(mark one)

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

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

(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,		55416
Minneapolis, Minnesota		(Zip Code)
(Address of principal executive offices)

(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 for 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o     No o

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company 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 May 4, 2009, 82,525,552 shares of Common Stock, $0.01 par value, were outstanding.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Consolidated Balance Sheets			3
Consolidated Statements of Income (Loss)			4
Consolidated Statements of Comprehensive Income (Loss)			5
Consolidated Statements of Cash Flows			6
Consolidated Statements of Stockholders’ Deficit			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION
Item 3. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6. Exhibits			36
Signatures			37
Exhibit Index			38
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED

		March 31,				December 31,
(Amounts in thousands, except share data)		2009				2008
ASSETS
Cash and cash equivalents		$	—			$	—
Cash and cash equivalents (substantially restricted)			3,904,783				4,077,381
Receivables, net (substantially restricted)			1,117,184				1,264,885
Trading investments (substantially restricted)			19,840				21,485
Available-for-sale investments (substantially restricted)			415,827				438,774
Property and equipment			149,192				156,263
Intangible assets			13,524				14,548
Goodwill			436,349				434,337
Other assets			196,328				234,623
Total assets		$	6,253,027			$	6,642,296
LIABILITIES
Payment service obligations		$	5,067,167			$	5,437,999
Debt			978,952				978,881
Pension and other postretirement benefits			131,272				130,900
Accounts payable and other liabilities			88,599				121,586
Deferred tax liabilities			12,627				12,454
Total liabilities			6,278,617				6,681,820
COMMITMENTS AND CONTINGENCIES (NOTE 13)
MEZZANINE EQUITY
Participating Convertible Preferred Stock-Series B, $0.01 par value, 800,000 shares authorized, 495,000 shares issued and outstanding			477,084				458,408
Participating Convertible Preferred Stock-Series B-1, $0.01 par value, 500,000 shares authorized, 272,500 shares issued and outstanding			293,347				283,804
Total mezzanine equity			770,431				742,212
STOCKHOLDERS’ DEFICIT
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, $0.01 par value, 250,000,000 shares authorized, 88,556,077 shares issued			886				886
Additional paid-in capital			34,149				62,324
Retained loss			(637,413	)			(649,254	)
Unearned employee benefits			(161	)			(424	)
Accumulated other comprehensive loss			(40,479	)			(42,707	)
Treasury stock: 6,030,525 and 5,999,175 shares at March 31, 2009 and December 31, 2008, respectively			(153,003	)			(152,561	)
Total stockholders’ deficit			(796,021	)			(781,736	)
Total liabilities, mezzanine equity and stockholders’ deficit		$	6,253,027			$	6,642,296

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
UNAUDITED

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2009				2008
REVENUE
Fee and other revenue		$	268,144			$	262,797
Investment revenue			11,691				61,565
Net securities gains (losses)			56				(307,300	)
Total revenue			279,891				17,062
Fee commissions expense			118,544				117,232
Investment commissions expense			399				96,889
Total commissions expense			118,943				214,121
Net revenue (losses)			160,948				(197,059	)
EXPENSES
Compensation and benefits			51,632				52,299
Transaction and operations support			44,484				52,029
Depreciation and amortization			14,362				14,218
Occupancy, equipment and supplies			11,026				11,222
Interest expense			27,040				14,789
Debt extinguishment loss			—				1,499
Total expenses			148,544				146,056
Income (loss) before income taxes			12,404				(343,115	)
Income tax expense			563				17,740
NET INCOME (LOSS)		$	11,841			$	(360,855	)
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.20	)		$	(4.40	)
Net income (loss) as reported		$	11,841			$	(360,855	)
Preferred stock dividends			(25,718	)			(1,822	)
Accretion recognized on preferred stock			(2,501	)			—
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS		$	(16,378	)		$	(362,677	)
WEIGHTED AVERAGE OUTSTANDING COMMON SHARES			82,483				82,430

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
NET INCOME (LOSS)		$	11,841			$	(360,855	)
OTHER COMPREHENSIVE INCOME
Net unrealized gains (losses) on available-for-sale securities:
Net holding gains arising during the period, net of tax expense of $2,193 and $5,757, respectively			3,578				9,393
Reclassification adjustment for net realized (gains) included in net income, net of tax expense of $(27) and $(15,043), respectively			(44	)			(24,544	)
			3,534				(15,151	)
Net unrealized (losses) gains on derivative financial instruments:
Net holding (losses) arising during the period, net of tax (benefit) of $(174) and $(685), respectively			(284	)			(1,117	)
Reclassification adjustment for net unrealized losses included in net income, net of tax benefit of $0 and $10,998, respectively			—				17,944
			(284	)			16,827
Pension and postretirement benefit plans:
Reclassification of prior service costs recorded to net income, net of tax benefit of $11 and $7, respectively			19				12
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $347 and $241, respectively			566				393
Unrealized foreign currency translation (losses) gains, net of tax (benefit) expense of $(985) and $1,419, respectively			(1,607	)			2,315
Other comprehensive income			2,228				4,396
COMPREHENSIVE INCOME (LOSS)		$	14,069			$	(356,459	)

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	11,841			$	(360,855	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			14,362				14,218
Investment impairment charges			2,081				45,274
Provision for deferred income taxes			(305	)			—
Net loss on sale of investments			—				256,334
Unrealized losses on trading investments			1,645				5,692
Valuation gains on trading investment put options			(3,782	)			—
Net amortization of investment premiums and discounts			212				(271	)
Unrealized losses on interest rate swaps			—				63,224
Signing bonus amortization			8,529				8,090
Amortization of debt discount and deferred financing costs			2,450				159
Debt extinguishment loss			—				1,499
Provision for uncollectible receivables			3,677				3,024
Non-cash compensation and pension expense			2,561				1,726
Other non-cash items, net			3,232				(3,138	)
Changes in foreign currency translation adjustments			(1,607	)			2,315
Change in other assets			(3,539	)			(38,062	)
Change in accounts payable and other liabilities			997				(17,760	)
Total adjustments			30,513				342,324
Change in cash and cash equivalents (substantially restricted)			172,599				(3,101,381	)
Change in receivables, net (substantially restricted)			144,025				(378,046	)
Change in payment service obligations			(370,832	)			(1,106,307	)
Net cash used in operating activities			(11,854	)			(4,604,265	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available-for-sale			—				2,896,011
Proceeds from maturities of investments classified as available-for-sale			22,860				420,085
Purchases of property and equipment			(7,171	)			(5,554	)
Cash paid for acquisitions, net of cash acquired			(3,210	)			—
Net cash provided by investing activities			12,479				3,310,542
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt			—				733,750
Transaction costs for issuance and amendment of debt			—				(47,805	)
Payment on debt			(625	)			—
Payment on revolving credit facility			—				(100,000	)
Proceeds from issuance of preferred stock			—				760,000
Transaction costs for issuance of preferred stock			—				(52,222	)
Net cash (used in) provided by financing activities			(625	)			1,293,723
NET 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
						Additional								Employee				Other
		Common				Paid-In				Retained				Benefits				Comprehensive				Treasury
(Amounts in thousands)		Stock				Capital				Loss				and Other				Loss				Stock				Total
December 31, 2008		$	886			$	62,324			$	(649,254	)		$	(424	)		$	(42,707	)		$	(152,561	)		$	(781,736	)
Net income											11,841																11,841
Dividends on preferred stock							(25,718	)																			(25,718	)
Accretion on preferred stock							(2,501	)																			(2,501	)
Employee benefit plans							44								263								(442	)			(135	)
Net unrealized gain on available-for-sale securities																			3,534								3,534
Net unrealized loss on derivative financial instruments																			(284	)							(284	)
Amortization of prior service cost for pension and postretirement benefits, net of tax																			19								19
Amortization of unrealized losses on pension and postretirement benefits, net of tax																			566								566
Unrealized foreign currency translation adjustment																			(1,607	)							(1,607	)
March 31, 2009		$	886			$	34,149			$	(637,413	)		$	(161	)		$	(40,479	)		$	(153,003	)		$	(796,021	)

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 months ended March 31, 2009 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, 2008.

Through its wholly owned subsidiary and licensed entity MoneyGram Payment Systems, Inc. (“MPSI”), the Company is regulated by various state agencies that generally require MPSI to maintain liquid assets and investments with a rating of A or higher (“permissible investments”) in an amount generally equal to payment service obligations, as defined by each state, for regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. The regulatory payment service obligation measure varies by state, but in all cases is substantially lower than the Company’s payment service obligations as disclosed in the Consolidated Balance Sheets as the Company is not regulated by state agencies for payment service obligations resulting from outstanding cashier’s checks or for amounts payable to agents and brokers. Regulatory requirements also require MPSI to maintain positive net worth, with one state also requiring that MPSI maintain positive tangible net worth.

In connection with the Company’s senior credit facility (the “Senior Facility”), senior secured second lien notes (the “Notes”), one clearing bank agreement and special purpose entities (“SPEs”), the Company has certain financial covenants that require it to maintain pre-defined ratios of certain assets to payment service obligations. The financial covenants under the Senior Facility and Notes are described in Note 7 — Debt. One clearing bank agreement has financial covenants that include the maintenance of total cash, cash equivalents, receivables and investments in an amount at least equal to payment service obligations, as disclosed in the Consolidated Balance Sheets, as well as the maintenance of a minimum 103 percent ratio of total assets held at that bank to instruments estimated to clear through that bank. Financial covenants related to the SPEs include the maintenance of specified ratios, typically greater than 100 percent, of cash, cash equivalents and investments held in the SPE to the outstanding payment instruments issued by the related financial institution customer.

The regulatory and contractual requirements do not require the Company to specify individual assets held to meet 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 sufficient to comply with the requirements. 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 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 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. Consequently, the Company considers a significant amount of cash and cash equivalents, receivables and investments to be restricted to satisfy the liability to pay the face amount of regulated payment service obligations upon presentment. 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; 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 March 31, 2009 and December 31, 2008:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Cash and cash equivalents (substantially restricted)		$	3,904,783			$	4,077,381
Receivables, net (substantially restricted)			1,117,184				1,264,885
Trading investments (substantially restricted)			19,840				21,485
Put options related to trading investments			30,287				26,505
Available-for-sale investments (substantially restricted)			415,827				438,774
			5,487,921				5,829,030
Amounts restricted to cover payment service obligations			(5,067,167	)			(5,437,999	)
Excess in unrestricted assets		$	420,754			$	391,031

The Company is in compliance with its contractual and financial regulatory requirements as of March 31, 2009 and December 31, 2008.

Note 3 — Acquisitions

Raphaels Bank — On February 2, 2009, the Company acquired the French assets of R. Raphaels & Sons PLC (“Raphaels Bank”) for a purchase price of $3.2 million. The acquisition of Raphaels Bank provides the Company with five money transfer stores in and around Paris, France that will be integrated into the Company’s French retail operations. The preliminary purchase price allocation as of March 31, 2009 includes $2.0 million of goodwill assigned to the Company’s Global Funds Transfer segment. The purchase price allocation is preliminary pending the completion of the valuation of fixed assets, intangible assets and deferred taxes. The operating results of Raphaels Bank subsequent to the acquisition date are included in the Company’s Consolidated Statement of Income (Loss). The financial impact of the acquisition is not material to the Consolidated Balance Sheets or Consolidated Statements of Income (Loss).

Note 4 — Fair Value Measurement

Following are the Company’s financial assets recorded at fair value by hierarchy level as of March 31, 2009 and December 31, 2008; the Company had no financial liabilities recorded at fair value for either period. The amount shown as “Cash equivalents (substantially restricted)” does not reflect the entire balance in the “Cash and cash equivalents (substantially restricted)” line in the Consolidated Balance Sheets as cash is not subject to fair value measurement.

		March 31, 2009
(Amounts in thousands)		Level 1				Level 2				Level 3				Total
Financial Assets
Cash equivalents (substantially restricted)		$	2,497,297			$	—			$	—			$	2,497,297
Trading investments (substantially restricted)			—				—				19,840				19,840
Put options related to trading investments			—				—				30,287				30,287
Available-for-sale investments (substantially restricted)
U.S. government agencies			—				17,503				—				17,503
Residential mortgage-backed securities — agencies			—				373,070				—				373,070
Other asset-backed securities			—				—				25,254				25,254
Total financial assets		$	2,497,297			$	390,573			$	75,381			$	2,963,251

		December 31, 2008
(Amounts in thousands)		Level 1				Level 2				Level 3				Total
Financial Assets
Cash equivalents (substantially restricted)		$	2,501,780			$	—			$	—			$	2,501,780
Trading investments (substantially restricted)			—				—				21,485				21,485
Put options related to trading investments			—				—				26,505				26,505
Available-for-sale investments (substantially restricted)
U.S. government agencies			—				17,449				—				17,449
Residential mortgage-backed securities — agencies			—				391,798				—				391,798
Other asset-backed securities			—				—				29,528				29,528
Total financial assets		$	2,501,780			$	409,247			$	77,518			$	2,988,545

The table below provides a roll-forward for the three months ended March 31, 2009 of the financial assets classified in Level 3 which are measured at fair value on a recurring basis.

		Three Months Ended March 31, 2009
						Put Options								Total
						Related to				Available-				Level 3
		Trading				Trading				for-Sale				Financial
(Amounts in thousands)		Investments				Investments				Investments				Assets
Balance at January 1, 2009		$	21,485			$	26,505			$	29,528			$	77,518
Principal paydowns			—				—				(136	)			(136	)
Other-than-temporary impairments			—				—				(2,081	)			(2,081	)
Unrealized gains — instruments still held at the reporting date			—				3,782				—				3,782
Unrealized losses — instruments still held at the reporting date			(1,645	)			—				(2,057	)			(3,702	)
Balance at March 31, 2009		$	19,840			$	30,287			$	25,254			$	75,381

Note 5 — Investment Portfolio

The Company’s portfolio is invested in cash and cash equivalents, trading investments and available-for-sale investments, all of which are substantially restricted as described in Note 2 — Unrestricted Assets. Components of our investment portfolio as of March 31, 2009 and December 31, 2008 are as follows:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Cash		$	1,407,486			$	1,575,601
Money markets			2,497,297				1,626,788
Time deposits			—				874,992
Cash and cash equivalents			3,904,783				4,077,381
Trading investments			19,840				21,485
Available-for-sale investments			415,827				438,774
Total investment portfolio		$	4,340,450			$	4,537,640

Cash and Cash Equivalents — Cash and cash equivalents consist of cash, money-market securities and time deposits. Cash primarily consists of interest-bearing deposit accounts and clearing accounts. The Company’s money-market securities are invested in seven funds, all of which are AAA rated and are comprised of U.S. Treasury bills, notes or other obligations issued or guaranteed by the U.S. government and its agencies, as well as repurchase agreements secured by such instruments.

Trading Investments — Trading investments consist of: one auction rate security collateralized by commercial paper with a rating of A-1/P-1 and original maturities of less than 28 days; one auction rate security collateralized by perpetual preferred stock issued by the monoline insurer and paying a discretionary dividend; and perpetual preferred stock of a monoline insurer paying a discretionary dividend. The combined fair value of the trading investments on March 31, 2009 and December 31, 2008 was $19.8 million and $21.5 million, respectively, on a par value of $62.3 million. Due to the continued disruption of the credit markets and concerns regarding the capital position of the monoline insurers and their intent to pay dividends on their preferred stock, the Company recorded an unrealized loss on its trading investments of $1.6 million and $5.7 million in “Net securities gains (losses)” in the Consolidated Statements of Income (Loss) during the quarter ended March 31, 2009 and 2008, respectively. The Company has received all contractual interest payments, including the penalty rate payments, as of the date of this filing.

The fair value of put options received in November 2008 under a buy-back program sponsored by the trading firm that sold the Company its trading investments was $30.3 million and $26.5 million as of March 31, 2009 and December 31, 2008, respectively, and is reflected in the “Other assets” line in the Consolidated Balance Sheets. The Company recognized a gain of $3.8 million in the “Net securities gains (losses)” line in the Consolidated Statements of Income (Loss) from the increase in the fair value of the put options during the three months ended March 31, 2009. This valuation gain offsets the unrealized losses recognized on the trading investments for the period. The fair value of the put options will be remeasured each period through earnings and should continue to significantly offset any further unrealized losses recognized in the Consolidated Statements of Income (Loss) related to the Company’s trading investments.

Available-for-sale Investments — Available-for-sale investments consist of mortgage-backed securities, asset-backed securities and agency debenture securities. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments are as follows at March 31, 2009:

						Gross				Gross								Net
		Amortized				Unrealized				Unrealized				Fair				Average
(Amounts in thousands, except net average price)		Cost				Gains				Losses				Value				Price
Residential mortgage-backed securities-agencies		$	364,244			$	8,826			$	—			$	373,070			$	103.05
Other asset-backed securities			22,159				3,095				—				25,254				3.74
U.S. government agencies			16,558				945				—				17,503				92.12
Total		$	402,961			$	12,866			$	—			$	415,827			$	39.36

After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments were as follows at December 31, 2008:

						Gross				Gross								Net
		Amortized				Unrealized				Unrealized				Fair				Average
(Amounts in thousands, except net average price)		Cost				Gains				Losses				Value				Price
Residential mortgage-backed securities — agencies		$	385,276			$	6,523			$	(2	)		$	391,797			$	102.37
Other asset-backed securities			27,703				1,825				—				29,528				4.43
U.S. government agencies			16,463				986				—				17,449				91.84
Total		$	429,442			$	9,334			$	(2	)		$	438,774			$	41.05

Gains and Losses and Other-Than-Temporary Impairments — At March 31, 2009 and December 31, 2008, net unrealized gains of $12.9 million and $9.3 million, respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” No deferred tax liability is currently recognized for the net unrealized gains due to the deferred tax position described in Note 12 — Income Taxes. During the first quarter of 2009 and 2008, gains of less than $0.1 million and $24.5 million, respectively, were reclassified from “Accumulated other comprehensive loss” to earnings in connection with the sale, maturity or paydown of the underlying securities during the period. Net securities gains (losses) were as follows:

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
Gross realized gains		$	—			$	34,200
Gross realized losses			—				(290,534	)
Other-than-temporary impairments			(2,081	)			(45,274	)
Net securities losses from available-for-sale investments			(2,081	)			(301,608	)
Unrealized losses from trading investments			(1,645	)			(5,692	)
Valuation gain from put options related to trading investments			3,782				—
Net securities gains (losses)		$	56			$	(307,300	)

The Company realigned its portfolio during the first quarter of 2008, resulting in the sale of securities with a fair value of $3.2 billion (after other-than-temporary impairment charges) for proceeds of $2.9 billion and a net realized loss of $256.3 million. This net realized loss was the result of further deterioration in the markets during the first quarter of 2008 and the short timeframe over which the Company sold its securities. Proceeds from the sales were reinvested in cash and cash equivalents. Other-than-temporary impairment charges of $2.1 million and $45.3 million during the first quarter of 2009 and 2008, respectively, were the result of further deterioration in the market.

At March 31, 2009 and December 31, 2008, 94 percent and 93 percent of the available-for-sale portfolio was invested in debentures of U.S. government agencies or securities collateralized by U.S government agency debentures. These securities have always had the implicit backing of the U.S. government. During 2008, the U.S. government took action to place certain agencies under conservatorship and provide unlimited lines of credit through the U.S. Treasury. These actions served to provide greater comfort to the market regarding the intent of the U.S. government to back the securities issued by its agencies. The Company expects to receive full par value of these securities upon maturity or pay-down, as well as all interest payments. The “Other asset-backed securities” continue to have market exposure. The Company has factored this risk into its fair value estimates, with the average price of an asset-backed security at $0.04 per dollar of par at March 31, 2009.

Investment Ratings — In rating the securities in its investment portfolio, the Company uses ratings from Moody’s Investor Service (“Moody’s”), Standard & Poors (“S&P”) and Fitch Ratings (“Fitch”). If the rating agencies have split ratings, the Company uses the highest rating from either Moody’s or S&P for disclosure purposes. Securities issued or backed by U.S. government agencies are included in the AAA rating category. Investment grade is defined as a security having a Moody’s equivalent rating of Aaa, Aa, A or Baa or an S&P or Fitch equivalent rating of AAA, AA, A or BBB. The Company’s investments at March 31, 2009 and December 31, 2008 had the following ratings:

		March 31, 2009												December 31, 2008
		Number of				Fair				Percent of				Number of				Fair			Percent of
(Dollars in thousands)		Securities				Value				Investments				Securities				Value			Investments
AAA, including U.S. agencies			40			$	390,157				94	%			42			$	409,672				94	%
AA			2				1,649				0	%			3				5,064				0	%
A			6				2,780				1	%			5				2,919				1	%
BBB			1				47				0	%			2				543				0	%
Below investment grade			70				21,194				5	%			68				20,576				5	%
Total			119			$	415,827				100	%			120			$	438,774				100	%

Had the Company used the lowest rating from either Moody’s or S&P in the information presented above, investments rated A or better would have been reduced by $4.0 million and $3.5 million as of March 31, 2009 and December 31, 2008, respectively.

Contractual Maturities — The amortized cost and fair value of available-for-sale securities at March 31, 2009, 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.

		March 31, 2009								December 31, 2008
		Amortized				Fair				Amortized				Fair
(Amounts in thousands)		Cost				Value				Cost				Value
After one year through five years		$	1,003			$	1,086			$	1,003			$	1,073
After five years through ten years			15,555				16,416				15,460				16,376
Mortgage-backed and other asset-backed securities			386,403				398,325				412,979				421,325
Total		$	402,961			$	415,827			$	429,442			$	438,774

Fair Value Determination — Following are the sources of pricing used by the Company for its fair value estimates as a result of its valuation process:

		March 31, 2009												December 31, 2008
		Number of				Fair				Percent of				Number of				Fair
(Dollars in thousands)		Securities				Value				Investments				Securities				Value				Percent
Third party pricing service			51			$	386,414				93	%			52			$	405,955				93	%
Broker pricing			43				13,043				3	%			43				15,195				3	%
Internal pricing			25				16,370				4	%			25				17,624				4	%
Total			119			$	415,827				100	%			120			$	438,774				100	%

Assessment of Unrealized Losses — At March 31, 2009 and December 31, 2008, the Company had no or nominal unrealized losses in its available-for-sale portfolio, with no unrealized losses aged 12 months or more, after the recognition of other-than-temporary impairment charges.

Note 6 — Derivative Financial Instruments

The Company historically used interest rate swaps to hedge the variability of cash flows from its floating rate debt, as well as its floating rate commission payments to financial institution customers of the Payment Systems segment, primarily relating to the official check product. In connection with the restructuring of the official check business initiated in the first quarter of 2008, the Company terminated certain of its financial institution customer relationships. The termination of these relationships led the Company to discontinue hedge accounting treatment as the forecasted transaction would no longer occur, resulting in the recognition of a $57.0 million unrealized loss recorded in “Investment commissions expense” in the Consolidated Statements of Income (Loss) in the first quarter of 2008. In addition, modifications made to the Senior Facility in connection with the recapitalization completed in the first quarter of 2008 resulted in hedge accounting treatment of its debt swap being discontinued in the first quarter of 2008, causing the recognition of a $6.2 million unrealized loss in “Interest expense” in the Consolidated Statements of Income (Loss) in the first quarter of 2008. The Company terminated its commission and debt interest rate swaps in the second quarter of 2008.

Historically, the Company entered into foreign currency forward contracts with 12 month durations to hedge forecasted foreign currency money transfer transactions. The Company designated these forward contracts as cash flow hedges. The Company recognized a gain of $1.7 million for the quarter ended March 31, 2009 and a loss of $1.3 million for the quarter ended March 31, 2008 in the “Fee and other revenue” line of the Consolidated Statements of Income (Loss) upon the final settlement of these cash flow hedges. As of March 31, 2009 and December 31, 2008, the Company had $0.5 million and $0.8 million, respectively, of unrealized gains on its cash flow hedges recorded in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets. The notional amount of outstanding cash flow hedges as of March 31, 2009 and December 31, 2008 was $6.1 million and $18.1 million, respectively, all maturing in the second quarter of 2009.

The Company also uses forward contracts to hedge income statement exposure to foreign currency exchange risk arising from its assets and liabilities denominated in foreign currencies. While these forward contracts economically hedge foreign currency risk, they are not designated as hedges for accounting purposes. The “Transaction and operations support” line in the Consolidated Statements of Income (Loss) reflects a $3.6 million and $0.5 million loss for the quarters ended March 31, 2009 and 2008, respectively, from the effect of changes in foreign exchange rates on the foreign-denominated receivables and payables, which is net of a $5.8 million gain and a $4.7 million loss from the related forward contracts for the quarters ended March 31, 2009 and 2008, respectively. As of March 31, 2009 and December 31, 2008, the Company had $67.2 million and $98.4 million of outstanding notional amounts relating to its forward contracts, respectively.

As of March 31, 2009 and December 31, 2008, the Company reflects the following fair values for all of its forward contract instruments in its Consolidated Balance Sheets:

						March 31, 2009												December 31, 2008
		Balance Sheet				Asset				Liability				Net				Asset				Liability				Net
(Amounts in thousands)		Location				Fair Value				Fair Value				Fair Value				Fair Value				Fair Value				Fair Value
Forward contracts		Other assets				$	94,343			$	(94,084	)		$	259			$	134,389			$	(135,588	)		$	(1,199	)
Forward contracts		Receivables, net					20,961				(19,536	)			1,425				17,897				(15,444	)			2,453
Total						$	115,304			$	(113,620	)		$	1,684			$	152,286			$	(151,032	)		$	1,254

Following is a summary of the Company’s outstanding debt as of March 31, 2009 and December 31, 2008:

		March 31, 2009								December 31, 2008
						Weighted-								Weighted-
						Average								Average
(Amounts in thousands)		Amount				Interest Rate				Amount				Interest Rate
Senior Tranche A loan, due 2013		$	100,000				5.75	%		$	100,000				6.33	%
Senior Tranche B loan, net of unamortized discount, due 2013			233,952				7.25	%			233,881				7.78	%
Senior revolving credit facility, due 2013			145,000				5.75	%			145,000				6.27	%
Second lien notes, due 2018			500,000				13.25	%			500,000				13.25	%
Total debt		$	978,952							$	978,881

Senior Facility — The Company may elect an interest rate for the Senior Facility at each reset period based on the U.S. prime bank rate or the Eurodollar rate. Through 2008, the Company elected the Eurodollar rate as its basis. Effective with its first interest payment in 2009, the Company elected the U.S. bank prime rate as its basis. Amortization of the debt discount on the Tranche B loan was $0.7 million and less than $0.1 million for the quarter ended March 31, 2009 and 2008, respectively, and was recorded in “Interest expense” in the Consolidated Statements of Income (Loss). As of March 31, 2009, the Company has $93.1 million of availability under the revolving credit facility, including outstanding letters of credit which reduce the amount available under the revolving credit facility. In May 2009, the Company repaid $70.0 million of the amount outstanding under the revolving credit facility at March 31, 2009. This payment will be recorded in the second quarter of 2009 and will reduce the amounts outstanding under the revolving credit facility to $75.0 million.

Second Lien Notes — Prior to March 25, 2011, the Company has the option to capitalize interest at a rate of 15.25 percent. If interest is capitalized, 0.50 percent of the interest is payable in cash and 14.75 percent is capitalized into the outstanding principal balance. The Company elected to pay the interest through March 31, 2009 and anticipates that it will continue to pay the interest on the Notes for the foreseeable future.

Debt Covenants — The Senior Facility has certain financial covenants, including an interest coverage ratio and a senior secured debt ratio. Under the Senior Facility, the Company must maintain a minimum interest coverage ratio of 1.5:1 from March 31, 2009 through September 30, 2010, 1.75:1 from December 31, 2010 through September 30, 2012 and 2:1 from December 31, 2012 through maturity. The Company is not permitted to have a senior secured debt ratio in excess of 6.5:1 from March 31, 2009 through September 30, 2009, 6.0:1 from December 31, 2009 through September 30, 2010, 5.5:1 from December 31, 2010 through September 30, 2011, 5.0:1 from December 31, 2011 through September 30, 2012 and 4.5:1 from December 31, 2012 through maturity. Both the Senior Facility and the Notes also contain a covenant requiring the Company to maintain a minimum liquidity ratio of at least 1:1 for certain assets to outstanding payment service obligations. At March 31, 2009, the Company is in compliance with all covenants.

Deferred Financing Costs — Amortization of deferred financing costs recorded in “Interest expense” in the Consolidated Statements of Income (Loss) was $1.8 million and $0.1 million for the quarter ended March 31, 2009 and 2008, respectively. During the first quarter of 2008, the Company recognized a debt extinguishment loss of $1.5 million in connection with the modification of the Senior Facility and expensed $0.4 million of unamortized deferred financing costs upon the termination of its $150.0 million revolving credit facility with JPMorgan.

Interest Paid in Cash — The Company paid $24.5 million and $6.1 million of interest for the quarter ended March 31, 2009 and 2008, respectively.

Note 8 — Pensions and Other Benefits

Net periodic benefit expense for the Company’s defined benefit pension plan and combined supplemental executive retirement plans (“SERPs”) and postretirement benefit plans includes the following components for the three months ended March 31:

		Pension and SERPs								Postretirement Benefits
(Amounts in thousands)		2009				2008				2009				2008
Service cost		$	223			$	326			$	143			$	135
Interest cost			3,165				3,142				209				204
Expected return on plan assets			(2,351	)			(2,577	)			—				—
Amortization of prior service cost			87				107				(88	)			(88	)
Recognized net actuarial loss			944				635				—				—
Net periodic benefit expense		$	2,068			$	1,633			$	264			$	251

Benefits paid through the defined benefit pension plan and combined SERPs were $4.1 million and $4.0 million during the first quarter ended March 31, 2009 and 2008, respectively. No contributions were made to the defined benefit pension plan during the first quarter ended March 31, 2009 and 2008. The Company made contributions to the combined SERPs of $1.0 million and $0.9 million for the first quarter ended March 31, 2009 and 2008, respectively. Benefits paid through, and contributions made to, the postretirement benefit plans were less than $0.1 million during both quarters ended March 31, 2009 and 2008.

The net loss for the defined benefit pension plan and combined SERPs that the Company amortized from “Accumulated other comprehensive loss” into “Net periodic benefit expense” was $0.9 million ($0.6 million, net of tax) and $0.6 million ($0.4 million, net of tax) for the quarter ended March 31, 2009 and 2008, respectively. There was no net loss for the postretirement benefit plans. The prior service costs for the combined SERPs and the postretirement benefit plans amortized from “Accumulated other comprehensive loss” into “Net periodic benefit expense” was not material for either of the quarters ended March 31, 2009 and 2008. There were no prior service costs related to the defined benefit pension plan.

Contribution expense for the 401(k) defined contribution plan was $1.0 million for both the quarter ended March 31, 2009 and 2008. The Company made a discretionary profit sharing contribution to the 401(k) defined contribution plan of $2.0 million during both quarters ended March 31, 2009 and 2008.

Following is a summary of mezzanine equity activity during the three months ended March 31, 2009:

		Participating Convertible
		Preferred Stock
(Amounts in thousands)		Series B				Series B-1
Balance at December 31, 2008		$	458,408			$	283,804
Dividends accrued			16,587				9,131
Accretion			2,089				412
Balance at March 31, 2009		$	477,084			$	293,347

Common Stock — Following is a summary of common stock issued and outstanding:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Common shares issued			88,556				88,556
Treasury stock			(6,030	)			(5,999	)
Restricted stock			(23	)			(92	)
Common shares outstanding			82,503				82,465

Treasury Stock — Following is a summary of treasury stock share activity during the quarter ended March 31, 2009:

(Amounts in thousands)		Treasury Stock
Balance at December 31, 2008			5,999
Shares surrendered for withholding taxes upon release or forfeiture of restricted stock			31
Balance at March 31, 2009			6,030

Accumulated Other Comprehensive Loss — The components of “Accumulated other comprehensive loss” are as follows:

		March 31,				December 31,
(Amounts in thousands)		2009				2008
Net unrealized gain on securities classified as available-for-sale		$	12,866			$	9,332
Net unrealized gain on derivative financial instruments			496				780
Cumulative foreign currency translation adjustments			3,761				5,368
Prior service cost for pension and postretirement benefits, net of tax			(400	)			(419	)
Unrealized losses on pension and postretirement benefits, net of tax			(57,202	)			(57,768	)
Accumulated other comprehensive loss		$	(40,479	)		$	(42,707	)

Subject to shareholder approval, on February 9, 2009, the Company’s Board of Directors approved a modification of the 2005 Omnibus Incentive Plan to increase the authorization for the issuance of awards from 7,500,000 shares of common stock to 47,000,000 shares of common stock. As of March 31, 2009, the Company has remaining authorization to issue awards of up to 6,308,458 shares of common stock.

On January 21, 2009, the Company granted 4,700,000 stock options with an exercise price of $1.50 to the Executive Chairman of the Board. Except for 500,000 options in this award, the options will not vest and are subject to forfeiture if the stockholders of the Company do not approve certain amendments to the MoneyGram International, Inc. 2005 Omnibus Incentive Plan. Under the terms of the grant, 50 percent of the award becomes exercisable over a four-year period in an equal number of shares each year (the “Time-based Tranche”). The remaining 50 percent of the award (the “Performance-based Tranches”) becomes exercisable upon the achievement within five years of grant of the earlier of a) a pre-defined common stock price for any period of 20 consecutive trading days, b) a change in control of the Company resulting in a pre-defined per share consideration or c) in the event the Company’s common stock does not trade on a U.S. exchange or trading market, a public offering resulting in the Company’s common stock meeting pre-defined equity values. These options have a term of 10 years and contain certain forfeiture provisions, including the continuation of vesting terms for the twelve month period immediately following termination by the Company without cause or voluntary termination for good reason, as defined by the option agreement.

For purposes of determining the fair value of these options, the Company utilized the Black-Scholes single option pricing model for the Time-based Tranche and a combination of Monte Carlo simulation and Black-Scholes single option pricing model for the Performance-based Tranches. Expected volatility is based on the historical volatility of the daily price of the Company’s common stock since June 30, 2004. The Company used the simplified method to estimate the expected term of the award and historical information to estimate the forfeiture rate. Under the simplified method, the expected term represents the median between the expected vesting timeframe and the contractual term of the award. The forfeiture rate, which has been estimated at zero for the 2009 option award, represents the number of options that will be forfeited by the grantee due to termination of employment. In estimating the expected term and forfeiture rate, the Company considered historical activity and any expectations regarding future activity which could impact these assumptions. The risk-free rate for the Black-Scholes model is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the option, while the risk-free rate for the Monte-Carlo simulation is based on the five-year U.S. Treasury yield in effect at the time of grant. Compensation cost, net of expected forfeitures, is recognized using a straight-line method over the vesting or service period. Following are the weighted-average grant date fair value and assumptions utilized to estimate the grant date fair value of the 2009 options. No stock options were granted in 2008.

Expected dividend yield			0.0	%
Expected volatility			72.8	%
Risk-free interest rate			2.3	%
Expected life		6.2 years
Weighted average grant date fair value per option		$	0.79

Following is a summary of stock option activity for 2009:

										Weighted-
						Weighted				Average				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Contractual				Value
		Shares				Price				Term				($000)
Options outstanding at December 31, 2008			2,970,126			$	20.49
Granted			4,700,000				1.50
Exercised			—				—
Forfeited			(15,614	)			26.16
Options outstanding at March 31, 2009			7,654,512			$	8.82			7.33 years				$	—
Vested or expected to vest at March 31, 2009			7,652,124			$	8.81			7.33 years				$	—
Options exercisable at March 31, 2009			2,868,878			$	20.22			3.26 years				$	—

As of March 31, 2009, the Company’s outstanding stock options had unrecognized compensation expense of $4.8 million and a remaining weighted average vesting period of 2.72 years.

Note 12 — Income Taxes

In the first quarter of 2009, the Company had $0.6 million of tax expense on pre-tax income of $12.4 million, resulting in an effective income tax rate of 4.54 percent. The effective income tax rate in the first quarter of 2009 reflects benefits recognized on tax positions with respect to part of the net securities losses from 2008 and 2007. The Company continues to evaluate additional available tax positions related to the net securities losses. The Company received a federal income tax refund of $43.5 million during the first quarter of 2009. The Company paid less than $0.1 million of federal and state income taxes during the first quarter of 2009. In the first quarter of 2008, the Company had $17.7 million of tax expense on a pre-tax loss of $343.1 million resulting in a negative effective income tax rate of 5.17 percent. The effective income tax rate in the first quarter of 2008 reflects a deferred tax asset valuation allowance of $16.1 million recorded in the first quarter of 2008 relating to net securities losses. Due to the amount and characterization of losses at March 31, 2008, the Company determined that it was not “more likely than not” that the deferred tax assets related to the losses would be realized as of March 31, 2008. The Company paid less than $0.1 million of federal and state income taxes during the first quarter of 2008.

During the first quarter of 2009 and 2008, the Company recognized $0.2 million and $0.6 million in interest and penalties for unrecognized tax benefits, respectively. The Company records interest and penalties for unrecognized tax benefits in “Income tax expense” in the Consolidated Statements of Income (Loss). As of March 31, 2009 and December 31, 2008, the Company had accrued $3.8 million and $3.6 million, respectively, in interest and penalties within “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

Legal Proceedings — We are involved in various claims, litigations and government inquiries that arise from time to time in the ordinary course of our business. All of these matters are subject to uncertainties and outcomes that are not predictable with certainty. We accrue for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigations alleged. Management does not believe that after final disposition any of these matters is likely to have a material adverse impact on our financial position.

Federal Securities Class Actions — The Company and certain of its officers and directors are parties to a consolidated class action case in the United States District Court for the District of Minnesota captioned In re MoneyGram International, Inc. Securities Litigation. The Consolidated Complaint was filed on October 3, 2008, and alleges against each defendant violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 under the Exchange Act and alleges against Company officers violations of Section 20(a) of the Exchange Act. The Consolidated Complaint alleges failure to adequately disclose, in a timely manner, the nature and risks of the Company's investments, as well as unrealized losses and other-than-temporary impairments related to certain of the Company's investments. The complainant seeks recovery of losses incurred by stockholder class members in connection with their purchases of the Company’s securities.

ERISA Class Action — On April 22, 2008, Delilah Morrison, on behalf of herself and all other MoneyGram 401(k) Plan participants, brought an action in the United States District Court for the District of Minnesota. The complaint alleges claims under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), including claims that the defendants breached fiduciary duties by failing to manage the plan’s investment in Company stock, and by continuing to offer Company stock as an investment option when the stock was no longer a prudent investment. The complaint also alleges that defendants failed to provide complete and accurate information regarding Company stock sufficient to advise plan participants of the risks involved with investing in Company stock and breached fiduciary duties by failing to avoid conflicts of interests and to properly monitor the performance of plan fiduciaries and fiduciary appointees. Finally, the complaint alleges that to the extent that the Company is not a fiduciary, it is liable for knowingly participating in the fiduciary breaches as alleged. On August 7, 2008, plaintiff amended the complaint to add an additional plaintiff, name additional defendants and additional allegations. For relief, the complaint seeks damages based on what the most profitable alternatives to Company stock would have yielded, unspecified equitable relief, costs and attorneys’ fees.

Stockholder Derivative Claim — On January 22, 2008, Russell L. Berney filed a complaint in Los Angeles Superior Court against the Company and its officers and directors, Thomas H. Lee Partners, L.P., and PropertyBridge, Inc. and one of its officers, Jason Gardner, alleging false and negligent misrepresentation, violations of California securities laws and unfair business practices with regard to disclosure of the Company’s investments. The complaint also alleges derivative claims against the Company’s Board of Directors relating to the Board’s oversight of disclosure of the Company’s investments and with regard to the Company’s negotiations with Thomas H. Lee Partners, L.P. and Euronet Worldwide, Inc. The complaint seeks monetary damages, disgorgement, restitution or rescission of stock purchases, rescission of agreements with third parties, constructive trust and declaratory and injunctive relief, as well as attorneys’ fees and costs. In July 2008, an amended complaint was filed asserting an additional claim for declaratory relief.

SEC Inquiry — By letter dated February 4, 2008, the Company received notice from the Securities and Exchange Commission (“SEC”) that it is conducting an informal, non-public inquiry relating to the Company’s financial statements, reporting and disclosures related to the Company’s investment portfolio and offers and negotiations to sell the Company or its assets. The SEC’s notice states that it has not determined that any violations of the securities laws have occurred. On February 11, 2008 and November 5, 2008, the Company received additional letters from the SEC requesting certain information. We are cooperating with the SEC on a voluntary basis.

Other Government Inquiries — The Company has received inquiries from, and is in discussions with, the staffs of two government entities regarding customer complaints that third parties have used our money transfer services inappropriately in conjunction with consumer fraud activities. These discussions include the Company’s business practices in addressing these activities. Any potential resolution could involve requirements to change business practices and/or to make payments.

Credit Facilities — At March 31, 2009, the Company has overdraft facilities through the Senior Facility consisting of $11.9 million of letters of credit to assist in the management of investments and the clearing of payment service obligations. All of these letters of credit are outstanding as of March 31, 2009. At March 31, 2009, the Company also has $93.1 million of availability under the Senior Facility.

Minimum Commission Guarantees — In limited circumstances, as an incentive to new or renewing agents, the Company may grant minimum commission guarantees 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. Expense related to the guarantee is recognized in the “Fee commissions expense” line in the Consolidated Statements of Income (Loss).

As of March 31, 2009, the liability for minimum commission guarantees is $1.3 million and the maximum amount that could be paid under the minimum commission guarantees is $12.8 million over a weighted average remaining term of 2.0 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. However, under the terms of certain agent contracts, the Company may terminate the contract if the projected or actual volume of transactions falls beneath a contractually specified amount. With respect to minimum commission guarantees that expired in 2008, the Company paid $0.6 million or approximately 15 percent of the estimated maximum payment for the year.

Following are the potential common shares excluded from diluted earnings per common share as their effect would be anti-dilutive:

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008
Shares related to stock options			2,964				4,057
Shares related to restricted stock			65				145
Shares related to preferred stock			347,925				307,729

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“FAS”) No. 141 (revised 2007), Business Combinations (“FAS 141(R)”). FAS 141(R) changes how business combinations are accounted for and disclosed, including the elimination of capitalized transaction costs and accounting for contingent consideration. The Company adopted FAS 141(R) effective January 1, 2009.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in computing earnings per share under the two-class method described in FAS No. 128, Earnings per Share. FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The Company adopted FSP EITF 03-6-1 on January 1, 2009 with no material impact on its Consolidated Financial Statements.

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FSP EITF 99-20-1”). FSP EITF 99-20-1 conforms the application of other-than-temporary impairment guidance on beneficial interests in securitized financial assets to the impairment model in FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (“FAS 115”). The Company adopted FSP EITF 99-20-1 on January 1, 2009 with no material impact on its Consolidated Financial Statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends FAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. The FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim periods ending after June 15, 2009.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (“FSP FAS 115-2 and FAS 124-2”). This FSP amends FAS 115 and FAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interest and Beneficial Interest That Continue to Be Held by a Transferor in Securitized Assets to make the other-than-temporary impairments guidance more operational and to improve the presentation of other-than-temporary impairments in the financial statements. This FSP will replace the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired debt security until recovery with a requirement that management assert it does not have the intent to sell the security and that it is more likely than not management will not have to sell the security before recovery of its cost basis. This FSP requires increased disclosure about the credit and noncredit components of impaired debt securities that are not expected to be sold, as well as increased disclosures regarding expected cash flows, credit losses and an aging of securities with unrealized losses. This FSP is effective for interim and annual periods ending after June 15, 2009. The Company is currently evaluating the impact of FSP FAS 115-2 and FAS 124-2 on its Consolidated Financial Statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”). FSP FAS 157-4 amends FAS No. 157, Fair Value Measurements, and provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. FSP FAS 157-4 shall be applied prospectively with retrospective application not permitted. This FSP is effective for interim and annual periods ending after June 15, 2009. The Company is currently evaluating the impact of FSP FAS 157-4 on its Consolidated Financial Statements, but does not anticipate any impact to be material.

In April 2009, the FASB issued FSP 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141(R)-1”). FSP 141(R)-1 amends and clarifies FAS 141(R) to address application issues associated with initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted FSP 141(R)-1 effective January 1, 2009.

Note 16 — Segment Information

The Company conducts its business 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, Walmart Stores, Inc. (“Walmart”), accounted for approximately 30 percent and 24 percent of the Company’s total fee and investment revenue for the quarters ended March 31, 2009 and 2008, respectively, and approximately 32 percent and 29 percent of the Global Funds Transfer segment total fee and investment revenue for the quarters ended March 31, 2009 and 2008, respectively. “Other unallocated expenses” include $3.5 million of executive severance and related costs recorded during the first quarter of 2009 and $7.7 million of costs relating to the recapitalization in the first quarter of 2008. The following table reconciles segment operating income (loss) to “Income (loss) before income taxes” as reported in the Consolidated Statements of Income (Loss):

		Three Months Ended
		March 31,
(Amounts in thousands)		2009				2008
Revenue
Global Funds Transfer
Money transfer, including bill payment		$	242,119			$	233,856
Retail money order and other			17,573				(14,857	)
			259,692				218,999
Payment Systems
Official check and payment processing			12,605				(203,723	)
Other			6,364				1,694
			18,969				(202,029	)
Other			1,230				92
Total revenue		$	279,891			$	17,062
Operating income (loss)
Global Funds Transfer		$	36,725			$	(3,672	)
Payment Systems			7,252				(314,853	)
Total segment operating income (loss)			43,977				(318,525	)
Interest expense			(27,040	)			(14,789	)
Debt extinguishment loss			—				(1,499	)
Other unallocated expenses			(4,533	)			(8,302	)
Income (loss) before income taxes		$	12,404			$	(343,115	)

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

		Three Months Ended
		March 31,
(Amounts in thousands)		2009				2008
Depreciation and amortization
Global Funds Transfer		$	13,153			$	9,484
Payment Systems			1,209				4,734
Total depreciation and amortization		$	14,362			$	14,218
Capital expenditures
Global Funds Transfer		$	6,886			$	3,506
Payment Systems			507				2,360
Total capital expenditures		$	7,393			$	5,866

The following table presents revenue by major geographic area:

		Three Months Ended
		March 31,
(Amounts in thousands)		2009				2008
United States		$	199,451			$	(66,127	)
International			80,440				83,189
Total revenue		$	279,891			$	17,062

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

The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes of MoneyGram International, Inc. (“MoneyGram,” the “Company,” “we,” “us” and “our”). 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 on Form 10-Q.

Executive Management Changes — On January 21, 2009, the Board of Directors appointed Anthony P. Ryan as President and Chief Executive Officer and Pamela H. Patsley as Executive Chairman of the Board. On March 20, 2009, we announced the departure of David J. Parrin, Executive Vice President and Chief Financial Officer. Our Board of Directors has retained an executive search firm to lead the process of identifying a new Chief Financial Officer. On March 25, 2009, we announced that Mary A. Dutra, Executive Vice President, Global Payment Processing and Settlement will resign from her position effective September 24, 2009.

Table 1 — Results of Operations

		Three Months Ended March 31,												%
(Amounts in thousands)		2009				2008				Change				Change
		(unaudited)				(unaudited)
Revenue
Fee and other revenue		$	268,144			$	262,797			$	5,347				2	%
Investment revenue			11,691				61,565				(49,874	)			(81	%)
Net securities gains (losses)			56				(307,300	)			307,356				100	%
Total revenue			279,891				17,062				262,829				1540	%
Fee commissions expense			118,544				117,232				1,312				1	%
Investment commissions expense			399				96,889				(96,490	)			(100	%)
Total commissions expense			118,943				214,121				(95,178	)			(44	%)
Net revenue (losses)			160,948				(197,059	)			358,007				182	%
Expenses
Compensation and benefits			51,632				52,299				(667	)			(1	%)
Transaction and operations support			44,484				52,029				(7,545	)			(15	%)
Depreciation and amortization			14,362				14,218				144				1	%
Occupancy, equipment and supplies			11,026				11,222				(196	)			(2	%)
Interest expense			27,040				14,789				12,251				83	%
Debt extinguishment loss			—				1,499				(1,499	)			(100	%)
Total expenses			148,544				146,056				2,488				2	%
Income (loss) before income taxes			12,404				(343,115	)			355,519				104	%
Income tax expense			563				17,740				(17,177	)			(97	%)
Net income (loss)		$	11,841			$	(360,855	)		$	372,696				103	%

Following are significant items affecting operating results during the first quarter of 2009 as compared to the first quarter of 2008:

	•		Fee and other revenue increased 2 percent in the first quarter of 2009 to $268.1 million, driven by continued growth in money transfer (including bill payment) transaction volume. Our Global Funds Transfer segment fee and other revenue grew 2 percent in the first quarter of 2009, driven by 2 percent growth in money transfer (including bill payment) fee revenue and 4 percent growth in money transfer transaction volume. In the first quarter of 2009, the rate of growth in money transfer (including bill payment) volume slowed compared to 2008, reflecting slowing economic conditions and a growing volume base.
	•		Investment revenue decreased $49.9 million, or 81 percent, in the first quarter of 2009 compared to 2008 due to a decline in the average rate earned on our realigned investment portfolio and a decrease in our investment balances from the departure of official check financial institution customers.
	•		In the first quarter of 2009, valuation gains on put options relating to trading investments offset unrealized losses on trading investments and other-than-temporary impairments on other asset-backed securities, resulting in a nominal net gain for the quarter. This is compared to $307.3 million of net securities losses in 2008 due to the realignment of our investment portfolio and other-than-temporary impairments.
	•		Total commissions expense decreased $95.2 million, or 44 percent, in the first quarter of 2009 compared to 2008. Commissions expense for the first quarter of 2008 included an unrealized loss of $57.0 million from interest rate swaps related to the official check business due to the restructuring of that business. Additionally, commissions expense decreased due to the decline in the federal funds rate, lower investment balances upon which commissions were paid and lower official check commission rates from repricing initiatives.
	•		Interest expense increased to $27.0 million in the first quarter of 2009 from $14.8 million in 2008 due to higher outstanding debt as a result of the recapitalization completed in March 2008. Interest expense for the first quarter of 2008 includes an unrealized loss of $6.2 million related to interest rate swaps from the extinguishment of debt.

	•		Expenses in the first quarter of 2009 increased $2.5 million, or 2 percent, over 2008 primarily from the $12.3 million increase in interest expense and $3.5 million of severance costs related to two executives, partially offset by lower professional fees and a $3.9 million decrease in incentive accruals. In the first quarter of 2008, we recorded $7.7 million of professional fees related to the recapitalization completed on March 25, 2008. In addition, we recorded a “Debt extinguishment loss” of $1.5 million related to the recapitalization in the first quarter of 2008.
	•		In the first quarter of 2009, we had $0.6 million of tax expense on pre-tax income of $12.4 million, resulting in an effective income tax rate of 4.54 percent. The effective income tax rate in the first quarter of 2009 reflects benefits recognized on tax positions with respect to part of the net securities losses from 2008 and 2007.
	•		A significant amount of our internationally originated transactions and settlements with international agents are conducted in the Euro. In addition, the operating expenses of most of our international subsidiaries are denominated in the Euro. During the first quarter of 2009, the average Euro to U.S. Dollar exchange rate decreased to 1.31 from 1.50 in the first quarter of 2008. The decline in the Euro rate (net of hedging activities) reduced total revenue by $6.6 million, commissions expense by $4.5 million and operating expenses by $3.1 million, for a net increase to our income before taxes of $1.0 million.

		Three Months Ended March 31,												%
(Amounts in thousands)		2009				2008				Change				Change
Fee and other revenue		$	268,144			$	262,797			$	5,347				2	%
Fee commissions expense			(118,544	)			(117,232	)			(1,312	)			(1	%)
Net fee revenue		$	149,600			$	145,565			$	4,035				3	%
Fee commissions expense as a % of fee and other revenue			44.2	%			44.6	%

Fee and other revenue consists of fees on money transfer (including bill payment), money orders and official check transactions. For the first quarter of 2009, fee and other revenue increased by $5.3 million, or 2 percent, from 2008, driven by continued growth in money transfer (including bill payment) transaction volume. Money transfer fee and other revenue increased 2 percent in the first quarter of 2009 compared to 2008, while money transfer transaction volume increased 4 percent. Transaction growth resulted in incremental fee and other revenue of $13.0 million, while the decline in the Euro exchange rate, net of hedging activities, decreased fee and other revenue by $6.6 million. Lower average face value per transaction and corridor mix decreased our revenue by $0.9 million. See Table 6 — Global Funds Transfer Segment for further information regarding money transfer revenue and transaction volume. In the first quarter of 2009, the rate of growth in money transfer (including bill payment) volume slowed compared to 2008, reflecting slowing economic conditions and a growing volume base.

Fee commissions consist primarily of fees paid to our third-party agents for the money transfer service. We generally do not pay fee commissions on our money order products. During the first quarter of 2009, fee commissions expense increased $1.3 million, or 1 percent, over 2008. Money transfer transaction volume growth resulted in incremental commissions expense of $5.3 million, offset by a $4.5 million benefit from the lower Euro exchange rate. Commissions expense also increased $0.5 million from the amortization of signing bonuses paid to agents in 2008. Average commission rates paid to our agents was flat for the first quarter of 2009 compared to 2008 as the benefit from changes in corridor mix was offset by higher Walmart commission rates resulting from the extended contract signed late in the first quarter of 2008.

Net fee revenue increased 3 percent for the first quarter of 2009 compared to 2008, primarily driven by growth in money transfer revenue outpacing growth in commissions expense.

		Three Months Ended March 31,												%
(Amounts in thousands)		2009				2008				Change				Change
Investment revenue		$	11,691			$	61,565			$	(49,874	)			(81	%)
Investment commissions expense (1)			(399	)			(96,889	)			96,490				100	%
Net investment revenue (loss)		$	11,292			$	(35,324	)		$	46,616				132	%
Average balances:
Cash equivalents and investments		$	4,393,200			$	4,817,257			$	(424,057	)			(9	%)
Payment service obligations (2)		$	3,117,002			$	4,638,871			$	(1,521,869	)			(33	%)
Average yields earned and rates paid (3):
Investment yield			1.08	%			5.14	%			(4.06	%)
Investment commission rate			0.05	%			8.40	%			(8.35	%)
Net investment margin			1.04	%			(2.95	%)			3.99	%

Investment revenue in the first quarter of 2009 decreased $49.9 million, or 81 percent, compared to 2008 due to lower yields earned on our realigned investment portfolio and the decrease in our investment balances from the termination of official check financial institution customers. With the realignment of the portfolio in February 2008, our portfolio is now comprised primarily of lower yielding cash equivalents and government agency securities. See Note 5 — Investment Portfolio of the Notes to Consolidated Financial Statements for further discussion of our investment portfolio.

Investment commissions expense in the first quarter of 2009 decreased $96.5 million compared to 2008. The decrease reflects the $57.0 million unrealized loss recorded in the first quarter of 2008 upon the discontinuation of hedge accounting treatment for interest rate swaps related to the official check business in connection with the restructuring of that business. See Note 6 — Derivative Financial Instruments of the Notes to Consolidated Financial Statements for further information regarding the loss on interest rate swaps. The decrease is also due to the decline in the federal funds rate, lower investment balances upon which commissions were paid and lower commission rates from the official check repricing initiated in the first quarter of 2008. During the first quarter of 2009, the federal funds rate was so low that most of our financial institution customers were in a “negative” commission position, in that we do not owe any commissions to our customers. While the majority of our contracts require that the financial institution customers pay us for the negative commission amount, we have opted at this time to impose certain per-item and other fees rather than require payment of the negative commission amount. We continue to monitor the negative commissions and may decide to pursue payment at a future date.

Net investment revenue increased to $11.3 million in the first quarter of 2009 from a $35.3 million net loss in 2008, with a net investment margin of 1.04 percent in the first quarter of 2009 as compared to a negative margin of 2.95 percent in 2008. The net investment revenue and margin in the first quarter of 2009 reflects the federal funds rate environment and the official check repricing initiative, partially offset by the lower yields and investment balances as described above. The net investment loss and negative margin in 2008 primarily reflect the $57.0 million unrealized loss on swaps.

Table 4 — Summary of Gains, Losses and Impairments

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008				Change
Gross realized gains		$	—			$	34,200			$	(34,200	)
Gross realized losses			—				(290,534	)			290,534
Other-than-temporary impairments			(2,081	)			(45,274	)			43,193
Net securities losses from available-for-sale investments			(2,081	)			(301,608	)			299,527
Unrealized losses from trading investments			(1,645	)			(5,692	)			4,047
Valuation gain from put options related to trading investments			3,782				—				3,782
Net securities gains (losses)		$	56			$	(307,300	)		$	307,356

Net securities gains for the first quarter of 2009 reflect a $3.8 million valuation gain from put options related to trading investments, offset by $2.1 million of other-than-temporary impairments on our other asset-backed securities and $1.6 million of unrealized losses on our trading investments resulting from continued deterioration in the markets. See Note 5 — Investment Portfolio of the Notes to Consolidated Financial Statements for further discussion of our investment portfolio.

During the first quarter of 2008, we completed the realignment of our investment portfolio, resulting in the sale of securities with a fair value of $3.2 billion (after other-than-temporary impairment charges) at December 31, 2007 for proceeds of $2.9 billion and a net realized loss of $256.3 million. This net realized loss was the result of further deterioration in the markets during the first quarter of 2008 and the short timeframe over which securities were sold. Proceeds from the sales were reinvested in cash and cash equivalents. We recognized an other-than-temporary impairment charge of $45.3 million on our available-for-sale securities and unrealized losses of $5.7 million on our trading investments during the first quarter of 2008 as the result of further deterioration in the market and accumulation of ratings downgrades.

Expenses

Compensation and benefits — Compensation and benefits includes salaries and benefits, management incentive programs and other employee related costs. Compensation and benefits decreased $0.7 million, or 1 percent, in the first quarter of 2009 compared to 2008, primarily from lower incentive compensation. Incentive compensation decreased $4.5 million due to accruing annual incentives at a lower tier than in 2008, lower stock-based compensation expense from forfeitures and no new issuances in 2008 and the decision to suspend our discretionary profit sharing contribution for 2009. Substantially offsetting these expense reductions is $3.5 million of executive severance and related costs recorded during the first quarter of 2009 related to the departure of our former chief financial officer and an agreement with another executive, as well as a $0.6 million increase in benefit plan expenses. The decline in the Euro exchange rate, which is reflected in each of the amounts discussed above, decreased compensation and benefits by approximately $1.3 million compared to 2008.

Transaction and operations support — Transaction and operations support expenses include marketing costs, professional fees and other outside service costs, telecommunications and forms expense related to our products. Transaction and operations support costs decreased $7.5 million, or 15 percent, in the first quarter of 2009 compared to 2008, primarily from $7.7 million of professional fees incurred in 2008 in connection with the recapitalization and a $4.3 million decrease in marketing costs in 2009 due to controlled spending and timing of marketing initiatives. Partially offsetting these cost savings is a negative $3.1 million impact from foreign exchange rate movements on our foreign denominated assets and liabilities, net of hedging activities, as well as $0.9 million of professional fees incurred in connection with our implementation of the European Union Payment Services Directive. The decline in the Euro exchange rate, which is reflected in each of the amounts discussed above, decreased transaction and operations support by approximately $1.0 million compared to 2008.

Depreciation and amortization — Depreciation and amortization includes depreciation on point of sale equipment, agent signage, computer hardware and software, capitalized software development costs, office furniture, equipment and leasehold improvements and amortization of intangible assets. Depreciation and amortization expense was flat for the first quarter of 2009 compared to 2008. Increases in depreciation expense for agent equipment of $0.5 million from new agent and location roll-outs were offset by the decline in the Euro exchange rate, which decreased depreciation and amortization by approximately $0.4 million compared to 2008.

Occupancy, equipment and supplies — Occupancy, equipment and supplies includes facilities rent and maintenance costs, software and equipment maintenance costs, freight and delivery costs and supplies. Occupancy, equipment and supplies expense decreased $0.2 million, or 2 percent, in the first quarter of 2009 compared to 2008 from the timing of the roll-out of new agents and locations, lower costs related to the disposal of fixed assets and controlled spending, offset by higher software and equipment maintenance costs to support the growth of the business. The decline in the Euro exchange rate decreased occupancy, equipment and supplies by approximately $0.3 million compared to 2008.

Interest expense — Interest expense increased to $27.0 million in the first quarter of 2009 from $14.8 million in 2008 due to higher outstanding debt from the recapitalization completed in March 2008. Interest expense for the first quarter of 2008 includes an unrealized loss of $6.2 million related to the discontinuation of hedge accounting treatment for our debt interest rate swaps. See Note 6 — Derivative Financial Instruments of the Notes to Consolidated Financial Statements for further information regarding the loss on interest rate swaps.

Income taxes — In the first quarter of 2009, we had $0.6 million of tax expense on pre-tax income of $12.4 million, resulting in an effective income tax rate of 4.54 percent. The effective income tax rate in the first quarter of 2009 reflects benefits recognized on tax positions with respect to part of the net securities losses from 2008 and 2007. We continue to evaluate additional available tax positions related to the net securities losses. In the first quarter of 2008, we had $17.7 million of tax expense on a pre-tax loss of $343.1 million, resulting in a negative effective income tax rate of 5.17 percent. The effective income tax rate in the first quarter of 2008 reflects a deferred tax asset valuation allowance of $16.1 million recorded in the first quarter of 2008 relating to net securities losses on securities. Due to the amount and characterization of losses at March 31, 2008, we determined that it was not “more likely than not” that the deferred tax assets related to the losses would be realized as of March 31, 2008.

Acquisitions

Raphaels Bank — On February 2, 2009, MoneyGram acquired the French assets of R. Raphaels & Sons PLC (“Raphaels Bank”) for a purchase price of $3.2 million. The acquisition of Raphaels Bank provides us with five money transfer stores in and around Paris, France that will be integrated into our French retail operations. The preliminary purchase price allocation as of March 31, 2009 includes $2.0 million of goodwill assigned to our Global Funds Transfer segment. The purchase price allocation is preliminary pending the completion of the valuation of fixed assets, intangible assets and deferred taxes. The operating results of Raphaels Bank subsequent to the acquisition date are included in our Consolidated Statements of Income (Loss). The financial impact of the acquisition is not material to the Consolidated Balance Sheets or Consolidated Statements of Income (Loss).

Segment Performance

We measure financial performance by our two business segments — Global Funds Transfer and Payment Systems. The business segments 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. Through our agent network and retail locations, the Global Funds Transfer segment provides our retail consumers with money transfer services, domestic money orders and bill payment services. The Payment Systems segment provides official check services and money orders for financial institutions and controlled disbursements processing for our business customers. Segment pre-tax operating income and segment operating margin are used to evaluate performance and allocate resources.

We manage our investment portfolio on a consolidated level, with no specific investment security assigned to a particular segment. However, average investable balances are allocated to the segments based upon the average balances generated by that segment’s sale of payment instruments. Investment revenue and net securities gains (losses) are allocated based upon the allocation of average investable balances. The derivatives portfolio is also managed on a consolidated level; however, each derivative instrument is utilized in a manner that can be identified to a particular segment. Interest rate swaps used to hedge variable rate commissions are identified with the official check product in the Payment Systems segment, while forward foreign exchange contracts are identified with the money transfer product in the Global Funds Transfer segment. Interest rate swaps related to variable rate debt were identified to Corporate activities, with the related income (expense) included in unallocated interest expense. Other unallocated expenses include pension and benefit obligation expense, director deferred compensation plan expense, executive severance, legal costs related to shareholder lawsuits and other corporate costs not related to the performance of the segments.

Table 5 — Segment Information

		Three Months Ended March 31,
(Amounts in thousands)		2009				2008				Change
Operating income (loss)
Global Funds Transfer		$	36,725			$	(3,672	)		$	40,397
Payment Systems			7,252				(314,853	)			322,105
Total segment operating income (loss)			43,977				(318,525	)			362,502
Interest expense			27,040				14,789				12,251
Debt extinguishment loss			—				1,499				(1,499	)
Other unallocated expenses			4,533				8,302				(3,769	)
Income (loss) before income taxes		$	12,404			$	(343,115	)		$	355,519

Table 6 — Global Funds Transfer Segment

		Three Months Ended March 31,												%
(Amounts in thousands)		2009				2008				Change				Change
Money Transfer (including Bill Payment)
Fee and other revenue		$	242,119			$	236,885			$	5,234				2	%
Investment revenue			—				706				(706	)			(100	%)
Net securities losses			—				(3,735	)			3,735				100	%
Total Money Transfer revenue (including Bill Payment)			242,119				233,856				8,263				4	%
Retail Money Order and other
Fee and other revenue			15,843				16,932				(1,089	)			(6	%)
Investment revenue			1,722				8,849				(7,127	)			(81	%)
Net securities gains (losses)			8				(40,638	)			40,646				100	%
Total Retail Money Order and other revenue			17,573				(14,857	)			32,430				218	%
Total Global Funds Transfer revenue
Fee and other revenue			257,962				253,817				4,145				2	%
Investment revenue			1,722				9,555				(7,833	)			(82	%)
Net securities gains (losses)			8				(44,373	)			44,381				100	%
Total Global Funds Transfer revenue			259,692				218,999				40,693				19	%
Commissions expense			117,903				116,563				1,340				1	%
Net revenue		$	141,789			$	102,436			$	39,353				38	%
Operating income (loss)		$	36,725			$	(3,672	)		$	40,397			NM
Operating margin			14.1	%			(1.7	%)