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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2023
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | (10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) certain foreign currency denominated other asset and liability positions. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC 815, primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect. Foreign currency exchange contracts - Ria Operations and Corporate In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days, to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. T he Company had foreign currency forward contracts outstanding in the U.S. with a notional value of $426.0 million and $398.6 million as of September 30, 2023 and December 31, 2022, respectively. The foreign currency forward contracts consist primarily in Australian dollars, Canadian dollars, British pounds sterling, euros and Mexican pesos. In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain short-term borrowings that are payable in currencies other than the U.S dollar. T he Company had foreign currency forward contracts outstanding with a notional value of $325.5 million and $228.4 million as of September 30, 2023 and December 31, 2022, respectively, primarily in euro. Foreign currency exchange contracts - xe Operations xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $22.2 million and $63.8 million for the three and nine months ended September 30, 2023, respectively, and $22.3 million and $66.5 million for the same periods in 2022, respectively. All of the derivative contracts used in the Company's xe operations are economic hedges and are not designated as hedges under ASC 815. The duration of these derivative contracts is generally less than one year. The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults. The aggregate equivalent U.S. dollar notional amount of foreign currency derivative customer contracts held by the Company in its xe operations as of September 30, 2023 and December 31, 2022 was $1.0 billion and $1.0 billion, respectively. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pounds sterling, Australian dollar and New Zealand dollar. Balance Sheet Presentation The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
|  | Asset Derivatives |  | Liability Derivatives
|  |  |  | Fair Value |  |  |  | Fair Value
(in millions) |  | Balance Sheet Location |  | September 30, 2023 |  | December 31, 2022 |  | Balance Sheet Location |  | September 30, 2023 |  | December 31, 2022
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency exchange contracts |  | Other current assets |  | $ | 43.6 |  |  | $ | 50.3 |  |  | Other current liabilities |  | $ | (39.2 | ) |  | $ | (42.3 | )
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2023 and December 31, 2022 (in millions): Offsetting of Derivative Assets
As of September 30, 2023 |  | Gross Amounts of Recognized Assets |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts Presented in the Consolidated Balance Sheet |  | Derivatives Not Offset in the Consolidated Balance Sheet |  | Net Amounts
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 43.6 |  |  | $ | — |  |  | $ | 43.6 |  |  | $ | (29.7 | ) |  | $ | 13.9 |
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | 50.3 |  |  | $ | — |  |  | $ | 50.3 |  |  | $ | (32.0 | ) |  | $ | 18.3 |
Offsetting of Derivative Liabilities
As of September 30, 2023 |  | Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts Presented in the Consolidated Balance Sheet |  | Derivatives Not Offset in the Consolidated Balance Sheet |  | Net Amounts
Derivatives subject to a master netting arrangement or similar agreement |  | $ | (39.2 | ) |  | $ | — |  |  | $ | (39.2 | ) |  | $ | 28.7 |  |  | $ | (10.5 | )
As of December 31, 2022 |  |  |  |  |  |  |  |  |  |
Derivatives subject to a master netting arrangement or similar agreement |  | $ | (42.3 | ) |  | $ | — |  |  | $ | (42.3 | ) |  | $ | 32.1 |  |  | $ | (10.2 | )
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives. Income Statement Presentation The following table summarizes the location and amount of losses on derivatives in the Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022:
|  |  |  | Amount of (Loss) Recognized in Income on Derivative Contracts (a) |
|  | Location of Gain (Loss) Recognized in Income on Derivative Contracts |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |
(in millions) |  |  | 2023 |  | 2022 |  | 2023 |  | 2022 |
Foreign currency exchange contracts - Ria Operations |  | Foreign currency exchange (loss), net |  | $ | (3.2 | ) |  | $ | (7.4 | ) |  | $ | (6.9 | ) |  | $ | (0.7 | )
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above. See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.

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