UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(mark one)

þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended June 30, 2007

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                      to                      .

MONEYGRAM INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		16-1690064 (I.R.S. Employer Identification No.)
1550 Utica Avenue South, Suite 100, Minneapolis, Minnesota (Address of principal executive offices)		55416 (Zip Code)

(952) 591-3000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 3, 2007, 82,871,794 shares of Common Stock, $0.01 par value, were outstanding.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income
		Consolidated Statements of Cash Flows
		Consolidated Statements of Stockholders’ Equity
		Notes to Consolidated Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings
Item 1A.		Risk Factors
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.		Submission of Matters to a Vote of Security Holders
Item 6.		Exhibits
Signatures
Exhibit Index
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MONEYGRAM INTERNATIONAL, INC.

		June 30,				December 31,
		2007				2006
(Amounts in thousands, except share and per share data)
ASSETS
Cash and cash equivalents		$	—			$	—
Cash and cash equivalents (substantially restricted)			987,918				973,931
Receivables (substantially restricted)			1,775,431				1,758,682
Trading investments (substantially restricted)			121,200				145,500
Available for sale investments (substantially restricted)			5,624,054				5,690,600
Property and equipment			155,565				148,849
Deferred tax assets			55,001				11,677
Derivative financial instruments			25,014				24,191
Intangible assets			13,855				15,453
Goodwill			421,078				421,316
Other assets			83,411				85,938
Total assets		$	9,262,527			$	9,276,137
LIABILITIES
Payment service obligations		$	8,211,535			$	8,209,789
Debt			150,000				150,000
Derivative financial instruments			154				3,490
Pension and other postretirement benefits			105,164				103,947
Accounts payable and other liabilities			177,264				139,848
Total liabilities			8,644,117				8,607,074
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS’ EQUITY
Preferred shares — undesignated, $0.01 par value, 5,000,000 authorized, none issued			—				—
Preferred shares — junior participating, $0.01 par value, 2,000,000 authorized, none issued			—				—
Common shares — $.01 par value, 250,000,000 shares authorized, 88,556,077 shares issued			886				886
Additional paid-in capital			71,710				71,900
Retained income			755,002				723,106
Unearned employee benefits			(7,281	)			(17,185	)
Accumulated other comprehensive loss			(62,617	)			(6,292	)
Treasury stock: 5,517,494 and 4,285,783 shares at June 30, 2007 and December 31, 2006, respectively			(139,290	)			(103,352	)
Total stockholders’ equity			618,410				669,063
Total liabilities and stockholders’ equity		$	9,262,527			$	9,276,137

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2007				2006				2007				2006
(Amounts and shares in thousands, except per share data)
REVENUE
Fee and other revenue		$	232,533			$	186,837			$	445,666			$	355,968
Investment revenue			101,107				106,516				197,161				201,476
Net securities (losses) gains			(381	)			(440	)			483				(859	)
Total revenue			333,259				292,913				643,310				556,585
Fee commissions expense			100,279				75,619				190,291				143,103
Investment commissions expense			65,320				63,036				127,568				121,825
Total commissions expense			165,599				138,655				317,859				264,928
Net revenue			167,660				154,258				325,451				291,657
EXPENSES
Compensation and benefits			50,363				43,093				100,394				83,721
Transaction and operations support			44,238				39,210				83,852				71,296
Depreciation and amortization			12,211				9,345				23,891				17,777
Occupancy, equipment and supplies			10,985				8,817				21,402				17,434
Interest expense			1,983				1,975				3,941				3,922
Total expenses			119,780				102,440				233,480				194,150
Income before income taxes			47,880				51,818				91,971				97,507
Income tax expense			15,521				15,112				29,773				29,865
NET INCOME		$	32,359			$	36,706			$	62,198			$	67,642
Basic earnings per share		$	0.39			$	0.43			$	0.75			$	0.80
Diluted earnings per share		$	0.38			$	0.42			$	0.74			$	0.78
Average outstanding common shares			82,922				84,727				83,194				84,552
Additional dilutive shares related to stock-based compensation			1,247				1,756				1,283				1,777
Average outstanding and potentially dilutive common shares			84,169				86,483				84,477				86,329

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2007				2006				2007				2006
(Amounts in thousands)
NET INCOME		$	32,359			$	36,706			$	62,198			$	67,642
OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (losses) on available-for-sale securities:
Net holding (losses) arising during the period, net of tax (benefit) of ($28,401) and ($12,114) for the three months ended June 30, 2007 and 2006, respectively, and ($37,291) and ($30,994) for the six months ended June 30, 2007 and 2006, respectively			(46,336	)			(19,765	)			(60,841	)			(50,570	)
Reclassification adjustment for net realized losses (gains) included in net income, net of tax benefit (expense) of $145 and $167 for the three months ended June 30, 2007 and 2006, respectively, and ($184) and $327 for the six months ended June 30, 2007 and 2006, respectively			236				273				(300	)			533
			(46,100	)			(19,492	)			(61,141	)			(50,037	)
Net unrealized gains on derivative financial instruments:
Net holding gains arising during the period, net of tax expense of $6,510 and $1,850, for the three months ended June 30, 2007 and 2006, respectively and $4,881 and $6,470 for the six months ended June 30, 2007 and 2006, respectively			10,623				3,019				7,963				10,557
Reclassifications adjustment for net unrealized (gains) losses included in net income, net of tax (expense) benefit of ($1,502) and $1,484 for the three months ended June 30, 2007 and 2006, respectively, and ($3,330) and $1,911 for the six months ended June 30, 2007 and 2006, respectively			(2,451	)			2,421				(5,433	)			3,118
			8,172				5,440				2,530				13,675
Prior service costs for pension and postretirement benefit plans:
Reclassification of prior service costs for pension and postretirement benefit plans recorded to net income, net of tax benefit of $18 and $36 for the three and six months ended June 30, 2007, respectively			29				—				59				—
			29				—				59				—
Net actuarial loss for pension and postretirement benefit plans:
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax benefit of $417 and $834 for the three and six months ended June 30, 2007, respectively			662				—				1,324				—
			662				—				1,324				—
Unrealized foreign currency translation gains, net of tax expense of $372 and $723 for the three months ended June 30, 2007 and 2006, respectively, and $553 and $1,544 for the six months ended June 30, 2007 and 2006, respectively			606				1,179				903				2,519
Other comprehensive loss			(36,631	)			(12,873	)			(56,325	)			(33,843	)
COMPREHENSIVE (LOSS) INCOME		$	(4,272	)		$	23,833			$	5,873			$	33,799

See Notes to Consolidated Financial Statements.

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended								Six Months Ended
		June 30								June 30
		2007				2006				2007				2006
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	32,359			$	36,706			$	62,198			$	67,642
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			12,211				9,345				23,891				17,777
Investment impairment charges			517				1,647				1,495				2,439
Net gain on sale of investments			(136	)			(1,207	)			(1,978	)			(1,580	)
Net amortization of investment premium			(5,412	)			(2,497	)			(9,094	)			(2,948	)
Provision for uncollectible receivables			2,043				504				3,952				1,245
Other non-cash items, net			4,031				271				7,379				(1,816	)
Changes in foreign currency translation adjustments			607				1,180				903				2,520
Changes in other assets			(858	)			7,722				2,751				2,709
Changes in accounts payable and other liabilities			17,787				(3,956	)			9,981				(3,269	)
Total adjustments			30,790				13,009				39,280				17,077
Change in cash and cash equivalents (substantially restricted)			291,451				185,091				(4,905	)			54,785
Change in trading investments, net (substantially restricted)			(14,200	)			(16,775	)			24,300				88,925
Change in receivables, net (substantially restricted)			(177,820	)			(158,175	)			(20,701	)			(190,987	)
Change in payment service obligations			81,778				94,751				1,746				23,162
Net cash provided by operating activities			244,358				154,607				101,918				60,604
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available-for-sale			—				20,547				309,575				113,486
Proceeds from maturities of investments classified as available-for-sale			186,038				193,587				387,859				386,306
Purchases of investments classified as available-for-sale			(392,722	)			(329,719	)			(729,507	)			(492,741	)
Purchases of property and equipment			(15,082	)			(19,428	)			(30,011	)			(40,025	)
Cash paid for acquisitions			(1,061	)			(12,414	)			(1,116	)			(13,052	)
Net cash used in investing activities			(222,827	)			(147,427	)			(63,200	)			(46,026	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds and tax benefit from exercise of share-based compensation			1,359				11,442				3,131				20,993
Purchase of treasury stock			(18,777	)			(15,198	)			(33,510	)			(28,734	)
Cash dividends paid			(4,113	)			(3,424	)			(8,339	)			(6,837	)
Net cash used in financing activities			(21,531	)			(7,180	)			(38,718	)			(14,578	)
CHANGE IN CASH AND CASH EQUIVALENTS			—				—				—				—
CASH AND CASH EQUIVALENTS — Beginning of period			—				—				—				—
CASH AND CASH EQUIVALENTS — End of period		$	—			$	—			$	—			$	—

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

														Unearned				Accumulated
														Employee				Other				Common
		Common				Additional				Retained				Benefits				Comprehensive				Stock in
(Amounts in thousands, except per share data)		Stock				Capital				Income				and Other				Loss				Treasury				Total
December 31, 2006		$	886			$	71,900			$	723,106			$	(17,185	)		$	(6,292	)		$	(103,352	)		$	669,063
Cumulative effect of adoption of FIN 48											(21,963	)															(21,963	)
Net income											62,198																62,198
Dividends ($0.10 per share)											(8,339	)															(8,339	)
Employee benefit plans							(190	)							9,904								(2,428	)			7,286
Treasury shares acquired																							(33,510	)			(33,510	)
Unrealized foreign currency translation adjustment																			903								903
Unrealized loss on available-for-sale securities, net of tax																			(61,141	)							(61,141	)
Unrealized gain on derivative financial instruments																			2,530								2,530
Amortization of prior service cost for pension and postretirement benefits, net of tax																			59								59
Amortization of unrealized losses on pension and postretirement benefits, net of tax																			1,324								1,324
June 30, 2007		$	886			$	71,710			$	755,002			$	(7,281	)		$	(62,617	)		$	(139,290	)		$	618,410

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES

(Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of MoneyGram International, Inc. (“MoneyGram” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and six month periods ended June 30, 2007 are not necessarily indicative of the results that may be expected for future periods. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

2. Acquisitions

Money Express — On May 31, 2006, MoneyGram completed the acquisition of Money Express, the Company’s former super agent in Italy. In connection with the acquisition, the Company formed MoneyGram Payment Systems Italy, a wholly-owned subsidiary, to operate the former Money Express network. The acquisition provides the Company with the opportunity for further network expansion and more control of marketing and promotional activities in the region.

MoneyGram acquired Money Express for $15.0 million. The acquisition cost includes $1.3 million of transaction costs and the forgiveness of $0.7 million of liabilities. The Company has finalized its purchase price allocation, which resulted in a decrease of $0.3 million to goodwill during the second quarter of 2007. Purchased intangible assets of $7.7 million, consisting primarily of agent contracts and a non-compete agreement, will be amortized over useful lives ranging from three to five years. Goodwill of $16.7 million was recorded and assigned to the Company’s Global Funds Transfer segment.

The operating results of Money Express subsequent to May 31, 2006 are included in the Company’s Consolidated Statements of Income. The financial impact of the acquisition is not material to the Consolidated Balance Sheets or Consolidated Statements of Income.

ACH Commerce — The Company purchased ACH Commerce in April 2005 for $8.5 million, of which $1.1 million was to be paid upon the second anniversary of the acquisition. Based on the terms of the acquisition agreement, the Company paid this amount during the second quarter of 2007.

3. Unrestricted Assets

The Company is regulated by various state agencies which generally require us to maintain liquid assets and investments with an investment rating of A or higher in an amount generally equal to the payment service obligation for those regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. Consequently, a significant amount of cash and cash equivalents, receivables and investments are restricted to satisfy the liability to pay the face amount of regulated payment service obligations upon presentment. The Company is not regulated by state agencies for payment service obligations resulting from outstanding cashier’s checks. However, the Company restricts a portion of the funds related to these payment instruments due to contractual arrangements and Company policy. Assets restricted for regulatory or contractual reasons are not available to satisfy working capital or other financing requirements. The regulatory and contractual requirements do not require the Company to specify individual assets held to meet the Company’s payment service obligations, nor is the Company required to deposit specific assets into a trust, escrow or other special account. Rather, the Company must maintain a pool of liquid assets. No third party places limitations, legal or otherwise, on the Company regarding the use of its individual liquid assets. The Company is able to withdraw, deposit and/or sell its individual liquid assets at will, with no prior notice or penalty, provided the Company maintains a total pool of liquid assets sufficient to meet the regulatory and contractual requirements.

The Company has unrestricted cash and cash equivalents, receivables and investments to the extent those assets exceed all payment service obligations. These amounts are generally available for use by the Company. However, management considers a portion of these amounts as providing additional assurance that regulatory requirements are maintained during the normal fluctuations in the value of investments. The following table shows the total amount of unrestricted assets at June 30, 2007 and December 31, 2006, respectively:

		June 30,				December 31,
(Amounts in thousands)		2007				2006
Cash and cash equivalents		$	987,918			$	973,931
Receivables, net			1,775,431				1,758,682
Trading investments			121,200				145,500
Available for sale investments			5,624,054				5,690,600
			8,508,603				8,568,713
Amounts restricted to cover payment service obligations			(8,211,535	)			(8,209,789	)
Unrestricted assets		$	297,068			$	358,924

4. Investments (Substantially Restricted)

The amortized cost and fair value of available-for-sale investments were as follows at June 30, 2007:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Amounts in thousands)		Cost				Gains				Losses				Value
Obligations of states and political subdivisions		$	602,812			$	15,100			$	(295	)		$	617,617
Commercial mortgage-backed securities			362,702				3,403				(5,798	)			360,307
Residential mortgage-backed securities			1,542,500				2,868				(32,379	)			1,512,989
Other asset-backed securities			2,494,359				28,837				(68,034	)			2,455,162
U.S. government agencies			411,255				1,804				(7,473	)			405,586
Corporate debt securities			249,176				5,808				(661	)			254,323
Preferred and common stock			20,175				4				(2,109	)			18,070
Total		$	5,682,979			$	57,824			$	(116,749	)		$	5,624,054

The amortized cost and fair value of available-for-sale investments were as follows at December 31, 2006:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
(Amounts in thousands)		Cost				Gains				Losses				Value
Obligations of states and political subdivisions		$	765,525			$	25,006			$	(490	)		$	790,041
Commercial mortgage-backed securities			585,611				6,659				(2,148	)			590,122
Residential mortgage-backed securities			1,623,220				3,876				(23,219	)			1,603,877
Other asset-backed securities			1,992,164				36,920				(7,839	)			2,021,245
U.S. government agencies			342,749				2,564				(6,589	)			338,724
Corporate debt securities			311,465				7,745				(470	)			318,740
Preferred and common stock			30,175				13				(2,337	)			27,851
Total		$	5,650,909			$	82,783			$	(43,092	)		$	5,690,600

At June 30, 2007 and December 31, 2006, no investments were classified as held-to-maturity. Trading investments, which consist of auction rate securities, have contractual maturities ranging from the year 2029 to 2049, with auction dates typically 28 days after the date the Company purchases the security.

At June 30, 2007, approximately 85 percent of the fair value of the Company’s investment portfolio consisted of securities with an A or better rating based on the following ratings buckets: 11 percent US Agency/Treasury, 40 percent AAA, 25 percent AA, 20 percent A, 1 percent BBB and 3 percent below investment grade. At December 31, 2006, approximately 85 percent of the fair value of the Company’s investment portfolio consisted of securities with an A or better rating based on the following ratings buckets: 11 percent US Agency/Treasury, 42 percent AAA, 22 percent AA, 21 percent A, 1 percent BBB and 3 percent below investment grade.

The amortized cost and fair value of available-for-sale securities at June 30, 2007, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties. Maturities of mortgage-backed and other asset-backed securities depend on the repayment characteristics and experience of the underlying obligations.

		Amortized				Fair
(Amounts in thousands)		Cost				Value
In one year or less		$	13,670			$	13,695
After one year through five years			482,734				485,317
After five years through ten years			519,797				526,148
After ten years			247,042				252,366
Mortgage-backed and other asset-backed securities			4,399,561				4,328,458
Preferred and common stock			20,175				18,070
Total		$	5,682,979			$	5,624,054

At June 30, 2007 and December 31, 2006, net unrealized (losses) gains of $(58.9) million ($36.5 million net of tax benefit) and $39.7 million ($24.6 million net of tax expense), respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During the three and six months ended June 30, 2007, (losses) gains of $(0.2) million and $0.3 million, respectively, were reclassified from “Accumulated other comprehensive loss” to earnings in connection with the sale of the underlying securities compared to losses of $(0.3) million and $(0.5) million for the three and six months ended June 30, 2006, respectively.

Gross realized gains and losses on sales of investments, using the specific identification method, and other-than-temporary impairments were as follows:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
Gross realized gains		$	136			$	1,210			$	3,929			$	2,848
Gross realized losses			—				(3	)			(1,951	)			(1,268	)
Other-than-temporary impairments			(517	)			(1,647	)			(1,495	)			(2,439	)
Net securities gains (losses)		$	(381	)		$	(440	)		$	483			$	(859	)

Impairments in the three and six months ended June 30, 2007 related to investments backed by home equity loans. Impairments in the three and six months ended June 30, 2006 related primarily to investments backed by automobile, aircraft and manufactured housing collateral.

At June 30, 2007, the available-for-sale investment portfolio had the following aged unrealized losses:

		Less than 12 months								12 months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(Amounts in Thousands)		Value				Losses				Value				Losses				Value				Losses
Obligations of states and political subdivisions		$	5,187			$	(89	)		$	5,137			$	(206	)		$	10,324			$	(295	)
Commercial mortgage-backed securities			134,224				(5,264	)			33,547				(534	)			167,771				(5,798	)
Residential mortgage-backed securities			355,173				(5,264	)			1,021,609				(27,115	)			1,376,782				(32,379	)
Other asset-backed securities			1,216,468				(57,358	)			293,156				(10,676	)			1,509,624				(68,034	)
U.S. government agencies			29,762				(239	)			320,465				(7,234	)			350,227				(7,473	)
Corporate debt securities			29,501				(4	)			14,345				(657	)			43,846				(661	)
Preferred and common stock			5,494				(213	)			12,570				(1,896	)			18,064				(2,109	)
		$	1,775,809			$	(68,431	)		$	1,700,829			$	(48,318	)		$	3,476,638			$	(116,749	)

At December 31, 2006, the available-for-sale investment portfolio had the following aged unrealized losses:

		Less than 12 months								12 months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
(Amounts in Thousands)		Value				Losses				Value				Losses				Value				Losses
Obligations of states and political subdivisions		$	22,467			$	(180	)		$	25,075			$	(310	)		$	47,542			$	(490	)
Commercial mortgage-backed securities			97,747				(812	)			110,859				(1,336	)			208,606				(2,148	)
Residential mortgage-backed securities			173,179				(653	)			1,213,278				(22,566	)			1,386,457				(23,219	)
Other asset-backed securities			292,742				(2,066	)			318,944				(5,773	)			611,686				(7,839	)
U.S. government agencies			—				—				321,117				(6,589	)			321,117				(6,589	)
Corporate debt securities			6,306				(7	)			60,832				(463	)			67,138				(470	)
Preferred and common stock			5,663				(45	)			12,173				(2,292	)			17,836				(2,337	)
		$	598,104			$	(3,763	)		$	2,062,278			$	(39,329	)		$	2,660,382			$	(43,092	)

The Company has determined that the unrealized losses reflected above represent temporary impairments. As of June 30, 2007 and December 31, 2006, 167 and 188 securities had unrealized losses for more than 12 months, respectively. The Company believes that the unrealized losses generally are caused by liquidity discounts and risk premiums required by market participants in response to temporary market conditions, rather than a fundamental weakness in the credit quality of the issuer or underlying assets or changes in the expected cash flows from the investments. Temporary market conditions at June 30, 2007 and December 31, 2006 are primarily due to changes in interest rates and credit spreads due to market conditions caused by subprime mortgages and excess leverage in the credit market. The Company regularly monitors its investment portfolio to ensure that investments that may be other-than-temporarily impaired are identified in a timely manner and that any impairments are charged against earnings in the proper period. Pursuant to the Company’s impairment review process, changes in individual security values are regularly monitored to identify potential impairment indicators. The process includes a monthly review of all securities using a screening process to identify those securities for which fair value falls below established thresholds for certain time periods, or which are identified through other monitoring criteria such as ratings downgrades. Given the facts and circumstances, the Company has determined the securities presented in the above unrealized loss table were temporarily impaired when evaluated at June 30, 2007. The Company has both the intent and ability to hold these investments to maturity.

Of the $116.7 million of unrealized losses at June 30, 2007, $5.1 million relate to four asset-backed securities which each have an unrealized loss greater than 20 percent of amortized cost. The remaining $111.6 million of unrealized losses at June 30, 2007 relate to securities with an unrealized loss position of less than 20 percent of amortized cost, the degree of which suggests that these securities do not pose a high risk of being or becoming other than temporarily impaired. Of the $111.6 million, $90.5 million relate to unrealized losses on investment grade securities. Investment grade is defined as a security having a Moody’s equivalent rating of Aaa, Aa, A or Baa or a Standard & Poor’s or Fitch equivalent rating of AAA, AA, A or BBB. The remaining $21.1 million is comprised of $17.5 million of U.S. government agency and fixed income securities and $3.6 million of asset-backed securities. These securities were evaluated considering factors such as the financial condition and near-term and long-term prospects of the issuer and deemed to be temporarily impaired.

The Company holds securities that are collateralized by subprime mortgages which are classified in “Other asset-backed securities.” At June 30, 2007, $384.0 million, or less than 7 percent of the fair value of the Company’s investment portfolio, had direct exposure to subprime mortgages as collateral. Approximately 12 percent, 43 percent and 42 percent of the $384.0 million had a credit rating of AAA, AA and A, respectively. In addition, 88 percent of the $384.0 million is exposed to subprime mortgages originated prior to 2006, which is significant as the loss experience in pre-2006 collateral appears to be much lower than more recent vintages of subprime mortgages. Approximately 1 percent, 10 percent, 19 percent, 39 percent and 31 percent of the $384.0 million of these other asset-backed securities originated in 2007, 2006, 2005, 2004 and 2003 and earlier.

At June 30, 2007, other asset-backed securities had gross unrealized losses of $68.0 million, which includes gross unrealized losses of $6.6 million for securities with direct exposure to subprime mortgages as collateral. These unrealized losses are included in the Consolidated Balance Sheet in “Accumulated other comprehensive loss.”

Also included in the fair value of “Other asset-backed securities” is $620.1 million of collateralized debt obligations (“CDO”) which are backed by diversified collateral pools that may include subprime mortgages of various vintages. At June 30, 2007, 36 percent, 27 percent and 30 percent of the $620.1 million of these CDOs had a credit rating of AAA, AA and A, respectively.

5. Derivative Financial Instruments

The notional amount of the Company’s swap agreements totaled $1.8 billion and $2.6 billion at June 30, 2007 and December 31, 2006, respectively, with an average fixed pay rate of 4.3 percent and an average variable receive rate of 5.2 percent at both June 30, 2007 and December 31, 2006, respectively. The variable rate portion of the swaps is generally based on Treasury bill, federal funds or 6-month LIBOR. As the swap payments are settled, the net difference between the fixed amount the Company pays and the variable amount the Company receives is reflected in the Consolidated Statements of Income in “Investment commissions expense.” The amount recognized in earnings due to ineffectiveness of the cash flow hedges was not material for the three and six months ended June 30, 2007 and 2006. As of June 30, 2007, the Company estimates that $6.9 million (net of tax) of the unrealized gain included in “Accumulated other comprehensive loss” in the Consolidated Balance Sheet will be recognized in the Consolidated Statement of Income in “Investment commissions expense” within the next 12 months as the swap payments are settled.

6. Sale of Receivables

The balance of sold receivables as of June 30, 2007 and December 31, 2006 was $328.2 million and $297.6 million, respectively. The average receivables sold totaled $369.7 million and $369.9 million during the three and six months ended June 30, 2007, respectively, and $374.8 million and $383.8 million during the three and six months ended June 30, 2006, respectively. The expense of selling the agent receivables is included in the Consolidated Statements of Income in “Investment commissions expense” and totaled $5.9 million and $12.0 million for the three and six months ended June 30, 2007, respectively, and $5.9 million and $11.6 million for the three and six months ended June 30, 2006, respectively.

7. Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The cumulative effect of applying FIN No. 48 is reported as an adjustment to the opening balance of retained income. As a result of the implementation of FIN No. 48, the Company recognized a $29.6 million increase in the liability for unrecognized tax benefits, a $7.6 million increase in deferred tax assets and a $22.0 million reduction to the opening balance of retained income. The $29.6 million increase in the liability for unrecognized tax benefits is recorded as a non-cash item in “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

As of January 1, 2007, the liability for unrecognized tax benefits was $39.1 million, which is included in “Accounts payable and other liabilities” in the Consolidated Balance Sheets. Of the $39.1 million, $31.4 million could impact the effective tax rate if recognized. The balance at January 1, 2007 includes $5.7 million for interest and penalties. The Company records interest and penalties for unrecognized tax benefits in “Income tax expense” in the Consolidated Statements of Income. During the three and six months ended June 30, 2007, the Company recognized $0.8 million and $1.6 million in interest and penalties, respectively.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign income tax examinations for years prior to 2001. The Company is currently subject to certain state and foreign income tax examinations for 2001 through 2004.

The effective tax rate was 32.4 percent for the three and six months ended June 30, 2007 and 2006, respectively, compared to 29.2 percent and 30.6 percent for the three and six months ended June 30, 2006, respectively. The increase in the effective rate is due to tax exempt investment income declining as a percentage of total pre-tax income.

8. Stockholders’ Equity

The Company has 12.0 million shares authorized for repurchase including 5.0 million shares approved by the Board of Directors on May 9. 2007. During the three and six months ended June 30, 2007, the Company repurchased 650,000 shares and 1,150,000 shares of its common stock at an average cost of $28.89 per share and $29.14 per share, respectively. As of June 30, 2007, the Company had repurchased 6.3 million shares under the authorization and has remaining authorization to purchase up to 5.7 million shares. Following is a summary of common stock issued and outstanding:

		June 30,				December 31,
(Amounts in thousands)		2007				2006
Common shares issued			88,556				88,556
Treasury stock			(5,517	)			(4,286	)
Restricted stock			(246	)			(323	)
Shares held in employee equity trust			(102	)			(456	)
Common shares outstanding			82,691				83,491

Following is a summary of treasury stock share activity during the six months ended June 30, 2007:

		Treasury Stock
(Amounts in thousands)		Shares
Balance at December 31, 2006			4,286
Stock repurchases			1,150
Submission of shares for withholding taxes upon exercise of stock options and release of restricted stock			81
Balance at June 30, 2007			5,517

The Company has an employee equity trust (the “Trust”) used to fund the issuance of shares under employee compensation and benefit plans. The fair value of the shares held by the Trust is recorded in the “Unearned employee benefits” component in the Consolidated Balance Sheets and is reduced as shares are released to fund employee benefits. During the six months ended June 30, 2007, the Company released 354,256 shares upon the exercise of stock options and the vesting of restricted stock.

The components of accumulated other comprehensive loss include:

		June 30,				December 31,
(Amounts in thousands)		2007				2006
Unrealized (loss) gain on securities classified as available-for-sale		$	(36,534	)		$	24,607
Unrealized gain on derivative financial instruments			13,875				11,345
Cumulative foreign currency translation adjustments			6,914				6,011
Prior service cost for pension and postretirement benefits, net of tax			(1,056	)			(1,115	)
Unrealized losses on pension and postretirement benefits, net of tax			(45,816	)			(47,140	)
Accumulated other comprehensive loss		$	(62,617	)		$	(6,292	)

9. Pensions and Other Benefits

Net periodic pension benefit expense for the Company’s defined benefit pension plan and the combined supplemental executive retirement plans (“SERPs”) includes the following components:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in thousands)		2007				2006				2007				2006
Service cost		$	574			$	480			$	1,149			$	960
Interest cost			2,975				2,896				5,950				5,792
Expected return on plan assets			(2,521	)			(2,231	)			(5,042	)			(4,462	)
Amortization of prior service cost			121				176				242				352
Recognized net actuarial loss			1,057				1,080				2,113				2,160
Net periodic pension cost		$	2,206			$	2,401			$	4,412			$	4,802

Benefits paid through the defined benefit pension plan and the combined SERPs were $4.0 million for the three months ended June 30, 2007 and 2006, respectively, and $8.1 million and $8.0 million for the six months ended June 30, 2007 and 2006, respectively. The Company made contributions to the combined SERPs totaling $0.9 million and $1.8 million during the three and six months ended June 30, 2007, respectively. No contributions were made to the defined benefit pension plan during the three and six months ended June 30, 2007. The Company made contributions to the defined benefit pension plan and the combined SERPs totaling $4.0 million and $6.9 million during the three and six months ended June 30, 2006.

The net loss and prior service cost for the defined benefit pension plan and SERPs that the Company amortized from “Accumulated other comprehensive loss” into net periodic benefit expense was $1.1 million ($0.7 million, net of tax) and $0.1 million (less than $0.1 million, net of tax), respectively, during the three months ended June 30, 2007 and $2.1 million ($1.3 million, net of tax) and $0.2 million ($0.1 million, net of tax), respectively, during the six months ended June 30, 2007.

Net periodic benefit expense for the Company’s defined benefit postretirement plan includes the following components:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in thousands)		2007				2006				2007				2006
Service cost		$	174			$	159			$	349			$	318
Interest cost			209				179				418				358
Amortization of prior service cost			(74	)			(74	)			(147	)			(148	)
Recognized net actuarial loss			23				6				45				12
Net periodic benefit expense		$	332			$	270			$	665			$	540

Benefits paid through, and contributions made to, the defined benefit postretirement plan were $0.2 million and less than $0.1 million during the three months ended June 30, 2007 and 2006, respectively, and $0.2 million and $0.1 million during the six months ended June 30, 2007 and 2006, respectively.

The net loss and prior service credit for the defined benefit postretirement plan amortized from “Accumulated other comprehensive loss” into net periodic benefit expense was nominal during the three and six months ended June 30, 2007.

Contribution expense for the 401(k) defined contribution plan totaled $0.8 million and $0.7 million for the three months ended June 30, 2007 and 2006, respectively, and $1.6 million and $1.3 million for the six months ended June 30, 2007 and 2006, respectively. In addition, the Company made discretionary profit sharing contributions to the 401(k) defined contribution plan totaling $2.5 million and $2.1 million during the six months ended June 30, 2007 and 2006, respectively.

10. Debt

On June 30, 2007 and December 31, 2006, the interest rate under the Company’s bank credit facility was 5.86 percent, exclusive of the effect of commitment fees and other costs, and the facility fee was 0.125 percent. At June 30, 2007 and December 31, 2006, the interest rate debt swaps used to hedge the cash flows of the Company’s variable rate debt had an average fixed pay rate of 4.3 percent and an average variable receive rate of 4.7 percent and 4.6 percent, respectively. See Note 5 for further information regarding the Company’s portfolio of derivative financial instruments.

11. Stock-Based Compensation

Option awards are granted with an exercise price equal to the quoted market price (average of the high and low price) of the Company’s common stock on the date of grant. Stock options granted in 2007 become exercisable over a three-year period in equal installments and have a term of ten years. For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model and the assumptions set forth in the following table. Expected volatility is based on the historical volatility of the price of the Company’s common stock since the spin-off on June 30, 2004. The Company uses historical information to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line method over the vesting or service period and is net of estimated forfeitures.

		2007				2006
Expected dividend yield			0.7	%			0.6	%
Expected volatility			29.1	%			26.5	%
Risk-free interest rate			4.6	%			4.7	%
Expected life		6.5 years				6.5 years

Following is a summary of stock option activity:

										Weighted-
										Average
						Weighted				Remaining				Aggregate
						Average				Contractual				Intrinsic
						Exercise				Term				Value
		Shares				Price				(in years)				($000)
Options outstanding at December 31, 2006			4,099,514			$	19.52
Granted			395,500				29.25
Exercised			(175,159	)			18.47
Forfeited			(33,281	)			25.61
Options outstanding at June 30, 2007			4,286,574			$	20.42			5.00 years				$32,796
Vested or expected to vest at June, 2007		4,151,462				$	20.26			4.91 years				$32,394
Options exercisable at June 30, 2007			3,325,063			$	18.96			4.20 years				$29,905

The weighted-average grant date fair value of options granted during 2007 and 2006 was $11.64 and $10.38, respectively.

The Company has granted both restricted stock and performance-based restricted stock. Restricted stock typically vests three years from the date of grant. The vesting of performance-based restricted stock is contingent upon the Company obtaining certain financial thresholds established on the grant date. Provided the incentive performance targets established in the year of grant are achieved, the performance-based restricted stock awards granted subsequent to 2002 will vest in a three-year period from the date of grant in an equal number of shares each year. Future vesting in all cases is subject generally to continued employment with MoneyGram. Holders of restricted stock and performance-based restricted stock have the right to receive dividends and vote the shares, but may not sell, assign, transfer, pledge or otherwise encumber the stock.

Restricted stock awards are valued at the quoted market price of the Company’s common stock on the date of grant and expensed using the straight-line method over the vesting or service period of the award. Following is a summary of restricted stock activity:

						Weighted
						Average
						Grant Date
		Shares				Fair Value
Restricted stock outstanding at December 31, 2006			322,998			$	22.39
Granted			92,430				29.25
Vested and issued			(169,528	)			19.32
Forfeited			—				—
Restricted stock outstanding at June 30, 2007			245,900			$	26.69

Following is a summary of pertinent information related to the Company’s stock-based awards:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
Fair value of options vesting during period			—			$	68			2,595				$	5,627
Fair value of restricted stock vesting during period			163				1,731				5,118				13,338
Expense recognized related to options			1,052				599				2,098				1,180
Expense recognized related to restricted stock			605				528				1,153				1,128
Intrinsic value of options exercised			1,001				7,140				1,861				11,005
Cash received from option exercises			1,433				9,098				2,771				17,228
Tax benefit realized for tax deductions from option exercises			(74	)			2,344				360				3,765

As of June 30, 2007, the Company’s unvested stock-based awards had the following unrecognized compensation expense and remaining vesting periods:

						Restricted
(Amounts in Thousands)		Options				Stock
Unrecognized compensation expense		$	7,617			$	4,426
Remaining weighted average vesting period		1.92		years			1.8	years

As of June 30, 2007, the Company has remaining authorization to issue awards of up to 6,443,057 shares of common stock under its 2005 Omnibus Incentive Plan.

For the three and six months ended June 30, 2007, options to purchase 756,124 shares and 667,995 shares of common stock, respectively, were not included in the computation of diluted earnings per share because the effect would be antidilutive. For the three and six months ended June 30, 2006, options to purchase 351,029 shares and 236,290 shares of common stock, respectively, were not included in the computation of diluted earnings per share because the effect would be antidilutive. Options are generally antidilutive if the exercise price of the option is greater than the quoted market price of the Company’s common stock for the period presented.

12. Commitments and Contingencies

At June 30, 2007, the Company had various reverse repurchase agreements, letters of credit and overdraft facilities totaling $2.1 billion to assist in the management of investments and the clearing of payment service obligations. Included in this amount is an uncommitted reverse purchase agreement with one of the clearing banks totaling $1.0 billion. Overdraft facilities consist of $11.2 million of letters of credit, all of which are outstanding at June 30, 2007. Letters of credit totaling $1.1 million reduce amounts available under the revolving credit agreement. Fees on the letters of credit are paid in accordance with the terms of the revolving credit agreement.

The Company has agreements with certain other co-investors to provide funds related to investments in limited partnership interests. As of June 30, 2007, the total amount of unfunded commitments related to these agreements was $1.4 million.

13. New Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 155, Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140. SFAS No. 155 permits companies to measure any hybrid instrument in its entirety at fair value. Changes in fair value are recorded in income. Previously, hybrid instruments were required to be separated into two instruments, a derivative and host. Generally, the derivative instrument was recorded at fair value. The election to measure the hybrid instrument at fair value is made on an instrument-by-instrument basis and is irreversible. The standard also requires that beneficial interests in securitized financial assets be evaluated for freestanding or embedded derivatives. The Company adopted SFAS No. 155 on January 1, 2007 with no material impact to its Consolidated Financial Statements.

In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48. FIN No. 48 is an interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an entity’s tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition of tax positions. As discussed in Note 7, the Company adopted FIN No. 48 on January 1, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement does not require any new fair value measurement, but it provides guidance on how to measure fair value under other accounting pronouncements. SFAS No. 157 also establishes a fair value hierarchy to classify the source of information used in fair value measurements. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad categories. This standard is effective for the Company on January 1, 2008. The Company is currently evaluating the impact of this pronouncement on its Consolidated Financial Statements.

In January 2007, the FASB issued SFAS No. 133 Implementation Issue No. B40, Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (“DIG B40”). DIG B40 provides the circumstances in which an embedded derivative of a securitized interest in a prepayable financial asset would not be subject to bifurcation. The Company adopted DIG B40 on January 1, 2007 with no material impact to its Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The election to measure the financial instrument at fair value is made on an instrument-by-instrument basis for the entire instrument, with few exceptions, and is irreversible. SFAS No. 159 is effective for the Company on January 1, 2008. The Company is currently evaluating the impact of this pronouncement on its Consolidated Financial Statements.

In April 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1, Definition of Settlement in FASB Interpretation No. 48. FIN 48 requires a tax position be measured or recognized based upon the outcomes that could be realized upon “ultimate settlement” with a tax authority. FSP FIN 48-1 amends FIN 48 to clarify when a tax position is effectively settled upon examination by a taxing authority. The Company adopted FSP FIN 48-1 as of January 1, 2007 with no material impact to its Consolidated Financial Statements.

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. SOP 07-1 provides specific guidance for determining whether an entity meets the definition of an investment company and should follow the AICPA Audit Accounting Guide Investment Companies (the “Guide”). Entities that meet the definition of an investment company must apply the provisions of the Guide, which includes a requirement to carry investments at fair value. This standard is applicable for years beginning after December 15, 2007. The Company is currently evaluating the impact of this pronouncement, if any, on its Consolidated Financial Statements.

In June 2007, the Emerging Issues Task Force (“EITF”) approved EITF 06-11, Accounting for Income Tax Benefits on Dividends on Share-Based Payment. The EITF reached a final conclusion that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified restricted stock, restricted stock units and stock options should be recognized as an increase to additional paid-in-capital (“APIC”). Those tax benefits are considered excess tax benefits (“windfall”) under SFAS No. 123(revised 2004), Share Based Payment. The amount recognized in APIC for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies. The guidance of this EITF will be adopted prospectively for the Company as of January 1, 2008. The Company is currently evaluating the impact of this pronouncement on its Consolidated Financial Statements.

14. Minimum Commission Guarantees

In limited circumstances, the Company may grant minimum commission guarantees as an incentive to new or renewing agents, for a specified period of time at a contractually specified amount. Under the guarantees, the Company will pay to the agent the difference between the contractually specified minimum commission and the actual commissions earned by the agent.

As of June 30, 2007, the liability for minimum commission guarantees is $4.1 million. As of June 30, 2007, the maximum amount that could be paid under commission guarantees is $28.3 million over a weighted average remaining term of 2.9 years. The maximum payment is calculated as the contractually guaranteed minimum commission times the remaining term of the contract and, therefore, assumes that the agent generates no money transfer transactions during the remainder of its contract. In fiscal 2006, the Company paid $3.0 million under these guarantees, or approximately 40 percent of the estimated maximum payment for the year.

15. Segment Information

The Company’s business is conducted through two reportable segments, Global Funds Transfer and Payment Systems, which are determined based upon factors such as the type of customers, the nature of products and services provided and the distribution channels used to provide those services. The Company’s largest agent in the Global Funds Transfer segment, Wal-Mart, accounted for approximately 20 percent of total Company revenue for the three and six months ended June 30, 2007. The following table reconciles segment operating income to “Income before income taxes” as reported in the Consolidated Financial Statements:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
Revenue:
Global Funds Transfer:
Money transfer, including bill payment		$	209,190			$	161,917			$	399,294			$	306,905
Retail money order			37,900				40,121				74,432				78,120
			247,090				202,038				473,726				385,025
Payment Systems:
Official check and payment processing			78,657				83,045				154,825				155,987
Other			7,435				7,830				14,464				15,573
			86,092				90,875				169,289				171,560
Other			77				—				295				—
Total revenue		$	333,259			$	292,913			$	643,310			$	556,585
Operating Income:
Global Funds Transfer		$	40,792			$	40,801			$	78,343			$	80,708
Payment Systems			9,898				16,207				19,464				26,529
			50,690				57,008				97,807				107,237
Interest expense			(1,983	)			(1,975	)			(3,941	)			(3,922	)
Other unallocated expenses			(827	)			(3,215	)			(1,895	)			(5,808	)
Income before income taxes		$	47,880			$	51,818			$	91,971			$	97,507

The following table presents depreciation and amortization expense and capital expenditures by segment:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
Depreciation and amortization:
Global Funds Transfer		$	11,080			$	8,061			$	21,531			$	15,543
Payment Systems			1,131				1,284				2,360				2,234
Total depreciation and amortization		$	12,211			$	9,345			$	23,891			$	17,777
Capital expenditures:
Global Funds Transfer		$	13,379			$	13,645			$	26,788			$	30,788
Payment Systems			1,703				3,219				3,223				6,673
Total capital expenditures		$	15,082			$	16,864			$	30,011			$	37,461

The following table presents revenue by major geographic area:

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
United States		$	256,239			$	234,676			$	500,258			$	448,430
Foreign			77,020				58,237				143,052				108,155
Total revenue		$	333,259			$	292,913			$	643,310			$	556,585

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with MoneyGram International, Inc.’s (“MoneyGram,” the “Company,” “we,” “us” and “our”) consolidated financial statements and related notes. This discussion contains forward-looking statements that involve risks and uncertainties. MoneyGram’s actual results could differ materially from those anticipated due to various factors discussed under “Forward-Looking Statements” and elsewhere in this Quarterly Report.

Summary

Following are significant items affecting operating results in the second quarter of 2007:

	•		Our Global Funds Transfer segment revenue grew 22 percent over the second quarter of 2006, driven by 29 percent growth in both money transfer transaction volume and revenue.
	•		The net investment margin of 2.28 percent (see Table 4) decreased from 2.71 percent in the second quarter of 2006, primarily due to reduced cash recoveries from previously impaired securities.
	•		Fee and other revenue increased 24 percent from the second quarter of 2006 to $232.5 million, driven primarily by continued growth in money transfer transaction volume.
	•		Expenses increased 17 percent, driven by increased headcount and infrastructure costs supporting the growth in money transfer.

Table 1 — Results of Operations

		Three Months Ended								2007				Six Months Ended								2007
		June 30								vs.				June 30								vs.
(Amounts in Thousands)		2007				2006				2006				2007				2006				2006
										(%)												(%)
Revenue:
Fee and other revenue		$	232,533			$	186,837				24			$	445,666			$	355,968				25
Investment revenue			101,107				106,516				(5	)			197,161				201,476				(2	)
Net securities gains (losses)			(381	)			(440	)		NM					483				(859	)		NM
Total revenue			333,259				292,913				14				643,310				556,585				16
Fee commissions expense			100,279				75,619				33				190,291				143,103				33
Investment commissions expense			65,320				63,036				4				127,568				121,825				5
Total commissions expense			165,599				138,655				19				317,859				264,928				20
Net revenue			167,660				154,258				9				325,451				291,657				12
Expenses:
Compensation and benefits			50,363				43,093				17				100,394				83,721				20
Transaction and operations support			44,238				39,210				13				83,852				71,296				18
Depreciation and amortization			12,211				9,345				31				23,891				17,777				34
Occupancy, equipment and supplies			10,985				8,817				25				21,402				17,434				23
Interest expense			1,983				1,975				0				3,941				3,922				0
Total expenses			119,780				102,440				17				233,480				194,150				20
Income before income taxes			47,880				51,818				(8	)			91,971				97,507				(6	)
Income tax expense			15,521				15,112				3				29,773				29,865				(0	)
Net income		$	32,359			$	36,706				(12	)		$	62,198			$	67,642				(8	)

NM = Not meaningful

Table 2 — Results of Operations as a Percentage of Total Revenue

		Three Months Ended								Six Months Ended
		June 30								June 30
(Amounts in Thousands)		2007				2006				2007				2006
Revenue:
Fee and other revenue			70	%			64	%			69	%			64	%
Investment revenue			30	%			36	%			31	%			36	%
Net securities gains (losses)			0	%			0	%			0	%			0	%
Total revenue			100	%			100	%			100	%			100	%
Fee commissions expense			30	%			26	%			30	%			26	%
Investment commissions expense			20	%			22	%			20	%			22	%
Total commissions expense			50	%			47	%			50	%			48	%
Net revenue			50	%			53	%			50	%			52	%
Expenses:
Compensation and benefits			15	%			15	%			15	%			15	%
Transaction and operations support			13	%			13	%			13	%			13	%
Depreciation and amortization			4	%			3	%			4	%			3	%
Occupancy, equipment and supplies			3	%			3	%			3	%			3	%
Interest expense			1	%			1	%			1	%			1	%
Total expenses			36	%			35	%			36	%			35	%
Income before income taxes			14	%			18	%			14	%			17	%
Income tax expense			4	%			5	%			4	%			5	%
Net income			10	%			13	%			10	%			12	%