MoneyGram 2006 Annual Report Download - page 68

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Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
owns a percentage of the beneficial interests which results in the Company absorbing a majority of the expected losses. Therefore, the
Company consolidates these trusts by recording and accounting for the assets of the trust separately in the consolidated financial
statements.
The Company follows the accounting guidance in Statement of Financial Accounting Standards ("SFAS") No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, to determine whether or not SPEs are qualifying SPEs (a
"QSPE"). A QSPE is an entity with significantly limited permissible activities which are entirely specified in the legal documents
establishing the SPE and may only be significantly changed with the approval of the holders of at least a majority of the beneficial
interests held by parties other than the sponsoring company. If the Company has a variable interest in a QSPE, or is a sponsor of an SPE
that does not meet the criteria required to be a QSPE, the Company follows the accounting guidance in FIN 46R to determine if the
Company is required to consolidate the SPE.
Management Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ
from those estimates.
Reclassifications — Certain reclassifications have been made to prior period financial statements to conform to the current presentation.
Auction rate securities of $167.7 million and $320.8 million at December 31, 2005 and 2004 were reclassified from cash and cash
equivalents to trading investments. Repurchase liabilities of $100.0 million at December 31, 2005 were reclassified from receivables to
payment service obligations; there were no repurchase liabilities at December 31, 2004. These reclassifications were not material,
individually or in the aggregate, and had no impact on net income, net cash flows provided by (used in) continuing operating activities or
stockholders' equity as previously reported.
Cash and Cash Equivalents, Receivables and Investments — We generate funds from the sale of money orders, official checks (including
cashier's checks, teller checks, and agent checks) and other payment instruments, all of which are classified as "Payment service
obligations" in the Consolidated Balance Sheets. The proceeds are invested in cash and cash equivalents and investments until needed to
satisfy the liability to pay the face amount of the payment service obligations upon presentment.
Cash and Cash Equivalents (substantially restricted) — We consider cash on hand and all highly liquid debt instruments purchased
with original maturities of three months or less, which we do not intend to rollover, to be cash and cash equivalents.
Receivables, net (substantially restricted) — We have receivables due from financial institutions and agents for payment instruments
sold. These receivables are outstanding from the day of the sale of the payment instrument until the financial institution or agent remits
the funds to us. We provide an allowance for the portion of the receivable estimated to become uncollectible using historical charge-
off and recovery patterns, as well as current economic conditions.
We sell an undivided percentage ownership interest in certain of these receivables, primarily receivables from our money order agents.
The sale is recorded in accordance with SFAS No. 140. Upon sale, we remove the sold agent receivables from the Consolidated
Balance Sheets as we have surrendered control over those receivables.
Investments (substantially restricted) — The Company's available-for-sale investments consist primarily of mortgage-backed
securities, other asset-backed securities, state and municipal government obligations and corporate debt securities. Trading investments
consist of auction rate securities. Investments are held in custody with major financial institutions.
The Company classifies securities as trading or available-for-sale in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Securities that are bought and held principally for the purpose of resale in the near term are
classified as trading securities. The Company records trading securities at fair value, with gains or losses reported in the Consolidated
Statement of Income. Securities held for indefinite periods of time, including those securities that may be sold to assist in the clearing
of payment service obligations or in the management of securities, are classified as securities available-for-sale. These securities are
recorded at fair value, with the net after-
F-11