MoneyGram 2009 Annual Report Download - page 90

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5 percent holdback provision of the purchase price of the receivables, with the related cost included in the Consolidated Statements of
Loss in "Investment commissions expense." The expense recorded in 2008 and 2007 was $0.2 million and $23.3 million, respectively.
Investments (substantially restricted) — The Company classifies securities as trading or available-for-sale in its Consolidated Balance
Sheets. The Company has no securities classified as held-to-maturity. Securities that are bought and held principally for the purpose of
resale in the near term are classified as trading securities. The Company records trading securities at fair value, with gains or losses
reported in the Consolidated Statements of Loss. Securities held for indefinite periods of time, including any securities that may be sold
to assist in the clearing of payment service obligations or in the management of the investment portfolio, are classified as
available-for-sale securities. These securities are recorded at fair value, with the net after-tax unrealized gain or loss recorded as a
separate component of stockholders' equity. Realized gains and losses and other-than-temporary impairments are recorded in the
Consolidated Statements of Loss.
Interest income on "Residential mortgage-backed securities" and "Other asset-backed securities" for which risk of credit loss is deemed
remote is recorded utilizing the level yield method. Changes in estimated cash flows, both positive and negative, are accounted for with
retrospective changes to the carrying value of investments in order to maintain a level yield over the life of the investment. Interest
income on mortgage-backed and other asset-backed investments for which risk of credit loss is not deemed remote is recorded under the
prospective method as adjustments of yield. Starting in the second quarter of 2008, interest income for "Other asset-backed securities"
has been recorded under the prospective method as the risk of credit loss is not deemed remote.
During the second quarter of 2008, the Company began applying the cost recovery method of accounting for interest to its investments
categorized as "Other asset-backed securities." The cost recovery method accounts for interest on a cash basis and treats any interest
payments received as deemed recoveries of principal, reducing the book value of the related security. When the book value of the related
security is reduced to zero, interest payments are then recognized as income upon receipt. The Company began applying the cost recovery
method of accounting as it believes it is probable that the Company will not recover all, or substantially all, of its principal investment
and interest for its "Other asset-backed securities" given the sustained deterioration in the 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 a process for identifying
other-than-temporary impairments. Securities that the Company deems to be other-than-temporarily impaired are written down to fair
value in the period the impairment occurs. 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 considers an investment to be other-than-temporarily impaired when it is deemed probable that
the Company will not receive all of the cash flows contractually stipulated for the investment. 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. 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 under "Net securities gains (losses)."
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 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.
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