UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

TABLE OF CONTENTS

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PART I. Financial Information

MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES

     Certain structured investments we own represent beneficial interests in grantor trusts or other similar entities. These trusts typically contain an investment grade security, generally a U.S. Treasury strip, and an investment in the residual interest in a collateralized debt obligation, or in some cases, a limited partnership interest. For certain of these trusts, we own a majority of the beneficial interests, and therefore, consolidate those trusts by recording and accounting for the assets of the trust separately in our consolidated financial statements.

      Management Estimates —The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

      Reclassifications —Certain reclassifications have been made to prior periods financial statements to conform to the current presentation.

      Cash and Cash Equivalents, Receivables, and Investments —We generate funds from the sale of money orders, official checks (including cashier’s checks, teller checks, and agent checks), and other payment instruments (classified as “Payment service obligations” in the Consolidated Balance Sheets), the proceeds of which are invested in cash and cash equivalents and investments until the time needed to satisfy the liability to pay the face amount of such payment service obligations upon presentment.

                Cash and Cash Equivalents (substantially restricted) —We consider cash on hand and all highly liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents.

                Receivables, net (substantially restricted) —We have receivables due from financial institutions and agents for payment instruments sold. These receivables are outstanding from the day of the sale of the payment instrument, until the financial institution or agent remits the funds to us. We provide an allowance for the portion of the receivable estimated to become uncollectible using historical charge-off and recovery patterns, as well as current economic conditions.

               We sell an undivided percentage ownership interest in certain of these receivables, primarily receivables from our money order agents. The sale is recorded in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities . Upon sale, we remove the sold agent receivables from the Consolidated Balance Sheets.

                Investments (substantially restricted) — Our investments consist primarily of mortgage-backed securities, other asset-backed securities, state and municipal government obligations, and corporate debt securities. These investments are held in custody with major financial institutions. We classify securities as available-for-sale or held-to-maturity in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities . During the first quarter of 2003, we determined that we no longer had the positive intent to hold to maturity the securities classified as held-to-maturity due to the desire to have more flexibility in managing the investment portfolio. Therefore, on March 31, 2003, we reclassified securities in the portfolio from held-to-maturity to available-for-sale. As a result of this reclassification, we cannot hold held-to-maturity securities until March 31, 2005. There are no securities classified as trading securities.

               Securities held for indefinite periods of time, including those securities that may be sold to assist in the clearing of payment service obligations or in the management of securities, are classified as securities available-for-sale. These securities are reported at fair value, with the net after-tax unrealized gain or loss reported as a separate component of stockholders’ equity.

               Other asset-backed securities are collateralized by various types of loans and leases, including home equity, corporate, manufactured housing, credit card, and airline. Interest income on mortgage-backed and other asset-backed securities for which risk of credit loss is deemed remote is recorded utilizing the level yield method. Changes in estimated cash flows, both positive and negative, are accounted for with retrospective changes to the carrying value of investments in order to maintain a level yield over the life of the investment. Interest income on mortgage-backed and other asset-backed investments for which risk of credit loss is not deemed remote is recorded under the prospective method in accordance with EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets , as adjustments of yield.

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               Securities with gross unrealized losses at the consolidated balance sheet date are subject to our process for identifying other-than-temporary impairments in accordance with SFAS No. 115 Accounting For Certain Investments in Debt and Equity Securities, and EITF Issue No. 99-20 . We write down to fair value those securities that we deem to be other-than-temporarily impaired in the period the securities are deemed to be other than temporarily impaired. Under SFAS No. 115, the assessment of whether such impairment has occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value. We consider a wide range of factors about the security and use our best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for recovery. We evaluate mortgage-backed and other asset-backed investments for which risk of credit loss is not deemed remote under EITF Issue No. 99-20. We generally consider risk of credit loss for securities rated AA and above to be remote. When an adverse change in expected cash flows occurs and if the fair value of a security is less than its carrying value, the investment is written down to fair value. Any impairment charges are included in the Consolidated Statement of Income under “Securities gains and losses, net.” Fair value is generally based on quoted market prices. However, certain investment securities are not readily marketable. As a result, the carrying value of these investments is based on cash flow projections, which require a significant degree of management judgment as to default and recovery rates of the underlying investments.

                Substantially Restricted —We are 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. We are not regulated by state agencies for payment service obligations resulting from outstanding cashier’s checks; however, we restrict a portion of the funds related to these payment instruments due to contractual arrangements, and/or Company policy. Accordingly, assets restricted for regulatory or contractual reasons are not available to satisfy working capital or other financing requirements.

               We have unrestricted cash and cash equivalents, receivables, and investments to the extent those assets exceed all payment service obligations. The following table shows the total amount of assets restricted for payment service obligations and unrestricted assets:

      Derivative Financial Instruments —We recognize derivative instruments as either assets or liabilities on the Consolidated Balance Sheets and measure those instruments at fair value. The accounting for changes in the fair value depends on the intended use of the derivative and the resulting designation.

     For a derivative instrument designated as a fair value hedge, we recognize the gain or loss in earnings in the period of change together with the offsetting loss or gain on the hedged item attributed to the risk being hedged. For a derivative instrument designated as a cash flow hedge, we initially report the effective portion of the derivative’s gain or loss as a component of other comprehensive gain or loss and subsequently reclassify it into earnings when the hedged exposure affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately.

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     For a derivative instrument that does not qualify, or is not designated, as a hedge, the change in fair value is recognized in “Transaction and operations support” in the Consolidated Statements of Income.

     The effective portion of the change in fair value of derivatives that qualify as cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, is recorded in other comprehensive income. Amounts receivable or payable under the derivative agreements are reclassified from other comprehensive income to net income as an adjustment to the expense of the related transaction. These amounts are included in the Consolidated Statements of Income under “Investment commissions expense.”

     We use derivative instruments to manage exposures to foreign currency risk. The objective in holding derivatives is to minimize the volatility of earnings and cash flow associated with changes in foreign currency. We purchase currency options and designate these currency options as cash flow hedges of foreign currency forecasted transactions related to certain operating revenues. We enter into foreign currency forwards to hedge forecasted foreign currency money transfer transactions and designate these derivatives as cash flow hedges. We also enter into foreign exchange forward contracts to minimize the short-term impact of currency fluctuations. The foreign exchange forward contracts are not designated as accounting hedges, and all changes in fair value are recognized in earnings in the period of change.

      Fair Value of Financial Instruments- The estimated fair value of financial instruments has been determined using available market information and the valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, these estimates may not be indicative of the amounts we could realize in a current market exchange. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

      Property and Equipment -Property and equipment includes office equipment, software and hardware, and leasehold improvements, which are stated at cost, net of accumulated depreciation. Property and equipment is depreciated using a straight-line method over estimated useful lives ranging from two to ten years for all assets except leasehold improvements, which are amortized using the straight-line method over the lesser of the lease term or useful life of the asset. We capitalize certain software development costs in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . (See Note 7)

      Intangible Assets and Goodwill -Goodwill and certain intangible assets with indefinite lives are not amortized but instead are subject to periodic impairment testing. We performed an annual assessment of these assets during the fourth quarter 2003 and determined that there was no impairment. The fair value was estimated using the expected present value of future cash flows. Intangible assets with finite lives are amortized over their respective useful lives and tested for impairment only whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. (See Note 8)

      Payments on Long-Term Contracts -We make incentive payments to certain agents and financial institution customers as an incentive to enter into long-term contracts. The payments are generally required to be refunded pro rata in the event of nonperformance or cancellation by the customer and are capitalized and amortized over the life of the related agent or financial institution contracts as management is satisfied that such costs are recoverable through future operations, minimums, penalties, or refunds in case of early termination. We review the carrying values of these incentive payments whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable in accordance with the provisions of SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets .

      Income Taxes - Prior to the spin off, income taxes were determined on a separate return basis as if MoneyGram had not been eligible to be included in the consolidated income tax return of Viad and its affiliates. Deferred income taxes result from temporary differences between the financial reporting basis of assets and liabilities and their respective tax-reporting basis. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. (See Note 11)

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      Foreign Currency Translation -The Euro is the functional currency of MoneyGram International Limited (“MIL”), a wholly-owned subsidiary of MoneyGram. Assets and liabilities for MIL are translated into U.S. dollars based on the exchange rate in effect at the balance sheet date. Income statement accounts are translated at the average exchange rate during the period covered. Translation adjustments arising from the use of differing exchange rates from period to period are included in the Consolidated Balance Sheets as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

      Revenue Recognition -We derive revenue primarily through service fees charged to consumers and through investments. A description of these revenues and recognition policies are as follows:

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Fee revenues primarily consist of transaction fees, foreign exchange revenue, and other revenue.

-		Transaction fees consist primarily of fees earned on the sale of money transfers, retail money orders, and bill payment services. The money transfer transaction fees are fixed fees per transaction that may vary based upon the face value of the amount of the transaction and the locations in which these money transfers originate and to which they are sent. Money transfer transaction fees are recognized at the time of the transaction. The money order and bill payment transaction fees are fixed fees charged on a per item basis and are recognized at the time of the transaction or sale of the product.
-		Foreign exchange revenue is derived from the management of currency exchange spreads (as a percentage of face value of the transaction) on international money transfer transactions. Foreign exchange revenue is recognized at the time the exchange in funds occurs.
-		Other revenue consists of processing fees on rebate checks and controlled disbursements, service charges on aged outstanding money orders, money order dispenser fees, and other miscellaneous charges. These fees are recognized in earnings in the period the item is processed or billed.

•		Investment revenue is derived from the investment of funds generated from the sale of official checks, money orders and other payment instruments. These funds are available for investment until the items are presented for payment. Interest and dividends are recognized as earned.
•		Securities gains and losses are recognized on the sale of securities, and impairments are recognized on securities with gross unrealized losses and other-than-temporary impairments in the period the other-than-temporary impairment occurs.

      Fee Commissions Expense -We pay fee commissions to third-party agents for money transfer services. In a money transfer transaction, both the agent initiating the transaction and the agent disbursing the funds receive a commission. The commission amount is generally based on a percentage of the fee charged to the customer. Fee commissions also include the amortization of the capitalized incentive payments to agents. We generally do not pay commissions to agents on the sale of money orders.

      Investment Commissions Expense -Investment commissions expense includes amounts paid to financial institution customers based upon average outstanding balances generated by the sale of official checks, costs associated with swaps, and the sale of receivables program. Commissions paid to financial institution customers generally are variable based on short-term interest rates; however, a portion of the commission expense has been fixed through the use of interest rate swap agreements.

      Stock Based Compensation — Prior to the Distribution, certain of our employees participated in Viad employee incentive plans and received awards consisting of stock options, restricted stock or other deferred compensation that are described more fully in Note 15. We accounted for these stock option grants under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees . Accordingly, no compensation expense has been recognized for our stock-based compensation plans other than for performance-based and restricted stock awards, which gave rise to compensation expense aggregating $378 thousand and $397 thousand during the three months ending September 30, 2004 and

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2003 respectively, and $947 thousand and $981 thousand during the nine months ending September 30, 2004 and 2003, respectively. Assuming that we had recognized compensation cost for stock options and performance-based stock awards in accordance with the fair value method of accounting defined in SFAS No. 123, Accounting for Stock-Based Compensation, net income and diluted and basic income per share would be as presented in the following table. Compensation cost calculated under SFAS No. 123 is recognized ratably over the vesting period and is net of estimated forfeitures and tax benefits.

     For purposes of applying SFAS No. 123, the estimated fair value of stock options granted during the first nine months of 2004 and for 2003 was $5.49 and $3.80 per share, respectively. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes single option pricing model with the following assumptions:

      Income per share — Basic income per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Since our common stock was not issued until June 30, 2004, the weighted average number of common shares outstanding for each period is the number of Viad shares outstanding. Diluted income per common share is calculated by adjusting weighted average outstanding shares, assuming conversion of all potentially dilutive stock options.

      Recent Accounting Pronouncements - Effective March 31, 2004, EITF No. 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments was issued. EITF 03-1 provides guidance for determining the meaning of “other-than-temporarily impaired” and its application to certain debt and equity securities within the scope of SFAS 115 and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. EITF 03-1 also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. On September 30, 2004, the Financial Accounting Standards Board

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(“FASB”) issued Staff Position (“FSP”) EITF Issue 03-1-1, which delayed the effective date of the guidance on how to evaluate and recognize an impairment loss that is other than temporary, pending issuance of proposed FSP EITF Issue 03-1-a. As of September 30, 2004, we had total unrealized pre-tax losses in our available-for-sale portfolio of $17.3 million which is already reflected in Stockholders’ Equity. If we did not have the intent and ability to hold these securities until recovery, and if we had implemented EITF 03-1, this amount would have been reflected as an impairment charge in our income statement. This unrealized loss is measured as of a point in time and could fluctuate significantly as interest rates change.

     In March 2004, the FASB issued an exposure draft of a proposed standard entitled “Share Based Payment”, which would amend FAS No. 123, “Accounting for Stock-Based Compensation,” and FAS No. 95, “ Statement of Cash Flows.” The proposed standard, if adopted, would require expensing stock options issued by the Company based on their estimated fair value at the date of grant and would be effective for the third quarter of 2005. Upon issuance of a final standard, which is expected in late 2004, we will evaluate the impact on our consolidated financial position and results of operations.

     In May 2004, the FASB issued FSP FAS 106-2 on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was enacted into law on December 8, 2003, and which provides a federal subsidy to employers that sponsor postretirement health care plans that provide certain prescription drug benefits to the extent such benefits are deemed “actuarially equivalent” to Medicare Part D. We made a one-time election, under the previously issued FSP FAS 106-1, to defer recognition of the effects of the Act until further authoritative guidance was issued. With FSP FAS 106-2, which superceded FSP FAS 106-1, specific guidance was provided in accounting for the subsidy, effective for the first reporting period beginning after June 15, 2004. The Company adopted FSP FAS 106-2 on July 1, 2004 using the prospective method. Refer to Note 14 for the effects of the Act on our Consolidated Balance Sheets and Consolidated Statements of Income.

3. DISCONTINUED OPERATIONS

Viad Corp

     MoneyGram is considered the divesting entity and treated as the “accounting successor” to Viad for financial reporting purposes. The continuing business of Viad is referred to as “New Viad.” The spin off of New Viad was accounted for pursuant to APB Opinion No. 29, Accounting for Nonmonetary Transactions and was accounted for based upon the recorded amounts of the net assets divested. On June 30, 2004, we charged directly to equity as a dividend the historical cost carrying amount of the net assets of New Viad of $426 million. As a result, the results of operations of New Viad (with certain adjustments) are included in the Statements of Consolidated Income in “Income and gain from discontinued operations” in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . Also included in “Income and gain from discontinued operations” for the periods ended June 30, 2004, is a one-time charge for spin-off related costs of $14.1 million.

     The results of operations of Viad, included in “Income and gain from discontinued operations” include the following:

     As part of the transaction, we entered into several agreements with Viad for the purpose of governing the relationship. A Separation and Distribution Agreement provides for the principal corporate transactions required to effect the separation of MoneyGram from Viad and the spin-off and other matters governing the relationship between New Viad and MoneyGram following the spin-off. The Employee Benefits Agreement provides for the

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allocation of employees, employee benefit plans and associated liabilities and related assets between Viad and MoneyGram. The Interim Services Agreement provides for services to be provided by Viad for MoneyGram on an interim basis. The Tax Sharing Agreement provides for the allocation of federal, state, and foreign tax liabilities for all periods through the Distribution Date.

     The services to be provided under the Interim Services Agreement will generally be provided by New Viad for a term of two years beginning on the Distribution Date. We may, at any time after the first year anniversary of the Distribution, request termination of the service upon 90 days advance notice to Viad. However, certain services may not be terminated prior to the second anniversary of the Distribution Date without Viad’s consent.

Game Financial Corporation

     During the first quarter of 2004, we completed the sale of one of our subsidiaries, Game Financial Corporation (“Game Financial”), for approximately $43 million in cash, resulting in net cash received of $15.2 million. Game Financial provides cash access services to casinos and gaming establishments throughout the United States. As a result of the sale, we recorded a gain of approximately $18.9 million ($11.4 million after-tax) in the first quarter of 2004. In addition, in June 2004 we recorded a gain of $1.1 million (net of taxes) as a result of the settlement of a lawsuit brought by Game Financial. We may record future after-tax gains of approximately $4 million, based on contingencies in the Sales and Purchase Agreement related to the continued operations of Game Financial with two casinos. Game Financial was a part of our Payment Systems segment.

     In accordance with SFAS No. 144, the results of operations of Game Financial and the gain on the disposal of Game Financial have been reflected as components of discontinued operations. All prior periods in the historical Consolidated Statements of Income have therefore been restated. Game Financial assets and liabilities have not been restated on the Consolidated Balance Sheets. The results of operations of Game Financial, included in “Income and gain from discontinued operations” include the following:

     Components of Game Financial included in the Consolidated Balance Sheets at December 31, 2003 consists of the following:

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4. Investments (Substantially Restricted)

     The amortized cost and market value of investments by type are as follows:

     On March 31, 2003, we reclassified securities in the portfolio with an amortized cost of $1.2 billion from held-to-maturity to available-for-sale. The gross unrealized gains and losses related to these securities were $55.3 million and $5.3 million, respectively, on the date of transfer, which were recorded in “Accumulated other comprehensive income (loss)”. At September 30, 2004 and December 31, 2003 we had no securities classified as held-to-maturity, and due to the above reclassification, we cannot classify investments as held-to-maturity until March 31, 2005.

     The amortized cost and market value of securities at September 30, 2004, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because 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.

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     At September 30, 2004 and December 31, 2003, net unrealized gains were $168.8 million ($105.5 million net of tax) and $173.0 million ($105.5 million net of taxes) respectively, and are included in the Consolidated Balance Sheets as a separate component of stockholders’ equity under the caption “Accumulated other comprehensive income (loss).”

     Gross realized gains and losses on sales of securities classified as available-for-sale, using the specific identification method, and other-than-temporary impairments were as follows:

     At September 30, 2004, the investment portfolio had the following aged unrealized losses:

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     At December 31, 2003, the investment portfolio had the following aged unrealized losses:

     We have determined that the unrealized losses reflected above represent temporary impairments. Twenty-seven securities and nineteen securities had unrealized losses for more than 12 months as of September 30, 2004 and December 31, 2003, respectively. We believe that the unrealized losses generally are caused by liquidity discounts and increases in the risk premiums required by market participants rather than a fundamental weakness in the credit quality of the issuer or underlying assets.

5. Derivative Financial Instruments

     Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts and derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest only and principal-only obligations and indexed debt instruments that derive their values or contractually required cash flows from the price of some other security or index.

     Cash flow hedges are hedges that use derivatives to offset the variability of expected future cash flows. Variability can arise in floating rate assets, floating rate liabilities or from certain types of forecasted transactions, as well as from changes in interest rates or currency exchange rates. We have entered into foreign currency forward derivatives to hedge forecasted foreign currency money transfer transactions. We designate these currency forwards as cash flow hedges. We have also entered into swap agreements to mitigate the effects of interest rate fluctuations on commissions paid to financial institution customers of our Payment Services segment. The agreements involve varying degrees of credit and market risk in addition to amounts recognized in the financial statements. We designate these swaps as cash flow hedges.

     The swap agreements are contracts to pay fixed and receive floating payments periodically over the lives of the agreements without the exchange of the underlying notional amounts. The notional amounts of such agreements are used to measure amounts to be paid or received and do not represent the amount of the exposure to credit loss.

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The amounts to be paid or received under the swap agreements are accrued in accordance with the terms of the agreements and market interest rates. The counterparties are major financial institutions, which are expected to perform fully under the terms of the agreements. We monitor the credit ratings of the counterparties; the likelihood of default is considered remote.

     The notional amount of the swap agreements totaled $3.5 billion and $3.1 billion at September 30, 2004 and December 31, 2003, respectively, with an average fixed pay rate of 4.79%, and 5.0% and an average variable receive rate 1.7% and 0.9% at September 30, 2004 and December 31, 2003, 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 we pay and the variable amount we receive is reflected in our Consolidated Statements of Income through “Investment commissions expense”. We estimate that approximately $40.4 million (net of tax), of the unrealized loss reflected in Stockholders’ Equity as of September 30, 2004, will be reflected in our income statement through “Investment commissions expense” within the next 12 months as the swap payments are settled. The agreements expire as follows:

     The amount recognized in earnings due to ineffectiveness of the cash flow hedges is not material.

     Fair value hedges are hedges that mitigate the risk of change in the fair values of assets, liabilities and certain types of firm commitments. We use fair value hedges to manage the impact of changes in fluctuating interest rates on certain available-for-sale securities. Interest rate swaps are used to modify exposure to interest rate risk by converting fixed rate assets to a floating rate. All amounts have been included in earnings consistent with the hedged transaction in the Consolidated Statements of Income under the caption “Investment revenue.” Realized gains of $2.1 million were recognized on fair value hedges discontinued during 2003. One fair value hedge was terminated during 2004, resulting in no gain or loss.

     We use derivatives to hedge exposures for economic reasons, including circumstances in which the hedging relationship does not qualify for hedge accounting. We are exposed to foreign currency exchange risk and utilize forward contracts to hedge assets and liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as hedges for accounting purposes under SFAS No. 133. Accordingly, the contracts are recorded on the Consolidated Balance Sheets at fair value, with the change in fair value reflected in earnings. The effect of changes in foreign exchange rates on the foreign-denominated receivables and payables, net of the effect of the related forward contracts, is not significant.

6. Sale of Receivables

     We have an agreement to sell undivided percentage ownership interests in certain receivables primarily from our money order agents. These receivables are sold to two commercial paper conduit trusts and represent a small percentage of the total assets in each trust. Our rights and obligations are limited to the receivables transferred, and the transactions are accounted for as sales. The assets and liabilities associated with the trusts, including the sold receivables, are not recorded or consolidated in our financial statements. The agreement expires in June 2006. The receivables are sold to accelerate the cash flow for investments. The aggregate amount of receivables sold at any time cannot exceed $450 million. The balance of sold receivables as of September 30, 2004, and December 31, 2003 was $362 million and $329 million respectively. The expense of selling the agent receivables is included in the Consolidated Statements of Income under the caption “Investment commissions expense.” The agreement includes a 5% holdback provision of the purchase price of the receivables. The average receivables sold approximated $400 million and $428 million during the three months ended September 30, 2004, and 2003, respectively, and $408

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million and $434 million during the nine months ended September 30, 2004 and 2003, respectively. The expense of selling the agent receivables was $2,525 and $2,277 for the three months ended September 30, 2004 and 2003, respectively, and $6,852 and $7,369 for the nine months ended September 30, 2004, and 2003, respectively.

7. Property and Equipment

     Property and equipment consist of the following:

     Included in computer hardware and software are capitalized software development costs. At September 30, 2004 and December 31, 2003, the net capitalized costs were $32,842 and $35,926 respectively.

     During the third quarter 2004, we determined an impairment of $3.1 million of software costs related primarily to a joint development project with Concord EFS utilizing ATMs to facilitate money transfers. The impairment was related to our Global Funds Transfer segment and is included on the Consolidated Statements of Income in “Transaction and operations support.”

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8. Intangibles and Goodwill

     During the third quarter of 2004, we evaluated the recoverability of certain purchased customer list intangibles due to the expected departure of a particular customer. To determine recoverability, we estimated future cash flows over the remaining useful life and calculated the fair value. An impairment loss of $2.1 million was recognized for the amount in which the carrying amount exceeded the fair value amount. This loss is included on the Consolidated Statements of Income in “Transaction and Operations support” in our Payment Systems segment.

     Intangible asset amortization for the three months ended September 30, 2004 and 2003 was $522 and $475, respectively. Intangible asset amortization expense for the nine months ended September 30, 2004 and 2003 was $1,544 and $1,425 respectively.

     Estimated remaining amortization expense for years ending December 31 is:

     There were no additions to goodwill and no goodwill impairment losses during the first nine months of 2004. The changes in the carrying amount of goodwill for the year ended December 31, 2003 are as follows:

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