MoneyGram 2009 Annual Report Download - page 91

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 and cash equivalents, 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. See Note 5 — Fair Value Measurement for information regarding the principles and processes
used to estimate the fair value of investments and derivatives.
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" in the Consolidated Balance
Sheets, 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.
Hedge ineffectiveness, if any, is recorded in earnings on the same line as the underlying transaction risk. When a derivative is no longer
expected to be highly effective, hedge accounting is discontinued. Any gain or loss on derivatives designated as hedges that are
terminated or discontinued is recorded in the "Net securities gains (losses)" component in the Consolidated Statements of Loss. For a
derivative instrument that does not qualify, or is not designated, as a hedge, the change in fair value is recognized in "Transaction and
operations support" in the Consolidated Statements of Loss.
Cash flows resulting from derivative financial instruments are classified in the same category as the cash flows from the items being
hedged. The Company does not use derivative instruments for trading or speculative purposes.
Property and Equipment — Property and equipment includes agent equipment, communication equipment, computer hardware, computer
software, leasehold improvements, office furniture and equipment, land and signs, and is stated at cost net of accumulated depreciation.
Property and equipment, with the exception of land, is depreciated using a straight-line method over the lesser of the estimated useful
lives or lease term. Land is not depreciated. The cost and related accumulated depreciation of assets sold or disposed of are removed from
the financial statements, with the resulting gain or loss, if any, recognized under the caption "Occupancy, equipment and supplies" in the
Consolidated Statement of Loss. Estimated useful lives by major asset category are generally as follows:
Agent equipment 3 years
Communication equipment 5 years
Computer hardware 3 years
Computer software Lesser of the license term or 5 years
Leasehold improvements Lesser of the lease term or 10 years
Office furniture and equipment Lesser of the lease term or 7 years
Signage 3 years
For the years ended December 31, 2009 and 2008, software development costs of $9.8 million and $10.9 million, respectively, were
capitalized. At December 31, 2009 and 2008, there is $35.5 million and $37.6 million, respectively, of unamortized software
development costs included in property and equipment.
Tenant allowances for leasehold improvements are capitalized as leasehold improvements upon completion of the improvement and
depreciated over the shorter of the remaining term of the lease or 10 years.
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