MoneyGram 2009 Annual Report Download - page 32

Table of Contents
trading investment were partially offset by $4.1 million of other-than-temporary impairments of other asset-backed securities.
This is compared to net securities losses of $340.7 million recorded in 2008 from the realignment of the portfolio,
other-than-temporary impairments of other asset-backed securities and unrealized losses on our trading investments, partially
offset by valuation gains from the receipt of put options relating to our trading investments.
• Total commissions expense decreased $106.1 million, or 18 percent, in 2009. The decline in the federal funds rate and lower
average investable balances reduced investment commissions expense by $73.2 million. In addition, investment commissions
expense for 2008 included a $27.7 million net loss from the termination of interest rate swaps related to the official check business.
Fee commissions expense decreased $5.2 million from lower average commission rates, the decline in the euro exchange rate and
lower signing bonus amortization, partially offset by an increase in fee commissions from money transfer transaction volume
growth.
• Interest expense increased to $107.9 million in 2009 from $95.0 million in 2008 due to higher average outstanding debt as a result
of the recapitalization completed in the first quarter of 2008, partially offset by the repayment of $186.9 million of debt in 2009.
• Expenses increased $36.1 million, or 5 percent, in 2009 compared to 2008, primarily driven by: $54.8 million of legal reserves
relating to securities litigation, stockholder derivative claims, a patent lawsuit and a settlement with the Federal Trade Commission;
a $12.9 million increase in interest expense; a $10.5 million increase in stock-based compensation; and a $9.5 million increase in
professional fees. These increases were offset by a $14.3 million net curtailment gain on our benefit plans, a $12.3 million decrease
in executive severance and related costs and a $7.1 million decrease in incentive compensation. Expenses in 2009 also include
$18.3 million of goodwill, intangible asset and corporate airplane impairments, as compared to $8.8 million of goodwill
impairments in 2008. In addition, 2008 included a $16.0 million non-cash valuation loss on embedded derivatives in our preferred
stock and $9.5 million of costs related to the recapitalization and restructuring of the official check business.
• A significant amount of our internationally originated transactions and settlements with international agents are conducted in the
euro. In addition, operating expenses for most of our international subsidiaries are denominated in the euro. During 2009, the
average euro to United States dollar exchange rate decreased to 1.39 from 1.47 in 2008. The decline in the euro exchange rate (net
of hedging activities) reduced revenue by $10.9 million, commissions expense by $7.6 million and expenses by $4.9 million, for a
net benefit to our operating results of $1.6 million.
• In 2009, we recognized a tax benefit of $20.4 million on a pre-tax loss of $22.3 million, reflecting the net reversal of valuation
allowances on deferred tax assets relating to net securities losses in 2008 and 2007.
Following is a summary of significant actions taken by the Company and economic conditions during the year that impacted our
operating results in 2009:
Global Economic Conditions — Throughout 2009, worldwide economic conditions remained weak, as evidenced by growing
unemployment rates, government assistance to citizens and businesses on a global basis, continued declines in asset values, restricted
lending activity and low consumer confidence, among other factors. Historically, the money remittance industry has generally been
resilient during times of economic softness as money transfers are deemed essential to many, with the funds used by the receiving party
for food, housing and other basic needs. However, given the global reach and extent of the current economic recession, the growth of
money transfer volumes and the average principal of money transfers were adversely impacted in 2009. In addition, bill payment
products available in the United States are not as resilient as money transfers given the more discretionary nature of some items paid for
by consumers using these products. Accordingly, the volume of bill payment transactions was adversely impacted in 2009, particularly in
the auto and credit card sectors. While there have been some indicators of moderation and improvement in December 2009 and early
2010, we continue to have limited visibility into the future and believe growth rates will continue to be hampered in 2010.
Interest Rate Environment — Interest rates remained at historical lows through 2009. Interest rates affect our business in several ways,
but primarily through investment revenue, investment commission expense and interest expense. First, the majority of our investment
portfolio (including cash and cash equivalents) is floating rate, causing investment revenue to decrease when rates decline and increase
when rates rise. Second, the commissions
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