MoneyGram 2007 Annual Report Download - page 60

Table of Contents
• new information regarding the investment or the issuer;
• deterioration in the market, industry or geographical area relevant to the issuer or underlying collateral; and
• the Company's ability and intent to hold the investment for a time sufficient to either receive all contractual cash flows or for the
investment to recover to its amortized cost.
As the Company has an available-for-sale investment portfolio and generally does not utilize our portfolio for liquidity purposes, the
Company believes that our intent and ability to hold an investment along with the ability of the investment to generate cash flows are the
primary factors in assessing whether an investment in an unrealized loss position is other-than-temporarily impaired. If the Company no
longer has the intent or ability to hold the investment to maturity or call, and it is probable that the investment will not provide all of its
contractual cash flows, then the Company believes an investment in an unrealized loss position is other-than-temporarily impaired. In
assessing the Company's intent and ability, the Company evaluates our needs under regulatory and contractual requirements, changes to
our investment strategy and anticipated cash flow needs, including any anticipated customer contract terminations.
Derivative Financial Instruments — Derivative financial instruments are used as part of our risk management strategy to manage
exposure to fluctuations in interest and foreign currency rates. We do not enter into derivatives for speculative purposes. Derivatives are
accounted for in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related
amendments and interpretations. The derivatives are recorded as either assets or liabilities on the balance sheet at fair value, with the
change in fair value recognized in earnings or in other comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. A derivative that does not qualify, or is not designated, as a hedge will be reflected at fair value, with
changes in value recognized through earnings. The estimated fair value of derivative financial instruments has been determined using
available market information and certain valuation methodologies.
Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates
determined may not be indicative of the amounts that could be realized in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.
As of December 31, 2007, MoneyGram had $19.3 million of unrealized losses on derivative financial instruments recorded in
"Accumulated other comprehensive loss." While MoneyGram intends to continue to meet the conditions to qualify for hedge accounting
treatment under SFAS No. 133, if hedges did not qualify as highly effective or if forecasted transactions are no longer probable of
occurring or did not occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. MoneyGram
does not believe it is exposed to more than a nominal amount of credit risk in its hedging activities as the counterparties are generally
well-established, well-capitalized financial institutions.
Goodwill — SFAS No. 142, Goodwill and Other Intangible Assets, requires annual impairment testing of goodwill based on the
estimated fair value of MoneyGram's reporting units. The fair value of MoneyGram's reporting units is estimated based on discounted
expected future cash flows using a weighted average cost of capital rate. Additionally, an assumed terminal value is used to project future
cash flows beyond base years. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital,
are consistent with our internal forecasts and operating plans. The estimates and assumptions regarding expected cash flows, terminal
values and the discount rate require considerable judgment and are based on historical experience, financial forecasts and industry trends
and conditions. If the growth rate for the Company's reporting units with goodwill assigned decreases by 50 basis points from the growth
rates used in the 2007 valuation, fair value would be reduced by approximately $21.3 million, assuming all other components of the fair
value estimate remain unchanged. If the discount rate for the Company's reporting units with goodwill assigned increases by 50 basis
points from the growth rates used in the 2007 valuation, fair value would be reduced by approximately $18.6 million, assuming all other
components of the fair value estimate remain unchanged.
During 2007, we recognized an $6.4 million impairment charge for goodwill as a result of the annual impairment test of the FSMC, Inc.
("FSMC") reporting unit under our Payment Systems segment. We did not recognize any
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