MoneyGram 2005 Annual Report Download - page 27

Table of Contents
As shown in Table 4, the Company had a net securities loss of $3.7 million compared to a net gain of $9.6 million in 2004 despite lower impairments. Net
securities gains in 2004 included a large gain from the early pay off of a security held in the investment portfolio. Impairments in 2005 and 2004 related
primarily to investments backed by aircraft and manufactured housing collateral. The decline in impairments in 2005 reflects the continued improvement in
the credit quality of our portfolio. Net securities gains in 2004 increased $14.5 million from a net loss of $4.9 million in 2003, primarily due to lower
impairments. In 2003, we recorded significant impairments on our investments backed by aircraft and manufactured housing collateral in response to credit
quality deterioration.
Expenses
Expenses represent operating expenses other than commissions. As MoneyGram is the accounting successor to Viad, expenses through June 30, 2004 also
include corporate overhead that Viad did not allocate to its subsidiaries and, consequently, cannot be classified as discontinued operations. Included in the first
six months of 2004 are approximately $10.2 million of expenses allocated from Viad that did not recur in 2005. We were obligated under our Interim Services
Agreement with Viad to pay approximately $1.6 million annually, or $0.4 million quarterly, beginning on July 1, 2004 for certain corporate services provided
to MoneyGram by Viad. On July 1, 2005, we notified Viad of our termination of certain services under the Interim Services Agreement effective on
September 28, 2005. As a result of this termination, our payments to Viad are less than $0.1 million in the fourth quarter of 2005 and first quarter of 2006. On
December 22, 2005, we notified Viad of our termination of substantially all remaining services under the Interim Services Agreement effective in the second
quarter of 2006. Any remaining services provided by Viad will terminate on June 30, 2006. Following is a discussion of the operating expenses presented in
Table 1.
Compensation and benefits — Compensation and benefits includes salaries and benefits, management incentive programs, severance costs and other
employee related costs. Included in 2004 are $4.3 million of expenses allocated from Viad that did not recur in 2005. Compensation and benefits increased
five percent in 2005 compared to 2004, primarily driven by the hiring of additional personnel, stock option expense and higher incentive accruals, partially
offset by the absence of Viad allocations. Compensation and benefits increased 18 percent in 2004 compared to 2003, primarily driven by higher incentive
accruals, higher pension and benefit costs and the hiring of additional employees. In addition, 2003 benefited from a pension curtailment gain of $3.8 million.
Because of the adverse impact that declining interest rates had on the Company's performance in 2003, incentive accruals were substantially lower in 2003.
The total number of employees increased in 2005 and 2004 to drive money transfer growth and handle public company responsibilities.
Transaction and operations support — Transaction and operations support expenses include marketing costs, professional fees and other outside services
costs, telecommunications and forms expense related to our products. Included in 2004 are $5.4 million of expenses allocated from Viad that did not recur in
2005. Transactions and operations support costs increased 24 percent in 2005 compared to 2004, primarily driven by marketing expenditures, higher
transaction volumes, use of professional services, legal matters and increased provisions for uncollectible agent receivables. Marketing expenditures increased
just over 50 percent from 2004 as we invested in our money transfer brand recognition. We incurred higher professional services costs primarily due to the
compliance initiatives related to Section 404 of the Sarbanes-Oxley Act and the regulatory environment, software development and other projects. We are
seeing a trend among state and federal regulators of banks and other financial services businesses toward enhanced scrutiny of anti-money laundering
compliance. As we continue to add staff resources and enhancements to our technology systems to address this trend, our transaction expenses will likely
increase. In addition, we incurred additional costs related to the eMoney Transfer service that was launched in March 2004 as we moved processing in-house
from a third-party processor during 2005. During the first quarter of 2005, we incurred $2.2 million of costs related to the settlement of one legal matter and
the accrual for an expected settlement in another legal matter related to our Global Funds Transfer segment. We recognized additional provisions for
uncollectible agent receivables of $6.7 million related to a specific agent in the New York check casher channel.
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