MoneyGram 2006 Annual Report Download - page 72

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill is tested for impairment using a fair-value based approach. The Company assesses goodwill at the reporting unit level, which is
determined to be the lowest level at which management reviews cash flows for a business. Goodwill, which is generated solely through
acquisitions, is allocated to the reporting unit in which the acquired business operates. The carrying value of the reporting unit is compared
to its estimated fair value; any excess of carrying value over fair value is deemed to be an impairment. Intangible, and other long-lived,
assets are tested for impairment by comparing the carrying value of the assets to the estimated future undiscounted cash flows. If an
impairment is determined to exist for goodwill and intangible assets, the carrying value of the asset is reduced to the estimated fair value.
Payments on Long-Term Contracts — We make incentive payments to certain agents and financial institution customers as an incentive to
enter into long-term contracts. The payments are generally required to be refunded pro rata in the event of nonperformance or cancellation
by the customer. Payments are capitalized and amortized over the life of the related agent or financial institution contracts as management is
satisfied that such costs are recoverable through future operations, minimums, penalties or refunds in case of early termination. Amortization
of payments on long-term contracts is recorded in "Fees commission expense" in the Consolidated Statement of Income. We review the
carrying values of these incentive payments whenever events or changes in circumstances indicate that the carrying amounts may not be
recoverable in accordance with the provisions of SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets.
Income Taxes — Prior to the Distribution, income taxes were determined on a separate return basis as if MoneyGram had not been eligible
to be included in the consolidated income tax return of Viad and its affiliates. The provision for income taxes is computed based on the
pretax income included in the Consolidated Statement of Income. Deferred income taxes result from temporary differences between the
financial reporting basis of assets and liabilities and their respective tax-reporting basis. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
Treasury Stock — Repurchased common stock is stated at cost and is presented as a separate reduction of stockholders' equity.
Foreign Currency Translation — The Euro is the functional currency of MoneyGram International Limited ("MIL"), a wholly owned
subsidiary of MoneyGram. Assets and liabilities for MIL are translated into U.S. dollars based on the exchange rate in effect at the balance
sheet date. Income statement accounts are translated at the average exchange rate during the period covered. Translation adjustments arising
from the use of differing exchange rates from period to period are included in "Accumulated other comprehensive income (loss)" in the
Consolidated Balance Sheet.
Revenue Recognition — We derive revenue primarily through service fees charged to consumers and our investing activity. A description of
these revenues and recognition policies are as follows:
• Fee revenues primarily consist of transaction fees, foreign exchange revenue and other revenue.
– Transaction fees consist primarily of fees earned on the sale of money transfers, retail money orders and bill payment services. The
money transfer transaction fees are fixed fees per transaction that may vary based upon the face value of the amount of the
transaction and the locations in which these money transfers originate and to which they are sent. The money order and bill payment
transaction fees are fixed fees charged on a per item basis. Transaction fees are recognized at the time of the transaction or sale of
the product.
– Foreign exchange revenue is derived from the management of currency exchange spreads (as a percentage of face value of the
transaction) on international money transfer transactions. Foreign exchange revenue is recognized at the time the exchange in funds
occurs.
– Other revenue consists of processing fees on rebate checks and controlled disbursements, service charges on aged outstanding
money orders, money order dispenser fees and other miscellaneous charges. These fees are recognized in earnings in the period the
item is processed or billed.
• Investment revenue is derived from the investment of funds generated from the sale of official checks, money orders and other payment
instruments and consists of interest income, dividend income and amortization of premiums and
F-15