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, Australian dollar, Swiss franc, and other currencies, related to forecasted revenues and on settlement assets and obligations as well as on certain foreign currency denominated cash and other asset and liability positions. The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency Business Solutions 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 Solutions 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 when doubt arises about the counterparties' ability to perform. These actions may include requiring Business Solutions customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. 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 Derivatives

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 help 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 September 30, 2016, 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, 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 at inception, are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability 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 September 30, 2016 were as follows (in millions):



Contracts designated as hedges:
Euro	$	380.6
British pound	136.9
Canadian dollar	96.5
Australian dollar	45.7
Swiss franc	41.8
Other	82.4
Contracts not designated as hedges:
Euro	$	286.7
British pound	62.1
Australian dollar	50.6
Canadian dollar	48.7
Singapore dollar	34.6
Indian rupee	29.2
Japanese yen	29.2
Mexican peso	26.4
Other (a)	123.6

____________________


(a)	Comprised of exposures to 18 different currencies. None of these individual currency exposures is greater than $25 million.

Business Solutions Operations

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 Solutions 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 the Company's cross-currency payments operations, which primarily include spot exchanges of currency in addition to forwards and options. The resulting foreign exchange revenues from the total portfolio of positions comprise Business Solutions foreign exchange revenues. None of the derivative contracts used in Business Solutions operations are designated as accounting hedges. The duration of these derivative contracts at inception is generally less than one year.

The aggregate equivalent United States dollar notional amount of foreign currency derivative customer contracts held by the Company in its Business Solutions operations as of September 30, 2016 was approximately $5.5 billion. The significant majority of customer contracts are written in major currencies such as the Australian dollar, British pound, Canadian dollar, and euro.

Interest Rate Hedging

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. 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 "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 $975.0 million as of September 30, 2016 and December 31, 2015. Of this aggregate notional amount held at September 30, 2016, $500.0 million related to notes due in 2017, $300.0 million related to notes due in 2018, and $175.0 million related to notes due in 2020.

Balance Sheet

The following table summarizes the fair value of derivatives reported in the Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 (in millions):



	Derivative Assets					Derivative Liabilities
		Fair Value					Fair Value
	Balance Sheet Location	September 30, 2016		December 31, 2015		Balance Sheet Location	September 30, 2016		December 31, 2015
Derivatives — hedges:
Interest rate fair value hedges	Other assets	$	18.4	$	7.6	Other liabilities	$	0.1	$	—
Foreign currency cash flow hedges	Other assets	26.2		59.7		Other liabilities	10.6		2.4
Total		$	44.6	$	67.3		$	10.7	$	2.4
Derivatives — undesignated:
Business Solutions operations — foreign currency (a)	Other assets	$	320.0	$	326.1	Other liabilities	$	265.7	$	277.1
Foreign currency	Other assets	1.5		2.9		Other liabilities	2.0		4.2
Total		$	321.5	$	329.0		$	267.7	$	281.3
Total derivatives		$	366.1	$	396.3		$	278.4	$	283.7

____________________

(a)

In many circumstances, the Company allows its Business Solutions customers to settle part or all of their derivative contracts prior to maturity. However, the offsetting positions originally entered into with financial institution counterparties do not allow for similar settlement. To mitigate this, additional foreign currency contracts are entered into with financial institution counterparties to offset the original economic hedge contracts. This frequently results in increases in the Company's derivative assets and liabilities that may exceed the growth in the underlying derivatives business.

The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted in the following tables to present the Company's net exposure with these counterparties. The Company's rights under these agreements generally allow for transactions to be settled on a net basis, including upon early termination, which could occur upon the counterparty's default, a change in control, or other conditions.

In addition, certain of the Company's other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction and depending on the circumstances. Due to the uncertainty related to the enforceability of these provisions, the derivative balances associated with these agreements are included within "Derivatives that are not or may not be subject to master netting arrangement or similar agreement" in the following tables. In certain circumstances, the Company may require its Business Solutions customers to maintain collateral balances which may mitigate the risk associated with potential customer defaults.

The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2016 and December 31, 2015 (in millions):

Offsetting of Derivative Assets



September 30, 2016	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets		Derivatives Not Offset in the Condensed Consolidated Balance Sheets			Net Amounts
Derivatives subject to a master netting arrangement or similar agreement	$	198.2	$	—	$	198.2	$	(143.6	)	$	54.6
Derivatives that are not or may not be subject to master netting arrangement or similar agreement	167.9
Total	$	366.1

December 31, 2015
Derivatives subject to a master netting arrangement or similar agreement	$	224.3	$	—	$	224.3	$	(119.2	)	$	105.1
Derivatives that are not or may not be subject to master netting arrangement or similar agreement	172.0
Total	$	396.3

Offsetting of Derivative Liabilities



September 30, 2016	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets		Derivatives Not Offset in the Condensed Consolidated Balance Sheets			Net Amounts
Derivatives subject to a master netting arrangement or similar agreement	$	163.1	$	—	$	163.1	$	(143.6	)	$	19.5
Derivatives that are not or may not be subject to master netting arrangement or similar agreement	115.3
Total	$	278.4

December 31, 2015
Derivatives subject to a master netting arrangement or similar agreement	$	169.6	$	—	$	169.6	$	(119.2	)	$	50.4
Derivatives that are not or may not be subject to master netting arrangement or similar agreement	114.1
Total	$	283.7

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 and nine months ended September 30, 2016 and 2015 (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 September 30, 2016 and 2015 (in millions):



	Gain/(Loss) Recognized in Income on Derivatives							Gain/(Loss) Recognized in Income on Related Hedged Item (a)						Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Income Statement Location	Amount						Income Statement Location	Amount					Income Statement Location	Amount
Derivatives	Income Statement Location	September 30, 2016			September 30, 2015		Hedged Item	Income Statement Location	September 30, 2016		September 30, 2015			Income Statement Location	September 30, 2016			September 30, 2015
Interest rate contracts	Interest expense	$	(2.6	)	$	10.5	Fixed rate debt	Interest expense	$	5.0	$	(7.3	)	Interest expense	$	(0.2	)	$	0.2
Total gain/(loss)		$	(2.6	)	$	10.5			$	5.0	$	(7.3	)		$	(0.2	)	$	0.2

The following table presents the location and amount of gains/(losses) from fair value hedges for the nine months ended September 30, 2016 and 2015 (in millions):



	Gain/(Loss) Recognized in Income on Derivatives						Gain/(Loss) Recognized in Income on Related Hedged Item (a)							Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Income Statement Location	Amount					Income Statement Location	Amount						Income Statement Location	Amount
Derivatives	Income Statement Location	September 30, 2016		September 30, 2015		Hedged Item	Income Statement Location	September 30, 2016			September 30, 2015			Income Statement Location	September 30, 2016		September 30, 2015
Interest rate contracts	Interest expense	$	12.8	$	21.1	Fixed rate debt	Interest expense	$	(5.1	)	$	(11.3	)	Interest expense	$	0.1	$	0.8
Total gain/(loss)		$	12.8	$	21.1			$	(5.1	)	$	(11.3	)		$	0.1	$	0.8

Cash Flow Hedges

The following table presents the location and amount of gains/(losses) from cash flow hedges for the three months ended September 30, 2016 and 2015 (in millions):



	Gain/(Loss) Recognized					Gain/(Loss) Reclassified							Gain/(Loss) Recognized in Income on
	in OCI on Derivatives					from Accumulated OCI into Income							Derivatives (Ineffective Portion and Amount
	(Effective Portion)					(Effective Portion)							Excluded from Effectiveness Testing) (b)
	Amount					Income Statement Location	Amount						Income Statement Location	Amount
Derivatives	September 30, 2016			September 30, 2015		Income Statement Location	September 30, 2016			September 30, 2015			Income Statement Location	September 30, 2016		September 30, 2015
Foreign currency contracts	$	(1.2	)	$	17.3	Revenue	$	11.5		$	21.0		Derivative gains, net	$	0.2	$	0.6
Interest rate contracts (c)	—			—		Interest expense	(0.9		)	(0.9		)	Interest expense	—		—
Total gain/(loss)	$	(1.2	)	$	17.3		$	10.6		$	20.1			$	0.2	$	0.6

The following table presents the location and amount of gains/(losses) from cash flow hedges for the nine months ended September 30, 2016 and 2015 (in millions):



	Gain/(Loss) Recognized					Gain/(Loss) Reclassified							Gain/(Loss) Recognized in Income on
	in OCI on Derivatives					from Accumulated OCI into Income							Derivatives (Ineffective Portion and Amount
	(Effective Portion)					(Effective Portion)							Excluded from Effectiveness Testing) (b)
	Amount					Income Statement Location	Amount						Income Statement Location	Amount
Derivatives	September 30, 2016			September 30, 2015		Income Statement Location	September 30, 2016			September 30, 2015			Income Statement Location	September 30, 2016		September 30, 2015
Foreign currency contracts	$	(7.4	)	$	55.7	Revenue	$	37.5		$	56.8		Derivative gains, net	$	2.9	$	0.6
Interest rate contracts (c)	—			—		Interest expense	(2.7		)	(2.7		)	Interest expense	—		—
Total gain/(loss)	$	(7.4	)	$	55.7		$	34.8		$	54.1			$	2.9	$	0.6

Undesignated Hedges

The following table presents the location and amount of net gains/(losses) from undesignated hedges for the three and nine months ended September 30, 2016 and 2015 (in millions):



	Gain/(Loss) Recognized in Income on Derivatives (d)
	Income Statement Location	Amount
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives		2016		2015		2016			2015
Foreign currency contracts (e)	Selling, general and administrative	$	0.2	$	15.1	$	(14.3	)	$	31.2
Foreign currency contracts (f)	Derivative gains, net	0.1		0.8		(0.7		)	1.8
Total gain/(loss)		$	0.3	$	15.9	$	(15.0	)	$	33.0

____________________

(a)

The gain/(loss) of $5.0 million and $(7.3) million in the three months ended September 30, 2016 and 2015, respectively, consisted of a gain/(loss) in value on the debt of $2.8 million and $(10.7) million, respectively, and amortization of hedge accounting adjustments of $2.2 million and $3.4 million, respectively. The loss of $5.1 million and $11.3 million in the nine months ended September 30, 2016 and 2015, respectively, consisted of a loss in value on the debt of $12.9 million and $21.9 million, respectively, and amortization of hedge accounting adjustments of $7.8 million and $10.6 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 Solutions 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 gains/(losses) on settlement assets and obligations, cash balances, and other assets and liabilities, not including amounts related to derivatives activity as displayed above and included in "Selling, general and administrative" in the Condensed Consolidated Statements of Income were $(2.9) million and $(17.5) million for the three months ended September 30, 2016 and 2015, respectively, and $3.8 million and $(39.0) million for the nine months ended September 30, 2016 and 2015, 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 gain of $13.2 million related to the foreign currency forward contracts is expected to be reclassified into revenue within the next 12 months as of September 30, 2016. Approximately $3.4 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 September 30, 2016. 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.