MoneyGram 2008 Annual Report Download - page 102

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
market, the collapse of many asset-backed securities and the low levels to which the securities have been written down.
Securities with gross unrealized losses at the Consolidated Balance Sheet date are subject to our process for identifying other-than-
temporary impairments in accordance with SFAS No. 115, EITF Issue No. 99-20 and SEC Staff Accounting Bulletin ("SAB") No. 59,
Views on Accounting for Noncurrent Marketable Equity Securities. Securities that the Company deems to be other-than-temporarily
impaired are written down to fair value in the period the impairment occurs. Under SFAS No. 115, the assessment of whether such
impairment has occurred is based on management's evaluation of the underlying reasons for the decline in fair value on an individual
security basis. The Company considers a wide range of factors about the security and uses its best judgment in evaluating the cause of the
decline in the estimated fair value of the security and the prospects for recovery. The Company evaluates mortgage-backed and other
asset-backed investments rated A and below for which risk of credit loss is deemed more than remote for impairment under EITF Issue
No. 99-20. If a security is deemed to not be impaired under EITF Issue No. 99-20, it is further analyzed under SFAS No. 115. When an
adverse change in expected cash flows occurs, and if the fair value of a security is less than its carrying value, the investment is written
down to fair value through a permanent reduction to its amortized cost. Any impairment charges are included in the Consolidated
Statements of (Loss) Income under "Net securities losses." See Note 6 — Investment Portfolio for further discussion.
Payment Service Obligations — Payment service obligations primarily consist of: outstanding payment instruments; amounts owed to
financial institutions for funds paid to the Company to cover clearings of official check payment instruments, remittances and clearing
adjustments; amounts owed to agents for funds paid to consumers on behalf of the Company; commissions owed to financial institution
customers and agents for instruments sold; amounts owed under our sale of receivables program for collections on sold receivables;
amounts owed to investment brokers for purchased securities; and unclaimed instruments owed to various states. These obligations are
recognized by the Company at the time the underlying transactions occur.
Fair Value of Financial Instruments — Financial instruments consist of cash and cash equivalents, investments, derivatives, receivables,
payment service obligations, accounts payable and debt. The carrying values of cash, receivables, accounts payable and payment service
obligations approximate fair value due to the short-term nature of these instruments. The carrying value of the Company's Senior Facility
approximates fair value as interest related to the debt is variable rate. The carrying value of the Company's fixed rate Notes also
approximates fair value as the contractual interest rate is comparable to debt with similar maturities issued by companies with similar
credit qualities.
The fair value of cash equivalents, investments and derivatives is determined in accordance with the provisions of SFAS No. 157, Fair
Value Measurements, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, or
the exit price, in an orderly transaction between market participants on the measurement date. See Note 5 — Fair Value Measurement for
further discussion.
Derivative Financial Instruments — The Company recognizes derivative instruments in the Consolidated Balance Sheets at fair value.
The accounting for changes in the fair value depends on the intended use of the derivative and the resulting designation. For a derivative
instrument designated as a fair value hedge, the Company recognizes the change in fair value in earnings in the period of change, together
with the offsetting change in the hedged item. For a derivative instrument designated as a cash flow hedge, the Company initially reports
the effective portion of the derivative's change in fair value in "Accumulated other comprehensive (loss) income" in the Consolidated
Statements of Stockholders' (Deficit) Equity and subsequently reclassifies the net change in fair value into earnings when the hedged
exposure affects earnings.
The Company evaluates the hedge effectiveness of its derivatives designated as cash flow hedges at inception and on an on-going basis.
Derivatives designated as fair value hedges are generally evaluated for effectiveness using the short-cut method. Hedge ineffectiveness, if
any, is recorded in earnings on the same line as the underlying
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