MoneyGram 2007 Annual Report Download - page 102

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidated Statement of (Loss) Income in "Investment commissions expense" within the next 12 months as the swap payments are
settled. The swap agreements extend through 2012. The agreements expire as follows:
(Amounts in thousands) Notional Amount
2008 $ 100,000
2009 475,000
2010 335,000
2011 347,000
Thereafter 150,000
Total $ 1,407,000
Fair value hedges use derivatives to mitigate the risk of changes in the fair values of assets, liabilities and certain types of firm
commitments. The Company uses fair value hedges to manage the impact of changes in fluctuating interest rates on certain
available-for-sale securities. Interest rate swaps are used to modify exposure to interest rate risk by converting fixed rate assets to a
floating rate. All amounts have been included in earnings along with the hedged transaction in the Consolidated Statement of (Loss)
Income in "Investment revenue." No gain or loss was recognized in connection with the discontinued fair value hedges in 2007. These
interest rate swaps were sold in connection with the sale of the hedged assets. In the first quarter of 2008, the Company sold three interest
rate swaps with a notional amount of $32.0 million in connection with the sale of the hedged asset, resulting in a $0.7 million loss.
The Company uses derivatives to hedge exposures for economic reasons, including circumstances in which the hedging relationship does
not qualify for hedge accounting. The Company is exposed to foreign currency exchange risk and utilizes forward contracts to hedge
assets and liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not
designated as hedges for accounting purposes under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The
effect of changes in foreign exchange rates on the foreign-denominated receivables and payables, net of the effect of the related forward
contracts, recorded in the Consolidated Statements of (Loss) Income was a ($1.5) million, $0.2 million and ($1.1) million in 2007, 2006
and 2005, respectively.
The Company is exposed to credit loss in the event of nonperformance by counterparties to its derivative contracts. Collateral generally is
not required of the counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms of the
derivative contract, the Company's risk is limited to the fair value of the instrument. The Company actively monitors its exposure to
credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as
counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any
future instances of non-performance.
Note 6 — Sale of Receivables
The Company has an agreement to sell undivided percentage ownership interests in certain receivables, primarily from our money order
agents. In the fourth quarter of 2007, the Company extended the agreement through March 31, 2008. In December 2007, the Company
made a decision to cease selling receivables through a gradual reduction in the balances sold each period. As of January 2008, the
Company did not have a sold receivables balance remaining and terminated the facility at its discretion. The Company sold receivables
under this agreement to accelerate the cash flow available for investments. The receivables were sold to two commercial paper conduit
trusts and represent a small percentage of the total assets in each trust. The Company's rights and obligations are limited to the receivables
transferred, and the transactions are accounted for as sales. The assets and liabilities associated with the
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