MoneyGram 2009 Annual Report Download - page 30

Table of Contents
Investment revenue consists of interest and dividends generated through the investment of cash balances received from the sale of official
checks, money orders and other payment instruments. These cash balances are available to us for investment until the payment instrument
is presented for payment. Investment revenue varies depending on the level of investment balances and the yield on our investments.
Investment balances vary based on the number of payment instruments sold, the principal amount of those payment instruments and the
length of time that passes until the instruments are presented for payment.
Net securities gains and losses consist of realized gains and losses from the sale, call or maturity of investments, other-than-temporary
impairments of investments and unrealized gains and losses on trading investments and related put options.
We incur fee commissions on our money transfer products. In a money transfer transaction, both the agent initiating the transaction and
the agent disbursing the funds receive a commission that is generally based on a percentage of the fee charged to the consumer. We
generally do not pay commissions to agents on the sale of money orders. In certain limited circumstances for large agents, we may pay a
fixed commission amount based on money order volumes transacted by that agent. Fee commissions expense also includes the
amortization of capitalized agent signing bonus payments.
Investment commissions consist of amounts paid to financial institution customers based on short-term interest rate indices times the
average outstanding cash balances of official checks sold by that financial institution. Through the second quarter of 2008, investment
commissions expense included costs associated with interest rate swaps and the sale of receivables program. We historically used interest
rate swaps to convert a portion of our variable rate commission payments to fixed rate payments, which hedged the interest rate risk
associated with the variable rate commissions paid to our financial institution customers. In connection with the interest rate swaps, we
paid a fixed amount to a counterparty and received a variable rate payment in return. To the extent that the fixed rate exceeded the
variable rate, we incurred an expense related to the swap; if the variable rate exceeded the fixed rate, we recognized income related to the
swap. In connection with the restructuring of the official check business in 2008, we terminated certain financial institution customer
relationships. As a result, we terminated the swaps related to commission payments in June 2008. See further discussion of the
termination of these swaps in Note 7 — Derivative Financial Instruments of the Notes to Consolidated Financial Statements. Under our
sale of receivables program, we historically sold certain of our agent receivables at a discount to accelerate our cash flow, with the
discount recorded in investment commissions. In January 2008, we terminated our sale of receivables program and ceased selling
receivables by March 2008. See further discussion on our sale of receivables program in Note 3 — Summary of Significant Accounting
Policies — Sale of Receivables of the Notes to Consolidated Financial Statements.
Discontinued Operations — During 2007, we paid $3.3 million in connection with the settlement of a contingency arising from the Sale
and Purchase Agreement related to the continued operations of Game Financial Corporation with one casino. We recognized a loss from
discontinued operations of $0.3 million in 2007 in the Consolidated Statements of Loss, representing the recognition of a deferred tax
asset valuation allowance partially offset by the reversal of the remaining liability for contingencies that expired. The following
discussion of our results of operations is focused on our continuing businesses.
Segment Reporting Changes — During the fourth quarter of 2009, we revised our segment reporting to reflect changes in how we manage
our business, review operating performance and allocate resources. We now manage our business primarily through two reporting
segments: Global Funds Transfer, which is composed of the money transfer and bill payment products, and Financial Paper Products,
which is composed of the official check and money order products. Prior year results have been revised for comparative purposes. See the
Segment Performance section for further discussion of our reporting segments.
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