FORM 10-K
MONEYGRAM INTERNATIONAL INC - MGI
Filed: March 25, 2008 (period: December 31, 2007)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
10-K - ANNUAL REPORT
PART I
RISK FACTORS
UNRESOLVED SEC COMMENTS
Item 1. BUSINESS
Item
1A.
Item
1B.
Item 2. PROPERTIES
Item 3. LEGAL PROCEEDINGS
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
Item 5. MARKET FOR THE REGISTRANT S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Item
7A.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
Item
9A.
Item
9B.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
Index to Financial Statements
EX-10.71 (MONEY SERVICES AGREEMENT)
EX-21 (SUBSIDIARIES OF THE REGISTRANT)
EX-23 (CONSENT OF DELOITTE TOUCHE LLP)
EX-24 (POWER OF ATTORNEY)
EX-31.1 (SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER)
EX-31.2 (SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER)
EX-32.1 (SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER)
EX-32.2 (SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER)
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
�
�
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2007.
Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File Number: 1-31950
MONEYGRAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1550 Utica Avenue South, Suite 100,
Minneapolis, Minnesota
(Address of principal executive offices)
16-1690064
(I.R.S. Employer
Identification No.)
55416
(Zip Code)
Registrant’s telephone number, including area code
(952) 591-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, $0.01 par value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes � No �
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes � No �
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 � No �
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. �
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 �
Accelerated filer �
Non-accelerated filer �
(Do not check if a smaller reporting
company)
Smaller reporting
company �
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes � No �
The market value of common stock held by non-affiliates of the registrant, computed by reference to the last sales price as
reported on the New York Stock Exchange as of June 29, 2007, the last business day of the registrant’s most recently
completed second fiscal quarter, was $2,295.3 million.
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
82,598,034 shares of common stock were outstanding as of March 14, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Part III of this report is incorporated by reference from the registrant’s proxy statement for
the 2008 Annual Meeting or Form 10-K/A.
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
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TABLE OF CONTENTS
PART I.
Business
Corporate History and Acquisitions
Capital Transaction
Global Funds Transfer Segment
Payment Systems Segment
Clearing and Cash Management Bank Relationships
Sales and Marketing
Product and Infrastructure Development and Enhancements
Competition
Regulation
Intellectual Property
Employees
Executive Officers of the Registrant
Available Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II.
Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules
PART IV.
Signatures
Exhibit Index
Money Services Agreement
Subsidiaries of the Registrant
Consent of Deloitte & Touche LLP
Power of Attorney
Section 302 Certification of Chief Executive Officer
Section 302 Certification of Chief Financial Officer
Section 906 Certification of Chief Executive Officer
Section 906 Certification of Chief Financial Officer
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
PART I
Item 1. BUSINESS
Corporate History and Acquisitions
MoneyGram International, Inc. (“MoneyGram,” the “Company,” “we,” “us” and “our”) is a leading global
payment services company. Our core purpose is to provide consumers with affordable, reliable and
convenient payment services. We offer our products and services to consumers and businesses primarily
through our network of agents and our financial institution customers. The diverse array of products and
services we offer enables consumers, many of whom are not fully served by traditional financial institutions,
to make payments and to transfer money around the world, helping them meet the financial demands of their
daily lives.
Our business is conducted through our wholly owned subsidiary formerly known as Travelers Express
Company, Inc. (“Travelers”), which has been in operation since 1940. In June 1998, we acquired MoneyGram
Payment Systems, Inc. (“MPSI”), adding the MoneyGram® branded international money transfer services to
our group of services. We were incorporated in Delaware on December 18, 2003 in connection with the
June 30, 2004 spin-off from our parent company, Viad Corp (“Viad”) (referred to hereafter as the “spin-off”).
In the spin-off, Travelers was merged with our wholly owned subsidiary and Viad distributed all of our issued
and outstanding shares of common stock to Viad stockholders in a tax-free distribution.
In April 2005, we acquired substantially all of the assets of ACH Commerce, LLC (“ACH Commerce”), an
automated clearing house (“ACH”) payment processor. The acquisition provided the technology and systems
platform to expand our bill payment services.
In 2005, we consolidated the operations of Travelers with MPSI to eliminate duplication and overlapping
costs of operating the two businesses under separate corporate entities, and to complete the transition of our
business from the Travelers Express brand to the MoneyGram brand. Effective December 31, 2005, the entity
that was formerly Travelers merged with and into MPSI, with MPSI remaining as the surviving corporation
and our primary operating subsidiary.
In May 2006, we completed the acquisition of Money Express S.r.l. (“Money Express”), a former super agent
of our money transfer business in Italy. The acquisition of Money Express provides us with the opportunity
for further network expansion and more control of marketing and promotional activities in the region.
MoneyGram Payment Systems Italy, S.r.l. was established, which manages the former Money Express
network comprised of approximately 900 active Italian agents.
In October 2007, we completed the acquisition of PropertyBridge, Inc., a provider of electronic payment
processing services for the real estate management industry. The acquisition provides a solution in a new
payment vertical and fits strategically with our build out of bill payment services.
During 2007, we continued to develop our retail strategy in Western Europe. Due to licensing requirements
and marketing constraints in certain European countries, our preferred method of expanding the number of
locations offering our services is through Company owned retail stores and kiosks in addition to our typical
agent model. In May 2006, we formed a licensed financial institution entity in France, MoneyGram France
S.A. We were granted the license in September 2006 and opened our first store in France shortly thereafter.
As of the end of 2007, we are operating 16 Company owned retail stores or kiosks in France and 30 in
Germany. We expect to open additional locations in these and other markets on a targeted basis.
Capital Transaction
During September 2007, the asset-backed securities market and broader credit markets began to experience
significant disruption, with a general lack of liquidity in the markets and deterioration in fair value of
mortgage-backed securities triggered by concerns surrounding sub-prime mortgages. In response to these
concerns, the rating agencies undertook extensive reviews of asset-backed securities, particularly
mortgage-backed securities. In late November and December 2007, the asset-backed securities and credit
markets experienced further substantial
1
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
deterioration under increasing concerns over defaults on mortgages and debt in general, as well as an
increasingly negative view towards all structured investments and the credit market. In addition, the rating
agencies continued their review of securities, issuing broad rating downgrades based on high levels of
assumed future defaults. Under the terms of certain of our asset-backed securities, ratings downgrades of
collateral securities can reduce the cash flows to all but the most senior investors even if there have been no
actual losses incurred by the collateral securities. In December 2007, we began to experience adverse changes
to the cash flows from some of our asset-backed investments as a result of the accumulating rating
downgrades of the underlying collateral securities. As the market continued its substantial deterioration, we
identified a need for additional capital. Through meetings with potential investors in late December 2007 and
early January 2008, it became evident that we would need to divest certain investments in connection with
any recapitalization to significantly reduce the risk of any further deterioration in the investment portfolio. We
commenced a plan in January 2008 to realign our investment portfolio away from asset-backed securities and
into highly liquid assets through the sale of a substantial portion of our investment portfolio. As a result of
these developments, we recognized $1.2 billion of other-than-temporary impairments as a charge to earnings
in December 2007.
On March 25, 2008, we completed a recapitalization transaction pursuant to which we received a substantial
infusion of both equity and debt capital (the “Capital Transaction”) to support the long-term needs of the
business and to provide necessary capital due to the investment portfolio losses. The equity component of the
Capital Transaction consisted of the sale to affiliates of Thomas H. Lee Partners, L.P. (“THL”) and affiliates
of Goldman, Sachs & Co. (“Goldman Sachs” and together with THL, the “Investors”) in a private placement
of 760,000 shares of Series B Participating Convertible Preferred Stock of the Company (the “Series B
Preferred Stock”) and shares of Series B-1 Participating Convertible Preferred Stock of the Company (the
“Series B-1 Preferred Stock,” and together the “Series B Stock”) for an aggregate purchase price of
$760.0 million. The issuance of the Series B Stock gave THL and Goldman Sachs an initial equity interest of
approximately 79%. Furthermore, in connection with the Capital Transaction, we paid Goldman Sachs an
investment banking advisory fee equal to $7.5 million in the form of 7,500 shares of Series B-1 Preferred
Stock. For a description of the terms of the Series B Stock, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity and Capital Resources — Sale of Investments and
Capital Transaction” and Note 18 — Subsequent Events of the Notes to Consolidated Financial Statements.
As part of the Capital Transaction, we amended our Rights Agreement with Wells Fargo Bank, N.A., as rights
agent, to exempt the issuance of the Series B Stock and stock into which the Series B Stock is convertible
from the Rights Agreement. We also entered into a Registration Rights Agreement with the Investors which
requires us to promptly file a shelf registration statement with the SEC relating to the Series B Stock issued to
the Investors after a specified holding period. We are generally obligated to keep the shelf registration
statement effective for up to 15 years or, if earlier, until all the securities owned by the Investors have been
sold. The Investors are also entitled to five demand registrations and unlimited piggyback registrations.
As part of the Capital Transaction, MoneyGram Payment Systems Worldwide, Inc. (“Worldwide”), a wholly
owned subsidiary of the Company, issued Goldman Sachs $500.0 million of senior secured second lien notes
(the “Notes”) with a ten year maturity. For a description of the terms of the Notes, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Sale of Investments and Capital Transaction” and Note 18 — Subsequent Events of the Notes to
Consolidated Financial Statements. Additionally, Worldwide, as borrower, and the Company entered into a
senior secured amended and restated credit agreement amending the Company’s existing $350.0 million debt
facility, adding $250.0 million of term loans to bring the total facility to $600.0 million. The new facility
includes $350.0 million in two term loan tranches and a $250.0 million revolving credit facility. For a
description of the terms of the amended and restated credit facility, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sale of
Investments and Capital Transaction” and Note 18 — Subsequent Events of the Notes to Consolidated
Financial Statements.
For additional information regarding our business, including our financial results, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
2
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Our Segments
We conduct our business through two segments: Global Funds Transfer and Payment Systems. In 2006, the
sales, marketing and product development teams for the two segments were combined to take advantage of
the overlap and synergies between the products and services offered by the two segments. However,
management continues to review financial results and evaluate the performance of the Company based on
these two segments. For financial information regarding our segments, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Results of Operations — Segment
Performance” and Note 16 — Segment Information of the Notes to Consolidated Financial Statements.
Following is a description of each segment.
Global Funds Transfer Segment
Our Global Funds Transfer segment provides money transfer services, money orders and bill payment
services to consumers. Our primary consumers are “unbanked,” “underbanked” and “convenience users.”
“Unbanked consumers” are those consumers who do not have a traditional relationship with a financial
institution. “Underbanked consumers” are consumers who, while they may have a savings account with a
financial institution, do not have a checking account. “Convenience users” are consumers who, while they
may have a checking account, prefer to use our products and services on the basis of convenience or value.
In 2007, the Global Funds Transfer segment had revenue of $771.0 million and an operating loss of
$60.4 million, including net securities losses of $234.2 million primarily attributable to our money order
product line. During 2007, 2006 and 2005, our international operations generated 21 percent, 20 percent and
19 percent, respectively, of our total fee and investment revenue, and 29 percent, 28 percent and 29 percent,
respectively of our Global Funds Transfer segment fee and investment revenue.
We conduct our Global Funds Transfer operations primarily through a worldwide network of agents. Our
largest agent, Wal-Mart Stores, Inc. (“Wal-Mart”), accounted for 20 percent, 17 percent and 13 percent of our
total fee and investment revenue and 27 percent, 24 percent and 19 percent of the fee and investment revenue
of our Global Funds Transfer segment in 2007, 2006 and 2005, respectively. Wal-Mart is the only customer
that accounts for more than 10 percent of our total fee and investment revenue. Our contract with Wal-Mart in
the U.S. provides for the sale by Wal-Mart of our money orders, money transfer services and real-time, urgent
bill payment services on an exclusive basis. In conjunction with our Capital Transaction, we extended the
term of the current agreement with Wal-Mart through January 2013, agreed to certain commission increases
over the term of the contract and agreed to create a trust for the benefit of consumers who purchase money
transfers and money orders at Wal-Mart locations.
During 2007, our largest agent in the United Kingdom increased the number of locations offering money
transfers as they completed the installation of the AgentConnect® platform. Domestically, we had two new
significant national retail agent signings and one significant agent renewal during 2007. During the first
quarter of 2008, we extended the terms of the contracts with ACE Cash Express, Inc., in addition to Wal-Mart
(two of our largest agents). During 2007, 2006 and 2005, our ten largest agents accounted for 36 percent,
34 percent, and 28 percent, respectively, of our total fee and investment revenue and 49 percent, 48 percent
and 42 percent, respectively, of the fee and investment revenue of our Global Funds Transfer segment.
We provide Global Funds Transfer products and services utilizing a variety of proprietary point-of-sale
platforms. We also operate two customer service call centers in the United States and contract for additional
call center services in Bulgaria and, starting in late 2007, the Dominican Republic. These call centers provide
multi-lingual customer service for both agents and consumers 24 hours per day, 365 days per year.
Money Transfers: During 2007, 94 percent of our Global Funds Transfer segment fee and other revenue was
generated by our money transfer services (including bill payment). Money transfers are transfers of funds
between consumers from one location to another. Money transfers are used by consumers who want to
transfer funds quickly, safely and efficiently to another individual within a country or internationally. As of
December 31, 2007, we provided money transfer services through approximately 143,000 money transfer
agent locations in approximately 180 countries and territories worldwide. These agent locations are located in
the following geographic regions: 33,300 locations in North America; 22,200 locations in Latin America
(including Mexico which represents 10,600 locations); 44,200 locations in Western Europe and the Middle
East; 10,800 locations in the Indian subcontinent;
3
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
13,600 locations in Asia Pacific; 13,700 locations in Eastern Europe; and 5,200 locations in Africa. As of the
date of this filing, our money transfer agent locations have grown to 150,000.
We also offer our money transfer services on the internet via our rapidly growing MoneyGram
eMoneyTransfer service that allows customers to send a money transfer at www.emoneygram.com using a
credit card, debit card or a debit from a bank account. Finally, we offer our money transfer services through
Company-owned retail locations. In the United States, we have Company-owned retail locations in New York
and Florida. In 2007, we continued to open retail locations and kiosks in France and Germany. We plan to
continue this strategy, as expanding our global network by increasing our agent locations and opening new
Company-owned locations in select markets is a core growth strategy of the Company.
Our money transfer revenues are derived primarily from consumer transaction fees and revenues from
currency exchange on international money transfers. In a typical money transfer, a consumer goes to an agent
location, completes a form and pays the agent the money to be transferred, together with a fee. The agent
enters the transaction data into a point-of-sale money transfer platform, which connects to our central data
processing system. Our platforms include AgentConnect®, which is integrated onto the agent’s point-of-sale
system, and DeltaWorks® and Delta T3®, which are separate software and stand-alone device platforms.
Through our FormFree service, customers may contact our call center and a representative will collect the
information over the telephone and enter it directly into our central data processing system. The funds are
made available for payment to the designated recipient in various currencies throughout our agent network.
The fee paid by the sender is based on the amount to be transferred and the location at which the funds are to
be received. Both the “send” and “receive” agents receive a commission from the transaction. In some
instances, we offer our agents a tiered commission structure, rewarding the agent with a higher commission as
the volume of its money transfer transactions increases.
We have corridor pricing capabilities that enable us to establish different consumer prices and foreign
exchange rates for our money transfer services by location, for a broader segment such as defined zip code
regions or for a widespread direct marketing area. We also have multi-currency technology that allows us to
execute our money transfers directly between and among several different currencies. Where implemented,
these capabilities allow our agents to settle with us in local currency and allow consumers to know the exact
amount that will be received in the local currency of the receiving nation, or in U.S. dollars or Euros in certain
countries.
During 2007, the gap between total revenue growth and money transfer transaction growth narrowed as we
lapped the first year of implementation of the simplified pricing initiatives and the Euro strengthened against
the U.S. dollar. Our simplified pricing structure reduced the number of pricing tiers, or bands, and allows our
agents to more effectively communicate our value proposition to our customers. Our pricing philosophy
generally is to maintain a price point below our higher priced competitor, but above the niche players in the
market.
Money Orders: Money orders, much like checks, can be presented by the consumer to make a payment or for
cash. Our Global Funds Transfer segment has its roots in the sale of money orders, a business we have been
engaged in since 1940. Based on the number of money orders issued in 2007, we are the nation’s leading
issuer of money orders. In 2007, we issued approximately 246 million money orders through our network of
almost 59,000 retail agent locations in the United States and Puerto Rico.
Our money orders are sold under the MoneyGram brand, as well as on a private label basis or co-branded
with retail agents. In most cases, we receive transaction fees from our agents for each money order sold. In
many cases, we receive additional monthly dispenser service fees from our agents for the money order
dispenser equipment we provide. Furthermore, we generate income from the investment of funds that are
remitted from our agents and which we invest until the money orders are cleared through the banking system,
or escheat to the applicable states. Generally, a money order will remain outstanding for fewer than ten days.
As discussed above, we experienced significant other-than-temporary impairments in our investment portfolio
in 2007 and 19 percent of the losses are allocable to the money order product.
Bill Payment Services: Our bill payment suite of services allows consumers to make urgent payments or pay
routine bills. Our bill payment services are divided into two categories: walk-in payments and electronic
payments. These options enable convenience payers, just-in-time payers and delinquent debtors to pay bills
through our network to certain creditors, or “billers.” Our billers include credit card companies, mortgage
companies, auto
4
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
finance companies, telecom companies, satellite companies, property management companies and third-party
bill collectors. We work closely with our agents to identify billers in their service areas to target for our
services. Generally, our bill payment services generate revenue from transaction fees charged to consumers
for each bill payment transaction completed.
The largest portion of walk-in payments consists of our ExpressPayment® urgent bill payment service. Our
ExpressPayment bill payment service, which is offered through our money transfer agent locations in the
United States and select Caribbean countries, continues to grow as we add new billers to our network. As of
December 31, 2007, we provide our ExpressPayment bill payment services to over 1,900 billers. The
ExpressPayment bill payment service provides customers with same-day notification of credit to their account
pursuant to our contract with the biller. Customers can also use the ExpressPayment service to load prepaid
cards. Our ExpressPayment bill payment service is available for select billers for internet transactions at
www.emoneygram.com.
Walk-in payments also include a new utility bill payment platform. Our FlashPay® and BuyPay® routine
utility bill payment services are in the process of being converted to the new utility platform, implemented in
2007. Our utility payment product allows customers to make in-person payments of non-urgent bills at a low
cost for credit to a biller typically within two to three days.
The acquisition of ACH Commerce in 2005 allowed us to enhance our electronic bill payment business and
create a multi-faceted, full-suite of payment services. The acquisition of PropertyBridge in 2007 further
expands our electronic bill payment suite of services. PropertyBridge offers a complete solution to the
resident payment cycle, including the ability to electronically accept deposits and rent payments. The
electronic payment portion of our bill payment services offers payment products by phone, IVR, web, and
ACH processing along with check conversion. Consumers may select one-time or recurring ACH, credit or
debit card payments to our contracted billers.
Payment Systems Segment
Our Payment Systems segment primarily provides financial institutions with payment processing services,
which include official check outsourcing services and money orders for sale to their customers, as well as
ACH processing services. Our customers are primarily comprised of financial institutions, thrifts and credit
unions. As of December 31, 2007, we provide official check services to over 17,000 branch locations of over
1,900 financial institutions.
We primarily derive revenues in our Payment Systems segment from the investment of funds underlying the
official check or financial institution money order. We invest funds from the official checks and money orders
sold from the time the proceeds are remitted until the items are cleared. We also derive revenue from fees
paid by our financial institution and corporate customers. In 2007, Payment Systems segment revenue was a
loss of $614.4 million. As noted above, we experienced significant other-than-temporary impairments in our
investment portfolio in 2007. Net securities losses of $955.6 million were allocated to the Payment Systems
segment, which represents approximately 80 percent of the total losses recorded on our investment portfolio
for 2007. The operating loss for 2007 was $920.1 million.
In the fourth quarter of 2007, we announced the strategic review of our official check business. As a result of
the review, we have begun a restructuring of the official check business model by changing the commission
structure and exiting certain large customer relationships. This restructuring will enable us to continue
providing these essential services by focusing on small- to mid-sized institutions. We expect to exit contracts
with most of our top ten official check customers, who together account for approximately $2 billion of our
official check payment obligations. As of March 21, 2008, 45 of our over 1,900 financial institutions have
provided some form of notification of intent to terminate their official check agreements with us. Outside of
the top ten customers we planned to exit, these termination notifications represent $132.0 million of our
average payment service obligations in 2007. Of the financial institutions that have provided notification, 32
financial institutions have stopped or reduced their issuance of official checks. We expect that most of our top
ten official check financial institutions will stop issuing our official checks by the end of 2008. Also
impacting the Payment Systems segment is the process commenced in January 2008 to realign our investment
portfolio away from asset-backed securities into highly liquid assets. The realigned portfolio will consist
primarily of cash equivalents, government and government agency securities. As a result, we anticipate that
our profit margins in the official check business will be adversely affected
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Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
by the lower yields in our realigned portfolio. While we expect our commission re-pricing initiatives under
the official check restructuring to substantially offset the impact of the lower yields from the realigned
portfolio, we will not know the final results of the re-pricing initiatives for some time.
Official Check Outsourcing Services: We provide official check outsourcing services through our
PrimeLink® service. Financial institutions provide official checks, which include bank checks, cashier
checks, teller checks and agent checks, to consumers for use in transactions when the payee requires a check
drawn on a bank or other third party. Official checks are commonly used in consumer loan closings, such as
closings of home and car loans, and other critical situations where the payee requires assurance of payment
and funds availability. Financial institutions also use official checks to pay their own obligations. Our
PrimeLinkplus® product is an internet-based check issuance platform that allows financial institutions and
other businesses with multiple locations to securely print official checks at remote locations on a
client-controlled basis, eliminating the need to overnight the checks from the main office or wire transfer the
funds. We provide PrimeLink and PrimeLinkplus at a low cost to financial institutions and pay an agreed
upon commission rate on the balance of funds underlying the official checks pending clearing of the items.
Money Orders: The Payment Systems segment also offers money orders through financial institutions in a
manner very similar to the way the services are offered through our retail agents in our Global Funds Transfer
segment.
Check Processing: Through our subsidiary FSMC, Inc. (“FSMC”), we offer high volume check processing
and controlled disbursement processing. FSMC is a leading processor of promotional payments and rebates.
Through FSMC, we also process checks issued under the Special Supplemental Nutrition Program to Women,
Infants and Children administered by the U.S. Department of Agriculture through various states. Our
revenues from this area are primarily derived from fees.
Clearing and Cash Management Bank Relationships
Our business involves the movement of money. On a daily basis, we move on average over $1.0 billion in
cash to settle our payment instruments and related settlements with our agents and financial institutions. We
receive a similar amount on a daily basis from our agents and financial institutions for the face amount and
related fees of our payment instruments sold. We maintain contractual relationships with 13 clearing banks
around the country in order to clear the official checks issued by our PrimeLink and PrimeLinkplus
customers, as well as money orders and share drafts. These financial institutions serve as the drawee bank or
payable through bank on official check, money order and share draft items. For the clearing of money orders,
we rely on one primary clearing bank. In addition, we maintain contractual relationships with a variety of
domestic and international cash management banks for ACH and wire transfer services to process agent
remittances and payments. The relationships with these clearing banks and cash management banks are a
critical component of our ability to timely move monies on a global basis.
Sales and Marketing
We market our products and services through a number of dedicated sales and marketing teams. In the
United States, we have a dedicated sales and marketing team that markets money transfer services, money
orders and bill payment services on a regional basis to our two principal agent distribution channels: large
national chain accounts and smaller chains and independent accounts. The agent locations consist of general
merchandise, check cashing, grocery, drug and convenience store retailers and bank locations. We also have
dedicated sales and marketing teams that market our bill payment services directly to billers. Finally, we have
a dedicated team of sales and marketing professionals that market our PrimeLink official check services,
money transfer services, PrimeLinkplus services, money orders and ACH services to financial institutions.
Our international sales and marketing for money transfer services is conducted by dedicated regional sales
and marketing teams that are generally located in or near their regions: Western Europe, including the United
Kingdom; Eastern Europe; Asia; the Middle East; Africa; Canada; and Mexico, Latin America and the
Caribbean.
Our sales and marketing efforts continue to be supported by a wide range of consumer advertising methods. A
core focus of building our brand awareness is signage, particularly ensuring that our signs are displayed at
agent locations, as well as maintaining consistency in our signage and image globally.
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During 2007, we continued to focus on our brand positioning and customer loyalty programs. MoneyGram
made a significant investment in 2007 to establish a new brand positioning strategy which was released in the
first quarter of 2008 and will impact our marketing activities, as well as our overall product development
strategies, for the coming years. Working with an outside research firm, we spent more than two years
developing a new global brand position and message that differentiates MoneyGram from other payment
services providers. Additionally, our new customer loyalty program entitled “MoneyGram Rewards” was
developed to build loyalty and repeat usage with consumers around the world. The new loyalty program is
part of a broader initiative at MoneyGram to build global brand awareness. The program includes features
such as a new discount structure based on a customer’s use of MoneyGram’s services, notifications to the
sender when the funds are picked up and less paperwork with an easier process. Consumers can enroll for the
program through our call center or at www.mymoneygram.com
A variety of traditional media methods have been used in the past to reach our consumers, such as television,
radio, print and event marketing. We will focus more heavily on national television ads during 2008 in
conjunction with a new media campaign, and will also rely on radio and print advertising. Additionally,
MoneyGram has initiated several research projects that are designed to measure the effectiveness of the new
campaign and its impact on image, awareness and volume.
Product and Infrastructure Development and Enhancements
Our product development activities have focused on new ways to transfer money and pay bills through
enhancements to our current services and the development of new products and services. Recent
enhancements and new products supplement our Global Funds Transfer segment. We have also invested in
new infrastructure to increase efficiencies and support our strategic initiatives. We believe new features,
products and infrastructure will provide customers with added flexibility and convenience to help meet their
financial services needs.
New Product and Product Enhancements: We successfully transitioned our MoneyGram Prepaid MasterCard
card program to a new processor during 2007, and are positioned to take advantage of the anticipated growth
in the debit card arena. The cards are available for purchase and reload at designated MoneyGram agent
locations throughout the United States. Throughout 2006 and 2007, we continued to implement a full suite of
ACH and electronic bill payment services that provide consumers with pay-by-telephone, pay-by-IVR and
pay-by-web options. Our new utility bill payment services were implemented across the United States in
2007. Furthermore, our internet-based money transfer service, eMoneyTransfer, grew rapidly during 2007 and
significant enhancements of the eMoneyTransfer service are planned for release in 2008. The enhancements
will provide better usability and efficiency in completing a transaction for our online customers, as well as
more cost effective transaction processing.
Infrastructure Development: In early 2007, we launched a new general ledger and accounts payable system.
We continue to invest in improving our infrastructure, including settlement and commission processing, agent
and customer data management and set-up and other important financial systems. The new system and
associated processes are intended to increase the flexibility of our back office, thereby improving operating
efficiencies and communications between our agents and our marketing, sales, customer service and
accounting functions. This significant investment in technology and process re-engineering will allow us to
create an infrastructure able to support our strategic initiatives. Other benefits to be derived from this
investment include increased speed to market for new products, efficiencies in back office operations,
enhancement of information repositories for regulatory and compliance reporting and better overall consumer
and agent experience.
In 2007, we began a development effort to automate our agent on-boarding process. This effort is being
undertaken to improve our speed to market with new agents, to improve departmental tracking and to increase
accountability throughout the process. The primary component of this development effort is the
implementation of a business process management tool, which allows us to automate a paper intensive
process with strong work-flow processes.
Competition
The industries in which we operate are very competitive and we face a variety of competitors across our
businesses. New competitors or alliances among established companies may emerge. Consolidation among
payment services companies, and money transmitters in particular, has occurred and may continue. We
compete for agents and
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financial institution customers on the basis of value, service, quality, technical and operational differences,
price and financial incentives paid to agents once they have entered into an agreement. In turn, we compete
for consumers on the basis of number and location of outlets, price, convenience and technology.
Money transfer, money order and walk-in bill payment services within the Global Funds Transfer segment of
our business compete in a concentrated industry, with a small number of large competitors and a large number
of small, niche competitors. Our primary competition in Global Funds Transfer comes from The Western
Union Company (“Western Union”), a former subsidiary of First Data Corporation, which has greater
transaction volume, a larger agent base, a more established brand name and greater financial and marketing
resources. Other competitors in this segment are other providers of money transfer services, such as banks and
niche person-to-person money transfer service providers that serve select send and receive corridors, and
other providers of money orders, including the U.S. Postal Service and a subsidiary of First Data Corporation.
Walk-in and electronic bill payment services within the Global Funds Transfer segment of our business
compete in a consumer-to-business payment industry, which includes competition from Western Union,
CheckFree Corporation, a subsidiary of Fiserv Inc. and other niche players. Additional competitors in this
area include financial institutions, third parties that host financial institution and bill payment services, third
parties that offer payment services directly to consumers and billers offering their own bill payment services.
As new technologies for money transfer and bill payment services emerge allowing consumers to send and
receive money in a variety of ways, we face increasing competition. These emerging technologies include
online payment service providers, mobile telephone payment services and card-based options, such as ATM
cards and stored-value cards.
The Payment Systems segment of our business competes in a concentrated industry with a small number of
large competitors. Our competitors in this segment are federal home loan banks. We also compete with
financial institutions that have developed internal processing capabilities or services similar to ours and do not
outsource these services.
Regulation
Compliance with legal requirements and government regulations is a highly complex and integral part of our
day-to-day operations. Our operations are subject to a wide range of laws and regulations, both in the United
States and abroad. These laws and regulations include: international, federal and state anti-money laundering
laws and regulations; money transfer and payment instrument licensing laws; escheat laws; laws covering
consumer privacy; data protection and information security and consumer disclosure and consumer protection
laws.
If we were to fail to comply with any applicable laws and regulations, this failure could result in restrictions
on our ability to provide our products and services, as well as the potential imposition of civil fines and
possibly criminal penalties. See “Risk Factors.” We have added compliance managers and employees to our
compliance team around the world as part of our efforts to ensure compliance with regulations of specific
countries and regions. We have developed and are constantly enhancing our global compliance program to
stay current with the most recent legal and regulatory changes.
Anti-Money Laundering Compliance. Compliance with money transfer regulations, including but not limited
to anti-money laundering laws and regulations, is a primary focus. Our money transfer services are subject to
anti-money laundering laws and regulations of the United States, including the Bank Secrecy Act, as amended
by the USA PATRIOT Act, as well as the anti-money laundering laws and regulations in many of the
countries in which we operate, particularly in the European Union (the “EU”). Countries in which we operate
may require one or more of the following:
• reporting of large cash transactions and suspicious activity;
• screening of transactions against the governments’ watch-lists, including but not limited to, the watch list
maintained by the US Treasury Departments’ Office of Foreign Assets Control (“OFAC”);
• prohibition of transactions in, to or from certain countries, governments, individuals and entities;
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• limitations on amounts that may be transferred by a consumer or from a jurisdiction at any one time, or
over specified periods of time;
• consumer information gathering and reporting requirements;
• consumer disclosure requirements, including language requirements and foreign currency restrictions;
• notification requirements as to the identity of contracting agents, governmental approval of contracting
agents or requirements and limitations on contract terms with our agents; and
• registration or licensing of the Company or our agents with a state or federal agency in the U.S. or with
the central bank or other proper authority in a foreign country.
Regulations impacting money transfers are constantly evolving and vary from country to country. We
continue to implement policies and procedures and work to make our business practices flexible in order to
help us comply with the most current legal requirements.
In most cases, our money transfer services are offered through third party agents with whom we contract and
our ability to directly control our agents’ compliance is limited. As a money services business, the Company
and its agents are required to establish anti-money laundering compliance programs that include: (i) internal
policies and controls; (ii) designation of a compliance officer; (iii) ongoing employee training and (iv) an
independent review function. We have developed an anti-money laundering training manual available in
multiple languages and a program to assist with the education of our agents on the various rules and
regulations. In 2007, we implemented a new online training system to supplement our compliance agent
training program.
Certain economic and trade sanctions programs administered by OFAC prohibit or restrict transactions to or
from, or dealings with, certain countries. Additionally, transactions in regions that are under the control of the
Palestinian Authority are carefully monitored for compliance with OFAC requirements. The Company will
continue to assess the relative regulatory requirements and risks as compared to the consumer demand for
services in certain government identified high-risk countries.
Money Transfer and Payment Instrument Licensing. In the United States, virtually all states, the District of
Columbia and Puerto Rico require us to be licensed in order to conduct business within their jurisdiction.
Requirements to be so licensed generally include minimum net worth, provision of surety bonds, compliance
with operational procedures and reserves or “permissible investments” that must be maintained in an amount
equivalent to outstanding payment obligations, as defined by the states. The types of securities that are
considered “permissible investments” vary from state to state, but generally include U.S. government
securities and other highly rated debt instruments. Most states require us to file reports on a quarterly or more
frequent basis to verify our compliance with their requirements. Many states also subject us to periodic
examinations and require that money transmitters and issuers of payment instruments, as well as their agents
that offer these products and services, comply with federal and state anti-money laundering laws and
regulations.
In connection with the Capital Transaction, we sold certain investments at a realized loss of $260.6 million.
As a result of these portfolio sales, we were not in compliance for a brief period of time with the minimum net
worth requirements of the states in which we are licensed to conduct our money transfer and other payment
services businesses, as well as certain other requirements of one state. This failure to meet minimum net
worth or other requirements may result in the states imposing certain fines and other penalties in the future.
No state has taken any action or informed us of its intention to take any action at this time. Upon the closing
of the Capital Transaction, we were again in compliance with the minimum net worth requirements and all
other regulatory requirements.
Escheat Regulation. Unclaimed property laws of every state, the District of Columbia and Puerto Rico
require that we track the relevant information on each payment instrument and money transfer and, if
unclaimed at the end of the statutory abandonment period, that we remit the proceeds of the unclaimed
property to the appropriate jurisdiction. State abandonment periods for payment instruments and money
transfers range from three to seven years. Certain foreign jurisdictions also may have unclaimed property
laws, though we do not have material amounts subject to any such law.
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Privacy Regulations. In the ordinary course of our business, we collect certain types of data and thus are
subject to certain privacy laws in the United States and abroad. In the United States, we are subject to the
Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), which requires that financial institutions have in place
policies regarding the collection, processing, storage and disclosure of information considered nonpublic
personal information. We comply with the GLB Act by posting a privacy notice on our website, posting a
privacy notice on the forms completed by consumers in order to use services and maintaining an information
safeguards program. In addition, we collect personal data from the European Union which is subject to the
European Privacy Directive (the “Directive”). We abide by the U.S. Department of Commerce’s Safe Harbor
framework principles to assist in compliance with the Directive. In some cases, the privacy laws of an EU
member state may be more restrictive than the Directive and may impose additional duties, with which we
must comply. We also have confidentiality/information security standards and procedures in place for our
business activities and with our third-party vendors and service providers. Privacy and information security
laws in various jurisdictions are evolving regularly and conflicting laws in various jurisdictions pose
challenges.
In January 2007, we disclosed that we were the subject of an isolated unlawful data server attack and suffered
potential improper data access by unauthorized persons. We notified appropriate authorities and customers
and also took additional security measures to help ensure that such an incident does not occur again.
Other. In the United States, we sell our MoneyGram-branded stored value card and also load stored value
cards of other card issuers through our ExpressPayment system. Stored value services are generally subject to
federal and state laws and regulations, including laws related to consumer protection, licensing, escheat,
anti-money laundering and the payment of wages. These laws are evolving, unclear and sometimes
inconsistent. The extent to which these laws are applicable to us is uncertain and we are currently unable to
determine the impact that any future clarification, changes or interpretation of these laws will have on our
services.
Intellectual Property
We rely on a combination of patent, trademark and copyright laws, and trade secret protection and
confidentiality or license agreements to protect our proprietary rights in products, services, know-how and
information. Intellectual property rights in processing equipment, computer systems, software and business
processes held by us and our subsidiaries provide us with a competitive advantage. Even though not all of
these assets are protectable, we attempt to take the measures necessary to protect as much of our intellectual
property as current intellectual property laws will allow.
We own U.S. and foreign patents related to our money order and money transfer technology. Our U.S. patents
have in the past given us competitive advantages in the marketplace, including a number of patents for
automated money order dispensing systems and printing techniques, many of which have expired. We also
have patent applications pending in the United States that relate to our money transfer, money order,
PrimeLink and bill payment technologies and business methods. We anticipate that these applications, if
granted, will give us continued competitive advantages in the marketplace. However, our competitors are also
actively patenting their technology and business processes.
We register our trademarks in the U.S. and in a number of other countries where we do business. We maintain
a portfolio of trademarks representing substantial goodwill in our businesses. Many of our trademarks,
including the MoneyGram®, ExpressPayment®, our globe with arrows logo, PrimeLink®, PrimeLinkplus®,
AgentConnect®, DeltaWorks®, and Delta T3® marks have substantial importance and value to our business.
Employees
At December 31, 2007, we had approximately 1,887 full-time employees in the United States and
433 full-time employees internationally. In addition, we use contractors to support certain of our domestic and
international sales and marketing efforts. None of our employees are represented by a labor union and we
consider our employee relations to be good.
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Executive Officers of the Registrant
Philip W. Milne, age 48, has served as our President and Chief Executive Officer and as a Director of
MoneyGram since June 2004. He was named Chairman of the Board effective January 1, 2007. He is also the
President and Chief Executive Officer of MPSI and its predecessor, Travelers, our principal operating
subsidiary, a position he has held since 1996. Mr. Milne joined Travelers in 1991 and served as General
Manager of the official check business from 1991 until early 1992, as Vice President, General Manager of the
Payment Systems segment from 1992 until early 1993, and as Vice President, General Manager of the Retail
Payment Products group from 1993 to 1996.
David J. Parrin, age 53, has served as the Executive Vice President, Chief Financial Officer of MoneyGram
since November 2005. Mr. Parrin previously served as the Vice President and Chief Financial Officer of
MoneyGram since June 2004 and Travelers since joining the Company in June 2002. From 1998 to 2002, he
was with the investment firm of Dain Rauscher Corporation (now RBC Dain Rauscher Corporation), serving
since 1999 as Executive Vice President and Chief Financial Officer. From 1994 to 1998, he served as Senior
Vice President and Corporate Controller of U.S. Bancorp. Prior to that, Mr. Parrin spent 17 years with the
accounting firm of Ernst & Young LLP, serving most recently as audit partner.
Anthony P. Ryan, age 45, has served as Executive Vice President and Chief Operating Officer of MoneyGram
since November 2007. Mr. Ryan previously served as Executive Vice President/President, MoneyGram
Global Payment Products and Services from August 2006 to November 2007, Executive Vice President/
Division President Global Funds Transfer from November 2005 to August 2006 and Vice President of
MoneyGram and General Manager of Global Funds Transfer from June 2004 to November 2005, a position
he had held at Travelers since 2001. He previously served as Chief Financial Officer of Travelers from 1997
to 2001 and as Controller from 1996 to 1997. Prior to joining the Company, Mr. Ryan spent 10 years at First
Data Corporation, serving most recently as Director of Finance.
Jean C. Benson, age 40, has served as the Senior Vice President, Controller of MoneyGram since May 2007.
Ms. Benson previously served as Vice President, Controller of MoneyGram from June 2004 to May 2007 and
as Vice President, Controller of Travelers since joining the Company in August 2001. From 1994 to 2001,
Ms. Benson was at Metris Companies, Inc., a financial products and services company, serving as Corporate
Controller and Executive Vice President of Finance since 1996. Ms. Benson began her career as an auditor
with the accounting firm of Deloitte & Touche LLP from 1990 to 1994.
Mary A. Dutra, age 56, has served as Executive Vice President, Global Payment Processing and Settlement of
MoneyGram since August 2006. Ms. Dutra previously served as Executive Vice President/Division President
Payment Systems from November 2005 to August 2006, Vice President of MoneyGram and General Manager
of Payment Systems from June 2004 to November 2005 and as General Manager and Vice President, Global
Operations of Travelers from November 1994 to June 2004. Ms. Dutra joined the Company in 1988 as
Manager of Payment Services of Travelers and has served in positions of increasing responsibility from 1988
to 1994.
Timothy J. Gallaher, age 40, has served as Vice President, Investor Relations of MoneyGram since April
2005. He was named Treasurer of MoneyGram in October 2006. Mr. Gallaher previously served as Director
of Corporate Planning and Analysis from December 2002 to April 2005. Prior to joining the Company,
Mr. Gallaher spent eight years with U.S. Bancorp working in planning, corporate development and
commercial banking.
Thomas E. Haider, age 49, has served as Senior Vice President Government Affairs since May 2007 and
Chief Compliance Officer of MoneyGram since November 2005. Mr. Haider joined the Company in 1992 as
an Attorney and held various other positions, including Associate Corporate Counsel through May 2007.
Prior to joining the Company, Mr. Haider spent seven years representing the Minnesota League of Credit
Unions in both legislative and regulatory matters.
Teresa H. Johnson, age 56, has served as Executive Vice President, General Counsel and Secretary of
MoneyGram since November 2005. Ms. Johnson previously served as Vice President, General Counsel and
Secretary of MoneyGram since June 2004 and Chief Legal Counsel of Travelers since joining the Company
in 1997. From 1992 to 1997, she was employed at SUPERVALU INC., a food retailer and distributor, serving
most recently as Associate General Counsel and Corporate Secretary.
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Daniel J. O’Malley, age 43, has served as Senior Vice President, Global Payment Systems/ President
Americas of MoneyGram since April 2007. Mr. O’Malley previously served as Vice President, Global
Payment Systems/Americas from April 2003 to April 2007, Vice President, Customer Service from June
1999 to April 2003, Director, Operations from October 1996 to June 1999, Regulatory Project Manager from
September 1995 to October 1996, Manager of the Southeast Processing Center of Travelers from April 1989
to September 1995 and Coordinator of the Southeast Processing Center of Travelers since joining the
Company in June 1988. Prior to joining the Company, Mr. O’Malley held various operations positions at
NCNB National Bank and Southeast Bank N.A. from 1983 to 1988.
William J. Putney, age 45, has served as Executive Vice President, Chief Investment Officer of MoneyGram
since November 2005. Mr. Putney previously served as Vice President, Chief Investment Officer of
MoneyGram from June 2004 to November 2005 and as Vice President, Chief Investment Officer of Travelers
from 1996 to 2004. Mr. Putney joined the Company in 1993, serving as Portfolio Manager. Prior to joining
the Company, Mr. Putney held positions as a trader, investment analyst and portfolio manager.
Cindy J. Stemper, age 50, has served as Executive Vice President, Human Resources and Corporate Services
of MoneyGram since November 2006. Ms. Stemper previously served as Executive Vice President, Human
Resources and Facilities of MoneyGram from November 2005 to November 2006, Vice President of Human
Resources and Facilities of MoneyGram from June 2004 to November 2005 and Vice President of Human
Resources at Travelers from 1996 to June 2004. Ms. Stemper joined the Company in 1984 and served in
positions of increasing responsibility from 1984 to 1996.
Available Information
Our principal executive offices are located at 1550 Utica Avenue South, Minneapolis, Minnesota 55416 and
our telephone number is (952) 591-3000. Our website address is www.moneygram.com. We make our reports
on Forms 10-K, 10-Q and 8-K, Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports,
available electronically free of charge in the Investor Relations section of our website as soon as reasonably
practicable after they are filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Item 1A. RISK FACTORS
Various risks and uncertainties could affect our business. Any of the risks described below or elsewhere in
this Annual Report on Form 10-K or our other filings with the SEC could have a material impact on our
business, financial condition or results of operations.
RISK FACTORS
The substantial dividends payable on our newly issued preferred stock and our increased debt service,
together with significant debt covenant requirements, could impair our financial condition and adversely
affect our ability to operate and grow our business.
On March 25, 2008, we closed a transaction with affiliates of Thomas H. Lee Partners, L.P. (“THL”) and
affiliates of Goldman, Sachs & Co. (“Goldman Sachs”) (collectively, the “Investors”) pursuant to which we
received a substantial infusion of both equity and debt capital (the “Capital Transaction”). The equity
component consisted of the sale of 760,000 shares, in aggregate, of Series B Participating Convertible
Preferred Stock to THL (the “Series B Preferred”) and non-voting Series B-1 Participating Convertible
Preferred Stock to Goldman Sachs (the “Series B-1 Preferred”) (collectively, the “Series B Stock”) for an
aggregate purchase price of $760.0 million. In addition, Goldman Sachs provided debt financing of
$500.0 million at an annual interest rate of 13.25 percent, which increases to a rate of 15.25 percent if interest
is accrued. This debt is non-redeemable for five years, except with substantial premiums, and thus we have
only a limited opportunity to refinance this debt to obtain more favorable terms. In addition, the Company has
secured additional term debt of $250.0 million under an amendment and restatement of our existing credit
facility.
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As a result of the Capital Transaction, we are highly leveraged and have substantial dividend and debt service
obligations. Our indebtedness and dividends payable on our Preferred Stock could adversely affect our ability
to operate our business and could have an adverse impact on our stockholders, including:
• our ability to obtain additional financing in the future may be impaired;
• a significant portion of our cash flow from operations must be dedicated to the payment of interest and
principal on our debt, which reduces the funds available to us for our operations, acquisitions, product
development or other corporate initiatives;
• our ability to pay cash dividends to the holders of our common stock is significantly restricted, and no
such dividends are contemplated in the foreseeable future;
• our debt agreements contain financial and restrictive covenants which significantly impact our ability to
operate our business and our failure to comply with them may result in an event of default, which could
have a material adverse effect on us;
• our level of indebtedness will increase our vulnerability to general economic downturns and adverse
industry conditions;
• our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our
business and the industry; and
• our substantial leverage could place us at a competitive disadvantage to our competitors who have less
leverage relative to their overall capital structures.
Our senior debt pursuant to our credit facility has been rated non-investment grade. Together with our
leverage, this rating adversely affects our ability to obtain additional financing and increases our cost of
borrowing. A non-investment grade rating may also affect our ability to attract and retain certain customers.
Our recent transaction with the Investors significantly dilutes the interests of the common stockholders
and grants other important rights to the Investors.
The Series B Stock issued to the Investors is convertible into shares of common stock or common equivalent
stock at the price of $2.50 per common share (subject to anti-dilution rights), giving the Investors an initial
equity interest in us of approximately 79 percent. Dividends payable on Series B Stock are expected to be
accrued and not be paid in cash for approximately five years, which will substantially increase the ownership
interest of the Investors and dilute the interests of the common stockholders.
The Preferred Stock will initially have voting rights equivalent to 9.9% of the outstanding common shares on
a fully converted basis. Upon receipt of all regulatory approvals, or upon receipt of notification from THL on
or after June 15, 2008, the holders of the Preferred Stock would attain full voting rights. At that time, the
holders of the Series B Preferred Stock will vote as a class with the common stock, and will have a number of
votes equal to the number of shares of common stock issuable if all outstanding shares of Series B Preferred
Stock were converted plus the number of shares of common stock issuable if all outstanding shares of Series
B-1 Preferred Stock were converted into Series B Preferred Stock and subsequently converted into common
stock. As a result, the Investors collectively are able to determine the outcome of matters put to a stockholder
vote, including the election of our directors, determine our corporate and management policies and determine,
without the consent of our other stockholders, the outcome of any corporate action submitted to our
stockholders for approval, including potential mergers, acquisitions, asset sales and other significant corporate
transactions. THL also has sufficient voting power to amend our organizational documents. We cannot
provide assurance that the interests of the Investors will coincide with the interests of other holders of our
common shares. This concentration of ownership may discourage, delay or prevent a change in control of our
company, which could deprive our stockholders of an opportunity to receive a premium for their common
shares as part of a sale of our company and might reduce our share price.
In view of their significant ownership stake in the Company, the Investors have appointed two members and
two observers to our Board of Directors and the size of our Board has been reduced to six members, of which
three
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members are independent. As promptly as practicable, we are required under the terms of the Capital
Transaction to seek to amend our Certificate of Incorporation, including the filing of a proxy statement with
the SEC and use our best efforts to solicit proxies in favor of such amendment, which would grant directors
appointed by the Investors voting rights proportionate to their ownership interest calculated on a fully
converted basis. In addition, the Investors have the ability, at their discretion, to appoint the number of
directors proportionate to their common stock ownership, calculated on a fully-converted basis, as well as to
the proportionate committee membership.
If we lose key customers or are unable to maintain our Global Funds Transfer agent network, our business
and results of operations could be adversely affected.
We may not be able to retain all of our current retail agents. The competition for retail agents is intense and
larger customers in our Global Funds Transfer segment are increasingly demanding financial concessions and
more information technology customization. The development, equipment and capital necessary to meet these
demands could require substantial expenditures and there can be no assurance that we will have the available
capital after paying dividends to the Investors and servicing our debt, or that we will be allowed to make such
expenditures under the terms of our debt agreements. If we were unable to meet these demands, we could lose
customers and our business and results of operations would be adversely affected. Additionally, as a result of
the events leading to the Capital Transaction, agents have asked for certain funding arrangements and special
remittance patterns for their benefit, which arrangements negatively impact our liquidity.
The reputational damage to our brand as a result of the events leading to the Capital Transaction may make it
harder for us to retain existing agents or develop new agent relationships. If agents decide to leave our Global
Funds Transfer network, or if we are unable to sign new agents to our network, our revenue would decline.
Existing agents may generate fewer transactions or less revenue for various reasons, including increased
competition. An agent may encounter business difficulties unrelated to its provision of our services, which
could cause the agent to reduce its number of locations or hours of operation, or cease doing business
altogether. Many of our high volume agents are in the check cashing industry. There are risks associated with
the check cashing industry that could cause this portion of our agent base to decline. Any regulatory action
that adversely affects check cashers could also cause this portion of our agent base to decline.
A substantial portion of our transaction volume is generated by a limited number of key agents. During 2007
and 2006, our ten largest agents accounted for 36 percent and 34 percent of our total fee and investment
revenue and 49 percent and 48 percent of the total fee and investment revenue of our Global Funds Transfer
segment, respectively. Our largest agent, Wal-Mart Stores, Inc. (“Wal-Mart”), accounted for 20 percent and
17 percent of our total fee and investment revenue and 27 percent and 24 percent of the fee and investment
revenue of our Global Funds Transfer segment in 2007 and 2006, respectively. If any of these key agents
were not to renew their contracts with us, or if such agents were to reduce the number of their locations, or
cease doing business, we might not be able to replace the volume of business conducted through these agents,
and our business and results of operations would be adversely affected.
We may be unable to operate our Payment Systems segment profitably as a result of our new official check
strategy and the realignment of our investment portfolio.
Our earnings in the official check business are generated primarily by the investment of funds we receive
from the sale of payment instruments. In turn, we pay commissions to our official check customers based on
the outstanding balance produced by that customer’s sale of official checks, calculated at a rate based on short
term financial indices, such as the federal funds rate. In the past our investments included long- and
medium-term fixed income securities, a portion of which were asset-backed securities. In conjunction with
the Capital Transaction and our new official check strategy, we have realigned our investment portfolio to
focus on highly liquid, short-term securities that are expected to produce a lower rate of return. The success of
our new official check strategy is dependent on our ability to reduce the commissions that we pay to our
official check customers and to exit certain large customer relationships with high commission rates and
costs, thereby continuing to generate a profit after the realignment of our investment portfolio into lower
yielding investments. There can be no assurance that we will successfully reprice those official check
customers that we wish to retain or that the timing of the exit of customers will not adversely affect our
earnings and cash flow. Our exit from the largest official check relationships will reduce our revenue and
operating income in the short term, with no initial replacement for such revenue.
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Table of Contents
Notwithstanding the realignment of our investment portfolio, fluctuations in interest rates will affect the value
and amount of revenue produced by our investment portfolio, the amount of commissions that we pay and the
amount we pay or receive under our swap agreements. There can be no assurance that we will be able to
successfully manage interest rate exposure through the use of swaps or other arrangements or that interest rate
fluctuation in our investments will align with the commission rates we pay to our official check customers.
Litigation or investigations involving MoneyGram or our agents, which could result in material
settlements, fines or penalties, may adversely affect our business, financial condition and results of
operations.
We have received a notice from the SEC that it is conducting an informal, non-public inquiry of our financial
statements, reporting and disclosures related to our investment portfolio and offers and negotiations to sell the
Company or our assets. While the SEC’s notice states that it has not determined that any violations of the
securities laws have occurred, there can be no assurance of the outcome of the investigation. We are also
currently the subject of stockholder litigation. While we believe the suits are without merit and intend to
vigorously defend against such claims, the outcome of the lawsuits cannot be predicted at this time. The cost
to defend the SEC inquiry and the stockholder litigation could be substantial, regardless of the outcome.
Regulatory and judicial proceedings, including risks associated with the SEC inquiry, our failure to comply
with certain state regulatory requirements for a brief period of time, and potential adverse developments in
connection with ongoing stockholder litigation, may adversely affect our business, financial condition and
results of operations. There may also be adverse publicity associated with lawsuits and investigations that
could decrease agent and customer acceptance of our services.
Additionally, our business has been in the past, and may be in the future, the subject of class action lawsuits,
regulatory actions and investigations and other general litigation. The outcome of class action lawsuits,
regulatory actions and investigations is difficult to assess or quantify. Plaintiffs or regulatory agencies in these
lawsuits, actions or investigations may seek recovery of very large or indeterminate amounts, and the
magnitude of these actions may remain unknown for substantial periods of time. The cost to defend or settle
future lawsuits or investigations may be significant.
An inability of our agents or for the Company to maintain adequate banking relationships may adversely
affect our financial condition.
Prior to the closing of the Capital Transaction, certain of our clearing and processing banks sought additional
intra-day and other advance funding from us. While we believe the Capital Transaction will restore more
ordinary funding protocols, it is possible that clearing and cash management banks will require advance
funding or other security or even terminate their relationships with us. For the clearing of certain items, such
as money orders, we rely on two clearing banks and thus have limited alternative resources. We may
experience increased costs or significant disruption of our business if we should lose one of our existing
clearing bank relationships.
We and our agents are considered Money Service Businesses, or “MSBs,” in the United States under the
Bank Secrecy Act. The federal banking regulators are increasingly taking the stance that MSBs, as a class, are
high risk. As a result, several financial institutions, which look to the federal regulators for guidance, have
terminated their banking relationships with some of our agents and one depository bank has terminated its
banking relationship with us. If agents are unable to maintain existing or establish new banking relationships,
they may not be able to continue to offer our services. Any inability on our part to maintain existing or
establish new banking relationships could adversely affect our business, results of operations and financial
condition.
Loss of key employees could have a material adverse effect on our business, financial condition and results
of operations.
Our success depends to a large extent upon the continued services of our executive management team and
other key employees. The loss of key personnel could have a material adverse effect on our business,
financial condition, results of operations and cash flows. Additionally, there are no assurances that we will be
able to attract or retain other skilled personnel in the future.
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Table of Contents
Failure to maintain sufficient capital could adversely affect our results of operations and financial
condition.
If we do not have sufficient capital, we may not be able to pursue our growth strategy and fund key strategic
initiatives, such as product development and acquisitions. While we received substantial new capital in
conjunction with the Capital Transaction, there can be no assurance that we will not need additional capital in
the future. Given the leveraged nature of the Company and the significant restrictive covenants in our debt
agreements, there can be no assurance that we will have access to additional capital. Failure to have such
access could materially impact our results of operations and financial condition.
If we fail to successfully develop and timely introduce new and enhanced products and services or we make
substantial investments in an unsuccessful new product or service or infrastructure change, our business,
prospects, financial condition and results of operations could be adversely affected.
Our future growth will depend, in part, on our ability to continue to develop and successfully introduce new
and enhanced methods of providing money transfer, money order, official check, bill payment and related
services that keep pace with competitive introductions, technological changes and the demands and
preferences of our agents, financial institution customers and consumers. Many of our competitors offer
stored-value cards and other electronic payment mechanisms, including various internet-based and cellular
phone payment services, that could be substituted for traditional forms of payment, such as the money order,
bill payment and money transfer services that we offer. If these alternative payment mechanisms become
widely substituted for our products and services, and we do not develop and ramp up similar alternative
payment mechanisms successfully and on a timely basis, our business and prospects could be adversely
affected. Additionally, we may make future investments or enter into strategic alliances to develop new
technologies and services or to implement infrastructure change to further our strategic objectives, strengthen
our existing businesses and remain competitive. Investments in new technologies and infrastructure and
strategic alliances are inherently risky and we cannot guarantee that such investments will be successful or
will not have a material adverse effect on our business, financial condition and results of operations.
If we are unable to adequately protect the intellectual property rights related to our existing and any new
or enhanced products and services, or if we are unable to avoid infringing on the rights of others, our
business, prospects, financial condition and results of operations could be adversely affected.
We rely on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality
and license agreements to protect the intellectual property rights related to our products and services. We also
investigate the intellectual property rights of third parties to prevent our infringement of those rights. We may
be subject to claims of third parties that we infringe or have misappropriated their proprietary rights. We may
be required to spend resources to defend any such claims or to protect and police our own rights. Some of our
intellectual property rights may not be protected by intellectual property laws, particularly in foreign
jurisdictions. The loss of our intellectual property protection, the inability to secure or enforce intellectual
property protection or to successfully defend against an intellectual property infringement action could harm
our business and prospects.
We face intense competition, and if we are unable to continue to compete effectively, our business,
financial condition and results of operations would be adversely affected.
The industries in which we compete are highly competitive, and we face a variety of competitors across our
businesses. In addition, new competitors or alliances among established companies may emerge. Our primary
competition comes from Western Union, which has substantially greater transaction volume than we do.
Western Union has a larger agent base, a more established brand name and substantially greater financial and
marketing resources than we do. We cannot anticipate every effect that actions taken by Western Union will
have on our business, or the money transfer and bill payment industry in general.
Money transfer, money order and walk-in bill payment services within our Global Funds Transfer segment
compete in a concentrated industry, with a small number of large competitors and a large number of small,
niche competitors. Our large competitors are other providers of money orders and money transfer services,
including Western Union and the U.S. Postal Service with respect to money orders. We also compete with
banks and niche person-to-person
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Table of Contents
money transfer service providers that serve select send and receive corridors. The electronic bill payment
services within our Global Funds Transfer segment compete in a highly fragmented consumer- to-business
payment industry. Competitors in the electronic payments area include financial institutions, third parties that
host financial institution and bill payment services, third parties that offer payment services directly to
consumers and billers offering their own bill payment services. Competitors of PropertyBridge Inc.
(“PropertyBridge”), our wholly owned subsidiary, include the providers of electronic bill payment services
discussed above, as well as companies focusing solely on the rent payment vertical, companies focusing on
multiple payment verticals, including rent payments, and providers of property management software.
Our Payment Systems segment competes in a concentrated industry with a small number of large competitors.
Our competitors in this segment are federal home loan banks. We also compete with financial institutions that
have developed internal processing capabilities or services similar to ours and do not outsource these services.
Recent levels of growth in consumer money transfer transactions, bill payment transactions and other
payment products may not continue. In addition, consolidation among payment services companies has
occurred and could continue. If we are unable to continue to grow our existing products, while also growing
newly developed and acquired products, we will be unable to compete effectively in the changing
marketplace, and our business, financial condition and results of operations would be adversely affected.
MoneyGram and our agents are subject to a number of risks relating to U.S. and International regulatory
requirements which could result in material settlements, fines or penalties or changes in our or their
business operations that may adversely affect our business, financial condition and results of operations.
Our business is subject to a wide range of laws and regulations which vary from country to country. The
money transfer business is subject to a variety of regulations aimed at the prevention of money laundering and
terrorism. We are subject to U.S. federal anti-money laundering laws, including the Bank Secrecy Act, as
amended by the USA PATRIOT Act, the requirements of the Office of Foreign Assets Control (“OFAC”),
which prohibit us from transmitting money to specified countries or on behalf of prohibited individuals and
the anti-money laundering laws in many countries where we operate, particularly in the European Union. We
are also subject to financial services regulations, money transfer and payment instrument licensing
regulations, currency control regulations, escheat laws, laws covering consumer privacy, data protection and
information security and consumer disclosure and consumer protection laws. Many of the laws to which we
are subject are evolving, unclear and inconsistent across various jurisdictions, making compliance
challenging.
Any intentional or negligent violation of the laws and regulations set forth above by our employees or our
agents could lead to significant fines or penalties, and could limit our ability to conduct business in some
jurisdictions. In addition to those direct costs, a failure by us or our agents to comply with applicable laws and
regulations also could seriously damage our reputation and brands, and result in diminished revenue and
profit and increased operating costs.
In connection with the Capital Transaction, we sold certain investments at a realized loss of $260.6 million.
As a result of these portfolio sales, we were not in compliance for a brief period of time with the minimum net
worth requirements of the states in which we are licensed to conduct our money transfer and other payment
services businesses, as well as certain other requirements of one state. This failure to meet minimum net
worth or other requirements may result in the states imposing certain fines and other penalties in the future.
Changes in laws, regulations or other industry practices and standards, or interpretations of legal or regulatory
requirements may occur which could increase our compliance and other costs of doing business, require
significant systems redevelopment, reduce the market for or value of our products or services or render our
products or services less profitable or obsolete, and have an adverse effect on our results of operations.
Changes in the laws affecting the kinds of entities that are permitted to act as money transfer agents (such as
changes in requirements for capitalization or ownership) could adversely effect our ability to distribute our
services and the cost of providing such services, both by us and our agents. If onerous regulatory
requirements were imposed on our agents, the requirements could lead to a loss of agents, which, in turn,
could lead to a loss of retail business.
Failure by us or our agents to comply with the laws and regulatory requirements of applicable regulatory
authorities could result in, among other things, revocation of required licenses or registrations, loss of
approved status,
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Table of Contents
termination of contracts with banks or retail representatives, administrative enforcement actions and fines,
class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of
these events could have a material adverse effect on our business, financial condition and results of
operations.
We conduct money transfer transactions through agents in some regions that are politically volatile or, in a
limited number of cases, are subject to certain OFAC restrictions.
We conduct money transfer transactions through agents in some regions that are politically volatile or, in a
limited number of cases, are subject to certain OFAC restrictions. While we have instituted policies and
procedures to protect against violations of law, it is possible that our money transfer service or other products
could be used by wrong-doers in contravention of U.S. law or regulations. In addition to monetary fines or
penalties that we could incur, we could be subject to reputational harm that could adversely impact the value
of our stockholders’ investments.
We face security risks related to our electronic processing and transmission of confidential customer
information. A material breach of security of our systems could adversely affect our business.
Any significant security or privacy breaches in our facilities, computer networks and databases could harm
our business and reputation, cause inquiries and fines or penalties from regulatory or governmental authorities
and cause a loss of customers. We discovered an unlawful data server attack and suffered potential improper
data access by unauthorized persons in late 2006. We rely on encryption software and other technologies to
provide security for processing and transmission of confidential customer information. Advances in computer
capabilities, new discoveries in the field of cryptography or other events or developments, including improper
acts by third parties, may result in a compromise or breach of the security measures we use to protect
customer transaction data. We may be required to expend significant capital and other resources to protect
against these security breaches or to alleviate problems caused by these breaches. Third-party contractors also
may experience security breaches involving the storage and transmission of our confidential customer
information. If users gain improper access to our or our contractor’s systems or databases, they may be able to
steal, publish, delete or modify confidential customer information. A security breach could expose us to
monetary liability, lead to reputational harm and make our customers less confident in our services.
Our business involves the movement of large sums of money, and, as a result, our business is particularly
dependent on our ability to process and settle transactions accurately and on the efficient and
uninterrupted operation of our computer network systems and data centers.
Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of our
computer network systems and data centers. Our business involves the movement of large sums of money.
Our revenues consist primarily of transaction fees that we charge for the movement of this money and
investment revenues. These transaction fees represent only a small fraction of the total amount of money that
we move. Because we are responsible for large sums of money that are substantially greater than our
revenues, the success of our business particularly depends upon the efficient and error-free handling of the
money that is remitted to us and that is used to clear payment instruments or complete money transfers. We
rely on the ability of our employees and our internal systems and processes to process these transactions in an
efficient, uninterrupted and error-free manner. In addition, we rely on third-party vendors in our business,
including clearing and processing banks that clear our money orders and official checks, and process
automated clearing house (“ACH”) transactions and bank wires on our behalf and certain of our
telecommunications providers.
In the event of a breakdown, catastrophic event (such as fire, natural disaster, power loss, telecommunications
failure or physical break-in), security breach, improper operation or any other event impacting our systems or
processes or our vendors’ systems or processes, or improper action by our employees, agents, customer
financial institutions or third party vendors, we could suffer financial loss, loss of customers, regulatory
sanctions and damage to our reputation. The measures we have enacted, such as the implementation of
disaster recovery plans and redundant computer systems, may not be successful and we may experience
problems other than system failures. We may also experience software defects, development delays and
installation difficulties, which would harm our business and reputation and expose us to potential liability and
increased operating expenses. Certain of our agent
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Table of Contents
contracts, including our contract with Wal-Mart, contain service level standards pertaining to the operation of
our system, and give the agent a right to collect damages and in extreme situations a right of termination for
system downtime exceeding agreed upon service levels. If we face system interruptions and system failures
our business interruption insurance may not be adequate to compensate us for all losses or damages that we
may incur.
If we are unable to effectively operate and scale our technology to match our business growth, our
business, financial condition and results of operations could be adversely affected.
Our ability to continue to provide our services to a growing number of agents and consumers, as well as to
enhance our existing services and offer new services is dependent on our information technology systems. If
we are unable to effectively manage the technology associated with our business, we could experience
increased costs, reductions in system availability and loss of agents or consumers. Any failure of our systems
in scalability, reliability and functionality could adversely impact our business, financial condition and results
of operations.
We face credit and fraud risks from our retail agents.
The vast majority of our Global Funds Transfer segment is conducted through independent agents that
provide our products and services to consumers at their business locations. Our agents receive the proceeds
from the sale of our payment instruments and money transfers and we must then collect these funds from the
agents. As a result, we have credit exposure to our agents, which averages approximately $1.4 billion in the
aggregate, representing a combination of money orders, money transfers and bill payment proceeds. During
2007, this credit exposure was spread across over 24,000 agents, of which 12 owed us in excess of
$15.0 million each at any one time.
We are not insured against credit losses, except in circumstances of agent theft or fraud. If an agent becomes
insolvent, files for bankruptcy, commits fraud or otherwise fails to remit money order or money transfer
proceeds to us, we must nonetheless pay the money order or complete the money transfer on behalf of the
consumer. Moreover, we have made, and may make in the future, secured or unsecured loans to retail agents
under limited circumstances or allow agents to retain our funds for a period of time before remitting them to
us. The failure of agents owing us large amounts to remit funds to us or to repay such amounts could have a
material adverse effect on our business, results of operations and financial condition.
An increase in fraudulent activity using our services could lead to reputational damage to our brand and
could reduce the use and acceptance of our services.
Criminals are using increasingly sophisticated methods to engage in illegal activities such as fraud and
identity theft. As we make more of our services available over the internet we subject ourselves to new types
of credit and fraud risk, because requirements relating to customer authentication are more complex with
internet services. If fraud levels involving our services were to rise, it could lead to regulatory intervention
and reputational and financial damage. This in turn could reduce the use and acceptance of our services or
increase our compliance costs, and thereby have a material adverse impact on our business, financial
condition and results of operations.
The opening of new retail locations and acquisition or start-up of businesses create risks and may
adversely affect our operating results.
We have recently opened several Company-owned retail locations for the sale of our products and services.
Operating such retail locations presents new risks for us. After substantial capital investment in such retail
locations it is uncertain how such locations will be accepted in the market and how quickly transaction
volume will increase to offset such investment. We may be subject to additional laws and regulations that are
triggered by our ownership of the retail locations and our employment of the individuals staffing such retail
locations. There are also certain risks inherent in operating any retail location, including theft, personal injury
and property damage and risks associated with long-term lease obligations and employee matters.
Additionally, we may from time to time acquire or start up businesses both inside and outside of the U.S. The
acquisition and integration of businesses, involve a number of risks. We may not be able to successfully
integrate any businesses that we acquire or open, including their facilities, personnel, financial systems,
distribution, operations and general operating procedures. If we fail to successfully integrate acquisitions, we
could experience
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Table of Contents
increased costs and other operating inefficiencies, which could have an adverse effect on our results of
operations. The diversion of capital and management’s attention from our core business that results from
opening retail locations or acquiring or opening new businesses could adversely affect our business, financial
condition and results of operations.
A material slow down or complete disruption in international migration patterns could adversely affect our
business, financial condition and results of operations.
The money transfer business relies in part on migration patterns, as individuals move from their native
country into countries with greater economic opportunities or a more stable political environment. A
significant portion of money transfer transactions are initiated by immigrants or refugees sending money back
to their native countries. Changes in immigration laws and economic development patterns that discourage
international migration and political or other events (such as war, terrorism or health emergencies) that make
it more difficult for individuals to migrate or work abroad could adversely affect our money transfer
remittance volume or growth rate and could each have an adverse effect on our business, financial condition
and results of operations.
There are a number of risks associated with our international sales and operations that could adversely
affect our business.
We provided money transfer services between and among approximately 180 countries and territories at
December 31, 2007, and our strategy is to expand our international business. Our ability to grow in
international markets and our future results could be harmed by a number of factors, including:
• changes in political and economic conditions and potential instability in certain regions;
• changes in regulatory requirements or in foreign policy, including the adoption of foreign laws
detrimental to our business;
• burdens of complying with a wide variety of laws and regulations;
• possible fraud of theft losses, and lack of compliance by international representatives in foreign legal
jurisdictions where collection and legal enforcement may be difficult or costly;
• reduced protection for our intellectual property rights;
• unfavorable tax rules or trade barriers;
• inability to secure, train or monitor international agents; and
• failure to successfully manage our exposure to foreign currency exchange rates.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act
could have a material adverse effect on our business.
We are required to certify and report on our compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal
control over financial reporting and a report by our independent registered public accounting firm addressing
the effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our
internal controls, as such standards are modified, supplemented or amended from time to time, we may not be
able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404. In order to achieve effective internal controls we may need to
enhance our accounting systems or processes which could increase our cost of doing business. Any failure to
achieve and maintain an effective internal control environment could have a material adverse effect on our
business.
We have significant overhang of salable convertible preferred stock relative to float.
The trading market for our common stock was first established in June 2004. The float in that market now
consists of approximately 82,000,000 shares out of a total of 82,598,034 shares issued and outstanding as
of March 14, 2008. Under the Registration Rights Agreement entered into between the Company and the
Investors at the closing of the
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Capital Transaction, the Investors and other parties may require us to register for sale publicly (at times
largely of their choosing) all of the Series B Stock that they hold, as well as any common stock or Series D
Preferred Stock into which the Series B Stock may be converted. Sales of a substantial number of shares of
our common stock, or the perception that significant sales could occur (particularly if sales are concentrated
in time or amount), may depress the trading price of our common stock.
An agreement among the Investors and Wal-Mart could prevent an acquisition of the Company.
The Investors and Wal-Mart have entered into an agreement that, among other things, prevents the Investors,
without the prior written consent of Wal-Mart, from voting in favor of, consenting to or selling or transferring
their equity securities in a manner that would result in a change of control of the Company. This provision is
effective until March 17, 2010. The Investors collectively have a majority of the voting stock of the Company
and Wal-Mart, whose interests may differ from our stockholders’ interests, could prevent the Investors from
agreeing to a sale of the Company under certain circumstances.
Our charter documents, our rights plan and Delaware law contain provisions that could delay or prevent
an acquisition of the Company, which could inhibit your ability to receive a premium on your investment
from a possible sale of the Company.
Our charter documents contain provisions that may discourage third parties from seeking to acquire the
Company. In addition, we have adopted a rights plan which enables our Board of Directors to issue preferred
share purchase rights that would be triggered by certain prescribed events. These provisions and specific
provisions of Delaware law relating to business combinations with interested stockholders may have the
effect of delaying, deterring or preventing a merger or change in control of the Company. Some of these
provisions may discourage a future acquisition of the Company even if stockholders would receive an
attractive value for their shares or if a significant number of our stockholders believed such a proposed
transaction to be in their best interests. As a result, stockholders who desire to participate in such a transaction
may not have the opportunity to do so.
If we cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist our
common stock.
Our common stock is currently listed on the NYSE. In the future, we may not be able to meet the continued
listing requirements of the NYSE, which require, among other things; (i) that the average closing price of our
common stock be above $1.00 over 30 consecutive trading days; (ii) that the average market capitalization
and stockholders’ equity be at least $75 million over 30 consecutive trading days; and (iii) that the average
market capitalization be at least $25 million over 30 consecutive trading days. Our closing stock price on
March 21, 2008 was $1.71, our market capitalization was approximately $141.2 million. Our stockholders’
deficit was $488.5 million at December 31, 2007.
If we are unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to
delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the
liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire
our common stock, which could negatively impact our ability to raise equity financing; decreasing the amount
of news and analyst coverage for the Company; and limiting our ability to issue additional securities or obtain
additional financing in the future.
We did not timely file with the SEC this Form 10-K for the fiscal year ended December 31, 2007. As a
result of this delayed filing, we are currently ineligible to use Form S-3 to register securities with the SEC
in capital-raising transactions, which may adversely affect our cost of future capital.
We did not timely file with the SEC our Form 10-K for the fiscal year ended December 31, 2007. Although
the filing of this Annual Report on Form 10-K will bring us current in our filings with the SEC, because this
Form 10-K was not filed within the deadline promulgated by the SEC, the filing was not timely under
applicable SEC rules. As a result of the delayed filing of this Form 10-K, we are ineligible to use a “short
form” registration statement on
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Form S-3 to register securities for sale by us or for resale by other security holders, in capital raising
transactions, until we have timely filed all periodic reports under the Securities Exchange Act of 1934 for at
least 12 calendar months. In the meantime, for capital raising transactions, we would need to use Form S-1 to
register securities with the SEC, or issue such securities in a private placement, which could increase the time
and resources required to raise capital during this period.
Item 1B. UNRESOLVED SEC COMMENTS
None.
Item 2. PROPERTIES
Location
Minneapolis, MN
Use
Corporate Headquarters Both
Segment(s) Using Space
Square Feet
173,662
Lease Expiration
12/31/2015
Brooklyn Center, MN
Brooklyn Center, MN
Global Operations
Center
Global Operations
Center
Lakewood, CO
Call Center
Both
75,000
1/31/2012
Payment Systems
Global Funds
Transfer
44,000
1/31/2012
113,849
3/31/2012
Information concerning our material properties, all of which are leased, including location, use, approximate
area in square feet and lease terms, is set forth above. We also have a number of other smaller office locations
in California, Florida, New York, Tennessee and in France, Germany, Italy and the United Kingdom, as well
as small sales and marketing offices in Australia, China, Greece, Hong Kong, India, Netherlands, Nigeria,
Russia, South Africa, Spain, Ukraine and United Arab Emirates. We believe that our properties are sufficient
to meet our current and projected needs.
Item 3. LEGAL PROCEEDINGS
We are party to a variety of legal proceedings that arise in the normal course of our business. We accrue for
legal proceedings as losses become probable and can be reasonably estimated. While the results of these legal
proceedings cannot be predicted with certainty, management believes that the final outcome of these
proceedings will not have a material adverse effect on our consolidated results of operations or financial
position.
The Company and its officers and directors are parties to two stockholder lawsuits making various claims,
including breach of fiduciary duty and unfair business practices relating to its disclosure of investments, the
events leading to the Capital Transaction and the completion of the Capital Transaction without stockholder
approval. In these actions, plaintiffs may request punitive or other damages that may not be covered by
insurance.
SEC Inquiry — By letter dated February 4, 2008, we received a notice from the 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, we received an additional letter from the SEC requesting certain information. We are
cooperating with the SEC on a voluntary basis.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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Table of Contents
PART II
Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our stock is traded on the New York Stock Exchange under the symbol MGI. Our Board of Directors
declared quarterly cash dividends totaling $0.20 and $0.17 per share of common stock during 2007 and 2006,
respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Stockholders’ Equity” and Note 12 — Pensions and Other Benefits of the Notes to
Consolidated Financial Statements. As of March 14, 2008, there were approximately 15,114 stockholders of
record of our common stock.
The high and low sales prices for our common stock for fiscal 2007 and 2006 were as follows:
Fiscal Quarter
First
Second
Third
Fourth
2007
2006
High
Low
High
Low
$ 32.24 $ 27.16 $ 31.00 $ 24.97
29.88
28.10
27.82
30.08
30.67
24.90
36.20
33.14
34.97
26.71
19.76
13.69
On November 18, 2004, our Board of Directors authorized a plan to repurchase, at our discretion, up to
2,000,000 shares of MoneyGram common stock on the open market. On August 18, 2005, our Board of
Directors increased its share buyback authorization by 5,000,000 shares to a total of 7,000,000 shares. On
May 9, 2007, our Board of Directors increased its share buyback authorization by an additional
5,000,000 shares to a total of 12,000,000 shares. These authorizations were announced publicly in our press
releases issued on November 18, 2004, August 18, 2005 and May 9, 2007, respectively. The repurchase
authorization is effective until such time as the Company has repurchased 12,000,000 common shares.
MoneyGram common stock tendered to the Company in connection with the exercise of stock options or
vesting of restricted stock are not considered repurchased shares under the terms of the repurchase
authorization. As of December 31, 2007, we have repurchased 6,795,000 shares of our common stock under
this authorization and have remaining authorization to repurchase up to 5,205,000 shares. The Company has
not repurchased any shares since July 2007, other than in connection with employees’ exercise of stock
options.
The following table sets forth information in connection with repurchases of shares of our common stock
during the quarterly period ended December 31, 2007.
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
October 1-October 31, 2007
November 1-November 30,
2007
December 1-December 31,
2007
— $
— $
—
—
4,467 $
20.47
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plan
or Program
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plan
or Program
—
—
—
5,205,000
5,205,000
5,205,000
We completed a Capital Transaction on March 25, 2008, as described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Sale of
Investments and Capital Transaction.” Under the terms of the equity securities and debt issued in connection
with the Capital Transaction, our ability to declare or pay dividends or distributions to the stockholders of the
Company’s common stock is severely limited.
23
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
STOCKHOLDER RETURN PERFORMANCE
The following graph compares the cumulative total return from June 22, 2004 to December 31, 2007 for our
common stock, our peer group index of payment services companies used in 2006, our peer group index of
payment services companies used in 2007 and the S&P 500 Index. Our common stock began trading on the
New York Stock Exchange on June 22, 2004 on a when-issued basis in connection with the spin-off. The peer
group index of payment services companies in 2007 consists of: CSG Systems International Inc., DST
Systems, Inc., Euronet Worldwide Inc., Fidelity National Financial, Inc., Fiserv, Inc., Global Payments Inc.,
Jack Henry & Associates, Inc., Online Resources Corporation, The Western Union Company and Total
System Services, Inc. (the “Peer Group Index 2007”). The peer group index of payment services companies in
2006 consists of: Ceridian Corporation, CheckFree Corporation, CSG Systems International Inc., DST
Systems, Inc., eFunds Corporation, Euronet Worldwide Inc., First Data Corporation, Fiserv, Inc., Global
Payments Inc., Jack Henry & Associates, Inc., The Western Union Company and Total System Services, Inc.
(the “Peer Group Index 2006”). We changed our peer group in 2007 to delete companies which were
purchased and are no longer stand alone public companies (Ceridian Corporation, eFunds Corporation, First
Data Corporation, and CheckFree Corporation) and to add Fidelity National Financial, Inc. (title
insurance/specialty insurance/claims management services) and Online Resources Corporation (payment
services). The graph assumes the investment of $100 in each of our common stock, our peer group indexes
and the S&P 500 Index on June 22, 2004, and the reinvestment of all dividends as and when distributed.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG MONEYGRAM INTERNATIONAL, INC.,
S&P 500 INDEX AND PEER GROUP INDEX
MONEYGRAM
INTERNATIONAL, INC
2007 PEER GROUP INDEX
2006 PEER GROUP INDEX
S&P 500 INDEX
MONEYGRAM
INTERNATIONAL, INC
2007 PEER GROUP INDEX
2006 PEER GROUP INDEX
S&P 500 INDEX
6/22/04
6/30/04
9/30/04
12/31/04
3/31/05
6/30/05
9/30/05
12/31/05
100.00
100.00
100.00
100.00
105.64
101.44
101.47
100.00
87.64
98.48
97.63
98.13
108.53
108.97
103.74
107.19
97.02
107.09
99.80
104.89
98.25
111.14
101.46
106.32
111.62
119.39
106.24
110.16
134.28
118.37
112.06
112.46
3/31/06
6/30/06
9/30/06
12/31/06
3/31/07
6/30/07
9/30/07
12/31/07
158.39
121.40
119.13
117.19
175.27
119.29
116.68
115.50
150.21
123.67
113.30
122.04
162.35
138.05
126.33
130.22
143.98
141.27
134.16
131.05
145.22
142.58
142.47
139.28
117.65
137.62
151.30
142.11
80.32
146.18
160.68
137.37
24
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Item 6. SELECTED FINANCIAL DATA
The following table presents our selected consolidated financial data for the periods indicated. The
information set forth below should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our Consolidated Financial Statements and notes thereto.
For the basis of presentation of the information set forth below, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Basis of Presentation.”
YEAR ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
Operating Results
Revenue
2007
2004
2003
2006
2005
Global Funds Transfer segment
Payment Systems segment
Other
Total revenue
Commissions expense
Net (losses) revenue (1)
Expenses
(Loss) income from continuing operations
before income taxes
Income tax expense
Net (loss) income from continuing operations
(2)
(Loss) earnings per share from continuing
operations: (3)
Basic
Diluted
Shares outstanding
Basic
Diluted
Financial Position
(Shortfall) excess in unrestricted assets (4)
Substantially restricted assets (4)
Total assets
Payment service obligations
Long-term debt (5)
Redeemable preferred stock (6)
Stockholders’ equity (7)
Other Selected Data
Capital expenditures
Depreciation and amortization
Cash dividends declared per share (8)
Average investable balances (9)
Net investment margin (10)
Approximate number of countries and
territories served
Number of money order locations (11)
Number of money transfer locations (11)
$
$
$
770,995
(614,356)
898
157,537
(663,908)
(506,371)
(486,896)
(993,267)
(78,481)
821,746
337,097
716
1,159,559
(563,659)
595,900
(419,127)
176,773
(52,719)
$
649,617
321,619
—
971,236
(470,472)
500,764
(354,388)
146,376
(34,170)
$
532,064
294,466
—
826,530
(403,473)
423,057
(334,037)
89,020
(23,891)
450,108
287,115
—
737,223
(377,333)
359,890
(271,719)
88,171
(12,485)
$
(1,071,748)
$
124,054
$
112,206
$
65,129
$
75,686
$
$
$
(12.94)
(12.94)
$
$
1.47
1.45
$
1.32
1.30
$
0.75
0.75
82,818
82,818
(551,812)
7,210,658
7,935,011
7,762,470
345,000
—
(488,517)
71,142
51,979
0.20
6,346,442
$
$
84,294
85,818
358,924
8,568,713
9,276,137
8,209,789
150,000
—
669,063
81,033
38,978
0.17
6,333,115
$
$
84,675
85,970
366,037
8,525,346
9,175,164
8,159,309
150,000
—
624,129
47,359
32,465
0.07
6,726,790
$
$
86,916
87,330
393,920
7,640,581
8,630,735
7,640,581
150,000
—
565,191
29,589
29,567
0.20
6,772,124
$
$
0.87
0.87
86,223
86,619
373,036
7,421,481
9,222,154
7,421,481
201,351
6,733
868,783
27,128
27,295
0.36
6,979,247
2.28%
2.31%
1.91%
1.42%
1.30%
180
59,000
143,000
170
55,000
110,000
170
53,000
89,000
170
54,000
77,000
160
54,000
63,000
(1) Net losses for 2007 include net securities losses of $1.2 billion, which relate to other-than-temporary
impairments in the Company’s investment portfolio.
(2) Net (loss) from continuing operations for 2007 also includes a goodwill impairment of $6.4 million
related to a component of our Payment Systems segment.
25
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
(3) Earnings per share for 2003 is based on outstanding shares of Viad common stock. On June 30, 2004,
Viad effected a 1:1 distribution of MoneyGram common stock, for a total distribution of
88,556,077 shares.
(4) Unrestricted and restricted assets are comprised of cash and cash equivalents, receivables and
investments. See Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated
Financial Statements for the determination of unrestricted assets.
(5) Long-term debt for 2003 represents Viad’s long-term debt prior to the June 30, 2004 spin-off. In
connection with the spin-off, Viad repurchased $52.6 million of its medium-term notes and subordinated
debt. In addition, Viad repaid $188.0 million of its outstanding commercial paper and retired
$9.0 million of industrial revenue bonds.
(6) Redeemable preferred stock relates solely to shares issued by Viad and redeemed in connection with the
June 30, 2004 spin-off.
(7) Stockholders’ equity for 2003 represents Viad’s capital structure prior to the June 30, 2004 spin-off.
(8) Cash dividends declared per share for 2003 is based on dividends declared by Viad to holders of its
common stock. Viad declared dividends of $0.18 per share during the first half of 2004. MoneyGram
declared dividends of $0.02 per share during the second half of 2004.
Investable balances are comprised of cash and cash equivalents and investments.
(9)
(10) Net investment margin is determined as net investment revenue (investment revenue less investment
commissions) divided by daily average investable balances.
(11) Includes 18,000, 16,000, 16,000, 15,000, and 12,000 locations in 2007, 2006, 2005, 2004, and 2003,
respectively, that issue both money orders and offer money transfers.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with MoneyGram International, Inc.’s Consolidated
Financial Statements and related notes. This discussion contains forward-looking statements that involve risks
and uncertainties. MoneyGram’s actual results could differ materially from those anticipated due to various
factors discussed under “Cautionary Statements Regarding Forward-Looking Statements” and elsewhere in
this Annual Report on Form 10-K.
Basis of Presentation
On December 18, 2003, MoneyGram International, Inc. (“MoneyGram”) was incorporated in the state of
Delaware as a subsidiary of Viad Corp (“Viad”) to effect the spin off of Viad’s payment services business
operated by Travelers Express Company, Inc. (“Travelers”) to its stockholders (the “spin-off”). On June 30,
2004, Travelers was merged with a subsidiary of MoneyGram and Viad then distributed 88,556,077 shares of
MoneyGram common stock to Viad’s stockholders in a tax-free distribution. Effective December 31, 2005,
the entity that was formerly Travelers was merged into MoneyGram Payment Systems, Inc. (“MPSI”), with
MPSI remaining as the surviving corporation. References to “MoneyGram,” the “Company,” “we,” “us” and
“our” are to MoneyGram International, Inc. and its subsidiaries and consolidated entities. The financial
statements in this Annual Report on Form 10-K are presented on a consolidated basis and include the
accounts of the Company and our majority-owned subsidiaries. Our Consolidated Financial Statements are
prepared in conformity with accounting principles generally accepted in the United States of America
(“GAAP”).
In 2005, we recorded a gain of $0.7 million (net of tax) due to the partial resolution of contingencies relating
to the sale of Game Financial Corporation, which was completed in 2004. During 2007, we paid $3.3 million
in connection with the settlement of a contingency arising from the Sale and Purchase Agreement related to
the continued operations of Game Financial Corporation with one casino. We recognized a gain from
discontinued operations of $0.3 million in the Consolidated Statements of (Loss) Income in 2007. The gain is
comprised of the net of the reversal of the remaining liability and the recognition of a deferred tax asset
valuation allowance. The following discussion of our results of operations is focused on our continuing
businesses.
26
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Summary
RESULTS OF OPERATIONS
Following are significant items affecting operating results from continuing operations in 2007:
• During 2007, we recorded $1.2 billion of net securities losses resulting from the decline in the value of
our investment portfolio. This resulted in a net loss from continuing operations of $1.1 billion for 2007.
• Fee and other revenue increased 24 percent to $949.1 million in 2007 from $766.9 million in 2006,
driven primarily by continued growth in money transfer transaction volume. Our Global Funds Transfer
segment fee and other revenue grew 25 percent in 2007 over 2006, driven by 28 percent growth in money
transfer transaction revenue and 27 percent growth in transaction volume.
• Expenses increased 16 percent in 2007 over 2006, driven primarily by increased transaction and
operations support costs, increased headcount and increased infrastructure costs supporting the growth in
our money transfer business and increases in depreciation and amortization.
During September 2007, the asset-backed securities market and broader credit markets began to experience
significant disruption, with a general lack of liquidity in the markets and deterioration in fair value of
mortgage-backed securities triggered by concerns surrounding sub-prime mortgages. In late November and
December 2007, the asset-backed securities and credit markets experienced further substantial deterioration
under increasing concerns over defaults on mortgages and debt in general, as well as an increasingly negative
view towards all structured investments and the credit market. In December 2007, we began to experience
adverse changes to the cash flows from some of our asset-backed investments. As the market continued its
substantial deterioration, we identified a need for additional capital and commenced a plan in January 2008 to
realign our investment portfolio away from asset-backed securities and into highly liquid assets through the
sale of a substantial portion of the investment portfolio. As a result of these developments, we recognized
$1.2 billion of other-than-temporary impairments in December 2007. See “Liquidity and Capital
Resources — Impact of Credit Market Disruption” for further information. The declines in the portfolio did
not have an immediate impact on our liquidity, but rather created a need for long-term capital.
In December 2007, we completed our strategic review of our Payment Systems segment. As a result of this
review, we have begun to restructure our official check business model by changing our commission structure
and exiting certain large customer relationships. This restructuring will enable us to continue providing these
essential services by focusing on small- to mid-sized institutions. We expect to exit contracts with most of our
top ten official check customers, who together account for approximately $2 billion of our official check
payment service obligations. Included in the top ten official check customers are the financial institutions for
which we maintain special purpose entities (“SPEs”). With the sale of investments and the Capital
Transaction (defined below), we believe we have sufficient liquidity to manage the exiting of these customers
without disruption to daily operating liquidity needs.
Capital Transaction
The Company completed a recapitalization transaction on March 25, 2008 pursuant to which the Company
received a substantial infusion of both equity and debt capital (the “Capital Transaction”) to support the long
term needs of the business and to provide necessary capital due to the investment portfolio losses. The equity
component consisted of a $760.0 million private placement of participating convertible preferred stock. The
debt component consisted of the issuance of $500.0 million of senior secured second lien notes with a ten
year maturity. Additionally, we entered into a senior secured amended and restated credit agreement
amending the Company’s existing $350.0 million debt facility to increase the facility by $250.0 million to a
total facility size of $600.0 million. The new facility includes $350.0 million in two term loan tranches and a
$250.0 million revolving credit facility. For a description of the terms of the equity and debt components of
the Capital Transaction discussed below, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital Resources — Sale of Investments and Capital
Transaction” and Note 18 Subsequent Events of the Notes to Consolidated Financial Statements.
The net proceeds of the Capital Transaction were used to invest in cash equivalents to supplement our
unrestricted assets.
27
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Components of Net Revenue
Our net revenue consists of fee and other revenue, investment revenue and net securities gains and losses, less
commission expense. We generate net revenue primarily by charging transaction fees in excess of third-party
agent commissions, managing foreign currency exchange and managing our investments to provide returns in
excess of commissions paid to financial institution customers.
We derive revenue primarily through service fees charged to consumers and through our investments. Fee and
other revenue consist of transaction fees, foreign exchange and miscellaneous revenue. Transaction fees are
fees earned on the sale of money transfers, retail money order and bill payment products and official check
transactions. Money transfer transaction fees are fixed per transaction and may vary based upon the face value
of the amount of the transaction and the location in which the money transfer originates and to which it is
sent. Money order and bill payment transaction fees are fixed per transaction. Foreign exchange revenue is
derived from the management of currency exchange spreads on international money transfer transactions.
Miscellaneous revenue primarily consists of processing fees on rebate checks and controlled disbursements,
service charges on aged outstanding money orders and money order dispenser fees.
Investment revenue consists of interest and dividends generated through the investment of cash balances
received from the sale of official checks, money orders and other payment instruments. These cash balances
are available to us for investment until the payment instrument is presented for payment. Investment revenue
varies depending on the level of investment balances and the yield on our investments. Investment balances
vary based on the number of payment instruments sold, the average face amount of those payment
instruments and the average length of time that passes until the instruments are presented for payment. Net
securities gains and losses consist of realized gains and losses on the sale of investments and
other-than-temporary impairments of investments.
We incur commission expense on our money transfer products and our investments. We pay fee commissions
to our 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 generally is
based on a percentage of the fee charged to the consumers. We generally do not pay commissions to agents on
the sale of money orders. Fee commissions also include the amortization of capitalized incentive payments to
agents.
Investment commissions are amounts paid to financial institution customers based on the average outstanding
cash balances generated by the sale of official checks, as well as costs associated with swaps and the sale of
receivables program. In December 2007, the Company made a decision to cease selling receivables through a
gradual reduction in the balances sold each period. As of January 2008, the Company did not have a sold
receivables balance remaining (see further discussion on our sale of receivables program in Note 6 — Sale of
Receivables of the Notes to Consolidated Financial Statements). In connection with our interest rate swaps,
we pay a fixed amount to a counterparty and receive a variable rate payment in return. To the extent that the
fixed rate exceeds the variable rate, we incur an expense related to the swap; conversely, if the variable rate
exceeds the fixed rate, we receive income related to the swap. Under our receivables program, we sold our
receivables at a discount to accelerate our cash flow; this discount was recorded as an expense. Commissions
paid to financial institution customers generally are variable based on short-term interest rates. We utilize
interest rate swaps, as described above, to convert a portion of our variable rate commission payments to
fixed rate payments. These swaps assist us in managing the interest rate risk associated with the variable rate
commissions paid to our financial institution customers.
28
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Table 1 — Results of Operations
YEAR ENDED DECEMBER 31,
2007
2006
2005
2007
vs.
2006
(%)
2006
vs.
2005
(%)
2007
(%)
As a Percentage
of Total Revenue
2006
2005
(%)
(%)
(Amounts in thousands)
Revenue:
Fee and other revenue
Investment revenue
Net securities losses
Total revenue
Fee commissions expense
Investment commissions
expense
Total commissions
expense
Net (losses) revenue
Expenses:
Compensation and benefits
Transaction and operations
support
Depreciation and
amortization
Occupancy, equipment and
supplies
Interest expense
Total expenses
(Loss) income from
continuing operations
before income taxes
Income tax expense
(Loss) income from
$
949,059 $
398,234
(1,189,756)
157,537
410,301
766,881 $ 606,956
395,489
367,989
(2,811)
1,159,559
314,418
62
26
38
7
(3,709) NM NM NM NM NM
100 100 100
24
260
971,236
231,209
602
253
(86)
30
24
1
66
34
19
36
27
253,607
249,241
239,263
2
4
161
22
25
663,908
(506,371)
563,659
595,900
470,472
500,764
18
(185)
20
19
421
(321)
49
51
49
51
188,092
172,264
132,715
9
30
119
15
14
191,066
164,122
150,038
16
9
121
14
15
51,979
38,978
32,465
33
20
33
3
3
44,704
11,055
486,896
35,835
7,928
419,127
31,562
7,608
354,388
25
39
16
14
4
18
28
7
309
3
1
36
3
1
36
(993,267)
78,481
176,773
52,719
146,376
34,170
(662)
49
21 NM
50
54
15
4
15
4
continuing operations
$
(1,071,748) $
124,054 $ 112,206
(964)
11
(680)
11
11
NM = Not meaningful
For the year ended December 31, 2007, total revenue decreased 86 percent from 2006 due to the net securities
losses of $1.2 billion resulting from other-than-temporary impairments. See “Liquidity and Capital
Resources — Impact of Credit Market Disruption” and Note 4 — Investments (Substantially Restricted) of
the Notes to Consolidated Financial Statements for further information on our investments. Fee and other
revenue increased 24 percent over 2006 due to continued growth in money transfer transaction volume. Total
expenses, excluding commissions, increased 16 percent over 2006, reflecting increased infrastructure costs
supporting the growth in our money transfer business and our global network, higher costs to support
compliance activities and enhancements to our technology systems and additional headcount. Depreciation
and amortization increased primarily due to our investment in agent equipment and signage, and our prior
investments in computer hardware and capitalized software to enhance our support functions. Additionally,
we recorded an impairment of goodwill related to a component of our Payment Systems segment. See further
discussion of the impairment in Note 8 — Intangibles and Goodwill of the Notes to Consolidated Financial
Statements.
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. In 2007, the Euro strengthened significantly against the U.S. Dollar. While the
strong Euro benefits the internationally originated revenue in our Consolidated Statement of (Loss) Income,
this benefit is significantly offset by the impact on commissions paid and operating expenses incurred in
Euros. The impact of fluctuations in the Euro exchange rate on the Company’s consolidated net (loss) income
has been minimal at approximately $3.2 million in 2007.
29
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
For the year ended December 31, 2006, total revenue and net revenue each grew by 19 percent over 2005 due
to 41 percent growth in money transfer transaction volume. Total expenses, excluding commissions, increased
18 percent over 2005, which reflects additional headcount to support growth, increased marketing expenditures
due to global brand initiatives and higher professional fees to support technology systems enhancements.
These increased expenses were partially offset by lower agent credit losses.
Table 2 — Net Fee Revenue Analysis
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Fee and other revenue
Fee commissions expense
Net fee revenue
Commissions as a % of fee and other
revenue
2007
2006
2005
2007
vs.
2006
2006
vs.
2005
$
$
949,059
(410,301)
538,758
$
$
766,881
(314,418)
452,463
$
$
606,956
(231,209)
375,747
24%
30%
19%
26%
36%
20%
43.2%
41.0%
38.1%
Fee and other revenue consists of fees on money transfer, money orders and official check transactions. For
2007, fee and other revenue increased by $182.2 million, or 24 percent, from 2006, primarily driven by growth
in the money transfer business (including bill payment services). Growth in money transfer fee and other
revenue (including bill payment services) continued to be in line with growth in money transfer transaction
volume, which increased 27 percent during the year as a result of our network expansion and targeted pricing
initiatives. Transaction growth resulted in incremental fee and other revenue of $179.0 million. This
transaction growth was offset slightly by a $9.9 million decrease in money transfer fees resulting from targeted
pricing initiatives and changes in geographic and product mix (money transfer versus urgent bill payment). The
change in the Euro exchange rate increased total fee and other revenue by $21.5 million in 2007 compared to
2006.
Our simplified pricing initiatives, which were initiated in the first half of 2005, included reducing the number
of pricing tiers or bands, allowing us to manage our price-volume dynamic while streamlining the point of sale
process for our agents and customers. While simplified pricing initiatives have contributed to a lower average
per transaction fee, we believe that the initiatives have contributed to our volume growth as simpler pricing and
lower overall fees attracts new customers. During 2007, the gap between total revenue growth and money
transfer transaction growth narrowed primarily because we lapped the first year of implementation of
simplified pricing initiatives. Our pricing philosophy continues to be to maintain a price point below our higher
priced competitor but above the niche players in the market. We anticipate money transfer revenue and money
transfer volume growth percentages to remain in line, subject to fluctuations in the Euro exchange rate, pricing
initiatives and product mix.
For 2006 and 2005, fee and other revenue was 66 percent and 62 percent of total revenue, respectively.
Compared to 2005, fee and other revenue grew $159.9 million, or 26 percent, in 2006, primarily driven by
transaction growth in our money transfer and bill payment services, with volumes increasing 41 percent during
the year. Transaction volume growth in money transfer and bill payment services increased fee and other
revenue by $196.5 million. Average per transaction fees in money transfer and bill payment services were
lower in 2006, reducing fee and other revenue by $56.7 million primarily as a result of our simplified pricing
initiative and as a result of shifts in product and geographic origination mix. Money transfer and bill payment
transactions continued to drive fee and other revenue growth in 2006, while money order transactions, which
have higher margins, declined. Our domestic transactions, which contributed lower revenue per transaction,
grew at a faster rate than internationally originated transactions. The gap between total revenue growth and
money transfer transaction growth narrowed in the fourth quarter of 2006 as we began to lap the first year of
implementation of simplified pricing initiatives. The change in the Euro exchange rate increased revenue by
$3.2 million compared to 2005.
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. Fee commissions expense grew at a faster
pace than fee revenue, increasing $95.9 million, or 30 percent, for 2007 as compared to the prior year, driven
by higher money transfer transaction volume, tiered commissions and a stronger Euro. Higher money transfer
transaction volumes increased fee commissions expense by $79.0 million, while higher average commissions
per transaction
30
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
increased commissions by $10.2 million, primarily from tiered commissions. Tiered commissions are
commission rates that are adjusted upward, subject to certain caps, as an agent’s transaction volume grows.
We use tiered commission rates as an incentive for select agents to grow transaction volume by paying our
agents for performance and allowing them to participate in adding market share for MoneyGram. The change
in the Euro exchange rate increased fee commissions by $9.7 million in 2007 compared to 2006. For 2006,
fee commissions expense increased $83.2 million, or 36 percent, over 2005, primarily due to higher
transaction volume and tiered commissions. Higher money transfer transaction volumes increased fee
commissions expense by $61.2 million, while average commissions per transaction increased $13.0 million,
primarily from tiered commissions. The change in the Euro exchange rate increased fee commissions by
$1.3 million in 2006 compared to 2005.
Net fee revenue increased 19 percent in 2007 compared to 2006, driven primarily by the increase in money
transfer transaction volume. Growth in net fee revenue was lower than fee and other revenue growth primarily
due to tiered commissions. Net fee revenue increased 20 percent in 2006 compared to 2005, driven by the
increase in volume of money transfer and bill payment transactions. Growth in net fee revenue was lower than
fee and other revenue growth in 2006 compared to 2005, primarily due to a shift in product mix towards
money transfer and tiered commissions.
Table 3 — Net Investment Revenue Analysis
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Components of net
investment revenue:
Investment revenue
Investment commissions
expense (1)
Net investment revenue
Average balances:
Cash equivalents and
investments
Payment service
obligations (2)
Average yields earned and
rates paid (3):
Investment yield
Investment commission
rate
Net investment margin
2007
2006
2005
2007
vs.
2006
2006
vs.
2005
$
398,234
$
395,489
$
367,989
1%
7%
(253,607)
144,627
$
(249,241)
146,248
$
(239,263)
128,726
$
2%
(1%)
4%
14%
$ 6,346,442
$ 6,333,115
$ 6,726,790
0%
(6%)
4,796,257
4,796,538
5,268,512
0%
(9%)
6.27%
6.24%
5.47%
0.03% 0.77%
5.29%
2.28%
5.20%
2.31%
4.54%
1.91%
0.09% 0.66%
(0.03%) 0.40%
(1)
Investment commissions expense includes payments made to financial institution customers based on
short-term interest rate indices on the outstanding balances of official checks sold by that financial
institution, as well as costs associated with swaps and the sale of receivables program.
(2) Commissions are paid to financial institution customers based upon average outstanding balances
generated by the sale of official checks only. The average balance in the table reflects only the payment
service obligations for which commissions are paid and does not include the average balance of the sold
receivables ($349.9 million, $382.6 million and $389.8 million for 2007, 2006 and 2005, respectively)
as these are not recorded in the Consolidated Balance Sheets.
(3) Average yields/rates are calculated by dividing the applicable amount shown in the “Components of net
investment revenue” section by the applicable amount shown in the “Average balances” section. The
“Net investment margin” is calculated by dividing “Net investment revenue” by the “Cash equivalents
and investments” average balance.
Investment revenue in 2007 increased one percent over 2006 due to wider spreads earned in 2007 and higher
average investable balances in 2007, but were partially offset by higher investment revenue in 2006 that
benefited from $14.0 million in cash flows from previously impaired investments and income from limited
partnership interests. During the last half of 2007, our cash investments and adjustable rate securities, which
are primarily tied to LIBOR, earned a wider spread due to the disruption in the credit markets. Investment
revenue in 2006 increased seven
31
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
percent over 2005 due to higher yields on the portfolio from rising short-term interest rates and the benefit
from previously impaired investments and income from limited partnership interests, but was partially offset
by lower average investable balances.
Investment commissions expense in 2007 increased two percent compared to the prior year, reflecting higher
commissions paid to financial institution customers resulting from an increase of 5 basis points in the average
federal funds rate over the prior year. Investment commissions expense in 2006 increased four percent
compared to the prior year as rising short-term rates resulted in higher commissions paid to financial
institution customers and increased the amount of the cost of receivables sold. The impact of rising rates in
2006 was significantly offset by lower swap costs. Lower swap costs are the result of maturing high rate
swaps replaced by lower rate swaps, increases in short-term rates and lower notional swap balances.
The Company had $1.4 billion of outstanding swaps with an average fixed pay rate of 4.3 percent at
December 31, 2007, compared to $2.6 billion with an average fixed pay rate of 4.3 percent at December 31,
2006. Approximately $1.4 billion of swaps matured during 2007. The run off of the lower priced swaps
during 2007 increased investment commission expense over the same period in the prior year. Approximately
seven percent of the notional value of our swaps will roll off during the first quarter of 2008. The remaining
balance will roll off beginning in 2009 and continuing through 2012. In the first quarter of 2008, the
Company terminated three outstanding swaps with a notional value of $32.0 million in connection with the
sale of the investments related to these swaps.
Net investment revenue decreased 1 percent in 2007 compared to 2006 reflecting the benefit of pre-tax cash
flow on previously impaired investments and income from limited partnerships recorded in 2006 and higher
investment commission expense in 2007. Net investment margin decreased 3 basis points to 2.28 percent in
2007 compared to 2006, reflecting a decrease in net investment revenue and somewhat offset by an increase
in average investable balances. During 2006, net investment revenue increased 14 percent compared to 2005,
with the net investment margin increasing 40 basis points to 2.31 percent. During 2006, the average federal
funds rate increased 175 basis points and the average 5-year U.S. Treasury Note increased 70 basis points.
These changes in interest rates are representative of the flat yield curve environment in which we operated in
2006. During 2005, the average federal funds rate increased 187 basis points and the average 5-year
U.S. Treasury Note increased 62 basis points. The 2006 and 2005 margins benefited from the investment
revenue items discussed above, as well as the lower swap costs.
In January 2008, we commenced a process to realign our investment portfolio away from asset-backed
securities into highly liquid assets. We anticipate the realigned portfolio will be comprised primarily of cash
equivalents and government and government agency securities. In addition, the Company began a
restructuring of its official check business model by changing its commission structure and exiting certain
large customer relationships. As a result, we anticipate that our net investment margins will be adversely
affected on a going forward basis by the lower yields in our realigned portfolio. While we expect our
commission re-pricing initiatives under the official check restructuring to substantially offset the impact of the
lower yields from the realigned portfolio, we will not know the final results of the re-pricing initiatives for
some time.
Table 4 — Summary of Gains, Losses and Impairments
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Gross realized gains
Gross realized losses
Other-than-temporary impairments
Net securities losses
2007
2006
2005
2007
vs.
2006
2006
vs.
2005
$
$
7,378 $
5,611 $
(4,535)
(2,157)
(6,552)
(1,193,210)
(1,189,756) $ (2,811) $ (3,709) $
5,080 $
(2,653)
(5,238)
531 $ (2,298)
1,882
496
1,314
(1,187,972)
898
(1,186,945) $
As shown in Table 4, the Company had a net securities losses of $1.2 billion in 2007 compared to net
securities losses of $2.8 million in 2006. The increase in net securities losses is due to $1.2 billion of
other-than-temporary impairments recorded in December 2007. See “Liquidity and Capital Resources —
Impact of Credit Market Disruption” for further discussion of the other-than-temporary impairments.
32
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Compared to the $2.8 million of net securities losses recorded in 2006, the Company had net securities losses
of $3.7 million in 2005, primarily due to lower realized losses and lower impairments. Net securities losses of
$2.8 million recorded in 2006 include impairments related to investments backed by automobile, aircraft,
manufactured housing, bank loans and insurance securities collateral. Impairments in 2005 related primarily to
investments backed by aircraft and manufactured housing collateral.
Expenses
Expenses represent operating expenses other than commissions. Following is a discussion of the operating
expenses presented in Table 1.
Compensation and benefits — Compensation and benefits includes salaries and benefits, management
incentive programs and other employee related costs. Compensation and benefits increased $15.8 million, or
9 percent, in 2007 compared to 2006, resulting primarily from an increase in salaries and benefits of
$31.4 million, partially offset by a decrease of $16.7 million in incentive compensation accruals. The increase
in salaries and benefits is primarily due to a $24.6 million increase in salaries due to higher headcount
supporting the growth of the money transfer business, a $2.5 million increase in medical costs and a
$2.4 million increase in payroll taxes. Incentive compensation decreased $18.6 million due to the Company’s
2007 performance and stock price decline, offset by a $2.0 million increase in stock-based compensation
expense. The increase in stock based compensation expense is due primarily to the high value of the
Company’s stock price at the date of the 2007 grants, partially offset by a lower number of awards being
earned in the current year. The change in the Euro exchange rate, which is reflected in each of the amounts
discussed above, increased compensation and benefits by approximately $1.4 million compared to 2006. As of
December 31, 2007, the number of employees increased 10 percent over 2006 as we increased headcount for
our support functions and continued to staff our retail locations in France and Germany. We expect to see a
double-digit increase in headcount in 2008, resulting in continued increases to compensation and benefits.
Compensation and benefits increased $39.5 million, or 30 percent, in 2006 compared to 2005, primarily driven
by the hiring of additional personnel, resulting in an increase in salary expense of $22.6 million, higher
performance incentive accruals of $7.1 million and an increase of $1.6 million of stock-based compensation
expense. In 2006, the number of employees increased by 21 percent over 2005 to drive and support money
transfer growth.
Transaction and operations support — Transaction and operations support expenses include marketing costs,
professional fees and other outside services costs, telecommunications and forms expense related to our
products. Transaction and operations support costs increased $26.9 million, or 16 percent, in 2007 compared
to 2006, primarily due to higher costs related to the expansion of the money transfer business and the global
network, as well as an impairment of $6.4 million of goodwill related to a component of our Payment Systems
segment. See further discussion of the impairment recorded in Note 8 — Intangibles and Goodwill of the
Notes to Consolidated Financial Statements. Provision for loss increased in 2007 by $4.6 million over 2006,
with no noticeable trends driving the increase. As our agent base and transaction volumes continue to grow,
we expect that provision for loss will increase; however, we expect this growth to be much slower than agent
base and transaction growth due to our underwriting and credit monitoring processes. Professional fees
increased $5.3 million primarily due to increased contractor and consulting fees to support compliance
activities and enhancements to our technology systems and increased credit servicing fees. Marketing costs
increased $3.2 million, agent forms and supplies costs increased $2.7 million and licensing fees increased by
$2.5 million, all primarily due to the increase in agent locations. These increases were offset by a decrease of
$4.1 million in the directors deferred compensation accrual related to the decrease in the price of our common
stock. The change in the Euro exchange rate, which is reflected in each of the amounts discussed above,
increased transaction and operations support by approximately $6.0 million compared to 2006.
Transaction and operations support costs were up $14.1 million, or nine percent, in 2006 compared to 2005,
primarily driven by an increase of $15.0 million in marketing expenditures as we continue to invest in our
brand and support our agent growth and an increase of $9.0 million in professional fees to support
enhancements to our technology systems. These increases were partially offset by a $9.0 million decline in
provision for uncollectible receivables primarily resulting from the additional provision of $6.7 million in
2005 for one agent. In addition, in 2006, we recognized an impairment of $0.9 million due to the
discontinuation of a software development project.
33
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
We continue to see a trend among state and federal regulators toward enhanced scrutiny of anti-money
laundering compliance. As we continue to add staff resources and enhancements to our technology systems to
address this trend, our transaction expenses will likely increase. In addition, we anticipate that our transaction
expenses will increase due to marketing spend, investment in the agent network and development of our retail
network in Western Europe. We anticipate these expenses will grow at a rate similar to 2007, excluding the
goodwill impairment, based on our assumed agent network growth of 15 to 20 percent. We also will incur
significant one-time charges for costs related to the Capital Transaction and strategic review of the Payment
Systems segment. See Note 18 — Subsequent Events of the Notes to Consolidated Financial Statements for
further information.
Depreciation and amortization — Depreciation and amortization expense includes depreciation on point of
sale equipment, agent signage, computer hardware and software (including capitalized software development
costs), office furniture, equipment and leasehold improvements and amortization of intangible assets.
Depreciation and amortization expense increased $13.0 million, or 33 percent, in 2007 compared to 2006,
primarily due to our investment in agent equipment and signage of $5.3 million, amortization of our
investment in computer hardware and capitalized software in prior periods to enhance our support functions,
as well as amortization of purchased software of $5.1 million. Our investments in computer hardware and
software helped drive the growth in money transfer product. Additionally, amortization of acquired intangible
assets increased by $1.2 million from 2006, primarily due to the acquisition of PropertyBridge, Inc
(“PropertyBridge”) on October 1, 2007. We expect to see a further increase in amortization of intangible
assets due to the intangible assets acquired in the acquisition of PropertyBridge. See further discussion in
Note 8 — Intangibles and Goodwill of the Notes to Consolidated Financial Statements.
Depreciation and amortization expense increased $6.5 million, or 20 percent, in 2006 compared to 2005,
primarily due to the amortization of our investment in computer hardware and capitalized software of
$4.4 million to enhance the money transfer platform, the depreciation of agent equipment of $2.3 million and
the amortization of leasehold improvements of $0.5 million (offset by a corresponding reduction in rent
expense of $1.1 million).
The Company is currently implementing a new system to provide improved connections between our agents
and our marketing, sales, customer service and accounting functions. The new system and associated
processes are intended to increase the flexibility of our back office, thereby improving operating efficiencies.
In 2007, we capitalized software costs of approximately $3.7 million related to the enhancements to our
financial processing systems that will impact future depreciation and amortization. As we continue our
investment in the infrastructure for future growth, we expect depreciation and amortization expense to
increase.
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 increased $8.9 million, or 25 percent, in 2007 compared to 2006,
primarily due to software expense and maintenance, delivery, freight and supplies expense and office rent.
Software expense and maintenance increased $2.8 million due primarily to purchased licenses to support our
growth and compliance initiatives. Delivery, freight and supplies expense increased $2.1 million in connection
with the growth in our agent locations. Office rent increased $1.9 million due to annual rent increases and
expanded retail locations.
Occupancy, equipment and supplies expense increased $4.3 million, or 14 percent, in 2006 compared to 2005,
primarily due to normal increases in facilities rent of $1.9 million and higher software maintenance costs of
$1.1 million, partially offset by gains on disposal of equipment of $1.0 million. Software expense and
maintenance increases relate primarily to purchased licenses to support our growth and compliance initiatives,
as well as licensing costs which were incurred by Viad prior to the spin-off.
Interest expense — Interest expense increased 39 percent in 2007 compared to 2006, primarily due to higher
average interest rates and an increase in outstanding debt. The increase was partially offset by receipts under
our cash flow hedges. During the second half of 2007, we borrowed an additional $195.0 million under the
revolving credit facility. In connection with an amendment to waive certain covenants at December 31, 2007,
the interest rates related to all outstanding balances increased as of January 1, 2008. We expect interest
expense to increase in 2008 due to this increase in interest rates and the additional debt associated with the
Capital Transaction. See further discussion of the credit facility in Note 9 — Debt of the Notes to
Consolidated Financial Statements and further discussion of the Capital Transaction in Note 18 — Subsequent
Events of the Notes to Consolidated Financial
34
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Liquidity and Capital Resources — Sale of Investments and Capital Transaction”.
Interest expense increased four percent in 2006 as compared to 2005, primarily due to higher average interest
rates, which were partially offset by receipts under our cash flow hedges. In connection with the amendment
of our $350.0 million bank credit facility in the second quarter of 2005, we expensed $0.9 million of
unamortized financing costs related to the original facility. Also see “Management’s Discussion and
Analysis — Other Funding Sources and Requirements” for further information regarding our bank credit
facility.
Income taxes — In 2007, we had $78.5 million of tax expense on a pre-tax loss of $993.3 million resulting in
a negative effective tax rate of 7.9 percent. The effective tax rate was 29.8 percent in 2006 and 23.3 percent in
2005. The decrease in the effective tax rate in 2007 is primarily due to establishing a deferred tax asset
valuation allowance of $417.6 million for the impairment of securities. Due to the amount and characterization
of losses, as of December 31, 2007, we determined that it was not “more likely than not” that the deferred tax
assets related to the losses will be realized. We are continuing to evaluate available tax positions related to the
net securities losses, which may result in future tax benefits.
The corporate tax rate in 2006 and 2005 is lower than the statutory rate primarily due to income from
tax-exempt bonds in our investment portfolio. The tax rate in 2005 benefited from a reduction in provision of
$5.6 million due to reversal of tax reserves no longer needed due to the passage of time and changes in
estimates of tax amounts. These benefits in 2006 were partially offset by the decline in tax-exempt investment
income as a percentage of total pre-tax income.
Acquisitions and Discontinued Operations
PropertyBridge, Inc. — On October 1, 2007, the Company acquired PropertyBridge for $28.1 million, plus a
potential earn-out payment of up to $10.0 million contingent on PropertyBridge’s performance during 2008.
PropertyBridge is a provider of electronic payment processing services for the real estate management
industry. PropertyBridge offers a complete solution to the resident payment cycle, including the ability to
electronically accept deposits and rent payments. Residents can pay rent online, by phone or in person and set
up recurring payments. PropertyBridge is a component of the Company’s Global Funds Transfer segment.
The Company has finalized its purchase price allocation, resulting in goodwill of $24.1 million and purchased
intangible assets of $6.0 million, consisting primarily of customer lists, developed technology and a
non-compete agreement. The intangible assets will be amortized over useful lives ranging from three to fifteen
years. Goodwill was assigned to the Company’s Global Funds Transfer segment. The acquisition cost includes
$0.2 million of transaction costs.
The operating results of PropertyBridge subsequent to October 1, 2007 are included in the Company’s
Consolidated Statements of (Loss) Income.
Money Express — On May 31, 2006, MoneyGram completed the acquisition of Money Express S.r.l.
(“Money Express”), the Company’s former money transfer super agent in Italy, for $15.0 million. In
connection with the acquisition, the Company formed MoneyGram Payment Systems Italy, S.r.l., a
wholly-owned subsidiary, to operate the former Money Express agent network. The acquisition provides the
Company with the opportunity for further network expansion and more control of marketing and promotional
activities in the region.
The Company finalized its purchase price allocation in 2007, resulting in a decrease of $0.3 million to
goodwill. Purchased intangible assets of $7.7 million, consisting primarily of customer lists and a
noncompetition agreement, will be amortized over useful lives ranging from three to five years. Goodwill of
$16.7 million was recorded and assigned to the Company’s Global Funds Transfer segment. The acquisition
cost includes $1.3 million of transaction costs and the forgiveness of $0.7 million of liabilities.
The operating results of Money Express subsequent to May 31, 2006 are included in the Company’s
Consolidated Statements of (Loss) Income.
35
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
ACH Commerce — The Company purchased ACH Commerce, LLC (“ACH Commerce”) in April 2005 for
$8.5 million, of which $1.1 million was to be paid upon the second anniversary of the acquisition. Based on
the terms of the acquisition agreement, the Company paid this amount during the second quarter of 2007.
Game Financial Corporation — In 2005, the Company recorded a gain of $0.7 million (net of tax) due to the
partial resolution of contingencies relating to the sale of Game Financial Corporation, (“Game Financial”)
which was completed in 2004. During 2007, the Company paid $3.3 million in connection with the settlement
of a contingency in the Sales and Purchase Agreement related to the continued operations of Game Financial
with one casino. We recognized a loss from discontinued operations of $0.3 million in the Consolidated
Statements of (Loss) Income in 2007, representing the recognition of a deferred tax asset valuation allowance
partially offset by the reversal of the remaining liability.
We measure financial performance by our two business segments:
Segment Performance
Global Funds Transfer — this segment provides global money transfer services, money orders and bill
payment services to consumers through a network of agents. Fee revenue is driven by transaction volume
and fees per transaction. In addition, investment and related income is generated by investing funds received
from the sale of money orders until the instruments are settled.
Payment Systems — this segment provides financial institutions with payment processing services,
primarily official check outsourcing services and money orders for sale to their customers, and processes
controlled disbursements. Investment and related income is generated by investing funds received from the
sale of payment instruments until the instruments are settled. In addition, revenue is derived from per-item
fees paid by our financial institution customers.
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. 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 and the specific investment securities are not
identifiable to a particular segment. However, average investable balances are allocated to our segments based
upon the average balances generated by that segment’s sale of payment instruments. The investment yield
generally is allocated based upon the total average investment yield. Gains and losses are allocated based upon
the allocation of average investable balances. Our derivatives portfolio is also managed on a consolidated
level and the derivative instruments are not specifically identifiable to a particular segment. The total costs
associated with our derivatives portfolio are allocated to each segment based upon the percentage of that
segment’s average investable balances to the total average investable balances. Other unallocated expenses
include pension and benefit obligation expense, director deferred compensation plan expense and other
miscellaneous corporate expenses not allocated to the segments. Table 5 reconciles “Total segment operating
(loss) income” to “(Loss) income from continuing operations before income taxes” as reported in the
Consolidated Statements of (Loss) Income.
Table 5 — Segment Information
2007
2006
2005
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Operating (loss) income:
Global Funds Transfer
Payment Systems
Total segment operating (loss) income
(60,410) $ 152,579 $ 121,677
42,406
(920,130)
164,083
(980,540)
7,608
11,055
Interest expense
10,099
1,672
Other unallocated expenses
(Loss) income from continuing operations before income taxes $ (993,267) $ 176,773 $ 146,376
41,619
194,198
7,928
9,497
$
36
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Table 6 — Global Funds Transfer Segment
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Money transfer revenue, including
bill payment
Fee and other revenue
Investment revenue
Net securities losses
Total Money transfer
revenue, including bill
payment
Retail money order revenue
Fee and other revenue
Investment revenue
Net securities losses
Total Retail money order
(losses) revenue
Total Global Funds Transfer
revenue
Fee and other revenue
Investment revenue
Net securities losses
Total Global Funds Transfer
revenue
Commissions expense
Net revenue
Operating (loss) income
Operating margin
NM = Not meaningful
2007
2006
2005
2007
vs.
2006
2006
vs.
2005
$
852,749
5,194
(9,724)
$
$
664,712
5,165
(25)
505,239
2,518
(31)
28%
32%
1% 105%
(19%)
NM
848,219
669,852
507,726
27%
32%
58,637
88,572
(224,433)
62,885
89,607
(598)
63,966
78,706
(781)
(7%)
(1%)
NM
(2%)
14%
(23%)
(77,224)
151,894
141,891
(151%)
7%
911,386
93,766
(234,157)
770,995
(429,837)
341,158
727,597
94,772
(623)
821,746
(333,524)
488,222
$
$
(60,410)
$
(7.8%)
152,579
$
18.6%
569,205
81,224
(812)
649,617
(249,768)
399,849
121,677
25%
(1%)
NM
28%
17%
(23%)
(6%)
29%
(30%)
(140%)
26%
34%
22%
25%
18.7%
$
$
Total revenue decreased $50.8 million, or six percent, in 2007 compared to 2006 due to net securities losses
of $234.2 million that were recorded on our investment portfolio and allocated to this segment. See further
discussion of the losses in Note 4 — Investments (Substantially Restricted) of the Notes to Consolidated
Financial Statements. Total fee and other revenue for the Global Funds Transfer segment increased
$183.8 million, or 25 percent, in 2007 compared to 2006 and continues to be driven by the growth in the
money transfer business (including bill payment services). Growth in money transfer fee and other revenue
(including bill payment services) increased 28 percent over the prior year and continued to be in line with
growth in money transfer transaction volume, which increased 27 percent during the year as a result of our
network expansion and targeted pricing initiatives. Transaction growth resulted in incremental fee and other
revenue of $179.0 million. This increase was offset by $9.9 million of decreases in money transfer fees
related to targeted pricing initiatives and changes in geographic and product mix (money transfer versus
urgent bill payment). Our domestic transactions, which contribute lower revenue per transaction, grew at a
faster rate of 38 percent, while internationally originated transactions (outside of North America) grew
34 percent from 2006. Transaction volume to Mexico grew 8 percent in 2007 compared to 2006. We believe
economic conditions in the U.S. housing market and immigration concerns continued to dampen the growth
in volume. Our Mexico volume represented 10 percent of our total transactions in 2007. The growth in money
transfer is the result of our network expansion and continued targeted pricing initiatives to provide a strong
consumer value proposition supported by targeted marketing efforts. The money transfer agent base expanded
30 percent over 2006, primarily in the international markets, to about 143,000 locations.
Our simplified pricing initiatives, which were initiated in the first half of 2005, included reducing the number
of pricing tiers or bands, allowing us to manage our price-volume dynamic while streamlining the point of
sale process
37
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
for our agents and customers. While simplified pricing initiatives have contributed to a lower average per
transaction fee, we believe that the initiatives have contributed to our volume growth as a simpler pricing
process and lower overall fees attracts new customers. During 2007, the gap between total revenue growth
and money transfer transaction growth narrowed as we lapped the first year of implementation of simplified
pricing initiatives.
Total revenue increased 26 percent in 2006 compared to 2005, primarily driven by the growth in the money
transfer and bill payment services, as total transaction volume grew 41 percent. Transaction volume growth in
money transfer and bill payment services increased fee and other revenue by $196.5 million. Average per
transaction fees in money transfer and bill payment services were lower in 2006, reducing fee and other
revenue by $56.7 million, primarily as a result of our simplified pricing initiative. In addition, average per
transaction fees were lower in 2006 than 2005 as a result of shifts in product and geographic origination mix.
Money transfer and bill payment transactions continued to drive fee and other revenue growth in 2006, while
money order transactions, which have higher margins, declined. Domestic originated transactions (including
bill payment) grew 46 percent with growth across all corridors, while international originated transactions
grew 30 percent from 2005. Transaction volume to Mexico grew 29 percent in 2006 over 2005. Our Mexico
volume represented 11 percent and 12 percent of our total transactions in 2006 and 2005, respectively. In
2006, the money transfer agent base expanded 24 percent over 2005, primarily in the international markets, to
about 110,000 locations.
At December 31, 2007, money transfer agents are located in the following geographic regions: 33,300
locations in North America; 22,200 locations in Latin America (including Mexico, which represents 10,600
locations); 44,200 locations in Western Europe and the Middle East; 10,800 locations in the Indian
subcontinent; 13,600 locations in Asia Pacific; 13,700 locations in Eastern Europe and 5,200 locations in
Africa.
Fee and other revenue for retail money order decreased seven percent and two percent in 2007 and 2006,
respectively, compared to the prior year. These decreases are in line with declines in volume for both years.
The Company expects to see a decline in money order fee and other revenue of approximately 5 percent in
2008.
Investment revenue in the Global Funds Transfer segment decreased one percent in 2007 compared to 2006
due to lower average investable balances and as 2006 benefited from $3.1 million of pre-tax cash flow on
previously impaired investments and income from limited partnership interests. Pre-tax cash flows in 2007
from previously impaired investments and income from limited partnership interests was nominal. Partially
offsetting these decreases was the benefit from wider spreads earned on our cash investments and adjustable
rate securities due to the disruption in the credit markets in the second half of 2007. Net securities losses in
2007 reflect other-than-temporary impairments of $234.2 million that were recorded on our investment
portfolio and allocated to this segment. See further discussion of the losses in Note 4 — Investments
(Substantially Restricted) and Note 18 — Subsequent Events of the Notes to Consolidated Financial
Statements. Investment revenue increased 17 percent in 2006 compared to 2005 primarily due to higher
average yields which were partially offset by lower average investable balances. Net securities losses were
flat in 2006 compared to 2005.
Commissions expense in 2007 was up 29 percent compared to 2006, primarily driven by tiered commission
rates paid to certain agents and increases in the Euro exchange rate. Tiered commissions are commission rates
that are adjusted upward, subject to certain caps, as an agent’s transaction volume grows. We use tiered
commission rates as an incentive for select agents to grow transaction volume by paying the agents for
performance and allowing the agent to participate in adding market share for MoneyGram. Our largest agent,
Wal-Mart, achieved new tiers in the third quarter of 2006 and the fourth quarter of 2007. In conjunction with
our Capital Transaction, we extended the term of the current agreement with Wal-Mart through January 2013
and agreed to certain commission increases over the extended term of the contract. See further discussion of
the Capital Transaction in Note 18 — Subsequent Events of the Notes to Consolidated Financial Statements
and in “Liquidity and Capital Resources — Sale of Investments and Capital Transaction.” As compared to
2005, commissions expense in 2006 was up 34 percent, primarily driven by the 28 percent growth in fee and
other revenue. Commissions expense as a percentage of revenue increased from 38.4 percent in 2005 to
40.6 percent in 2006, primarily due to tiered commission rates paid to certain agents and product mix (as
growth in the money transfer business outpaced money orders).
Operating loss of $60.4 million and operating margin of (7.8) percent in 2007 reflect the net securities losses
of $234.2 million that were recorded on our investment portfolio and allocated to this segment. The losses
were partially offset by the growth in money transfer. Operating income in 2006 increased 25 percent over the
previous
38
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
year due to the growth in money transfer and bill payment services and the higher investment revenue. The
operating margin of 18.6 percent in 2006 was essentially flat compared to 2005. An additional provision for
agent loss impacted the 2005 operating margin by (0.9) percentage points.
Table 7 — Payment Systems Segment
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Official check and payment
processing revenue
Fee and other revenue
Investment revenue
Net securities losses
Total official check and
payment processing (losses)
revenue
Other revenue
Fee and other revenue
Investment revenue
Net securities losses
Total other revenue
Total Payment Systems revenue
Fee and other revenue
Investment revenue
Net securities losses
Total Payment Systems
(losses) revenue
Commissions expense
Net (loss) revenue
Operating (loss) income
Operating margin
Taxable equivalent basis (1):
(Losses) revenue
Commissions expense
Operating (loss) income
Operating margin
2007
2006
2005
2007
vs.
2006
2006
vs.
2005
$
13,546 $
299,681
(943,480)
13,211
295,703
(2,154)
18,007
282,127
(2,845)
3%
1%
NM
(27%)
5%
(24%)
(630,253)
306,760
297,289
(305%)
3%
23,468
4,548
(12,119)
15,897
25,432
4,939
(34)
30,337
37,014
304,229
(955,599)
38,643
300,642
(2,188)
19,742
4,640
(52)
24,330
37,749
286,767
(2,897)
(614,356)
(234,071)
$ (848,427) $
337,097
(230,135)
106,962
$ (920,130) $
41,619
$
$
NM
12.3%
321,619
(220,704)
100,915
42,406
13.2%
(8%)
(8%)
NM
(48%)
(4%)
1%
NM
(282%)
2%
(893%)
29%
6%
(35%)
25%
2%
5%
(24%)
5%
4%
6%
(2311%)
(2%)
354,544
$ (598,247) $
$ (234,071) $ (230,135)
59,064
340,655
$
$ (220,704)
61,441
(269%)
2%
(1631%)
4%
4%
(4%)
(904,020)
NM
16.7%
18.0%
NM = Not meaningful
(1) The taxable equivalent basis numbers are used by the Company’s management, and management
believes they are useful to investors, to evaluate the effect of tax-exempt securities on the Payment
Systems segment and on the Company’s effective tax rate. The tax-exempt investments in the
investment portfolio have lower pre-tax yields, but produce higher income on an after-tax basis than
comparable taxable investments. As income taxes are not allocated to the Company’s operating
segments, the effect of tax-exempt securities on the Payment Systems segment is not apparent in
measures presented under GAAP. Accordingly, an adjustment is made to present revenue and operating
income resulting from amounts invested in tax-exempt securities on a taxable equivalent basis. The
adjustment is calculated using a 35 percent tax rate applied to interest income from tax-exempt
securities and is $16.1 million, $17.4 million and $19.0 million for 2007, 2006 and 2005, respectively.
The presentation of taxable equivalent basis numbers is supplemental to results presented under
39
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
GAAP and may not be comparable to similarly titled measures used by other companies. These
non-GAAP measures should be used in addition to, but not as a substitute for measures presented under
GAAP.
Total revenue includes investment revenue, net securities gains and losses, per-item fees charged to our
official check financial institution customers and fees earned on our rebate processing business. Total net loss
in the Payment Systems segment of $614.4 million for 2007 reflects net securities losses of $955.6 million
that were recorded on our investment portfolio. See further discussion of the losses in “Liquidity and Capital
Resources — Impact of Credit Market Disruption” and Note 4 — Investments (Substantially Restricted) of
the Notes to Consolidated Financial Statements. Total revenue for 2006 includes $10.9 million of cash flows
from previously impaired securities and income from limited partnership interests. Such cash flows were
nominal for 2007. Total revenue increased five percent in 2006 compared to 2005 due primarily to higher
investment revenue from higher yields earned on the portfolio from the increase in short-term interest rates.
Commissions expense includes payments made to financial institution customers based on official check
average investable balances and short-term interest rate indices, as well as costs associated with swaps and the
sale of receivables program. Commissions expense increased two percent in 2007, primarily due to higher
commissions paid to financial institution customers resulting from an increase in the average federal funds
rate over the prior year, as well as the run-off of interest rate swaps. Commissions expense increased four
percent in 2006, primarily due to higher commissions paid to financial institutions as short-term interest rates
increased. Commissions expense as a percentage of investment revenue was 77 percent for all years
presented.
The operating loss for 2007 was $920.1 million, reflecting the net securities losses of $955.6 million resulting
from other-than-temporary impairment charges recognized on the investment portfolio and a goodwill
impairment charge of $6.4 million relating to one component of the Payment Systems segment. After
considering the net securities losses and goodwill impairment charge, the operating margin for 2007 declined
70 basis points from 2006 due primarily to the run-off of interest rate swaps. The operating margin in 2006
decreased to 12.3 percent (16.7 percent on a taxable equivalent basis) as compared to 2005 operating margin
of 13.2 percent (18.0 percent on a taxable equivalent basis), primarily due to lower average investable
balances and a $0.9 million charge for the discontinuance of a development project. The cash flows from
previously impaired securities, income from limited partnership interests and termination fee contributed a
combined 2.6 percentage points and 4.9 percentage points, respectively, to the operating margin in each of
2006 and 2005.
In late 2007, MoneyGram conducted a comprehensive review of the Payment Systems segment. As a result of
this review, the Company has begun to restructure its official check business model by changing its
commission structure and exiting certain large customer relationships. This restructuring will enable the
Company to continue providing these essential services by focusing on small- to mid-sized institutions. The
Company expects to exit contracts with most of its top ten official check customers, who together account for
approximately $2 billion of the Company’s official check payment obligations, thereby significantly reducing
our official check business. Also impacting the Payment Systems segment is the process commenced in
January 2008 to realign our investment portfolio away from asset-backed securities into highly liquid assets.
We anticipate that the realigned portfolio will be comprised primarily of cash equivalents, government and
government agency securities. As a result, we anticipate that our profit margins in the official check business
will be adversely affected by the lower yields in our realigned portfolio. While we expect our commission
re-pricing initiatives under the official check restructuring to fully offset the impact of the lower yields from
the realigned portfolio, we will not know the final results of the re-pricing initiatives for some time.
LIQUIDITY AND CAPITAL RESOURCES
One of our primary financial goals is to maintain adequate liquidity to manage the fluctuations in the balances
of payment service assets and obligations resulting from sales of official checks, money orders and other
payment instruments, the timing of the collections of receivables and the timing of the presentment of such
instruments for payment. In addition, we strive to maintain adequate liquidity for capital expenditures and
other normal operating cash needs. Another primary financial goal is to maintain adequate capital to ensure
the on-going compliance with regulatory and contractual requirements through the fluctuations in the
balances of our payment service assets and obligations, particularly investments.
40
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
We have various resources available to us for purposes of managing liquidity and capital needs, including our
cash, cash equivalents, investments, credit facilities, reverse repurchase agreements and letters of credit. For
purposes of this discussion, we use the term “investments” to refer to our long-term investment portfolio,
while the term “cash equivalents” refers to our short-term investment portfolio. Short-term investments are
included in “Cash and cash equivalents” in the Consolidated Balance Sheets and are used in managing our
daily operating liquidity needs. Long-term investments are classified as trading or available-for-sale as
explained in Note 1 — Description of the Business of the Notes to Consolidated Financial Statements and are
used in managing our capital needs.
Liquidity
We utilize our cash, cash equivalents and reverse repurchase agreements as the main tools to manage our
daily operating liquidity needs. Our operating liquidity needs relate to the monies required to settle our
payment instruments on a daily basis and fund the routine operating activities of the business. On a daily
basis, we move on average over $1.0 billion to settle our payment instruments and make related settlements
with our agents and financial institutions. We receive a similar amount on a daily basis from our agents and
financial institutions for the face amount and related fees of our payment instruments sold. We have
agreements with 13 clearing banks that provide clearing and processing functions for official checks, money
orders and share drafts. For the clearing of money orders, we rely primarily on one clearing bank. In addition,
we maintain contractual relationships with a variety of domestic and international cash management banks for
ACH and wire transfer services to move customer funds and make agent payments. The relationships with
these clearing banks and cash management banks are a critical component of the Company’s ability to move
monies on a global and timely basis.
We rely on the funds from on-going sales of payment instruments and portfolio cash flows to settle our
payment service obligations (“PSO”) as they are presented. Our daily net cash settlements tend to follow a
pattern whereby certain days of the week are typically net cash inflow days, while other days are typically net
cash outflow days. On the days with a net cash outflow, we have historically utilized our cash equivalents, as
well as repurchase agreements, to fund the shortfall. On the next cash inflow day, excess cash is used to repay
any amounts outstanding under the repurchase agreements, with the remaining excess cash reinvested in cash
equivalents. The repurchase agreements are uncommitted facilities with various banks and require specific
securities to be designated as collateral for borrowings under the agreements. The acceptance of securities as
collateral is at the discretion of our counterparty. Beginning in the third quarter of 2007, we began investing
more heavily in cash equivalents to enhance our liquidity. This shift was accomplished by reinvesting
proceeds from normal maturities of our long-term investments into cash equivalents. As a result of this
enhanced liquidity, we have reduced our use of repurchase agreements. At December 31, 2007, we had no
amounts outstanding under repurchase agreements.
For certain of our financial institution customers, we established individual SPEs upon the origination of our
relationship. Along with operational processes and certain financial covenants, these SPEs provide the
financial institutions with additional assurance of our ability to clear their official checks. Under these
relationships, the cash, cash equivalents, investments and PSO related to the financial institution customer are
all held by the SPE. In most cases, the fair value of the cash, cash equivalents and investments must be
maintained in excess of the PSO. As the financial institution customer sells our payment service instruments,
the face amount of the instrument and any fees are paid into the SPE. As payment service instruments issued
by the financial institution customer are presented for payment, the cash and cash equivalents within the SPE
are used to settle the instrument. As a result, cash and cash equivalents within SPEs are generally not
available for use outside of the SPE. We remain liable to satisfy the obligations, both contractually and under
the Uniform Commercial Code, as the issuer and drawer of the official checks regardless of the existence of
the SPEs. Accordingly, we consolidate all of the assets and liabilities of these SPEs in our Consolidated
Balance Sheets, with the individual assets and liabilities of the SPEs classified in a manner similar to our
other assets and liabilities. For further information relating to the SPEs, see Note 2 — Summary of Significant
Accounting Policies of the Notes to Consolidated Financial Statements.
Contractual and Regulatory Capital
We use investments and credit facilities to manage our capital needs deriving from contractual and regulatory
requirements. Due to the continuous nature of the sales and settlement of our payment instruments as
described above, we are able to invest in securities with a longer term than the average life of our payment
instruments to
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Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
provide for long-term capital needs. We strive to have cash, cash equivalents, receivables and investments in
excess of our PSO in an amount which allows us to maintain compliance with all contractual and regulatory
requirements during normal fluctuations in the value of our assets and liabilities. We refer to this excess as
our unrestricted assets. Assets restricted for regulatory or contractual reasons are not available to satisfy
working capital or other financing requirements.
In connection with our senior credit facility, one clearing bank contract and the SPEs, we have certain
financial covenants that require us to maintain pre-defined ratios of certain assets to PSO as presented in the
Consolidated Balance Sheets. As more fully described in Note 9 — Debt of the Notes to Consolidated
Financial Statements, the financial covenants under our credit facilities relate to the maintenance of
pre-defined ratios of interest coverage, leverage and consolidated total indebtedness (collectively, the “Debt
Covenants”). One clearing bank contract has financial covenants that include the maintenance of total cash,
cash equivalents, receivables and investments in an amount at least equal to total outstanding PSO (the “Total
Company Ratio”), 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 (the “Clearing Bank Ratio”). 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 outstanding payment instruments issued by the related
financial institution. In addition, under limited circumstances, these financial institution customers with SPEs
have the right to either demand liquidation of the assets in the SPEs or to replace us as the administrator of the
SPE. Such limited circumstances consist of material, and in most cases continued, failure to uphold our
warranties and obligations pursuant to the underlying agreements with the financial institutions.
In addition, we are regulated by various state agencies which generally require us to maintain a pool of liquid
assets and investments with a rating of A or higher in an amount generally equal to the regulatory PSO
measure, as defined by the state, for our regulated payment instruments, namely teller checks, agent checks,
money orders and money transfers. The regulatory requirements are similar to, but less restrictive than, our
unrestricted assets measure. The regulatory PSO measure varies by state, but in all cases is substantially lower
than our PSO as disclosed in the Consolidated Balance Sheets as we are not regulated by state agencies for
PSO resulting from outstanding cashier’s checks or for amounts payable to agents and brokers. All states also
require MPSI, the licensed entity and our wholly-owned operating subsidiary, to maintain positive net worth,
with one state also requiring MPSI to maintain positive tangible net worth.
The regulatory and contractual requirements do not require us to specify individual assets held to meet our
PSOs, nor are we required to deposit specific assets into a trust, escrow or other special account. Rather, we
must maintain a pool of liquid assets. No third party places limitations, legal or otherwise, on us regarding the
use of our individual liquid assets. We are able to withdraw, deposit or sell our individual liquid assets at will,
with no prior notice or penalty, provided we maintain a total pool of liquid assets sufficient to meet the
regulatory and contractual requirements.
The Total Company Ratio is the most restrictive of our financial covenants under all contractual and
regulatory requirements. We monitor compliance with the Total Company Ratio by monitoring the amount of
our unrestricted assets.
Impact of the Credit Market Disruption
During September 2007, the asset-backed securities market and broader credit markets began to experience
significant disruption, with a general lack of liquidity in the markets and deterioration in fair value of
mortgage-backed securities triggered by concerns surrounding sub-prime mortgages. In response to these
concerns, the rating agencies undertook extensive reviews of asset-backed securities, particularly
mortgage-backed securities. As a result of these developments, we experienced a net decline of
$230.5 million in the fair value of its investment portfolio from June 30, 2007 through September 30, 2007.
As we monitored the deterioration in the market in September 2007, we decided to draw the $197.0 million
available balance of our revolving credit facility to supplement our unrestricted assets to ensure that a
sufficient cushion over the Total Company Ratio was maintained if there was any further market
deterioration. As of October 30, 2007, we maintained compliance with all contractual and regulatory
requirements, even without considering the proceeds of the $197.0 million draw on the revolver. In addition,
preliminary valuations of the investment portfolio as of October 31, 2007 showed a
42
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
substantially lower rate of decline in fair value. We continued to closely monitor the performance of our
investments, market developments and the impact of rating agency actions on our portfolio. With few
exceptions, our investments continued to provide for all contractual cash flows and evidenced little, if any,
actual losses from defaults through early November 2007. As a result, through early November 2007, we
believed we had sufficient unrestricted assets to maintain compliance with all of our contractual and
regulatory requirements through any further market deterioration. As the unrealized losses on the investment
portfolio had no immediate impact on our cash flows, there was no disruption to our operating liquidity.
In late November and December 2007, the asset-backed securities and credit markets experienced further
substantial deterioration under increasing concerns over defaults on mortgages and debt in general, as well as
an increasingly negative view of all structured investments and the credit market in general. This deterioration
caused the market to demand higher risk premiums and liquidity discounts on asset-backed securities, as well
as assume higher rates of defaults than previously anticipated through October 2007. As a result of these
market developments, the fair value for asset-backed securities as of November 30, 2007 substantially
declined by an additional $571.2 million from September 30, 2007. In addition, the rating agencies continued
their review of securities, issuing broad rating downgrades based on high levels of assumed future defaults.
Under the terms of certain of our asset-backed securities, ratings downgrades of collateral securities can
reduce the cash flows to all but the most senior investors even if there have been no actual losses incurred by
the collateral securities. In December 2007, we began to experience adverse changes to the cash flows from
some of our asset-backed investments as a result of the accumulating rating downgrades of the underlying
collateral securities.
As the market continued its substantial deterioration in December 2007, we identified a need for additional
capital as we anticipated that we would not be in compliance with our Total Company Ratio and our Debt
Covenants as of December 31, 2007. Through meetings with potential investors in late December 2007 and
early January 2008, it became evident that we would need to divest certain investments in connection with
any recapitalization to substantially reduce the risk of any further deterioration in the investment portfolio.
We commenced a plan in January 2008 to realign our investment portfolio away from asset-backed securities
and into highly liquid assets through the sale of a substantial portion of the investment portfolio. Based on
these developments, we determined that we no longer had the intent to “hold until maturity or call”
substantially all of our investments classified as “Obligations of states and political subdivisions,”
“Commercial mortgage-backed securities,” “Residential mortgage-backed securities,” “Other asset-backed
securities,” “Corporate debt securities” and “Preferred and common stock.”
As a result of these developments, we recognized $1.2 billion of other-than-temporary impairments in
December 2007, causing a shortfall in unrestricted assets. Following are the unrestricted assets as of:
Table 8 — Unrestricted Assets
(Amounts in thousands)
2007
December 31,
September 30,
2007
June 30,
2007
March 31,
December 31,
2007
2006
Cash and cash
equivalents
(substantially
restricted)
Receivables, net
(substantially
restricted)
Trading investments
(substantially
restricted)
Available for sale
investments
(substantially
restricted)
Amounts restricted
to cover payment
service
obligations
(Shortfall) excess of
unrestricted
assets
$
1,552,949 $
1,152,993 $
987,918 $
1,274,768 $
973,931
1,408,220
1,717,464
1,775,431
1,599,654
1,758,682
62,105
62,300
121,200
107,000
145,500
4,187,384
7,210,658
5,260,296
8,193,053
5,624,054
8,508,603
5,490,141
8,471,563
5,690,600
8,568,713
(7,762,470)
(7,907,393)
(8,211,535)
(8,129,757)
(8,209,789)
$
(551,812) $
285,660 $
297,068 $
341,806 $
358,924
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
43
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Impact on Contractual and Regulatory Capital — The shortfall in unrestricted assets of $551.8 million was
the direct result of the market developments in late November and December 2007, causing us to be out of
compliance with the Total Company Ratio. As of December 31, 2007, our regulated subsidiary MPSI was in
compliance with state regulatory requirements, with the exception of one state where MPSI was out of
compliance with the tangible net worth requirement. Subsequent to December 31, 2007, we were out of
compliance with certain other state regulatory requirements, including minimum net worth requirements. We
have not received notice of any enforcement actions contemplated by the regulators, but the regulators reserve
the right to take action in the future and could impose fines and penalties related to the compliance failure.
With the completion of the Capital Transaction, as of March 25, 2008, we are in compliance with all
regulatory requirements for all states.
We received waivers of default through May 1, 2008 from both the clearing bank and credit agreement
lenders through amendments to their respective agreements. These waivers were superceded by amendments
to these agreements made in conjunction with the Capital Transaction.
Impact on Liquidity — The declines in the investment portfolio through December 31, 2007 created a need
for regulatory and contractual capital, but did not immediately impact our liquidity. Although we had a
shortfall in our unrestricted assets, daily operating and short-term liquidity needs were not affected due to the
nature of our business whereby daily remittances to us are used to pay the daily clearings of our instruments.
In addition, approximately $800.0 million of our PSO at December 31, 2007 are greater than one year old. We
have continued to meet our daily operating and short-term liquidity needs and believe that we will continue to
do so with the completion of the Capital Transaction.
We have agreed with certain of our clearing banks to make funding changes, including providing additional
intra-day funding, due to concerns over the impact of the market disruption on the Company. Additionally,
we have revised the funding arrangements with a few agents, including changes to their remittance patterns,
pre-funding by the Company and, in one case, creating a trust for the benefit of the agent’s consumers. These
changes have altered our total liquidity needs and changed the timing of cash inflows and outflows. While we
believe the Capital Transaction will restore more ordinary funding protocols with the clearing banks, it is
possible that clearing banks will require advance funding or other security, or even terminate their
relationships with us. We believe the requests for amendments to agent agreements will decrease as a result of
the Capital Transaction.
Downgrade of Debt Rating — In January 2008, Moody’s Investor Service (“Moody’s”), Standard & Poors
(“S&P”) and Fitch Ratings (“Fitch”) downgraded our senior unsecured debt rating to non-investment grade at
Ba1, BB and BB-, respectively. In March 2008, S&P downgraded our senior unsecured debt rating to B+.
Moody’s, S&P and Fitch have also placed us on watch for potential additional downgrades. The three major
credit rating agencies have cited, among other factors, the reduction in our unrestricted assets caused by our
net unrealized losses and other-than-temporary impairments as the rationale for these downgrades, despite the
growth and profitability of our core money transfer business. A securities rating is not a recommendation to
buy, sell or hold securities and is subject to revision at any time and each rating should be evaluated
independently of any other rating. It is possible that one or more rating agencies will in the future downgrade
our debt rating further, and that further downgrades could increase our cost of borrowing. It is important to
note that state and federal regulatory authorities do not consider such ratings as criteria in determining
licensing or regulatory compliance. Accordingly any change in debt ratings is not expected to directly affect
our regulatory status as a money services business. The financial impact of any downgrade in our debt ratings
will depend on the actual ratings, whether the ratings are split between investment and non-investment grade
and which agency takes this action. It is also possible that ratings downgrades could affect our ability to
attract and retain customers.
Sale of Investments and Capital Transaction
Subsequent to December 31, 2007, we sold substantially all of our investment portfolio for a realized loss of
$260.6 million. This realized loss is incremental to the $1.2 billion other-than-temporary impairment charge
we recognized in December 2007. On March 25, 2008, we completed the Capital Transaction, pursuant to
which we received an infusion of $1.5 billion of both equity and debt capital to support the long-term needs of
the business and provide necessary capital due to the investment portfolio losses. The terms of the Capital
Transaction are set forth
44
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
below. The net proceeds of the Capital Transaction were used to invest in cash equivalents to supplement our
unrestricted assets and to repay $100.0 million on our revolving credit facility.
With the Capital Transaction and sale of investments, we believe we have sufficient liquidity and capital to
operate and grow our business for the next twelve months and the foreseeable future. We expect operating
cash flows to be sufficient to finance our on-going business, pay interest expense on our outstanding debt,
maintain adequate capital levels and meet debt and clearing agreement covenants. Should liquidity and capital
needs exceed operating cash flows, we believe our external financing sources, including availability under the
new senior credit facility, will be sufficient to meet any shortfalls.
Had the Capital Transaction and sale of investments occurred on December 31, 2007, the pro forma
unrestricted assets would be as follows:
(Amounts in thousands)
Cash and cash equivalents
Receivables, net
Trading investments
Available-for-sale investments
Amounts restricted to cover
payment service obligations
Unrestricted assets
As Reported
December 31,
2007
Sales of
Investments (1)
Capital
Transactions (2)
Pro Forma
December 31,
2007
$
1,552,949 $
1,408,220
62,105
4,187,384
7,210,658
2,909,268 $
—
—
(3,248,503)
(339,235)
1,286,315 $
—
—
—
1,286,315
5,748,532
1,408,220
62,105
938,881
8,157,738
(7,762,470)
(551,812) $
$
—
(339,235) $
—
1,286,315 $
(7,762,470)
395,268
(1) The reduction to the “Available-for-sale investments” is determined using the fair value of the sold
investments as of December 31, 2007. The increase in “Cash and cash equivalents” is determined using
the actual cash proceeds from these sales, which were invested in cash and cash equivalents.
(2) Amounts for the Capital Transactions are determined based on the actual proceeds received, net of
related transaction costs of $107.4 million, the $100.0 million payment on the revolving credit facility
and a $16.3 million discount on the debt issued by the Company.
Equity Capital — The equity component of the Capital Transaction consisted of the private placement of
760,000 shares, in aggregate, of Series B Participating Convertible Preferred Stock of the Company (the
“Series B Preferred Stock”) and shares of non-voting Series B-1 Participating Convertible Preferred Stock of
the Company (the “Series B-1 Preferred Stock”) (collectively, the “Series B Stock”) to affiliates of Thomas
H. Lee Partners, L.P. (“THL”) and affiliates of Goldman, Sachs & Co. (“Goldman Sachs”) (collectively, the
“Investors”) for an aggregate purchase price of $760.0 million. After the issuance of the Series B Stock, the
Investors have an initial equity interest of approximately 79 percent. The Series B Preferred Stock was issued
to THL and the Series B-1 Preferred Stock was issued to Goldman Sachs. Furthermore, in connection with the
Capital Transaction, the Company paid Goldman Sachs an investment banking advisory fee equal to
$7.5 million in the form of 7,500 shares of Series B-1 Preferred Stock.
The Series B Stock pays a cash dividend of ten percent. At our option, we may accrue dividends at a rate of
12.5 percent in lieu of paying a cash dividend. Dividends may be accrued for up to five years from the date of
the Capital Transaction. After five years, if we are unable to pay the dividends in cash, dividends will accrue
at a rate of 15 percent. At this time, the Company expects that dividends will be accrued and not paid in cash
for at least five years. The Series B Stock participates in dividends with the common stock on an as-converted
basis.
The Series B Preferred Stock is convertible into shares of common stock of the Company at a price of $2.50
per share, subject to adjustment. The Series B-1 Preferred Stock is convertible into Series B Preferred Stock
by any stockholder other than Goldman Sachs. While held by Goldman Sachs, the Series B-1 Preferred Stock
is convertible into Series D Preferred Stock, which is a non-voting common equivalent stock.
The Series B Stock may be redeemed at the option of the Company if, after five years from the date of the
Capital Transaction, the common stock trades above $15.00, subject to adjustment, for a period of thirty
consecutive trading days. The Series B Stock will be redeemable at the option of the Investors after ten years
and upon a change in
45
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
control. The Series B Preferred Stock will vote as a class with the common stock and will have a number of
votes equal to the number of shares of common stock issuable if all outstanding shares of Series B Preferred
Stock were converted plus the number of shares of common stock issuable if all outstanding shares of
Series B-1 Preferred Stock were converted into Series B Preferred Stock and subsequently converted into
common stock.
Rights Agreements — As part of the Capital Transaction, we amended our Rights Agreement with Wells
Fargo Bank, N.A. as rights agent, to exempt the issuance of securities to the Investors and their affiliates from
the Rights Agreement.
Registration Rights — As part of the Capital Transaction, we entered into a Registration Rights Agreement
with the Investors. Under the terms of the Registration Rights Agreement, after a specified holding period, we
must promptly file a shelf registration statement with the SEC relating to securities held by the Investors. We
are generally obligated to keep the shelf registration statement effective for up to 15 years or, if earlier, until
all the securities owned by the Investors have been sold. The Investors are also entitled to five demand
registrations and unlimited piggyback registrations.
Senior Credit Facility — As part of the Capital Transaction, our wholly owned subsidiary MoneyGram
Payment Systems Worldwide, Inc. (“Worldwide”) entered into a senior credit facility (the “Senior Facility”)
of $600.0 million with various lenders and JPMorgan Chase Bank, N.A (“JPMorgan”), as Administrative
Agent for the lenders. The Senior Facility amended and restated the $350.0 million Amended and Restated
Credit Agreement, dated as of June 29, 2005, among the Company and a group of lenders and includes an
additional $250.0 million term loan. In connection with this transaction, the Company terminated its
$150.0 million 364-Day Credit Agreement with JPMorgan.
The Senior Facility includes $350.0 million in two term loan tranches and a $250.0 million revolving credit
facility. Tranche A of the term loans is for $100.0 million and tranche B is for $250.0 million. Tranche B was
issued at a discount of 93.5 percent, or $16.3 million. The interest rate applicable to tranche A and the
revolving credit facility is the Eurodollar rate plus 350 basis points. The interest rate applicable to tranche B is
the Eurodollar rate plus 500 basis points. The maturity date of the Senior Facility is March 2013. Fees on the
daily unused availability under the revolving credit facility are 50 basis points.
At March 25, 2008, we had outstanding borrowings under the Senior Facility of $495.0 million.
There is a prepayment premium on the tranche B term loan of two percent during the first year and one
percent during the second year of the Senior Facility. Loans under the Senior Facility are secured by
substantially all our non-financial assets and are guaranteed by our material domestic subsidiaries, with such
guarantees secured by the non-financial assets of the subsidiaries. Borrowings under the Senior Facility are
subject to various covenants, including limitations on: use of proceeds from borrowings under the Senior
Facility; additional indebtedness; mergers and consolidations; sales of assets; dividends and other restricted
payments; investments; loans and advances and transactions with affiliates. The Senior Facility also has
certain financial covenants, including an interest coverage ratio and a senior secured debt ratio. Compliance
with such financial covenants will not be required until the fiscal quarter ending March 31, 2009. Under the
Senior Facility, we 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. We are not permitted to have a senior secured debt ratio in excess of
6.5:1 from March 31, 2009 through September 30, 2009, 6:1 from December 31, 2009 through September 30,
2010, 5.5:1 from December 31, 2010 through September 30, 2011, 5:1 from December 31, 2011 through
September 30, 2012 and 4.5:1 from December 31, 2012 through maturity. The Senior Facility also contains a
financial covenant requiring us to maintain at least a 1:1 ratio of certain assets to outstanding payment service
obligations.
Second Lien Notes — As part of the Capital Transaction, Worldwide issued Goldman Sachs $500.0 million of
senior secured second lien notes (the “Notes”), which will mature in March 2018. The interest rate on the
Notes is 13.25 percent per year unless interest is capitalized, in which case the interest rate increases to
15.25 percent. Prior to March 25, 2011, we have the option to capitalize interest of 14.75 percent, but must
pay in cash 0.50 percent of the interest payable.
46
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
The Notes contain covenants that, among other things, limit our ability to: incur or guarantee additional
indebtedness; pay dividends or make other restricted payments; make certain investments; create or incur
certain liens; sell assets or subsidiary stock; transfer all or substantially all of their assets or enter into merger
or consolidation transactions and enter into transactions with affiliates. The covenants also substantially
restrict our ability to incur additional debt, create or incur liens and invest assets that are subject to restrictions
for the payment of payment service obligations. We are also required to maintain at least a 1:1 ratio of certain
assets to outstanding payment service obligations.
We can redeem the Notes after five years at specified premiums. Prior to the fifth anniversary, we may
redeem some or all of the Notes at a price equal to 100 percent of the principal amount thereof, plus accrued
and unpaid interest, if any, plus a premium equal to the greater of one percent or an amount calculated by
discounting the sum of (a) the redemption payment that would be due upon the fifth anniversary plus (b) all
required interest payments due through such fifth anniversary using the treasury rate plus 50 basis points.
Upon a change of control, we are required to make an offer to repurchase the Notes at a price equal to
101 percent of the principal amount plus accrued and unpaid interest. We are also required to make an offer to
repurchase the Notes with proceeds of certain asset sales that have not been reinvested in accordance with the
terms of the Note or have not been used to repay certain debt.
Inter-creditor Agreement — In connection with the financing arrangements, the lenders under both the Senior
Facility and the Notes have agreed to be bound by the terms of an inter-creditor agreement under which the
lenders have agreed to waive certain rights and limit the exercise of certain remedies available to them for a
limited period of time both before and following a default under the financing arrangements.
Restructuring of the Official Check Business
In December 2007, the Company completed its review of our Payment Systems segment. As a result of this
review, the Company has begun to restructure our official check business model by changing our commission
structure and exiting certain large customer relationships. This restructuring will enable the Company to
continue providing these essential services by focusing on small- to mid-sized institutions. The Company
expects to exit contracts with most of its top ten official check customers, who together account for
approximately $2 billion of the Company’s official check payment obligations. Included in the top ten official
check customers are the financial institutions for which the Company maintains SPEs. With the sale of
investments and the Capital Transaction, we believe that we have sufficient liquidity to manage the exiting of
these customers without disruption to daily operating liquidity needs.
Other Funding Sources and Requirements
At December 31, 2007, we had uncommitted repurchase agreements, letters of credit and various overdraft
facilities totaling $2.3 billion available to assist in the management of our investments and the clearing of
PSO. There was $14.8 million outstanding under various letters of credit at December 31, 2007.
Contractual Obligations — The following table includes aggregated information about the Company’s
contractual obligations that impact its liquidity and capital needs. The table includes information about
payments due under specified contractual obligations, aggregated by type of contractual obligation.
Table 9 — Contractual Obligations
(Amounts in thousands)
Total
Payments due by period
Less than
1 year
1-3 years
4-5 years
More than
5 years
Debt, including interest
payments
Operating leases
Derivative financial
instruments
Other obligations
Total contractual cash
obligations
$ 417,920 $
52,492
29,372 $
10,453
388,548 $
17,986
— $
12,758
—
11,295
(28,724)
3,928
(5,507)
3,928
(20,539)
—
(2,678)
—
—
—
$ 445,616 $
38,246 $
385,995 $
10,080 $ 11,295
47
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Debt consists of amounts outstanding under the term loan and revolving credit facility at December 31, 2007,
as described in Note 9 — Debt of the Notes to Consolidated Financial Statements, as well as related interest
payments, facility fees and annual commitment fees. As described above, the interest rate on our outstanding
debt is based on a floating interest rate indexed to LIBOR. For disclosure purposes, the interest rate for future
periods has been assumed to be 7.58 to 7.66 percent, which are the rates in effect on December 31, 2007.
Included in our Consolidated Balance Sheet at December 31, 2007 is $345.0 million of debt and $0.3 million
of accrued interest, which represents amounts owed as of December 31, 2007. The above table reflects the
principal and interest that will be paid through the maturity of the debt using the rates in effect on
December 31, 2007. Operating leases consist of various leases for buildings and equipment used in our
business. Derivative financial instruments represent the net payable (receivable) under our interest rate swap
agreements. Other obligations are unfunded capital commitments related to our limited partnership interests
included in our investment portfolio and a $2.3 million indemnity holdback related to the acquisition of
Money Express payable on the second anniversary of the acquisition.
In connection with the acquisition of PropertyBridge, we have an obligation for a potential earn-out payment
of up to $10.0 million contingent on PropertyBridge’s performance during 2008. This earn-out payment,
which is payable in 2009, is not included in the above table as the amount is unknown at this time. We
anticipate that the ultimate earn-out payment will be less than $10.0 million.
We have funded, noncontributory pension plans. Our funding policy is to contribute at least the minimum
contribution required by applicable regulations. We did not make a contribution to the funded pension plans
during 2007. There are no required contributions for the funded pension plan in 2008; however, we may
choose to make contributions. We also have certain pension and postretirement plans that require benefit
payments over extended periods of time. During 2007, we paid benefits totaling $3.8 million related to these
unfunded plans. Benefit payments under these unfunded plans are expected to be $4.3 million in 2008.
Expected contributions and benefit payments under these plans are not included in the table above. See
“Critical Accounting Policies — Pension obligations” for further discussion of these plans. In August 2006,
Congress approved the Pension Protection Act of 2006, which requires new funding rules for defined benefit
plans. We have reviewed the funding requirements under this Act and do not anticipate a significant impact
on our future contribution requirements.
As of December 31, 2007, the liability for unrecognized tax benefits is $33.7 million. This amount is not
reflected in the table above. As there is a high degree of uncertainty regarding the timing of potential future
cash outflows associated with liabilities relating to Financial Accounting Standards Board (“FASB”)
Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes, we are unable to make a
reasonably reliable estimate of the amount and period in which these liabilities might be paid.
In limited circumstances, we may grant minimum commission guarantees as an incentive to new or renewing
agents, for a specified period of time at a contractually specified amount. Under the guarantees, we will pay to
the agent the difference between the contractually specified minimum commission and the actual
commissions earned by the agent. As of December 31, 2007, the minimum commission guarantees had a
maximum payment of $22.9 million over a weighted average remaining term of 2.3 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. As of December 31, 2007, the liability for minimum commission guarantees is $4.4 million.
Minimum commission guarantees are not reflected in the table above.
Included in the Consolidated Balance Sheets under “Accounts payable and other liabilities” and “Property and
equipment” is $0.7 million of property and equipment received by the Company, but not paid as of
December 31, 2007. These amounts were paid in January and February 2008 and are not reflected in the
above table.
48
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Analysis of Cash Flows
Table 10 — Cash Flows Provided By or Used In Operating Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net (loss) income
Total adjustments to reconcile net income
2007
2006
2005
$ (1,071,997) $
1,301,410
124,054 $
42,485
112,946
68,278
Net cash provided by continuing operating activities
before changes in payment service assets and
obligations
Change in cash and cash equivalents (substantially
restricted)
Change in trading investments, net (substantially
restricted)
Change in receivables, net (substantially restricted)
Change in payment service obligations
Net change in payment service assets and obligations
Net cash (used in) provided by continuing operating
229,413
166,539
181,224
(563,779)
(261,725)
(84,817)
83,200
342,681
(447,319)
(585,217)
22,200
(335,509)
38,489
(536,545)
153,100
(666,282)
518,728
(79,271)
activities
$
(355,804) $ (370,006) $
101,953
Table 10 summarizes the net cash flows (used in) provided by operating activities. Operating activities used
net cash of $355.8 million in 2007, a decrease in cash used of $14.2 million from $370.0 million in 2006. The
change in cash used in 2007 is primarily due to $49.3 million of additional operating cash provided from
normal operating activities impacting other assets, accounts payable and other liabilities. The change also
reflects growth in fee and other revenue exceeding the growth in non-cash expenses for the year. These
increases were partially offset by a $48.7 million decrease in the operating cash provided by our payment
service assets and obligations due to normal activities and timing differences. The change from cash provided
by operating activities of $102.0 million in 2005 to cash used by operating activities of $370.0 million in
2006 is primarily due to an increase in cash used for normal operating activities impacting our payment
service assets and obligations and a decrease in cash provided by additional working capital provided from
normal operating activities.
To understand the cash flow activity of our business, the cash provided by (used in) operating activities
relating to the payment service assets and obligations should be reviewed in conjunction with the cash
provided by (used in) investing activities related to our investment portfolio.
Table 11 — Cash Flows Provided By or Used In Investing Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net investment activity
Purchases of property and equipment
Cash paid for acquisitions
Other
Net cash provided by (used in) investing activities
2007
2006
2005
$ 318,716 $ 516,008 $
(6,099)
(47,359)
(8,535)
(700)
$ 219,047 $ 427,664 $ (62,693)
(70,457)
(29,212)
—
(81,033)
(7,311)
—
Table 11 summarizes the net cash provided by (used in) investing activities. Investing activities primarily
consist of activity within our investment portfolio. The decrease in net investment activity of $197.3 million
from 2006 to 2007 reflects lower levels of investment sales during 2007.
In 2006, we sold securities with a fair value of $259.7 million to one party (the “acquiring party”). No
restrictions or constraints as to the future use of the securities were placed upon the acquiring party by us, nor
were we obligated under any scenario to repurchase securities from the acquiring party. The acquiring party
sold securities totaling $646.8 million of a qualifying special purpose entity (“QSPE”), including substantially
all of the securities originally purchased from us. We acquired the preferred shares of the QSPE and accounts
for this investment at fair value as an available-for-sale investment in accordance with Statement of Financial
Accounting Standards
49
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
(“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities. At December 31, 2006,
the fair value of the preferred shares was $7.8 million. In addition, one of our subsidiaries serves as the
collateral advisor to the QSPE, receiving certain fees and rights standard to a collateral advisor role. Activities
performed by the collateral advisor are significantly limited and are entirely defined by the legal documents
establishing the QSPE. For performing these activities, the collateral advisor receives a quarterly fee equal to
ten basis points on the fair value of the collateral. The collateral advisor also received and recognized a
one-time fee of $0.4 million in 2006 for the placement of the preferred shares of the QSPE.
Other investing activity consisted of the use of cash of $70.5 million, $81.0 million and $47.4 million for
2007, 2006 and 2005, respectively, for the purchase of property and equipment and development of software
related to our continued investment in the money transfer platform and compliance activities. Additionally,
we acquired a 50 percent interest in a corporate aircraft in 2005 and the remaining 50 percent interest in 2006.
In 2007, we acquired PropertyBridge for $28.1 million. Also in 2007, we paid the remaining $1.1 million of
purchase price for ACH Commerce, which was to be paid upon the second anniversary of the acquisition
under the terms of the acquisition agreement. In 2006, we acquired Money Express, our former super agent in
Italy and also received a payment from a previous owner of Money Express. In 2005, we acquired ACH
Commerce.
Table 12 — Cash Flows Provided By or Used in Financing Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net debt activity
Proceeds and tax benefit from exercise of stock options
Purchase of treasury stock
Cash dividends paid
Net cash provided by (used in) financing activities
2007
2006
2005
— $
$ 195,000 $
—
16,798
(50,000)
(6,058)
$ 140,057 $ (57,658) $ (39,260)
7,674
(45,992)
(16,625)
24,643
(67,856)
(14,445)
Table 12 summarizes the net cash flows used in financing activities. In 2007, we borrowed $195.0 million
under our revolving credit facility. Other sources of cash relate primarily to the exercise of share-based
compensation, which provided $6.6 million, $21.9 million and $15.0 million for 2007, 2006 and 2005,
respectively. The exercise of share-based compensation generated tax benefits of $1.1 million, $2.7 million
and $1.8 million in 2007, 2006 and 2005, respectively. Cash used by financing activities related primarily to
our purchase of $46.0 million, $67.9 million and $50.0 million of treasury stock during 2007, 2006 and 2005,
respectively. In addition, we paid $16.6 million, $14.4 million and $6.1 million in dividends during 2007,
2006 and 2005, respectively.
Stockholders’ Equity
On May 9, 2007, our Board of Directors approved an increase of our current authorization to purchase shares
of common stock by an additional 5,000,000 shares to a total of 12,000,000 shares. In 2007, we repurchased
1,620,000 shares of our common stock under this authorization at an average cost of $28.39 per share. As of
December 31, 2007, we have repurchased a total of 6,795,000 shares of our common stock under this
authorization and have remaining authorization to purchase up to 5,205,000 shares. We suspended the
buyback program in the fourth quarter of 2007.
On August 17, 2006, our Board of Directors approved a small stockholder selling/repurchasing program. This
program enabled MoneyGram stockholders with less than 100 shares of common stock as of August 21, 2006,
to voluntarily purchase additional stock to reach 100 shares or sell all of their shares back to us. We purchased
a total of 66,191 shares related to this program, which ended as of December 31, 2006.
During 2007, we paid $16.6 million in dividends on our common stock. Under the terms of the equity
instruments and debt issued in connection with the Capital Transaction, we are severely limited in our ability
to pay dividends on our common stock. We do not anticipate declaring any dividends on our common stock
during 2008.
50
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Off-Balance Sheet Arrangements
The Finance and Investment Committee of the Board of Directors generally approves any transactions and
strategies, including any potential off-balance sheet arrangements, which materially affect investment results
and cash flows.
Sale of Receivables — Through December 31, 2007, we had an agreement to sell, on an offering basis,
undivided percentage ownership interests in certain receivables, primarily from our money order agents, in an
amount not to exceed $400.0 million. These receivables were sold to commercial paper conduits (trusts)
sponsored by a financial institution and represented a small percentage of the total assets in these conduits.
Our rights and obligations were limited to the receivables transferred, and were accounted for as sales
transactions under SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. As a result, the assets and liabilities associated with these conduits, including
our sold receivables, were not recorded or included in our financial statements. The business purpose of this
agreement was to accelerate cash flow for investment. The receivables were sold at a discount based upon
short-term interest rates. On average we sold receivables totaling $349.9 million during 2007 for a total
discount of $20.3 million. At management’s discretion in January 2008, the Company ceased selling its
receivables, paid all remaining obligations and terminated the agreement. The termination of the sale of
receivables programs is not expected to have a material impact to the Company’s Consolidated Financial
Statements or liquidity.
Special Purpose Entities — See Note 2 — Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements for a discussion of our special purpose entities.
ENTERPRISE RISK MANAGEMENT
Risk is an inherent part of our business, including interest rate risk, liquidity risk, credit risk, operational risk,
regulatory risk and foreign currency exchange risk. See Part 1, Item 1A “Risk Factors” for a description of the
principal risks to our business.
Our risk management objective is to monitor and control risk exposures to produce steady earnings growth
and long-term economic value. The extent to which we properly and effectively manage each of the various
types of risk is critical to our financial condition and profitability. Management implements policies approved
by the Company’s Board of Directors covering our funding activity, investing activity and use of derivatives.
During 2007, the Board of Directors had a Finance and Investment Committee, consisting of five independent
Board members, which oversaw its investment, capital, credit and foreign currency policies and strategies.
The Board’s Finance and Investment Committee receives periodic reports regarding the investment portfolio
and results. An Asset/Liability Committee, comprised of senior management, routinely reviews investment
and risk management strategies and results. Following is a discussion of the strategies, with forward-looking
statements, used by the Company to manage and mitigate interest rate risk, credit risk and foreign currency
risk. The analyses used to assess interest rate risk, credit risk and foreign currency risk are not predictions of
future events, and actual results may vary significantly due to events in the markets in which we operate and
certain other factors as described in the following discussions.
During September 2007, the asset-backed securities market and broader credit markets began to show
significant disruption, with a general lack of liquidity in the markets and deterioration in fair value of
mortgage-backed securities triggered by concerns surrounding sub-prime mortgages. In response to these
concerns, the rating agencies undertook extensive reviews of asset-backed securities, particularly
mortgage-backed securities. In November and December 2007, the asset-backed securities and credit markets
experienced further substantial deterioration under increasing concerns over defaults on mortgages and debt
in general, as well as an increasingly negative view of all structured investments and the credit market in
general. In addition, the rating agencies continued their review of securities, issuing broad rating downgrades
based on high levels of assumed future defaults. As the market continued its substantial deterioration, we
identified a need for additional capital. Through meetings with potential investors in late December 2007 and
early January 2008, it became evident that the Company would need to divest certain investments in
connection with any recapitalization to eliminate the risk of any further deterioration in the investment
portfolio. The Company commenced a plan in January 2008 to realign its
51
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
investment portfolio away from asset-backed securities and into highly liquid assets through the sale of a
substantial portion of the investment portfolio.
In December 2007, we completed the review of our Payment Systems segment. As a result of this review, we
have begun to restructure our official check business model by reducing the commission structure and exiting
certain large customer relationships. In addition, in December 2007, we made the decision to cease selling
receivables and subsequently terminated the sale of receivables facility in January 2008.
On March 25, 2008, we completed the Capital Transaction pursuant to which we received a substantial
infusion of both equity and debt capital to support the long term needs of the business and to provide
necessary capital due to the investment portfolio losses.
The portfolio realignment, Payment Systems strategy and the Capital Transaction have had a significant
impact on our business risks, particularly in the areas of credit and interest rate risk. The composition of our
investment portfolio changed significantly, as described in Note 18 — Subsequent Events of the Notes to
Consolidated Financial Statements. We anticipate during 2008 that more than 95 percent of our investments
will be in cash and cash equivalents or securities primarily issued or guaranteed by the U.S. government or a
government-backed agency.
Credit Risk
Credit risk represents the potential risk that we may not collect on interest or principal associated with our
investments, as well as counterparty risk associated with our derivative financial instruments. We are also
exposed to the potential risk that we may not collect on funds received by agents in connection with money
transfers and money orders, which are due to be remitted to the Company.
Investments — Our strategy has been to maximize the relative value versus return on each security, sector and
collateral class. We used a comprehensive process to manage our credit risk relating to investments, including
active credit monitoring and quantitative sector analysis. We also addressed credit risk by investing primarily
in investments with ratings of A3/A- or higher or collateralized by federal agency securities, as well as
ensuring proper diversification of the portfolio by limiting individual investments to one percent of the total
portfolio. Approximately 96 percent of our available for sale investment portfolio at December 31, 2007
consisted of securities with an A- or better rating. For each of our asset-backed securities (with the exception
of those backed by U.S. government agency securities), we perform a periodic credit risk assessment under a
systematic methodology. The methodology employs a risk driven approach, whereby securities are assigned
to risk classes based upon internally defined criteria. The risk classes drive the frequency of the review with
investments in the highest risk classes reviewed monthly.
After the realignment of the investment portfolio, we have a significant amount of cash and cash equivalents,
primarily comprised of money market funds invested in U.S. government funds. Therefore, our credit risk
primarily relates to the concentration of assets in U.S. government and government sponsored entities.
Derivative Financial Instruments — We use derivative financial instruments primarily to manage exposures
to fluctuations in interest rates and foreign currency exchange rates. If the counterparties to any of our
derivative financial instruments were to default in payments or otherwise experience credit problems, the
value of the derivative financial instruments would decline and adversely impact our earnings. We manage
credit risk related to derivative financial instruments by entering into agreements only with major financial
institutions and regularly monitoring the credit ratings of these financial institutions.
Agent receivables — Due to the nature of our business, the vast majority of the business of our Global Funds
Transfer segment is conducted through independent agents. Our agents receive the proceeds from the sale of
our payment instruments and we must then collect these funds from the agents. As a result, we have credit
exposure to our agents, which averages approximately $1.4 billion, representing a combination of money
orders, money transfers and bill payment proceeds. This credit exposure is spread across over 24,000 agents,
of which 12 owe us in excess of $15.0 million each at any one time. Agents typically have from one to three
days to remit the funds, with longer remittance schedules granted to international agents and certain domestic
agents under certain circumstances. We assess the creditworthiness of each potential agent before accepting it
into our distribution network. We
52
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
actively monitor the credit risk of our agents by conducting periodic comprehensive financial reviews and
cash flow analyses of our agents who average high volumes of money order sales. In addition, we frequently
take additional steps to minimize agent credit risk, such as requiring owner guarantees, corporate guarantees
and other forms of security where appropriate. We monitor remittance patterns versus reported sales by agent
on a daily basis. We also utilize software embedded in each point of sale terminal to control both the number
and dollar amount of money orders sold. This software also allows us to monitor for suspicious transactions
or volumes of sales, assisting in uncovering irregularities such as money laundering, fraud or agent self-use.
Finally, we have the ability to remotely disable money order dispensers or transaction devices to prevent
agents from issuing money orders or performing money transfers if suspicious activity is noted or remittances
are not received according to the agent’s contract. The point of sale software requires each location to be
re-authorized on a daily basis for transaction processing.
Interest Rate Risk
Interest rate risk represents the potential reduction in net investment revenue as a result of fluctuations in
market interest rates. Through December 31, 2007, fluctuations in interest rates affected the revenue produced
by our investment portfolio, the amount of commissions that we paid to customers in our Payment Systems
segment, the net proceeds from our sale of receivables and the amounts that we received under our interest
rate derivatives (“swaps”). As a result, our net investment revenue, which is the difference or “spread”
between the amount we earn on our investment portfolio and the commissions we pay plus the discount on
the sale of receivables, net of the effect of the swaps, was subject to interest rate risk as the components of net
investment revenue were not perfectly matched through time and across all possible interest rate scenarios.
Interest rate risk was concentrated in our investment portfolio.
Another component of interest rate risk is market risk that arises from fluctuations in interest rates that may
result in changes in the values of investments and swaps. Stockholders’ equity can be adversely affected by
changing interest rates, as after-tax changes in the fair value of securities classified as available for sale
investments and after-tax changes in the fair value of swaps are reflected as increases and decreases to a
component of stockholders’ equity.
Historically, we have used a wide range of risk measures and analyses to manage the exposure, including
on-going business risk measures and analyses, run-off measures of the existing portfolio and stress test
scenarios. The two main evaluators we used were net income at risk and duration gap. Net income at risk is
measured using a static and forecasted portfolio under various interest rate shock environments. Duration gap
is the estimated gap between our assets and liabilities and summarizes the extent that estimated cash flows are
matched over time across various interest rate environments. The third element to our strategy is setting
parameters for risk measures to help attain corporate margin objectives. Management developed actions based
upon a number of factors that include both net investment revenue at risk and duration gap, as well as current
market conditions. Internal indicators were used to determine when the risk profile of our assets should be
re-examined. As the risk measures begin to move beyond our internal indicators, we would consider actions
to bring them into the preferred ranges, with an emphasis on time horizon and earnings objectives. We use
Value-at-Risk (“VAR”) modeling and net investment revenue simulation analysis for measuring and
analyzing consolidated interest rate risk.
VAR is a risk assessment methodology that estimates the potential decline in the value of a security or
portfolio under various market conditions. VAR quantifies the change in market value due to changes in
volatility and interest rates over a given time horizon, given a certain level of confidence. We utilize VAR to
quantify the potential decline in the fair value of our investment portfolio using a 95 percent confidence level
and a one-month time horizon. We use a Monte Carlo model that derives the interest rate change from
volatility assumptions, specified probability and time horizon. The model includes our investment portfolio
and interest rate derivative contracts.
The net investment revenue simulation analysis incorporates substantially all of our interest sensitive assets
and liabilities, together with forecasted changes in the balance sheet and assumptions that reflect the current
interest rate environment. This analysis assumes the yield curve increases gradually over a one-year period.
After the portfolio realignment, our portfolio is invested primarily in cash and cash equivalents and highly
liquid short-term investments. These types of investment have minimal interest rate risk as the yields change
with changes in the related interest rate index. We expect to match these floating rate investment yields with
commission expense, which is paid to official check financial institution customers based on short-term rates,
typically the federal funds
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rate or LIBOR. Consequently, the interest rate risk we were historically exposed to related to investments and
payment service obligations is expected to be negligible going forward. However, we will have some
exposure to “basis risk,” which is the difference between the interest rate index of investments (e.g., US
treasury rates) and that of the payment service obligations (e.g., LIBOR). In addition, we have $1.4 billion in
notional amounts of swaps that convert a portion of the variable rate commissions to fixed rate payments.
With the portfolio realignment, we will need to re-evaluate the use of the swaps, including possible
termination, to better match our floating rate assets with our floating rate interest-based commission indices.
In addition, we will be repricing official check customers to better align the commission paid to the rates
earned on the realigned investment portfolio.
We performed our VAR analysis and net investment revenue simulation analysis taking into account the
Capital Transaction, the Payments Systems strategy and the portfolio realignment. The VAR is $(8.7) million,
given a 95% confidence level and a one-month time horizon. Accordingly, there is a five percent chance the
loss on the investment portfolio or swaps over the next month will exceed $(8.7) million. The historical VAR
is not meaningful given the portfolio realignment. The results of the net investment revenue simulation
analysis are reflected in Table 13, which summarizes the changes to our pre-tax income from continuing
operations under various scenarios.
This modeling involves a number of assumptions including prepayments, interest rates and volatility. The
VAR model and net investment revenue simulation analyses are risk analysis tools and do not purport to
represent actual losses that we will incur. While we believe that these assumptions are reasonable, different
assumptions could produce materially different estimates.
Table 13 — Interest Rate Sensitivity Analysis
(Amounts in thousands)
Pre-tax income from
continuing
operations
Percent change
Down
200
Down
100
Down
50
Up
50
Up
100
Up
200
Basis Point Change in Interest Rates
$ (8,705)
$ (3,902)
$ (1,786)
$ 1,637
$ 3,138
$ 5,968
(14.6)%
(6.6)%
(3.0)%
2.8%
5.3%
10.0%
Foreign Currency Exchange Risk
Foreign currency exchange risk represents the potential adverse effect on our earnings from fluctuations in
foreign exchange rates affecting certain receivables and payables denominated in foreign currencies. We offer
our products and services through a network of agents and financial institutions with locations in over 180
countries. Foreign exchange risk is managed through the structure of our business and certain business
processes. We are primarily affected by fluctuations in the U.S. dollar as compared to the Euro as a
significant amount of our internationally originated transactions and settlements with international agents are
conducted in the Euro. The foreign currency exposure that does exist is limited by the fact that foreign
currency denominated assets and liabilities are generally very short-term in nature. We primarily utilize
forward contracts to hedge our exposure to fluctuations in exchange rates. These forward contracts generally
have maturities of less than thirty days. Our policy is not to speculate in foreign currencies and we promptly
buy and sell foreign currencies as necessary to cover our net payables and receivables which are denominated
in foreign currencies. The forward contracts are recorded on the Consolidated Balance Sheets, and the net
effect of changes in exchange rates and the related forward contracts is not significant.
In addition, the operating expenses of our international subsidiaries are denominated in the Euro. In 2007, the
Euro strengthened significantly against the U.S. dollar. While the strong Euro benefits the internationally
originated revenue in our Consolidated Statement of (Loss) Income, this benefit is significantly offset by the
impact on commissions paid and operating expenses incurred in Euros. In 2007, the net impact of fluctuations
in the Euro exchange rate on our consolidated net (loss) income was minimal at $3.2 million.
Had the Euro appreciated relative to the U.S. dollar twenty percent over actual exchange rates for 2007,
pre-tax operating income would have increased $1.9 million for the year. Had the Euro depreciated twenty
percent under actual rates for 2007, pre-tax operating income would have decreased $5.1 million for the year.
This sensitivity analysis considers both the impact on translation of our foreign denominated revenue and
expense streams and the impact on our hedging program.
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CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that
affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities in the Consolidated Financial Statements. Actual results could differ from
those estimates. On a regular basis, management reviews the accounting policies, assumptions and estimates
to ensure that our financial statements are presented fairly and in accordance with GAAP.
Critical accounting policies are those policies that management believes are most important to the portrayal of
a company’s financial position and results of operations, and that require management to make estimates that
are difficult, subjective or complex. Based on these criteria, management has identified and discussed with the
Audit Committee the following critical accounting policies and estimates, and the methodology and
disclosures related to those estimates:
Fair Value of Investment Securities — The Company holds investment securities classified as trading and
available-for-sale in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Trading securities, which consist solely of auction rate securities for all periods presented, are
recorded at fair value with unrealized gains and losses reported in the Consolidated Statements of (Loss)
Income. Securities classified as available-for-sale are recorded at fair value with unrealized gains and losses
recorded net of tax as a separate component of stockholders’ equity. The fair value of an investment security
is the amount that would be received from the sale of the security in an orderly transaction at the
measurement date, other than in a forced or liquidation sale. This definition of fair value is commonly
referred to as the “exit price” of a security.
The degree of management judgment involved in determining the fair value of an investment is dependent
upon the availability of quoted market prices or observable market parameters. Fair value for the majority of
our investments is estimated using quoted market prices in active markets, broker-dealer quotes or through the
use of industry-standard models that utilize independently sourced market parameters. These independently
sourced market parameters are observable in the marketplace, can be derived from observable data or are
supported by observable levels at which transactions for similar securities are executed in the marketplace.
Examples of such parameters include, but are not limited to, interest rate yield curves, reported trades, broker
or dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.
The Company receives prices from an independent pricing service for a majority of our investments. We
verify these prices through periodic internal valuations, as well as through comparison to comparable
securities, any broker-dealer quotes received and liquidation prices. The independent pricing service will only
provide a price for an investment if there is sufficient observable market information to obtain objective
pricing. The Company receives prices from an independent pricing service for investments classified as
obligations of states and political subdivisions, commercial mortgage-backed securities, residential
mortgage-backed securities, U.S. government agencies, corporate debt securities, preferred and common
stock and other asset-backed securities with direct exposure to sub-prime mortgages.
For investments that are not actively traded, or for which there is not sufficient observable market
information, the Company estimates fair value using broker-dealer quotes when available. When such quotes
are not available, and to verify broker-dealer quotes received, the Company estimates fair value using
industry-standard pricing models, discount margins for comparable securities adjusted for differences in the
Company’s security, risk and liquidity premiums observed in the market place, default rates, prepayment
speeds, loss severity and information specific to the underlying collateral to the investment. The Company
maximizes the use of market observable information to the extent possible and makes its best estimate of the
assumptions that a similar market participant would make. Investments which are primarily valued through
the use of broker-dealer quotes or internal valuations include those classified as other asset-backed securities,
excluding those with direct exposure to sub-prime mortgages, and certain commercial mortgage-backed
securities.
The use of different market assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts. Due to the subjective nature of these assumptions, the estimates determined
may not be indicative of the actual exit price if the investment was sold at the measurement date. In the
current market, the most subjective assumptions include the default rate of collateral securities and loss
severity, particularly as it relates to the
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Company’s other asset-backed securities. Subsequent to December 31, 2007, we sold substantially all of our
investments classified as other asset-backed securities. At the date of this filing, we continue to hold
investments classified as other asset-backed securities with a fair value of $101.4 million at December 31,
2007. Using the highest and lowest prices received as part of the valuation process described above, the range
of fair value for these securities was $84.9 to $152.2 million. At December 31, 2007, $87.8 million, or two
percent, of our investment portfolio was valued using internal pricing information. Of this amount,
$52.0 million related to investments for which no price was received from the third party pricing service or
brokers. Had the Company used the third party price to value the remaining $35.8 million of internally priced
securities, the value of these investments would have ranged from $22.5 million to $58.2 million.
Other-Than-Temporary Impairment — Investments with gross unrealized losses at the measurement date are
subject to the Company’s process for identifying other-than-temporary impairments in accordance with
SFAS No. 115, Emerging Issues Task Force (“EITF”) Issue No. 99-20, Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets and Staff
Accounting Bulletin No. 59, Views on Accounting for Noncurrent Marketable Equity Securities. The
Company writes down to fair value investments that it deems to be other-than-temporarily impaired through a
charge against earnings in the period the securities are deemed to be impaired. Under SFAS No. 115, the
assessment of whether such impairment has occurred is based on management’s evaluation of the underlying
reasons for the decline in fair value at the individual security level. The Company deems an individual
investment to be other-than-temporarily impaired when the underlying reasons for the decline in fair value
have made it probable in management’s view that the Company will not receive all of the cash flows
contractually stipulated for the investment. The Company regularly monitors its investment portfolio to
ensure that investments that may be other-than-temporarily impaired are identified in a timely manner and
that any impairments are charged against earnings in the proper period. Pursuant to the Company’s review
process, changes in individual security values and credit risk characteristics are regularly monitored to
identify potential impairment indicators.
For all investments, the Company assesses market conditions, macroeconomic factors and industry
developments each period to identify any impairment indicators. If an impairment indicator is identified, the
Company performs a credit assessment of the impacted investments. In addition, the Company performs a
credit assessment for any investment with a rating downgrade during the period. In addition, the Company
reviews all investments meeting established thresholds and monitoring criteria to identify investments that
have indications of potential impairments or unfavorable trends that could lead to future potential
impairments. These thresholds and monitoring criteria include investments: with a fair value significantly less
than amortized cost, in an unrealized loss position for more than twelve months, with a rating downgrade
from the prior review or with a significant decline in fair value from the prior review.
The Company also performs a periodic credit risk assessment for each of its asset-backed securities under a
systematic methodology, with the exception of investments backed by U.S. government agency securities.
The methodology employs a risk-driven approach, whereby securities are assigned to risk classes based on
internally defined criteria. The risk classes drive the frequency of the review, with investments in the highest
risk class reviewed monthly.
In assessing an investment with impairment indicators for other-than-temporary impairment, the Company
evaluates the facts and circumstances specific to the investment, including, but not limited to, the following:
• evaluation of current and future cash flow performance;
• reason for decline in the fair value of the investment;
• actual default rates of underlying collateral;
• subordination available as credit protection on the Company’s investment in a securitized transaction;
• credit rating downgrades on both the Company’s investment and the underlying collateral to the
investment;
• extent of unrealized loss and the length of time the investment has been in an unrealized loss position;
• failure of structured investments to meet minimum coverage or collateralization tests;
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• new information regarding the investment or the issuer;
• deterioration in the market, industry or geographical area relevant to the issuer or underlying
collateral; and
• the Company’s ability and intent to hold the investment for a time sufficient to either receive all
contractual cash flows or for the investment to recover to its amortized cost.
As the Company has an available-for-sale investment portfolio and generally does not utilize our portfolio for
liquidity purposes, the Company believes that our intent and ability to hold an investment along with the
ability of the investment to generate cash flows are the primary factors in assessing whether an investment in
an unrealized loss position is other-than-temporarily impaired. If the Company no longer has the intent or
ability to hold the investment to maturity or call, and it is probable that the investment will not provide all of
its contractual cash flows, then the Company believes an investment in an unrealized loss position is
other-than-temporarily impaired. In assessing the Company’s intent and ability, the Company evaluates our
needs under regulatory and contractual requirements, changes to our investment strategy and anticipated cash
flow needs, including any anticipated customer contract terminations.
Derivative Financial Instruments — Derivative financial instruments are used as part of our risk management
strategy to manage exposure to fluctuations in interest and foreign currency rates. We do not enter into
derivatives for speculative purposes. Derivatives are accounted for in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and its related amendments and
interpretations. The derivatives are recorded as either assets or liabilities on the balance sheet at fair value,
with the change in fair value recognized in earnings or in other comprehensive income depending on the use
of the derivative and whether it qualifies for hedge accounting. A derivative that does not qualify, or is not
designated, as a hedge will be reflected at fair value, with changes in value recognized through earnings. The
estimated fair value of derivative financial instruments has been determined using available market
information and certain valuation methodologies.
Considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates determined may not be indicative of the amounts that could be realized 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.
As of December 31, 2007, MoneyGram had $19.3 million of unrealized losses on derivative financial
instruments recorded in “Accumulated other comprehensive loss.” While MoneyGram intends to continue to
meet the conditions to qualify for hedge accounting treatment under SFAS No. 133, if hedges did not qualify
as highly effective or if forecasted transactions are no longer probable of occurring or did not occur, the
changes in the fair value of the derivatives used as hedges would be reflected in earnings. MoneyGram does
not believe it is exposed to more than a nominal amount of credit risk in its hedging activities as the
counterparties are generally well-established, well-capitalized financial institutions.
Goodwill — SFAS No. 142, Goodwill and Other Intangible Assets, requires annual impairment testing of
goodwill based on the estimated fair value of MoneyGram’s reporting units. The fair value of MoneyGram’s
reporting units is estimated based on discounted expected future cash flows using a weighted average cost of
capital rate. Additionally, an assumed terminal value is used to project future cash flows beyond base years.
Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are
consistent with our internal forecasts and operating plans. The estimates and assumptions regarding expected
cash flows, terminal values and the discount rate require considerable judgment and are based on historical
experience, financial forecasts and industry trends and conditions. If the growth rate for the Company’s
reporting units with goodwill assigned decreases by 50 basis points from the growth rates used in the 2007
valuation, fair value would be reduced by approximately $21.3 million, assuming all other components of the
fair value estimate remain unchanged. If the discount rate for the Company’s reporting units with goodwill
assigned increases by 50 basis points from the growth rates used in the 2007 valuation, fair value would be
reduced by approximately $18.6 million, assuming all other components of the fair value estimate remain
unchanged.
During 2007, we recognized an $6.4 million impairment charge for goodwill as a result of the annual
impairment test of the FSMC, Inc. (“FSMC”) reporting unit under our Payment Systems segment. We did not
recognize any
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impairment charges for goodwill during 2006 and 2005. See Note 8 — Intangibles and Goodwill of the Notes
to Consolidated Financial Statements for further discussion.
Pension obligations — On December 31, 2006, MoneyGram adopted SFAS No. 158, Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans, which requires recognition of the funded status
of pension plans in the balance sheet. Unrecognized prior service costs and gains and losses are recorded to
“Accumulated other comprehensive loss.”
MoneyGram provides defined benefit pension plan coverage to certain employees of MoneyGram, as well as
former employees of Viad and of sold operations of Viad. Pension benefits and the related expense (income)
are based upon actuarial assumptions regarding mortality, discount rates, long-term return on assets and other
factors.
MoneyGram’s discount rate used in determining future pension obligations is measured on November 30
(“measurement date”) and is based on rates determined by actuarial analysis and management review.
Effective January 1, 2008, the measurement date will be changed to December 31 due to the measurement
provision of SFAS No. 158. Following are the assumptions used to measure the projected benefit obligation
as of December 31, and the net periodic benefit cost for the year ended December 31:
Net periodic benefit cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
Projected benefit obligation:
Discount rate
Rate of compensation increase
2007
2006
2005
5.70%
8.00%
5.75%
6.50%
5.75%
5.90%
8.00%
5.75%
5.70%
5.75%
6.00%
8.50%
4.50%
5.90%
5.75%
MoneyGram’s pension expense for 2007, 2006 and 2005 was $8.8 million, $9.5 million and $9.4 million,
respectively. Pension expense is calculated in part based upon the actuarial assumptions shown above. At
each measurement date, the discount rate is based on interest rates for high-quality, long-term corporate debt
securities with maturities comparable to our liabilities.
The expected return on pension plan assets is based on our historical experience, our pension plan investment
strategy and our expectations for long-term rates of return. Current market factors such as inflation and
interest rates are evaluated before long-term capital market assumptions are determined. Peer data and
historical returns are reviewed for reasonableness and appropriateness. Our pension plan investment strategy
is reviewed annually and is based upon plan liabilities, an evaluation of market conditions, tolerance for risk
and cash requirements for benefit payments. MoneyGram’s asset allocation at December 31, 2007 consists of
approximately 62.8 percent in large capitalization and international equity stock funds, approximately
30.4 percent in fixed income securities, such as global bond funds and corporate obligations, approximately
3.8 percent in a real estate limited partnership interest and approximately 3.0 percent in other securities. The
investment portfolio contains a diversified blend of equity and fixed income securities. Investment risk is
measured and monitored on an ongoing basis through quarterly investment portfolio reviews and annual
liability measurements.
Our assumptions reflect our historical experience and management’s best judgment regarding future
expectations. Some of these assumptions require significant management judgment and could have a material
impact on the measurement of our pension obligation. Future actual pension income or expense will depend
on future investment performance, changes in future rates and various other factors related to the populations
participating in MoneyGram’s pension plans. The discount rates used to determine benefit obligation and
pension expense are reviewed on an annual basis. Lowering the discount rate by 50 basis points would have
increased 2007 pension expense by $0.5 million, while increasing the discount rate by 50 basis points would
have decreased 2007 pension expense by $0.7 million.
MoneyGram’s pension assets are primarily invested in marketable securities that have readily determinable
current market values. MoneyGram’s investments are rebalanced regularly to stay within the investment
guidelines. MoneyGram reviews the expected rate of return in connection with significant changes in the
pension asset
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allocation, the investing strategy or in inflation and interest rates. The actual rate of return on average pension
assets in 2007 was 7.1 percent, as compared to the expected rate of return of 8.0 percent. As the expected rate
of return is a long-term assumption and the widely accepted capital market principle is that assets with higher
volatility generate greater long-term returns, we do not believe that the actual return for one year is
significantly different from the expected return used to determine the benefit obligation. Changing the
expected rate of return by 50 basis points would have increased/decreased 2007 pension expense by
$0.6 million.
Income Taxes — The Company is subject to income taxes in the U.S. and various foreign jurisdictions. Our
operations in these different jurisdictions are generally taxed on income before taxes. Income before taxes is
adjusted for various differences between tax law and generally accepted accounting principles. Determination
of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the
use of estimates and assumptions regarding significant future events such as the amount, timing and character
of deductions, and the sources and character of income and tax credits. Changes in tax laws, regulations,
agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in
each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any
given year.
Deferred tax assets and liabilities are recorded based on the difference between the income tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes at the applicable enacted statutory
tax rates. Management assesses the likelihood whether net deferred tax assets will be realized based on the
weight of available evidence. To the extent management believes that recovery is not likely, a valuation
allowance is established in the period in which the determination is made. To the extent that a valuation
allowance is established or increased, an expense within the tax provision is included in the statement of
operations.
The Company adopted the provisions of FIN No. 48, on January 1, 2007. FIN No. 48 requires a two-step
approach to recognizing and measuring uncertain tax positions accounted for in accordance with
SFAS No. 109, Accounting for Income Taxes. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will
be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is
to measure the tax benefit as the largest amount that is more than 50 percent likely of being realized upon
settlement. Our tax filings for various periods are subject to audit by various tax authorities. The potential
exists that the tax resulting from the resolution of current and potential future tax controversies may differ
materially from the amount accrued. The provision for income taxes includes the impact of reserve provisions
and changes to reserves that are considered appropriate, as well as the related net interest and penalties, as
applicable.
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. Subsequent to the
spin-off, MoneyGram is considered the divesting entity and treated as the “accounting successor” to Viad and
the continuing business of Viad is referred to as “New Viad.” As part of the spin-off, the Company entered
into a Tax Sharing Agreement with Viad which provides for, among other things, the allocation between
MoneyGram and New Viad of federal, state, local and foreign tax liabilities and tax liabilities resulting from
the audit or other adjustment to previously filed tax returns. Although we believe that we have appropriately
proportioned such taxes between Viad and us, subsequent adjustments may occur upon filing of amended
returns or resolution of audits by various taxing authorities.
See Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements
for further information on key accounting policies for MoneyGram.
Recent accounting developments are set forth in Note 2 — Summary of Significant Accounting Policies of the
Notes to Consolidated Financial Statements.
Recent Accounting Developments
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CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents incorporated by reference herein may contain
forward-looking statements with respect to the financial condition, results of operation, plans, objectives,
future performance and business of MoneyGram International, Inc. and its subsidiaries. Statements preceded
by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,”
“project,” “believes” or similar expressions are intended to identify some of the forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this
statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking
statements involve risks and uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements due to, among others, the risks and uncertainties described in this Annual
Report on Form 10-K, including those described below and under Item 1A entitled “Risk Factors,” and in the
documents incorporated by reference herein. These forward-looking statements speak only as of the date on
which such statements are made. We undertake no obligation to update publicly or revise any
forward-looking statements for any reason, whether as a result of new information, future events or otherwise,
except as required by federal securities law.
• Substantial Dividend and Debt Service Obligations. Our substantial dividend and debt service
obligations, as well as covenant requirements, adversely impacts our ability to pay dividends, to obtain
additional financing and to operate and grow our business.
• Significant Dilution to Stockholders and Control of New Investors. The Series B Stock issued to the
Investors at the closing of the Capital Transaction, dividends accrued on the Series B Stock post-closing
and potential special voting rights provided to the Investors’ designees on the Company’s Board of
Directors significantly dilutes the interests of our existing stockholders and gives the Investors control of
the Company.
• Retention of Global Funds Transfer Agents. We may be unable to renew material retail agent customer
contracts, or we may experience a loss of business from significant agents or customers.
• Operation of Payment Systems Segment. We may be unable to operate our Payment Systems segment
profitably pursuant to our new official check strategy and portfolio realignment.
• Stockholder Litigation and Related Risks. Stockholder lawsuits and other litigation or government
investigations of the Company or its agents could result in material settlements, fines or penalties.
• Maintenance of Banking Relationships. We may be unable to maintain existing or establish new banking
relationships, including the Company’s clearing bank relationships, which could adversely affect our
business, results of operation and our financial condition.
• Loss of Key Employees. We may be unable to retain and attract key employees.
• Failure to Maintain Sufficient Capital. We may be unable to maintain sufficient capital, which may
hamper our ability to pursue our growth strategy and fund key strategic initiatives, such as product
development and acquisitions.
• Development of New and Enhanced Products and Related Investment. We may be unable to successfully
and timely implement new or enhanced technology and infrastructure, delivery methods and product and
service offerings and we may invest in new products or services and infrastructure that are not successful.
• Intellectual Property. The loss of intellectual property protection, the inability to secure or enforce
intellectual property protection or the inability to successfully defend against an intellectual property
infringement action could harm our business and prospects.
• Competition. We may be unable to compete against our large competitors, niche competitors or new
competitors that may enter the markets in which we operate.
• U.S. and International Regulation. Failure by us or our agents to comply with the laws and regulatory
requirements in the U.S. and abroad, or changes in laws, regulations or other industry practices and
standards could have an adverse effect on our results of operations.
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• Operation in Politically Volatile Areas. Offering money transfer transactions through agents in regions
that are politically volatile or, in a limited number of cases, are subject to certain Office of Foreign Assets
Control (“OFAC”) restrictions could cause contravention of U.S. law or regulations, subject us to fines
and penalties and cause us reputational harm.
• Network and Data Security. If we suffer system interruptions and system failures due to defects in our
software, development delays and installation difficulties, or we suffer a material security breach of our
systems, our business could be harmed.
• Business Interruption. In the event of a breakdown, catastrophic event, security breach, improper
operation or any other event impacting our systems or processes or our vendors’ systems or processes, or
improper action by our employees, agents, customer financial institutions or third-party vendors, we
could suffer financial loss, loss of customers, regulatory sanctions and damage to our reputation.
• Technology Scalability. We may be unable to scale our technology to match our business and
transactional growth.
• Agent Credit and Fraud Risks. We may face credit and fraud exposure if we are unable to collect funds
from our agents who receive the proceeds from the sale of our payment instruments.
• Reputational Damage. Inability by us to manage reputational damage to the Company’s brand due to the
events leading to the Capital Transaction, as well as fraudulent or other unintended uses of our services
could reduce the use and acceptance of our services.
• New Retail Locations and Acquisitions. Opening new Company-owned retail locations and acquiring
businesses subjects us to new risks and may cause a diversion of capital and management’s attention
from our core business.
• International Migration Patterns. Changes in immigration laws or other circumstances that discourage
international migration could adversely affect our money transfer remittance volume or growth rate.
• International Risks. Our business and results of operation may be adversely affected by political,
economic or other instability in countries in which we have material agent relationships.
• Internal Controls. Our inability to maintain compliance with the internal control provisions of
Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and
stock price.
• Overhang of Convertible Preferred Stock to Float. Sales of a substantial number of shares of our
common stock or the perception that significant sales could occur, may depress the trading price of our
common stock.
• Change in Control Restrictions. An Agreement between the Investors and Wal-Mart could prevent an
acquisition of the Company.
• Anti-Takeover Provisions. Provisions in our charter documents and specific provisions of Delaware law
may have the effect of delaying, deterring or preventing a merger or change in control of our Company.
• NYSE Delisting. We may be unable to continue to satisfy the NYSE criteria for listing on the exchange.
• Inability to use Form S-3. We are currently unable to use the short-form registration statement, Form
S-3, to register securities with the SEC which could increase the time and resources necessary to raise
capital.
• Other Factors. Additional risk factors may be described in our other filings with the Securities and
Exchange Commission from time to time.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk disclosure is discussed under “Enterprise Risk Management” in Item 7 of this Annual Report on
Form 10-K.
61
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is found in a separate section of this Annual Report on Form 10-K on
pages F-1 through F-44. See the “Index to Financial Statements” on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an
evaluation, under the supervision and with the participation of management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were
effective.
The certifications of the Company’s Chief Executive Officer and Chief Financial Officer required under
Section 302 of the Sarbanes-Oxley Act have been included as Exhibits 31.1 and 31.2 to this Annual Report on
Form 10-K. Additionally, in 2007, the Company’s Chief Executive Officer certified to the New York Stock
Exchange (“NYSE”) that he was not aware of any violation by the Company of the NYSE’s corporate
governance listing standards.
No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act) during the fiscal quarter ended December 31, 2007, has materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Management’s annual report on internal control over financial reporting is provided on page F-2 of this
Annual Report on Form 10-K. The attestation report of the Company’s independent registered public
accounting firm, Deloitte & Touche LLP, regarding the Company’s internal control over financial reporting is
provided on page F-3 of this Annual Report on Form 10-K.
Item 9B. OTHER INFORMATION
None.
62
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information contained in the sections entitled “Proposal 1: Election of Directors,” “Board of Directors
and Governance,” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy
Statement for our 2008 Annual Meeting of Stockholders is incorporated herein by reference. Under the
section of our definitive Proxy Statement incorporated by reference herein entitled “Board of Directors and
Governance — Board Committees — Audit Committee,” we identify the financial expert who serves on the
Audit Committee of our Board of Directors. Information regarding our executive officers is contained in
“Executive Officers of the Registrant” in Part I, Item 1 of this Annual Report on Form 10-K.
All of our employees, including our principal executive officer, principal financial officer, principal
accounting officer and controller, or persons performing similar functions (the “Principal Officers”), are
subject to our Code of Ethics and our Always Honest policy. Our directors are also subject to our Code of
Ethics and our Always Honest policy. These documents are posted on our website at www.moneygram.com
in the Investor Relations section, and are available in print free of charge to any stockholder who requests
them at the address set forth below. We will disclose any amendments to, or waivers of, our Code of Ethics
and our Always Honest Policy for directors or Principal Officers on our website.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled “Compensation Discussion and Analysis,” “Executive
Compensation” and “2007 Director Compensation” in our definitive Proxy Statement for our 2008 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information contained in the sections entitled “Security Ownership of Management” and “Security
Ownership of Certain Beneficial Owners” in our definitive Proxy Statement for our 2008 Annual Meeting of
Stockholders is incorporated herein by reference.
The following table provides information about our common stock that may be issued as of December 31,
2007 under our 2004 Omnibus Incentive Plan and our 2005 Omnibus Incentive Plan, which are our only
existing equity compensation plans. The 2004 Omnibus Incentive Plan was approved by Viad, as our sole
stockholder, prior to the spin-off and our 2005 Omnibus Incentive Plan was approved by our stockholders at
the annual meeting in May 2005. No further awards can be made pursuant to the 2004 Omnibus Incentive
Plan following stockholder approval of the 2005 Omnibus Incentive Plan.
Equity compensation plans approved by
security holders
Equity compensation plans not
approved by security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding
options, warrants
and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column(a))
(c)
4,077,300 $
— $
4,077,300 $
63
20.63
—
20.63
6,434,391
—
6,434,391
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
(1) Column (a) does not include any restricted stock awards that have been issued under the 2004 Omnibus
Incentive Plan or any stock units granted under any deferred compensation plan. At December 31, 2007,
234,354 shares of restricted stock granted under the 2004 Omnibus Incentive Plan and the 2005
Omnibus Incentive Plan were outstanding.
(2) Securities remaining available for future issuance under equity compensation plans may be issued in any
combination of securities, including options, rights, restricted stock, dividend equivalents and
unrestricted stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information contained in the section entitled “Board of Directors and Governance” under the captions
“Director Independence,” “Policy and Procedures Regarding Transactions with Related Persons” and
“Transactions with Related Persons” in our definitive Proxy Statement for our 2008 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information contained in the section entitled “Information Regarding Independent Registered Public
Accounting Firm” in our definitive Proxy Statement for our 2008 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) The financial statements listed in the “Index to Financial Statements and Schedules” are filed as part
of this Annual Report on Form 10-K.
(2) All financial statement schedules are omitted because they are not applicable or the required
information is included in the Consolidated Financial Statements or notes thereto listed in the “Index
to Financial Statements.”
(3) Exhibits are filed with this Annual Report on Form 10-K or incorporated herein by reference as listed
in the accompanying Exhibit Index.
64
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MoneyGram International, Inc.
(Registrant)
Date: March 25, 2008
By:
/s/ Philip W. Milne
Philip W. Milne
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on March 25, 2008.
/s/ Philip W. Milne
Philip W. Milne
/s/ David J. Parrin
David J. Parrin
/s/ Jean C. Benson
Jean C. Benson
Chairman of the Board of Directors, President and
Chief Executive Officer (Principal Executive
Officer)
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
Senior Vice President and Controller (Principal
Accounting Officer)
*
Director
Monte E. Ford
*
Jess Hay
*
Judith K. Hofer
Director
Director
*
Director
Donald E. Kiernan
*
Director
Robert C. Krueger
*
Director
Othón Ruiz Montemayor
*
Director
Linda Johnson Rice
*
Director
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Douglas L. Rock
*
Director
Albert M. Teplin
*
Director
Timothy R. Wallace
/s/ Teresa H. Johnson
Teresa H. Johnson
*As attorney-in-fact
65
Executive Vice President, General Counsel and
Secretary
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
†10.3
†10.4
†10.5
†10.6
†10.7
EXHIBIT INDEX
Description
Separation and Distribution Agreement, dated as of June 30, 2004, by and among Viad Corp,
MoneyGram International, Inc., MGI Merger Sub, Inc. and Travelers Express Company, Inc.
(Incorporated by reference from Exhibit 2.1 to Registrant’s Quarterly Report on Form 10-Q filed
on August 13, 2004).
Amended and Restated Certificate of Incorporation of MoneyGram International, Inc.
(Incorporated by reference from Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q filed
on August 13, 2004).
Bylaws of MoneyGram International, Inc., as amended and restated November 15, 2007
(Incorporated by reference from Exhibit 99.03 to Registrant’s Current Report on Form 8-K filed
on November 20, 2007).
Form of Specimen Certificate for MoneyGram Common Stock (Incorporated by reference from
Exhibit 4.1 to Amendment No. 4 to Registrant’s Form 10 filed on June 14, 2004).
Rights Agreement, dated as of June 30, 2004, between MoneyGram International, Inc. and
Wells Fargo Bank, N.A. as Rights Agent (Incorporated by reference from Exhibit 4.2 to
Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2004).
First Amendment, dated as of February 11, 2008, to the Rights Agreement, dated as of June 30,
2004, by and between MoneyGram International, Inc. and Wells Fargo Bank, N.A., as Rights
Agent (Incorporated by reference from Exhibit 4.1 to Registrant’s Current Report on Form 8-K
filed on February 12, 2008).
Second Amendment, dated March 17, 2008, to the Rights Agreement, dated as of June 30, 2004,
by and between MoneyGram International, Inc. and Wells Fargo Bank N.A., as Rights Agent
(Incorporated by reference from Exhibit 4.1 to Registrants’ Current Report on Form 8-K filed on
March 18, 2008).
Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred
Stock of MoneyGram International, Inc. (Incorporated by reference from Exhibit 4.3 to
Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2004).
Form of Certificate of Designations, Preferences and Rights of the Series B Participating
Convertible Preferred Stock of MoneyGram International, Inc. (Incorporated by reference from
Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Form of Certificate of Designations, Preferences and Rights of the Series B-1 Participating
Convertible Preferred Stock of MoneyGram International, Inc. (Incorporated by reference from
Exhibit 99.3 to Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Form of Certificate of Designations, Preferences and Rights of the Series D Participating
Convertible Preferred Stock of MoneyGram International, Inc. (Incorporated by reference from
Exhibit 99.4 to Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Employee Benefits Agreement, dated as of June 30, 2004, by and among Viad Corp,
MoneyGram International, Inc. and Travelers Express Company, Inc. (Incorporated by reference
from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2004).
Tax Sharing Agreement, dated as of June 30, 2004, by and between Viad Corp and MoneyGram
International, Inc. (Incorporated by reference from Exhibit 10.2 to Registrant’s Quarterly Report
on Form 10-Q filed on August 13, 2004).
MoneyGram International, Inc. 2004 Omnibus Incentive Plan, as amended February 17, 2005
(Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed
on February 23, 2005) (no additional grants are made under this plan — see Exhibit 10.4 below).
MoneyGram International, Inc. 2005 Omnibus Incentive Plan (Incorporated by reference from
Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2005).
Form of Amended and Restated Indemnification Agreement between MoneyGram International,
Inc. and Directors of MoneyGram International, Inc. (Incorporated by reference from
Exhibit 99.02 to Registrant’s Current Report on Form 8-K filed on November 22, 2005).
MoneyGram International, Inc. Amended and Restated Management and Line of Business
Incentive Plan, as amended and restated May 9, 2007 (Incorporated by reference from
Exhibit 99.01 to Registrant’s Current Report on Form 8-K filed on May 14, 2007).
Deferred Compensation Plan for Directors of MoneyGram International, Inc. (Incorporated by
reference from Exhibit 10.12 to Registrant’s Quarterly Report on Form 10-Q filed on August 13,
2004).
66
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Exhibit
Number
†10.8
†10.9
†10.10
†10.11
†10.12
†10.13
†10.14
†10.15
†10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Description
Deferred Compensation Plan for Directors of Viad Corp, as amended August 19, 2004
(Incorporated by reference from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q
filed on November 12, 2004).
Viad Corp Deferred Compensation Plan, as amended August 19, 2004 (Incorporated by
reference from Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed on
November 12, 2004).
2005 Deferred Compensation Plan for Directors of MoneyGram International, Inc., as amended
and restated December 28, 2007 (Incorporated by reference from Exhibit 99.02 to Registrant’s
Current Report on Form 8-K filed on January 4, 2008).
MoneyGram International, Inc. Deferred Compensation Plan, as amended and restated
August 16, 2007 (Incorporated by reference from Exhibit 99.01 to Registrant’s Current Report
on Form 8-K filed August 22, 2007).
MoneyGram International, Inc. Executive Severance Plan (Tier I), as amended and restated
August 16, 2007 (Incorporated by reference from Exhibit 99.03 to Registrant’s Current Report
on Form 8-K filed on August 22, 2007).
MoneyGram International, Inc. Executive Severance Plan (Tier II), as amended and restated
August 16, 2007 (Incorporated by reference from Exhibit 99.04 to Registrant’s Current Report
on Form 8-K filed on August 22, 2007).
MoneyGram Supplemental Pension Plan, as amended and restated December 28, 2007
(Incorporated by reference from Exhibit 99.01 to Registrant’s Current Report on Form 8-K filed
on January 4, 2008).
Description of MoneyGram International, Inc. Director’s Charitable Matching Program
(Incorporated by reference from Exhibit 10.13 to Registrant’s Quarterly Report on Form 10-Q
filed on August 13, 2004).
Viad Corp Director’s Charitable Award Program (Incorporated by reference from Exhibit 10.14
to Amendment No. 3 to Registrant’s Form 10 filed on June 3, 2004).
$350,000,000 Amended and Restated Credit Agreement, dated as of June 29, 2005, with the
lenders named in the agreement, JPMorgan Chase Bank, N.A., as Administrative Agent,
Wachovia Bank, National Association and Bank of America, N.A., as Co-Syndication Agents,
and KeyBank National Association and U.S. Bank National Association, as Co-Documentation
Agents, J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as Joint Lead
Arrangers and Joint Book Runners (Incorporated by reference from Exhibit 99.1 to Registrant’s
Current Report on Form 8-K filed on July 5, 2005).
Amendment No. 2 to Credit Agreement and Waiver, dated as of January 8, 2008, among
MoneyGram International, Inc., JPMorgan Chase Bank, N.A., individually and as
Administrative Agent (Incorporated by reference from Exhibit 99.01 to Registrant’s Current
Report on Form 8-K filed on January 14, 2008).
Amendment No. 3 to Credit Agreement and Waiver, dated January 25, 2008, among
MoneyGram International, Inc., JPMorgan Chase Bank, N.A., individually and as
Administrative Agent (Incorporated by reference from Exhibit 99.01 to Registrant’s Current
Report on Form 8-K filed on January 31, 2008).
$600,000,000 Second Amended and Restated Credit Agreement among MoneyGram
International, Inc., MoneyGram Payment Systems Worldwide, Inc. and JPMorgan Chase Bank,
N.A., individually and as letter of credit issuer, swing line lender, administrative agent and
collateral agent (Incorporated by reference from Exhibit 99.8 to Registrant’s Current Report on
Form 8-K filed March 18, 2008).
$150,000,000 364-Day Credit Agreement, dated as of November 15, 2007, among MoneyGram
International, Inc., the Lenders and JPMorgan Chase Bank, N.A., as Administrative Agent
(Incorporated by reference from Exhibit 99.01 to Registrant’s Current Report on Form 8-K filed
on November 20, 2007).
Amendment No. 1 to Credit Agreement and Waiver, dated as of January 8, 2008, between
MoneyGram International, Inc. and JPMorgan Chase Bank, N.A., individually and as
Administrative Agent (Incorporated by reference from Exhibit 99.02 to Registrant’s Current
Report on Form 8-K filed January 14, 2008).
Amendment No. 2 to Credit Agreement and Waiver, dated January 25, 2008, between
MoneyGram International, Inc. and JPMorgan Chase Bank, N.A., individually and as
Administrative Agent (Incorporated by reference from Exhibit 99.02 to Registrant’s Current
Report on Form 8-K filed January 31, 2008).
67
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Exhibit
Number
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
†10.37
†10.38
Description
Security Agreement, dated as of January 25, 2008, among MoneyGram International, Inc.,
MoneyGram Payment Systems, Inc., FSMC, Inc., CAG Inc., MoneyGram Payment Systems
Worldwide, Inc., PropertyBridge, Inc., MoneyGram of New York LLC, and JPMorgan Chase
Bank, N.A. (Incorporated by reference from Exhibit 99.03 to Registrant’s Current Report on
Form 8-K filed on January 31, 2008).
Pledge Agreement, dated as of January 25, 2008, among MoneyGram International, Inc.,
MoneyGram Payment Systems, Inc., FSMC, Inc., CAG Inc., MoneyGram Payment Systems
Worldwide, Inc., PropertyBridge, Inc., MoneyGram of New York LLC, and JPMorgan Chase
Bank, N.A. (Incorporated by reference from Exhibit 99.04 to Registrant’s Current Report on
Form 8-K filed on January 31, 2008).
Amended and Restated Purchase Agreement, dated as of March 17, 2008, among MoneyGram
International, Inc. and the several Investor parties named therein (Incorporated by reference
from Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Fee Arrangement Letter, dated February 11, 2008, between THL Managers VI, LLC and
MoneyGram International, Inc. (Incorporated by reference from Exhibit 10.2 to Registrant’s
Current Report on Form 8-K filed on February 12, 2008).
Fee Arrangement Letter, dated February 11, 2008, between Goldman, Sachs & Co. and
MoneyGram International, Inc. (Incorporated by reference from Exhibit 10.3 to Registrant’s
Current Report on Form 8-K filed on February 12, 2008).
Amended and Restated Fee Arrangement Letter, dated March 17, 2008, between THL
Managers VI, LLC and MoneyGram International, Inc. (Incorporated by reference from
Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed March 18, 2008).
Amended and Restated Fee Arrangement Letter, dated March 17, 2008, between Goldman,
Sachs & Co. and MoneyGram International, Inc. (Incorporated by reference from Exhibit 10.3
to Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Amended and Restated Note Purchase Agreement, dated as of March 17, 2008, among
MoneyGram Payment Systems Worldwide, Inc., MoneyGram International, Inc., GSMP V
Onshore US, Ltd., GSMP V Offshore US, Ltd., GSMP V Institutional US, Ltd., and THL
Managers VI, LLC (Incorporated by reference from Exhibit 10.5 to Registrant’s Current Report
on Form 8-K filed on March 18, 2008).
Amended and Restated Fee Letter, dated March 17, 2008, among MoneyGram Payment
Systems Worldwide, Inc., GSMP V Onshore US, Ltd., GSMP V Offshore US, Ltd., GSMP V
Institutional US, Ltd., GS Capital Partners VI Fund, L.P., GS Capital Partners VI Offshore
Fund, L.P., GS Capital Partners VI GmbH & Co. KG, GS Capital Partners VI Parallel, L.P., and
THL Managers VI, LLC (Incorporated by reference from Exhibit 10.4 to Registrant’s Current
Report on Form 8-K filed on March 18, 2008).
Form of Registration Rights Agreement by and among the several Investor parties named
therein and MoneyGram International, Inc. (Incorporated by reference from Exhibit 99.5 to
Registrant’s Current Report on Form 8-K filed on March 18, 2008).
Form of Exchange and Registration Rights Agreement by and among MoneyGram Payment
Systems Worldwide, Inc., each of the Guarantors listed on the signature pages thereto, GSMP V
Onshore US, Ltd., GSMP V Offshore US, Ltd. and GSMP V Institutional US, Ltd.
(Incorporated by reference from Exhibit 99.6 to Registrant’s Current Report on Form 8-K filed
on March 18, 2008).
Form of Indenture, by and among MoneyGram International, Inc., MoneyGram Payment
Systems Worldwide, Inc., the other guarantors party thereto and Deutsche Bank Trust Company
Americas, a New York banking corporation, as trustee and collateral agent (Incorporated by
reference from Exhibit 99.7 to Registrant’s Current Report on Form 8-K filed on March 18,
2008).
MoneyGram Employee Equity Trust, effective as of June 30, 2004 (Incorporated by reference
from Exhibit 10.16 to Registrant’s Quarterly Report on Form 10-Q filed on August 13, 2004).
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Restricted Stock
Agreement, as amended February 16, 2005 (Incorporated by reference from Exhibit 99.5 to
Registrant’s Current Report on Form 8-K filed on February 23, 2005).
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Performance-Based
Restricted Stock Agreement (Incorporated by reference from Exhibit 10.3 to Registrant’s
Quarterly Report on Form 10-Q filed on November 12, 2004).
68
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Exhibit
Number
†10.39
†10.40
†10.41
†10.42
†10.43
†10.44
†10.45
†10.46
†10.47
†10.48
†10.49
†10.50
†10.51
†10.52
†10.53
†10.54
†10.55
Description
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Incentive Stock Option
Agreement (Incorporated by reference from Exhibit 10.4 to Registrant’s Quarterly Report on
Form 10-Q filed on November 12, 2004).
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, as amended February 16, 2005 (Incorporated by reference from
Exhibit 99.6 to Registrant’s Current Report on Form 8-K filed on February 23, 2005).
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement for Directors (Incorporated by reference from Exhibit 99.7 to Registrant’s
Current Report on Form 8-K filed on February 23, 2005).
Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Restricted Stock
Agreement for Directors (Incorporated by reference from Exhibit 99.8 to Registrant’s Current
Report on Form 8-K filed on February 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Restricted Stock
Agreement, effective June 30, 2005 (Incorporated by reference from Exhibit 99.2 to
Registrant’s Current Report on Form 8-K filed on July 5, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Restricted Stock
Agreement, effective August 17, 2005 (US Version) (Incorporated by reference from
Exhibit 99.7 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Restricted Stock
Agreement, effective August 17, 2005 (UK Version) (Incorporated by reference from
Exhibit 99.9 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Restricted Stock
Agreement, effective May 8, 2007 (Incorporated by reference from Exhibit 99.04 to
Registrant’s Current Report on Form 8-K filed on May 14, 2007).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, effective August 17, 2005 (US Version) (Incorporated by reference from
Exhibit 99.6 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, effective August 17, 2005 (UK Version) (Incorporated by reference from
Exhibit 99.8 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, effective February 15, 2006 (US version) (Incorporated by reference from
Exhibit 10.41 to Registrant’s Annual Report on Form 10-K filed on March 1, 2006).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, effective February 15, 2006 (UK Version) (Incorporated by reference from
Exhibit 10.42 to Registrant’s Annual Report on Form 10-K filed on March 1, 2006).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement, effective May 8, 2007 (Incorporated by reference from Exhibit 99.04 to
Registrant’s Current Report on Form 8-K filed on May 14, 2007).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Performance-Based
Restricted Stock Agreement, effective February 15, 2006 (US Version) (Incorporated by
reference from Exhibit 10.40 to Registrant’s Annual Report on Form 10-K filed on March 1,
2006).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Performance-Based
Restricted Stock Agreement, effective May 8, 2007 (Incorporated by reference from
Exhibit 99.06 to Registrant’s Current Report on Form 8-K filed on May 14, 2007).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement for Directors, effective August 17, 2005 (Incorporated by reference from
Exhibit 99.4 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock
Option Agreement for Directors, effective February 15, 2006 (Incorporated by reference from
Exhibit 10.43 to Registrant’s Annual Report on Form 10-K filed on March 1, 2006).
69
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Exhibit
Number
†10.56
†10.57
†10.58
†10.59
10.60
10.61
10.62
+10.71
Description
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Restricted Stock
Agreement for Directors, effective August 17, 2005 (Incorporated by reference from
Exhibit 99.5 to Registrant’s Current Report on Form 8-K filed on August 23, 2005).
Employment Agreement, as amended and restated November 5, 2007, between MoneyGram
International, Inc. and Philip W. Milne (Incorporated by reference from Exhibit 99.01 to
Registrant’s Current Report on Form 8-K filed on November 8, 2007).
MoneyGram International, Inc. Performance Unit Incentive Plan, as amended and restated
May 9, 2007 (Incorporated by reference from Exhibit 99.02 to Registrant’s Current Report on
Form 8-K filed on May 14, 2007).
Summary of Compensation for Non-Management Directors (Incorporated by reference from
Exhibit 99.03 to Registrant’s Current Report on Form 8-K filed on February 21, 2007).
Form of MoneyGram International, Inc. Executive Compensation Trust Agreement
(Incorporated by reference from Exhibit 99.01 to Registrant’s Current Report on Form 8-K
filed on November 22, 2005).
First Amendment to the MoneyGram International, Inc. Executive Compensation
Trust Agreement (Incorporated by reference from Exhibit 99.01 to Registrant’s Current Report
on Form 8-K filed on August 22, 2006).
The MoneyGram International, Inc. Outside Directors’ Deferred Compensation Trust
(Incorporated by reference from Exhibit 99.05 to Registrant’s Current Report on Form 8-K
filed on November 22, 2005).
Money Services Agreement between Wal-Mart Stores, Inc. and MoneyGram Payment Systems,
Inc. dated February 1, 2005 as amended.
Subsidiaries of the Registrant
Consent of Deloitte & Touche LLP
Power of Attorney
*21
*23
*24
*31.1 Section 302 Certification of Chief Executive Officer
*31.2 Section 302 Certification of Chief Financial Officer
*32.1 Section 906 Certification of Chief Executive Officer
*32.2 Section 906 Certification of Chief Financial Officer
* Filed herewith.
† Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to
this report.
+ Confidential information has been omitted from this Exhibit and has been filed separately with the SEC
pursuant to a confidential treatment request under Rule 24b-2.
70
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
MoneyGram International, Inc.
Annual Report on Form 10-K
Items 8 and 15(a)
Index to Financial Statements
Management’s Responsibility Statement
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of (Loss) Income for the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2007,
2006 and 2005
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended December 31, 2007,
2006 and 2005
Notes to Consolidated Financial Statements
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-1
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Management’s Responsibility Statement
The management of MoneyGram International, Inc. is responsible for the integrity, objectivity and accuracy
of the consolidated financial statements of the Company. The consolidated financial statements are prepared
by the Company in accordance with accounting principles generally accepted in the United States of America
using, where appropriate, management’s best estimates and judgments. The financial information presented
throughout the Annual Report is consistent with that in the consolidated financial statements.
Management is also responsible for maintaining a system of internal controls and procedures designed to
provide reasonable assurance that the books and records reflect the transactions of the Company and that
assets are protected against loss from unauthorized use or disposition. Such a system is maintained through
accounting policies and procedures administered by trained Company personnel and updated on a continuing
basis to ensure their adequacy to meet the changing requirements of our business. The Company requires that
all of its affairs, as reflected by the actions of its employees, be conducted according to the highest standards
of personal and business conduct. This responsibility is reflected in our Code of Ethics.
To test compliance with the Company’s system of internal controls and procedures, the Company carries out
an extensive audit program. This program includes a review for compliance with written policies and
procedures and a comprehensive review of the adequacy and effectiveness of the internal control system.
Although control procedures are designed and tested, it must be recognized that there are limits inherent in all
systems of internal control and, therefore, errors and irregularities may nevertheless occur. Also, estimates
and judgments are required to assess and balance the relative cost and expected benefits of the controls.
Projection of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets
quarterly with management, internal audit and the independent registered public accounting firm to discuss
internal accounting control, auditing and financial reporting matters, as well as to determine that the
respective parties are properly discharging their responsibilities. Both our independent registered public
accounting firm and internal auditors have had and continue to have unrestricted access to the Audit
Committee without the presence of management.
Management assessed the effectiveness of the Company’s internal controls over financial reporting as of
December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in its Internal Control-Integrated Framework. Based
on our assessment and those criteria, management believes that the Company designed and maintained
effective internal control over financial reporting as of December 31, 2007.
The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has been engaged to
audit our financial statements and the effectiveness of the Company’s system of internal control over financial
reporting. Their reports are included on pages F-3 and F-4 of this Annual Report on Form 10-K.
/s/ PHILIP W. MILNE
Philip W. Milne
Chairman, President and
Chief Executive Officer
/s/ DAVID J. PARRIN
David J. Parrin
Executive Vice President and
Chief Financial Officer
F-2
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MoneyGram International, Inc.
Minneapolis, Minnesota
We have audited the internal control over financial reporting of MoneyGram International, Inc. and
subsidiaries (the “Company”) as of December 31, 2007, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Responsibility Statement. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions,
and effected by the company’s board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not
be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year ended December 31, 2007, of the
Company and our report dated March 25, 2008, expressed an unqualified opinion on those financial
statements.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 25, 2008
F-3
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MoneyGram International, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of MoneyGram International, Inc. and
subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of
(loss) income, comprehensive (loss) income, cash flows and stockholders’ (deficit) equity for each of the
three years in the period ended December 31, 2007. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of MoneyGram International, Inc. and subsidiaries at December 31, 2007 and 2006, and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2007, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2007, based on
the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 25, 2008, expressed an unqualified
opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 25, 2008
F-4
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31,
(Amounts in thousands, except share data)
ASSETS
Cash and cash equivalents
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Trading investments (substantially restricted)
Available for sale investments (substantially restricted)
Property and equipment
Deferred tax assets
Derivative financial instruments
Intangible assets
Goodwill
Other assets
Total assets
LIABILITIES
Payment service obligations
Debt
Derivative financial instruments
Pension and other postretirement benefits
Deferred tax liabilities
Accounts payable and other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS’ (DEFICIT) EQUITY
Preferred shares — undesignated, $0.01 par value, 5,000,000
authorized, none issued
Preferred shares — junior participating, $0.01 par value, 2,000,000
authorized, none issued
Common shares, $0.01 par value, 250,000,000 shares authorized,
88,556,077 shares issued
Additional paid-in capital
Retained (loss) income
Unearned employee benefits
Accumulated other comprehensive loss
Treasury stock: 5,910,458 and 4,285,783 shares in 2007 and 2006
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
2007
2006
$
— $
—
973,931
1,758,682
145,500
5,690,600
148,849
11,677
24,191
15,453
421,316
85,938
$ 7,935,011 $ 9,276,137
1,552,949
1,408,220
62,105
4,187,384
171,008
—
1,647
17,605
438,839
95,254
$ 7,762,470 $ 8,209,789
150,000
3,490
103,947
—
139,848
8,607,074
345,000
30,370
85,451
11,459
188,778
8,423,528
—
—
—
—
886
73,077
(387,479)
(3,280)
(21,715)
(150,006)
(488,517)
886
71,900
723,106
(17,185)
(6,292)
(103,352)
669,063
$ 7,935,011 $ 9,276,137
See Notes to Consolidated Financial Statements
F-5
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
REVENUE
Fee and other revenue
Investment revenue
Net securities losses
Total revenue
Fee commissions expense
Investment commissions expense
Total commissions expense
Net (losses) revenue
EXPENSES
Compensation and benefits
Transaction and operations support
Depreciation and amortization
Occupancy, equipment and supplies
Interest expense
Total expenses
(Loss) income from continuing operations before income
taxes
Income tax expense
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of tax
NET (LOSS) INCOME
BASIC (LOSS) EARNINGS PER SHARE
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of tax
(Loss) earnings per common share
Average outstanding common shares
DILUTED (LOSS) EARNINGS PER SHARE
(Loss) income from continuing operations
(Loss) income from discontinued operations, net of tax
(Loss) earnings per common share
Average outstanding and potentially dilutive common
shares
2007
2006
2005
$
949,059 $
398,234
(1,189,756)
157,537
410,301
253,607
663,908
(506,371)
766,881 $ 606,956
367,989
395,489
(3,709)
(2,811)
971,236
1,159,559
231,209
314,418
239,263
249,241
470,472
563,659
500,764
595,900
188,092
191,066
51,979
44,704
11,055
486,896
(993,267)
78,481
(1,071,748)
(249)
$ (1,071,997) $
172,264
164,122
38,978
35,835
7,928
419,127
132,715
150,038
32,465
31,562
7,608
354,388
176,773
52,719
124,054
—
146,376
34,170
112,206
740
124,054 $ 112,946
$
$
$
$
(12.94) $
—
(12.94) $
1.47 $
—
1.47 $
1.32
0.01
1.33
82,818
84,294
84,675
(12.94) $
—
(12.94) $
1.45 $
—
1.45 $
1.30
0.01
1.31
82,818
85,818
85,970
See Notes to Consolidated Financial Statements
F-6
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31,
(Amounts in thousands)
NET (LOSS) INCOME
OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized gains (losses) on available-for-sale
securities:
Net holding losses arising during the period, net of
tax benefit of ($450,999), ($9,453) and ($38,710)
Reclassification adjustment for net realized losses
included in net income, net of tax benefit of
$452,107, $1,068 and 1,409
Net unrealized (losses) gains on derivative financial
instruments:
Net holding (losses) gains arising during the period,
net of tax (benefit) expense of ($14,299), $4,788
and $47,488
Reclassification adjustment for net unrealized gains
included in net income, net of tax expense of
($4,510), ($6,201) and ($15,815)
Prior service costs for pension and postretirement
benefit plans:
Reclassification of prior service costs for pension and
postretirement benefit plans recorded to net
income, net of tax benefit of $72
Net actuarial loss for pension and postretirement benefit
plans:
Reclassification of net actuarial loss for pension and
postretirement benefit plans recorded to net income,
net of tax benefit of $1,668
Valuation adjustment for pension and postretirement
benefit plans, net of tax benefit of $9,152
Minimum pension liability adjustment, net of tax
expense (benefit) of $2,021 and ($342)
Unrealized foreign currency translation (losses) gains,
net of tax (benefit) expense of $(2,257), $2,326 and
($2,530)
Other comprehensive (loss)
2007
2006
2005
$ (1,071,997) $ 124,054 $ 112,946
(735,838)
(15,423)
(63,159)
737,649
1,811
1,742
(13,681)
2,299
(60,860)
(23,333)
7,812
77,481
(7,357)
(30,690)
(10,118)
(2,306)
(25,803)
51,678
117
—
—
2,649
14,372
—
—
—
—
—
3,297
(557)
(3,682)
(15,423)
3,794
(8,896)
(4,127)
(13,866)
99,080
COMPREHENSIVE (LOSS) INCOME
$ (1,087,420) $ 115,158 $
See Notes to Consolidated Financial Statements
F-7
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(Amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by
2007
2006
2005
$
(1,071,997) $
124,054 $
112,946
operating activities:
Net loss (earnings) from discontinued operations
Depreciation and amortization
Investment impairment charges
Provision for deferred income taxes
Net gain on sale of investments
Net amortization of investment premiums and discounts
Asset impairments and adjustments
Provision for uncollectible receivables
Non-cash compensation and pension expense
Other non-cash items, net
Changes in foreign currency translation adjustments
Change in other assets
Change in accounts payable and other liabilities
Total adjustments
Change in cash and cash equivalents (substantially restricted)
Change in trading investments, net (substantially restricted)
Change in receivables, net (substantially restricted)
Change in payment service obligations
Net cash (used in) provided by continuing operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available-for-sale
Proceeds from maturities of investments classified as available-for-sale
Purchases of investments classified as available-for-sale
Purchases of property and equipment
Cash paid for acquisitions and divestitures
Other investing activities
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolver
Proceeds and tax benefit from exercise of stock options
Purchase of treasury stock
Cash dividends paid
Net cash provided by (used in) financing activities
CASH FLOWS OF DISCONTINUED OPERATIONS
Operating cash flows
Investing cash flows
Financing cash flows
Net cash used in discontinued operations
NET DECREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS — Beginning of period
CASH AND CASH EQUIVALENTS — End of period
249
51,979
1,193,210
37,637
(3,649)
(15,752)
7,205
8,532
14,177
(1,881)
(3,682)
5,401
7,984
1,301,410
(563,779)
83,200
342,681
(447,319)
(355,804)
321,693
755,921
(758,898)
(70,457)
(29,212)
—
219,047
195,000
7,674
(45,992)
(16,625)
140,057
—
38,978
5,238
33,155
(2,427)
(8,208)
893
3,931
6,600
(3,549)
3,795
(10,573)
(25,348)
42,485
(261,725)
22,200
(335,509)
38,489
(370,006)
425,236
798,224
(707,452)
(81,033)
(7,311)
—
427,664
—
24,643
(67,856)
(14,445)
(57,658)
(740)
32,465
6,552
2,880
(2,844)
7,645
—
12,935
3,780
(10,194)
(4,127)
(3,201)
23,127
68,278
(84,817)
153,100
(666,282)
518,728
101,953
486,905
978,554
(1,471,558)
(47,359)
(8,535)
(700)
(62,693)
—
16,798
(50,000)
(6,058)
(39,260)
—
(3,300)
—
(3,300)
—
—
— $
—
—
—
—
—
—
— $
$
—
—
—
—
—
—
—
See Notes to Consolidated Financial Statements
F-8
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Amounts in thousands, except share data)
December 31, 2004
Net income
Dividends ($0.07 per share)
Employee benefit plans
Treasury shares acquired
Unrealized foreign currency translation
adjustment
Unrealized loss on available-for-sale
securities
Unrealized gain on derivative financial
instruments
Minimum pension liability
December 31, 2005
Net income
Dividends ($0.17 per share)
Employee benefit plans
Treasury shares acquired
Unrealized foreign currency translation
adjustment
Unrealized loss on available-for-sale
securities
Unrealized loss on derivative financial
instruments
Minimum pension liability
Adjustment to initially apply FASB
Statement No. 158
December 31, 2006
$
Cumulative effect of adoption of FIN 48
Net loss
Dividends ($0.20 per share)
Employee benefit plans
Treasury shares acquired
Unrealized foreign currency translation
adjustment
Unrealized gain on available-for-sale
securities
Unrealized loss on derivative financial
instruments
Amortization of prior service cost for
pension and postretirement benefits,
net of tax
Amortization of unrealized losses on
pension and postretirement benefits,
net of tax
Valuation adjustment for pension and
postretirement benefit plans, net of tax
$
December 31, 2007
Common
Stock
Additional
Capital
$
886 $
79,833 $
Retained
(Loss)
Income
Unearned
Employee
Benefits
and Other
Accumulated
Other
Comprehensive
(Loss) Income
Common
Stock in
Treasury
Total
(31,037) $
25,691 $
(16,791) $
506,609 $
112,946
(6,058)
205
5,636
$
886 $
80,038 $
(25,401) $
613,497 $
124,054
(14,445)
(8,138)
8,216
10,075
(50,000)
(56,716) $
21,220
(67,856)
(103,352) $
(662)
(45,992)
(4,127)
(60,860)
51,678
(557)
11,825 $
3,794
(13,681)
(2,306)
3,297
(9,221)
(6,292) $
(3,682)
1,811
(30,690)
565,191
112,946
(6,058)
15,916
(50,000)
(4,127)
(60,860)
51,678
(557)
624,129
124,054
(14,445)
21,298
(67,856)
3,794
(13,681)
(2,306)
3,297
(9,221)
669,063
(21,963)
(1,071,997)
(16,625)
14,420
(45,992)
(3,682)
1,811
(30,690)
886 $
71,900 $
(17,185) $
723,106 $
(21,963)
(1,071,997)
(16,625)
1,177
13,905
886 $
73,077 $
(387,479) $
(3,280) $
117
117
2,649
14,372
(21,715) $
(150,006) $
2,649
14,372
(488,517)
See Notes to Consolidated Financial Statements
F-9
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of the Business
MoneyGram International, Inc. (“MoneyGram”) offers products and services under its two operating segments,
Global Funds Transfer and Payment Systems. The Global Funds Transfer segment provides global money
transfer services, money orders and bill payment services to consumers through a network of agents. The
Payment Systems segment provides financial institutions with payment processing services, primarily official
check outsourcing services and money orders for sale to their customers and processes controlled
disbursements.
MoneyGram has offices in six states in the United States, seven countries in Europe, six countries in Asia, two
countries in Africa and in Australia. The Company’s headquarters are located in Minneapolis, Minnesota,
U.S.A.
MoneyGram International, Inc. (“MoneyGram”) was incorporated on December 18, 2003 in the state of
Delaware as a subsidiary of Viad Corp (“Viad”) to effect the spin-off of Viad’s payment services business
operated by Travelers Express Company, Inc. (“Travelers”) to its stockholders (the “spin-off”). On June 30,
2004 (the “Distribution Date”), Travelers was merged with a subsidiary of MoneyGram and Viad then
distributed 88,556,077 shares of MoneyGram common stock in a tax-free distribution (the “Distribution”).
Stockholders of Viad received one share of MoneyGram common stock for every share of Viad common stock
owned on the record date of June 24, 2004. Due to the relative significance of MoneyGram to Viad,
MoneyGram is the divesting entity and treated as the “accounting successor” to Viad for financial reporting
purposes in accordance with Emerging Issues Task Force (“EITF”) Issue No. 02-11, Accounting for Reverse
Spinoffs. Effective December 31, 2005, the entity that was formerly Travelers was merged into MoneyGram
Payment Systems, Inc., a wholly owned subsidiary of MoneyGram (“MPSI”), with MPSI remaining as the
surviving corporation. References to “MoneyGram,” the “Company,” “we,” “us” and “our” are to MoneyGram
International, Inc. and its subsidiaries and consolidated entities.
Capital Transaction — During September 2007, the asset-backed securities market and broader credit markets
began to show significant disruption, with a general lack of liquidity in the markets and deterioration in fair
value of mortgage-backed securities triggered by concerns surrounding sub-prime mortgages. In response to
these concerns, the rating agencies undertook extensive reviews of asset-backed securities, particularly
mortgage-backed securities. In November and December 2007, the asset-backed securities and credit markets
experienced further substantial deterioration under increasing concerns over defaults on mortgages and debt in
general, as well as an increasingly negative view of all structured investments and the credit market in general.
In addition, the rating agencies continued their review of securities, issuing broad rating downgrades based on
high levels of assumed future defaults. Under the terms of certain of the Company’s asset-backed securities,
ratings downgrades of collateral securities can reduce the cash flows to all but the most senior investors even if
there have been no actual losses incurred by the collateral securities. In December 2007, the Company began to
experience adverse changes to the cash flows from some of its asset-backed investments as a result of the
accumulating rating downgrades of collateral securities. As the market continued its substantial deterioration,
the Company identified a need for additional capital. Through meetings with potential investors in late
December 2007 and early January 2008, it became evident that the Company would need to divest certain
investments in connection with any recapitalization to eliminate the risk of any further deterioration in the
investment portfolio. The Company commenced a plan in January 2008 to realign its investment portfolio
away from asset-backed securities and into highly liquid assets through the sale of a substantial portion of the
investment portfolio. As a result of these developments, the Company recognized $1.2 billion of
other-than-temporary impairments in December 2007.
On March 25, 2008, the Company completed a recapitalization transaction pursuant to which the Company
received a substantial infusion of both equity and debt capital (the “Capital Transaction”). See Note 18 —
Subsequent Events for further discussion of the Capital Transaction.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation — The consolidated financial statements of MoneyGram are prepared in conformity with
accounting principles generally accepted in the United States of America (“GAAP”). The Consolidated
Balance
F-10
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Sheets are unclassified due to the short-term nature of the settlement obligations, contrasted with the ability to
invest cash awaiting settlement in long-term investment securities.
Principles of Consolidation — The consolidated financial statements include the accounts of MoneyGram
International, Inc. and its subsidiaries. Inter-company profits, transactions and account balances have been
eliminated in consolidation.
Consolidation of Special Purpose Entities — The Company participates in various trust arrangements (special
purpose entities) related to official check processing agreements with financial institutions and structured
investments within the investment portfolio. The Company has determined that these special purpose entities
(“SPE”) meet the definition of a variable interest entity under Financial Interpretation (“FIN”) 46R,
Consolidation of Variable Interest Entities, and must be included in our Consolidated Financial Statements.
Working in cooperation with certain financial institutions, the Company has established separate consolidated
entities (SPEs) and processes that provide these financial institutions with additional assurance of our ability
to clear their official checks. These processes include maintenance of specified ratios of segregated
investments to outstanding payment instruments, typically 1 to 1. The Company remains liable to satisfy the
obligations, both contractually and by operation of the Uniform Commercial Code, as issuer and drawer of the
official checks. Accordingly, the obligations have been recorded in the Consolidated Balance Sheets under
“Payment service obligations.” Under certain limited circumstances, clients have the right to either demand
liquidation of the segregated assets or to replace us as the administrator of the SPE. Such limited
circumstances consist of material (and in most cases continued) failure of MoneyGram to uphold its
warranties and obligations pursuant to its underlying agreements with the financial institution clients. While
an orderly liquidation of assets would be required, any of these actions by a client could nonetheless diminish
the value of the total investment portfolio, decrease earnings and result in loss of the client or other customers
or prospects. The Company offers the SPE to certain financial institution clients as a benefit unique in the
payment services industry.
Certain structured investments owned by the Company 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, the Company owns a percentage of the beneficial interests
which results in the Company absorbing a majority of the expected losses. Therefore, the Company
consolidates these trusts by recording and accounting for the assets of the trust separately in the Consolidated
Financial Statements.
The Company follows the accounting guidance in Statement of Financial Accounting Standards (“SFAS”)
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, to
determine whether or not SPEs are qualifying SPEs (a “QSPE”). A QSPE is an entity with significantly
limited permissible activities which are entirely specified in the legal documents establishing the SPE and
may only be significantly changed with the approval of the holders of at least a majority of the beneficial
interests held by parties other than the sponsoring company. If the Company has a variable interest in a QSPE,
or is a sponsor of an SPE that does not meet the criteria required to be a QSPE, the Company follows the
accounting guidance in FIN 46R to determine if the Company is required to consolidate the SPE.
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.
Cash and Cash Equivalents, Receivables and Investments — The Company generates funds from the sale of
money orders, official checks (including cashier’s checks, teller checks and agent checks) and other payment
instruments, all of which are classified as “Payment service obligations” in the Consolidated Balance Sheets.
The proceeds are invested in cash and cash equivalents and investments until needed to satisfy the liability to
pay the face amount of the payment service obligations upon presentment.
F-11
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and Cash Equivalents (substantially restricted) — The Company considers cash on hand and all
highly liquid debt instruments purchased with original maturities of three months or less, which the
Company does not intend to rollover, to be cash and cash equivalents.
Receivables, net (substantially restricted) — The Company has 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 the Company. The Company
provides an allowance for the portion of the receivable estimated to become uncollectible.
The Company sells an undivided percentage ownership interest in certain of these receivables, primarily
receivables from our money order agents. The sale is recorded in accordance with SFAS No. 140. Upon
sale, the Company removes the sold agent receivables from the Consolidated Balance Sheets as the
Company has surrendered control over those receivables.
Investments (substantially restricted) — The Company’s available-for-sale investments consist primarily of
mortgage-backed securities, other asset-backed securities, state and municipal government obligations and
corporate debt securities. Trading investments consist of auction rate securities. Investments are held in
custody with major financial institutions.
The Company classifies securities as trading or available-for-sale in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Securities that are bought and held
principally for the purpose of resale in the near term are classified as trading securities. The Company
records trading securities at fair value, with gains or losses reported in the Consolidated Statements of
(Loss) Income. 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 recorded at fair value, with the net after-tax unrealized
gain or loss recorded as a separate component of stockholders’ equity. The Company has no securities
classified as held-to-maturity.
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 in accordance with SFAS No. 91, Accounting for Nonrefundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases. Interest income on
mortgage-backed and other asset-backed investments for which risk of credit loss is not deemed remote is
recorded under the prospective method as adjustments of yield in accordance with EITF Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets.
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, EITF Issue No. 99-20 and
SEC Staff Accounting Bulletin (“SAB”) No. 59, Views on Accounting for Noncurrent Marketable Equity
Securities. Securities that the Company deems to be other-than-temporarily impaired are written down to
fair value in the period the impairment occurs. Under SFAS No. 115, the assessment of whether such
impairment has occurred is based on management’s evaluation of the underlying reasons for the decline in
fair value on a security by security basis. The Company considers a wide range of factors about the security
and we 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. The Company evaluates mortgage-backed and other
asset-backed investments rated A and below for which risk of credit loss is deemed more than remote for
impairment under EITF Issue No. 99-20. If a security is deemed to not be impaired under EITF Issue
No. 99-20, it is further analyzed under SFAS No. 115. When an adverse change in expected cash flows
occurs, and if the fair value of a security is less than its carrying value, the investment is written down to
fair value through a permanent reduction to its amortized cost. Any impairment charges are included in the
Consolidated Statements of (Loss) Income under “Net securities gains and losses.”
F-12
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Substantially Restricted — The Company is regulated by various state agencies which generally require the
Company to maintain liquid assets and investments with an investment rating of A or higher in an amount
generally equal to the payment service obligation (“PSO”) for those regulated payment instruments, namely
teller checks, agent checks, money orders, and money transfers. The regulatory requirements are similar to,
but less restrictive than, the Company’s unrestricted assets measure. The regulatory PSO measure varies by
state, but in all cases is substantially lower than the Company’s PSO as disclosed in the Consolidated Balance
Sheets because the Company is not regulated by state agencies for PSO resulting from outstanding cashier’s
checks or for amounts payable to agents and brokers. Consequently, a significant amount of cash and cash
equivalents, receivables and investments are restricted to satisfy the liability to pay the face amount of
regulated payment service obligations upon presentment. The Company is not regulated by state agencies for
payment service obligations resulting from outstanding cashier’s checks; however, the Company restricts a
portion of the funds related to these payment instruments due to contractual arrangements and/or Company
policy. Assets restricted for regulatory or contractual reasons are not available to satisfy working capital or
other financing requirements. The regulatory and contractual requirements do not require the Company to
specify individual assets held to meet our payment service obligations; nor is the Company required to
deposit specific assets into a trust, escrow or other special account. Rather, the Company must maintain a pool
of liquid assets. No third party places limitations, legal or otherwise, on the Company regarding the use of its
individual liquid assets. The Company is able to withdraw, deposit 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.
Regulatory requirements also require MPSI, the licensed entity and wholly-owned operating subsidiary of the
Company, to maintain positive net worth, with one state also requiring that MPSI maintain positive tangible
net worth. As of December 31, 2007, the Company was in compliance with state regulatory requirements,
with the exception of the requirement of one state to maintain positive tangible net worth. As of December 31,
2007, the Company had excess assets over the states’ payment service obligations (“cushion”) under our most
restrictive state of $157.9 million. All other states had substantially higher cushions at December 31, 2007.
Subsequent to December 31, 2007, the Company was out of compliance with certain other state regulatory
requirements. The Company has not received notice of any enforcement actions contemplated by the
regulators, but the regulators reserve the right to take action in the future and could impose fines and penalties
related to the compliance failure. With the completion of the Capital Transaction, as of March 25, 2008, the
Company was in compliance with all regulatory requirements for all states.
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 December 31. The Company had a shortfall in its unrestricted assets at
December 31, 2007 due to the decline in the fair value of its investment portfolio.
(Amounts in thousands)
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Trading investments (substantially restricted)
Available for sale investments (substantially restricted)
Amounts restricted to cover payment service obligations
(Shortfall) excess in unrestricted assets
2007
2006
$
1,552,949 $
1,408,220
62,105
4,187,384
7,210,658
(7,762,470)
$
(551,812) $
973,931
1,758,682
145,500
5,690,600
8,568,713
(8,209,789)
358,924
See Note 18 — Subsequent Events for the impact of the Capital Transaction on the Company’s unrestricted
assets measure.
F-13
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Payment Service Obligations — Payment service obligations primarily consist of: outstanding payment
instruments; amounts owed to financial institutions for funds paid to the Company to cover clearings of
official check payment instruments, remittances and clearing adjustments; amounts owed to agents for funds
paid to consumers on behalf of the Company; amounts owed under our sale of receivables program for
collections on sold receivables; amounts owed to investment brokers for purchased securities or reverse
repurchase agreements; and unclaimed property owed to various states. These obligations are recognized by
the Company at the time the underlying transactions occur.
Derivative Financial Instruments — The Company recognizes derivative instruments as either assets or
liabilities on the Consolidated Balance Sheets and measures 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, the Company recognizes the gain or loss in
earnings in the period of change, together with the offsetting loss or gain on the hedged item. For a derivative
instrument designated as a cash flow hedge, the Company initially reports the effective portion of the
derivative’s gain or loss in “Accumulated other comprehensive (loss) income” in the Consolidated Statements
of Stockholders’ (Deficit) Equity and subsequently reclassify the net gain or loss into earnings when the
hedged exposure affects earnings. For fair value hedges, changes in fair value are recognized immediately in
earnings, consistent with the underlying hedged item.
The Company evaluates hedge effectiveness of its derivatives designated as cash flow hedges at inception and
on an on-going basis. Derivatives designated as fair value hedges are generally evaluated for effectiveness
using the short-cut method. Hedge ineffectiveness, if any, is recorded in earnings on the same line as the
underlying transaction risk. When a derivative is no longer expected to be highly effective, hedge accounting
is discontinued. Any gain or loss on derivatives designated as hedges that are terminated or discontinued is
recorded in the “Net securities gains and losses” component in the Consolidated Statements of (Loss) Income.
For a derivative instrument that does not qualify, or is not designated, as a hedge, the change in fair value is
recognized in “Transaction and operations support” in the Consolidated Statements of (Loss) Income.
Cash flows resulting from derivative financial instruments are classified in the same category as the cash
flows from the items being hedged. The Company does not use derivative instruments for trading or
speculative purposes and limits exposure to individual counterparties to manage credit risk.
Fair Value of Financial Instruments — Financial instruments consist of cash and cash equivalents,
investments, derivatives, receivables, payment service obligations, accounts payable and debt. The carrying
values of cash and cash equivalents, receivables, accounts payable and payment service obligations
approximate fair value due to the short-term nature of these instruments. The carrying values of debt
approximate fair value as interest related to the debt is variable rate. The fair value of investments and
derivatives is generally based on quoted market prices. However, certain investment securities are not readily
marketable. The fair value of these investments is the amount that would be received from the sale of the
security in an orderly transaction at the measurement date, other than a forced or liquidation sale. This
definition of fair value is commonly referred to as the “exit price” of a security. The degree of management
judgment involved in determining the fair value of an investment is dependent upon the availability of quoted
market prices or observable market parameters. Fair value for the majority of our investments is estimated
using quoted market prices in active markets, broker-dealer quotes or through the use of industry-standard
models that utilize independently sourced market parameters. These independently sourced market parameters
are observable in the marketplace, can be derived from observable data or are supported by observable levels
at which transactions for similar securities are executed in the marketplace. The use of different market
assumptions or valuation methodologies may have a material effect on the estimated fair value amounts of
these investments.
Allowance for Losses on Receivables — The Company provides an allowance for potential losses from
receivables from agents and financial institutions. The allowance is determined based on known delinquent
accounts and
F-14
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
historical trends. Receivables are generally considered past due two days after the contractual remittance
schedule, which is typically one to three days after the sale of the underlying payment instrument.
Receivables are evaluated for collectibility and possible write-off by examining the facts and circumstances
surrounding each customer where an account is delinquent and a loss is deemed possible. Receivables are
generally written off against the allowance one year after becoming past due. Following is a summary of
activity within the allowance for losses:
(Amounts in thousands)
Beginning balance at January 1,
Charged to expense
Write-offs, net of recoveries
Ending balance at December 31,
2007
2006
2005
$
$
13,819 $
7,930
6,824 $
8,532 $
3,931 $ 12,935
(7,337) $ (10,926) $ (7,046)
6,824 $ 13,819
8,019 $
Property and Equipment — Property and equipment includes agent equipment, communication equipment,
computer hardware, computer software, leasehold improvements, office furniture and equipment, and signs
and is stated at cost, net of accumulated depreciation. The Company does not own any buildings. Property and
equipment is depreciated using a straight-line method over the lesser of assets’ estimated useful lives or lease
term. Estimated useful lives by major asset category are generally as follows:
Agent field equipment
Communication equipment
Computer hardware
Computer software
Leasehold improvements
Office furniture and equipment
Signage
3 years
5 years
3 years
Lesser of 5 years or software license/remaining useful
life
Lesser of the lease term or 10 years
Lesser of the lease term or 7 years
3 years
The cost and related accumulated depreciation of assets sold or disposed of are removed from the financial
statements and the resulting gain or loss, if any, is recognized under the caption “Occupancy, equipment and
supplies” in the Consolidated Statement of (Loss) Income.
For the years ended December 31, 2007 and 2006, software development costs of $12.5 million and
$14.8 million, respectively, were capitalized in accordance with Statement of Position No. 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use. At December 31, 2007 and
2006, there is $38.5 million and $39.9 million, respectively, of unamortized software development costs
included in property and equipment.
Tenant allowances for leasehold improvements are capitalized as leasehold improvements upon completion of
the improvement and depreciated over the shorter of the useful life of the leasehold improvement or the term
of the lease. See Note 14 — Commitments and Contingencies for further discussion.
Intangible Assets and Goodwill — Goodwill represents the excess of the purchase price over the fair value of
net assets acquired in business combinations under the purchase method of accounting. Intangible assets are
recorded at cost. Goodwill and intangible assets with indefinite lives are not amortized, but are instead subject
to impairment testing on an annual basis and whenever there is an impairment indicator. Intangible assets are
tested for impairment annually or whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable.
F-15
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets with finite lives are amortized using a straight-line method over their respective useful lives.
The useful lives of intangibles assets are as follows:
Customer lists
Patents
Noncompetition agreements
Trademarks
Developed technology
primarily 9-15 years
15 years
3 years
36-40 years
5 years
Goodwill is tested for impairment using a fair-value based approach. The Company assesses goodwill at the
reporting unit level, which is determined to be the lowest level at which management reviews cash flows for a
business. Goodwill, which is generated solely through acquisitions, is allocated to the reporting unit in which
the acquired business operates. The carrying value of the reporting unit is compared to its estimated fair
value; any excess of carrying value over fair value is deemed to be an impairment. Intangible, and other
long-lived, assets are tested for impairment by comparing the carrying value of the assets to the estimated
future undiscounted cash flows. If an impairment is determined to exist for goodwill and intangible assets, the
carrying value of the asset is reduced to the estimated fair value. For all periods presented, substantially all of
the Company’s goodwill is allocated to the Money Transfer reporting unit. The impairment tests are
performed for goodwill in November of each fiscal year, as well as when an impairment indicator is
identified.
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. Payments 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. Amortization of payments on long-term contracts is recorded in “Fees commission expense” in
the Consolidated Statements of (Loss) Income. The carrying values of these incentive payments are reviewed
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 Distribution, 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. The provision for income taxes is computed based on the pretax income included in the
Consolidated Statements of (Loss) Income. Deferred income taxes result from temporary differences between
the financial reporting basis of assets and liabilities and their respective tax-reporting basis. Deferred tax
assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to reverse. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax benefit will not be realized.
The Company adopted the provisions of FIN No. 48, Accounting for Uncertainty in Income Taxes, on
January 1, 2007. The cumulative effect of applying FIN No. 48 is reported as an adjustment to the opening
balance of retained income. As a result of the implementation of FIN No. 48, the Company recognized a
$29.6 million increase in the liability for unrecognized tax benefits, a $7.6 million increase in deferred tax
assets and a $22.0 million reduction to the opening balance of retained income. The $29.6 million increase in
the liability for unrecognized tax benefits is recorded as a non-cash item in “Accounts payable and other
liabilities” in the Consolidated Balance Sheets. The Company records interest and penalties for unrecognized
tax benefits in “Income tax expense” in the Consolidated Statements of (Loss) Income.
Treasury Stock — Repurchased common stock is stated at cost and is presented as a separate reduction of
stockholders’ equity.
F-16
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency Translation — The Company converts assets and liabilities of foreign operations to their
U.S. dollar equivalents at rates in effect at the balance sheet dates, and records translation adjustments in
“Accumulated other comprehensive loss” in the Consolidated Balance Sheets. Income statements of foreign
operations are translated from the operation’s functional currency to U.S. dollar equivalents at the average
exchange rate for the month. Foreign currency exchange transaction gains and losses are reported in
“Transaction and operations support” in the Consolidated Statements of (Loss) Income.
Revenue Recognition — The Company derives revenue primarily through service fees charged to consumers
and its investing activity. A description of these revenues and recognition policies is as follows:
• Fee and other 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. The money order and bill payment transaction
fees are fixed fees charged on a per item basis. Transaction fees 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 and consists of interest income, dividend income and
amortization of premiums and discounts. These funds are available for investment until the items are
presented for payment. Interest and dividends are recognized as earned. Premiums and discounts on
investments are amortized using a straight-line method over the life of the investment.
• Securities gains and losses are recognized upon the sale of securities using the specific identification
method to determine the cost basis of securities sold. Impairments are recognized in the period the
security is deemed to be other-than-temporarily impaired.
Fee Commissions Expense — The Company pays 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. The Company generally does not pay commissions to agents on the sale of money orders. Fee
commissions are recognized at the time of the transaction. Fee commissions also include the amortization of
the capitalized incentive payments to agents.
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 and
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. Investment commissions are
generally recognized each month based on the average outstanding balances and the contractual variable rate
for that month.
Marketing & Advertising Expense — Marketing, and advertising costs are expensed as incurred or at the time
the advertising first takes place. Marketing and advertising expense was $56.5 million, $53.4 million and
$38.3 million for 2007, 2006 and 2005, respectively.
F-17
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings Per Share — Basic earnings per share are computed based on the weighted-average number of
common shares outstanding during each year. Nonvested restricted stock carries dividends and voting rights
and is not included in the weighted average number of common shares outstanding used to compute basic
earnings per share. Diluted earnings per share are based on the weighted-average number of common shares
outstanding plus net incremental shares arising out of employee stock compensation plans. The earnings
amounts used for per-share calculations are the same for both the basic and diluted methods. The following is
a reconciliation of the weighted-average share amounts used in calculating earnings per share:
(Amounts in thousands)
Basic common shares outstanding
Incremental shares from stock-based compensation plans
Diluted common shares outstanding
Stock options and other excluded from the computation
2007
2006
2005
82,818
—
82,818
1,744
84,294
1,524
85,818
2
84,675
1,295
85,970
403
Stock options and other dilutive instruments are excluded from the dilutive computation either because the
Company had a net loss for the period or because the exercise prices of these instruments were greater than
the average market price of the common stock for the period, both of which would have had an anti-dilutive
effect on earnings per share.
Stock Based Compensation — Effective January 1, 2005, the Company adopted SFAS No. 123 (revised
2004), Share-Based Payment (“SFAS No. 123R”), using the modified prospective method. Under
SFAS No. 123R, all share-based compensation awards are measured at fair value at the date of grant and
expensed over their vesting or service periods. Expense is recognized using the straight-line method.
As the Company adopted SFAS No. 123R under the modified prospective method, prior period financial
statements are not restated. No modifications were made to existing share-based awards prior to, or in
connection with, the adoption of SFAS No. 123R. The adoption of SFAS No. 123R reduced income from
continuing operations before income taxes by $1.5 million and reduced net income by $1.1 million,
respectively, for 2005. Basic and diluted earnings per share in 2005 were reduced by $0.01. Cash used by
operating activities and cash provided by financing activities during 2005 increased by $1.8 million as a result
of the adoption of SFAS No. 123R.
Recent Accounting Pronouncements — In February 2006, the FASB issued SFAS No. 155, Accounting for
Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140. SFAS No. 155 permits
companies to measure any hybrid instrument in its entirety at fair value. Changes in fair value are recorded in
income. Previously, hybrid instruments were required to be separated into two instruments, a derivative and
host. Generally, the derivative instrument was recorded at fair value. The election to measure the hybrid
instrument at fair value is made on an instrument-by-instrument basis and is irreversible. SFAS No. 155 also
requires that beneficial interests in securitized financial assets be evaluated for freestanding or embedded
derivatives. The Company adopted SFAS No. 155 on January 1, 2007 with no material impact to its
Consolidated Financial Statements.
In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes. FIN No. 48 is an
interpretation of SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in an entity’s tax return. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition of tax positions.
As discussed in Note 10 — Income Taxes, the Company adopted FIN No. 48 on January 1, 2007.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement does not
require any new fair value measurement, but it provides guidance on how to measure fair value under other
accounting pronouncements. SFAS No. 157 also establishes a fair value hierarchy to classify the source of
information used in fair value measurements. The hierarchy prioritizes the inputs to valuation techniques used
to measure fair value into
F-18
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
three broad categories. The Company adopted SFAS No. 157 on January 1, 2008 with no material impact on
its Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132. SFAS No. 158
requires the recognition of the funded status of a pension or postretirement plan in the balance sheet as an
asset or liability. Unrecognized prior service cost and gains and losses are recorded to “Accumulated other
comprehensive loss” in the Consolidated Balance Sheets. SFAS No. 158 does not change previous guidance
for income statement recognition. The standard requires the plan assets and benefit obligations to be measured
as of the annual balance sheet date of the Company. Prospective application of SFAS No. 158 is required. The
Company adopted the recognition and disclosure provisions of SFAS No. 158 at December 31, 2006. The
change in measurement date is effective for the Company’s 2008 year-end. As of January 1, 2008, the
Company adopted the change in measurement date using the transition method of measuring its plan assets
and benefit obligations as of January 1, 2008. Net periodic benefit costs for the period from our current
measurement date of November 30, 2007 through January 1, 2008 will be recognized as a separate adjustment
to retained earnings, net of tax, and changes in the fair value of our plan assets and benefit obligations for this
period will be recognized as other comprehensive (loss) income in 2008.
In January 2007, the FASB issued SFAS No. 133 Implementation Issue No. B40, Embedded Derivatives:
Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets (“DIG B40”), which
relates to SFAS No. 155. SFAS No. 155 requires the evaluation of interest in securitized financial assets to
identify interests that are derivatives. DIG B40 provides the circumstances in which a securitized interest in
prepayable financial assets would not be subject to the SFAS No. 155 requirement. The Company adopted
DIG B40 on January 1, 2007 with no material impact on its Consolidated Financial Statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain
other items at fair value. The election to measure the financial instrument at fair value is made on an
instrument-by-instrument basis for the entire instrument, with few exceptions, and is irreversible. The
Company adopted SFAS No. 159 on January 1, 2008 with no material impact on its Consolidated Financial
Statements.
In April 2007, the FASB issued FASB Staff Position (“FSP”) FIN No. 48-1, Definition of Settlement in FASB
Interpretation No. 48. FIN No. 48 requires a tax position be measured or recognized based upon the outcomes
that could be realized upon “ultimate settlement” with a tax authority. FSP FIN No. 48-1 amends FIN No. 48
to clarify when a tax position is effectively settled upon examination by a taxing authority. The Company
adopted FSP FIN No. 48-1 as of January 1, 2007 with no material impact to its Consolidated Financial
Statements.
In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position
(“SOP”) 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and
Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.
SOP 07-1 provides specific guidance for determining whether an entity meets the definition of an investment
company and should follow the AICPA Audit Accounting Guide, Investment Companies (the “Guide”).
Entities that meet the definition of an investment Company must apply the provisions of the Guide, which
includes a requirement to carry investments at fair value. The effective date of SOP 07-1 has been indefinitely
deferred.
In June 2007, the EITF approved Issue No. 06-11, Accounting for Income Tax Benefits on Dividends on
Share-Based Payment. The EITF reached a final conclusion that a realized income tax benefit from dividends
or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified
restricted stock, restricted stock units and stock options should be recognized as an increase to additional
paid-in-capital (“APIC”). Those tax benefits are considered excess tax benefits under SFAS No. 123R. The
amount recognized in APIC for the realized income tax benefit from dividends on those awards should be
included in the pool of excess tax benefits available to absorb tax deficiencies. The guidance of EITF Issue
No. 06-11 will be adopted prospectively for the
F-19
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company as of January 1, 2008. The Company is currently evaluating the impact of EITF Issue No. 06-11 on
its Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS No. 141R changes how
business combinations are accounted for and disclosed. The adoption of the requirements of SFAS No. 141R
applies prospectively to business combinations for which the acquisition date is on or after fiscal years
beginning after December 15, 2008 and may not be early adopted. SFAS No. 141R will impact financial
statements at the acquisition date and in subsequent periods.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards
for a non-controlling interest in a subsidiary. The adoption of the requirements of SFAS No. 160 is effective
for fiscal years and interim periods within those fiscal years, beginning after December 15, 2008 and may not
be early adopted. The Company is currently evaluating the impact of SFAS No. 160 on its Consolidated
Financial Statements.
Note 3 — Acquisitions and Discontinued Operations
PropertyBridge, Inc. — On October 1, 2007, the Company acquired PropertyBridge, Inc. (“PropertyBridge”)
for $28.1 million, plus a potential earn-out payment of up to $10.0 million contingent on PropertyBridge’s
performance during 2008. PropertyBridge is a provider of electronic payment processing services for the real
estate management industry. PropertyBridge offers a complete solution to the resident payment cycle,
including the ability to electronically accept deposits and rent payments. Residents can pay rent online, by
phone or in person and set up recurring payments. PropertyBridge is a component of the Company’s Global
Funds Transfer segment.
In 2007, the Company finalized its purchase price allocation, which included goodwill of $24.1 million,
purchased intangible assets of $6.0 million, consisting primarily of customer lists, developed technology and
a noncompetition agreement. The intangible assets will be amortized over useful lives ranging from three to
fifteen years. Goodwill was assigned to the Company’s Global Funds Transfer segment. The acquisition cost
includes $0.2 million of transaction costs.
The operating results of PropertyBridge subsequent to October 1, 2007 are included in the Company’s
Consolidated Statements of (Loss) Income. The financial impact of the acquisition is not material to the
Consolidated Balance Sheets or Consolidated Statements of (Loss) Income.
Money Express — On May 31, 2006, MoneyGram completed the acquisition of Money Express S.r.l.
(“Money Express”), the Company’s former super agent in Italy, for $15.0 million. In connection with the
acquisition, the Company formed MoneyGram Payment Systems Italy, S.r.l., a wholly-owned subsidiary, to
operate the former Money Express agent network. The acquisition provides the Company with the
opportunity for further network expansion and more control of marketing and promotional activities in the
region.
In 2007, the Company finalized its purchase price allocation, which resulted in a decrease of $0.3 million to
goodwill. Purchased intangible assets of $7.7 million, consisting primarily of customer lists and a
noncompetition agreement, will be amortized over useful lives ranging from three to five years. Goodwill of
$16.7 million was recorded and assigned to the Company’s Global Funds Transfer segment. The acquisition
cost includes $1.3 million of transaction costs and the forgiveness of $0.7 million of liabilities.
The operating results of Money Express subsequent to May 31, 2006 are included in the Company’s
Consolidated Statements of (Loss) Income. The financial impact of the acquisition is not material to the
Consolidated Balance Sheets or Consolidated Statements of (Loss) Income.
F-20
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ACH Commerce — The Company purchased ACH Commerce, LLC (“ACH Commerce”) in April 2005 for
$8.5 million, of which $1.1 million was to be paid upon the second anniversary of the acquisition. Based on
the terms of the acquisition agreement, the Company paid this amount during the second quarter of 2007.
Game Financial Corporation — In 2005, the Company recorded a gain of $0.7 million (net of tax) due to the
partial resolution of contingencies relating to the sale of Game Financial Corporation (“Game Financial”),
which was completed in 2004. During 2007, the Company paid $3.3 million in connection with the settlement
of a contingency in the Sales and Purchase Agreement related to the continued operations of Game Financial
with one casino. The Company recognized a loss from discontinued operations of $0.3 million in the
Consolidated Statements of (Loss) Income in 2007, representing the recognition of a deferred tax asset
valuation allowance, partially offset by the reversal of the remaining liability.
Note 4 — Investments (Substantially Restricted)
At December 31, 2007 and 2006, no investments were classified as held-to-maturity. Trading investments
have contractual maturities in the year 2049, with auction dates typically 28 days after the date the Company
purchases the security. After other-than-temporary impairment charges, the amortized cost and fair value of
available-for-sale investments are as follows at December 31, 2007:
(Amounts in thousands)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Obligations of states and political subdivisions $
Commercial mortgage-backed securities
Residential mortgage-backed securities
Other asset-backed securities
U.S. government agencies
Corporate debt securities
Preferred and common stock
574,124 $ 23,255 $
250,726
1,409,489
1,308,699
373,173
215,795
12,768
3,097
4,633
9,543
1,768
2,572
—
— $
—
(2,170)
—
(88)
—
—
Total
$ 4,144,774 $ 44,868 $ (2,258) $
Fair
Value
597,379
253,823
1,411,952
1,318,242
374,853
218,367
12,768
4,187,384
The amortized cost and fair value of available-for-sale investments are as follows at December 31, 2006:
(Amounts in thousands)
Obligations of states and political
subdivisions
Commercial mortgage-backed securities
Residential mortgage-backed securities
Other asset-backed securities
U.S. government agencies
Corporate debt securities
Preferred and common stock
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
765,525 $ 25,006 $
585,611
1,623,220
1,992,164
342,749
311,465
30,175
6,659
3,876
36,920
2,564
7,745
13
$ 5,650,909 $ 82,783 $
(490) $
(2,148)
(23,219)
(7,839)
(6,589)
(470)
(2,337)
(43,092) $
790,041
590,122
1,603,877
2,021,245
338,724
318,740
27,851
5,690,600
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. Securities
issued or backed by
F-21
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
During the second half of 2007, the rating agencies undertook extensive reviews of the credit ratings of all
securities, particularly asset-backed securities. From September 30, 2007 through December 31, 2007, 123
securities held by the Company were downgraded by one or more rating agencies, with the majority of the
downgrades occurring in November and December 2007. These downgrades primarily related to securities
classified by the Company as “Other asset-backed securities.” The actions of the rating agencies also
significantly impacted the collateral securities underlying asset-backed securities held by the Company. From
January 1 through March 19, 2008, 66 securities classified by the Company primarily as “Obligations of
states and political subdivisions” and “Other asset-backed securities” were downgraded. The rating agencies
are continuing to review the credit ratings of securities. At December 31, the Company’s investment portfolio
consisted of the following ratings:
(Amounts in thousands)
AAA, including U.S.
agencies
AA
A
BBB
Below investment
grade
Total
Number of
Securities
2007
Fair
Value
% of Total
Portfolio
Number of
Securities
2006
Fair
Value
% of Total
Portfolio
287 $
172
134
11
2,410,548
944,804
668,120
41,701
58%
22%
16%
1%
324 $
173
141
10
2,999,500
1,233,254
1,206,583
58,009
66
670 $
122,211
4,187,384
3%
100%
56
704 $
193,254
5,690,600
53%
22%
21%
1%
3%
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 $32.2 million and $15.4 million as of
December 31, 2007 and 2006, respectively.
Contractual Maturities: The amortized cost and fair value of available-for-sale securities at December 31,
2007, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities as
borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties.
Maturities of mortgage-backed and other asset-backed securities depend on the repayment characteristics and
experience of the underlying obligations.
(Amounts in thousands)
In one year or less
After one year through five years
After five years through ten years
After ten years
Mortgage-backed and other asset-backed securities
Preferred and common stock
Total
Amortized
Cost
$
7,645 $
491,066
482,069
182,312
2,968,914
12,768
$ 4,144,774 $
Fair
Value
7,716
501,520
497,084
184,280
2,984,016
12,768
4,187,384
Gains and Losses and Other-Than-Temporary Impairments: At December 31, 2007 and 2006, net unrealized
gains of $42.6 million ($26.4 million net of tax) and $39.7 million ($24.6 million net of tax), respectively, are
included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During 2007, 2006
and 2005, losses of $737.6 million, $1.7 million and $2.3 million, respectively, were reclassified from
“Accumulated other comprehensive loss” to earnings in connection with the sale of the underlying securities
and other-than-temporary impairments recognized during the year.
F-22
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gross realized gains and losses on sales of investments, using the specific identification method, and
other-than-temporary impairments were as follows for the year ended December 31:
(Amounts in thousands)
Gross realized gains
Gross realized losses
Other-than-temporary impairments
Net securities losses
2007
2006
2005
$
5,611 $
(2,157)
(1,193,210)
7,378
(4,535)
(6,552)
$ (1,189,756) $ (2,811) $ (3,709)
5,080 $
(2,653)
(5,238)
Through September 30, 2007, the Company recognized $6.1 million of other-than-temporary impairments
due to adverse changes in cash flows resulting from rating downgrades on the collateral securities underlying
the Company’s investment, as well as widening spreads in the commercial paper market.
In late November and December 2007, the asset-backed securities and credit markets experienced substantial
deterioration due to increasing concerns over defaults on mortgages and debt in general, as well as an
increasingly negative view towards all structured investments and the credit market in general. This
deterioration caused the market to demand higher risk premiums and liquidity discounts on asset-backed
securities, as well as assume higher rates of defaults than previously anticipated. As a result, the fair value for
asset-backed securities in general substantially declined from the September and October 2007 levels. In
addition, the rating agencies continued their review of securities, issuing broad rating downgrades based on
high levels of assumed future defaults. Under the terms of most asset-backed securities, ratings downgrades
of collateral securities can reduce the cash flows to all but the most senior investors even if there have been no
actual losses incurred by the collateral securities. Based on these developments, the Company believes that it
is probable that actual losses would have been incurred by many of its asset-backed securities in the future.
However, the Company believes that the impact of broad rating downgrades combined with the uncertainty in
the marketplace caused these losses to accelerate and be higher than what may ultimately be realized by the
underlying collateral securities.
In connection with the Capital Transaction described in Note 1 — Description of the Business and Note 18 —
Subsequent Events, the Company commenced a plan in January 2008 to realign its investment portfolio away
from asset-backed securities and into highly liquid assets through the sale of a substantial portion of the
investment portfolio. Based on these developments, the Company determined that it no longer had the intent
to hold substantially all of its investments classified as “Obligations of states and political subdivisions,”
“Commercial mortgage-backed securities,” “Residential mortgage-backed securities,” “Other asset-backed
securities,” “Corporate debt securities” and “Preferred and common stock.”
F-23
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a result of these developments, the Company recognized $1.2 billion of other-than-temporary impairments
in December 2007 as shown below:
(Amounts in thousands)
Other asset-backed securities
Direct exposure to sub-prime
Indirect exposure to sub-prime — high grade
Indirect exposure to sub-prime — mezzanine
Other
Total other asset-backed securities
Obligations of states and political subdivisions
Commercial mortgage-backed securities
Residential mortgage-backed securities
U.S. government agencies
Corporate debt securities
Preferred and common stock
Total
$
(76,282)
(170,386)
(393,137)
(401,766)
(1,041,571)
(115)
(93,257)
(38,751)
—
(5,989)
(7,404)
$ (1,187,087)
Impairments in 2006 related to investments backed by automobile, aircraft, manufactured housing, bank loans
and insurance securities collateral. Impairments in 2005 related primarily to investments backed by aircraft
and manufactured housing collateral.
Exposure to Sub-prime Mortgages: The Company holds securities classified in “Other asset-backed
securities” that are collateralized by sub-prime mortgages. At December 31, 2007, $273.0 million, or less than
7 percent of the fair value of the Company’s $4,187.4 million investment portfolio, had direct exposure to
sub-prime mortgages as collateral. Nearly all of these securities had investment grade ratings. In considering
securities collateralized by sub-prime mortgages, it is important to note the vintage, or year of origination, of
the mortgages as the industry loss experience in pre-2006 vintages appears to be much lower than the 2006
and 2007 vintages. Of the Company’s $273.0 million direct exposure to sub-prime mortgages, $247.5 million
relates to sub-prime mortgages originated prior to 2006. Following is the fair value of securities collateralized
by sub-prime mortgages at December 31, 2007 by vintage (based on the original security issuance date) and
rating:
Direct exposure to subprime mortgages
Vintage
(Amounts in thousands)
2007
2006
2005
2004
2003 and
Earlier
Total
Percent
of Total
Portfolio
AAA, including U.S.
agencies
AA
A
BBB
Below investment
grade
Total
Vintage as a percent
of total direct
exposure
$
3,025
$
$
16,347
6,194
$
3,025
$
22,541
$
10,169
17,089
14,880
3,199
136
45,473
$
35,078
72,559
$
$
29,928
49,404
14,317
704
108,341
$
$
93,649
$
40,097
120,943
107,950
3,199
840
273,029
0.9%
2.9%
2.6%
0.1%
0.0%
6.5%
1%
8%
17%
40%
34%
100%
F-24
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 2007, “Other asset-backed securities” with a fair value of $1,318.2 million had gross
unrealized gains of $9.5 million, which includes gross unrealized gains of less than $0.1 million for securities
with direct exposure to sub-prime mortgages as collateral. These unrealized gains are included in the
Consolidated Balance Sheet in “Accumulated other comprehensive loss.”
The Company also holds collateralized debt obligations (“CDOs”) in its “Other asset-backed securities” which
are backed by diversified collateral pools that may include sub-prime mortgages of various vintages. Following
is the fair value of CDOs with indirect sub-prime mortgage exposure by CDO type and rating. The Company
defines high grade CDOs as those having collateral with an A- or better average rating at purchase, while
mezzanine asset-backed CDOs are defined as those having collateral with a BBB/BBB- average rating at
purchase.
Indirect exposure to subprime mortgages
(Amounts in thousands)
AAA, including U.S. agencies
AA
A
BBB
Below investment grade
Total
$
High
Grade
2,045
7,353
7,700
777
17,875
$
Mezzanine
Total
$
6,548
13,622
20,112
3,325
10,839
$ 54,446
$
8,593
20,975
27,812
3,325
11,616
$ 72,321
Percent
of Total
Portfolio
0.2%
0.5%
0.7%
0.1%
0.3%
1.8%
CDO type as a percent of total indirect subprime
exposure
25%
75%
100%
Fair Value Determination: With the disruption of the asset-backed security and credit markets in the second
half of 2007, it became increasingly difficult to obtain verifiable market information for asset-backed
securities, including broker-dealer quotes. As a result, the Company was required to internally value more
securities in the second half of 2007. The Company expects this trend to continue for the foreseeable future;
however, the future impact to the Company is limited due to the portfolio realignment in 2008. As described in
Note 18 — Subsequent Events, the Company commenced a process in January 2008 to realign its portfolio
away from asset-backed securities through the sale of securities. If a security was sold during the time that the
Company was completing its valuation process for the investment portfolio as of December 31, 2007, the
ultimate sales price for that security was used for valuation purposes as the sales price was deemed to be the
most representative estimate of fair value. Following are the sources of pricing selected by the Company as a
result of its valuation process as of December 31:
(Amounts in thousands)
Third party pricing service
Broker pricing
Internal pricing
Sale price
Total
2007
2006
Fair Value
Percent
Fair Value
Percent
$
$
2,203,371
422,612
87,805
1,473,596
4,187,384
53% $
10%
2%
35%
100% $
3,605,963
1,986,502
98,135
—
5,690,600
63%
35%
2%
—
100%
F-25
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assessment of Unrealized Losses: At December 31, 2007, the available-for-sale investments had the
following aged unrealized losses after the recognition of other-than-temporary impairment charges:
(Amounts in thousands)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 months
12 months or More
Total
Residential
mortgage-backed
securities
U.S. government
$
30,720 $
(502) $
153,919 $
(1,668) $
184,639 $
(2,170)
agencies
Total
—
30,720 $
—
(502) $
111,430
265,349 $
(88)
(1,756) $
111,430
296,069 $
(88)
(2,258)
$
At December 31, 2006, the available-for-sale investments had the following aged unrealized losses:
(Amounts in thousands)
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Less than 12 months
12 months or More
Total
Obligations of states
and political
subdivisions
Commercial
mortgage-backed
securities
Residential
mortgage-backed
securities
Other asset-backed
securities
U.S. government
agencies
Corporate debt
securities
Preferred and
$
22,467 $
(180) $
25,075 $
(310) $
47,542 $
(490)
97,747
(812)
110,859
(1,336)
208,606
(2,148)
173,179
(653)
1,213,278
(22,566)
1,386,457
(23,219)
292,742
(2,066)
318,944
(5,773)
611,686
(7,839)
—
—
321,117
(6,589)
321,117
(6,589)
6,306
(7)
60,832
(463)
67,138
(470)
common stock
Total
$
5,663
598,104 $
(45)
(3,763) $
12,173
2,062,278 $
(2,292)
(39,329) $
17,836
2,660,382 $
(2,337)
(43,092)
The Company has determined that the unrealized losses reflected above represent temporary impairments. As
of December 31, 2007 and 2006, 20 and 188 securities, respectively, had unrealized losses for more than
12 months. The securities with unrealized losses for more than 12 months as of December 31, 2007 are all
rated AAA and either issued by U.S. government agencies or collateralized by securities issued by
U.S. government agencies. As these securities have the backing of the U.S. government, the Company
believes that it is highly likely that it will receive all of its contractual cash flows from these securities. The
Company believes that the unrealized losses are caused by changes in interest rates from the date the
securities were originally issued, as well as the overall disruption in the asset-backed securities market. The
Company has the intent and ability to hold these securities to recovery, including maturity or call.
Sale of Securities: As described further in Note 18 — Subsequent Events, the Company sold a substantial
portion of its investment portfolio subsequent to December 31, 2007.
In July 2006, the Company sold securities with a fair value of $259.7 million to one party (the “acquiring
party”) for a gain of $0.1 million. No restrictions or constraints as to the future use of the securities were
placed upon the acquiring party by the Company, nor was the Company obligated under any scenario to
repurchase securities from the acquiring party. In August 2006, the acquiring party sold securities totaling
$646.8 million to a QSPE, including substantially all of the securities originally purchased from the
Company. The Company acquired the preferred shares of the QSPE and accounts for this investment at fair
value as an available-for-sale investment in accordance with SFAS No. 115. At December 31, 2006, the fair
value of the preferred shares was $7.8 million. In addition, a subsidiary of the Company serves as the
collateral advisor to the QSPE, receiving certain fees and rights standard to a collateral advisor role. Activities
performed by the collateral advisor are significantly limited and are entirely defined by the legal documents
establishing the QSPE. For performing these activities, the collateral advisor receives a quarterly fee equal to
ten basis
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
F-26
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
points on the fair value of the collateral. The collateral advisor also received and recognized a one-time fee of
$0.4 million in August 2006 for the placement of the preferred shares of the QSPE.
The Company evaluated the sale of the securities under the accounting guidance of SFAS No. 140 to
determine if the transfer of securities to the acquiring party constituted a sale for accounting purposes, as well
as to determine if the subsequent placement of the sold securities into the QSPE by the acquiring party would
be deemed a transfer of securities by the Company to the QSPE. Based upon the terms of the sale to the
acquiring party and legal documents relating to the QSPE, the Company determined that sale accounting was
achieved upon transfer of the securities to the acquiring party and that the Company was not a transferor of
securities to the QSPE. The Company then evaluated the accounting guidance of FIN 46R to determine
whether the Company was required to consolidate the QSPE. As the Company does not have the unilateral
ability to liquidate the QSPE or to change the entity so that it no longer meets the requirements of a QSPE
through either its ownership of the preferred shares or its subsidiary’s role as collateral advisor, the Company
is not required to consolidate the QSPE.
Note 5 — Derivative Financial Instruments
Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts that 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. The Company uses derivative instruments primarily to manage exposures to fluctuations in interest
rates and foreign currency exchange rates.
Cash flow hedges use derivatives to offset the variability of expected future cash flows. Variability can arise in
floating rate assets and liabilities, from changes in interest rates or currency exchange rates or from certain
types of forecasted transactions. The Company enters into foreign currency forward contracts of 12 months to
hedge forecasted foreign currency money transfer transactions. The Company designates these currency
forwards as cash flow hedges. If the forecasted transaction underlying the hedge is no longer probable of
occurring, any gain or loss recorded in equity is reclassified into earnings. The notional amount of these
currency forwards as of December 31, 2007 is $40.5 million, all maturing in 2008.
The Company has also entered into swap agreements to mitigate the effects on cash flows of interest rate
fluctuations on variable rate debt and commissions paid to financial institution customers of our Payment
Systems segment. The agreements involve varying degrees of credit and market risk in addition to amounts
recognized in the financial statements. These swaps are designated 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. 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 notional amount of the swap agreements totaled $1.4 billion and $2.6 billion at December 31, 2007 and
2006, respectively, with an average fixed pay rate of 4.3 percent and 4.3 percent and an average variable
receive rate 4.2 percent and 5.2 percent at December 31, 2007 and 2006, respectively. The variable rate portion
of the swaps is generally based on Treasury bill, federal funds or 6 month LIBOR. As the swap payments are
settled, the net difference between the fixed amount the Company pays and the variable amount the Company
receives is reflected in the Consolidated Statements of (Loss) Income in “Investment commissions expense.”
The amount recognized in earnings due to ineffectiveness of the cash flow hedges is not material for any year
presented. The Company estimates that approximately $3.6 million (net of tax) of the unrealized loss reflected
in the “Accumulated other comprehensive loss” component in the Consolidated Balance Sheet as of
December 31, 2007 will be reflected in the
F-27
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Consolidated Statement of (Loss) Income in “Investment commissions expense” within the next 12 months as
the swap payments are settled. The swap agreements extend through 2012. The agreements expire as follows:
(Amounts in thousands)
2008
2009
2010
2011
Thereafter
Total
Notional Amount
$
$
100,000
475,000
335,000
347,000
150,000
1,407,000
Fair value hedges use derivatives to mitigate the risk of changes in the fair values of assets, liabilities and
certain types of firm commitments. The Company uses 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 along with the hedged transaction in the Consolidated Statement of (Loss) Income in “Investment
revenue.” No gain or loss was recognized in connection with the discontinued fair value hedges in 2007.
These interest rate swaps were sold in connection with the sale of the hedged assets. In the first quarter of
2008, the Company sold three interest rate swaps with a notional amount of $32.0 million in connection with
the sale of the hedged asset, resulting in a $0.7 million loss.
The Company uses derivatives to hedge exposures for economic reasons, including circumstances in which
the hedging relationship does not qualify for hedge accounting. The Company is exposed to foreign currency
exchange risk and utilizes 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, Accounting for Derivative Instruments and Hedging Activities.
The effect of changes in foreign exchange rates on the foreign-denominated receivables and payables, net of
the effect of the related forward contracts, recorded in the Consolidated Statements of (Loss) Income was a
($1.5) million, $0.2 million and ($1.1) million in 2007, 2006 and 2005, respectively.
The Company is exposed to credit loss in the event of nonperformance by counterparties to its derivative
contracts. Collateral generally is not required of the counterparties or of the Company. In the unlikely event a
counterparty fails to meet the contractual terms of the derivative contract, the Company’s risk is limited to the
fair value of the instrument. The Company actively monitors its exposure to credit risk through the use of
credit approvals and credit limits, and by selecting major international banks and financial institutions as
counterparties. The Company has not had any historical instances of non-performance by any counterparties,
nor does it anticipate any future instances of non-performance.
Note 6 — Sale of Receivables
The Company has an agreement to sell undivided percentage ownership interests in certain receivables,
primarily from our money order agents. In the fourth quarter of 2007, the Company extended the agreement
through March 31, 2008. In December 2007, the Company made a decision to cease selling receivables
through a gradual reduction in the balances sold each period. As of January 2008, the Company did not have a
sold receivables balance remaining and terminated the facility at its discretion. The Company sold receivables
under this agreement to accelerate the cash flow available for investments. The receivables were sold to two
commercial paper conduit trusts and represent a small percentage of the total assets in each trust. The
Company’s rights and obligations are limited to the receivables transferred, and the transactions are accounted
for as sales. The assets and liabilities associated with the
F-28
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
trusts, including the sold receivables, are not recorded or consolidated in our financial statements. Under the
agreement, the aggregate amount of receivables sold at any time cannot exceed $400.0 million through
December 31, 2007 and $300.0 million thereafter. The balance of sold receivables as of December 31, 2007
and 2006 was $239.0 million and $297.6 million, respectively. The average receivables sold approximated
$349.9 million and $382.6 million during 2007 and 2006, respectively. The agreement included a 5 percent
holdback provision of the purchase price of the receivables. This expense of selling the agent receivables is
included in the Consolidated Statements of (Loss) Income in “Investment commissions expense” and totaled
$23.3 million, $23.9 million and $16.9 million during 2007, 2006 and 2005, respectively.
Note 7 — Property and Equipment
Property and equipment consists of the following at December 31:
(Amounts in thousands)
Land
Office furniture and equipment
Leasehold improvements
Agent equipment
Signage
Computer hardware and software
Accumulated depreciation
Total property and equipment
Depreciation expense for the year ended December 31 is as follows :
(Amounts in thousands)
Office furniture and equipment
Leasehold improvements
Agent equipment
Signage
Computer hardware and software
Total depreciation expense
2007
2006
2,907 $
44,285
17,378
88,160
43,178
159,266
355,174
(184,166)
171,008 $
2,907
40,222
13,248
72,602
29,475
135,108
293,562
(144,713)
148,849
$
$
2007
2006
2005
$
4,131 $
1,728
8,585
9,814
23,415
2,043
1,714
9,616
3,116
13,854
$ 47,673 $ 35,846 $ 30,343
2,485 $
1,142
8,453
5,452
18,314
At December 31, 2007 and 2006, there is $0.7 million and $1.3 million, respectively, of property and
equipment which has been received by the Company and included in “Accounts payable and other liabilities”
in the Consolidated Balance Sheets.
During the fourth quarter of 2006, the Company decided to discontinue a software development project and
recognized an impairment loss of $0.9 million. This impairment loss relates to the Payment Systems segment
and was included in the Consolidated Statement of (Loss) Income in “Transaction and operations support.”
In January 2005, the Company acquired a 50 percent interest in a corporate aircraft owned by Viad at a cost
of $8.6 million. The Company paid 50 percent of all fixed costs associated with this asset and was responsible
for the variable costs associated with its direct usage of the asset. In January 2006, the Company acquired the
remaining 50 percent interest in the corporate aircraft at a cost of $10.0 million.
F-29
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 8 — Intangibles and Goodwill
Intangible assets at December 31 were as follows:
(Amounts in thousands)
Amortized intangible assets:
Customer lists
Patents
Noncompetition agreements
Trademarks
Developed technology
Total intangible assets
2007
2006
Gross
Carrying
Value
Accumulated
Amortization
Carrying
Carrying
Value
Value
Accumulated
Amortization
Carrying
Value
Net
Gross
Net
$
38,226 $
13,218
3,567
384
1,373
56,768
(24,143) $
(12,887)
(1,927)
(137)
(69)
(39,163)
14,083 $
331
1,640
247
1,304
17,605
33,350 $
13,208
3,367
384
—
50,309
(21,762) $
(12,262)
(707)
(125)
—
(34,856)
11,588
946
2,660
259
—
15,453
No impairments were identified during 2007, 2006 and 2005. The Company recorded intangible assets of
$6.0 million in 2007 in connection with the acquisition of PropertyBridge, consisting principally of customer
lists, developed technology and a noncompetition agreement and $0.5 million of additional noncompetition
agreement costs associated with the finalization of the Money Express acquisition from 2006. See Note 3 —
Acquisitions and Discontinued Operations for further discussion. The Company recorded intangible assets of
$7.2 million in 2006 in connection with the acquisition of Money Express, consisting principally of customer
lists and a noncompetition agreement.
Intangible asset amortization expense for 2007, 2006 and 2005 was $4.3 million, $3.1 million and
$2.1 million, respectively. The estimated future intangible asset amortization expense is as follows:
(Amounts in thousands)
2008
2009
2010
2011
2012
Following is a reconciliation of goodwill:
(Amounts in thousands)
Balance as of January 1, 2005
Goodwill acquired
Impairment charge
Balance as of December 31, 2006
Goodwill acquired
Impairment charge
Balance as of December 31, 2007
$ 4,301
3,382
2,825
1,042
879
Global Funds
Transfer
Payment
Systems
Total
Goodwill
$
$
387,195 $
17,046
—
404,241
23,878
(6,355)
421,764 $
17,075 $
—
—
17,075
—
—
17,075 $
404,270
17,046
—
421,316
23,878
(6,355)
438,839
Goodwill acquired in 2007 and 2006 relates to the acquisition of PropertyBridge and Money Express,
respectively, and was allocated to the Global Funds Transfer segment. In 2007, the Company finalized its
purchase price allocation for Money Express, which resulted in a decrease of $0.3 million to goodwill.
Goodwill for both PropertyBridge and Money Express is not deductible for tax purposes.
F-30
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company performed an annual assessment of goodwill during the fourth quarters of 2007, 2006 and
2005. During the annual impairment test in 2007, it was determined that the fair value of the FSMC reporting
unit was less than the carrying value of that reporting unit. The fair value of the reporting unit was calculated
based on discounted expected future cash flows using a forecasted growth rate and weighted average cost of
capital rate. The impairment was calculated as the excess of the implied amount of goodwill over the carrying
amount of goodwill on the Company’s books. The impairment charge of $6.4 million was included in the
Consolidated Statements of (Loss) Income in “Transactions and operations support.” There were no
impairments for 2006 or 2005.
In response to the results of the strategic review of the Payment Systems segment, the decline in the
Company’s stock price and the significant additional declines in the investment portfolio, the Company
updated its annual impairment assessment to include information available through March 18, 2008. Upon
completion of this assessment, the Company has determined there are no further impairments of goodwill
through the date of this filing.
Note 9 — Debt
Following is the Company’s debt at December 31, 2007 and 2006. See Note 18 — Subsequent Events for
discussion of the Capital Transaction and the resulting impact on the Company’s Senior Credit Agreement
and 364 Day Facility (each as defined below).
(Amounts in thousands)
Amount
2007
Weighted
Average
Interest Rate
2006
Weighted
Average
Interest Rate
Amount
Senior term note, due through 2010
Senior revolving credit facility, due
through 2010
Total debt
$
100,000
5.91% $
100,000
245,000
345,000
$
5.85%
$
50,000
150,000
5.59%
5.59%
The Company has a bank credit facility (the “Senior Credit Agreement”) providing availability up to
$350.0 million in the form of a $250.0 million revolving credit facility and a $100.0 million term loan. During
the second half of 2007, the Company borrowed an additional $195.0 million under the revolving credit
facility. The proceeds were invested in cash equivalents to supplement the Company’s unrestricted assets and
to fund the acquisition of PropertyBridge on October 1, 2007. The maturity date of the Senior Credit
Agreement is June 2010. The Senior Credit Agreement has an interest rate of LIBOR plus 50 basis points,
subject to adjustment in the event of a change in the credit rating. Usage fees range from 0.08 percent to
0.25 percent of outstanding borrowings, depending on the credit rating of our senior unsecured debt. Changes
in the Company’s credit rating from any of the credit rating agencies could affect the interest rate and fees
paid under the Senior Credit Agreement. On December 31, 2007, the interest rate under the Senior Credit
Agreement was 7.58 percent on $150.0 million of the outstanding debt and 7.66 percent on $195.0 million of
the outstanding debt, exclusive of the effect of commitment fees and other costs, and the facility fee was
0.25 percent. On December 31, 2006, the interest rate was 5.86 percent exclusive of the effect of commitment
fees and other costs, and the facility fee was 0.125 percent. Letters of credit issued for the Company reduce
the amount available under the revolving credit facility (see Note 14 — Commitments and Contingencies).
On November 15, 2007, the Company entered into a credit agreement (the “364 Day Facility”) with
JPMorgan Chase Bank N.A. (“JPMorgan”). The 364 Day Facility provides for a $150.0 million revolving
credit facility that terminates on November 13, 2008. The 364 Day Facility has substantially the same terms
as the Company’s Senior Credit Agreement. The interest rate under the 364 Day Facility is, at the Company’s
option, either: (a) LIBOR plus 60 basis points; or (b) the higher of the prime rate or the federal funds rate plus
50 basis points. In either case, the interest rate is subject to adjustment based on the credit rating of the
Company’s senior unsecured debt. Facility fees range from 0.15 percent to 0.25 percent, depending on the
credit rating of the Company’s senior unsecured debt. The Company did not borrow under the 364 Day
Facility during 2007.
F-31
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Borrowings under the Senior Credit Agreement and 364 Day Facility are subject to various covenants,
including interest coverage ratio, leverage ratio and consolidated total indebtedness ratio. The interest
coverage ratio of earnings before interest and taxes to interest expense must not be less than 3.5 to 1.0. The
leverage ratio of total debt to total capitalization must be less than 0.5 to 1.0. The consolidated total
indebtedness ratio of total debt to earnings before interest, taxes, depreciation and amortization must be less
than 3.0 to 1.0. At December 31, 2007, the Company was not in compliance with these covenants and
received an initial waiver of default through January 31, 2008 and a second waiver of default through May 1,
2008. The Company paid a fee of $1.2 million in connection with the initial waiver. As consideration for the
second waiver, the Company granted security to the lenders in the form of the stock of MPSI, substantially all
of its non-financial assets and various intangible assets related to its business. In addition, the interest rate
increased to LIBOR plus 275 basis points during the waiver period. During the waiver period, no draws could
be made under the 364 Day Facility.
All amounts classified as debt on December 31, 2007 mature in June 2010. Total cash paid for interest on
outstanding debt was $11.6 million, $8.5 million and $5.8 million in 2007, 2006 and 2005, respectively.
In September 2005, the Company entered into two interest rate swap agreements with a total notional amount
of $150.0 million to hedge our variable rate debt. These swap agreements are designated as cash flow hedges.
At December 31, 2007 and 2006, the interest rate debt swaps had an average fixed pay rate of 4.3 percent and
an average variable receive rates of 4.5 percent and 4.6 percent, respectively. See Note 5 — Derivative
Financial Instruments for further information regarding the Company’s portfolio of derivative financial
instruments.
Note 10 — Income Taxes
The components of (loss) income from continuing operations before income taxes are as follows for the year
ended December 31:
(Amounts in thousands)
2007
2006
2005
United States
Foreign
(Loss) income from continuing operations before income
$ (993,273) $ 171,681 $ 111,868
34,508
5,092
6
taxes
$ (993,267) $ 176,773 $ 146,376
Foreign income consists of statutory income and losses from the Company’s foreign subsidiaries.
MoneyGram International Limited (“MIL”), a wholly owned subsidiary of MoneyGram, recognizes revenue
based on a services agreement between MIL and MPSI. Through 2005, MIL recognized revenue associated
with the money transfer transactions generated by agents signed through MIL. Effective January 1, 2006,
MPSI entered into a new Services Agreement with MIL under which MIL recognizes revenue based on their
operating expenses incurred and reimbursed by MPSI. This change was made to recognize that the money
transfer product is licensed by MPSI and therefore, the transaction revenue and related costs should be
reflected by MPSI for statutory purposes.
F-32
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income tax expense related to continuing operations is as follows for the year ended December 31:
(Amounts in thousands)
Current:
Federal
State
Foreign
Current income tax expense
Deferred income tax expense
Income tax expense
2007
2006
2005
$ 35,445 $ 13,716 $ 27,324
(1,038)
5,004
31,290
2,880
$ 78,481 $ 52,719 $ 34,170
3,999
1,400
40,844
37,637
2,968
2,880
19,564
33,155
Income tax expense totaling $1.9 million in 2007 and $0.5 million in 2005, is included in “(Loss) income
from discontinued operations, net of tax” in the Consolidated Statements of (Loss) Income. Federal and state
taxes paid were $16.0 million, $38.7 million and $22.9 million for 2007, 2006 and 2005, respectively. A
reconciliation of the expected federal income tax at statutory rates for year ended to the actual taxes provided
is as follows:
(Amounts in thousands)
2007
%
2006
%
2005
%
Income tax at statutory federal
income tax rate
Tax effect of:
State income tax, net of
federal income tax effect
Valuation allowance
Other
Tax-exempt income
Income tax expense
$
$ (347,643)
35.0 $
61,870
35.0 $
51,232
35.0
3,606
434,446
(152)
90,257
(11,776)
78,481
(0.4)
(43.7)
0.0
(9.1)
1.2
(7.9) $
2,647
—
1,445
65,962
(13,243)
52,719
1.5
—
0.8
37.3
(7.5)
29.8 $
2,084
—
(4,673)
48,643
(14,473)
34,170
1.4
—
(3.2)
33.2
(9.9)
23.3
The decrease in the effective rate in 2007 primarily relates to a deferred tax asset valuation allowance of
$417.6 million resulting from other-than-temporary impairment charges recognized in the investment
portfolio. Due to the amount and characterization of losses, the Company determined that it was not “more
likely than not” that the deferred tax assets related to the losses will be realized as of December 31, 2007. We
are continuing to evaluate available tax positions related to the net securities losses, which may result in
future tax benefits. Included in “Other” for 2005 is $2.1 million of tax benefits from the reversal of tax
reserves no longer needed due to the passage of time. In addition, “Other” for 2005 includes $3.5 million of
tax benefits from changes in estimates to previously estimated tax amounts resulting from new information
received during the year.
Deferred income taxes reflect temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws at enacted tax rates expected to be in effect
when such differences reverse. The carrying value of the Company’s deferred tax assets is dependent upon
the Company’s ability to generate sufficient future taxable income in certain tax jurisdictions. Should the
Company determine that it is more likely than not that some portion of all of its deferred assets will not be
realized, a valuation allowance to
F-33
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the deferred tax assets would be established in the period such determination was made. Temporary
differences, which give rise to deferred tax assets (liabilities), at December 31 are:
(Amounts in thousands)
Deferred tax assets:
Postretirement benefits and other employee benefits
Tax credit carryovers
Unrealized loss on derivative financial investments
Basis difference in revalued investments
Bad debt and other reserves
Other
Valuation allowance
Total deferred tax asset
Deferred tax liabilities:
Unrealized gain on securities classified as available-for-sale
Depreciation and amortization
Basis difference in investment income
Unrealized gain on derivative financial instruments
Gross deferred tax liability
Net deferred tax (liability) asset
2007
2006
37,274 $
1,474
11,857
442,442
2,801
14,194
(435,700)
74,342
(16,192)
(64,848)
(4,761)
—
(85,801)
(11,459) $
48,587
20,202
—
25,502
2,630
4,285
—
101,206
(15,083)
(59,673)
(7,820)
(6,953)
(89,529)
11,677
$
$
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various
states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state
and local, or foreign income tax examinations for years prior to 2004. The Company is currently subject to
U.S. Federal, certain state and foreign income tax examinations for 2004 through 2006.
The Company adopted the provisions of FIN No. 48 on January 1, 2007. The cumulative effect of applying
FIN No. 48 is reported as an adjustment to the opening balance of retained income. As a result of the
implementation of FIN No. 48, the Company recognized a $29.6 million increase in the liability for
unrecognized tax benefits, a $7.6 million increase in deferred tax assets and a $22.0 million reduction to the
opening balance of retained income. The $29.6 million increase in the liability for unrecognized tax benefits
is recorded as a non-cash item in “Accounts payable and other liabilities” in the Consolidated Balance Sheets.
A reconciliation of unrecognized tax benefits is as follows:
(Amounts in thousands)
Balance at January 1
Additions based on tax positions related to the current year
Reductions for tax positions of prior years
Foreign currency translation
Settlements
Lapse in statute of limitations
Balance at December 31
2007
$ 33,351
4,527
(748)
1,903
(1,965)
(3,399)
$ 33,669
As of December 31, 2007, the liability for unrecognized tax benefits was $33.7 million. Of the $33.7 million,
$31.0 million could impact the effective tax rate if recognized. The Company records interest and penalties
for
F-34
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unrecognized tax benefits in “Income tax expense” in the Consolidated Statements of (Loss) Income. For the
year ended December 31, 2007, the Company recognized approximately $3.5 million in interest and penalties
in its Consolidated Statement of (Loss) Income. As of January 1, 2007 and December 31, 2007, the Company
had accrued approximately $5.7 million and $6.4 million in interest and penalties, respectively. The Company
does not believe there will be any material change in its unrecognized tax positions over the next twelve
months.
The Company does not consider its earnings in its foreign entities to be permanently reinvested. As of
December 31, 2007 and 2006, a deferred tax liability of $5.3 million and $1.9 million, respectively, was
recognized for the unremitted earnings of its foreign entities.
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. Subsequent to the
spin-off, MoneyGram is considered the divesting entity and treated as the “accounting successor” to Viad and
the continuing business of Viad is referred to as “New Viad.” As part of the Distribution, the Company
entered into a Tax Sharing Agreement with Viad which provides for, among other things, the allocation
between MoneyGram and New Viad of federal, state, local and foreign tax liabilities and tax liabilities
resulting from the audit or other adjustment to previously filed tax returns. The Tax Sharing Agreement
provides that through the Distribution Date, the results of MoneyGram and its subsidiaries’ operations are
included in Viad’s consolidated U.S. federal income tax returns. In general, the Tax Sharing Agreement
provides that MoneyGram will be liable for all federal, state, local, and foreign tax liabilities, including such
liabilities resulting from the audit of or other adjustment to previously filed tax returns, that are attributable to
the business of MoneyGram for periods through the Distribution Date, and that Viad will be responsible for
all other of these taxes.
Note 11 — Stockholders’ Equity
Rights Agreement — In connection with the spin-off, MoneyGram adopted a rights agreement (the “Rights
Agreement”) by and between the Company and Wells Fargo Bank, N.A., as the rights agent. The preferred
share purchase rights (the “rights”) issuable under the Rights Agreement were attached to the shares of
MoneyGram common stock distributed in the spin-off. In addition, pursuant to the Rights Agreement, one
right will be issued with each share of MoneyGram common stock issued after the spin-off. The rights are
inseparable from MoneyGram common stock until they become exercisable. Once they become exercisable,
the rights will allow its holder to purchase one one-hundredth of a share of MoneyGram series A junior
participating preferred stock for $100.00. The rights become exercisable ten days after a person or group
acquires, or begins a tender or exchange offer for, 15 percent or more of the Company’s outstanding common
stock. In the event a person or group acquires 15 percent or more of the Company’s outstanding common
stock, and subject to certain conditions and exceptions more fully described in the Rights Agreement, each
right will entitle the holder (other than the person or group acquiring 15 percent or more of the Company’s
outstanding common stock) to receive, upon exercise, common stock of either MoneyGram or the acquiring
company having a value equal to two times the exercise price of the rights. The rights are redeemable at any
time before a person or group acquires 15 percent or more of MoneyGram’s outstanding common stock at the
discretion of the Company’s Board of Directors for $0.01 per right and will expire, unless earlier redeemed,
on June 30, 2014. After a person or group acquires 15 percent or more of MoneyGram’s outstanding common
stock, but before that person or group owns 50 percent or more of MoneyGram’s outstanding common stock,
the Board of Directors may extinguish the rights by exchanging one share of MoneyGram common stock or
an equivalent security for each right (other than rights held by that person or group). Each one one-hundredth
of a share of MoneyGram preferred stock, if issued, will not be redeemable, will entitle holders to quarterly
dividend payments of the greater of $0.01 per share or an amount equal to the dividend paid on one share of
MoneyGram common stock, will have the same voting power as one share of MoneyGram common stock and
will entitle holders, upon liquidation, to receive the greater of $1.00 per share or the payment made on one
share of MoneyGram common stock.
F-35
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As part of the Capital Transaction described in Note 18 — Subsequent Events, the Company amended the
Rights Agreement with Wells Fargo Bank, N.A. to exempt the issuance of the Series B Stock from the Rights
Agreement. The Company also entered into a Registration Rights Agreement with the Investors. See
Note 18 — Subsequent Events for further information regarding the Registration Rights Agreement.
Preferred Stock — The Company’s Certificate of Incorporation provides for the issuance of up to
5,000,000 shares of undesignated preferred stock and up to 2,000,000 shares of series A junior participating
preferred stock. Undesignated preferred stock may be issued in one or more series, with each series to have
those rights and preferences, including, without limitation, voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be determined by unlimited discretion of the
Company’s Board of Directors. Series A junior participating preferred stock has been reserved for issuance
upon exercise of preferred share purchase rights. At December 31, 2007 and 2006 no preferred stock is issued
or outstanding.
Common Stock — The Company’s Certificate of Incorporation provides for the issuance of up to
250,000,000 shares of common stock with a par value of $0.01. On the Distribution Date, MoneyGram was
recapitalized such that the 88,556,077 shares of MoneyGram common stock outstanding was equal to the
number of shares of Viad common stock outstanding at the close of business on the record date.
The holders of MoneyGram common stock are entitled to one vote per share on all matters to be voted upon
by its stockholders. The holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The
determination to pay dividends on common stock will be at the discretion of the Board of Directors and will
depend on our financial condition, results of operations, cash requirements, prospects and such other factors
as the Board of Directors may deem relevant. During 2007 and 2006, the Company paid $16.6 million and
$14.4 million, respectively, in dividends on its common stock. As disclosed in Note 9 — Debt, the Company
received a waiver of default under the Senior Credit Agreement and 364 Day Facility. This waiver prohibits
the Company from paying any cash dividends while it is in default of the covenants related to its debt
agreements. The following is a summary of common stock issued and outstanding for December 31:
(Amounts in thousands)
Common shares issued
Treasury stock
Restricted stock
Shares held in employee equity trust
Common shares outstanding
2007
2006
88,556
(5,911)
(234)
—
82,411
88,556
(4,286)
(323)
(456)
83,491
Treasury Stock — On November 18, 2004, the Board of Directors authorized a plan to repurchase, at the
Company’s discretion, up to 2,000,000 shares of MoneyGram common stock with the intended effect of
returning value to the stockholders and reducing dilution caused by the issuance of stock in connection with
stock-based compensation described in Note 13 — Stock Based Compensation. On August 19, 2005, the
Company’s Board of Directors increased its share buyback authorization by 5,000,000 shares to a total of
7,000,000 shares. On May 9, 2007, the Board of Directors increased its share buyback authorization by an
additional 5,000,000 shares to a total of 12,000,000 shares. On August 17, 2006, the Company’s Board of
Directors approved a small stockholder selling/repurchasing program. This program enabled MoneyGram
stockholders with less than 100 shares of common stock as of August 21, 2006, to voluntarily purchase
additional stock to reach 100 shares or sell all of their shares back to the Company. During 2006, the
Company repurchased 66,191 shares at an average cost of $30.65 per share under this program. As of
December 31, 2006, the small stockholder selling/repurchasing program has been completed.
During 2007 and 2006, the Company repurchased 1,620,000 and 2,195,241 shares, respectively, under all
Board approved plans at an average cost of $28.39 and $30.91, respectively, per share. At December 31,
2007, the
F-36
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company has remaining authorization to repurchase up to 5,205,000 shares. Following is a summary of
treasury stock share activity during the twelve months ended December 31, 2007 and 2006:
(Amounts in thousands)
Balance at December 31, 2005
Stock repurchases
Submission of shares for withholding taxes upon exercise of stock options and
release of restricted stock, net of issuances and forfeitures
Balance at December 31, 2006
Stock repurchases
Issuance of stock for exercise of stock options
Submission of shares for withholding taxes upon exercise of stock options and
release of restricted stock, net of issuances and forfeitures
Balance at December 31, 2007
Treasury Stock Shares
2,701
2,195
(610)
4,286
1,620
(85)
90
5,911
Accumulated Other Comprehensive Loss — The components of “Accumulated other comprehensive loss” at
December 31 include:
(Amounts in thousands)
Unrealized gain on securities classified as available-for-sale
Unrealized (loss) gain on derivative financial instruments
Cumulative foreign currency translation adjustments
Prior service cost for pension and postretirement benefits, net of tax
Unrealized losses on pension and postretirement benefits, net of tax
Accumulated other comprehensive loss
2007
$
26,418 $
(19,345)
2,329
(603)
(30,514)
$ (21,715) $
2006
24,607
11,345
6,011
(1,115)
(47,140)
(6,292)
Note 12 — Pensions and Other Benefits
Pension Benefits — Prior to the Distribution, MoneyGram was a participating employer in the Viad Corp
Retirement Income Plan (the “Pension Plan”) of which the plan sponsor was Viad. At the time of the
Distribution, the Company assumed sponsorship of the Pension Plan, which is a noncontributory defined
benefit pension plan covering all employees who meet certain age and length-of-service requirements. Viad
retained the pension liability for a portion of the employees in its Exhibitgroup/Giltspur subsidiary and one
sold business, which represented eight percent of Viad’s benefit obligation at December 31, 2003. Effective
December 31, 2003, benefits under the pension plan ceased accruing service or compensation credits with no
change in benefits earned through this date. Cash accumulation accounts should continue to be credited with
interest credits until participants withdraw their money from the Pension Plan. It is our policy to fund the
minimum required contribution for the year.
Supplemental Executive Retirement Plans (SERPs) — In connection with the spin-off, the Company assumed
responsibility for all but a portion of the Viad SERP. Viad retained the benefit obligation related to two of its
subsidiaries, which represented 13 percent of Viad’s benefit obligation at December 31, 2003. Another SERP,
the MoneyGram International, Inc. SERP, is a nonqualified defined benefit pension plan, which provides
postretirement income to eligible employees selected by the Board of Directors. It is our policy to fund the
SERPs as benefits are paid.
F-37
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Postretirement Benefits Other Than Pensions — The Company has unfunded defined benefit postretirement
plans that provide medical and life insurance for eligible employees, retirees and dependents. The related
postretirement benefit liabilities are recognized over the period that services are provided by the employees.
Upon the Distribution, the Company assumed the benefit obligation for current and former employees
assigned to MoneyGram. Viad retained the benefit obligation for postretirement benefits other than pensions
for all Viad and non-MoneyGram employees, with the exception of one executive. The Company’s funding
policy is to make contributions to the postretirement benefits plans as benefits are required to be paid. During
2007, the Company amended the postretirement benefit plan for certain benefits relating to co-payments,
deductibles, coinsurance and maximum benefit payments which resulted in a $0.6 million gain to the change
in the benefit obligation.
In May 2004, the FASB issued FSP FAS 106-2, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003, on the accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Medicare Act”), which
was enacted into law on December 8, 2003. The Medicare Act introduces a Medicare prescription drug
benefit, as well as a federal subsidy to sponsors of retiree health care plans that provide a benefit that is at
least substantially equivalent to the Medicare benefit. The Company adopted FSP FAS 106-2 in the third
quarter of 2004 using the prospective method, which means the reduction of the Accumulated Postretirement
Benefit Obligation (“APBO”) of $1.4 million is recognized over future periods. This reduction in the APBO
is due to a subsidy available on prescription drug benefits provided to plan participants determined to be
actuarially equivalent to the Medicare Act. The Company has determined that its postretirement plan is
actuarially equivalent to the Medicare Act and its application for determination of actuarial equivalence has
been approved by the Medicare Retiree Drug Subsidy program. The postretirement benefits expense for 2007,
2006, 2005 was reduced by less than $0.3 million due to the reductions in the APBO and the current period
service cost. Subsidies to be received under the Medicare Act in 2008 are not expected to be material.
Actuarial Valuation Assumptions — The measurement date for the Company’s Pension Plan, SERPs and
postretirement benefit plans is November 30. Following are the weighted average actuarial assumptions used
in calculating the benefit obligation and net benefit cost as of and for the years ended December 31:
Net periodic benefit cost:
Discount rate
Expected return on plan
assets
Rate of compensation
increase
Initial healthcare cost trend
Pension and SERPs
2006
2007
2005
2007
2006
2005
Postretirement Benefits
5.70%
5.90%
6.00%
5.70%
5.90%
6.00%
8.00%
8.00%
8.50%
5.75%
5.75%
4.50%
—
—
—
—
—
—
rate
—
—
—
9.50%
10.00%
10.00%
Ultimate healthcare cost
trend rate
—
—
—
5.00%
5.00%
5.00%
Year ultimate healthcare
cost trend rate is reached —
—
—
2013
2013
2013
Projected benefit obligation:
Discount rate
Rate of compensation
increase
Initial healthcare cost trend
6.50%
5.70%
5.90%
6.50%
5.70%
5.90%
5.75%
5.75%
5.75%
—
—
—
rate
—
—
—
9.00%
9.50%
10.00%
Ultimate healthcare cost
trend rate
—
—
—
5.00%
5.00%
5.00%
Year ultimate healthcare
cost trend rate is reached —
—
—
2013
2013
2013
The Company utilizes a building-block approach in determining the long-term expected rate of return on plan
assets. Historical markets are studied and long-term historical relationships between equity securities and
fixed income securities are preserved consistent with the widely accepted capital market principle that assets
with higher volatility generate a greater return over the long run. Current market factors such as inflation and
interest rates are
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
F-38
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
evaluated before long-term capital market assumptions are determined. The long-term portfolio return also
takes proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed for
reasonableness and appropriateness.
The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage
point change in assumed health care trends would have the following effects:
(Amounts in thousands)
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
One Percentage
Point Increase
One Percentage
Point Decrease
$
399
2,700
$
(303)
(2,102)
Pension Assets — The Company employs a total return investment approach whereby a mix of equities and
fixed income securities are used to maximize the long-term return of plan assets for a prudent level of risk.
Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate
financial condition. The investment portfolio contains a diversified blend of equity and fixed income
securities. Furthermore, equity securities are diversified across U.S. and non-U.S. stocks, as well as growth,
value and small and large capitalizations. Other assets such as real estate and cash are used judiciously to
enhance long-term returns while improving portfolio diversification. The Company strives to maintain equity
and fixed income securities allocation mix of approximately 60 percent and 40 percent, respectively.
Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio
reviews and annual liability measurements.
The Company’s weighted average asset allocation for the Pension Plan by asset category at the measurement
date of November 30 is as follows:
Equity securities
Fixed income securities
Real estate
Other
Total
2007
62.8%
30.4%
3.8%
3.0%
100.0%
2006
58.5%
38.1%
2.6%
0.8%
100.0%
Plan Financial Information — Net periodic benefit expense for the combined Pension Plan and SERPs and
postretirement benefit plans includes the following components for the years ended December 31:
(Amounts in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service
$
cost
Recognized net actuarial loss
2007
Pension and SERPs
2006
2005
Postretirement Benefits
2006
2007
2005
2,298 $
11,900
(10,083)
1,922 $
11,698
(9,082)
1,893 $
11,320
(8,604)
697 $
837
—
637 $
715
—
619
644
—
483
4,226
703
4,302
714
4,092
(294)
90
(294)
24
(294)
16
Net periodic benefit
expense
$
8,824 $
9,543 $
9,415 $ 1,330 $ 1,082 $
985
F-39
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amounts recognized in other comprehensive loss and net periodic benefit expense for the year ended
December 31, 2007 are as follows:
Net actuarial gain
Amortization of net actuarial gain
Prior service credit
Amortization of prior service (credit) cost
Total recognized in other comprehensive loss
Total recognized in net periodic benefit expense
Total recognized in net periodic benefit expense and other
comprehensive loss
Pension and
SERPs
Postretirement
Benefits
(20,155)
(4,226)
—
(483)
$ (24,864) $
8,824
(2,749)
(90)
(636)
294
(3,181)
1,330
$ (16,040) $
(1,851)
The estimated net loss and prior service cost for the combined Pension Plan and SERPs that will be amortized
from “Accumulated other comprehensive loss” into “Net periodic benefit expense” during 2008 is
$2.5 million ($1.6 million net of tax) and $0.4 million ($0.3 million net of tax), respectively. The estimated
prior service credit for the postretirement benefit plans that will be amortized from “Accumulated other
comprehensive loss” into “Net periodic benefit expense” over 2008 is $0.4 million ($0.2 million net of tax).
The benefit obligation and plan assets, changes to the benefit obligation and plan assets and the funded status
of the combined Pension Plan and SERPs and the postretirement benefit plans as of and for the year ended
December 31 are as follows:
(Amounts in thousands)
Change in benefit obligation:
Benefit obligation at the beginning of the
Pension and SERPs
2007
2006
Postretirement Benefits
2006
2007
year
$ 214,412 $ 202,520 $
Service cost
Interest cost
Actuarial (gain) or loss
Plan amendments
Medicare Part D reimbursements
Benefits paid
Benefit obligation at the end of the year
Change in plan assets:
Fair value of plan assets at the beginning of
2,298
11,900
(17,769)
—
—
(11,113)
1,922
11,698
7,781
1,174
(10,682)
$
14,778
697
837
(2,749)
(636)
36
(283)
$ 199,728 $ 214,413 $
12,680
$
the year
$ 131,752 $ 108,773 $
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at the end of the year $ 135,997 $ 131,751 $
12,468
2,890
(11,113)
12,805
20,855
(10,682)
—
—
283
(283)
—
$
$
Unfunded status at the end of the year
$ (63,731) $ (82,662) $ (12,680) $ (14,778)
The funded status of the Pension Plan was $2.7 million and the unfunded status of the SERPs was
$66.5 million at December 31, 2007.
F-40
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
12,390
637
715
1,147
—
(111)
14,778
—
—
111
(111)
—
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Following are the components recognized in the Consolidated Balance Sheets relating to the combined
Pension Plan and SERPs and the postretirement benefit plans at December 31:
(Amounts in thousands)
Components recognized in the Consolidated
Balance Sheets:
Pension and other postretirement benefits
Pension and SERPs
2007
2006
Postretirement Benefits
2006
2007
assets
$
2,732 $
— $
—
$
—
Pension and other postretirement benefits
liability
Deferred tax asset (liability)
Accumulated other comprehensive loss:
Unrealized losses for pension and
postretirement benefits, net of tax
Prior service cost (credit) for pension and
postretirement benefits, net of tax
(66,463)
20,173
(82,662)
29,605
(12,680)
(697)
(14,778)
762
49,579
45,856
41
1,285
3,509
2,475
(2,535)
(1,360)
The projected benefit obligation and accumulated benefit obligation for the Pension Plan, SERPs and the
postretirement benefit plans are in excess of the fair value of plan assets as shown below:
(Amounts in thousands)
2007
2006
2007
2006
Pension Plan
SERPs
Postretirement Benefits
2006
2007
Projected benefit
obligation
Accumulated benefit
obligation
Fair value of plan assets
$ 133,264 $ 145,932 $ 66,464 $ 68,481 $ 12,680
$ 14,778
133,264
135,997
145,932
131,751
53,250
—
54,464
—
—
—
—
—
Estimated future benefit payments for the combined Pension Plan and SERPs and the postretirement benefit
plans are as follows:
(Amounts in thousands)
2008
2009
2010
2011
2012
2013-17
Pension and SERPs
Postretirement benefits
$ 12,860 $ 13,165 $ 13,310 $ 13,404 $ 13,648 $ 76,220
3,089
371
332
451
290
410
There are no required contributions for the Pension Plan in 2008. The Company will continue to make
contributions to the SERPs and the postretirement benefit plans to the extent benefits are paid. Aggregate
benefits paid for the unfunded plans are expected to be $4.3 million in 2008.
Employee Savings Plan — The Company has an employee savings plan that qualifies under Section 401(k) of
the Internal Revenue Code. Contributions to, and costs of, the 401(k) defined contribution plan totaled
$3.4 million, $2.8 million and $2.2 million in 2007, 2006 and 2005, respectively. At the time of the
Distribution, MoneyGram’s new savings plan assumed all liabilities under the Viad Corp Capital
Accumulation Plan and Viad Corp Employees Stock Ownership Plan (the “Viad Plans”) for benefits of the
current and former employees assigned to MoneyGram, and the related trust received a transfer of the
corresponding account balances. MoneyGram does not have an employee stock ownership plan.
Employee Equity Trust — Viad sold treasury stock in 1992 to its employee equity trust to fund certain
existing employee compensation and benefit plans. In connection with the spin-off, Viad transferred
1,632,964 shares of MoneyGram common stock to the MoneyGram International, Inc. Employee Equity Trust
(the “Trust”) to be used by MoneyGram to fund the issuance of stock in connection with employee
compensation and benefit plans. The fair market value of the shares held by the Trust is recorded in
“Unearned employee benefits” in the Company’s Consolidated Balance Sheets and is reduced as stock is
issued from the trust to fund employee benefits. As of December 31, 2007, all shares in the Trust have been
issued.
F-41
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred Compensation Plans — Viad had a deferred compensation plan for its non-employee directors and a
deferred compensation plan for certain members of management which allowed for the deferral of
compensation in the form of stock units or cash. In connection with the deferred compensation plans, Viad
funded certain amounts through a rabbi trust. In connection with the spin-off, the Company paid a dividend of
$7.3 million to Viad, which was used to pay certain liabilities under the deferred compensation plans. The
Company assumed liabilities totaling $6.6 million related to the plans and retained rabbi trust assets totaling
$5.5 million. Subsequent to the spin-off, the Company adopted a deferred compensation plan for certain
employees and its non-employee directors. In 2007, the plan for employees was amended to incorporate the
deferred compensation obligations that were assumed under the Viad plan. Under the Deferred Compensation
Plan for Directors of MoneyGram International, Inc., non-employee directors may defer all or part of their
retainers, fees and stock awards in the form of stock units or cash. In 2007, the plan was amended to require
that a portion of the retainer received by non-employee directors be deferred in stock units. Director deferred
accounts are payable upon resignation from the Board. In 2005, the Board of Directors approved a deferred
compensation plan for certain employees which allows for the deferral of base compensation in the form of
cash. In addition, the Company makes contributions to the participants’ accounts for profit sharing
contributions beyond the IRS qualified plan limits. Beginning with the 2006 plan year, eligible employees
may defer incentive pay in the form of cash. Management deferred accounts are generally payable on the
deferral date based upon the timing and method elected by the participant. Deferred stock unit accounts are
credited quarterly with dividend equivalents and will be adjusted in the event of a change in our capital
structure from a stock split, stock dividend or other change. Deferred cash accounts are credited quarterly
with interest at a long-term, medium-quality bond rate. Both deferred compensation plans are unfunded and
unsecured and the Company is not required to physically segregate any assets in connection with the deferred
accounts. At December 31, 2007 and 2006, the Company had a liability related to the deferred compensation
plans of $8.8 million and $9.9 million, respectively, recorded in the “Accounts payable and other liabilities”
component in the Consolidated Balance Sheets. The rabbi trust had a market value of $13.6 million and
$12.1 million at December 31, 2007 and 2006, respectively, recorded in “Other assets” in the Consolidated
Balance Sheets.
Note 13 — Stock-Based Compensation
As of the Distribution Date, each Viad option that immediately prior to the Distribution Date was outstanding
and unexercised was adjusted to consist of two options: (1) an option to purchase shares of Viad common
stock and (2) an option to purchase shares of MoneyGram common stock. The exercise price of the Viad
stock option was adjusted by multiplying the exercise price of the old stock option by a fraction, the
numerator of which was the closing price of a share of Viad common stock on the first trading day after the
Distribution Date (divided by four to reflect the post-spin Viad reverse stock split) and the denominator of
which was that price plus the closing price for a share of MoneyGram common stock on the first trading day
after the Distribution Date. The exercise price of each MoneyGram stock option equals the exercise price of
each old stock option times a fraction, the numerator of which was the closing price of a share of MoneyGram
common stock on the first trading day after the Distribution Date and the denominator of which was that price
plus the closing price of a share of Viad common stock on the first trading day after the Distribution Date
(divided by four to reflect the post-spin Viad reverse stock split). These MoneyGram options are considered
to have been issued under the MoneyGram International, Inc. 2004 Omnibus Incentive Plan. MoneyGram will
take all tax deductions relating to the exercise of stock options and the vesting of restricted stock held by
employees and former employees of MoneyGram, and Viad will take the deductions arising from options and
restricted stock held by its employees and former employees.
On May 10, 2005, the Company’s stockholders approved the MoneyGram International, Inc. 2005 Omnibus
Incentive Plan, which authorizes the issuance of awards of up to 7,500,000 shares of common stock. Effective
upon the approval of the 2005 Omnibus Incentive Plan, no new awards may be granted under the 2004
Omnibus Incentive Plan. The 2005 Omnibus Incentive Plan provides for the following types of awards to
officers, directors and certain key employees: (a) incentive and nonqualified stock options; (b) stock
appreciation rights; (c) restricted stock and
F-42
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
restricted stock units; (d) dividend equivalents; (e) performance based awards; and (f) stock and other
stock-based awards. Shares covered by forfeited and cancelled awards become available for new grants, as
well as shares that are withheld for full or partial payment to the Company of the exercise price of awards.
Shares that are withheld as satisfaction of tax obligations relating to an award, as well as previously issued
shares used for payment of the exercise price or satisfaction of tax obligations relating to an award, become
available for new grants through May 10, 2015. The Company plans to satisfy stock option exercises and
vesting of awards through the issuance of treasury stock. As of December 31, 2007, the Company has
remaining authorization to issue awards of up to 6,434,391 shares of common stock.
Stock Options — Option awards are granted with an exercise price equal to the market price (average of the
high and low price) of the Company’s common stock on the date of grant. Stock options granted in 2007 and
2006 under the 2005 Omnibus Incentive Plan become exercisable over a three-year period in an equal number
of shares each year and have a term of ten years. Stock options granted in 2005 under the 2004 Omnibus
Incentive Plan become exercisable over a three-year period in an equal number of shares each year and have a
term of ten years and stock options granted in 2004 under the 2004 Omnibus Incentive Plan become
exercisable in a five-year period in an equal number of shares each year and have a term of seven years. All
outstanding stock options contain certain forfeiture and non-competition provisions.
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes
single option pricing model and the assumptions set forth in the following table. Expected volatility is based
on the historical volatility of the price of the Company’s common stock since the spin-off on June 30, 2004.
The Company uses historical information to estimate the expected term and forfeiture rates of options. The
expected term represents the period of time that options are expected to be outstanding, while the forfeiture
rate represents the number of options that will be forfeited by grantees due primarily to termination of
employment. In addition, the Company considers any expectations regarding future activity which could
impact the expected term and forfeiture rate. The risk-free rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost, net of
expected forfeitures, is recognized using a straight-line method over the vesting or service period.
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
Following is a summary of stock option activity:
2007
2006
0.7%
29.1%
4.6%
6.5 years
0.6%
26.5%
4.7%
6.5 years
2005
0.2%
24.1%
3.8%
5 years
Weighted
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
Shares
Options outstanding at December 31, 2006
Granted
Exercised
Forfeited
Options outstanding at December 31, 2007
Vested or expected to vest at December 31,
2007
426,000
(362,432)
(85,782)
4,099,514 $ 19.52
28.83
17.01
23.72
4,077,300 $ 20.63
4.70 years $
3,912,587 $ 20.37
4.56 years $
Options exercisable at December 31, 2007
3,109,547 $ 19.15
3.87 years $
—
—
—
F-43
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted-average grant date fair value of an option granted during 2007, 2006 and 2005 was $28.83,
$10.38 and $5.95, respectively.
Restricted Stock and Performance-Based Restricted Stock — The Company has granted both restricted stock
and performance-based restricted stock. The vesting of restricted stock is typically three years from the date
of grant. The vesting of performance-based restricted stock is contingent upon the Company obtaining certain
financial thresholds established on the grant date. Provided the incentive performance targets established in
the year of grant are achieved, the performance-based restricted stock awards granted beginning in 2006, will
vest in a three-year period from the date of grant in an equal number of shares each year. Vesting could
accelerate if performance targets are met at certain achievement levels. Future vesting in all cases is subject
generally to continued employment with MoneyGram. Holders of restricted stock and performance-based
restricted stock have the right to receive dividends and vote the shares, but may not sell, assign, transfer,
pledge or otherwise encumber the stock. On the Distribution Date, the Company’s former Chairman of the
Board was granted a restricted stock award under the 2004 Omnibus Incentive Plan for 50,000 shares of
common stock, of which 25,000 shares vested immediately and 25,000 shares vested on June 30, 2006. On
June 30, 2005, the Company’s former Chairman of the Board was granted a restricted stock award under the
2005 Omnibus Incentive Plan for 50,000 shares of common stock, of which 25,000 shares vested immediately
and 25,000 shares vested in May 2006.
Restricted stock awards were valued at the quoted market price of the Company’s common stock on the date
of grant and expensed using the straight-line method over the vesting or service period of the award.
Following is a summary of restricted stock activity:
Restricted stock outstanding at December 31, 2006
Granted
Vested and issued
Forfeited
Restricted stock outstanding at December 31, 2007
Total
Shares
Weighted
Average
Price
322,998 $ 22.39
29.25
92,430
19.70
(181,074)
—
—
234,354 $ 26.84
Following is a summary of pertinent information related to the Company’s stock-based awards:
(Amounts in thousands)
Fair value of options vesting during period
Fair value of restricted stock vesting during period
Expense recognized related to options
Expense recognized related to restricted stock
Intrinsic value of options exercised
Cash received from option exercises
Tax benefit realized for tax deductions from option exercises
2007
2006
2005
$ 2,591 $
5,337
3,852
2,247
3,582
6,606
1,068
5,680 $
13,245
2,725
1,950
15,490
21,899
2,744
9,256
9,916
1,492
2,310
5,075
15,022
1,776
(Amounts in thousands)
Unrecognized compensation expense
Remaining weighted average vesting period
Options
Restricted Stock
$
5,642
1.45 years
$
3,279
1.28 years
F-44
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 14 — Commitments and Contingencies
Operating Leases — The Company has various non-cancelable operating leases for buildings and equipment
that terminate through 2016. Certain of these leases contain rent holidays and rent escalation clauses based on
pre-determined annual rate increases. The Company recognizes rent expense under the straight-line method
over the term of the lease. Any difference between the straight-line rent amounts and amounts payable under
the leases are recorded as deferred rent in “Accounts payable and other liabilities” in the Consolidated
Balance Sheets. Cash or lease incentives received under certain leases are recorded as deferred rent when the
incentive is received and amortized as a reduction to rent over the term of the lease using the straight-line
method. Incentives received relating to tenant improvements are capitalized as leasehold improvements and
depreciated over the remaining term of the lease. At December 31, 2007, the deferred rent liability relating to
these incentives was $3.6 million.
Rent expense under these operating leases totaled $11.4 million, $7.8 million and $5.8 million during 2007,
2006 and 2005, respectively. Minimum future rental payments for all noncancelable operating leases with an
initial term of more than one year are (amounts in thousands):
2008
2009
2010
2011
2012
Later
Total
$ 10,453
9,356
8,630
7,941
4,817
11,295
$ 52,492
Legal Proceedings — The Company is party to a variety of legal proceedings that arise in the normal course
of our business. We accrue for these items as losses become probable and can be reasonably estimated. While
the results of these legal proceedings cannot be predicted with certainty, management believes that the final
outcome of these proceedings will not have a material adverse effect on the Company’s consolidated results
of operations or financial position.
In addition, the Company and its officers and directors are parties to two stockholder lawsuits making various
claims including breach of fiduciary duty and unfair business practices relating to its disclosure of
investments. In these actions, plaintiffs may request punitive or other damages that may not be covered by
insurance.
SEC Inquiry — By letter dated February 4, 2008, the Company received a notice from the U.S. Securities
Exchange and Commission (the “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, the Company received an
additional letter from the SEC requesting certain information. The Company is cooperating with the SEC on a
voluntary basis.
Credit Facilities — At December 31, 2007, the Company has various uncommitted repurchase agreements,
letters of credit and overdraft facilities totaling $2.3 billion to assist in the management of investments and the
clearing of payment service obligations. These credit facilities are in addition to available amounts under the
revolving credit agreement described in Note 9 — Debt. Included in this amount is an uncommitted reverse
repurchase agreement with one of the clearing banks totaling $1.0 billion. Overdraft facilities consist of
$14.8 million of letters of credit, all of which are outstanding at December 31, 2007. Letters of credit totaling
$4.6 million reduce amounts available under the revolving credit agreement. Fees on the letters of credit are
paid in accordance with the terms of the revolving credit agreement described in Note 9 — Debt.
F-45
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Commitments — The Company has agreements with certain other co-investors to provide funds related
to investments in limited partnership interests. As of December 31, 2007, the total amount of unfunded
commitments related to these agreements was $1.6 million. The Company has entered into a debt guarantee
for $1.7 million on behalf of a money order and transfer agent. This debt guarantee will be reduced as the
agent makes payment on its debt to a bank. The term of the debt guarantee is for indefinite period, but is
expected that the agent will pay all outstanding amounts under its debt to the bank by March 2009. The
Company accrued a liability of $0.3 million for the fair value of this debt guarantee. A corresponding deferred
asset was recorded and will be amortized on a straight line basis through March 2009. The amortization
expense is recognized as part of “Transaction and operations support” expense in the Consolidated Statements
of (Loss) Income.
Note 15 — Minimum Commission Guarantees
In limited circumstances as an incentive to new or renewing agents, the Company may grant minimum
commission guarantees to an agent for a specified period of time at a contractually specified amount. Under
the guarantees, the Company will pay to the agent the difference between the contractually specified
minimum commission and the actual commissions earned by the agent.
As of December 31, 2007, the liability for minimum commission guarantees is $4.4 million. As of
December 31, 2007, the maximum amount that could be paid commission guarantees is $22.9 million over a
weighted average remaining term of 2.3 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 commission guarantees expiring
in 2007 and 2006, the Company paid or will pay $0.8 million and $3.0 million respectively, under these
guarantees, or approximately 14 percent and 40 percent of the estimated maximum payment for the year,
respectively.
Note 16 — Segment Information
The Company conducts its business through two reportable segments: Global Funds Transfer and Payment
Systems. The Global Funds Transfer segment primarily provides money transfer services through a network
of global retail agents and domestic money orders. In addition, Global Funds Transfer provides a full line of
bill payment services. The Payment Systems segment primarily provides official check services for financial
institutions in the United States, and processes controlled disbursements. In addition, Payment Systems sells
money orders through financial institutions in the United States. One agent in the Global Funds Transfer
segment accounted for 20, 17 and 13 percent of fee and investment revenue in 2007, 2006 and 2005,
respectively.
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. Segment pre-tax
operating income and segment operating margin are used to evaluate performance and allocate resources.
“Other unallocated expenses” includes corporate overhead and interest expense that is not allocated to the
segments.
The Company manages its investment portfolio on a consolidated level and the specific investment securities
are not identifiable to a particular segment. However, revenues are allocated to the segments based upon
allocated average investable balances and an allocated yield. Average investable balances are allocated to the
segments based on the average balances generated by that segment’s sale of payment instruments. The
investment yield is generally allocated based on the total average total investment yield. Gains and losses are
allocated based upon the allocation of average investable balances. The derivatives portfolio is also managed
on a consolidated level and the derivative instruments are not specifically identifiable to a particular segment.
The total costs associated with the swap
F-46
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
portfolio are allocated to each segment based upon the percentage of that segment’s average investable
balances to the total average investable balances.
Capital expenditures and depreciation expense are assigned to the segment in which the asset will be utilized.
For the years ended December 31, 2007, 2006 and 2005, the Company allocated corporate depreciation
expense of $16.1 million, $12.4 million and $9.6 million, respectively, and capital expenditures of
$25.1 million, $33.6 million and $23.6 million, respectively. Capital expenditures and depreciation are
allocated to the segments based on the segment’s percentage of operating income or loss.
The following table reconciles segment operating (loss) income to the (loss) income from continuing
operations before income taxes as reported in the financial statements for the year ended December 31:
(Amounts in thousands)
Revenue
Global Funds Transfer:
Money transfer
Retail money order
Payment Systems:
Official check and payment processing
Other
Other
Total revenue
Operating (loss) income
Global Funds Transfer
Payment Systems
Total operating (loss) income
Interest expense
Other unallocated expenses
(Loss) income from continuing operations before income
2007
2006
2005
$
848,219 $
(77,224)
770,995
669,852 $ 507,726
141,891
151,894
649,617
821,746
$
$
(630,253)
15,897
(614,356)
898
297,289
24,330
321,619
—
157,537 $ 1,159,559 $ 971,236
306,760
30,337
337,097
716
(60,410) $
(920,130)
(980,540)
11,055
1,672
152,579 $ 121,677
42,406
41,619
164,083
194,198
7,608
7,928
10,099
9,497
taxes
Depreciation and amortization
Global Funds Transfer
Payment Systems
Total depreciation and amortization
Capital expenditures
Global Funds Transfer
Payment Systems
Total capital expenditures
$ (993,267) $
176,773 $ 146,376
$
$
$
$
47,499 $
4,480
51,979 $
34,603 $
4,375
38,978 $
28,395
4,070
32,465
65,474 $
5,668
71,142 $
71,181 $
9,852
81,033 $
40,837
6,522
47,359
F-47
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles segment assets to total assets reported in the financial statements as of
December 31:
(Amounts in thousands)
Assets
Global Funds Transfer
Payment Systems
Corporate
Total assets
2007
2006
2005
$ 2,423,090 $ 3,091,519 $ 2,909,246
6,252,528
13,390
$ 7,935,011 $ 9,276,137 $ 9,175,164
6,168,134
16,484
5,497,168
14,753
Geographic areas — Foreign operations are located principally in Europe. Foreign revenues are defined as
revenues generated from money transfer transactions originating in a country other than the United States.
Long lived assets are principally located in the United States. The table below presents revenue by major
geographic area for the year ended December 31:
(Amounts in thousands)
United States
Foreign
Total revenue
2007
2006
2005
$ (142,766) $
918,820 $ 789,410
300,303
181,826
240,739
157,537 $ 1,159,559 $ 971,236
$
Note 17 — Quarterly Financial Data (Unaudited)
2007 Fiscal Quarters
(Amounts in thousands, except per share data)
First
Second
Third
Fourth
Revenues (losses)
Commission expense
Net revenues (losses)
Operating expenses, excluding
commission expense
Income (loss) from continuing operations
before income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of
taxes
Net income (loss)
Earnings (loss) from continuing operations
per share
Basic
Diluted
Earnings from discontinued operations per
share
Basic
Diluted
Earnings (loss) per share
Basic
Diluted
$
$
$
$
$
$
$ 310,051 $
152,260
157,791
333,259 $
165,599
167,660
341,581 $
170,352
171,229
(827,354)(1)
175,697
(1,003,051)
113,700
119,780
121,970
131,446
44,091
29,839
47,880
32,359
49,259
34,292
(1,134,497)
(1,168,238)
—
29,839
—
32,359
—
34,292
(249)
(1,168,487)
0.36 $
0.35 $
0.39 $
0.38 $
0.42 $
0.41 $
(14.18)
(14.18)
— $
— $
— $
— $
— $
— $
—
—
0.36 $
0.35 $
0.39 $
0.38 $
0.42 $
0.41 $
(14.18)
(14.18)
(1) Revenue in the fourth quarter of 2007 includes net securities losses of $1.2 billion, which relate to
other-than-temporary impairments in the Company’s investment portfolio. This amount is also reflected
in Net revenues and Loss from continuing operations and Net loss.
F-48
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2006 Fiscal Quarters
(Amounts in thousands, except per share data)
First
Second
Third
Fourth
Revenues
Commission expense
Net revenues
Operating expenses, excluding commission
expense
Income from operations before income taxes
Net income from continuing operations
Earnings from continuing operations per share
$
Basic
Diluted
Earnings from discontinued operations per
$ 263,672 $
126,273
137,399
292,913 $
138,655
154,258
296,431 $
146,664
149,767
306,543
152,067
154,476
91,711
45,688
30,935
102,440
51,818
36,706
107,807
41,960
30,038
117,169
37,307
26,375
0.37 $
0.36
0.43 $
0.42
0.36 $
0.35
share
Basic
Diluted
Earnings per share
Basic
Diluted
$
$
— $
—
— $
—
— $
—
0.37 $
0.36
0.43 $
0.42
0.36 $
0.35
0.31
0.31
—
—
0.31
0.31
The summation of quarterly earnings per share may not equate to the calculation for the full year as quarterly
calculations are performed on a discrete basis.
Note 18 — Subsequent Events
Sale of Investments: As described in Note 4 — Investments (Substantially Restricted), the Company
commenced a plan in January 2008 to realign its investment portfolio away from asset-backed securities and
into highly liquid assets through the sale of a substantial portion of the available-for-sale investment portfolio.
Through March 7, 2008, the Company sold investments with a combined fair value at December 31, 2007 of
$3.2 billion (after other-than-temporary impairment charges) for proceeds of approximately $2.9 billion and a
realized loss of $260.6 million. As the Company recognized an other-than-temporary impairment charge as of
December 31, 2007 for all investments which were sold, the realized losses resulting from the sale of
investments were the result of further market deterioration in 2008 and the short time-frame over which the
Company sold the investments. The realized losses will be recognized in the first quarter of 2008. The
proceeds from the sale of investments will be invested in cash equivalents.
Following is pro forma financial data representing the composition of the available-for-sale investment
portfolio as if the sale of the investments had occurred as of December 31, 2007:
(Amounts in thousands)
Obligations of states and political subdivisions
Commercial mortgage-backed securities
Residential mortgage-backed securities
Other asset-backed securities
U.S. government agencies
Corporate debt securities
Preferred and common stock
Fair Value
As Reported
December 31,
2007
Sales of
Investments (1)
Pro Forma
Fair Value
December 31,
2007
$
597,379
253,823
1,411,952
1,318,242
374,853
218,367
12,768
(597,379) $
(253,823)
(949,284)
(1,216,882)
—
(218,367)
(12,768)
—
—
462,668
101,360
374,853
—
—
938,881
Total available-for-sale investments
$ 4,187,384 $ (3,248,503) $
(1)
Fair value as of December 31, 2007 of the investments sold during the first quarter of 2008.
F-49
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capital Transaction: On March 25, 2008, the Company completed a Capital Transaction, pursuant to which
the Company received $1.5 billion of equity and debt capital to support the long term needs of the business
and provide necessary capital due to the investment portfolio losses. The terms of the Capital Transaction are
set forth below. The net proceeds of the Capital Transaction will be invested in cash equivalents to
supplement the Company’s unrestricted assets.
Had the Capital Transaction and sale of investments occurred on December 31, 2007, the pro forma
unrestricted assets would be as follows:
(Amounts in thousands)
Cash and cash equivalents
Receivables, net
Trading investments
Available-for-sale investments
As Reported
December 31,
2007
Sales of
Investments (1)
Capital
Transactions (2)
Pro Forma
December 31,
2007
$
1,552,949
1,408,220
62,105
4,187,384
7,210,658
2,909,268
—
—
(3,248,503)
(339,235)
1,286,315 $
—
—
—
1,286,315
5,748,532
1,408,220
62,105
938,881
8,157,738
Amounts restricted to cover payment
service obligations
Unrestricted assets
(7,762,470)
—
—
$
(551,812) $
(339,235) $
1,286,315 $
(7,762,470)
395,268
(1) The reduction to the “Available-for-sale investments” is determined using the fair value of the sold
investments as of December 31, 2007. The increase in “Cash and cash equivalents” is determined using
the actual cash proceeds from these sales, which were invested in cash and cash equivalents.
(2) Amounts for the Capital Transactions are determined based on the actual proceeds received, net of
related transaction costs of $107.4 million, the $100.0 million payment on the revolving credit facility
and a $16.3 million discount on the debt issued by the Company.
Equity Capital — The equity component of the Capital Transaction consisted of the private placement of
495,000 shares of Series B Participating Convertible Preferred Stock of the Company (the “Series B Preferred
Stock”) and 265,000 shares of non-voting Series B-1 Participating Convertible Preferred Stock of the
Company (the “Series B-1 Preferred Stock”) (collectively, the “Series B Stock”) to affiliates of Thomas H.
Lee Partners, L.P. (“THL”) and affiliates of Goldman, Sachs & Co. (“Goldman Sachs”) (collectively, the
“Investors”) for an aggregate purchase price of $760.0 million. After the issuance of the Series B Stock, the
Investors will have an initial equity interest of approximately 79 percent. The Series B Preferred Stock was
issued to THL and the Series B-1 Preferred Stock was issued to Goldman Sachs.
The Series B Stock pays a cash dividend of ten percent. At the Company’s option, dividends may be accrued
at a rate of 12.5 percent in lieu of paying a cash dividend. Dividends may be accrued for up to five years from
the date of the Capital Transaction. After five years, if the Company is unable to pay the dividends in cash,
dividends will accrue at a rate of 15 percent. At this time, the Company expects that dividends will be accrued
and not paid in cash for at least five years. The Series B Stock participates in dividends with the common
stock on an as-converted basis.
The Series B Preferred Stock is convertible into shares of common stock of the Company at a price of $2.50
per share, subject to adjustment. The Series B-1 Preferred Stock is convertible into Series B Preferred Stock
by any stockholder other than Goldman Sachs. While held by Goldman Sachs, the Series B-1 Preferred Stock
is convertible into Series D Preferred Stock, which is a non-voting common equivalent stock.
The Series B Stock may be redeemed at the option of the Company if, after five years from the date of the
Capital Transaction, the common stock trades above $15.00, subject to adjustment, for a period of thirty
consecutive trading days. The Series B Stock will be redeemable at the option of the Investors after ten years
and upon a change in
F-50
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
control. The Series B Preferred Stock will vote as a class with the common stock of the Company and will
have a number of votes equal to the number of shares of common stock issuable if all outstanding shares of
Series B Preferred Stock were converted plus the number of shares of common stock issuable if all
outstanding shares of Series B-1 Preferred Stock were converted into Series B Preferred Stock and
subsequently converted into common stock.
Rights Agreements — As part of the Capital Transaction, the Company amended its Rights Agreement with
Wells Fargo Bank, N.A. as rights agent, to exempt the issuance of securities to the Investors and their
affiliates from the Rights Agreement.
Registration Rights — As part of the Capital Transaction, the Company entered into a Registration Rights
Agreement with the Investors. Under the terms of the Registration Rights Agreement, after a specified
holding period, the Company must promptly file a shelf registration statement with the SEC relating to
securities held by the Investors. The Company is generally obligated to keep the shelf registration statement
effective for up to 15 years or, if earlier, until all the securities owned by the Investors have been sold. The
Investors are also entitled to five demand registrations and unlimited piggyback registrations.
Senior Credit Facility — As part of the Capital Transaction, the Company’s wholly owned subsidiary
MoneyGram Payment Systems Worldwide, Inc. (“Worldwide”) entered into a senior credit facility (the
“Senior Facility”) of $600.0 million with various lenders and JPMorgan, as Administrative Agent for the
lenders. The Senior Facility amended and restated the $350.0 million Amended and Restated Credit
Agreement, dated as of June 29, 2005, among the Company and a group of lenders and includes an additional
$250.0 million term loan. In connection with this transaction, the Company terminated its $150.0 million
364-Day Credit Agreement with JPMorgan.
The Senior Facility includes $350.0 million in two term loan tranches and a $250.0 million revolving credit
facility. Tranche A of the term loans is for $100.0 million and tranche B is for $250.0 million. Tranche B was
issued at a discount of 93.5 percent, or $16.3 million. The interest rate applicable to tranche A and the
revolving credit facility is the Eurodollar rate plus 350 basis points. The interest rate applicable to tranche B is
the Eurodollar rate plus 500 basis points. The maturity date of the Senior Facility is March 2013. Fees on the
daily unused availability under the revolving credit facility are 50 basis points.
At March 25, 2008, the Company had outstanding borrowings under the Senior Facility of $495.0 million.
There is a prepayment premium on the tranche B term loan of two percent during the first year and one
percent during the second year of the Senior Facility. Loans under the Senior Facility are secured by
substantially all of the Company’s non-financial assets and are guaranteed by the Company’s material
domestic subsidiaries, with such guarantees secured by the non-financial assets of the subsidiaries.
Borrowings under the Senior Facility are subject to various covenants, including limitations on: use of
proceeds from borrowings under the Senior Facility; additional indebtedness; mergers and consolidations;
sales of assets; dividends and other restricted payments; investments; loans and advances and transactions
with affiliates. The Senior Facility also has certain financial covenants, including an interest coverage ratio
and a senior secured debt ratio. Compliance with such financial covenants will not be required until the fiscal
quarter ending March 31, 2009. 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, 6:1 from December 31, 2009 through September 30, 2010, 5.5:1 from December 31, 2010 through
September 30, 2011, 5:1 from December 31, 2011 through September 30, 2012 and 4.5:1 from December 31,
2012 through maturity. The Senior Facility also contains a financial covenant requiring the Company to
maintain at least a 1:1 ratio of certain assets to outstanding payment service obligations.
Second Lien Notes — As part of the Capital Transaction, Worldwide issued Goldman Sachs $500.0 million of
senior secured second lien notes (the “Notes”), which will mature in March 2018. The interest rate on the
Notes is 13.25 percent per year unless interest is capitalized, in which case the interest rate increases to
15.25 percent. Prior
F-51
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to March 25, 2011, the Company has the option to capitalize interest of 14.75 percent, but must pay in cash
0.50 percent of the interest payable.
The Notes contain covenants that, among other things, limit the Company’s ability to: incur or guarantee
additional indebtedness; pay dividends or make other restricted payments; make certain investments; create or
incur certain liens; sell assets or subsidiary stock; transfer all or substantially all of its assets or enter into
merger or consolidation transactions and enter into transactions with affiliates. The covenants also
substantially restrict the Company’s ability to incur additional debt and invest assets that are subject to
restrictions for the payment of payment service obligations. The Company is also required to maintain at least
a 1:1 ratio of certain assets to outstanding payment service obligations.
The Company can redeem the Notes after five years at specified premiums. Prior to the fifth anniversary, the
Company may redeem some or all of the Notes at a price equal to 100 percent of the principal amount thereof,
plus accrued and unpaid interest, if any, plus a premium equal to the greater of one percent or an amount
calculated by discounting the sum of (a) the redemption payment that would be due upon the fifth anniversary
plus (b) all required interest payments due through such fifth anniversary using the treasury rate plus 50 basis
points. Upon a change of control, the Company is required to make an offer to repurchase the Notes at a price
equal to 101 percent of the principal amount plus accrued and unpaid interest. The Company is also required
to make an offer to repurchase the Notes with proceeds of certain asset sales that have not been reinvested in
accordance with the terms of the Note or have not been used to repay certain debt.
Inter-creditor Agreement — In connection with the financing arrangements, the lenders under both the Senior
Facility and the Notes have agreed to be bound by the terms of an inter-creditor agreement under which the
lenders have agreed to waive certain rights and limit the exercise of certain remedies available to them for a
limited period of time both before and following a default under the financing arrangements.
F-52
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Exhibit 10.71
MONEY SERVICES AGREEMENT 1
This Money Services Agreement (“Agreement”) is between Travelers Express Company, Inc. (“Travelers Express”)
and MoneyGram Payment Systems, Inc. (“MoneyGram”) (Travelers Express and MoneyGram collectively,
“Company”) and Wal-Mart Stores, Inc. (“Seller”), and shall become effective on February 1, 2005 (the “Effective
Date”). The terms of the Money Transfer Addendum and Amendment dated November 2, 2001, as amended (the
“Original Agreement”), shall remain in full force and effect until February 1, 2005 at which time the Original
Agreement will terminate in its entirety.
The purpose of this Agreement is to authorize Seller to sell Company’s money orders and money transfer services
(the “Services”).
I.
APPOINTMENT. Company appoints Seller to sell the Services only as provided in this Agreement. Seller accepts the
appointment and agrees to provide the Services, in accordance with this Agreement, at all locations of Seller doing
business in the United States and Puerto Rico while this Agreement is in effect, to the extent permissible by local law
or regulations and not in breach of Company’s pre-existing agreements with other sellers. If Seller acquires or
merges with another company, Seller shall have the option in its sole discretion to convert acquired stores to selling
Company money orders and providing the Money Transfer Services pursuant to this Agreement. A list of the initial
Locations is attached hereto as Schedule A — List of Locations. Seller agrees to keep Company informed from time
to time of Seller’s locations and their ownership and to amend Schedule A as appropriate for the addition or deletion
of Locations. Seller agrees to provide the Services during all hours of operation of the Seller’s courtesy desk. So that
the Company may direct transactions accordingly, Seller agrees to notify Company of the standard hours of
operation of Seller’s courtesy desk and in the event of an emergency or other situation when Seller cannot provide
the regular hours of operation. Seller and Company agree that Seller shall provide the Services in all of the Locations
in which Company has provided Seller access to Company’s Money Order and Money Transfer System (collectively,
the “Systems”). Seller’s acceptance of any form of payment other than cash is at Seller’s sole and exclusive risk.
Seller’s international locations that wish to offer the Services will be subject to additional or modified terms and
conditions, including pricing, which will be negotiated and set forth in a mutually agreeable amendment to this
Agreement.
II.
EXCLUSIVE AGREEMENT.
a.
Except as otherwise provided in this Agreement, Seller agrees that in its Locations, it will sell only Company’s
money orders and that it will not provide any money transfer service similar to the Money Transfer Services
whether directly, indirectly or through a vendor or a self-service or automated method or kiosk, except pursuant
to this Agreement, or an amendment hereto.
b.
With regard to money orders, except as otherwise provided in this Agreement, Seller specifically agrees not to
sell money orders for First Data Corporation, Western Union or any other money order company. This provision
shall not apply to in-location banks or to existing agreements pursuant to which Seller leases space in the
Locations to third parties.
c.
[*]
1
The appearance of [*] denotes confidential information that has been omitted from this Exhibit and filed separately
with the SEC pursuant to a confidential treatment request under rule 24b-2 of The Securities Exchange Act of 1934,
as amended.
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
d.
Test of Alternative Technology. [*] provided that it gives Company a right of first refusal for providing such
technologies that may be deemed by Company a competing product or service, including a reasonable time to
develop said technologies. Company’s Money Order and Money Transfer Services will also be offered in the
test Locations during the test.
III. ASSIGNMENT. Neither party may assign this Agreement without the written consent of the other party except to an
entity, which controls, is controlled by or is under common control with the assigning party. Neither party may create
a sub-agency. Each party represents that entering into this Agreement is not a breach of any other agreement.
IV. SUPPLIES, EQUIPMENT AND COMPANY’S SYSTEMS.
a.
Forms. Company will provide Seller during the term of this Agreement, without charge, with money order and
money transfer forms necessary for Seller to provide the Services. Seller shall be responsible for ordering from
Company such forms and supplies as needed.
b.
Company’s Systems. Company shall supply Seller with equipment, hardware and software (“Company’s
Systems”) necessary for Seller to provide the Services at each of Seller’s Locations. Such equipment may
include a personal computer, proprietary software (including but not limited to Company’s DeltaWorks!
Software), Company’s DT3 equipment, or other equipment, hardware or software provided by Company, all of
which shall be deemed part of Company’s Systems. Company grants to Seller a non-exclusive license to use
Company’s Systems, for the term of this Agreement. Seller shall not remove any part of Company’s Systems
from the original installation Location without first providing notice to Company. Seller agrees that it will not
modify, decompile or reverse engineer any part of Company’s Systems without Company’s consent. Seller is
responsible for any damage, theft or loss to any part of Company’s System in Seller’s possession or control, to
the extent caused by employees of Seller, except for normal wear and tear. Seller will notify Company if any of
Company’s equipment is not working properly. Upon termination of this Agreement, Seller shall return all parts
of Company’s System in Seller’s possession or control, at Company’s expense. If Seller fails to return any
portion thereof upon termination of this Agreement, Seller shall pay Company $1000 per Location, representing
the replacement cost of such Equipment at each Location. Company will be responsible for equipment returned
by Seller from the time of shipment if Seller follows Company’s instructions and properly packs and ships the
equipment.
c.
Maintenance and Upgrades. Company agrees to maintain equipment provided by Company to Seller as part
of Company’s system, at Company’s own expense, including all upgrades necessary to accommodate changes
that Company may make to the System. Company agrees that where possible, Company will notify Seller within
24 hours if it determines that maintenance is required on Seller’s equipment, such equipment is not functioning,
or if the Money Transfer System network is not working properly. Company agrees to provide upgrades to the
System as deemed necessary by Company from time to time, and as they become generally available to
Company’s network. Company agrees that it will pay the cost of any enhancements or upgrades to the System
necessary to accommodate changes that Company may make that were not initiated at the request of Seller or
to accommodate Seller’s requirements. Seller shall provide all upgrades necessary to accommodate changes
made at the request of Seller, or to accommodate Seller’s requirements. Company will provide customer service
for consumers through Company’s call centers.
[*]
Please refer to footnote on page 1.
2
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
d.
Telecommunication. Company at its expense will provide and maintain a dedicated telephone line or Ethernet
connection between Seller’s network and Company.
V.
DEVELOPING TECHNOLOGY. Other than as otherwise stated in this Agreement, any development of future
technology (including hardware and/or software) on which the Money Order Services or Money Transfer Services
may be provided, and any related expenses, such as connections or telecommunications, shall be negotiated in
good faith and mutually agreed between the parties. In the event that the parties agree on such technology
development, the terms of the development and provision of the Services (including pricing of the Services on the
modified technology) shall be documented in a future amendment to this Agreement.
VI.
INDEMNIFICATION. Each party is responsible for, and agrees to indemnify the other against any and all losses,
damages and expenses, (including reasonable attorneys’ fees) which such other party may sustain or incur
attributable to any act or failure to act (whether negligent, dishonest, or otherwise) by the party or the party’s
employee (whether or not acting within the scope of employment) in any way related to this Agreement except to the
extent caused by any act or failure to act (whether negligent, dishonest or otherwise) by such other party or such
other party’s employee (whether or not acting within the scope of employment.)
VII. SECURITY AGREEMENT. Seller grants to Company a security interest in the money order materials, the proceeds
of money order and money transfer sales and the right to receive payment for money orders and money transfers
sold, and Seller’s rights under this Agreement. Company has the rights of a secured creditor under the Uniform
Commercial Code solely with regard to the items listed above. Company agrees not to take any action on its security
interest unless: i) Seller has been given prior written notice, ii) Seller’s net worth falls below 5 billion dollars, and iii)
Seller is in default under this Agreement.
VIII. INTEREST. Any amount not paid to either party when due will bear interest until paid at the annual rate of two
percent above the prime rate as that prime rate may be from day to day. As used in this Agreement, “prime rate”
means the prime rate published by The Wall Street Journal for corporate loans by large U.S. money center
commercial banks. Interest will not exceed the amount or rate that may lawfully be charged, and any amount
contracted for, charged, or taken in excess of the amount or rate allowed by law will be credited to principal or
refunded.
IX.
REMEDIES. All remedies are cumulative. Delay or failure to enforce a right or pursue a remedy is not a waiver. The
parties consent to jurisdiction and venue in the United States District Court for the District of Delaware, and in the
courts of the state of Delaware.
X.
COMPLIANCE WITH LAW. Each party agrees to comply with all applicable laws and regulations, including laws and
regulations that prohibit money laundering. Seller agrees that it will comply with local laws relating to money
laundering compliance and other laws relating to its business. Company agrees that it will comply with all federal and
state and local laws concerning money order licensing, regulation and money laundering compliance and will
promptly advise Seller of any such laws which affect or prohibit Seller’s activities pursuant to this Agreement. The
parties acknowledge that isolated incidents of non-compliance which do not constitute a pattern of non-compliance,
and which do not cause either party to incur any material penalty or to be subject to any regulatory or civil
enforcement action, will not be considered a breach sufficient to give rise to a right of termination of this Agreement
pursuant to Section XIII, below.
XI.
NOTICES. Written notices may be sent by certified mail return receipt requested or delivered in person and must be
addressed as follows:
SELLER:
Wal Mart Stores, Inc.
702 S.W. 8th Street
Bentonville, AR 72716-8001
Attention: Senior Vice President, Wal-Mart Stores, Financial Services Division
3
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
COMPANY:
Travelers Express Company, Inc.
Attention: Contracts Administration
1550 Utica Avenue South
Minneapolis, MN 55416
XII. ENTIRE AGREEMENT. This Agreement, including any riders, exhibits, or addenda, is the entire agreement between
the parties relating to the subject of this Agreement. This Agreement can be changed only by a writing signed by
both parties. If any part of this Agreement is invalid, it is severed from the rest of this Agreement, and the rest of this
Agreement remains in effect.
XIII. TERM AND TERMINATION. This Agreement is effective on the Effective Date indicated above.
a.
The initial term of this Agreement begins on the Effective Date and continues through January 31, 2009, unless
extended pursuant to the terms of paragraph e, below. This Agreement will continue in one year terms
thereafter unless terminated by either party as provided in this Section XIII.
b.
This Agreement may be terminated by either party as of the end of the initial term or at any time thereafter, by
written notice given to the other party at least 180 days in advance of such termination. Either party may
terminate this Agreement at any time immediately upon giving written notice if the other party has materially
breached this Agreement and has failed to cure such breach within 30 days after written notice is given by the
other party specifying the breach. The 30 day cure period does not apply to any failure by Seller to remit
amounts owing to Company as agreed. Seller and Company shall each have as long as 5 days in which to cure
an unpaid remittance if due to delays caused by Company, force majeure including but not limited to: strikes,
riots, labor disputes, war or civil disturbance; court order, acts of God, computer or power failures (provided that
Seller has commercially reasonable disaster recovery plans in place to protect its business) or other causes
outside its reasonable control. Upon any termination, Seller will immediately remit in good funds all amounts
then owing to Company. Seller remains liable to Company until Seller has fulfilled all of its obligations to
Company.
c.
Hardship Termination. In the event that due to regulatory or government prohibition that renders either party
unable to continue to provide the Money Transfer Services, such party may elect to terminate this Agreement as
to the Money Transfer Services only for hardship in accordance with the following provisions. Before electing
such a hardship termination, the party so electing shall provide the other party with 180 days (or such shorter
period if required by law) advance written notice of its intention to terminate including the section of the law or
regulations or government action that gives rise to the prohibition. The non-terminating party shall then have the
right to either accept such notice of termination or object to the termination. If the non-terminating party objects
to the hardship termination then such party shall provide written notice of its objection and rationale no later than
30 days after its receipt of the notice of termination. Upon objection by the non-terminating party, the matter
shall be submitted to dispute resolution pursuant to the provisions of Section XVI hereof; provided, however,
following a hardship termination hereunder by Company, Seller may engage a third party to provide money
transfer services for the remainder of the current term of this Agreement.
d.
Termination for Material Adverse Change. In the event that, in the commercially reasonable good faith judgment
of Company, there has been a material adverse change in Company’s business or network of representatives
due in whole or in substantial part to the provision of Money Transfer Services by Seller hereunder, then
Company shall have the right to terminate this Agreement as to the Money Transfer Services only. Before
electing such a termination, Company shall provide Seller with 180 days advance written notice of its intention to
terminate including a description of the material adverse change. Seller shall then have the right to accept such
notice of termination or object to the termination. If Seller objects to the termination, then Seller shall provide
written notice of its objection and rationale no later than 30 days after its receipt of the notice of termination.
Upon objection by the Seller, the matter shall be submitted to dispute resolution pursuant to the provisions of
Section XVI hereof; provided, however, following a material adverse
4
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
change termination hereunder by Company, Seller may engage a third party to provide money transfer services
for the remainder of the current term of this Agreement.
Within 30 days after any termination in accordance with this Section XIII, the parties shall conduct a final
accounting to determine the final amounts due and owing between them for transactions completed prior to the
termination date. All such amounts shall be paid immediately following such accounting. If the termination is for
hardship or material adverse change in accordance with this Section XIII, then no further damages or other
compensation shall be payable by either party. The provisions of this Agreement regarding (i) the return of
Company’s equipment and other property, including Seller’s payment therefore, and (ii) each party’s
indemnification rights under Section VI shall remain in effect subsequent to the termination of this Agreement.
e.
Extension of Term. In addition to the Commissions specified herein, Seller shall be entitled to an extension
payment, as follows (“Extension Payment”):
(i)
Extension Options - On or before the eve of each anniversary of this Agreement (January 31 of each year
during the initial term of this Agreement) Seller shall have the option to extend the term of this Agreement
by one year (to January 31, 2010) or two years (to January 31, 2011). Seller shall be entitled to an
Extension Payment of an additional [*] of the applicable Consumer Fee in extending the Agreement by one
year (to January 31, 2010) or an additional [*] of the applicable Consumer Fee by extending the Agreement
by two years (to January 31, 2011). The Extension Payment would apply to the applicable Consumer Fee
beginning on the following February 1st, and continuing for the remaining term of this Agreement.
Unless otherwise agreed by both Seller and Company, in no event shall Seller be entitled to exercise options to
extend the term of this Agreement by more than two additional years extending this Agreement beyond
January 31, 2011, or be entitled to extension payments increasing its base commission by more than [*].
(ii) Extension Notification - Seller will notify Company in writing of intent to exercise one of the extension
options described above on or before the eve of the anniversary date (January 31 of each calendar year) to
allow for administrative execution of the additional applicable Performance Bonus referenced in Money
Transfer Section 6.b..
XIV. SIGNAGE/ADVERTISING/PROPRIETARY MATERIAL.
Seller shall be solely responsible for advertising and promoting Seller branded Services, including providing all
signage and shall pay all costs and expenses of such advertising. Seller and Company understand that the decision
to display signage at Seller Locations will be made on a location by location basis. Seller will comply with Company
branding standards. Seller agrees to use its good faith efforts to promote the sale of the Services according to a
mutually agreed upon marketing plan, budget and schedule, both at the corporate level as well as at the individual
Locations.
Company shall be solely responsible for advertising and promoting the MoneyGram branded Money Order, Money
Transfer and Express Payment network generally, and shall pay all costs and expenses of such advertising.
Company hereby grants to Seller and Seller hereby grants to Company, a limited, non-exclusive, non-transferable,
royalty-free license to use, solely for use in connection with the Services during the term of this Agreement, the other
party’s name, logo, trademarks, service marks, related trade names and company names and other identifying
marks (collectively “Marks”). Each use of a party’s Marks hereunder by the other party shall be subject to the prior
written approval by such first party of the form, content and proposed use of the materials in which the Marks are to
be used.
[*]
Please refer to footnote on page 1.
5
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Each party will use materials containing the other party’s Marks for the benefit of such other party, and will
immediately stop using such materials upon termination of this Agreement. Each party will return the materials to the
other party or destroy them, as determined to be the most economical means by the party which is the owner of the
Marks used therein, within 14 business days of a request for return or destruction.
Company may use Seller’s name and Locations in any listing of Money Transfer Services network locations,
materials and medium, and Seller hereby approves such use.
XV. CONFIDENTIALITY. The parties agree to keep confidential the terms and conditions of this Agreement. Neither
party will issue a press release except by agreement with the other party.
XVI. DISPUTE RESOLUTION. The parties agree to resolve any disputes in accordance with the following procedures:
a.
If any controversy arises from or relates to this Agreement or the performance or breach thereof (“Dispute”), the
parties shall make an effort to negotiate a resolution in accordance with this Section XVI. If either party declares
that a Dispute exists, the parties agree to use their best efforts and to attempt in good faith to resolve the
Dispute promptly by negotiations between the designated representatives having authority to settle the Dispute.
Either party may give the other party written notice of any Dispute not resolved in the normal course of business
(“Notice of Dispute”). Within 30 days after receipt of the Notice of Dispute by the receiving party, the receiving
party shall submit to the other a written response which shall include a statement of such party’s position. Within
90 days following receipt of such Notice of Dispute the parties shall meet at a mutually acceptable time and
place and thereafter as often as they reasonably deem necessary, to attempt to resolve the Dispute. All
reasonable requests for information made by one party to the other will be honored. In the event that these
business-oriented negotiations are unsuccessful in resolving a Dispute, the parties shall escalate the Dispute
first to the highest ranking officer of the party who shall have operational responsibility for the Service and in turn
to the Vice President and General Manager Global Funds Transfer of MoneyGram and Senior Vice President
Wal-Mart Stores, Financial Services Division respectively as necessary in further attempt to resolve the Dispute.
b.
In the event a Dispute has not been resolved by negotiation, then the parties agree that Delaware law shall
apply.
XVII. TRAINING.
a.
Seller agrees to use its good faith efforts to train its employees on Company’s products and services, including
compliance procedures. Seller may request assistance from Company, at Seller’s expense.
b.
Seller will develop computer based learning (“CBL”) modules for the Money Transfer Services, to be included
with Seller’s other CBL training.
XVIII. DEFINITIONS. Except as otherwise set forth in the Agreement, the terms below shall be defined as follows:
“Adjusted Company Consumer Fee” means the Company Consumer Fee, adjusted as provided in Section 4 under
Money Transfers.
“Company Consumer Fee” means the published consumer fee (exclusive of temporary price promotions of less
than 90 days duration) that Company directs its representatives (other than Seller) to collect from each consumer
sender for the Company’s Money Transfer Services without regard to the MoneySaver value program or any other
loyalty program.
6
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
“Commissions” means amounts payable by Company to Seller as a commission on any Transfer Send, Transfer
Receive, or Express Payment transaction; each as further specified in Section 6 under Money Transfers.
“Company’s Money Order and Money Transfer System” means hardware, software and/or specifications provided by
Company to Seller to allow Seller to perform Money Order Services and/or Money Transfer Services, including, but
not limited to Company’s DT3 equipment, DeltaWorks! software, MoneyWorks! software, Agent Connect specification
or other proprietary software, hardware, information or materials.
[*]
“Confidential Information” means Company’s confidential business or technical information, including without
limitation, terms and conditions of this Agreement, training materials, transaction software, Identification Number,
PIN, Company’s written policies and procedures and all data regarding consumers which Seller obtains solely as a
result of offering Money Transfer Services.
“Contract Year” means each successive period of 12 months starting on February 1 of each year, and ending on the
day prior to the anniversary of that date.
“Corridor” means any Market pair designated by Company from time to time, made up of a Market from which a
transaction is sent and the Market in which the sending consumer designates the transaction is to be received.
“Currency Exchange Spread” for any money transfer transaction shall be an amount computed as follows: (a) The
amount that would be paid out in local currency for the Transfer Amount shall be computed at the average currency
conversion rate offered by the applicable money transfer company during the previous 30 days; (b) The amount that
would be paid out in local currency shall then be computed as though the Transfer Amount would be paid out in local
currency at a currency conversion rate equal to the average rate specified by Bloomberg during the same 30-day
period for the purchase of such local currency (“Bloomberg Rate”); (c) The difference between the result obtained in
(b) and the result obtained in (a) shall be converted to U.S. dollars at the Bloomberg Rate and shall be considered
the Currency Exchange Spread.
“Designated Marketing Area” means a designated market area as defined by Nielsen Media Research.
“ExpressPayment” means the Company’s emergency bill payment service pursuant to which consumers may pay
bills at Seller locations for same-day credit to billers with whom Company has contracted.
“Good Reason” means any event outside the control of Company that increases the cost to Company of processing
money transfer transactions for a Corridor or Corridors as to which Seller completed at least twenty percent (20%) of
its Transfer Send transactions during the previous twelve months. “Good Reason” includes but is not limited to:
increases in the cost of providing telecommunications services to receiving agents in the Corridor, increased or new
application of taxes, including withholding taxes, to money transfer transactions (other than U.S. taxes imposed
generally on corporate income), increased or different levels of regulatory compliance applicable to the Corridor or
the money transfer business generally, heightened security or other measures required by law or regulation, war,
riots, or natural disaster.
“Location” means a retail store facility operated by Seller from which Money Transfer Services and Money Orders are
offered. The initial Locations are identified in the List of Locations (Schedule A) attached hereto.
[*]
Please refer to footnote on page 1.
7
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
“Market” means an area designated by Company from time to time, which shall be a Designated Marketing Area or
larger geographical area from which transactions are sent and a country in which transactions are received.
“Money Order Services” means the money orders, supplies, reconciliation, and related services provided by
Company to Seller pursuant to this Agreement.
“Money Transfer Services” means the Transfer Send, Transfer Receive and ExpressPayment transactional services
offered by Company under the trade or service mark MoneyGram®, “Wal-Mart International Money Transfer by
MoneyGram” or any other name, trade name or service mark Company and Seller may designate.
“MoneySaver” means the Company’s loyalty program that provides participating consumers with better value based
on the availability of additional information regarding the consumer and his or her money transfer transaction history
through participation in the program.
“Multi-Currency System” means a proprietary system developed by Company that enables Company to set currency
exchange rates among local currencies.
“Total Consumer Cost” as to transactions completed entirely in U.S. dollars, and transactions in any Corridor where
the Multi-Currency System is not in effect, means the total consumer fee or charge (as adjusted by any applicable
loyalty or similar program) for the representative Transfer Amount but not including any Currency Exchange Spread.
For any Corridor as to which the Multi-Currency System is in effect, the Total Consumer Cost shall include the total
consumer fee or charge (as adjusted by any applicable loyalty or similar program) for the representative Transfer
Amount plus the Currency Exchange Spread. The representative Transfer Amounts shall be $300 and $500 only.
“Transfer Amount” means the funds collected from a consumer for the purpose of being transferred to a recipient,
excluding all applicable Wal-Mart Consumer Fees.
“Transfer Receive” means the transactional segment of Money Transfer Services wherein Seller receives a request
to disburse funds in accordance with Money Transfer Section 6 of this Agreement
“Transfer Send” means the transactional segment of Money Transfer Services wherein Seller collects the Transfer
Amount and Wal-Mart Consumer Fee from a consumer and initiates an electronic request to the Company to
disburse funds in accordance with Money Transfer Section 5 of this Agreement.
“Wal-Mart Consumer Fee” means the fee, as established by Seller in accordance with the terms of this Agreement,
which Seller shall charge each consumer sender for the Money Transfer Services.
XIX. GENERAL PROVISIONS.
a. This Agreement may be signed in counterparts, but will not be effective until each party has signed at least one
copy of this Agreement. Each signed copy of this Agreement will be an original of this Agreement, but all signed
copies of this Agreement together will amount to one and the same Agreement. The parties agree that copies of
executed documents received via facsimile will be deemed to be originals for all purposes.
b. As of February 1, 2005, this Agreement supercedes any and all agreements, either oral or written, between the
parties hereto with respect to the subject matter hereof (including the Original Agreement between the parties) and
contains all the covenants and agreements between the parties with respect thereto. Notwithstanding the foregoing,
any existing agreement or obligation of the parties relating to confidentiality or non-disclosure of information shall
remain in effect.
8
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
MONEY ORDERS
Company issues money orders, which are drafts drawn by Company on Company. Company is liable under the
law to pay the money orders when they are presented for payment and agrees to do so unless Company has a
legal defense. Seller does not acquire any right, title, or interest in the money orders. All money orders remain the
property of the Company.
1.
SALES. Seller’s acceptance of any form of payment other than cash is at Seller’s sole and exclusive risk, and Seller
shall be liable to Company for the face amounts of all money orders sold by Seller, regardless of whether Seller
ultimately receives payment. Seller agrees to imprint each money order with the amount. Seller will not issue a
money order for more than $1000.00 per item. In addition, until otherwise agreed, Seller shall have the right to issue
money orders payable to its vendors in face amounts up to but not exceeding $9,999.99 per item. Seller is authorized
to use money orders for its own or its affiliates’ obligations for payments to store vendors, on an as-needed basis.
Seller agrees to suspend selling Company money orders immediately upon written notice from Company of
termination of this Agreement.
2.
COMPENSATION. As compensation for the Money Order Services, Seller agrees to make fee payments to
Company or Company agrees to make rebates to Seller as follows. The fee or rebate will be recalculated after each
calendar quarter based on the previous quarter’s volume. The new fee/rebate will be effective on the first day of the
following quarter. Should Seller be eligible for a fee rebate based on the schedule below, the rebate will be paid
within 30 days after the end of the applicable calendar quarter.
Average Items/Store/Month
Below [*]
[*]
[*]
[*]
[*]
[*] and above
Dispenser Fee: None
Fee or Rebate per Item
[*]
[*]
[*]
[*]
[*]
[*]
3.
CARE OF BLANK INSTRUMENTS. Seller agrees to use reasonable care to keep blank money orders safe at all
times and safeguard equipment and unissued money orders. Company will be responsible for loss of blank money
order forms only when all of the following conditions occur:
a.
b.
Seller is not at fault, or negligent, or in breach of this Agreement;
Seller has given the same protection to the blank money order forms that a reasonably prudent person would
give to his own cash; and
c.
Company receives notice, including the serial numbers of the missing blank money orders, by telephone
within 24 hours of the time that Seller learns (or should have known) of such loss.
4.
REQUESTS FOR STOP PAYMENTS. Seller has no legal right to stop payment of Company’s money order. Seller
may request that Company refuse payment of a money order sold by Seller. If Company stops payment of a money
order at Seller’s request, Seller agrees to indemnify Company against claims of a holder and pay the reasonable
expenses and attorneys’ fees to defend any legal action that results.
5.
FINANCIAL RESPONSIBILITY. Each party agrees to maintain a sound financial condition. Company will maintain
funds sufficient to pay its money orders when they are presented for payment.
[*]
Please refer to footnote on page 1.
9
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
6.
REMITTANCES AND REPORTS. Seller agrees to remit to Company the amounts of all money orders sold and fees
as provided in this Agreement. Seller will remit the face amount and fees to Company daily by bank wire for the
previous day’s sales. Remittance will be made on Monday for the previous Friday, Saturday and Sunday sales.
Company to provide Seller with previous day’s sales by 10:00 a.m.
When a remittance day falls on a bank holiday, Seller will remit on the banking day after the holiday. Seller agrees to
allow Company continuous access to the information in electronic dispensers.
7.
REFUNDS TO PURCHASER; “Safe to Cash.” Seller may cash a money order for a customer (whether or not the
money order was issued by Seller) provided Seller takes the original money order and deposits it in Seller’s account.
Seller acts at its own risk if it cashes a money order for a purchaser without depositing the money order, except to
the extent caused by any act or failure to act (whether negligent, dishonest, or otherwise) by Company or Company’s
employee (whether or not acting within the scope of employment.)
Company may, during the term of this Agreement, develop a system interface that would allow Seller access to
Company’s database in order to confirm the validity of a money order before Seller cashes it (the “Safe to Cash
Service”). If Company develops the Safe to Cash Service, Company will make it available to Seller for a charge. If
Seller uses the service according to instructions, Company and not Seller will be liable for any money order that
Seller cashes based on information in the systems that the money order is valid and unpaid.
10
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
MONEY CENTER EXPRESS (MCX)
MONEY ORDER PILOT
The parties intend to pilot a kiosk called the “Money Center Express” or “MCX,” in connection with certain third
parties, for the sale of incremental Company money orders. The money orders sold through the MCX kiosk during
the pilot are subject to the following additional terms and conditions. In the event of a conflict between the terms
contained in this section and the terms contained in another part of this Agreement, the term contained in this
section shall be controlling with respect to money orders sold through the MCX kiosk.
1.
Term. The term of the MCX kiosk pilot shall be six months from the date of the first in store installation. The pilot
shall include 25 Locations, unless otherwise mutually agreed by the parties. At the conclusion of the pilot, the parties
will assess the results of the pilot according to a list of agreed upon metrics. Incremental money order volume metrics
measured will exclude vendor payments. The parties shall negotiate in good faith regarding the MCX kiosk program.
The terms for any continuation or roll-out of the MCX program will be documented in an addendum to this
Agreement.
2.
3.
Fees. As compensation for money orders sold via the MCX kiosk, Seller agrees to make fee payments to Company
of [*] per money order. The fees payable under this section will be subject to a remittance schedule established by
Company.
Compliance. The parties agree to comply with all laws and regulations applicable to selling Company money orders
via the MCX kiosk, including compliance reporting. The parties will develop and document a program to ensure such
compliance, which shall be mutually agreeable to both parties.
4.
MCX Technology. Certain equipment and software provided by Company to Seller, including the DT3 terminals and
2100 dispensers (the “MCX Equipment”) which will be provided by Company to Seller to be incorporated into the
MCX kiosk being developed by Seller’s subcontractor(s), contain trade secrets and technology protected by patents.
Neither Seller nor Seller’s subcontractor shall obtain any rights to any DT3 or 2100 dispenser technology.
5.
Service Levels. The MCX Equipment will be covered by the MCX section in the Service Level Agreement between
the parties.
6.
Supplies. Company will provide Seller with supplies, including money order paper, printer ribbons, and other
supplies for Company equipment. The supplies will be delivered via a delivery method selected by Company, to an
address directed by Seller. Seller shall provide reasonable notice to Company, in writing, of any change in the
delivery address for the specified MCX Equipment.
7.
Subcontractors. Either party may subcontract all or any part of its obligations with respect to the MCX kiosk pilot.
However, such party will fulfill and perform or cause its subcontractor(s) to fulfill and perform all of the terms and
every payment, covenant and condition which the party is required to make or perform under this Agreement.
[*]
Please refer to footnote on page 1.
11
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
MONEY TRANSFERS
Company’s Money Transfer Services will be offered to Seller’s customers as the “Wal-Mart International Money
Transfer by MoneyGram” or any other name upon which the parties mutually agree.
1.
COMPANY’S INSTRUCTIONS. Seller agrees to follow Company’s instructions for the provision of the Money
Transfer Services. Company may change the instructions from time to time as long as they remain reasonable and
provided Seller is given reasonable prior written notice thereof.
2.
COMPETING SERVICES. [*] For purposes of this paragraph 2, the provision of money transfer and/or money orders
through a self-service or automated method or kiosk shall not be considered an additional feature, but rather is a
separate product not included as part of this Agreement. An additional feature or service will be considered material
only if it is likely to result in a material increase in transaction volume for the Money Transfer Service (e.g., a feature
which would make a transaction easier for a consumer to execute or complete, to a degree that it is likely to result in
a material increase in transaction volume).
3.
MONEY TRANSFER PROCEDURES. The Identification Number (as defined below) and PIN (as defined below)
must be provided by Seller to the Company each time a Transfer Send or Transfer Receive request is made.
Identification Number means the unique and confidential Seller identification number provided by Company to each
Seller Location conducting Transfer Send and Transfer Receive transactions. Personal Identification Number (“PIN”)
means a second confidential identification number provided by Company to each Seller conducting Transfer Send
and Transfer Receive transactions. The PIN will be changed if the security of either identification number has been
compromised. It is Seller’s obligation to ensure that its Identification Number and PIN (collectively, the “Numbers”)
are kept confidential. Seller agrees to take all commercially reasonable precautions necessary to prevent disclosure
of and access to the Services by unauthorized persons and will notify Company immediately if Seller knows or
suspects that the Numbers have been disclosed. Company will, as soon as practicable, issue new Numbers to
Seller. Seller shall be liable for all use or misuse of its Numbers and shall assist Company in investigating the
circumstances of such misuse. Seller hereby acknowledges that the Company will refuse to authorize transactions if
the correct Identification Number and PIN are not provided. Seller agrees that Company shall have the right, at any
time, to refuse any Transfer Send or Transfer Receive request. Company will not refuse Transfer Send or Receive
requests unreasonably.
4.
CONSUMER FEE PRICING; TRANSFER SEND AND EXPRESS PAYMENT TRANSACTIONS.
a.
For each Transfer Send and Express Payment transaction, Seller shall collect from the consumer the Transfer
Amount and applicable Wal-Mart Consumer Fee (reduced, where applicable, by the MoneySaver value
program). Company will include the Wal-Mart Consumer Fee schedules, which may be amended from time to
time in accordance with the terms of this Agreement, in Company’s System. [*] and no higher than Company
Consumer Fee or Adjusted Company Consumer Fee for a comparable transaction. Seller agrees to provide the
Company with at least 21 days advance notice of any changes in the Wal-Mart Consumer Fee, to allow
Company sufficient time to adjust its computer systems and provide for adequate communication to the
Company’s agent network.
b.
Seller shall offer the MoneySaver value program, which shall be applicable to the Wal-Mart Consumer Fee at
the same rate (as a percentage of Consumer Fee) offered by Company to all MoneySaver cardholders.
Company and Seller will mutually agree on any changes in the MoneySaver value program relating to pricing for
the Money Transfer Services.
c.
Seller will follow Company’s prescribed procedures in connection with currency exchange rates as to
international transactions. Seller understands and agrees that Company will not set the currency exchange rate
applicable to all currency conversions. For those Corridors where Company does not set the rate, the local
Company retail representative will determine the currency exchange rate at the time of the Transfer Receive.
Company will determine the currency exchange rates for all Transfer
[*]
Please refer to footnote on page 1.
12
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Sends from the United States to Mexico and from the United States to certain other countries pursuant to its
Multi-Currency System. Company will determine which currencies and Corridors will be included in the
Multi-Currency System from time to time.
d.
Company agrees that it will use best efforts to establish Total Consumer Costs that are lower than the published
Total Consumer Costs established by any money transfer service competitor with a larger market share than
Company, for comparable money transfer service (exclusive of temporary price promotions of less than 90 days
in duration.) [*]
(i)
If Company decreases the Company Consumer Fee for any reason, other than as set forth in section
4.d.(iii), below, then Company’s Consumer Fee Schedule shall be automatically amended to include the
new Company Consumer Fees which shall also be the Adjusted Company Consumer Fees for purposes
of computing the Commissions hereunder. In addition, the Wal-Mart Consumer Fee Schedules shall be
amended accordingly, if necessary, effective 21 days after notice from Company, or at such earlier date
as the parties may mutually agree.
(ii) If Company wishes to increase any Company Consumer Fee at any time after the effective date of this
Agreement, it will give Seller 21 days advance written notice (or such lesser notice as the parties may
mutually agree) which shall include the reasons for the Company Consumer Fee increase. If the
Company Consumer Fee increase is for Good Reason, or if Seller does not deliver written notice of its
objection to Company within the 21 day period, then Company’s Consumer Fee Schedule shall be
automatically amended to include the new Company Consumer Fees, which shall also be the Adjusted
Company Consumer Fees for purposes of computing the Commissions hereunder. If the Company
Consumer Fee increase is not for Good Reason and Seller objects to the increase within the 21 day
period, then for purposes of computing the Commissions hereunder, the Company Consumer Fee in
effect prior to the increase shall be the Adjusted Company Consumer Fee.
(iii) Notwithstanding anything to the contrary contained herein, Company may engage in pricing promotions
or pricing tests in specified Designated Marketing Areas. Such temporary price promotions shall not be
deemed a decrease or increase to the Company Consumer Fee or Company Consumer Fee Schedule
for purposes of this section.
(iv) If Company agrees to adjust its pricing according to a request by Seller, (whether such request is for
promotional, test or permanently modified pricing), the Commission rate payable to Seller under section
6, below, for transactions subject to the modified pricing may be subject to renegotiation.
e.
Seller shall not charge consumers additional fees of any kind or nature other than as provided in this Agreement
unless agreed to by Company.
f.
(i) Seller shall comply with all applicable laws and regulations with respect to the collection of Wal-Mart
Consumer Fees, as directed by Company. If Seller becomes aware of a law or regulation which applies to a
money transfer transaction, but which is or may be contrary to any direction from Company, Seller shall comply
with such law or regulation and give Company notice of such compliance, directed to Company’s Law
Department. Seller shall be liable to Company for the Transfer Amount and Wal-Mart Consumer Fee related to
any Transfer Send initiated by Seller, regardless of whether Seller ultimately receives payment. Seller is fully
responsible and unconditionally liable for all Transfer Sends initiated by individuals at the Locations, for giving
Seller’s Identification Number and PIN to the Company’s transaction center, and for all Transfer Sends which
are verified by Company, whether or not Seller gives its Identification Number and PIN. Seller and Company will
cooperate to develop and maintain mutually agreed upon programs intended to prevent fraud.
(ii) Seller also agrees to take such actions as commercially reasonably requested by Company to prevent
fraudulent Transfer Send and/or Receive transactions. Actions requested by Company include but are not
limited to instructions in Company’s Money Transfer Services agent guides, fraud and money laundering
prevention guides (as updated from time to time) fraud alert memos,
[*]
Please refer to footnote on page 1.
13
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
correspondence and various other communications whether verbal or written, from Company to Seller.
5.
TRANSFER RECEIVE TRANSACTIONS. Seller shall follow the computerized or telephonic authorization
procedures specified by Company prior to disbursement of the Transfer Amount. Seller shall maintain the ability to
disburse at least $900 in cash for each Transfer Receive. If a Transfer Receive involves an amount which exceeds
that amount or if the recipient requests disbursement in a form other than cash, Seller will disburse the transfer
amount by issuing a money order to the recipient through use of the System. Seller shall deposit a Money Order in
the amount of each Transfer Receive transaction paid out in cash in order to itself receive reimbursement for cash
disbursed. Seller is fully responsible and unconditionally liable for all amounts which Seller, pursuant to a Transfer
Receive, wrongfully disburses either to a person other than the intended recipient or as a result of paying out an
incorrect amount. Seller shall pay all such wrongful disbursement amounts to Company upon demand, unless such
wrongful disbursement was caused by Company or its employees.
6.
COMPENSATION.
a.
Base Commission. Company and Seller agree that beginning on February 1, 2005, Seller shall be entitled to
Commissions on Money Transfer transactions (including Transfer Sends, Transfer Receives and Express
Payment transactions), in the amount of [*] of the applicable Consumer Fee. Commissions payable to Seller
on any new products will be negotiated.
b.
Performance Bonus. In addition to the above Commissions and Extension Payment, Seller shall be entitled
to a Performance Based Bonus, as follows (“Performance Bonus”):
Number of Money Transfer transactions
(per Contract Year)
Performance Based Bonus
(as a percentage of the applicable Consumer Fee)
[*]
[*]
[*] or more
[*]
[*]
[*]
For example, if Seller completes [*] transactions in a Contract Year, Company will pay Seller the applicable
Performance Bonus on all transactions in excess of [*] in such Contract Year (e.g., [*] for transactions [*] — [*]; [*] for
transactions [*] — [*], etc.). For the following Contract Year, Company will continue to pay Seller the same
Performance Bonus Seller was entitled to as of the last day of the preceding year. In the event, at the end of such
following Contract Year, Seller’s transaction volume for such year did not entitle Seller to the Performance Bonus
paid by Company, Seller will refund the Performance Bonus, or applicable portion thereof, to Company within
30 days following the end of the Contract Year. Seller shall be entitled to a Performance Bonus in the upcoming
Contract Year based on the transaction volume tier reached in the previous Contract Year.
c.
Refunds and Hardship Transactions. No Wal-Mart Consumer Fee will be charged and no Commissions or
other compensation will be paid to Seller for processing refunds or hardship transactions.
7.
NET SETTLEMENT PROCEDURES. Settlement of funds will be on a daily basis. Amounts owed to Company for the
Transfer Amount(s) and Wal-Mart Consumer Fee(s) relating to Transfer Send and Express Payment transactions
initiated by Seller (“Company Amounts”) shall be totaled on a daily basis and Seller shall transfer said amount into a
banking account designated by Company by bank wire transfer on the same day. Commissions due to Seller for
Transfer Sends, Transfer Receives and Express Payment transactions shall be calculated on a daily basis and
Company shall initiate the transfer of said amount into a banking account designated by Seller via ACH on the day
following the calculation of the applicable Commissions. Calculation of the daily Commission shall be based on the
Commission rates identified herein. Settlement for transactions occurring on Friday, Saturday, Sunday, and any day
as to which federally chartered banks in the United States are not open for business shall be made on the following
business day for Company Amounts and on the second business day for Commissions.
[*]
Please refer to footnote on page 1.
14
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Company shall make settlement calculations pursuant to its accounting settlement procedures. Unless either party
objects, all settlement reports submitted by Company to Seller shall be deemed accurate 90 days following the date of
preparation.
Wal-Mart Stores, Inc.
SIGNATURE: /S/ Thomas M. Schoewe
PRINT NAME: Thomas M. Schoewe
TITLE: Executive Vice President & Chief Financial Officer
Accepted for Travelers Express Company, Inc. and MoneyGram Payment Systems, Inc.:
SIGNATURE: /S/ Anthony P. Ryan
PRINT NAME: Anthony P. Ryan
TITLE: VP/GM
Schedule A List of Locations
Schedule B Service Level Agreement
Schedule C Agent Connect Addendum
15
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Amendment 1
to
Money Services Agreement
RECITALS:
A.
MoneyGram and Seller are parties to that certain Money Services Agreement effective February 1, 2005 (the
“Agreement”) relating to the rendering of Money Order, Money Transfer and related services.
B.
The parties wish to amend the Agreement to provide for additional services and to modify certain terms and
conditions of the Agreement, as set forth herein.
AGREEMENT:
In consideration of the following terms and conditions, the parties agree as follows:
I. Money Center Express (MCX)
i.
Completion of pilot. The parties have completed the pilot phase of the MCX project, and intend to roll-out
kiosks called the “Money Center Express” (“MCX”) or “Money Services Express” (“MSX”), in connection with
certain third parties, for the sale of incremental Company money orders.
The term “MCX” will be used to represent both the MCX and MSX in this Amendment. All terms and conditions in the
Agreement which apply to the MCX shall also apply to the MSX. The money orders sold through the MCX kiosk are
subject to the following additional terms and conditions. In the event of a conflict between the terms contained in this
section and the terms contained in another part of this Agreement, the term contained in this section shall be controlling
with respect to money orders sold through the MCX.
ii.
Roll Out. Seller agrees to provide Company with 16 weeks notice of rollout of MCX units. Once agreed, any
modifications to the roll out schedule shall be mutually agreed by the parties.
iii. Fees. As compensation for money orders sold via the MCX kiosk, Seller agrees to make fee payments to
Company of [*] per money order for all money orders sold through January 31, 2006. After January 31, 2006,
the fees payable by or rebates payable to Seller shall be determined pursuant to section II., below.
iv.
Non-MCX Money Order Sales. Seller shall maintain non-MCX money order sales at Associate manned service
counters in each Location at all times during this Agreement, during all hours of operation of such service
counters.
v.
Compliance. The parties agree to comply with all laws and regulations applicable to selling Company money
orders via the MCX kiosk, including compliance reporting. The parties will develop and document a program to
ensure such compliance, which shall be mutually agreeable to both parties.
vi. MCX Technology. Certain equipment and software provided by Company to Seller, including but not limited to
the terminals and dispensers (the “MCX Equipment”) which will be provided by Company to Seller to be
incorporated into the MCX kiosk being developed by Seller’s subcontractor(s), contain trade secrets and
technology protected by patents. Neither Seller nor Seller’s subcontractor shall obtain any rights to any terminal,
dispenser or other equipment or technology provided by Company.
vii. Service Levels. The MCX Equipment will be covered by the MCX section in the Service Level Agreement
between the parties.
[*]
Please refer to footnote on page 1.
16
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
viii. Supplies. Company will provide Seller with supplies, including money order paper, printer ribbons, and other
supplies for Company equipment. The supplies will be delivered via a delivery method selected by Company, to
an address directed by Seller. Seller shall provide reasonable notice to Company, in writing, of any change in
the delivery address for the specified MCX Equipment.
ix.
Subcontractors and Suppliers. Either party may subcontract all or any part of its obligations with respect to
the MCX kiosk. However, such party will fulfill and perform or cause its subcontractor(s) to fulfill and perform all
of the terms and every payment, covenant and condition which the party is required to make or perform under
this Agreement. Neither party will involve any subcontractor or supplier in the MCX kiosk project until the other
party shall have negotiated an acceptable Confidentiality Agreement with such subcontractor or supplier.
II.
COMPENSATION AND FEES.
The following provisions shall amend the Money Services Agreement, as applicable, including Section XIII., the terms
and conditions stated in the “Money Orders” section, and shall further apply to money orders sold via the Money Center
Express (MCX).
A.
MONEY ORDERS
i. Remittance Schedule. Fees and/or rebates payable pursuant to this section shall be subject to the remittance
schedule established in the Agreement, or such other remittance schedule communicated in writing by Company to
Seller.
ii. Blended Basis Tiering Options. The compensation schedule specified in section iii., below, shall apply to all
money orders sold on or after February 1, 2006, whether at a manned service counter or through an MCX kiosk. The
fee or rebate will be recalculated after each calendar quarter. Any rebate payable to Seller shall be paid within 30 days
after the end of the applicable calendar quarter. The schedule set forth in section iii. shall amend and replace the terms
in paragraph 2. (Compensation) of the Money Order section of the Agreement.
iii. Money Order Fees. The rebate payable in the first quarter after the effective date of this Amendment shall be [*].
Thereafter, the fee or rebate shall be recalculated as specified by the table below and section ii., above.
MCX
Units
[*]
[*]
[*]
[*]
[*]
** Money Orders: Customer Service Desk and MCX Money Order Product
Transactions
Below
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
Average Items/Store/Month Fee or Rebate per Item for all Money Orders
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
17
F= Fee to Company; R= Rebate to Seller
[*]
Please refer to footnote on page 1.
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
B. MONEY TRANSFERS
i. Additional Money Transfer Commission. Seller shall be entitled to an Extension Payment of an additional [*] of the
applicable Consumer Fee. The Extension Payment would apply to Money Transfer transactions conducted by Seller
beginning on February 1, 2006.
ii. Performance Bonuses. The Money Transfer Section of the Agreement, section 6b., is hereby amended as follows:
In addition to the above Commissions and Extension Payment, Seller shall be entitled to a Performance Based Bonus,
as follows (“Performance Bonus”):
Number of Money Transfer transactions
(per Contract Year)
Performance Based Bonus
(as a percentage of the applicable Consumer Fee)
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
iii. Term. Section XIII. of the Money Services Agreement is amended such that the initial term of the Agreement shall
continue through January 31, 2010. This section is further amended to modify Section XIII. e.(i), as follows:
“(i) Extension Options — On or before the eve of each anniversary of this Agreement (January 31 of each year
during the initial term of this Agreement) Seller shall have the option to extend the term of this Agreement by one
additional year (to January 31, 2011). Seller shall be entitled to an Extension Payment of an additional [*] of the
applicable Consumer Fee, beginning on the following February 1st, and continuing for the remaining term of this
Agreement.
If Seller does not give notice of its intent to terminate the Agreement by the end of the initial term by written notice given
on or before January 31, 2009, the Agreement will automatically renew for an additional one year period (to January 31,
2011). However, Seller shall not be entitled to the Extension Payment related to the Extension Option.”
The terms of Section XIII.e.ii. shall remain in effect as originally stated.
III. Additional Products and Services. This Addendum shall modify the Money Services Agreement and related
attachments with respect to Money Orders and the Money Center Express (MCX) and Money Services Express
(MSX) programs. The terms and conditions applicable to Money Transfers or other products or services shall not be
modified by this Amendment.
[*]
Please refer to footnote on page 1.
18
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Wal-Mart Stores, Inc.
MoneyGram Payment Systems, Inc.
Signature: /S/ Jane J. Thompson
Signature: /S/ Anthony P. Ryan
Print Name:
Jane J. Thompson
Print Name:
Anthony P. Ryan
Title: President, Financial Services
Title: President, GFT
19
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Amendment 2
to
Money Services Agreement
RECITALS:
A.
MoneyGram Payment Systems, Inc., on its own behalf and as successor to Traveler’s Express Company, Inc.
(“MoneyGram”) and Wal-Mart Stores, Inc. (“Seller”) are parties to that certain Money Services Agreement effective
February 1, 2005 relating to the rendering of Money Order, Money Transfer and related services, and as amended by
Amendment 1 to Money Services Agreement (as amended, the “Agreement”).
B.
The Agreement requires MoneyGram to pay all Money Orders and Money Transfers unless MoneyGram has a legal
defense to such payment.
C.
This Amendment to the Agreement regarding the treatment of proceeds of Money Orders is necessary and
appropriate to (i) be assured that MoneyGram is able to perform its obligations incurred after the date hereof to pay
its Money Orders when they are presented for payment, and (ii) protect the interests of Seller’s customers and their
payees.
D.
Accordingly, the parties wish to amend the Agreement to modify certain terms and conditions of the Agreement, as
set forth herein.
AGREEMENT:
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
I.
Effect of Amendment.
This Amendment Number 2 to Money Services Agreement shall
amend the Agreement, as applicable, including certain terms and
conditions stated in the “Money Orders” section.
II.
Money Order Remittances.
Beginning on Monday, February 11, 2008 and until such time as
Seller holds (for the benefit of its customers and their payees) [*] in
Money Order face amounts and fees, the Seller shall withhold the
proceeds of Money Orders to MoneyGram pursuant to Section 6 of
the Money Orders section of the Agreement based on the following
schedule and in the following amounts (the “Special Remit Program”):
February 11, 2008
February 12, 2008
February 13, 2008
February 19, 2008
February 20, 2008
February 21, 2008
February 25, 2008
February 26, 2008
February 27, 2008
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
Thereafter, and with respect to those Money Order sales made after Seller holds the [*] referenced above,
Seller shall resume remittance of Money Order face amounts and fees in accordance with Section 6 of the
Money Orders section of the Agreement, provided that at all times Seller shall continue to hold at least [*]
pursuant to this Amendment until such time
as [*]
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
[*]
Please refer to footnote on page 1.
20
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
At any time following the execution of this Amendment Number 2, the Seller has the right to terminate the Special Remit
Program in its sole discretion.
III. Trust.
Immediately after the execution of this Amendment Number 2, the Seller and MoneyGram shall use commercially
reasonable efforts to establish a Trust in order to maintain funds for the purpose of ensuring payment of Money Orders
when such Money Orders are present for payment. MoneyGram and the Seller shall execute a Trust Agreement which
contains the terms and conditions outlined below, and commence funding such trust (the “Trust”). The Trust Agreement
shall be acceptable to Seller, and at a minimum shall contain the following: (1) Seller shall collect the proceeds of sales of
Money Orders on behalf of its customers; (2) all amounts collected by Seller from the sales of Money Orders shall be
deposited into the Trust, subject to a [*] cap applicable for a limited period; (3) the principal of the Trust would be held for
the sole benefit of Seller’s customers who purchase Money Orders or their payees (the “Beneficiaries”), with the income of
the Trust belonging to MoneyGram; (4) MoneyGram would be solely responsible for all Trust expenses; and (5) subject to
limitations designed to adequately protect the interests of the Beneficiaries, MoneyGram would have the right to
periodically request distributions from Trust principal, provided that it certifies that it is not in default under and has fully
satisfied its obligations under all Money Orders requests. At any time following the execution of this Amendment Number
2, the Seller has the right to terminate the Trust in its sole discretion. The Trust shall be structured such that it will comply
with all applicable legal and regulatory requirements, including any requirements pertaining to remittances to a licensed
entity.
IV. Representations and Warranties
On the date hereof, and at all times during the term of the Agreement, MoneyGram hereby represents and warrants
that the execution, delivery and performance by MoneyGram of this Agreement have been duly authorized by all
necessary corporate action. MoneyGram shall use best efforts to obtain any authorization, consent or approval by, or
registration, declaration or filing with, or notice to, any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party (including any bank), except such authorization, consent, approval,
registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof. MoneyGram
shall immediately notify Wal-Mart if it determines that this Amendment Number 2 or the Trust to be established hereunder
violates any provision of any law, rule or regulation or of any order, writ, injunction or decree presently in effect having
applicability to MoneyGram, and will use its best efforts to resolve such violation at no cost to and in a manner reasonable
acceptable to Wal-Mart.
MoneyGram hereby represents and warrants that the Special Remit Program does not result in a breach of or
constitute a default under any indenture or load or credit agreement or any other material agreement, lease or instrument
to which MoneyGram is a party or by which it or its properties may be bound or affected. MoneyGram will notify the
parties to its credit agreement of the Special Remit Program, and will seek a waiver of any default or term of such
agreement(s), allowing the parties to establish the Trust described above, within two (2) business days of the execution of
this Amendment Number 2. If any third party (including any bank) requires additional consideration to provide such waiver
allowing the parties to establish the Trust, any such consideration provided will be at no cost to Wal-Mart. In the event that
the Trust is not established for any reason, Wal-Mart at its sole discretion shall have the right to terminate this
Amendment, and exercise all rights and remedies available to it.
On the date hereof, and at all times during the term of the Agreement, the Seller hereby represents and warrants that
the execution, delivery and performance by the Seller of this Agreement have been duly authorized by all necessary
corporate action and do not and will not (i) require any authorization, consent or approval by, or registration, declaration or
filing with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party (including any bank), except such authorization, consent, approval, registration, declaration,
filing or notice as has been obtained, accomplished or given prior to the date hereof; (ii) violate any provision of any law,
rule or regulation or of any order, writ, injunction or decree
[*]
Please refer to footnote on page 1.
21
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
presently in effect having applicability to the Seller; or (iii) result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other material agreement, lease or instrument to which the Seller is a party or by which
it or its properties may be bound or affected.
MoneyGram and Seller agree to promptly provide any required notice to the parties involved in the transaction for the
recapitalization of MoneyGram International, Inc.
V. Money Order Fees.
During the Special Remit Program and prior to the establishment of the Trust, money order fees payable by Seller to
Company shall be paid as follows, effective February 11, 2008:
February 11, 2008
February 12, 2008
February 13, 2008
February 19, 2008
February 20, 2008
February 21, 2008
February 25, 2008
February 26, 2008
February 27, 2008
Wal-Mart Stores, Inc.
MoneyGram Payment Systems, Inc.
Signature: /S/ Jeff Gearhart
Signature: /S/ Anthony P. Ryan
Print Name: Jeff Gearhart
Print Name: Anthony P. Ryan
Title: Senior Vice President
Title: EVP & COO
Dated: February 11, 2008
[*]
Please refer to footnote on page 1.
22
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Amendment 3
to
Money Services Agreement
RECITALS:
A.
MoneyGram Payment Systems, Inc. (“Company”) and Wal-Mart Stores, Inc. (“Seller”) are parties to that certain
Money Services Agreement effective February 1, 2005 relating to the rendering of Money Order, Money Transfer and
related services, and as amended by Amendments 1 and 2 to Money Services Agreement (as amended, the
“Agreement”).
B.
Company’s parent corporation, which indirectly owns one hundred percent (100%) of Company’s issued and
outstanding equity securities, MoneyGram International, Inc., (“MGI”) is contemplating entering into a transaction with
Thomas H. Lee Partners, L.P. and Goldman, Sachs & Co., and/or their respective Affiliates, for receipt of capital and
other funding (the “Transaction”).
C.
The parties wish to amend the Agreement to modify certain terms and conditions of the Agreement, as set forth
herein.
AGREEMENT:
In consideration of the following terms and conditions, the parties agree as follows:
I. Effect of Amendment. This Amendment Number 3 to Money Services Agreement shall amend the Agreement, as
applicable, including Section XIII and the terms and conditions stated in the “Money Orders” section and the “Money
Transfers” section. Except as modified by this Amendment Number 3 to Money Services Agreement, the terms and
conditions of the Agreement remain in effect and unchanged. The effective date of this Amendment Number 3 to Money
Services Agreement is February 11, 2008 (the “Effective Date”), subject to the conditions specified in Section VII, below.
II. Additional Money Transfer Commission. Seller shall be entitled to an Extension Payment of an additional [*] of the
applicable Consumer Fee, making the Commissions rate [*] effective upon the closing of the Transaction. Effective
February 1, 2011, Seller shall be entitled to an Extension Payment of an additional [*] of the applicable Consumer Fee,
making the Commissions rate [*]. Effective February 1, 2012, Seller shall be entitled to an Extension Payment of an
additional [*] of the applicable Consumer Fee, making the Commissions rate [*]. These Extension Payments supersede
and replace the Extension Option that had been available under the Agreement prior to this Amendment 3 to Money
Services Agreement. Thus, Section XIII e. of the Agreement and Section 6b. of the Money Transfers section of the
Agreement are hereby deleted.
III. Co-operative Marketing Allowance. Company agrees to expend on behalf of Seller [*] each Contract Year to be used
for the promotion of Money Transfer Services and Money Order Services at Seller Locations (the “Marketing Allowance”).
The Marketing Allowance shall be used for mutually agreeable promotions each Contract Year, provided that such
agreement shall not be unreasonably withheld or delayed. The parties agree that any of the Marketing Allowance that
remains unused at the end of any Contract Year will be spent in the first quarter of the subsequent Contract Year, on
mutually agreed signage to be installed in the Locations, marketing campaigns, or promotions, except that in the case of
the final Contract Year such funds may not be carried over.
To ensure that Company and Seller appropriately use and spend the amount designated for the Marketing Allowance,
Company and Seller agree to have their corporate marketing or other personnel (as opposed to individuals from a specific
Location) meet in person at least once per calendar quarter to discuss the utilization of the Marketing Allowance. The time
and place of such quarterly meetings shall be as mutually agreed upon by Seller and Company.
IV. Creation of Trust. Company agrees to create and maintain a trust or similar entity, which shall be satisfactory to the
Seller in its sole discretion, to provide for payment of money orders and money transfers
[*]
Please refer to footnote on page 1.
23
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
sold at Seller’s Locations should Company fail to pay said money orders and money transfers (the “Trust”). Company and
the Seller shall mutually agree to the payment mechanics of the Trust.
V. Term. Section XIII of the Agreement is amended such that the term of the Agreement shall continue through
January 31, 2013.
VI. Change in Control.
(a) If at any time from the Effective Date to January 31, 2010, there is a Change of Control of the Company or MGI, Seller
shall have the right, for a period of sixty (60) days following such Change in Control, to terminate the Agreement upon 60
days prior notice to the Company.
(b) If at any time from February 1, 2010 to January 31, 2013, there is a Special Entity Change in Control of the Company
or MGI, Seller shall have the right for a period of sixty (60) days following such Special Entity Change in Control to
terminate the Agreement upon 60 days prior notice to the Company.
(c) Definitions. For purposes of this Amendment Number 3, the following terms shall have meaning described herein.
“Affiliate” means, with respect to any Person, any other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person. For purposes of this definition, the term “control”
(and correlative terms “controlling,” “controlled by” and “under common control with”) means possession of the power,
whether by contract, equity ownership or otherwise, to direct the policies or management of a Person.
“Beneficially Own” and “Beneficial Ownership” are used herein as defined in Rules 13d-3 and 13d-5 of the Exchange
Act, but without taking into account any contractual restrictions or limitations on voting or other rights.
“Board of Directors” means the board of directors of MGI.
“Business Combination” means: (i) any reorganization, consolidation, merger, share exchange or similar business
combination transaction involving MGI with any Person and/or the Company with any Person; or (ii) the sale, assignment,
conveyance, transfer, lease or other disposition by the MGI and/or Company of all or substantially all of its assets.
“Change in Control” means the happening of any of the following events:
(i) any Person (other than any Investor or any of its Affiliates) acquires Beneficial Ownership, directly or indirectly, of
50% or more of the combined voting power of the then-outstanding voting securities of MGI entitled to vote generally in
the election of directors (“Outstanding MGI Voting Stock”);
(ii) consummation of a Business Combination pursuant to which either (A) the Persons that were the Beneficial Owners
of the Outstanding MGI Voting Stock immediately prior to such Business Combination Beneficially Own, directly or
indirectly, less than 50% of the combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors (or equivalent) of the entity resulting from such Business Combination (including,
without limitation, a company that, as a result of such transaction, owns MGI or all or substantially all of MGI’s assets
either directly or through one or more subsidiaries), or (B) any Person (other than any Investor or its Affiliates)
Beneficially Owns, directly or indirectly, 50% or more of the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors (or equivalent) of the entity resulting from such Business
Combination; or
(iii) approval by the stockholders of MGI of a liquidation or dissolution of MGI.
“Initial Funding Date” means the Closing Date (as defined in the Purchase Agreement).
24
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
“Investor” shall have the meaning set forth in the Purchase Agreement.
“Person” means an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
“Purchase Agreement” means the Amended and Restated Purchase Agreement between Thomas H. Lee Partners, L.P.
and Goldman, Sachs & Co., and/or their respective Affiliates and MGI.
“Special Entity” means [*]
“Special Entity Change in Control” means a Change in Control by a Special Entity
VII. Conditions Precedent. The obligations of both Seller and Company under this Amendment Number 3 to Money
Services Agreement are expressly subject to and conditioned upon: (a) the closing of the Transaction without any material
amendments to the Purchase Agreement thereto or any transaction documents related thereto, in each case, that would
result in the Transaction closing regardless of a change in the Company’s financial condition that would be material and
adverse to Wal-Mart; and (b) MGI’s receipt of capital and other funding pursuant to the Transaction without any reduction
thereto except as reflected in the Purchase Agreement or any transaction documents related thereto. The Transaction
shall not constitute a Change in Control
or [*].
Wal-Mart Stores, Inc.
Signature: /S/ Jane J. Thompson
Print Name: Jane J. Thompson
Title: SVP and President of Financial Services
MoneyGram Payment Systems, Inc.
Signature: /S/ Teresa H. Johnson
Print Name: Teresa H. Johnson
Title: EVP, General Counsel & Secretary
[*]
Please refer to footnote on page 1.
25
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
SERVICE LEVEL AGREEMENT
This Service Level Agreement (“Agreement”) supplements and amends that certain Money Services Agreement,
effective February 1, 2005 by and between Travelers Express Company, Inc., MoneyGram Payment Systems, Inc. and
Wal-Mart Stores, Inc. (the “Money Services Agreement”). Terms used in this Agreement but not otherwise defined herein
shall have the meanings provided by the Money Services Agreement.
Whereas, the Money Services Agreement provides that the parties will use and install the Company’s DeltaWorks!
processing system to facilitate Seller’s performance of money transfers through the Company’s money transfer network,
and the sale and printing of money orders through Company’s money order network; and
Whereas, the parties wish to further clarify the components of Company’s computer systems used to process money
transfers and money orders and to provide for certain service levels applicable to those systems; and
Whereas, the parties wish to require Company to perform the Money Services Agreement in conformance with these
service level requirements.
Now therefore, the parties agree that this Agreement supplements the Money Services Agreement to add the
following:
Article 1
1.1 The following defined terms shall be used in this Agreement.
1.2 Company Main Processing System. The Company Main Processing System shall mean and include the following
components:
(a) DeltaWorks: DeltaWorks means all software and the network connectivity from Company to Seller, terminating at the
Seller firewall, comprised of middleware and operating system services, security and transaction routing capabilities.
(b) Money Order System: Money Order System means the application(s) processing all money order transactions
through the Company’s Tandem and mainframe computer systems, but not including the mainframe computer
hardware.
(c) Money Transfer System: Money Transfer System means the application(s) processing all money transfer
authorization transactions through Company’s mainframe computer but not including the mainframe computer
hardware.
1.3 DeltaWorks POS Devices: DeltaWorks POS Devices means the personal computers and printers located in Seller’s
store locations for use by Seller’s customer service associates in providing the Services, which devices connect to the
Seller’s network in order to process transactions through DeltaWorks.
Article 2
2.1 Service Level Standards. Company agrees that it will meet or exceed the following service level standards (“Service
Level Standards”) in its performance of the Services.
(a) Computer Systems Redundancy. The Company Main Processing System shall be configured to load-balance all
money transfer authorizations and money order processing between two redundant DeltaWorks processing systems as
described in this subsection. If one DeltaWorks processing system has severed connectivity and does not respond to
authorization and processing requests, Company will automatically reroute all subsequent requests to the other
DeltaWorks processing system. Company will resume load balancing when its computer systems detect restored
connectivity. The Systems shall be configured to process through the redundant network; provided
26
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
however, that Company shall operate the Money Transfer System using a single IBM mainframe computer.
(b) Computer Systems Availability. The Service will be available to Seller for the processing of both Money Order Services
and Money Transfer Services initiated through Company’s DeltaWorks POS Devices at the Locations 99.9% of the
Committed Time during each calendar month. Availability shall be measured by dividing the aggregate time of
unscheduled outage periods for a given month by the total amount of Committed Time available for that month, then
multiplying by 100, and subtracting the result from 100.00%. An Unscheduled Outage shall be considered the amount of
time that the Company Main Processing System (exclusive of individual Deltaworks POS Devices) is not responding to
Seller’s processing requests within a 20 second timeframe of the processing request being sent by Seller. The following
shall not be included in the measurement of Unscheduled Outage periods but shall be considered in the measurement of
Committed Time: Seller network or telecommunications downtime, downtime at individual DeltaWorks POS Devices or
other POS devises, either at Seller or at individual agent or biller locations. As used in this Agreement, (a)“Committed
Time” shall mean 24 hours per day, 7 days per week, but excluding the following periods of Scheduled Outage, and (b)
“Scheduled Outage” shall mean (1) that time period from 11 PM Saturday to 5:00 A.M Sunday Central Time each week
during which the Company’s Money Transfer System is unavailable due to routine maintenance; and (2) any time period
as to which Seller has consented to waive that down time as affecting availability.
2.2 Service Interruptions. Company will provide Seller with 48 hours advance notice of any planned interruption, including
the reasons, date(s), and anticipated times for the outage. If Seller does not object to the planned interruption in writing
within 24 hours after receipt of notice, then Seller shall be deemed to have agreed to the planned outage as specified in
the notice, in which case such outage shall be considered a Scheduled Outage. If Seller objects to the planned
interruption, it shall state the reasons for such objection and the parties shall work together in good faith to arrive at a
mutually agreeable solution. Seller will not unreasonably withhold or delay consent to any planned outage.
2.3 Evaluation and Reporting of Service Level Standards. Within 15 calendar days after the end of each calendar month
during the term of this Agreement, Company will provide Seller with an accurate written and graphical evaluation of
Company’s performance of each of the Service Level Standards during the just concluded calendar month for each
component of the Company Main Processing System. For any month in which Company did not meet a Service Level
Standard, the written evaluation shall include a corrective action plan describing root cause for the failure and steps being
taken to-prevent the reoccurrence of such failure.
2.4 Failure to Meet Service Level Standards. Company shall pay Seller the following penalties in the event that Company
fails to meet the Service Level Standards set forth above or fails to accurately report those Service Levels to Seller within
the allocated time period. If Company fails to meet anyone of the Service Level Standards during a calendar month or fails
to accurately report those service level standards within the allocated time period, then Company shall pay Seller a
penalty equal to [*] received by Seller during the previous quarter plus [*] percent. If Company fails to meet any two of the
Service Level Standards during a calendar month, Company shall pay Seller a penalty equal to [*] received by Seller
during the previous quarter plus [*] percent. If at any time Company fails to meet the SAME Service Level Standard in any
3 consecutive calendar months as to the entire Company Main Processing System, which results in a substantial impact
to the Services, Seller may terminate the Agreement upon 30 days written notice to Company. Any notice of termination
shall be given within 60 days following the event giving rise to the right to terminate.
2.5 Monitors and Alerting. Company shall provide continuous monitoring of all components of the Company Main
Processing System to ensure Money Order Services and Money Transfer Services capabilities. Company shall
immediately investigate any reduction in systems capacity or unavailability of systems at the Company Main Processing
System (not individual Deltaworks P~S Devices) and shall use its best efforts to report to Seller’s Field Support within
fifteen (15) minutes of discovery. Alerting shall be accomplished via industry standard protocols and methods.
[*]
Please refer to footnote on page 1.
27
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
2.6 Change Control Procedures. Company agrees to the following change control procedures for any computer systems
changes that Company reasonably believes have the potential of affecting Seller’s money order and money transfer
services:
(i) Any minor system changes must be communicated in writing to Seller at least one (1) business day before they are
implemented. Seller will use reasonable and best efforts to review and respond to Company within one half day of change
notification. The parties shall work together in good faith to attain mutually agreeable systems change procedures.
(ii) Any major changes must be communicated in writing to Wal-Mart at least five (5) business days before they are
implemented. Seller shall have the right to walk-through and test the process with Company. Wal-Mart will use reasonable
and best efforts to review and respond to Company within two days of change notification. The parties shall work together
in good faith to attain mutually agreeable systems change procedures.
(iii) Any emergency changes must be communicated via phone to Seller’s Global Communications Services (GCS) at
479-277-2674, available 24 hours per day / 7 days per week.
(iv) Company will provide one single point of contact in case of technical questions or emergencies, and a backup
contact, in case the primary is not available.
2.7 Support Services. Company shall use all best efforts to provide Wal-Mart with the support services described in this
Section.
(i) Telephone Support. Seller will receive unlimited 7 day by 24 hour (7 x 24) telephone and / or pager support for the
purposes of problem identification and corrections and assistance from Company for all software, hardware, procedural,
operational and networking services associated with Company’s DeltaWorks.
(ii) Voice Transactions. Company will provide Seller, on a monthly basis, with a report regarding the number of Seller’s
voice transactions and the number of Seller’s automated transactions for the previous calendar month. Company and
Seller agree that Seller’s total company voice transactions shall not exceed 10% of actual transactions in any calendar
quarter. If Seller’s voice transactions exceed 10% of actual transactions in any such calendar quarter then Seller shall pay
Company $2.00 per voice transaction for every such transaction in excess of 10%. Voice transactions conducted during
any outage of Company’s systems shall not be counted towards the limit established in this paragraph.
(iii) Escalation Procedures To Seller. The following definitions of escalation levels are to be used as guidelines by
Company personnel to define when any problem or issue will be escalated to the next defined level and what notifications
Seller is to receive when that internal escalation occurs. The activities identified are the minimum required and, upon the
mutual written agreement of both Company and Seller, can be supplemented by further actions during the course of the
investigation in order to affect a resolution for the issue or problem.
First Level Support
Company is to provide basic help desk functions to Seller’s Locations directly (“First Level Support”). Typically, First Level
Support will include product information, configuration guidance and assistance, product and problem analysis, fact and
information gathering for correction of problems, as well as attempts to duplicate problems. Company is responsible for
tracking all First Level Support calls and reporting the number of calls and symptom type of these calls electronically to
Seller’s on a daily basis. In the event that Company First Level Support personnel begin receiving an unusual number of
First Level Support calls from Seller Locations, Company is required to escalate via Seller’s Global Communication
Services (GCS) organization.
Second Level Support
Second Level Support will be provided by Company’s support center in the event First Level Support is unable to resolve
a problem. Company’s second level support may include a more detailed
28
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
diagnosis service for identifying complex problems, errors and design faults that cannot be resolved by First Level
Support.
Third Level Support
If a problem cannot be resolved with Second Level Support, Company will provide Seller with a dedicated program
manager until the problem has been resolved, to provide detailed, in-depth product and problem analysis/solutions, and
use all best efforts to duplicate problems. Company will also provide Seller with reasonable access to senior technical
consultants within Company for final confirmation and resolution of problem analysis and to formally escalate any
unresolved problems to Company’s senior management. In the event that Third Level support is engaged for any
problem, Company is required to escalate via Seller’s Global Communication Services (GCS) organization.
(iv) Escalation Procedures From Seller. The following definitions of escalation levels are to be used as guidelines by
Seller personnel to define when any problem or issue will be escalated to the next defined level within Company. The
activities identified are the minimum required and-upon the mutual written agreement of both Company and Seller, can be
supplemented by further actions during the course of the investigation in order to affect a resolution for the issue or
problem.
(v) Severity Designations. Company and Seller agree to the following severity designations for reporting problems to
Company. Seller will reasonably and in good faith designate severity.
Severity 1
Software abnormally ends or program function cannot be used and no usable work-around exists. Resulting situation is
critical to the operation of the business.
Severity 2
Software function cannot be used or impacts Seller operations, but usable work-around exists. Resulting situation has
some material and adverse impact on operation of the business and work-around allows business to continue with minor
restrictions.
Severity 3
Software causes Seller negligible immediate impact, yet is desirable to resolve because of restrictions to operations or
usability issues to Seller personnel.
(v) Response Times. Company and Seller agree to the following response times schedule for Errors reported to
Company utilizing the above severity designations previously defined. Three (3) or more failures (in a single calendar
month) by Company to meet the following maximum response times shall result in a penalty to Company of [*] for that
calendar month, to be paid within 15 days of the end of that calendar month.
Severity 1
Fifteen (15) minute response with best efforts at initial diagnosis and problem solving at Second and Third levels of
Support. Company will use all best efforts to provide workaround(s) or problem resolution within 1 hour of initial escalation
to Second Level Support. Hourly updates on progress from Company to Seller until a workaround is provided, with
Company personnel working around the clock to provide the workaround.
Severity 2
Thirty (30) minute response with best efforts at initial diagnosis and problem solving at Second and Third levels of
Support. Company will use all best efforts to provide additional workaround(s) or
[*]
Please refer to footnote on page 1.
29
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
problem resolution within 2 hours of initial escalation to Second Level Support. Hourly updates on progress from
Company to Seller until a workaround is provided.
Severity 3
Four (4) hour response with best efforts at initial diagnosis and problem solving at Second and Third Levels of Support.
Company agrees to use all best efforts to provide additional workaround(s) or problem resolution within 2 days of initial
escalation to Second Level Support and to provide daily updates on progress to Seller until a workaround is provided.
2.8 Money Center Express (“MCX”). The following additional terms and conditions apply to the provision of Money Order
Services via the MCX Equipment.
2.8.1 The severity designations and response times listed above do not apply to the MCX Equipment.
2.8.2 Routine maintenance on the MCX Equipment (e.g., changing printer ribbons) shall be performed
by Seller or its subcontractor(s).
2.8.3 Seller shall be entitled to telephone support as identified in 2.7, above, for the MCX Equipment.
2.8.4 If a problem cannot be resolved via telephone support, Company shall contact Seller’s
subcontractor within 4 hours to report the problem. Seller’s subcontractor will perform the testing
protocol agreed between Company and Seller. The testing protocol is expected to be performed
within 8 hours of the report to Seller’s subcontractor. If the problem cannot be resolved after
Seller’s subcontractor completes the testing protocol, Company will send personnel to address
the problem or send replacement equipment. The expected time frame for replacement of MCX
Equipment is ___ days.
Dated this 1st day of February, 2005.
Travelers Express Company, Inc. and MoneyGram Payment Systems, Inc.
By: /S/ Anthony P. Ryan
Name: Anthony P. Ryan
Its: VP/GM
Wal-Mart Stores, Inc.
By: /S/ Thomas M. Schoewe
Name: Thomas M. Schoewe
Its: Executive Vice President & Chief Financial Officer
30
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
March 13, 2008
Ms. Jane Thompson
Wal-Mart Stores, Inc.
702 SW 8th Street
Bentonville, AR 72716
Re: Agreements relating to the Trust Agreement dated March 14 th, 2008 (the “Trust Agreement”)
Dear Jane:
This letter sets forth several items of agreement between Wal-Mart Stores, Inc. (“Wal-Mart”) and MoneyGram Payment
Systems, Inc. (“MoneyGram”), relating to the Trust Agreement dated March ___, 2008. If you are in agreement, please
countersign this letter and return a fully executed copy to me.
1. Remittances to the Trust. Upon the establishment of the Trust, Wal-Mart shall remit funds into the trust established
pursuant to the Trust Agreement (the “Trust”), rather than directly to MoneyGram as previously contemplated by the
parties’ Money Services Agreement dated February 1, 2005, as amended (the “Money Services Agreement”). If for any
reason a remittance is not directed to the Trust, Wal-Mart will make the remittance directly to MoneyGram as
contemplated by the Money Services Agreement.
2. Refund of Special Remit Program Funds to MoneyGram. Beginning with the first remittance into the Trust, Wal-Mart will
release and pay to MoneyGram, on a dollar-for-dollar basis commensurate with the funds deposited into the Trust, funds
which have been withheld by Wal-Mart pursuant to the Special Remit Program established by Amendment Number 2 to
the Money Services Agreement (the “Special Remit Program Funds”). The Special Remit Program Funds will be released
to MoneyGram in connection with the initial [*] of remittances into the Trust, and without regard to whether the aggregate
balance in the Trust is less than [*] due to withdrawals from the Trust pursuant to the Trust Agreement.
3. Wal-Mart and MoneyGram intend to minimize the negative financial impact of the Trust to the extent reasonably
practicable. The parties agree that if the mechanics and operation of the Trust have a negative financial impact on either
party, including on MoneyGram’s yield from the Trust assets, the parties will discuss opportunities for adjustment of the
mechanics and operation of the Trust that may achieve an economic benefit over the current mechanics and operation of
the Trust. For avoidance of doubt, this provision is in no way meant to modify the permissible investments in which the
Trust assets will be invested, or to allow an increase in the amount of risk associated with such permissible investments.
4. The parties recognize that in the event that a Blocking Period (as defined in the Trust Agreement) occurs, a reporting
and reconciliation system will be required in order to track items which have been paid or refunded by either party. The
parties will work in good faith to establish and agree on such a system as soon after the establishment of the Trust as is
practicable.
5. MoneyGram shall provide reporting to Wal-Mart, during the term of the Trust Agreement, in order that Wal-Mart shall
have the information necessary to ensure that the amounts requested by MoneyGram to be released from the Trust
pursuant to a Company Order are accurate. MoneyGram shall provide such reporting to Wal-Mart prior to the submission
of any Company Order to the Trustee under the Trust Agreement. Wal-Mart will continue to provide all reporting to
MoneyGram on Money Orders and Money Transfers sold in Wal-Mart Locations that was provided prior to the
establishment of the Trust, unless otherwise mutually agreed by the parties.
If you agree with the above, please execute this letter agreement and return a fully executed copy at your earliest
convenience.
MONEYGRAM PAYMENT SYSTEMS, INC.
Signature: /S/ Daniel J. O’Malley
Print Name: Daniel J. O’Malley
Title: SVP — President of the Americas
WAL-MART STORES, INC.
Signature: /S/ Jane J. Thompson
Print Name: Jane J. Thompson
Title: President, Financial Services
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Date: 3/14/08
[*]
Please refer to footnote on page 1.
31
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
EXHIBIT 21
SUBSIDIARIES
OF
MONEYGRAM INTERNATIONAL, INC.
•
•
MoneyGram Payment Systems Worldwide, Inc. (Delaware)
MoneyGram Payment Systems, Inc. (Delaware)
MoneyGram Investments, LLC (Delaware)
•
•
•
•
Hematite Trust (Delaware)
Monazite Trust (Delaware)
Long Lake Partners, LLC (Delaware)
Ferrum Trust (Delaware)
FSMC, Inc. (Minnesota)
GBP Holdings, Inc. (Minnesota)
MoneyGram France, S.A. (France)
MoneyGram International Holdings Limited (United Kingdom)
•
MoneyGram International Limited (United Kingdom)
•
MIL Overseas Limited (United Kingdom)
•
•
•
MIL Overseas Nigeria Limited
MoneyGram Overseas (Pty) Limited South Africa
MoneyGram India Private Ltd.
MoneyGram of New York LLC (Delaware)
MoneyGram Payment Systems Canada, Inc. (Ontario)
MoneyGram Payment Systems Italy S.r.l. (Italy)
PropertyBridge, Inc. (Delaware)
Travelers Express Co. (P.R.) Inc. (Puerto Rico)
Tsavorite Trust (Delaware)
•
•
•
•
•
•
•
•
•
•
•
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-125122 and No. 333-116976 on Form
S-8 and in Registration Statement No. 333-124194 on Form S-3 of our reports dated March 25, 2008, relating to the
consolidated financial statements of MoneyGram International, Inc., and the effectiveness of MoneyGram International,
Inc.’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of MoneyGram International,
Inc. for the year ended December 31, 2007.
Exhibit 23
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each director whose signature appears below constitutes and appoints Teresa H.
Johnson and Kristin A. Stokes, and each of them severally, his or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K
Annual Report of MoneyGram International, Inc. for the fiscal year ended December 31, 2007, and any and all amendments thereto,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or her
substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Monte E. Ford
Monte E. Ford
/s/ Jess T. Hay
Jess T. Hay
/s/ Judith K. Hofer
Judith K. Hofer
/s/ Donald E. Kiernan
Donald E. Kiernan
/s/ Robert C. Krueger
Robert C. Krueger
/s/ Othón Ruiz Montemayor
Othón Ruiz Montemayor
/s/ Linda Johnson Rice
Linda Johnson Rice
/s/ Douglas L. Rock
Douglas L. Rock
/s/ Albert M. Teplin
Albert M. Teplin
/s/ Timothy R. Wallace
Timothy R. Wallace
February 28, 2008
February 28, 2008
March 4, 2008
February 28, 2008
February 28, 2008
February 28, 2008
February 28, 2008
March 3, 2008
February 28, 2008
March 4, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.1
I, Philip W. Milne, certify that:
1.
I have reviewed this Annual Report on Form 10-K of MoneyGram International, Inc. for the fiscal year ended December 31,
2007;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2008
/s/ PHILIP W. MILNE
Chairman, President and Chief Executive Officer
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2
I, David J. Parrin, certify that:
1.
I have reviewed this Annual Report on Form 10-K of MoneyGram International, Inc. for the fiscal year ended December 31,
2007;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 25, 2008
/s/ DAVID J. PARRIN
Executive Vice President and Chief Financial
Officer
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Exhibit 32.1
Certification Pursuant to 18 U.S.C. §1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of MoneyGram International, Inc. (the “Company”) for the period ended
December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Philip W. Milne,
Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 25, 2008
/s/ PHILIP W. MILNE
Chairman, President and Chief Executive Officer
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008
Exhibit 32.2
Certification Pursuant to 18 U.S.C. §1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of MoneyGram International, Inc. (the “Company”) for the period ended
December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Parrin,
Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 25, 2008
/s/ DAVID J. PARRIN
Executive Vice President and Chief Financial
Officer
_______________________________________________
Created by 10KWizard www.10KWizard.com
Source: MONEYGRAM INTERNATIO, 10-K, March 25, 2008