MoneyGram 2007 Annual Report Download - page 37

Table of Contents
We continue to see a trend among state and federal regulators 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 anticipate that our transaction expenses will increase due to marketing spend, investment in the agent network
and development of our retail network in Western Europe. We anticipate these expenses will grow at a rate similar to 2007, excluding the
goodwill impairment, based on our assumed agent network growth of 15 to 20 percent. We also will incur significant one-time charges
for costs related to the Capital Transaction and strategic review of the Payment Systems segment. See Note 18 — Subsequent Events of
the Notes to Consolidated Financial Statements for further information.
Depreciation and amortization — Depreciation and amortization expense includes depreciation on point of sale equipment, agent
signage, computer hardware and software (including capitalized software development costs), office furniture, equipment and leasehold
improvements and amortization of intangible assets. Depreciation and amortization expense increased $13.0 million, or 33 percent, in
2007 compared to 2006, primarily due to our investment in agent equipment and signage of $5.3 million, amortization of our investment
in computer hardware and capitalized software in prior periods to enhance our support functions, as well as amortization of purchased
software of $5.1 million. Our investments in computer hardware and software helped drive the growth in money transfer product.
Additionally, amortization of acquired intangible assets increased by $1.2 million from 2006, primarily due to the acquisition of
PropertyBridge, Inc ("PropertyBridge") on October 1, 2007. We expect to see a further increase in amortization of intangible assets due
to the intangible assets acquired in the acquisition of PropertyBridge. See further discussion in Note 8 — Intangibles and Goodwill of the
Notes to Consolidated Financial Statements.
Depreciation and amortization expense increased $6.5 million, or 20 percent, in 2006 compared to 2005, primarily due to the
amortization of our investment in computer hardware and capitalized software of $4.4 million to enhance the money transfer platform,
the depreciation of agent equipment of $2.3 million and the amortization of leasehold improvements of $0.5 million (offset by a
corresponding reduction in rent expense of $1.1 million).
The Company is currently implementing a new system to provide improved connections between our agents and our marketing, sales,
customer service and accounting functions. The new system and associated processes are intended to increase the flexibility of our back
office, thereby improving operating efficiencies. In 2007, we capitalized software costs of approximately $3.7 million related to the
enhancements to our financial processing systems that will impact future depreciation and amortization. As we continue our investment
in the infrastructure for future growth, we expect depreciation and amortization expense to increase.
Occupancy, equipment and supplies — Occupancy, equipment and supplies includes facilities rent and maintenance costs, software and
equipment maintenance costs, freight and delivery costs and supplies. Occupancy, equipment and supplies expense increased
$8.9 million, or 25 percent, in 2007 compared to 2006, primarily due to software expense and maintenance, delivery, freight and supplies
expense and office rent. Software expense and maintenance increased $2.8 million due primarily to purchased licenses to support our
growth and compliance initiatives. Delivery, freight and supplies expense increased $2.1 million in connection with the growth in our
agent locations. Office rent increased $1.9 million due to annual rent increases and expanded retail locations.
Occupancy, equipment and supplies expense increased $4.3 million, or 14 percent, in 2006 compared to 2005, primarily due to normal
increases in facilities rent of $1.9 million and higher software maintenance costs of $1.1 million, partially offset by gains on disposal of
equipment of $1.0 million. Software expense and maintenance increases relate primarily to purchased licenses to support our growth and
compliance initiatives, as well as licensing costs which were incurred by Viad prior to the spin-off.
Interest expense — Interest expense increased 39 percent in 2007 compared to 2006, primarily due to higher average interest rates and an
increase in outstanding debt. The increase was partially offset by receipts under our cash flow hedges. During the second half of 2007, we
borrowed an additional $195.0 million under the revolving credit facility. In connection with an amendment to waive certain covenants at
December 31, 2007, the interest rates related to all outstanding balances increased as of January 1, 2008. We expect interest expense to
increase in 2008 due to this increase in interest rates and the additional debt associated with the Capital Transaction. See further
discussion of the credit facility in Note 9 — Debt of the Notes to Consolidated Financial Statements and further discussion of the Capital
Transaction in Note 18 — Subsequent Events of the Notes to Consolidated Financial
34