related expenses incurred during the three months ended March 31, 2012, but the Company incurred expenses of $24.0 million for the three months ended March 31, 2011. These expenses were not allocated to the Company's segments. While these items were identifiable to the Company's segments, they were not included in the measurement of segment operating profit provided to the CODM for purposes of assessing segment performance and decision making with respect to resource allocation. For additional information on restructuring and related activities, refer to Note 4.

In the first quarter of 2012, the Company began assessing performance and allocating resources based on the segment structure described above. Segment results for the three months ended March 31, 2011 have been reclassified to reflect this structure. The following table presents the Company's reportable segment results for the three months ended March 31, 2012 and 2011 (in millions):
 
Three Months Ended
March 31,
 
2012
 
2011
Revenues:
 
 
 
Consumer-to-Consumer:
 
 
 
Transaction fees
$
872.0

 
$
839.8

Foreign exchange revenues
239.4

 
227.4

Other revenues
13.2

 
10.9

 
1,124.6

 
1,078.1

Consumer-to-Business:
 
 
 
Transaction fees
147.7

 
144.7

Foreign exchange revenues
0.8

 
0.9

Other revenues
6.6

 
7.6

 
155.1

 
153.2

Business Solutions:
 
 
 
Transaction fees
6.5

 
0.9

Foreign exchange revenues
80.1

 
26.8

Other revenues
0.3

 
0.2

 
86.9

 
27.9

Other:
 
 
 
Total revenues
26.8

 
23.8

 
26.8

 
23.8

Total consolidated revenues
$
1,393.4

 
$
1,283.0

Operating income/(loss):
 
 
 
Consumer-to-Consumer
$
311.3

 
$
308.6

Consumer-to-Business
41.1

 
34.6

Business Solutions
(14.8
)
 
(4.3
)
Other
(5.1
)
 
(2.0
)
Total segment operating income
332.5

 
336.9

Restructuring and related expenses (Note 4)

 
(24.0
)
Total consolidated operating income
$
332.5

 
$
312.9

Business and Basis of Presentation (Policies)
Business
The Western Union Company (“Western Union” or the “Company”) is a leader in global money movement and payment services, providing people and businesses with fast, reliable and convenient ways to send money and make payments around the world. The Western Union® brand is globally recognized. The Company’s services are available through a network of agent locations in more than 200 countries and territories. Each location in the Company’s agent network is capable of providing one or more of the Company’s services.
The Western Union business consists of the following segments:
 
Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company's multi-currency, real-time money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers - that is, the transfer of funds from one country to another - and, in certain countries, intra-country transfers - that is, money transfers from one location to another in the same country. This segment also includes money transfer transactions that can be initiated through the Company's websites and account based money transfers.

Consumer-to-Business - The Consumer-to-Business operating segment facilitates bill payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. This segment primarily consists of U.S. bill payments, Pago Fácil (bill payments in Argentina), and international bill payments. The significant majority of the segment's revenue was generated in the United States during all periods presented.

Business Solutions - The Business Solutions operating segment facilitates business-to-business payment solutions, primarily cross-border, cross-currency transactions, mainly for small and medium size enterprises, and other organizations. The majority of the segment's business relates to exchanges of currency at the spot rate which enables customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments. Travelex Global Business Payments (“TGBP”), which was acquired in November 2011 (see Note 3), is also included in this segment.
All businesses that have not been classified in the above segments are reported as “Other” and include the Company's money order, prepaid services, mobile money transfer, and other businesses and services, in addition to costs for the investigation and closing of acquisitions.
The Company's previously reported segments were Consumer-to-Consumer, Global Business Payments, and Other. The changes in the Company's segment structure primarily relate to the separation of the Global Business Payments segment into two new reportable segments, Consumer-to-Business and Business Solutions. All prior segment information has been reclassified to reflect these new segments.
There are legal or regulatory limitations on transferring certain assets of the Company outside of the countries where these assets are located, or which constitute undistributed earnings of affiliates of the Company accounted for under the equity method of accounting. However, there are generally no limitations on the use of these assets within those countries. Additionally, the Company must meet minimum capital requirements in some countries in order to maintain operating licenses. As of March 31, 2012, the amount of net assets subject to these limitations totaled approximately $265 million.
Various aspects of the Company’s services and businesses are subject to United States federal, state and local regulation, as well as regulation by foreign jurisdictions, including certain banking and other financial services regulations.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted.
The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts have been eliminated.
In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position and cash flows as of March 31, 2012 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Consistent with industry practice, the accompanying Condensed Consolidated Balance Sheets are unclassified due to the short-term nature of the Company’s settlement obligations contrasted with the Company’s ability to invest cash awaiting settlement in long-term investment securities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
Earnings Per Share
The calculation of basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Unvested shares of restricted stock are excluded from basic shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested, using the treasury stock method. The treasury stock method assumes proceeds from the exercise price of stock options, the unamortized compensation expense and assumed tax benefits of options and restricted stock are available to acquire shares at an average market price throughout the period, and therefore, reduce the dilutive effect.
Investment securities consist primarily of highly-rated state and municipal debt securities, including variable rate demand notes. Variable rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but that have varying maturities through 2050. Generally, these securities are used by the Company for short-term liquidity needs and are held for short periods of time, typically less than 30 days. The Company is required to hold specific highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state and foreign country requirements. The substantial majority of the Company's investment securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification. As of March 31, 2012, the majority of the Company's investment securities had credit ratings of “AA-” or better from a major credit rating agency.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive income or loss, net of related deferred taxes. Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Proceeds from the sale and maturity of available-for-sale securities during the three months ended March 31, 2012 and 2011 were $3.0 billion and $3.3 billion, respectively.
The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and to a lesser degree the British pound, Canadian dollar and other currencies, related to forecasted money transfer revenues and on money transfer settlement assets and obligations. The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency business-to-business payments operations. Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt. The Company uses 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 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 writes Business Solutions 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 March 31, 2012, 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 Condensed 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.
Foreign Currency — Business Solutions

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 Business Solutions operations. The Company aggregates its business-to-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 $80.1 million and $27.7 million for the three months ended March 31, 2012 and 2011, respectively. None of the derivative contracts used in Business Solutions operations are designated as accounting hedges. The duration of these derivative contracts is generally nine months or less.
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 Condensed Consolidated Balance Sheets and “Interest expense” in the Condensed Consolidated Statements of Income has been adjusted to include the effects of interest accrued on the swaps.
Earnings Per Share and Dividends (Tables)
Calculation of diluted weighted-average shares outstanding
The following table provides the calculation of diluted weighted-average shares outstanding (in millions):
 
Three Months Ended
March 31,
 
2012
 
2011
Basic weighted-average shares outstanding
619.1

 
646.9

Common stock equivalents
2.8

 
5.2

Diluted weighted-average shares outstanding
621.9

 
652.1

Acquisitions (Tables)
The following table summarizes the final allocations of purchase price for Finint and Costa and the preliminary allocation of purchase price for TGBP (in millions):
 
Travelex Global Business
Payments
 
Finint S.r.l
 
Angelo Costa
S.r.l
Assets:
 
 
 
 
 
Cash and cash equivalents
$
25.3

 
$

 
$

Settlement assets
171.6

 
52.2

 
46.3

Property and equipment
4.9

 
0.5

 
3.0

Goodwill
688.3

 
153.6

 
174.2

Other intangible assets
321.3

 
64.8

 
51.4

Other assets
66.5

 
2.0

 
1.5

Total assets
$
1,277.9

 
$
273.1

 
$
276.4

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Accounts payable and accrued liabilities
$
39.6

 
$
6.1

 
$
10.8

Settlement obligations
171.6

 
57.5

 
55.7

Income taxes payable
1.1

 
3.1

 
10.3

Deferred tax liability, net
76.0

 
15.8

 
15.5

Other liabilities
21.8

 
3.5

 
2.2

Total liabilities
310.1

 
86.0

 
94.5

Total purchase price (a)
$
967.8

 
$
187.1

 
$
181.9

____________________
(a)
Total purchase price includes cash consideration transferred and the revaluation of the Company's previous equity interest, if any, to fair value on the acquisition date.

The preliminary valuation of assets acquired for TGBP and the final valuation of assets acquired for Finint and Costa were derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation, and resulted in identifiable intangible assets as follows (in millions):
 
Travelex Global Business
Payments
 
Finint S.r.l
 
Angelo Costa
S.r.l
Customer and other contractual relationships
$
270.3

 
$

 
$

Network of subagents

 
53.9

 
44.6

Other
51.0

 
10.9

 
6.8

Total identifiable intangible assets
$
321.3

 
$
64.8

 
$
51.4

Fair Value Measurements (Tables)
Fair Value Measurements of Assets and Liabilities
The following tables reflect assets and liabilities that were measured at fair value on a recurring basis (in millions):
  
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
March 31, 2012
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
931.1

 
$

 
$
931.1

State and municipal variable rate demand notes

 
553.6

 

 
553.6

Corporate debt and other
0.1

 
88.0

 

 
88.1

Derivatives

 
110.9

 

 
110.9

Total assets
$
0.1

 
$
1,683.6

 
$

 
$
1,683.7

Liabilities:
 
 
 
 
 
 
 
Commercial paper
$

 
$
350.0

 
$

 
$
350.0

Notes and other borrowings

 
3,579.4

 

 
3,579.4

Total borrowings

 
3,929.4

 

 
3,929.4

Derivatives

 
90.6

 

 
90.6

Total liabilities
$

 
$
4,020.0

 
$

 
$
4,020.0

 
 
 
 
 
 
 
 
 
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
December 31, 2011
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
866.5

 
$

 
$
866.5

State and municipal variable rate demand notes

 
376.9

 

 
376.9

Corporate debt and other
0.1

 
88.5

 

 
88.6

Derivatives

 
124.8

 

 
124.8

Total assets
$
0.1

 
$
1,456.7

 
$

 
$
1,456.8

Liabilities:
 
 
 
 
 
 
 
Commercial paper
$

 
$
297.0

 
$

 
$
297.0

Notes and other borrowings

 
3,563.5

 

 
3,563.5

Total borrowings

 
3,860.5

 

 
3,860.5

Derivatives

 
86.6

 

 
86.6

Total liabilities
$

 
$
3,947.1

 
$

 
$
3,947.1

Settlement Assets and Obligations (Tables)
Settlement assets and obligations consisted of the following (in millions):
 
March 31,
2012
 
December 31,
2011
Settlement assets:
 
 
 
Cash and cash equivalents
$
483.2

 
$
712.5

Receivables from selling agents and Business Solutions customers
1,129.1

 
1,046.7

Investment securities
1,572.8

 
1,332.0

 
$
3,185.1

 
$
3,091.2

Settlement obligations:
 
 
 
Money transfer, money order and payment service payables
$
2,283.6

 
$
2,242.3

Payables to agents
901.5

 
848.9

 
$
3,185.1

 
$
3,091.2

The components of investment securities are as follows (in millions):
March 31, 2012
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/
(Losses)
State and municipal debt securities (a)
$
919.1

 
$
931.1

 
$
13.3

 
$
(1.3
)
 
$
12.0

State and municipal variable rate demand notes
553.6

 
553.6

 

 

 

Corporate debt and other
87.7

 
88.1

 
0.8

 
(0.4
)
 
0.4

 
$
1,560.4

 
$
1,572.8

 
$
14.1

 
$
(1.7
)
 
$
12.4

December 31, 2011
Amortized
Cost
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/
(Losses)
State and municipal debt securities (a)
$
858.5

 
$
866.5

 
$
10.4

 
$
(2.4
)
 
$
8.0

State and municipal variable rate demand notes
376.9

 
376.9

 

 

 

Corporate debt and other
88.7

 
88.6

 
0.6

 
(0.7
)
 
(0.1
)
 
$
1,324.1

 
$
1,332.0

 
$
11.0

 
$
(3.1
)
 
$
7.9

____________________ 
(a)
The majority of these securities are fixed-rate instruments.
The following summarizes the contractual maturities of investment securities as of March 31, 2012 (in millions):
 
Fair
Value
Due within 1 year
$
210.9

Due after 1 year through 5 years
750.8

Due after 5 years through 10 years
124.1

Due after 10 years
487.0

 
$
1,572.8

Employee Benefit Plans (Tables)
Net Periodic Benefit Cost for the Defined Benefit Pension Plan
The following table provides the components of net periodic benefit cost for the Plan (in millions):
 
Three Months Ended
March 31,
 
2012
 
2011
Interest cost
$
3.7

 
$
4.5

Expected return on plan assets
(5.2
)
 
(5.3
)
Amortization of actuarial loss
2.6

 
2.0

Net periodic benefit cost
$
1.1

 
$
1.2

Derivatives (Tables)
The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of March 31, 2012 were as follows (in millions):
Contracts not designated as hedges:
 
Euro
$
149.7

Australian dollar
48.1

Canadian dollar
43.6

British pound
42.5

Other
67.6

Contracts designated as hedges:
 
Euro
$
503.2

Canadian dollar
117.4

British pound
104.1

Australian dollar
48.2

Other
78.5

The following table summarizes the fair value of derivatives reported in the Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Fair Value
 
 
 
Fair Value
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
 
Balance Sheet
Location
 
March 31,
2012
 
December 31,
2011
Derivatives — hedges: