MONEYGRAM INTERNATIONAL INC (MGI)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/16/2011
Filed Period 12/31/2010
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
(Mark One)
þ
o
Annual Report Pursuant to Section
13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended
December 31, 2010.
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)
2828 N. Harwood St., 15th Floor
Dallas, Texas
(Address of principal executive offices)
16-1690064
(I.R.S. Employer
Identification No.)
75201
(Zip Code)
Registrant's
telephone number, including area code
(214) 999-7552
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.01 par value
Name of each exchange on which registered
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 o No þ
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 o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o No o
Indicate by check mark 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
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 30, 2010, the last business day of the registrant's most recently completed second fiscal quarter, was $203.9 million.
83,620,522 shares of common stock were outstanding as of March 7, 2011.
Certain information required by Part III of this report is incorporated by reference from the registrant's proxy statement for the 2011 Annual Meeting.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Item 1.
PART I.
Business
History and Development
Our Business
Our Segments
Global Funds Transfer Segment
Financial Paper Products Segment
Product and Infrastructure Development and Enhancements
Sales and Marketing
Competition
Regulation
Clearing and Cash Management Bank Relationships
Intellectual Property
Employees
Executive Officers of the Registrant
Available Information
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
[Reserved]
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
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART II.
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 III.
PART IV.
Item 15. Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32.1
EX-32.2
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Item 1. BUSINESS
Overview
PART I
MoneyGram International, Inc. (together with our subsidiaries, "MoneyGram," the "Company," "we," "us" and "our") is a leading global payment
services company. Our major products include global money transfers, bill payment solutions and money orders. We help people and businesses by
providing affordable, reliable and convenient payment services.
The MoneyGram® brand is recognized throughout the world. We offer more choices and more control for people separated from friends and family
by distance or those with limited bank relationships to meet their financial needs. Our payment services are available at approximately 227,000 agent
locations in approximately 190 countries and territories. Our services enable consumers throughout the world to transfer money and pay bills,
helping them meet the financial demands of their daily lives. Our payment services also help businesses operate more efficiently and cost-
effectively.
Our principal executive offices are located at 2828 N. Harwood Street, Suite 1500, Dallas, Texas 75201, and our telephone number is
(214) 999-7552. Our website address is www.moneygram.com.
History and Development
We conduct our business primarily through our wholly owned subsidiary MoneyGram Payment Systems, Inc. ("MPSI"). Through its predecessor,
Travelers Express Company, Inc. ("Travelers Express"), MPSI has been in operation for 70 years. Travelers Express acquired MPSI in 1998, adding
the MoneyGram brand to our Company and adding international money transfer services to our payment service offerings. In 2005, we consolidated
the operations of Travelers Express with MPSI to eliminate costs of operating the two businesses under separate corporate entities. This completed
the transition of our business from the Travelers Express brand to the MoneyGram brand, and we retired the Travelers Express brand.
In March 2008, we completed a recapitalization pursuant to which we received an infusion of $1.5 billion of gross equity and debt capital
(collectively, the "2008 Recapitalization"). The equity component consisted of the sale to affiliates of Thomas H. Lee Partners, L.P. ("THL") and
affiliates of Goldman, Sachs & Co. ("Goldman Sachs," and collectively with THL, the "Investors") in a private placement of 760,000 shares of
Series B Participating Convertible Preferred Stock of the Company (the "B Stock") and Series B-1 Participating Convertible Preferred Stock of the
Company (the "B-1 Stock," and collectively with the B Stock, the "Series B Stock") for an aggregate purchase price of $760.0 million. We also paid
Goldman Sachs an investment banking advisory fee equal to $7.5 million in the form of 7,500 shares of the B-1 Stock.
As part of the 2008 Recapitalization, our wholly owned subsidiary, MoneyGram Payment Systems Worldwide, Inc. ("Worldwide"), issued Goldman
Sachs $500.0 million of senior secured second lien notes with a 10-year maturity (the "Notes"). We also entered into a senior secured amended and
restated credit agreement with JPMorgan Chase Bank, N.A. ("JPMorgan") as agent for a group of lenders, bringing the total facility to
$600.0 million. The amended facility included $350.0 million in two term loan tranches and a $250.0 million revolving credit facility. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations — 2008 Recapitalization" for further information
regarding the 2008 Recapitalization.
In 2008, we completed the acquisition of MoneyCard World Express, S.A. ("MoneyCard") and Cambios Sol, S.A., two money transfer super-agents
located in Spain. Thereafter, we merged Cambios Sol, S.A. into MoneyCard and now maintain MoneyCard as our subsidiary. In 2009, we acquired
the French assets of R. Raphaels & Sons PLC. We also sold FSMC, Inc. and continued the exit of our ACH Commerce business in 2009. In 2010,
we acquired our agent in the Netherlands, Blue Dolphin Financial Services N.V.
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Recent Developments
On March 7, 2011, we entered into a Recapitalization Agreement (the "Recapitalization Agreement") with THL, as the holder of all of the B Stock,
and Goldman Sachs, as the holder of all of the B-1 Stock. Pursuant to the Recapitalization Agreement, (i) THL will convert all of the shares of B
Stock into shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of Series B Participating
Convertible Preferred Stock of MoneyGram International, Inc., (ii) Goldman Sachs will convert all of the shares of B-1 Stock into shares of Series D
Participating Convertible Preferred Stock of the Company (the "D Stock") in accordance with the Certificate of Designations, Preferences and
Rights of Series B-1 Participating Convertible Preferred Stock of MoneyGram International, Inc., and (iii) THL will receive approximately
28.2 million additional shares of our common stock and $140.8 million in cash, and Goldman Sachs will receive approximately 15,504 additional
shares of D Stock (equivalent to approximately 15.5 million shares of our common stock) and $77.5 million in cash (such transactions, collectively,
the "2011 Recapitalization").
The 2011 Recapitalization has been approved unanimously by our board of directors following the recommendation of a special committee of the
board of directors comprised of independent and disinterested members of our board of directors, and is subject to various conditions contained in
the Recapitalization Agreement, including the approval of the 2011 Recapitalization or any other matter that requires approval under the
Recapitalization Agreement (collectively the "Stockholder Approval Matters") by the affirmative vote of a majority of the outstanding shares of our
common stock and B Stock (on an as-converted basis), voting as a single class, and the affirmative vote of a majority of the outstanding shares of
our common stock (not including the B Stock or any other stock of the Company held by any Investor), in each case voting on the Stockholder
Approval Matters and the Company's receipt of sufficient financing to consummate the 2011 Recapitalization.
Concurrently with entering into the Recapitalization Agreement, Worldwide and the Company entered into a consent agreement (the "Consent
Agreement") with certain affiliates of Goldman Sachs (the "GS Note Holders") who are holders of the Notes. Pursuant to the Consent Agreement,
the parties thereto have agreed to enter into a supplemental indenture to the indenture governing the Notes that will, among other things, amend the
indenture in order to permit the 2011 Recapitalization. In addition, the Company is currently working with certain of its relationship banks to put in
place a new senior secured credit facility comprised of a revolver and a term loan, which would refinance the Company's existing senior secured
credit facility and provide the funding for the 2011 Recapitalization.
The foregoing description of the Recapitalization Agreement and the Consent Agreement is not a complete description of all of the parties' rights
and obligations under the Merger Agreement and the Consent Agreement and is qualified in its entirety by reference to the Recapitalization
Agreement and the Consent Agreement, which are filed as Exhibit 2.1 and Exhibit 10.1, respectively, to our Current Report on Form 8-K as filed
with the SEC on March 9, 2011.
Our Business
Our global money transfer and bill payment services are our primary revenue drivers. Money transfers are transfers of funds between consumers
from one location to another. The sender pays a fee based on the transfer amount and the destination location. The designated recipient may receive
the transferred funds at any agent location. In select countries, the designated recipient may also receive the transferred funds via a deposit to the
recipient's bank account, mobile phone account or prepaid card. We typically pay both our "send" and "receive" agents a commission for the
transaction.
We provide money transfer services through our worldwide network of agents and through Company-owned retail locations in the United States and
Western Europe. We also offer our money transfer services on the Internet via our MoneyGram Online service in the United States and through
agent websites in Italy, Saudi Arabia and Japan. In Italy, Abu Dhabi and the Philippines, we also offer our money transfer services via mobile phone.
We also offer our services through kiosks, ATM's, receive cards and direct-to-bank account products in various markets around the world.
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Our primary bill payment service offering is our ExpressPayment® service, which we offer at all of our money transfer agent locations in the United
States and at certain agent locations in select Caribbean countries. Through our ExpressPayment service, a consumer can pay cash for bills at an
agent location and obtain same-day notification of payment to the consumer's account with its creditor (a "biller"). Our consumers can also use our
ExpressPayment service to load and reload prepaid debit cards. Our ExpressPayment bill payment service is also available for payments to select
billers via the Internet at www.moneygram.com.
We also derive revenue through our money order and official check services. We provide money orders through retail and financial institutions
located throughout the United States and Puerto Rico, and we provide official check outsourcing services to financial institutions across the United
States. Consumers use our money orders to make bill payments or in lieu of cash or personal checks. Official checks are used by consumers where a
payee requires a check drawn on a bank and by financial institutions to pay their own obligations.
During 2010, 2009 and 2008, our 10 largest agents accounted for 50 percent, 48 percent and 44 percent, respectively, of our total company fee and
investment revenue and 54 percent, 53 percent and 53 percent, respectively, of the fee and investment revenue of our Global Funds Transfer
segment. Walmart Stores, Inc. is our only agent that accounts for more than 10 percent of our total company fee and investment revenue. In 2010,
2009 and 2008, Walmart accounted for 30 percent, 29 percent and 26 percent, respectively, of our total company fee and investment revenue, and
32 percent, 32 percent and 31 percent, respectively, of the fee and investment revenue of our Global Funds Transfer segment. Our contract with
Walmart in the United States, which runs through January 2013, provides for Walmart's sale of our money order and money transfer services and
real-time, urgent bill payment services at its retail locations on an exclusive basis.
Our Segments
We manage our business primarily through two segments: Global Funds Transfer and Financial Paper Products. The table below presents the
components of our consolidated revenue associated with our segments for the year ended December 31:
Global Funds Transfer
Money transfer
Bill payment
Financial Paper Products
Money order
Official check
Other
Total revenue
2010
2009
2008
79.4%
10.8%
5.9%
3.5%
0.4%
100.0%
76.7%
11.6%
6.4%
4.1%
1.2%
100.0%
68.8%
11.1%
6.8%
12.0%
1.3%
100.0%
Additional financial information about our segments and geographic areas appears in Note 16, "Segment Information," of the Notes to Consolidated
Financial Statements.
Global Funds Transfer Segment
The Global Funds Transfer segment is our primary segment, providing money transfer and bill payment services to consumers, who are often
unbanked or underbanked. 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.
Other consumers who use our services are convenience users and emergency users who may have a checking account with a financial institution but
prefer to use our services on the basis of convenience or to make emergency payments. We primarily offer services to consumers through third-party
agents, including retail chains, independent retailers and financial institutions.
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In 2010, our Global Funds Transfer segment had total fee and investment revenue of $1,053.3 million. We continue to focus on the growth of our
Global Funds Transfer segment outside of the United States. During 2010, 2009 and 2008, operations outside of the United States generated
28 percent, 27 percent and 25 percent, respectively, of our total company fee and investment revenue, and 31 percent of our Global Funds Transfer
segment fee and investment revenue in all three years. The Global Funds Transfer segment is managed as two geographical regions, the Americas
and EMEAAP, to coordinate sales, agent management and marketing activities. The Americas region includes the United States, Canada, Mexico,
the Caribbean and Latin America. The EMEAAP region includes Europe, the Middle East, Africa and the Asia Pacific region. In 2010, we added
approximately 37,000 net locations, bringing our global agent network to approximately 227,000.
As of December 31, 2010, we had approximately 69,400 agent locations in the Americas, representing a 5 percent increase from December 31, 2009.
Our locations in the Americas included approximately 40,000 locations in North America and 29,400 locations in Latin America, including
approximately 13,500 locations in Mexico. In Ecuador, we added 1,200 Banco De Guayaquil locations, and we added 700 Canada Post locations to
our network, making our money transfer services available to over 6, 300 locations coast to coast across Canada. We also added 600 locations in
Mexico by increasing our network with Uniteller Financial Services.
As of December 31, 2010, we had approximately 157,600 agent locations in the EMEAAP region, representing a 27 percent increase from
December 31, 2009. Our locations in the EMEAAP region included approximately 40,900 locations in Western Europe, 38,700 locations in Eastern
Europe, 36,200 locations in the Indian subcontinent, 25,700 locations in the Asian Pacific, 12,300 locations in Africa and 3,800 locations in the
Middle East. In the EMEAAP region, we added 33,600 agent locations in several markets, which represented a 27 percent increase in EMEAAP
agent locations since December 31, 2009. We operate in over 11,000 locations in the Russian Federation primarily through our relationship with
State Savings Bank of the Russian Federation ("Sberbank") with 8,500 agent locations. In India, agent locations grew to 30,000 by adding UAE
Exchange and Financial Services Limited and Thomas Cook India-Mumbai during 2010. The Bank of China now offers our services in 3,000
locations. We also expanded our agent locations in Morocco, Moldova, Indonesia, Nigeria, Philippines, Switzerland and Kazakhstan.
We provide Global Funds Transfer products and services utilizing a variety of proprietary point-of-sale platforms. Our platforms include
AgentConnect®, which is integrated into an 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 transaction
information over the telephone, entering it directly into our central data processing system. We also operate two customer care centers in the United
States, and we contract for additional call center services in various countries. We provide call center services 24 hours per day, 365 days per year
and provide customer service in approximately 30 languages.
Money Transfers — We derive our money transfer revenues primarily from consumer transaction fees and the management of currency exchange
spreads on money transfer transactions involving different "send" and "receive" currencies. We have corridor pricing capabilities that enable us to
establish different consumer fees 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.
As of December 31, 2010, we offer money transfers to consumers in a choice of local currency or United States dollars and/or euros in 138
countries, which we refer to as multi-currency. Our multi-currency technology allows us to execute our money transfers directly between and among
several different currencies. Where implemented, these capabilities allow consumers to know the amount that will be received in the local currency
of the receiving country, or in U.S. dollars or euros in certain countries.
Bill Payment Services — We derive our bill payment revenues primarily from transaction fees charged to consumers for each bill payment
transaction completed. Through our bill payment services, consumers can make urgent payments or pay routine bills through our network to certain
billers. We maintain relationships with billers in key industries (also referred to as "verticals"). These industries include the credit card, mortgage,
auto finance, telecommunications, corrections, satellite, property management, prepaid card and collections industries.
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Our bill payment services also enable consumers to load and reload prepaid debit cards. Consumers with any Visa ReadyLink®-enabled prepaid card
or any NetSpend® prepaid debit card can add funds to their cards at any of our U.S. agent locations. We also offer our MoneyGram AccountNow®
Prepaid Visa card, which participates in the Visa ReadyLink, Interlink® and Plus® networks. The card can be used everywhere Visa is accepted and
can be reloaded at any of our U.S. agent locations. Our bill payment services also allow customers to make low-cost, in-person payments of non-
urgent utility bills for credit to a biller, typically within two to three days.
Financial Paper Products Segment
Our Financial Paper Products segment provides money orders to consumers through our retail and financial institution agent locations in the United
States and Puerto Rico, and provides official check services for financial institutions in the United States.
In 2010, our Financial Paper Products segment generated revenues of $109.5 million. Since early 2008, our investment portfolio has consisted of
lower risk, highly liquid, short-term securities that produce a lower rate of return, which has resulted in lower revenues and profit margins in our
Financial Paper Products segment.
Money Orders — We generate revenue from money orders by charging per item and other fees, as well as from the investment of funds underlying
outstanding money orders, which generally remain outstanding for fewer than ten days. We sell money orders under the MoneyGram brand and on a
private label or co-branded basis with certain of our large retail and financial institution agents in the United States.
In 2010, we issued approximately 174.2 million money orders through our network of 57,308 agent and financial institution locations in the United
States and Puerto Rico. In 2009, we issued approximately 204.7 million money orders through our network of 61,092 agent and financial institution
locations in the United States and Puerto Rico.
Official Check Outsourcing Services — As with money orders, we generate revenue from our official check outsourcing services from per item and
other fees and from the investment of funds underlying outstanding official checks, which generally remain outstanding for fewer than 3.8 days. In
2009, we restructured our official check business model by reducing the commissions we pay our financial institution customers and increasing per
item and other fees. As of December 31, 2010, we provide official check outsourcing services at approximately 12,000 branch locations of more
than 1,400 financial institutions. We issued 30.3 million and 35.9 million official checks in 2010 and 2009, respectively.
Product and Infrastructure Development and Enhancements
We focus our product development and enhancements on innovative ways to transfer money and pay bills. We continually seek to provide our
customers with added flexibility and convenience to help them meet the financial demands of their daily lives. We also invest in our infrastructure to
increase efficiencies and support our strategic initiatives.
In 2009, we began reaching new customers through alternate money transfer delivery channels. We now offer our money transfer services on the
Internet via our MoneyGram Online service in the United States and through agent websites in Italy, Saudi Arabia and Japan. In Italy, Abu Dhabi
and the Philippines, we also offer our money transfer services via mobile phone and continue to enhance our money transfer services to consumers
through the addition of kiosks, ATM's, receive cards and direct-to-bank account products in various markets. In January 2010, we launched the
MoneyGram iPhonetm application, Mobile Companion, allowing consumers to search for agent locations, including the agent's address, phone
numbers and hours of operation. Mobile Companion also includes the convenience of a fee estimator that allows consumers to determine the fee for
a transaction in advance. In 2010, we also introduced the convenience of cash-to-card services through key agents in the Philippines, which allows
their customers to collect remittances on a card, which can then be used to pay for purchases at participating stores.
We have made enhancements to our MoneyGram Online service and will continue to make further enhancements to provide a better consumer
experience and efficiency in completing a transaction for our online customers, as well as more cost-effective transaction processing. We also
enhanced our MoneyGram rewards program, and now offer members the ability to receive a text message on their mobile phones informing them
that the funds they transferred have been picked up by their receiver.
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We continue to invest in our infrastructure to provide a better overall consumer and agent experience, reduce our costs and create efficiencies. We
have made important infrastructure enhancements to our settlement and commission processing, data management, financial systems and regulatory
and compliance reporting. We continue our efforts to enhance our agent on-boarding process, improving our speed to market for new agents.
Sales and Marketing
We have global marketing, product management and strategic partnership teams located in numerous geographies, including the United States,
United Kingdom, Italy, Spain, United Arab Emirates, India and China. We employ a strategy of developing products and marketing campaigns that
are both global yet also tailored to address our customer base and local needs. We market our products through a number of dedicated sales and
marketing teams, and continually assess the effectiveness of our sales and marketing efforts.
A wide range of marketing methods continue to support our sales efforts. A key component of our advertising and marketing efforts is our global
branding. We use a marketing mix to support the global brand, which includes traditional media and digital and social media, point of sale materials,
MoneyGram-branded signage at our agent locations, a loyalty program and targeted direct marketing programs and seasonal campaigns and
sponsorships.
Our sales teams are organized by geographic area, channel and product. We have dedicated support teams that focus on developing our agent and
biller networks to enhance the reach of our money transfer, bill payment and money order products. Our agent requirements vary depending upon
the type of outlet or location, and our sales teams continue to work to improve and strengthen our agent partnerships with a goal of providing the
optimal customer experience.
Competition
While we are the second largest money transfer company in the world, the market for our money transfer and bill payment services remains very
competitive. The market consists of a small number of large competitors and a large number of small, niche competitors. Our competitors include
other large money transfer and electronic bill payment providers, banks and niche person-to-person money transfer service providers that serve
select regions. Our largest competitor in the money transfer market is Western Union, which also competes with our bill payment services and
money order businesses. As new technologies for money transfer and bill payment services emerge that allow consumers to send and receive money
and to pay bills in a variety of ways, we face increasing competition. These emerging technologies include online payment services, card-based
services such as ATM cards and stored-value cards, bank-to-bank money transfers and mobile telephone payment services.
We generally compete for money transfer agents on the basis of value, service, quality, technical and operational differences, price and commission.
We compete for money transfer consumers on the basis of number and location of outlets, price, convenience, technology and brand recognition.
Due to increased pricing competition, in the first half of 2010 we introduced a $50 price band which allows consumers to send $50 of principal for a
$5 fee at most locations, or $4.75 at a Walmart location.
Regulation
Compliance with laws and 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 of the United States and other countries, including international, federal and state anti-money laundering laws and
regulations; financial services regulations; currency control regulations; anti-bribery laws; regulations of the U.S. Treasury Department's office of
Foreign Assets Control ("OFAC"); money transfer and payment instrument licensing laws; escheatment laws; privacy, data protection and
information security laws; and consumer disclosure and consumer protection laws. Failure to comply with any applicable laws and regulations 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" for additional discussion regarding potential impacts of failure to comply. We continually monitor and enhance our
global compliance programs to comply with the most recent legal and regulatory changes. During 2010, we continued to increase our compliance
personnel headcount and make investments in our compliance-related technology and infrastructure.
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Anti-Money Laundering Compliance. 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 similar state laws and regulations and the anti-money laundering
laws and regulations in many of the countries in which we operate, particularly in the European Union. 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 government's watch-lists, including but not limited to, the watch list maintained by OFAC;
• prohibition of transactions in, to or from certain countries, governments, individuals and entities;
•
limitations on amounts that may be transferred by a consumer or from a jurisdiction at any one time or over specified periods of time, which
require the aggregation of information over multiple transactions;
• 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;
• registration or licensing of the Company or our agents with a state or federal agency in the United States or with the central bank or other
proper authority in a foreign country; and
• minimum capital or capital adequacy requirements.
Anti-money laundering regulations are constantly evolving and vary from country to country. We continuously monitor our compliance with anti-
money laundering regulations and implement policies and procedures to make our business practices flexible, so we can comply with the most
current legal requirements.
We offer our money transfer services through third-party agents with whom we contract and do not directly control. As a money services business,
we and our 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. We also offer in-person and online training as part of our agent compliance training program and engage in various agent oversight
activities.
Money Transfer and Payment Instrument Licensing — The majority of states in the United States, the District of Columbia, Puerto Rico and the
United States Virgin Islands and Guam require us to be licensed to conduct business within their jurisdictions. In November 2009, our primary
overseas operating subsidiary, MoneyGram International Ltd, became a licensed payment institution under the European Union Payment Services
Directive. Licensing requirements generally include minimum net worth, provision of surety bonds, compliance with operational procedures, agent
oversight and the maintenance of reserves or "permissible investments" in an amount equivalent to outstanding payment obligations, as defined by
our various regulators. The types of securities that are considered "permissible investments" vary across jurisdictions, but generally include cash and
cash equivalents, U.S. government securities and other highly rated debt instruments. Most states and our other regulators require us to file reports
on a quarterly or more frequent basis to verify our compliance with their requirements. Many states and other regulators also subject us to periodic
examinations and require us and our agents to comply with anti-money laundering and other laws and regulations.
Escheatment Regulations — Unclaimed property laws of every state, the District of Columbia, Puerto Rico and the United States Virgin Islands
require that we track certain information on all of our payment instruments and money transfers and, if they are unclaimed at the end of an
applicable statutory abandonment period, that we remit the proceeds of the unclaimed property to the appropriate jurisdiction. Statutory
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 that subject us 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 are also subject to privacy laws of various states. In addition, we are subject to laws adopted pursuant to the European Union's Data
Protection Directive (the "Data Protection Directive"). We abide by the U.S. Department of Commerce's Safe Harbor framework principles to assist
in compliance with the Data Protection Directive. In some cases, the privacy laws of a European Union member state may be more restrictive than
what is required under the Data Protection 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, both domestically and internationally, evolve regularly and conflicting laws in the various jurisdictions where we do
business pose challenges.
Banking Regulations — We have been informed by Goldman Sachs that the Company was deemed a controlled subsidiary of a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), as a result of Goldman Sachs' status as a bank holding
company and its equity interest in the Company. Affiliates of Goldman Sachs beneficially own all of the Company's B-1 Stock, and may convert
such B-1 Stock into non-voting Series D Preferred Stock (the "D Stock"). Although the D Stock is not convertible into common stock of the
Company while beneficially owned by Goldman Sachs, the D Stock may be sold or transferred to a third party who may then convert the D Stock
into common stock. Goldman Sachs also holds an interest in our senior secured second lien notes issued in connection with the 2008
Recapitalization. As a result of these investments, Goldman Sachs has informed us that the Company may be considered a controlled non-bank
subsidiary of Goldman Sachs for U.S. bank regulatory purposes. Companies that are deemed to be subsidiaries of a bank holding company are
subject to the BHC Act, and are thus subject to reporting requirements and examination and supervision by the Federal Reserve Board.
Bank holding companies may engage in the business of banking, or activities that are so closely related to banking, or managing or controlling
banks, as to be a proper incident thereto. Bank holding companies that are well-capitalized, well-managed and meet certain other conditions, may
become "financial holding companies." The Federal Reserve Board has approved Goldman Sachs as a financial holding company, and Goldman
Sachs may engage in additional activities that are financial in nature or incidental or complementary to financial activities as long as it meets these
qualifications, and do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The Federal
Reserve Board, together with the U.S. Treasury Department, may periodically announce additional permissible activities for financial holding
companies.
We believe our current businesses are permissible activities for subsidiaries of financial holding companies. We do not expect the limitations on the
nonbank activities of financial holding companies to limit our current business activities. It is possible, however, that these restrictions might limit
our ability to enter other businesses in which we may wish to engage in the future. In addition, the new Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the "Dodd-Frank Act"), the regulations required to be enacted to implement such act, and other laws
or regulations that may be adopted in the future, could adversely affect us and the scope of our activities, whether or not we are a subsidiary of a
financial holding company. These new laws and regulations could also affect the ways our counterparties are generally required to do business with
their customers, which may affect us, including potentially increased transaction and compliance costs.
We continue to discuss alternatives with Goldman Sachs and our respective advisers in an effort to address being deemed a holding company
subsidiary under the BHC Act. We believe that the ultimate result will depend upon a number of factors, including the Federal Reserve's
consideration of the requirements for us to be deemed no longer "controlled" by Goldman Sachs for purposes of the BHC Act, market conditions,
Goldman Sachs' investment considerations, and the potential regulatory effects of the BHC Act and the Dodd-Frank Act. These considerations may
change from time to time, and we can provide no assurance as to the timing or terms of any potential resolution of these "control" issues under the
BHC Act.
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Recent Federal Legislation in the United States — The Dodd-Frank Act was signed into law on July 21, 2010. While the Dodd-Frank Act will likely
impose additional regulatory requirements upon us, it is difficult to gauge the impact on our business because many provisions of the Dodd-Frank
Act require the adoption of rules and further studies. The Dodd-Frank Act creates a new Bureau of Consumer Financial Protection (the "Bureau"),
which issues and enforces consumer protection initiatives governing financial products and services, including money transfer services, in the United
States. We will be required to provide enhanced disclosures to our money transfer customers, which may require us to modify our systems. In
addition, we may be held liable for the failure of our agents to comply with the Dodd-Frank Act. The enhanced disclosure requirements and the
extent of vicarious liability will be determined by rules to be issued by the Bureau when it becomes operational on or about July 21, 2011.
Other — We sell our MoneyGram-branded prepaid card in the United States, in addition to loading prepaid cards of other card issuers through our
ExpressPayment system. Prepaid card 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.
Clearing and Cash Management Bank Relationships
Our business involves the movement of money. On average, we move over $1.0 billion daily to settle our payment instruments and make related
settlements with our agents and financial institutions. We generally receive a similar amount on a daily basis from our agents and financial
institutions in connection with our payment service obligations. We move money through a network of clearing and cash management banks, and
our relationships with these clearing banks and cash management banks are a critical component of our ability to move funds on a global and timely
basis.
We rely on two banks to clear our retail money orders. We currently have eight official check clearing banks. We believe these relationships provide
sufficient capacity for our money order and official check outsourcing services.
We maintain contractual relationships with a variety of domestic and international cash management banks for automated clearing house ("ACH")
and wire transfer services for the movement of consumer funds and agent settlements. There are a limited number of international cash management
banks with a network large enough to manage cash settlements for our entire agent base. In addition, some large international banks have opted not
to bank money service businesses. As a result, we also utilize regional or country-based banking partners in addition to large cash management
banks.
Intellectual Property
The MoneyGram brand is important to our business. We have registered our MoneyGram trademark in the United States and a majority of the other
countries where we do business. We maintain a portfolio of other trademarks that are also important to our business, including our ExpressPayment,
globe with arrows logo, MoneyGram Rewards, The Power is in Your Hands®, The Power to Change the Way You Send Money®, FormFree and
AgentConnect marks. In addition, we maintain a portfolio of MoneyGram branded domain names.
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. We believe the intellectual property rights in processing equipment,
computer systems, software and business processes held by us and our subsidiaries provide us with a competitive advantage. We believe we take
appropriate measures to protect our intellectual property to the extent such intellectual property can be protected.
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We own U.S. and foreign patents related to our money order and money transfer technology. Our United States 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 U.S. that relate to our money transfer, money order and bill payment
technologies and business methods. We anticipate that these applications, if granted, could give us continued competitive advantages in the
marketplace. However, our competitors also actively patent their technology and business processes.
Employees
As of December 31, 2010, we had approximately 1,570 full-time employees in the United States and 722 full-time employees outside of the United
States. In addition, we engage contractors to support various aspects of our business. None of our employees in the United States are represented by
a labor union. We consider our employee relations to be good.
Executive Officers of the Registrant
Timothy C. Everett assumed the role of Executive Vice President, General Counsel and Corporate Secretary in January 2010, following the
retirement of Teresa H. Johnson in September 2009. Mubashar Hameed, Chief Information Officer, and Jeffrey R. Woods, Executive Vice President
and Chief Financial Officer, departed in January 2010. In April 2010, Nigel Lee became Executive Vice President of EMEAAP, following the
departure of John Hempsey that same month. Also in April 2010, J. Lucas Wimer became Executive Vice President, Operations and Technology.
James E. Shields joined us as Executive Vice President and Chief Financial Officer in July 2010. In February 2011, Juan Agualimpia became
Executive Vice President and Chief Marketing Officer and Rebecca L. Lobsinger became Vice President, Controller and Chief Accounting Officer.
Following is information regarding our executive officers:
Pamela H. Patsley, age 54, has served as Chairman and Chief Executive Officer since September 2009. Ms. Patsley was appointed Executive
Chairman in January 2009. Ms. Patsley also serves on the boards of directors of Texas Instruments, Inc. and Dr. Pepper Snapple Group, Inc.
Ms. Patsley previously served as Senior Executive Vice President of First Data Corporation, a global payment processing company, from March
2000 to October 2007, and President of First Data International from May 2002 to October 2007. From 1991 to 2000, Ms. Patsley served as
President and Chief Executive Officer of Paymentech, Inc., prior to its acquisition by First Data Corporation. Ms. Patsley also served as Chief
Financial Officer of First USA, Inc.
Juan Agualimpia, age 48, has served as Executive Vice President, Chief Marketing Officer since February 2011. Mr. Agualimpia previously served
as Senior Vice President and Chief Marketing Officer from March 2010 to February 2011. From March 2009 to March 2010, Mr. Agualimpia
engaged in marketing project consulting. Mr. Agualimpia has 20 years of leadership experience in marketing, brand management, customer
relationship management and product development, including as Vice President and General Manager for the Art & Coloring Global Business Unit
of Newell Rubbermaid from 2005 to March 2009.
Timothy C. Everett, age 48, has served as Executive Vice President, General Counsel and Corporate Secretary since January 2010. Mr. Everett
previously served as Vice President and Secretary of Kimberly-Clark Corporation, a multi-national consumer product company, from 2003 to 2009.
Prior to that, Mr. Everett served in various roles of increasing responsibility at Kimberly-Clark from 1993 to 2003. From 1990 to 1993, Mr. Everett
was an associate with the global law firm, Akin, Gump, Strauss, Hauer & Feld, LLP. From 1984 to 1987, Mr. Everett was an auditor with the
accounting firm Ernst & Young, LLP.
Nigel Lee, age 45, has served as Executive Vice President of EMEAAP since April 2010. Prior to joining MoneyGram, Mr. Lee was president of
First Data Asia Pacific, a role he held since 2005. Previously, Mr. Lee served as regional vice president, financial services for EDS in Hong Kong.
He has also held a variety of senior executive positions including CIO and Head of Strategy for Australian Home Loans, which is Australia's largest
non-bank retail lender. Mr. Lee began his career as a management consultant with Accenture, formerly Andersen Consulting.
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Rebecca L. Lobsinger, age 36, has served as Vice President, Controller and Chief Accounting Officer since February 2011. From September 2005
until February 2011, Ms. Lobsinger served as Assistant Controller and from December 2004 through September 2005, Ms. Lobsinger served as the
manager of financial standards and reporting for the Company. Through November 2004, Ms. Lobsinger was an auditor with the accounting firm
PricewaterhouseCoopers LLP.
Daniel J. O'Malley, age 46, has served as Executive Vice President of the Americas since December 2009. From April 2007 to December 2009,
Mr. O'Malley served as Senior Vice President, Global Payment Systems/President Americas. 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 1996 to 1999, Regulatory Project Manager from 1995 to 1996, Manager of the Southeast Processing Center from 1989 to 1995 and
Coordinator of the Southeast Processing Center from 1988 to 1989. 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.
Steven Piano, age 45, has served as Executive Vice President, Human Resources since August 2009. From January 2008 to August 2009, Mr. Piano
served as Global Lead Human Resource Partner with National Grid, a multi-national utility company. From 1996 to January 2008, Mr. Piano held a
variety of human resources positions with First Data Corporation, a global electronic payment processing company, serving most recently as Senior
Vice President — First Data International. From 1987 to 1996, Mr. Piano held human resources positions with Citibank, Dun & Bradstreet —
Nielsen Media Research and Lehman Brothers.
James E. Shields, age 49, has served as Executive Vice President and Chief Financial Officer since July 2010. From 2009 until July 2010,
Mr. Shields engaged in independent financial consulting. During 2008, Mr. Shields served as senior vice president finance and treasurer for Royal
Caribbean Cruise Lines. From 2005 to 2008, he served as vice president and treasurer of Celanese Corporation, a $6 billion chemical company with
worldwide operations. Prior to that, Mr. Shields was vice president and chief financial officer for consumer markets at Qwest Communications
International Inc.
J. Lucas Wimer, age 45, has served as Executive Vice President, Operations and Technology since April 2010. From January 2008 to April 2010,
Mr. Wimer was a principal at THL Partners, where he was responsible for business transformation programs across the THL portfolio. From
September 2003 to December 2007, he led infrastructure development for Capital One. From 1996 to 2003, Mr. Wimer provided management
consulting, global project and practice leadership in performance measurement, cost reduction, merger integration and restructuring to the financial
services industry for IBM Business Consulting Services, formerly PricewaterhouseCoopers.
Available Information
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 (www.moneygram.com) as soon as reasonably practicable after they are
filed with or furnished to the Securities and Exchange Commission (the "SEC"). Our principal executive offices are located at 2828 N. Harwood
Street, Dallas, Texas 75201, and our telephone number is (214) 999-7552.
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.
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RISK FACTORS
Our substantial debt service and preferred stock obligations, significant debt covenant requirements and our credit rating could impair our
financial condition and adversely affect our ability to operate and grow our business.
We have substantial debt service and preferred stock obligations. Our indebtedness 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 flows 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 debt agreements contain financial and restrictive covenants that could significantly impact our ability to operate our business and any
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 increases our vulnerability to changing economic, regulatory and industry conditions;
• our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and the industry;
• our debt service obligations could place us at a competitive disadvantage to our competitors who have less leverage relative to their overall
capital structures;
• our ability to pay cash dividends to the holders of our common stock is significantly restricted;
• payment of cash dividends to the holders of the preferred stock in the future could reduce the funds available to us for our operations,
acquisitions, product development or other corporate initiatives; and
• we may be required to pay significant fees to obtain the necessary consents from holders of our debt to amend or reduce our debt and/or
preferred stock.
Our credit rating is non-investment grade. Together with our level of leverage, this rating adversely affects our ability to obtain additional financing
and increases our cost of borrowing.
Our proposed 2011 Recapitalization is subject to a number of conditions beyond our control. Failure to complete the 2011 Recapitalization could
adversely affect our stock price and our future business and financial results.
Our proposed 2011 Recapitalization is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially
adversely affect the completion of the 2011 Recapitalization, including the approval of the Stockholder Approval Matters by the affirmative vote of
a majority of the outstanding shares of our common stock and B Stock (on an as-converted basis), voting as a single class, and the affirmative vote
of a majority of the outstanding shares of our common stock (not including the B Stock or any other stock of the Company held by any Investor), in
each case voting on the Stockholder Approval Matters, and the Company's receipt of sufficient financing to consummate the 2011 Recapitalization.
We cannot predict whether and when these conditions will be satisfied. We will also incur significant transaction costs whether or not the 2011
Recapitalization is completed. Any failure to complete the 2011 Recapitalization could have a material adverse effect on our stock price and our
future business and financial results.
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Our Series B Stock 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 (assuming conversion).
Dividends payable on the Series B Stock have been accrued since inception. If we continue to accrue dividends in lieu of paying in cash, the
ownership interest of the Investors will substantially increase and continue to dilute the interests of the common stockholders. With the accrual of
dividends, the Investors had an equity interest of 84 percent (assuming conversion) as of December 31, 2010.
The holders of the B Stock vote as a class with the common stock and have a number of votes equal to the number of shares of common stock
issuable if all outstanding shares of B Stock were converted into common stock plus the number of shares of common stock issuable if all
outstanding shares of B-1 Stock were converted into D Stock and subsequently converted into common stock. As a result, holders of the B Stock are
able to determine the outcome of matters put to a stockholder vote, including the ability to elect our directors, determine our corporate and
management policies, including compensation of our executives, 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. 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 stock as part of a sale of our Company and might reduce our share price. 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 stock.
In view of their significant ownership stake in the Company, THL, as a holder of the B Stock, has appointed four members to our Board of
Directors. Goldman Sachs, as a holder of the B-1 Stock, has the right to appoint a director to our Board of Directors. Goldman Sachs has not
exercised this right, but has appointed two observers who attend meetings of our Board of Directors. The size of our Board has been set at nine
directors, four of which are independent. Our Certificate of Incorporation provides that, as long as the Investors have a right to designate directors to
our Board, Goldman Sachs shall have the right to designate one director who shall have one vote and THL shall have the right to designate two to
four directors who shall each have equal votes and who shall have such number of votes equal to the number of directors as is proportionate to the
Investors' common stock ownership, calculated on a fully converted basis assuming the conversion of all shares of Series B Stock into common
stock, minus the one vote of the director designated by Goldman Sachs. Therefore, each director designated by THL will have multiple votes and
each other director will have one vote.
Sustained financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions, could adversely affect
our business, financial condition and results of operations.
We face certain risks in the event of a sustained deterioration of financial market liquidity, as well as in the event of sustained deterioration in the
liquidity, or failure, of our clearing, cash management and custodial financial institutions. In particular:
• We may be unable to access funds in our investment portfolio on a timely basis to settle our payment instruments, pay money transfers and
make related settlements to agents. Any resulting need to access other sources of liquidity or short-term borrowing would increase our costs.
Any delay or inability to settle our payment instruments, pay money transfers or make related settlements with our agents could adversely
impact our business, financial condition and results of operations.
• Clearing and cash management banks upon which we rely to conduct our official check, money order and money transfer businesses could fail
or experience sustained deterioration in liquidity. This could lead to our inability to clear our payment service instruments and move funds on
a global and timely basis as required to settle our obligations and collect partner receivables.
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• Our revolving credit facility with a consortium of banks is one source of funding for corporate transactions and liquidity needs. If any of the
banks participating in our credit facility were unable or unwilling to fulfill its lending commitment to us, our short-term liquidity and ability to
engage in corporate transactions such as acquisitions could be adversely affected.
• We may be unable to borrow from financial institutions or institutional investors on favorable terms, which could adversely impact our ability
to pursue our growth strategy and fund key strategic initiatives, such as product development and acquisitions.
If financial liquidity deteriorates, there can be no assurance we will not experience an adverse effect, which may be material, on our ability to access
capital and on our business, financial condition and results of operations.
Continued weakness in economic conditions, in both the United States and global markets, could adversely affect our business, financial
condition and results of operations.
Our money transfer business relies in part on the overall strength of global economic conditions as well as international migration patterns.
Consumer money transfer transactions and migration patterns are affected by, among other things, employment opportunities and overall economic
conditions. Our customers tend to have employment in industries such as construction, manufacturing and retail that tend to be cyclical and more
significantly impacted by weak economic conditions than other industries. This may result in reduced job opportunities for our customers in the
United States or other countries that are important to our business, which could adversely affect our results of operations. In addition, increases in
employment opportunities may lag other elements of any economic recovery.
Our agents or billers may have reduced sales or business as a result of weak economic conditions. As a result, our agents could reduce their numbers
of locations or hours of operation, or cease doing business altogether. Our billers may have fewer customers making payments to them, particularly
billers in those industries that may be more affected by an economic downturn such as the automobile, mortgage and retail industries.
If general market softness in the United States or other national economies important to the Company's business were to continue for an extended
period of time or deteriorate further, the Company's results of operations could be adversely impacted. Additionally, if our consumer transactions
decline or migration patterns shift due to deteriorating economic conditions, we may be unable to timely and effectively reduce our operating costs
or take other actions in response, which could adversely affect our 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 countries to 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 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. Sustained weakness in global economic conditions could reduce economic opportunities for migrant
workers and result in reduced or disrupted international migration patterns. Reduced or disrupted international migration patterns, particularly in the
United States or Europe, are likely to reduce money transfer transaction volumes and therefore have an adverse effect on our results of operations.
If we lose key agents or are unable to maintain our Global Funds Transfer agent or biller networks, our business, financial condition and results
of operations could be adversely affected.
Revenue from our money transfer and urgent bill payment services is derived from transactions conducted through our retail agent and biller
networks. 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 agent base to decline. We may not be able to retain all of our current retail agents or billers for other reasons, as the competition for retail
agents and billers is intense. If agents or billers decide to leave our agent network, or if we are unable to add new agents or billers to our network,
our revenue would decline.
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Larger agents and billers 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 are unable to meet these demands, we could lose customers and our business,
financial condition and results of operations would be adversely affected.
A substantial portion of our transaction volume is generated by a limited number of key agents. During 2010 and 2009, our 10 largest agents
accounted for 51 percent and 48 percent, respectively, of our total company fee and investment revenue and 55 percent and 53 percent, respectively,
of the fee and investment revenue of our Global Funds Transfer segment. In 2010 and 2009, our largest agent, Walmart, accounted for 30 percent
and 29 percent, respectively, of our total company fee and investment revenue and 33 percent and 32 percent, respectively, of the fee and investment
revenue of our Global Funds Transfer segment. The term of our agreement with Walmart runs through January 2013. If any of our key agents do not
renew their contracts with us, or if such agents 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, financial condition and results of operations would be adversely affected.
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 been, and in the future may be, subject to allegations and complaints that individuals or entities have used our money transfer services for
fraud-induced money transfers which may result in fines, settlements and litigation expenses. We also are the subject from time to time of litigation
related to our business. The outcome of such allegations, complaints, claims and litigation cannot always be predicted, although we vigorously
defend against them.
Regulatory and judicial proceedings and potential adverse developments in connection with ongoing 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.
We have been served with subpoenas to produce documents and testify before the Grand Jury in the Middle District of Pennsylvania with regard to
our U.S. and Canadian agents, as well as certain transactions involving such agents, fraud complaint data, and our consumer anti-fraud program. In
addition, we have received civil investigative demands from a working group of nine state attorney generals who have initiated an investigation into
whether the Company has taken adequate steps to prevent consumer fraud. The Company continues to cooperate fully with these investigations, but
is unable to predict the outcome or the possible loss, or range of loss, if any, associated with the resolution of these matters.
We face credit risks from our retail agents and official check financial institution customers.
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. 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. As of December 31, 2010, we had credit exposure to our agents of approximately
$594.0 million in the aggregate spread across over 15,000 agents, of which three owed us in excess of $15.0 million.
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Our official checks outsourcing business is conducted through financial institutions. Our official check financial institution customers issue official
checks and money orders and remit to us the face amounts of those instruments the day after they are issued. MoneyGram is liable for payment on
all of those instruments except cashier's checks. As of December 31, 2010, we had credit exposure to our official check financial institution
customers of approximately $375.7 million in the aggregate spread across 1,400 financial institutions, of which one owed us in excess of
$15.0 million.
We monitor the creditworthiness of our agents and official check financial institution customers on an ongoing basis. There can be no assurance that
the models and approaches we use to assess and monitor the creditworthiness of our agents and official check financial institution customers will be
sufficiently predictive, and we may be unable to detect and take steps to timely mitigate an increased credit risk.
In the event of an agent bankruptcy, we would generally be in the position of creditor, possibly with limited security or financial guarantees of
performance, and we would therefore be at risk of a reduced recovery. We are not insured against credit losses, except in circumstances of agent
theft or fraud. Significant credit losses could have a material adverse effect on our business, financial condition and results of operations.
We face fraud risks that could adversely affect our business, financial condition and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities such as paper instrument counterfeiting, fraud and identity
theft. As we make more of our services available over the Internet and other unmanned media, we subject ourselves to new types of consumer fraud
risk because requirements relating to customer authentication are more complex with Internet services. Certain former retail agents have also
engaged in fraud against consumers or us, and existing agents could engage in fraud against consumers or us. We use a variety of tools to protect
against fraud; however, these tools may not always be successful. Allegations of fraud may result in fines, settlements and litigation expenses.
The industry has come under increasing scrutiny from federal, state and local regulators in connection with the potential for consumer fraud.
Negative economic conditions may result in increased agent or consumer fraud. If consumer fraud levels involving our services were to rise, it could
lead to regulatory intervention and reputational and financial damage. This, in turn, could lead to government enforcement actions and
investigations, 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.
An inability of the Company or its agents to maintain adequate banking relationships may adversely affect our business, financial condition and
results of operations.
We rely on domestic and international banks for international cash management, ACH and wire transfer services to pay money transfers and settle
with our agents. We also rely on domestic banks to provide clearing, processing and settlement functions for our paper-based instruments, including
official checks and money orders. The Company's relationships with these banks are a critical component of our ability to conduct our official check,
money order and money transfer businesses. An inability on our part to maintain existing or establish new banking relationships sufficient to enable
us to conduct our official check, money order and money transfer businesses could adversely affect our business, financial condition and results of
operations. There can be no assurance that the Company will be able to establish and maintain adequate banking relationships.
We rely on a primary international banking relationship for international cash management, ACH and wire transfer services. Should we not be
successful in maintaining a sufficient relationship with one of the limited number of large international banks that provide these services, we would
be required to establish a global network of banks to provide us with these services. This could alter the pattern of settlement with our agents and
result in our agent receivables and agent payables being outstanding for longer periods than the current remittance schedule, potentially adversely
impacting our cash flow. Maintaining a global network of banks, if necessary, may also increase our overall costs for banking services.
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We and our agents are considered Money Service Businesses in the United States under the Bank Secrecy Act. The federal banking regulators are
increasingly taking the stance that Money Service Businesses, 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. If our agents are unable to maintain existing or
establish new banking relationships, they may not be able to continue to offer our services, which could adversely affect our business, financial
condition and results of operations.
We may be unable to operate our official check and money order businesses profitably if we are not successful in retaining those partners that
we wish to retain.
We have reduced the commission rate we pay to our official check financial institution customers, and have implemented, and in some cases
increased, per-item and other fees for our official check and money order services. Due to the historically low interest rate environment, our official
check financial institution customers have been receiving low or no commission payments from the issuance of payment service instruments. Our
official check financial institution customers have a right to terminate their agreements with us if they do not accept these pricing changes. As a
result of the pricing changes, historically low interest rate environment and contractual rights, there can be no assurance that we will retain those
official check financial institution customers and money order agents that we wish to retain. If we are not successful in retaining those customers and
agents that we wish to retain, and we are unable to proportionally reduce our fixed costs associated with the official check and money order
businesses, our business, financial condition and results of operations could be adversely affected.
Failure to maintain sufficient capital could adversely affect our business, financial condition and results of operations.
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. Further, we may not be able to meet new capital requirements introduced or required by our regulators. 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 sufficient
capital. Failure to have such access could materially impact our business, financial condition and results of operations.
Failure to attract and retain 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 our ability to attract and retain key employees. The loss of services of one or more members of our
executive management team could harm our business and future development. A failure to attract and retain key personnel could also have a
material adverse effect on our business, financial condition, results of operations and cash flows.
If we fail to successfully develop and timely introduce new and enhanced products and services or if we make substantial investments in an
unsuccessful new product, 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. If alternative payment mechanisms become widely
substituted for our current products and services, and we do not develop and offer similar alternative payment mechanisms successfully and on a
timely basis, our business and prospects could be adversely affected. 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. Such investments and strategic alliances, however, are inherently risky and we cannot guarantee that such investments or
strategic alliances will be successful. If such investments and strategic alliances are not successful, they could have a material adverse effect on our
business, financial condition and results of operations.
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If we are unable to adequately protect our brand and 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.
The MoneyGram® brand is important to our business. We utilize trademark registrations in various countries and other tools to protect our brand.
Our business would be harmed if we were unable to adequately protect our brand and the value of our brand was to decrease as a result.
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 their intellectual property rights or have misappropriated
other 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 claims of intellectual property
infringement could harm our business prospects, financial condition and results of operation.
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 markets in which we compete are highly competitive, and we face a variety of competitors across our businesses, in particular our largest
competitor, The Western Union Company. In addition, new competitors or alliances among established companies may emerge. Further, some of
our competitors have larger and more established customer bases and substantially greater financial, marketing and other resources than we have.
With respect to our money transfer, urgent bill payment and money order businesses, our primary competition comes from our largest competitor.
We cannot anticipate every effect that actions taken by our competitors will have on our business, or the money transfer and bill payment industry in
general.
Money transfer, money order and 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. We also compete with banks and niche person-to-person money
transfer service providers. 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.
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Our official check business competes primarily with financial institutions that have developed internal processing capabilities or services similar to
ours and do not outsource official check services. Financial institutions could also offer competing official check outsourcing services to our existing
and prospective official check customers.
There can be no assurance that growth in consumer money transfer transactions, bill payment transactions and other payment products will 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 that 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 and the requirements of the OFAC, which prohibit us from transmitting money to specified countries or on behalf of prohibited
individuals. Additionally, we are subject to 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, consumer protection laws,
currency control regulations, escheat laws, as well as privacy and data protection laws. Many of the laws to which we are subject are evolving,
unclear and inconsistent across various jurisdictions, making compliance challenging.
In connection with the regulatory requirements to which we are subject, there has been increased public attention regarding prevention of money
laundering, terrorist financing and the corporate use and disclosure of personal information, accompanied by legislation and regulations intended to
strengthen anti-money laundering, data protection, information security and consumer privacy. While we believe that we are compliant with our
regulatory responsibilities, the legal, political and business environments in these particular areas are evolving, inconsistent across various
jurisdictions, and often unclear, which increases our operating compliance costs and our legal risks. Subsequent legislation, regulation, litigation,
court rulings or other events could expose us to increased program costs, liability and reputational damage.
In particular, we are subject to regulations imposed by the Foreign Corrupt Practices Act (the "FCPA") in the United States and similar anti-bribery
laws in other jurisdictions. We are also subject to reporting, recordkeeping and anti-money laundering provisions in many jurisdictions, including the
Bank Secrecy Act in the United States, as amended by the USA PATRIOT Act of 2001. Because of the scope of our global operations, we
experience a higher risk associated with the FCPA and similar anti-bribery laws than many companies. We are also subject to regulatory oversight
and enforcement by the U.S. Department of the Treasury Financial Crimes Enforcement Network, or "FinCEN." Any determination that we have
violated these laws could have an adverse effect on our business, financial position and results of operations.
Changes in laws, regulations or other industry practices and standards may increase our costs of operations and may disrupt our business as we
develop new business and compliance models. For example, the European Union's Payment Services Directive ("PSD") imposes potential liability
on us for the conduct of our agents and the commission of third party fraud utilizing our services. We modified our business operations in the
European Union in 2009 and 2010 in light of PSD and will likely experience additional costs of operating in the European Union to address PSD
compliance. In the event we fail to comply with the PSD, our business, financial condition and results of operations may be adversely impacted.
Additionally, the United States and other countries periodically consider initiatives designed to lower costs of international remittances which, if
implemented, may adversely impact our business, financial condition and results of operations.
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Changes in laws, regulations or other industry practices and standards, or interpretations of legal or regulatory requirements may 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 affect our ability to distribute our services and the cost of providing such services, both by us and our
agents. Many of our high volume agents are in the check cashing industry. Any regulatory action that adversely affects check cashers could also
cause this portion of our agent base to decline. 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.
Any intentional or negligent violation by us of the laws and regulations set forth above could lead to significant fines or penalties and could limit our
ability to conduct business in some jurisdictions. Regulators in the United States and other jurisdictions are showing a greater inclination than they
have in the past to hold money services businesses like ours to higher standards of agent training and monitoring for possible violations of laws and
regulations by agents. Our systems, employees and processes may not be sufficient to detect and prevent an intentional or negligent violation of the
laws and regulations set forth above by our agents, which could also lead to us being subject to significant fines or penalties. 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.
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, 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. This could result in increased compliance costs,
regulatory inquiries, suspension or revocation of required licenses or registrations, seizure or forfeiture of assets and the imposition of civil and
criminal fees and penalties. In addition to monetary fines or penalties that we could incur, we could be subject to reputational harm that could have a
material adverse effect on our business, financial condition and results of operations.
A material breach of security of our systems could adversely affect our business.
We obtain, transmit and store confidential customer information in connection with certain of our services. Any significant security breaches in our
computer networks, databases or facilities could harm our business and reputation, cause inquiries and fines or penalties from regulatory or
governmental authorities and cause a loss of customers. We rely on a variety of technologies to provide security for our systems. 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 our systems. 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 data. 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.
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Because our business is particularly dependent on the efficient and uninterrupted operation of our computer network systems and data centers,
disruptions to these systems and data centers could adversely affect our business, financial condition and results of operations.
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 and the management of data necessary to do so. The success of our business
particularly depends upon the efficient and error-free handling of transactions and data. 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 the event of a breakdown, catastrophic event (such as fire, natural disaster, power loss, telecommunications failure or physical break-in), security
breach, improper operation, improper action by our employees, agents, customer financial institutions or third party vendors or any other event
impacting our systems or processes or our vendors' systems or processes, 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. We may also experience problems other than system failures, including 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
contracts, including our contract with Walmart, 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 experience
significant system interruptions or 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.
The operation of retail locations and acquisition or start-up of businesses create risks and may adversely affect our operating results.
We operate Company-owned retail locations for the sale of our products and services. We may be subject to additional laws and regulations that are
triggered by our ownership of retail locations and our employment of individuals who staff our retail locations. There are also certain risks inherent
in operating any retail location, including theft, personal injury and property damage and long-term lease obligations.
We may, from time to time, acquire or start up businesses both inside and outside of the United States. The acquisition and integration of businesses
involve a number of risks. We may not be able to successfully integrate 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
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 acquiring or opening new businesses could adversely affect our business, financial
condition and results of operations.
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There are a number of risks associated with our international sales and operations that could adversely affect our business.
We provide money transfer services between and among approximately 190 countries and territories and continue to expand in various international
markets. 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, including in particular the recent civil unrest,
terrorism and political turmoil in North Africa, the Middle East and other regions;
• restrictions on money transfers to, from and between certain countries;
• money control and repatriation issues;
• changes in regulatory requirements or in foreign policy, including the adoption of domestic or foreign laws, regulations and interpretations
detrimental to our business;
• possible increased costs and additional regulatory burdens imposed on our business;
• burdens of complying with a wide variety of laws and regulations;
• possible fraud or 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, in particular with respect to the euro.
Changes in tax laws and unfavorable outcomes of tax positions we take could adversely affect our tax expense.
We file tax returns and take positions with respect to federal, state, local and international taxation, including positions that relate to our 2007 and
2008 net security losses, and our tax returns and tax positions are subject to review and audit by taxing authorities. An unfavorable outcome of a tax
review or audit could result in higher tax expense, which could adversely affect our results of operations and cash flows. We establish reserves for
material, known tax exposures. While we believe our reserves are adequate to cover material, known tax exposures, there can be no assurance that
an actual taxation event would not exceed our reserves.
As a deemed subsidiary of a holding company regulated under the BHC Act, we are subject to supervision, regulation and regular examination
by the Federal Reserve.
The Federal Reserve supervises and regulates all bank holding companies and financial holding companies, along with their subsidiaries. The new
Dodd-Frank Act requires regular examinations of subsidiaries of bank and financial holding companies and their subsidiaries in the same manner as
if they were depository institutions. As a subsidiary of a holding company regulated under the BHC Act, we are required to provide information and
reports for use by the Federal Reserve under the BHC Act. The Dodd-Frank Act also increases the regulation and supervision of large bank and
financial holding companies, such as Goldman Sachs, and their subsidiaries, which may adversely affect us as a deemed subsidiary of Goldman
Sachs.
Changes in laws and regulations could adversely affect us.
The Dodd-Frank Act, as well as the regulations required by that Act, and other laws or regulations that may be adopted in the future, could adversely
affect us and the scope of our activities, and could adversely affect our operations, results of operations and financial condition, whether or not we
are a subsidiary of a bank holding company or a financial holding company.
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The recent Dodd-Frank Act increases the regulation of financial services companies generally, including non-bank financial companies
supervised by the Federal Reserve.
The Dodd-Frank Act increases the regulation and oversight of the financial services industry. The Dodd-Frank Act addresses, among other things,
systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, derivatives, lending limits, thrift
charters, changes among the bank regulatory agencies, and the ability to conduct business with holding company affiliates. Many of the provisions
of the Dodd-Frank Act require studies and regulations. The Dodd-Frank Act requires enforcement by various governmental agencies, including the
new Bureau. The new legislation and implementing regulations may increase our costs of compliance, and may require changes in the way we
conduct business. We cannot predict the effects of this broad legislation or the regulations to be adopted pursuant to the Dodd-Frank Act.
We will be subject to various provisions of the Consumer Financial Protection Act of 2010 adopted as part of the Dodd-Frank Act, which will
result in a new regulator with new and expanded compliance requirements, which is likely to increase our costs.
The Dodd-Frank Act establishes the Bureau, which will affect our business, even if we are not deemed a subsidiary of a bank or financial holding
company. Money transmitters such as the Company will be required to provide additional consumer information and disclosures. The Bureau is
charged with studying and drafting standards to address existing prices and fees at locations where our services are offered and adopt error resolution
standards. The Bureau and the regulations it will adopt are likely to necessitate operational changes and additional costs, but we cannot predict its
effects upon us or our business at this time.
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 the public float of our common stock.
The trading market for our common stock was first established in June 2004. The float in that market now consists of approximately
83,400,000 shares out of a total of 83,620,522 shares issued and outstanding as of December 31, 2010. 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.
Pursuant to the Registration Rights Agreement entered into between the Company and the Investors at the closing of the 2008 Recapitalization, on
December 14, 2010, we filed a registration statement on Form S-3 with the SEC that permits the offer and sale by the Investors of all of the Series B
Stock that they hold, as well as any common stock or D Stock into which the B-1 Stock may be converted. The registration statement also permits
the Company to offer and sell up to $500 million of its common stock, preferred stock, debt securities or any combination of these, from time to
time, subject to market conditions and the Company's capital needs. 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.
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Our charter documents 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. 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 ("NYSE") continued listing requirements, the NYSE may delist our common stock.
Our common stock is currently listed on the NYSE. The NYSE requires us to maintain an average closing price of our common stock of $1.00 per
share or higher over 30 consecutive trading days as well as to maintain average market capitalization and stockholders' equity of at least $75 million.
If we are unable to maintain compliance with 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.
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Item 1B. UNRESOLVED SEC COMMENTS
None.
Item 2.
PROPERTIES
Location
Dallas, TX
Minneapolis, MN
Brooklyn Center, MN
Lakewood, CO
Use
Segment(s) Using Space
Square Feet
Lease Expiration
Corporate Headquarters
Global Operations Center
Global Operations Center
Call Center
Both
Both
Both
Global Funds Transfer
34,921
153,592
75,000
114,240
6/30/2021
12/31/2015
4/30/2015
3/31/2015
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. Per lease terms, we will be adding 12,000 square feet to our corporate headquarters in Dallas in 2012. Not included in the above
table is approximately 14,600 square feet in Minneapolis, Minnesota that has been sublet. We also have a number of other smaller office locations in
Arkansas, California, Florida, New York, France, Germany, Italy, Spain and the United Kingdom, as well as small sales and marketing offices in
Australia, China, Greece, India, Italy, the Netherlands, Nigeria, Russia, South Africa, Spain, Ukraine, United Arab Emirates, and Switzerland. We
believe that our properties are sufficient to meet our current and projected needs.
Item 3. LEGAL PROCEEDINGS
Legal Proceedings — The Company is involved in various claims, litigation and government inquiries that arise from time to time in the ordinary
course of the Company's business. All of these matters are subject to uncertainties and outcomes that are not predictable with certainty. The
Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains
insurance coverage for many claims and litigation alleged. Management does not believe that after final disposition any of these matters is likely to
have a material adverse impact on the Company's financial condition, results of operations and cash flows.
Federal Securities Class Actions — As previously disclosed, on March 9, 2010, the Company and certain of its present and former officers and
directors entered into a Settlement Agreement, subject to final approval of the court, to settle a consolidated class action case originally filed on
October 3, 2008 in the United States District Court for the District of Minnesota captioned In re MoneyGram International, Inc. Securities
Litigation. The settlement provides for a cash payment of $80.0 million, all but $20.0 million of which would be paid by the Company's insurance
carriers. At a hearing on June 18, 2010, the Court issued a final order and judgment approving the settlement. The settlement became effective on
July 26, 2010, when the time to appeal the Court's final order and judgment expired without any appeal having been filed. The Company paid
$20.0 million into an escrow account in March 2010 and the insurance carrier paid $60.0 million in April 2010, resulting in full settlement of the
Company's liability in this matter.
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Minnesota Stockholder Derivative Claims — Certain of the Company's present and former officers and directors were defendants in a consolidated
stockholder derivative action in the United States District Court for the District of Minnesota captioned In re MoneyGram International, Inc.
Derivative Litigation. The Consolidated Complaint in this action, which was filed on November 18, 2009 and arose out of the same matters at issue
in the securities class action, alleged claims on behalf of the Company for, among other things, breach of fiduciary duties, unjust enrichment, abuse
of control, and gross mismanagement. On February 24, 2010, the parties entered into a non-binding Memorandum of Understanding pursuant to
which they agreed, subject to final approval of the parties and the court, to settle this action. On March 31, 2010, the parties entered into a
Stipulation of Settlement agreeing to settle the case on terms largely consistent with the Memorandum of Understanding. On April 1, 2010, the
Court issued an Order that preliminarily approved the settlement, providing for notice to stockholders and scheduled a hearing on the settlement for
June 18, 2010. The Stipulation of Settlement provides for changes to the Company's business, corporate governance and internal controls, some of
which have already been implemented in whole or in part. The Company also agreed to pay attorney fees and expenses to the plaintiff's counsel in
the amount of $1.3 million, with $1.0 million to be paid by the Company's insurance carriers. On June 21, 2010, the Court denied an objection to the
settlement filed by a MoneyGram shareholder, Russell L. Berney, and issued a final order and judgment approving the settlement. On July 20, 2010,
Mr. Berney filed a notice of appeal of the final order and judgment in the United States Court of Appeals for the Eighth Circuit. On October 5, 2010,
the Company entered into a Settlement Agreement to settle the claims brought individually by Mr. Berney in this proceeding and the California
Action discussed below.
ERISA Class Action — On April 22, 2008, Delilah Morrison, on behalf of herself and all other MoneyGram 401(k) Plan participants, brought an
action in the United States District Court for the District of Minnesota. The complaint alleged claims under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including claims that the defendants breached fiduciary duties by failing to manage the plan's
investment in Company stock, and by continuing to offer Company stock as an investment option when the stock was no longer a prudent
investment. The complaint also alleged that defendants failed to provide complete and accurate information regarding Company stock sufficient to
advise plan participants of the risks involved with investing in Company stock and breached fiduciary duties by failing to avoid conflicts of interests
and to properly monitor the performance of plan fiduciaries and fiduciary appointees. Finally, the complaint alleged that to the extent that the
Company is not a fiduciary, it was liable for knowingly participating in the fiduciary breaches as alleged. On August 7, 2008, plaintiff amended the
complaint to add an additional plaintiff, name additional defendants and additional allegations. For relief, the complaint sought damages based on
what the most profitable alternatives to Company stock would have yielded, unspecified equitable relief, costs and attorneys' fees. On March 25,
2009, the Court granted in part and denied in part defendants' motion to dismiss. On April 30, 2010, plaintiffs filed a motion for class certification,
which defendants opposed in a brief filed May 28, 2010. On June 8, 2010, defendants filed a motion for partial summary judgment. Both motions
were scheduled for hearing before the Court on October 22, 2010. On October 13, 2010, the Company entered into a Settlement Agreement which
provides for a cash payment of $4.5 million, all but approximately $0.7 million of which was paid by the Company's insurance carrier. The Court
issued a final judgment and order approving the Settlement Agreement in October 2010.
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California Action — On January 22, 2008, Russell L. Berney filed a complaint in Los Angeles Superior Court against the Company and its officers
and directors, Thomas H. Lee Partners, L.P., and PropertyBridge, Inc. and two of its officers, alleging false and negligent misrepresentation,
violations of California securities laws and unfair business practices with regard to disclosure of the Company's investments. The complaint also
alleged derivative claims against the Company's Board of Directors relating to the Board's oversight of disclosure of the Company's investments and
with regard to the Company's negotiations with Thomas H. Lee Partners, L.P. and Euronet Worldwide, Inc. The complaint sought monetary
damages, disgorgement, restitution or rescission of stock purchases, rescission of agreements with third parties, constructive trust and declaratory
and injunctive relief, as well as attorneys' fees and costs. In July 2008, an amended complaint was filed asserting an additional claim for declaratory
relief. In September 2009, an amended complaint was filed alleging additional facts and naming additional defendants. The Company's previously
disclosed settlement in the Minnesota Stockholder Derivative Litigation and the Minnesota District Court's April 1, 2010 Order preliminarily
approving the settlement in the Minnesota Stockholder Derivative Litigation contain provisions enjoining MoneyGram stockholders from
commencing or continuing to prosecute any litigation involving the claims to be settled in that case. On April 5, 2010, the California court stayed
proceedings in this action pending the settlement hearing in the Minnesota Stockholder Derivative Litigation. The final order and judgment issued in
connection with the Minnesota Stockholder Derivative Litigation on June 21, 2010 enjoined Mr. Berney from prosecuting the derivative claims
alleged in the California Action that were settled in the Minnesota Stockholder Action. On October 5, 2010, the Company entered into a Settlement
Agreement to settle the claims brought individually by Mr. Berney against the Company and the defendants. The Court issued a final judgment and
order approving the Settlement Agreement in October 2010.
Patent Action — On September 25, 2009, the United States District Court for the Western District of Texas, Austin returned a jury verdict in a patent
suit brought against the Company by Western Union on May 11, 2007, styled Western Union v. MoneyGram Payment Systems, Inc., alleging patent
infringement and seeking damages and an injunction. The District Court awarded $16.5 million to Western Union. MoneyGram appealed the
verdict, and on December 7, 2010 the Court of Appeals for the Federal Circuit ruled in favor of MoneyGram, reversing the District Court's ruling on
the grounds of obviousness of the three underlying patents that were the subject of the appeal. The District Court proceeding also involved a fourth
patent, as to which no appeal was sought. The liability on that particular patent is expected to be approximately $150,000 subject to a review by the
District Court. Western Union filed a petition for a re-hearing before the same panel of appellate judges or the entire appellate court "en banc",
which petition was denied by the Appellate Court on February 11, 2011.
Other Matters — Moneygram has been served with subpoenas to produce documents and testify before the Grand Jury in the Middle District of
Pennsylvania. The subpoenas seek information related to MoneyGram's U.S. and Canadian agents, as well as certain transactions involving such
agents, fraud complaint data, and MoneyGram's consumer anti-fraud program during the period from 2004 to 2009. In addition, FinCEN has
requested information concerning MoneyGram's reporting of fraudulent transactions during this period. MoneyGram has provided the information
requested pursuant to the subpoenas and continues to provide documents relating to its agents and the investigation. In November 2010, MoneyGram
met with the Assistant U.S. Attorney for the Middle District of Pennsylvania ("AUSA") and representatives of FinCEN to discuss the investigation.
MoneyGram is in the process of providing additional information and scheduling a follow up meeting with the AUSA and FinCEN. No claims have
been made against MoneyGram at this time.
Moneygram has also received Civil Investigative Demands from a working group of nine state attorneys general who have initiated an investigation
into whether the Company has taken adequate steps to prevent consumer fraud. The Civil Investigative Demands seek information and documents
relating to the Company's procedures to prevent fraudulent transfers and consumer complaint information. MoneyGram continues to cooperate fully
with the states in this matter. No claims have been made against MoneyGram at this time.
Due to the early stages of these other matters, we are unable to predict the outcome or the possible loss, or range of loss, if any, associated with these
matters.
27
Table of Contents
Item 4.
[RESERVED]
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange under the symbol MGI. No dividends on our common stock were declared by our
Board of Directors in 2010 or 2009. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Mezzanine
Equity and Stockholders' Deficit" and Note 12 — Stockholders' Deficit of the Notes to Consolidated Financial Statements. As of March 7, 2011,
there were 13,339 stockholders of record of our common stock.
The high and low sales prices for our common stock for fiscal 2010 and 2009 were as follows:
Fiscal Quarter
First
Second
Third
Fourth
2010
2009
High
Low
High
Low
$
$
$
$
3.91
4.01
2.90
2.94
$
$
$
$
2.53
2.34
1.99
2.25
$
$
$
$
1.55
1.78
3.29
3.25
$
$
$
$
1.00
1.08
1.83
2.19
The Board of Directors has authorized the repurchase of a total of 12,000,000 shares, as announced publicly in our press releases issued on
November 18, 2004, August 18, 2005 and May 9, 2007. The repurchase authorization is effective until such time as the Company has repurchased
12,000,000 common shares. Shares of 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, 2010, 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. The Company may consider repurchasing shares from time-to-time, subject to
limitations in our debt agreements.
The terms of our debt agreements place significant limitations on the amount of restricted payments we may make, including dividends on our
common stock. With certain exceptions, we may only make restricted payments in an aggregate amount not to exceed $25.0 million, subject to an
incremental build-up based on our consolidated net income in future periods. As a result, our ability to declare or pay dividends or distributions to
the stockholders of the Company's common stock is materially limited at this time. No dividends were paid on our common stock in 2010 and 2009.
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Table of Contents
STOCKHOLDER RETURN PERFORMANCE
The following graph compares the cumulative total return from December 31, 2005 to December 31, 2010 for our common stock, our peer group
index of payment services companies and the S&P 500 Index. The peer group index of payment services companies consists of: Euronet Worldwide
Inc., Fidelity National Information Services, Inc., Fiserv, Inc., Global Payments Inc., MasterCard, Inc., Online Resources Corporation, Total System
Services, Inc., Visa, Inc. and The Western Union Company (the "Peer Group Index"). We changed our peer group in 2009 to delete CSG Systems
International, Inc., DST Systems, Inc. and Jack Henry & Associates, Inc. and to add MasterCard, Inc. and Visa, Inc. We believe the new peer group
represents a more relevant group of companies in the global remittance market in which we participate. The graph assumes the investment of $100 in
each of our common stock, our Peer Group Index and the S&P 500 Index on December 31, 2005, 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
* $100 Invested on 12/31/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
12/2005
12/2006
12/2007
12/2008
12/2009
12/2010
MONEYGRAM INTERNATIONAL, INC
S&P 500 INDEX
PEER GROUP INDEX
100
100
100
29
120.90
115.80
117.05
59.81
122.16
145.76
3.97
76.96
91.74
11.21
97.33
145.21
10.55
111.99
132.64
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,
(Dollars and shares in thousands, except per share data)
Operating Results
Revenue
Global Funds Transfer segment
Financial Paper Products segment
Other
Total revenue
Total operating expenses
Operating income
Total other expense, net (1)
Income (loss) from continuing operations before income taxes (2)
Income tax expense (benefit)
Income (loss) from continuing operations
(Loss) earnings per common share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Financial Position
Excess (shortfall) of assets over payment service obligations (3)
Substantially restricted assets (3)
Total assets
Payment service obligations
Long-term debt
Mezzanine equity (4)
Stockholders' (deficit) equity
Other Selected Data
Capital expenditures
Depreciation and amortization
Cash dividends declared per share
Average investable balances (5)
Net investment margin (6)
Approximate number of countries and territories served
Number of money order locations (7)
Number of money transfer locations (7)
2010
2009
2008
2007
2006
$
$ 1,053,281
109,515
3,857
1,166,653
1,008,255
158,398
100,018
$ 1,025,449
122,783
13,479
1,161,711
1,086,313
75,398
97,720
$ 1,015,929
238,193
16,459
1,270,581
1,151,760
118,821
456,012
861,403
470,127
18,463
1,349,993
1,139,749
210,244
1,203,512
$
672,366
472,239
18,671
1,163,276
974,858
188,418
11,646
$
$
$
58,380
14,579
43,801
(22,322)
(20,416)
(337,191)
(75,806)
(993,268)
78,481
$
(1,906) $ (261,385) $ (1,071,749) $
(1.10) $
(1.10)
(1.48) $
(1.48)
(4.19) $
(4.19)
(12.94) $
(12.94)
83,186
83,186
82,499
82,499
82,456
82,456
82,818
82,818
176,772
52,719
124,053
1.47
1.45
84,294
85,818
$
$
230,229
4,414,965
5,115,736
4,184,736
639,946
999,353
(942,482)
$
313,335
5,156,789
5,929,663
4,843,454
796,791
864,328
(883,013)
$
391,031
5,829,030
6,642,296
5,437,999
978,881
742,212
(781,736)
(551,812) $
7,210,658
7,935,011
7,762,470
345,000
—
358,924
8,568,713
9,276,137
8,209,789
150,000
—
669,063
(488,517)
43,025
$
48,074
$
$
—
$ 3,684,317
38,258
$
57,091
$
$
—
$ 4,246,507
40,357
$
56,672
$
$
—
$ 4,866,339
71,142
$
51,979
$
$
0.20
$ 6,346,442
81,033
$
38,978
$
$
0.17
$ 6,333,115
0.56%
190
46,000
227,000
0.75%
190
49,000
190,000
1.23%
190
59,000
176,000
2.28%
180
59,000
143,000
2.31%
170
55,000
110,000
(1)
Total other expense, net for 2008 includes net securities losses of $340.7 million from the realignment of the investment portfolio in the first
quarter of 2008, other-than-temporary impairments and declines in the value of our trading investments. Total other expense, net for 2007
includes net losses of $1.2 billion related to other-than-temporary impairments in the Company's investment portfolio.
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Table of Contents
(2)
Income from continuing operations before income taxes for 2010 includes a $16.4 million gain related to the reversal of a patent lawsuit;
$1.8 million of legal accruals related primarily to shareholder litigation; $1.8 million of asset impairments and $5.9 million of expense related
to our global transformation initiative. Loss from continuing operations before income taxes for 2009 includes $54.8 million of legal reserves
relating to securities litigation, stockholder derivative claims, a patent lawsuit and a settlement with the FTC; $18.3 million of goodwill and
asset impairments and a $14.3 million net curtailment gain on our benefit plans. Loss from continuing operations before income taxes for 2008
includes a $29.7 million net loss on the termination of swaps, a $26.5 million gain from put options on our trading investments, a $16.0 million
valuation loss from changes in the fair value of embedded derivatives on our Series B Stock and a goodwill impairment of $8.8 million related
to a discontinued business. Loss from continuing operations before income taxes for 2007 includes a goodwill impairment of $6.4 million
related to a discontinued business.
(3) Assets in excess of payment service obligations are substantially restricted assets less payment service obligations as calculated in Note 2 —
Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements. Substantially restricted assets are composed of
cash and cash equivalents, receivables and investments.
(4) Mezzanine Equity relates to our Series B Stock. See Note 11 — Mezzanine Equity of the Notes to Consolidated Financial Statements for the
terms of the Series B Stock.
(5)
Investable balances are composed of cash and cash equivalents and all classes of investments.
(6) Net investment margin is determined as net investment revenue (investment revenue less investment commissions) divided by daily average
(7)
investable balances.
Includes 27,000, 28,000, 30,000, 18,000 and 16,000 locations in 2010, 2009, 2008, 2007 and 2006, respectively, that offer both money order
and money transfer services.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes. This discussion contains
forward-looking statements that involve risks and uncertainties. MoneyGram's actual results could differ materially from those anticipated due to
various factors discussed below under "Cautionary Statements Regarding Forward-Looking Statements" and under the caption "Risk Factors" in
Part 1, Item 1A of this Annual Report on Form 10-K.
Basis of Presentation
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 subsidiaries. See Note 2 — Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for further
information regarding consolidation. References to "MoneyGram," the "Company," "we," "us" and "our" are to MoneyGram International, Inc. and
its subsidiaries and consolidated entities. Our Consolidated Financial Statements are prepared in conformity with accounting principles generally
accepted in the United States of America ("GAAP").
During the fourth quarter of 2010, the Company revised the presentation of its Consolidated Statements of Income (Loss) as a result of an internal
review to enhance our external reporting and management reporting. As a result of this review, the Company will no longer present net revenue,
previously measured as total revenue less total commissions expense, as this measure was not found to be a meaningful metric internally or to our
external users. The Company will continue to separately disclose "Commissions expense." In addition, the Company has created an operating
income measure consistent with management reporting and to more clearly delineate operating and non-operating items. As a result, certain items
are now presented below the operating income line based on management's assessment of their nature as non-operating, including securities (gains)
losses, interest expense and (gains) losses related to cash flow hedges. The securities (gains) losses and $2.4 million of gains and $2.8 million of
losses related to historical cash flow hedges for the year ended December 31, 2009 and 2008, respectively, were previously presented in revenue. All
prior periods have been reclassified to conform to this new presentation.
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As further described in Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements, the Company has
corrected the presentation of certain investments in time deposits and certificates of deposit in the 2009 and 2008 consolidated financial statements,
reflecting the fact that these investments have original maturities in excess of three months but no greater than thirteen months.
Fee and other revenue — Fee and other revenue consists of transaction fees, foreign exchange revenue and miscellaneous revenue. Transaction fees
are earned on money transfer, money order, bill payment and official check transactions. Money transfer transaction fees vary based on the principal
amount of the transaction, the originating location and the receiving location. Money order, bill payment and official check transaction fees are fixed
per transaction. Foreign exchange revenue is derived from the management of currency exchange spreads on money transfer transactions involving
different "send" and "receive" currencies. 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 — Investment revenue consists of interest and dividends generated through the investment of cash balances received primarily
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 principal amount of those payment instruments and the
length of time that passes until the instruments are presented for payment.
Fee and other commissions expense — We incur fee commissions primarily on our money transfer products. In a money transfer transaction, both
the agent initiating the transaction and the agent disbursing the funds receive a commission that is generally based on a percentage of the fee charged
to the consumer. We generally do not pay commissions to agents on the sale of money orders. In certain limited circumstances for large agents, we
may pay a fixed commission amount based on money order volumes transacted by that agent. Other commissions expense includes the amortization
of capitalized agent signing bonus payments.
Investment commissions expense — Investment commissions consist of amounts paid to financial institution customers based on short-term interest
rate indices times the average outstanding cash balances of official checks sold by that financial institution. Through the second quarter of 2008,
investment commissions expense included costs associated with interest rate swaps. We historically used interest rate swaps to convert a portion of
our variable rate commission payments to fixed rate payments, which hedged the interest rate risk associated with the variable rate commissions paid
to our financial institution customers. In connection with the interest rate swaps, we paid a fixed amount to a counterparty and received a variable
rate payment in return. To the extent that the fixed rate exceeded the variable rate, we incurred an expense related to the swap; if the variable rate
exceeded the fixed rate, we recognized income related to the swap. In connection with the restructuring of the official check business in 2008, we
terminated certain financial institution customer relationships. As a result, we terminated the swaps related to commission payments in June 2008.
See further discussion of the termination of these swaps in Note 6 — Derivative Financial Instruments of the Notes to Consolidated Financial
Statements.
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Table of Contents
Table 1 — Results of Operations
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
2010
2009
2008
(Amounts in thousands)
Revenue
Fee and other revenue
Investment revenue
Total revenue
Expenses
Fee and other commissions expense
Investment commissions expense
Total commissions expense
Compensation and benefits
Transaction and operations support
Occupancy, equipment and supplies
Depreciation and amortization
Total operating expenses
Operating income
Other expense (income)
Net securities (gains) losses
Interest expense
Other
Total other expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
NM = Not meaningful
2010
vs.
2009
($)
2009
vs.
2008
($)
2010
vs.
2009
(%)
2009
vs.
2008
(%)
$
1,145,312 $
21,341
1,166,653
1,128,492 $
33,219
1,161,711
1,108,451 $
162,130
1,270,581
16,820 $
(11,878)
4,942
20,041
(128,911)
(108,870)
500,759
737
501,496
226,422
185,782
46,481
48,074
1,008,255
158,398
497,105
1,362
498,467
199,053
284,277
47,425
57,091
1,086,313
75,398
502,317
102,292
604,609
224,580
219,905
45,994
56,672
1,151,760
118,821
3,654
(625)
3,029
27,369
(98,495)
(944)
(9,017)
(78,058)
83,000
(2,115)
102,133
—
100,018
58,380
14,579
43,801 $
(7,790)
107,911
(2,401)
97,720
(22,322)
(20,416)
(1,906) $
340,688
95,020
20,304
456,012
(337,191)
(75,806)
(261,385) $
5,675
(5,778)
2,401
2,298
80,702
34,995
45,707 $
$
(5,212)
(100,930)
(106,142)
(25,527)
64,372
1,431
419
(65,447)
(43,423)
(348,478)
12,891
(22,705)
(358,292)
314,869
55,390
259,479
1%
(36)%
0%
1%
(46)%
1%
14%
(35)%
(2)%
(16)%
(7)%
110%
NM
(5)%
NM
2%
NM
NM
NM
2%
(80)%
(9)%
(1)%
(99)%
(18)%
(11)%
29%
3%
1%
(6)%
(37)%
NM
14%
NM
(79)%
NM
NM
NM
Following is a summary of our operating results in 2010 as compared to 2009:
• Total fee and other revenue increased $16.8 million, or 1 percent, in 2010 due to an increase in money transfer fee and other revenue, partially
offset by lower revenue from bill payment products and the Financial Paper Products segment, as well as the impact of certain businesses and
products that were discontinued in 2009. Volume growth of 9 percent drove the increase in money transfer fee and other revenue, partially
offset by lower average money transfer fees per transaction due to the $50 price band introduced in the United States earlier in 2010 and the
lower euro exchange rate. See further discussion under Table 2 — Fee and Other Revenue and Commissions Expense.
• Investment revenue decreased $11.9 million, or 36 percent, in 2010 due to lower yields earned on our investment portfolio and a decline in
average investment balances.
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Table of Contents
• Total commissions expense increased $3.0 million, or 1 percent, in 2010 due to money transfer volume growth, partially offset by a decline in
the euro exchange rate, lower average commission rates and lower commissions expense related to the Financial Paper Products segment and
bill payment products.
• Total operating expenses decreased $78.1 million, or 7 percent, in 2010. Expenses in 2009 included $54.8 million of legal reserves relating to
securities litigation, stockholder derivative claims, a patent lawsuit and a settlement with the Federal Trade Commission; goodwill and asset
impairments of $18.3 million; $15.0 million of incremental provision for loss, primarily from the closure of an international agent; a
$14.3 million net curtailment gain on benefit plans; $6.4 million of costs related to the implementation of the European Union Payment
Services Directive; and $4.4 million of executive severance and related costs. Expenses in 2010 included a $16.4 million reversal of a patent
lawsuit accrual, $5.9 million of costs associated with our global transformation initiative and $1.8 million of asset impairments. In 2010,
employee stock-based compensation increased $11.2 million, marketing costs increased $6.9 million and incentive compensation increased
$1.6 million, while depreciation and amortization expense decreased $9.0 million.
• Net securities gains of $2.1 million in 2010 reflect a $2.4 million net gain from the call of a trading investment, partially offset by $0.3 million
of other-than-temporary impairments on other asset-backed securities. This is compared to net securities gains of $7.8 million in 2009, which
reflected a $7.6 million net gain from the call of two trading investments and valuation gains of $4.3 million on the put option related to the
remaining trading investment, partially offset by $4.1 million of other-than-temporary impairments on other asset-backed securities.
• Interest expense decreased 5 percent to $102.1 million in 2010 from $107.9 million in 2009, reflecting lower outstanding debt balances due to
repayments of debt, partially offset by the $8.6 million pro-rata write-off of deferred financing costs and debt discount related to the
$165.0 million of debt prepayments during 2010.
• We had income tax expense of $14.6 million on pre-tax income of $58.4 million in 2010, reflecting a release of $11.9 million of valuation
allowances on U.S. deferred tax assets primarily due to reversals and payments of 2009 legal reserves.
• The decline in the euro exchange rate decreased total revenue by $18.1 million and total expenses by $15.1 million, for a net decrease to our
income before income taxes of $3.0 million.
Following is a summary of significant actions taken by the Company and economic conditions during the year that impacted our operating results in
2010:
Global Economic Conditions — Throughout 2010, worldwide economic conditions continued to remain weak, as evidenced by high unemployment
rates, government assistance to citizens and businesses on a global basis, continued declines in asset values, restricted lending activity and low
consumer confidence, among other factors. Historically, the money remittance industry has generally been resilient during times of economic
softness as money transfers are deemed essential to many, with the funds used by the receiving party for food, housing and other basic needs.
However, given the global reach and extent of the current economic recession, the growth of money transfer volumes and the average principal of
money transfers continued to fluctuate by corridor and country in 2010. In addition, bill payment products available in the United States are not as
resilient as money transfers given the more discretionary nature of some items paid for by consumers using these products. Accordingly, the volume
of bill payment transactions continued to be adversely impacted in 2010, particularly in the auto, housing and credit card sectors. While there have
been some indicators of moderation and improvement throughout 2010, particularly in the United States, we continue to have limited visibility into
the future and believe growth rates will continue to be hampered in 2011.
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Table of Contents
Interest Rate Environment — Interest rates remained low through 2010. Interest rates affect our business in several ways, but primarily through
investment revenue, investment commission expense and interest expense. First, the majority of our investment portfolio (including cash and cash
equivalents and all classes of investments) is floating rate, causing investment revenue to decrease when rates decline and increase when rates rise.
Second, the commissions we pay to our financial institution customers are variable rate, primarily based on the effective federal funds rate.
Accordingly, our investment commissions expense decreases when rates decline and increases when rates rise. As discussed in Table 3 — Net
Investment Revenue Analysis, our net investment margin is based on the spread between the yield earned on our investment portfolio and the
commission rates paid to our financial institution customers. In the current environment, the federal funds rate is so low that most of our financial
institution customers are in a "negative" commission position, in that we do not owe any commissions to our customers. While the vast majority of
our contracts require the financial institution customers to pay us for the negative commission amount, we have opted at this time to impose certain
per-item and other fees rather than require payment. We continue to monitor the negative commissions and are reviewing our current fee structure
for possible changes. Finally, our senior facility is floating rate debt, and accordingly, our interest expense will decrease in a declining rate
environment and increase when rates rise.
Money Transfer Pricing — In the first half of 2010, we introduced a $50 price band that allows consumers to send $50 of principal for a $5 fee at
most locations, or a $4.75 fee at a Walmart location. In the fourth quarter of 2010, we increased advertising for our domestic business and, in
particular, promoted the new $50 price band to every MoneyGram location across the United States. As discussed further in Table 7 — Global
Funds Transfer Segment, the $50 price band impacted revenue growth during the year. As we expect the $50 price band to be a long-term change in
our pricing, we anticipate revenue growth will continue to be impacted.
Official Check Restructuring and Repricing — In the first quarter of 2008, we initiated the restructuring of our official check business by changing
the commission structure and exiting certain large customer relationships, particularly our top 10 financial institution customers. As of December 31,
2010, approximately $2.1 billion of balances for the top 10 customers have run-off, with the remaining balances expected to run-off as old issuances
are presented to us for payment. The run-off of these balances reduced our investment revenue in 2010. In 2008, we reduced the commission rate
paid to the majority of our official check financial institution customers to reflect the impact of the realigned investment portfolio on the profitability
of this product. The repricing results in an average contractual payout rate of the effective federal funds rate less approximately 85 basis points, and
reduced our investment commissions expense. See Table 3 — Net Investment Revenue Analysis for further discussion on the impact of our official
check restructuring and repricing initiative.
Money Order Repricing and Review — In the fourth quarter of 2008, we initiated the first phase of a repricing initiative for our money order product
sold through retail agent locations. This initiative increases the per-item fee we receive for our money orders and reflects the impact of the realigned
investment portfolio on the profitability of this product. A broader second phase of repricing was initiated in the second quarter of 2009. In addition,
we continue to review our credit exposure to our agents and may terminate or otherwise revise our relationship with certain agents. As anticipated,
money order volumes in 2009 and 2010 declined from these initiatives. While we do not expect any further decline in money order volume due to
our repricing initiatives, we do anticipate further market declines as consumers migrate to other payment products and as consumer prices increase
due to agents passing along fee increases and changes in the general economic environment.
Global Transformation Initiative — In the second quarter of 2010, we announced that we were implementing a global transformation initiative to
realign our management and operations with the changing global market and streamline operations to promote a more efficient and scalable cost
structure. The initiative will include organizational changes, relocation of certain operations and investment in technology, among other items. Based
upon preliminary estimates, the Company anticipates incurring $45 million to $50 million of cash outlays in future phases to generate annual pre-tax
cost savings of $25 million to $30 million when fully implemented in 2012. In connection with the first phase of this initiative, we recorded
$5.9 million of expenses during 2010, with $3.0 million included in the "Compensation and benefits" line, $1.3 million included in the "Transactions
and operations support" line and $1.6 million included in the "Occupancy, equipment and supplies" line in our Consolidated Statements of Income
(Loss).
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Table 2 — Fee and Other Revenue and Commissions Expense
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Fee and other revenue
Fee and other commissions expense
Fee and other commissions expense as a % of fee and other revenue
2010
2009
2008
2010
vs.
2009
vs.
2009
2008
$ 1,145,312
500,759
$ 1,128,492
497,105
$ 1,108,451
502,317
1% 2%
1% (1)%
43.7%
44.1%
45.3%
In 2010, fee and other revenue increased $16.8 million, or 1 percent, compared to 2009. Fee and other revenue in 2009 included $8.3 million of
incremental revenue from discontinued businesses and products, as well as $1.3 million of early agent termination fees. Money transfer revenue
drove a net increase of $35.8 million, partially offset by an $8.1 million decrease in bill payment fee and other revenue and a $5.0 million decrease
in money order fee and other revenue. Money transfer transaction volume growth of 9 percent drove $77.4 million of incremental revenue, while
changes in corridor mix increased revenue $2.4 million. Fee and other revenue decreased $18.1 million from the lower euro exchange rate and
$24.6 million from lower average money transfer fees due primarily to the introduction of the $50 price band in the United States. Foreign exchange
revenue of $113.2 million in 2010 increased $4.3 million from 2009. Bill payment revenue decreased from lower average fees per transaction due to
industry mix and lower volumes. See Table 7 — Global Funds Transfer Segment and Table 8 — Financial Paper Products Segment for further
information regarding fee and other revenue.
In 2009, fee and other revenue increased $20.0 million, or 2 percent, compared to 2008, driven by money transfer transaction volume growth,
partially offset by lower average money transfer fees, the decline in the euro exchange rate and a $6.6 million reduction in bill payment revenue.
Money transfer transaction volume increased 6 percent, generating incremental revenue of $54.5 million. Average money transfer fees declined from
lower average principal per transaction and corridor mix, reducing revenue by $15.8 million. The decline in the euro exchange rate reduced revenue
by $16.2 million in 2009. In addition, money order and official check fee and other revenue increased $9.3 million and $5.6 million, respectively,
primarily due to our repricing initiatives. Also, 2009 fee and other revenue declined $5.9 million from 2008 due to discontinued businesses and
products. Fee and other revenue for 2009 includes $108.9 million of foreign exchange revenue, a decrease of $1.8 million from 2008.
In 2010, fee and other commissions expense increased $3.7 million, or 1 percent, from 2009 as money transfer transaction volume growth drove
incremental expense of $23.7 million, partially offset by a $7.4 million benefit from the lower euro exchange rate, a $5.4 million decrease in expense
as certain historical signing bonuses were fully amortized or written off in the prior year and a $1.2 million benefit from lower average money
transfer commission rates. Money order commissions expense decreased $1.3 million due to volume, bill payment fee commissions decreased
$2.6 million from lower volumes and average fees due to industry mix and the run-off of products and businesses discontinued in 2009 benefited
commissions expense by $1.1 million.
In 2009, fee and other commissions expense decreased $5.2 million, or 1 percent, from 2008 due to lower average money transfer commission rates,
the decline in the euro exchange rate, lower bill payment volumes and lower signing bonus amortization, partially offset by money transfer volume
growth. Incremental fee commissions of $16.1 million resulting from money transfer transaction volume growth was significantly offset by a
decrease of $7.7 million from lower average commission rates and $7.6 million from the decline in the euro exchange rate. Bill payment volume
declines reduced commissions expense by $3.8 million and signing bonus amortization decreased by $2.0 million as certain historical signing
bonuses were fully amortized in the third quarter of 2009.
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Table 3 — Net Investment Revenue Analysis
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Investment revenue
Investment commissions expense
Net investment revenue
Average balances (1):
Cash equivalents and investments
Payment service obligations
Average yields earned and rates paid (2):
Investment yield
Investment commission rate
Net investment margin (2)
2010
2009
2008
2010
vs.
2009
2009
vs.
2008
$
$
$
21,341
(737)
20,604
3,684,317
2,659,171
$
$
$
33,219
(1,362)
31,857
4,246,507
3,048,100
$
$
$
162,130
(102,292)
59,838
4,866,339
3,923,989
(36)%
46%
(35)%
(13)%
(13)%
(80)%
99%
(47)%
(13)%
(22)%
0.58%
0.03%
0.56%
0.78%
0.04%
0.75%
3.33%
2.61%
1.23%
(1) The average balances in the table reflect financial institution customers only.
(2) Average yields/rates are calculated by dividing the applicable amount of "Net investment revenue" 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 2010 decreased $11.9 million, or 36 percent, compared to 2009. Lower yields earned on our investment portfolio drove
$7.5 million of the decrease, while $4.4 million of the decrease relates to lower average investment balances from the run-off of certain official
check financial institution customers terminated in prior periods.
Investment revenue in 2009 decreased $128.9 million, or 80 percent, compared to 2008 due to lower yields earned on our investment portfolio and a
decline in average investment balances from the termination of certain official check financial institution customers. Lower yields earned on our
investment balances resulted in a decrease of $110.0 million from 2008, while the decline in average investment balances resulted in a decrease of
$20.7 million. Investment revenue in 2008 also included a $10.0 million recovery of a security that was fully impaired in 2007.
Investment commissions expense in 2010 decreased $0.6 million, or 46 percent, compared to 2009 from lower rates implemented in the second
phase of our repricing initiative in the second quarter of 2009 and lower average investment balances. Due to the continued low federal funds rate,
most of our financial institution customers continue to be in a "negative" commission position as of December 31, 2010, meaning we do not owe any
commissions to our customers. While the majority of our contracts require that the financial institution customers pay us for the negative
commission amounts, we have opted at this time to impose certain per-item and other fees rather than require payment of the negative commission
amounts. We continue to monitor the negative commissions and assess our current fee structure for possible further changes.
Investment commission expense in 2009 decreased $100.9 million, or 99 percent, compared to 2008. The decline in the federal funds rate and our
repricing initiatives resulted in a decrease of $49.7 million, while lower average investment balances resulted in a decrease of $23.4 million. In
addition, investment commissions expense for 2008 included a $27.7 million net loss from the termination of interest rate swaps as a result of the
termination of certain official check customers in 2008. See Note 6 — Derivative Financial Instruments of the Notes to the Consolidated Financial
Statements for further information regarding the interest rate swaps.
As a result of the factors discussed above, the net investment margin decreased 0.19 percentage points in 2010 and 0.48 percentage points in 2009.
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Expenses
The following discussion relates to operating expenses, excluding commissions expense, as presented in Table 1 — Results of Operations.
Compensation and benefits — Compensation and benefits includes salaries and benefits, management incentive programs and other employee
related costs. Compensation and benefits increased $27.4 million, or 14 percent, in 2010 compared to 2009. Included in 2009 was a $14.3 million net
curtailment gain on benefit plans, partially offset by $3.9 million of executive severance costs. The remaining increase in 2010 primarily relates to a
$11.2 million increase in stock-based compensation from grants made in 2010 and the second half of 2009 in connection with executive hires,
$3.0 million of severance associated with restructuring initiatives and a $1.6 million increase in incentive compensation from higher participation
levels, which increased the compensation base as compared to the prior year, partially offset by lower sales incentives accruals. As reflected in each
of the amounts discussed above, the decrease in the euro exchange rate decreased compensation and benefits expense by $2.8 million in 2010.
Compensation and benefits decreased $25.5 million, or 11 percent, in 2009 compared to 2008 primarily from a $14.3 million net curtailment gain on
benefit plans, a $12.3 million decrease in executive severance and related costs, a $7.1 million decrease in incentive compensation from accruing
annual incentives at a lower tier and a $2.0 million decrease from the suspension of the discretionary profit sharing plan. Stock-based compensation
increased $10.5 million due to option grants awarded in 2009, partially offset by lower expense from historical grants that vested in the first quarter
of 2009 and executive forfeitures. As reflected in each of the amounts discussed above, the decrease in the euro exchange rate decreased
compensation and benefits by $2.1 million in 2009.
Transaction and operations support — Transaction and operations support expense includes marketing, professional fees and other outside services,
telecommunications and agent forms related to our products. Transaction and operations support costs decreased $98.5 million, or 35 percent, in
2010 compared to 2009. Expenses in 2009 included $54.8 million of legal reserves relating to securities litigation, a patent lawsuit and a settlement
with the Federal Trade Commission, $18.3 million of goodwill and asset impairments, an incremental provision for loss of $15.0 million primarily
related to the closure of an international agent and consultant fees of $6.4 million related to the implementation of the European Union Payment
Services Directive. Expenses in 2010 benefited from a $16.4 million reversal of legal reserves related to a patent lawsuit and a $4.8 million reduction
in expenses related to telecommunications and agent forms and supplies due to cost savings initiatives. Partially offsetting these benefits was
$6.9 million of incremental marketing costs to support transaction and agent growth, asset impairments of $1.8 million, $1.4 million of incremental
licensing fees from international growth and $1.3 million of restructuring and related costs. As reflected in each of the amounts discussed above, the
decline in the euro exchange rate decreased transactions and operations support expense by $3.1 million in 2010. In addition, the impact of foreign
exchange rate movements on our foreign denominated assets and liabilities, or revaluation, generated $2.5 million of incremental expense in 2010.
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Transaction and operations support costs increased $64.4 million, or 29 percent, in 2009 compared to 2008. We recorded legal reserves in 2009 of
$20.3 million for securities litigation and stockholder derivative claims, $18.0 million for a settlement with the Federal Trade Commission and
$16.5 million for a patent lawsuit. Asset impairments totaling $18.3 million were recorded in 2009, reflecting an increase of $9.5 million over 2008.
Impairments in 2009 include a $7.0 million charge related to the decision to sell our airplane, a $5.2 million impairment of goodwill and other assets
from the decision to discontinue certain bill payment products and the sale of a non-core business and a $6.1 million impairment of goodwill and
intangible assets related to our money order product due to continued declines in that business. Professional fees increased by $9.5 million in 2009,
primarily due to litigation fees and the implementation of the European Union Payment Services Directive. Our provision for agent receivables
increased by $9.0 million, primarily from the closure of an international agent during the year. Marketing costs decreased $12.7 million in 2009 from
controlled spending, partially offset by higher costs from agent location growth. In addition, expense in 2008 reflected $9.5 million of costs related
to the 2008 Recapitalization and restructuring of the official check business. As reflected in each of the amounts discussed above, the decrease in the
euro exchange rate decreased transaction and operations support expense by $1.7 million in 2009.
Occupancy, equipment and supplies — Occupancy, equipment and supplies expense includes facilities rent and maintenance costs, software and
equipment maintenance costs, freight and delivery costs and supplies. Expenses in 2010 decreased $0.9 million, or 2 percent, compared to 2009 due
to lower delivery, postage and freight costs from controlled spending and the timing of agent roll-outs, partially offset by $1.6 million of facility
cease-use and related charges associated with restructuring activities. As reflected in the amounts discussed above, the decrease in the euro exchange
rate decreased occupancy, equipment and supplies expense by $0.6 million in 2010.
Occupancy, equipment and supplies increased $1.4 million, or 3 percent, in 2009 compared to 2008. Software maintenance and office rent increased
$2.3 million and $1.5 million, respectively, to support the growth of the business. The timing of the roll out of new agent locations and controlled
spending resulted in a $2.8 million reduction of agent costs. As reflected in each of the amounts discussed above, the decrease in the euro exchange
rate decreased occupancy, equipment and supplies expense by $0.4 million in 2009.
Depreciation and amortization — Depreciation and amortization expense includes depreciation on point of sale equipment, agent signage, computer
hardware and software, capitalized software development costs, office furniture, equipment and leasehold improvements and amortization of
intangible assets. Depreciation and amortization decreased $9.0 million, or 16 percent, in 2010 compared to 2009, primarily from lower depreciation
expense on point of sale equipment, computer hardware and other equipment, signs and amortization of capitalized software. As reflected in the
amounts discussed above, the decrease in the euro exchange rate decreased depreciation and amortization expense by $0.5 million in 2010.
Depreciation and amortization was flat in 2009 compared to 2008 as a $3.2 million increase in depreciation from capital investments in point of sale
equipment, purchased software and other fixed assets to support the growth of the business was mostly offset by a $2.8 million decrease in
amortization of capitalized software, intangible assets and other assets. As reflected in the amounts discussed above, the decrease in the euro
exchange rate decreased depreciation and amortization expense by $0.6 million in 2009.
We implemented a new system in the third quarter of 2010 to increase the flexibility of our back office and improve operating efficiencies. In 2010
and 2009, we capitalized software costs of approximately $8.4 million and $4.3 million, respectively, related to this system. In connection with our
global transformation initiative, we plan to make further investments in our infrastructure to enhance operating efficiencies and support our
continued growth. As a result of these investments, depreciation and amortization expense may increase in the future.
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Other Expense (Income)
Table 4 — Net Securities (Gains) Losses
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Realized gains from available-for-sale investments
Realized losses from available-for-sale investments
Other-than-temporary impairments from available-for-sale investments
Valuation (gains) losses on trading investments and related put options
Realized gains from trading investments and related put options
Net securities (gains) losses
2010
2009
2008
2010
vs.
2009
2009
vs.
2008
$
— $
—
334
—
(2,449)
(34,200) $
— $
290,498
2
70,274
4,069
14,116
(4,304)
—
(7,557)
$ (2,115) $ (7,790) $ 340,688 $
34,200
— $
(290,496)
(2)
(66,205)
(3,735)
(18,420)
4,304
5,108
(7,557)
5,675 $ (348,478)
Net securities gains of $2.1 million in 2010 reflect a $2.4 million realized gain from the call of a trading investment, net of the reversal of the related
put option, partially offset by $0.3 million of other-than-temporary impairments related to other asset-backed securities.
Net securities gains of $7.8 million in 2009 reflect a $7.6 million net realized gain from the call of two trading investments, net of the reversal of the
related put options. Valuation gains of $4.3 million on the put option related to the remaining trading investment were partially offset by
$4.1 million of other-than-temporary impairments related to other asset-backed securities.
Net securities losses of $340.7 million in 2008 reflect $256.3 million of net realized losses from the realignment of our investment portfolio in the
first quarter of 2008, $70.3 million of other-than-temporary impairments related to other asset-backed securities and $40.6 million of unrealized
losses from our trading investments, partially offset by a $26.5 million unrealized gain from put options received in the fourth quarter of 2008
related to the trading investments. The other-than-temporary impairments and unrealized losses were the result of continued deterioration in the
mortgage markets, as well as continued illiquidity and uncertainty in the broader markets in 2008. Our 2008 Recapitalization, which was completed
on March 25, 2008, included funds to cover these losses.
Interest expense — Interest expense decreased to $102.1 million in 2010 from $107.9 million in 2009, reflecting lower outstanding debt balances,
partially offset by $8.6 million of pro rata write-offs of deferred financing costs and debt discount related to the $165.0 million of debt prepayments
in 2010. In 2009, we recorded a $2.7 million pro rata write-off of deferred financing costs and debt discount in connection with the prepayment of
$185.0 million of debt in 2009. Based on our outstanding debt balances and interest rates in effect at December 31, 2010 and the expectation that we
will continue to pay all interest in cash, our interest expense will be approximately $75.0 million in 2011. This amount would be reduced by any
prepayments of debt we may make in 2011.
Interest expense increased to $107.9 million in 2009 from $95.0 million in 2008 due to higher average outstanding debt as a result of the
recapitalization completed in the first quarter of 2008, partially offset by the payment of $186.9 million of debt in 2009. In addition, interest expense
in 2009 includes $2.7 million of expense from the write-off of a pro-rata portion of deferred financing costs and debt discount in connection with the
prepayment of debt in December 2009.
Income taxes — We had income tax expense of $14.6 million on pre-tax income of $58.4 million in 2010, primarily reflecting a release of
$11.9 million of valuation allowances on deferred tax assets related to the U.S. jurisdiction. Reversals and payments of 2009 legal reserves reduced
the tax base on which loss carryovers can be utilized and the corresponding release of valuation allowances.
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We had a tax benefit of $20.4 million in 2009, primarily reflecting a release of $17.6 million of valuation allowances on realized deferred tax assets
related to the U.S. jurisdiction. Our pre-tax net loss of $22.3 million, when adjusted for our estimated book to tax differences, resulted in taxable
income, which allowed us to release some valuation allowances on our tax loss carryovers. The book to tax differences include impairments on
securities and other assets and accruals related to separated employees, litigation and unrealized foreign exchange losses.
In 2008, we had a $75.8 million tax benefit, primarily reflecting the recognition of a $90.5 million benefit in the fourth quarter of 2008 upon the
completion of an evaluation of the technical merits of tax positions with respect to part of the net securities losses in 2008 and 2007. The
$90.5 million benefit relates to the amount of tax carry-back we were able to utilize to recover tax payments made for fiscal 2005 through 2007.
As of December 31, 2010, our net deferred tax liability position of $4.3 million reflects $544.8 million of gross deferred tax assets, $63.3 million of
gross deferred tax liabilities and a $485.8 million valuation allowance. Essentially all of our deferred tax assets relate to the U.S. jurisdiction. In
2007, we determined it was appropriate to establish a valuation allowance for a significant portion of our gross deferred tax assets as we did not
believe that we had sufficient positive evidence to overcome the significant negative evidence of a three year cumulative loss. We continue to
believe that it is appropriate to maintain a valuation allowance for a significant portion of our deferred tax assets due to significant negative
evidence. Changes in facts and circumstances in the future may cause us to record additional tax benefits as further deferred tax valuation
allowances are released and carry-forwards are utilized. We continue to evaluate additional available tax positions related to the net securities losses
in prior years.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") and Adjusted EBITDA
We believe that EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization) and Adjusted
EBITDA (EBITDA adjusted for significant items) provide useful information to investors because they are an indicator of the strength and
performance of ongoing business operations, including our ability to service debt and fund capital expenditures, acquisitions and operations. These
calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the operating performance and
value of companies within our industry. In addition, our debt agreements require compliance with financial measures similar to Adjusted EBITDA.
Finally, EBITDA and Adjusted EBITDA are financial measures used by management in reviewing results of operations, forecasting, assessing cash
flow and capital, allocating resources and establishing employee incentive programs.
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Although we believe the EBITDA and Adjusted EBITDA enhance investors' understanding of our business and performance, these non-GAAP
financial measures should not be considered an exclusive alternative to accompanying GAAP financial measures. The following table is a
reconciliation of these non-GAAP financial measures to the related GAAP financial measures.
Table 5 — EBITDA and Adjusted EBITDA
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Income (loss) before income taxes
Interest expense
Depreciation and amortization
Amortization of agent signing bonuses
EBITDA
Significant items impacting EBITDA:
Net securities (gains) losses
Gain on security previously priced at zero
Severance and related costs
Restructuring and reorganization costs
Asset impairment charges
Stock-based compensation expense
Net curtailment (gain) loss on benefit plans
Legal accruals
Valuation loss on embedded derivatives
Transaction costs related to the 2008 Recapitalization
Debt extinguishment loss
Valuation loss on interest rate swaps
Adjusted EBITDA
2010
2009
2008
$
58,380 $
102,133
48,074
29,247
237,834
(2,115)
—
(346)
5,853
1,829
26,011
—
(14,572)
—
—
—
(22,322) $
107,911
57,091
35,280
177,960
(7,790)
—
4,353
—
18,329
14,152
(14,339)
54,750
—
—
—
$
254,494 $
247,415 $
(337,191)
95,020
56,672
37,261
(148,238)
340,688
(10,456)
16,653
—
8,809
3,691
1,000
—
16,030
7,733
1,499
27,735
265,144
For 2010, EBITDA increased $59.9 million, or 34 percent, to $237.8 million from $178.0 million in 2009, reflecting lower legal accruals and asset
impairment charges and the benefits of cost savings initiatives, partially offset by higher stock-based compensation and a net curtailment gain
recorded in 2009. Adjusted EBITDA for 2010 increased $7.1 million, or 3 percent, to $254.5 million from $247.4 million in 2009, primarily due to
money transfer growth and cost savings initiatives.
For 2009, EBITDA increased $326.2 million to $178.0 million as compared to negative EBITDA of $148.2 million in 2008. EBITDA in 2008 was
negatively impacted by $340.1 million of net securities losses incurred during the realignment of our investment portfolio and the continued credit
market deterioration, valuation losses on embedded derivatives and interest rate swaps, expenses related to our 2008 Recapitalization and executive
severance and related costs. EBITDA in 2009 was negatively impacted by $54.8 million of legal accruals, higher stock-based compensation and
asset impairment charges, partially offset by a $14.3 million net curtailment gain on benefit plans. Adjusted EBITDA for 2009 decreased
$17.7 million, or 7 percent, to $247.4 million from $265.1 million in 2008, primarily due to lower investment revenue from the realignment of our
investment portfolio and the run-off of investment balances from the official check restructuring, partially offset by money transfer growth.
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Segment Performance
Our reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served. We primarily
manage our business through two reporting segments, Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment
provides global money transfers and bill payment services to consumers through a network of agents and, in select markets, company-operated
locations. The Financial Paper Products segment provides money orders to consumers through our retail and financial institution locations in the
United States and Puerto Rico, and provides official check services to financial institutions in the United States. Businesses that are not operated
within these segments are categorized as "Other," and primarily relate to discontinued products and businesses. Segment pre-tax operating income
and segment operating margin are used to review operating performance and allocate resources.
The Global Funds Transfer segment is managed as two geographical regions or operating segments, the Americas and EMEAAP, to coordinate
sales, agent management and marketing activities. The Americas region includes the United States, Canada, Mexico, the Caribbean and Latin
America. The EMEAAP region includes Europe, the Middle East, Africa and the Asia Pacific region. We monitor performance and allocate
resources at both a regional and reporting segment level. As the two regions routinely interact in completing money transfer transactions and share
systems, processes and licenses, we view the Global Funds Transfer segment as one global network. The nature of the consumers and products
offered is the same for each region, and the regions utilize the same agent network, systems and support functions. In addition, the regions have
similar regulatory requirements and economic characteristics. Accordingly, we aggregate the two operating segments into one reporting segment.
Segment accounting policies are the same as those described in Note 2 — Summary of Significant Accounting Policies in the Notes to the
Consolidated Financial Statements. We manage our investment portfolio on a consolidated level, with no specific investment security assigned to a
particular segment. However, investment revenue is allocated to each segment based on the average investment balances generated by that segment's
sale of payment instruments during the period. Net securities (gains) losses are not allocated to the segments as the investment portfolio is managed
at a consolidated level. While the derivatives portfolio is also managed on a consolidated level, each derivative instrument is utilized in a manner
that can be identified to a particular segment. Interest rate swaps historically used to hedge variable rate commissions were identified with the
official check product in the Financial Paper Products segment, while forward foreign exchange contracts are identified with the money transfer
product in the Global Funds Transfer segment. Any interest rate swaps related to our credit agreements are not allocated to the segments.
Also excluded from operating income for Global Funds Transfer and Financial Paper Products are interest and other expenses related to our credit
agreements, items related to our preferred stock, operating income from businesses categorized as "Other," certain pension and benefit obligation
expenses, director deferred compensation plan expenses, executive severance and related costs, certain legal and corporate costs not related to the
performance of the segments and restructuring and related costs. Unallocated expenses in 2010 include $5.9 million of costs associated with our
global transformation initiative and $1.8 million of asset impairments, in addition to other corporate costs of $7.4 million not allocated to the
segments.
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Unallocated expenses in 2009 include $20.3 million of legal reserves related to securities litigation and stockholder derivative claims, a net
curtailment gain on benefit plans of $14.3 million, $7.0 million of asset impairments and $4.4 million of executive severance and related costs, in
addition to other corporate costs of $12.9 million not allocated to the segments. Following is a reconciliation of segment operating income to the
consolidated operating results:
Table 6 — Segment Information
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Operating income:
Global Funds Transfer
Financial Paper Products
Other
Total segment operating income
Net securities (gains) losses
Interest expense
Other
Other unallocated expenses
Income (loss) before income taxes
Table 7 — Global Funds Transfer Segment
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Money transfer revenue:
Fee and other revenue
Investment revenue
Total money transfer revenue
Bill payment revenue:
Fee and other revenue
Investment revenue
Total bill payment revenue
Total Global Funds Transfer revenue:
Fee and other revenue
Investment revenue
Total Global Funds Transfer revenue
Commissions expense
Operating income
Operating margin
2010 Compared to 2009
2010
2009
2008
$
$
139,314 $
36,508
(2,367)
173,455
(2,115)
102,133
—
15,057
58,380 $
82,647 $
27,372
(4,316)
105,703
(7,790)
107,911
(2,401)
30,305
(22,322) $
142,203
30,169
(19,883)
152,489
340,688
95,020
20,304
33,668
(337,191)
2010
2009
2008
2010
vs.
2009
2009
vs.
2008
$
$
926,489
244
926,733
126,467
81
126,548
1,052,956
325
1,053,281
$
890,675
163
890,838
134,535
76
134,611
1,025,210
239
1,025,449
$
$
496,645
139,314
$
$
13.2%
488,116
82,647
$
$
8.1%
872,849
1,873
874,722
141,169
38
141,207
1,014,018
1,911
1,015,929
491,932
142,203
14.0%
4%
50%
4%
(6)%
7%
(6)%
3%
36%
3%
2%
69%
2%
(91)%
2%
(5)%
100%
(5)%
1%
(87)%
1%
(1)%
(42)%
Total revenue in the Global Funds Transfer segment consists primarily of fees on money transfers and bill payment transactions. For 2010, Global
Funds Transfer total revenue increased $27.8 million, or 3 percent, driven by money transfer volume growth, partially offset by a decline in bill
payment revenue.
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Money transfer fee and other revenue increased $35.8 million, or 4 percent, driven by transaction volume growth of 9 percent and favorable corridor
mix, partially offset by lower average money transfer fees from the introduction of the $50 price band in the United States and the lower euro
exchange rate. Money transfer transaction volume growth generated incremental revenue of $77.4 million, while changes in corridor mix increased
revenue another $2.4 million. Lower average money transfer fees decreased fee and other revenue by $24.6 million, while the lower euro exchange
rate decreased revenue by $18.1 million. In addition, money transfer fee and other revenue in 2009 included $1.3 million of early termination fees.
Transactions and the related fee revenue are viewed as originating from the send side of a transaction. Accordingly, discussion of transactions by
geographic location refers to the region originating a transaction. Money transfer transactions originating outside of the United States increased
15 percent over the prior year. Excluding Spain, transactions originating outside of the United States increased 18 percent over the prior year.
Transactions sent from Spain decreased 4 percent for the full year, but increased in the fourth quarter of 2010 as compared to the fourth quarter of
2009. Money transfer transactions originating in the United States, excluding transactions sent to Mexico, increased 8 percent due primarily to an
11 percent increase in intra-United States remittances. Transactions sent to Mexico declined 2 percent from the impact of the United States recession
on our consumers, but improved during the last half of the year. Mexico represented approximately 9 percent of our total transactions in 2010,
compared to approximately 10 percent in 2009.
Our money transfer agent base expanded 20 percent to approximately 227,000 locations in 2010, primarily due to expansion in markets outside the
United States. At December 31, 2010, the Americas had approximately 69,400 locations, with 40,000 locations in North America and 29,400
locations in Latin America (including 13,500 locations in Mexico). At December 31, 2010, EMEAAP had approximately 157,600 locations located
in the following regions: 40,900 locations in Western Europe, 38,700 locations in Eastern Europe, 36,200 locations in the Indian subcontinent,
25,700 locations in Asia Pacific, 12,300 locations in Africa and 3,800 locations in the Middle East.
Bill payment fee and other revenue decreased $8.1 million, or 6 percent. Lower average fees from changes in industry mix and lower volumes
decreased revenue by $5.3 million and $2.8 million, respectively. Bill payment transaction volume decreased 1 percent, reflecting a change in
transaction mix as we continue to grow in new emerging verticals that generate lower revenue per transaction than our traditional verticals. Due to
economic conditions in the United States, volumes in our traditional verticals, such as auto and mortgage, continue to be negatively impacted.
Commissions expense consists primarily of fees paid to our third-party agents for money transfer and bill payment services, as well as the
amortization of capitalized agent signing bonuses. In 2010, Global Funds Transfer commissions expense increased $8.5 million due primarily to
$23.7 million of incremental expense from money transfer volume growth, partially offset by a $7.4 million decrease from the decline in the euro
exchange rate and a $1.2 million decrease due to lower average money transfer commission rates. Bill payment commissions expense decreased
$2.9 million from lower volumes and lower average fees per transaction, partially offset by incremental expense of $0.3 million from higher average
commission rates related to biller incentives. Signing bonus expense decreased $2.9 million as certain historical signing bonuses were fully
amortized or written off in the prior year
The operating margin for the Global Funds Transfer segment increased to 13.2 percent in 2010 from 8.1 percent in 2009. Included in the 2010
operating margin is a $16.4 million benefit from a legal accrual reversal in 2010. In 2009, the operating margin included $34.5 million of legal
reserves related to a patent lawsuit and a settlement agreement with the Federal Trade Commission, an incremental $15.0 million provision for loss
in 2009 from the closure of an agent and a $3.2 million goodwill impairment charge related to a discontinued bill payment product. After
considering these items, the 2010 margin benefited from the money transfer volume growth, partially offset by lower bill payment revenue.
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2009 Compared to 2008
For 2009, Global Funds Transfer total revenue increased $9.5 million, or 1 percent, due primarily to money transfer fee revenue growth, partially
offset by lower bill payment revenue and lower investment revenue. Investment revenue decreased $1.7 million due to lower yields earned on our
investment portfolio. See Table 3 — Net Investment Revenue Analysis for further information regarding average investment balances and yields on
the consolidated investment portfolio.
Money transfer fee and other revenue grew $17.8 million, or 2 percent, driven by money transfer transaction volume growth, partially offset by
lower average money transfer fees and the decline in the euro exchange rate. Money transfer transaction volume increased 6 percent, generating
incremental revenue of $54.5 million. Volume growth in 2009 was lower than the prior year, reflecting the slowing economic conditions in 2009 and
a growing volume base. Average money transfer fees declined from lower principal per transaction and corridor mix, reducing revenue by
$15.8 million. The decline in the euro exchange rate, net of hedging activities, reduced revenue by $16.2 million in 2009.
Through the third quarter of 2009, pricing on money transfers remained stable. During the fourth quarter of 2009, we implemented a low-fee
promotion with our largest agent, reducing the average fee per transaction. In January 2008, we launched our MoneyGram Rewards loyalty program
in the United States, which provided tiered discounts on transaction fees to our repeat consumers, less paperwork and notifications to the sender
when the funds are received, among other features. In 2009, we rolled out MoneyGram Rewards in Canada, France, Germany, Spain and certain
agent locations in Italy. Our MoneyGram Rewards program has positively impacted our transaction volumes, with membership in the program up
30 percent as of December 31, 2009 compared to 2008 and transaction volumes from members up 34 percent.
Money transfer transactions originated in the Americas increased 6 percent. Transactions originating in the United States, excluding transactions sent
to Mexico, increased 9 percent due primarily to intra-United States remittances. Canada and Latin America saw transaction growth of 15 percent and
9 percent, respectively, from agent network growth. Transactions sent to Mexico declined 9 percent, reflecting the impact of the United States
recession on our consumers. Mexico represented approximately 10 percent of our total transactions in 2009 as compared to 12 percent in 2008.
Transactions originated in EMEAAP increased 6 percent despite a negative 9 percentage point impact from volume declines in Spain. EMEAAP
transactions accounted for 24 percent of our volume in 2009 and 2008. The fastest growing regions in 2009 were South East and Central Africa, the
Philippines and South Asia, which all had double-digit growth. The Middle East saw transaction growth of 9 percent, driven by send transactions
from, and agent signings and renewals in, the United Arab Emirates. Our France retail business saw transaction growth of 155 percent, while the
United Kingdom saw transaction growth of 6 percent primarily from sends to India and Eastern Europe, as well as growth from our three largest
agents in the United Kingdom. Greece had transaction growth of 14 percent through its receive markets in Eastern Europe. Spain had volume
declines of 24 percent from local economic conditions.
Bill payment fee and other revenue decreased $6.6 million, or 5 percent, from 2008 from a 4 percent decrease in transaction volume. Lower bill
payment volumes reduced revenue by $4.9 million, reflecting the departure of a large biller in the third quarter of 2008 and the impact of economic
conditions on our bill payment customers. In addition, lower principal per transaction and biller vertical mix reduced revenue by $1.7 million in
2009.
Commissions expense for 2009 decreased $3.8 million, primarily from lower commission rates and the decline in the euro exchange rate, partially
offset by growth in money transfer transaction volume. Money transfer transaction volume growth resulted in incremental commissions expense of
$16.1 million, while lower commission rates and the decline in the euro exchange rate, net of hedging activities, reduced commissions expense by
$7.7 million and $6.9 million, respectively. Bill payment fee commissions expense decreased $3.8 million due to volume declines, partially offset by
a $0.6 million increase due to higher average rates. Commissions expense in 2009 also decreased by $2.5 million primarily from lower signing
bonus amortization as certain historical signing bonuses were fully amortized in the third quarter of 2009.
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The operating margin of 8.1 percent for 2009 decreased from 14.0 percent in 2008, due primarily to $34.5 million of legal reserves related to a
patent lawsuit and a settlement agreement with the Federal Trade Commission, a $5.2 million increase in stock-based compensation, a $7.1 million
increase in provision for loss and a $3.2 million goodwill impairment related to discontinued bill payment product offerings, partially offset by the
higher fee revenue as discussed above.
Table 8 — Financial Paper Products Segment
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Money order revenue:
Fee and other revenue
Investment revenue
Total money order revenue
Official check revenue:
Fee and other revenue
Investment revenue
Total official check revenue
Total Financial Paper Products revenue:
Fee and other revenue
Investment revenue
Total Financial Paper Products revenue
Commissions expense
Operating income
Operating margin
2010 Compared to 2009
2010
2009
2008
2010
vs.
2009
2009
vs.
2008
$
$
$
64,342
3,951
68,293
25,696
15,526
41,222
90,038
19,477
109,515
69,296
5,584
74,880
23,690
24,213
47,903
92,986
29,797
122,783
$
$
3,931
36,508
$
$
33.3%
8,295
27,372
$
$
22.3%
59,955
26,357
86,312
18,061
133,820
151,881
78,016
160,177
238,193
110,310
30,169
12.7%
(7)%
(29)%
(9)%
8%
(36)%
(14)%
(3)%
(35)%
(11)%
(53)%
33%
16%
(79)%
(13)%
31%
(82)%
(68)%
19%
(81)%
(48)%
(92)%
(9)%
Total revenue in the Financial Paper Products segment consists of per-item fees charged to our financial institution customers and retail agents and
investment revenue. In 2010, total revenue decreased $13.3 million, or 11 percent, primarily from a $10.3 million decrease in investment revenue
due to lower yields earned on our investment portfolio and a decline in the average investment balances from the run-off of certain official check
financial institution customers terminated in prior periods. See Table 3 — Net Investment Revenue Analysis for further information. Money order fee
and other revenue decreased $5.0 million due to a 15 percent decline in volumes. Money order volume declines are consistent with 2009 and are
attributed to the anticipated attrition of agents from repricing initiatives, the continued migration by consumers to other payment methods, consumer
pricing increases as agents pass along fee increases and the general economic environment. Official check fee and other revenue increased
$2.0 million from 2009 due to our official check repricing initiatives, partially offset by the run-off of official check financial institution customers.
Commissions expense in the Financial Paper Products segment includes payments made to financial institution customers based on amounts
generated by the sale of official checks times short-term interest rate indices, payments on money order transactions and amortization of signing
bonuses. Commissions expense decreased $4.4 million, or 53 percent, due primarily to lower money order agent rebates from our repricing
initiatives and lower signing bonus amortization, as well as lower investment balances resulting from the run-off of official check financial
institution customers. See Table 3 — Net Investment Revenue Analysis for further discussion of investment commissions expense.
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The operating margin for the Financial Paper Products segment increased to 33.3 percent in 2010 from 22.3 percent in 2009, reflecting $6.1 million
of goodwill and asset impairment charges in 2009 related to our money order business and lower commissions, partially offset by lower investment
revenue in 2010.
2009 Compared to 2008
For 2009, Financial Paper Products total revenue decreased $115.4 million, or 48 percent, due primarily to a $130.4 million, or 81 percent, decrease
in investment revenue from lower yields earned on our realigned investment portfolio and a decline in average investment balances from the
termination of certain official check financial institution customers. See Table 3 — Net Investment Revenue Analysis for further information. This
decrease was partially offset by a $15.0 million increase in fee and other revenue for money order and official check products, primarily due to our
repricing initiatives. During 2009, money order volumes declined 17 percent. This decline is attributed to the anticipated attrition of agents due to
the repricing initiative, consumer pricing increases as agents pass along fee increases, the continued migration to other payment methods and the
general economic environment.
Commissions expense decreased $102.0 million, or 92 percent, from 2008. Commissions expense for 2008 included a $27.7 million net loss due to
the termination of interest rate swaps related to the official check business. See Note 6 — Derivative Financial Instruments of the Notes to
Consolidated Financial Statements for further information. Investment commissions paid to financial institution customers decreased in 2009 from
the decline in the federal funds rate and lower investment balances upon which commissions were paid. See Table 3 — Net Investment Revenue
Analysis for further information.
The operating margin increased to 22.3 percent in 2009 from 12.7 percent in 2008, reflecting the growth in fee revenue from repricing initiatives, the
$27.7 million loss from the termination of swaps in 2008 and lower commissions expense from the decline in the federal funds rate and lower
investment balances.
Trends Expected to Impact 2011
The discussion of trends expected to impact our business in 2011 is based on information presently available and contains certain assumptions
regarding future economic conditions. Differences in actual economic conditions during 2011 compared with our assumptions could have a material
impact on our results. See "Cautionary Statements Regarding Forward-Looking Statements" and Part I, Item 1A, Risk Factors of this Annual Report
on Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking
statements.
Throughout 2010, global economic conditions remained weak. We cannot predict the duration or extent of the severity of these economic conditions,
nor the extent to which these conditions could negatively affect our business, operating results or financial condition. While the money remittance
industry has generally been resilient during times of economic softness, the current global economic conditions have continued to adversely impact
the demand for money remittances. Given the global economic uncertainty, we have less visibility to the future and believe growth rates could
continue to be impacted by slow economic conditions. In addition, bill payment products available in the United States have not been as resilient as
money transfers.
While there is uncertainty around the global economy and the remittance industry, the World Bank, a key source of industry analysis for developing
countries, is projecting five percent remittance growth in 2011. Our growth has historically exceeded the World Bank projections. We expect our
growth to be driven by agent expansion and increasing productivity in our existing agent locations through marketing support, customer acquisition
and new product innovation. We anticipate money transfer revenue growth to be lower than transaction growth through the first quarter of 2011 due
to the lower average fees resulting from the $50 price band that was introduced in the first half of 2010. We anticipate that the $50 price band will be
a long-term change in our pricing. We believe there is increased competitive pressure in the remittance industry and although we have not seen
significant pricing pressure outside of the $50 price band, we will continue to proactively manage our pricing efforts. We believe all of these efforts
will not only help to counteract the effects of the current global economic conditions, but position us for enhanced market share and growth when
the economy begins to recover.
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For our Financial Paper Products segment, we expect the decline in overall paper-based transactions to continue in 2011. As a result of the pricing
initiatives undertaken in prior years, we have reduced the commission rates paid to our official check financial institution customers and instituted
certain per item and other fees for both the official check and money order services. In addition, the historically low interest rate environment has
resulted in low or no commissions being paid to our official check financial institution customers. As a result, we anticipate that the Financial Paper
Products segment will experience some financial institution and agent attrition in 2011. We do not believe that an increase in interest rates in 2011
will have a significant impact to our investment margin as the interest rates earned on the substantial portion of our investment portfolio reset on a
frequent basis and our pricing initiatives have helped to mitigate interest rate risk.
We continue to see a trend among state, federal and international regulators toward enhanced scrutiny of anti-money laundering compliance, as well
as consumer fraud prevention and education. As we continue to revise our processes and enhance our technology systems to meet regulatory trends,
our operating expenses for compliance may increase.
As we implement the second phase of our global transformation initiative in 2011, we anticipate that our operating expenses will increase in the
short-term as up-front expenditures will be required to achieve the expected long-term cost savings. Based on current plans for the second phase, we
anticipate incurring cash outlays of up to $22.0 million in 2011 related to restructuring, reorganization and technology investment activities. Up to
$15.0 million of these cash outlays are anticipated to be recognized as an expense in 2011, with the remaining portion capitalized as internally-
developed software and amortized over future periods.
Acquisition and disposal activity is set forth in Note 3 — Acquisitions and Disposals of the Notes to Consolidated Financial Statements.
Acquisition and Disposal Activity
On March 25, 2008, we completed a series of transactions pursuant to which we received an infusion of $1.5 billion of gross equity and debt capital
to support the long-term needs of the business and provide necessary capital due to the investment portfolio losses in late 2007 and the first quarter
of 2008 (the "2008 Recapitalization"). The net proceeds of the 2008 Recapitalization were used to invest in cash equivalents to supplement our
unrestricted assets and to repay $100.0 million on our revolving credit facility. For the key terms of the equity and debt capital issued, see
Note 11 — Mezzanine Equity and Note 9 — Debt of the Notes to the Consolidated Financial Statements.
2008 Recapitalization
Recent Developments
On March 7, 2011, we entered into a Recapitalization Agreement with THL and Goldman Sachs pursuant to which (i) THL will convert all of the
shares of B Stock into shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of Series B
Participating Convertible Preferred Stock of MoneyGram International, Inc., (ii) Goldman Sachs will convert all of the shares of B-1 Stock into
shares of D Stock in accordance with the Certificate of Designations, Preferences and Rights of Series B-1 Participating Convertible Preferred Stock
of MoneyGram International, Inc., and (iii) THL will receive approximately 28.2 million additional shares of our common stock and $140.8 million
in cash, and Goldman Sachs will receive approximately 15,504 additional shares of D Stock (equivalent to approximately 15.5 million shares of our
common stock) and $77.5 million in cash (such transactions, collectively, the "2011 Recapitalization"). Concurrently with entering into the
Recapitalization Agreement, Worldwide and the Company entered into a Consent Agreement with the GS Note Holders in which the parties thereto
have agreed to enter into a supplemental indenture to the indenture governing the Notes that will, among other things, amend the indenture in order
to permit the 2011 Recapitalization. See "Business-Recent Developments" in this Form 10-K for further information regarding the 2011
Recapitalization, the Recapitalization Agreement and the Consent Agreement.
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LIQUIDITY AND CAPITAL RESOURCES
We have various resources available to us for purposes of managing liquidity and capital needs, including our investment portfolio, credit facilities
and letters of credit. We refer to our cash and cash equivalents, short-term investments, trading investments and related put options and
available-for-sale investments collectively as our "investment portfolio." We utilize the assets in excess of payment service obligations measure
shown below in various liquidity and capital assessments. While assets in excess of payment service obligations, as defined, is a capital measure, it
also serves as the foundation for various liquidity analyses.
Table 9 — Assets in Excess of Payment Service Obligations
(Amounts in thousands)
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Short-term investments (substantially restricted)
Trading investments and related put options (substantially restricted)
Available-for-sale investments (substantially restricted)
Payment service obligations
Assets in excess of payment service obligations
Liquidity
2010
2009
$
$
2,865,941 $
982,319
405,769
—
160,936
4,414,965
(4,184,736)
230,229 $
3,376,824
1,054,381
400,000
26,951
298,633
5,156,789
(4,843,454)
313,335
Our primary sources of liquidity include cash flows generated by the sale of our payment instruments, our cash and cash equivalent and short-term
investment balances, proceeds from our investment portfolio and credit capacity under our credit facilities. Our primary operating liquidity needs
relate to the settlement of payment service obligations to our agents and financial institution customers, as well as general operating expenses.
To meet our payment service obligations at all times, we must have sufficient highly liquid assets and be able to move funds globally on a timely
basis. On average, we pay over $1.0 billion a day to settle our payment service obligations. We generally receive a similar amount on a daily basis
for the principal amount of our payment instruments sold and the related fees. We use the incoming funds from sales of new payment instruments to
settle our payment service obligations for previously sold payment instruments. This pattern of cash flows allows us to settle our payment service
obligations through on-going cash generation rather than liquidating investments or utilizing our revolving credit facility. We have historically
generated, and expect to continue generating, sufficient cash flows from daily operations to fund ongoing operational needs.
The timely remittance of funds by our agents and financial institution customers is an important component of our liquidity and allows for the
pattern of cash flows described above. If the timing of the remittance of funds were to deteriorate, it would alter our pattern of cash flows and could
require us to liquidate investments or utilize our revolving credit facility to settle payment service obligations. To manage this risk, we closely
monitor the remittance patterns of our agents and financial institution customers and act quickly if we detect deterioration or alteration in remittance
timing or patterns. If deemed appropriate, we have the ability to deactivate an agent's equipment at any time, thereby preventing the initiation or
issuance of further money transfers and money orders. See "Enterprise Risk Management — Credit Risk" for further discussion of this risk and our
mitigation efforts.
We also seek to maintain liquidity beyond our operating needs to provide a cushion through the normal fluctuations in our payment service assets
and obligations and to invest in the infrastructure and growth of our business. While the assets in excess of payment service obligations, as shown in
Table 9, would be available to us for our general operating needs and investment in the Company, we consider a portion of our assets in excess of
payment service obligations as additional assurance that regulatory and contractual requirements are maintained. We believe we have sufficient
assets and liquidity to operate and grow our business for the next 12 months. Should our liquidity needs exceed our operating cash flows, we believe
that our external financing sources, including availability under our senior facility, will be sufficient to meet any liquidity needs.
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Cash and Cash Equivalents and Short-term Investments — To ensure we maintain adequate liquidity to meet our operating needs at all times, we
keep a significant portion of our investment portfolio in cash and cash equivalents and short-term investments at financial institutions rated Aa3 or
better by Moody's Investor Service ("Moody's") and AA- or better by Standard & Poors ("S&P"), and in U.S. government money market funds rated
Aaa by Moody's and AAA by S&P. As of December 31, 2010, cash and equivalents and short-term investments totaled $3.3 billion, representing
95 percent of our total investment portfolio. Cash equivalents and short-term investments consist of money market funds that invest in United States
government and government agency securities, time deposits and certificates of deposit.
Clearing and Cash Management Banks — We move and receive money through a network of clearing and cash management banks. The
relationships with these clearing banks and cash management banks are a critical component of our ability to move monies on a global and timely
basis. We have agreements with nine clearing banks that provide clearing and processing functions for official checks, money orders and other draft
instruments. We have eight official check clearing banks, of which five banks are currently operating under post-termination arrangements of their
contracts. The remaining three active banks provide sufficient capacity for our official check business. We rely on two banks to clear our retail
money orders and believe that these banks provide sufficient capacity for that business. 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 payment service
obligations, as well as the maintenance of a minimum 103 percent ratio of total assets held at that bank to instruments estimated to clear through that
bank. Financial covenants related to special purpose entities ("SPEs") include the maintenance of specified ratios of greater than 100 percent of cash,
cash equivalents and investments held in the SPE to outstanding payment instruments issued by the related financial institution.
We also maintain contractual relationships with a variety of domestic and international cash management banks for ACH and wire transfer services
used in the movement of consumer funds and agent settlements. There are a limited number of international cash management banks with a network
large enough to manage cash settlements for our entire agent base, and some of these large international banks have opted not to bank money service
businesses. As a result, we also utilize regional or country-based banking partners in addition to large cash management banks.
Special Purpose Entities — 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 investment portfolio assets and payment service obligations
related to the financial institution customer are all held by the SPE. In most cases, the fair value of the investment portfolio must be maintained in
excess of the payment service obligations. As the related financial institution customer sells our payment service instruments, the principal 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. Under limited circumstances, the financial institution customers that are beneficiaries of the 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.
The combined SPEs hold 2 percent of our $3.4 billion portfolio as of December 31, 2010, as compared to 3 percent at December 31, 2009. As the
SPEs relate to financial institution customers we terminated in connection with the restructuring of our official check business, we expect the SPEs
to continue to decline as a percentage of our portfolio as the outstanding instruments related to the financial institutions roll-off.
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Credit Facilities — Our credit facilities consist of a senior facility and second lien notes. See Note 9 — Debt of the Notes to the Consolidated
Financial Statements for further information. During 2010, we repaid $165.0 million of outstanding Tranche B debt under our senior facility.
Combined with previous debt repayments, we have repaid $351.9 million of our outstanding debt since January 1, 2009, including the repayment of
the full $145.0 million balance on our revolving credit line, $205.0 million of prepayments on Tranche B debt and $1.9 million of scheduled
quarterly principal payments on Tranche B debt. We continue to evaluate further reductions of our outstanding debt ahead of scheduled maturities.
Following is a summary of our outstanding debt at December 31:
Table 10 — Schedule of Credit Facilities
(Amounts in thousands)
Tranche A, due 2013
Tranche B, net of unamortized discount, due 2013
Revolving credit facility, due 2013
First lien senior secured debt
Second lien notes, due 2018
Total debt
Interest Rate
for 2010
Facility
Size
100,000 $
250,000
250,000
600,000
500,000
1,100,000 $
Outstanding
2011
2010
100,000 $
39,946
—
139,946
500,000
639,946 $
2009
100,000 $
196,791
—
296,791
500,000
796,791 $
Interest
5,750
2,991
—
8,741
66,250
74,991
5.75% $
7.25%
5.75%
13.25%
$
(1)
Reflects the interest that will be paid in 2011 using the rates in effect on December 31, 2010, assuming no prepayments of principal and the
continued payment of interest on the second lien notes.
Our revolving credit facility has $243.2 million of borrowing capacity as of December 31, 2010, net of $6.8 million of outstanding letters of credit
issued. Amounts outstanding under the senior facility are due upon maturity in 2013. As a result of our debt prepayments, there are no mandatory
principal payments required on Tranche B until maturity in 2013. We may elect an interest rate for the senior facility at each reset period based on
either the United States prime bank rate or the Eurodollar rate, with a minimum rate of 250 basis points set for the Eurodollar option. The interest
rate election may be made individually for each term loan and each draw under the revolving credit facility. For the revolving credit facility and
Tranche A, the interest rate is either the United States prime bank rate plus 250 basis points or the Eurodollar rate plus 350 basis points. In addition,
we incur fees of 50 basis points on the daily unused availability under the revolving credit facility. The interest rate for Tranche B can be set at either
the United States prime bank rate plus 400 basis points or the Eurodollar rate plus 500 basis points. Through 2009 and as of the date of this filing,
our interest rates have been set based on the United States prime bank rate.
Amounts outstanding under the second lien notes are due upon maturity in 2018. The interest rate on the second lien notes is 13.25 percent per year.
Prior to March 25, 2011, we have the option to capitalize interest at a rate of 15.25 percent. If interest is capitalized, 0.50 percent of the interest is
payable in cash and 14.75 percent is capitalized into the outstanding principal balance. We have paid the interest on the second lien notes through
December 31, 2010, and we anticipate that we will pay the interest on the second lien notes that is due March 25, 2011.
Our credit facilities contain various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by
restricting our ability to borrow under the revolving credit facility and/or causing acceleration of amounts due under the credit facilities. The
financial covenants in our credit facilities measure leverage, interest coverage and liquidity. Leverage is measured through a senior secured debt
ratio calculated as consolidated indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted for
certain items such as net securities (gains) losses, stock-based compensation expense, certain legal settlements and asset impairments, among other
items ("adjusted EBITDA"). This measure is similar, but not identical, to the measure discussed under Table 5 — EBITDA and Adjusted EBITDA.
Interest coverage is calculated as adjusted EBITDA to net cash interest expense. Liquidity is measured as assets in excess of payment service
obligations, as shown in Table 9, adjusted for various exclusions. We are in compliance with all financial covenants as of December 31, 2010.
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The terms of our credit facilities also place restrictions on certain types of payments we may make, including dividends to our preferred and
common stockholders, acquisitions and the funding of foreign subsidiaries, among others. We do not anticipate these restrictions to limit our ability
to grow the business either domestically or internationally. In addition, we may only make dividend payments to common stockholders subject to an
incremental build-up based on our consolidated net income in future periods. No dividends were paid on our common stock in 2010, and we do not
anticipate declaring any dividends on our common stock during 2011.
Equity Registration Rights Agreement — The Company and the Investors also entered into a Registration Rights Agreement (the "Equity
Registration Rights Agreement") on March 25, 2008, with respect to the Series B Stock and D Stock, and the common stock owned by the Investors
and their affiliates (collectively, the "Registrable Securities"). Under the terms of the Equity Registration Rights Agreement, we are required, after a
specified holding period, to use our reasonable best efforts to promptly file with the SEC a shelf registration statement relating to the offer and sale
of the Registrable Securities. We are obligated to keep such shelf registration statement continuously effective under the Securities Act of 1933, as
amended (the "Securities Act"), until the earlier of (1) the date as of which all of the Registrable Securities have been sold, (2) the date as of which
each of the holders of the Registrable Securities is permitted to sell its Registrable Securities without registration pursuant to Rule 144 under the
Securities Act and (3) fifteen years. The holders of the Registrable Securities are also entitled to five demand registrations and unlimited piggyback
registrations during the term of the Equity Registration Rights Agreement. On December 14, 2010, we filed a shelf registration statement on
Form S-3 with the SEC which would permit the offer and sale of the Registrable Securities, as required by the terms of the Equity Registration
Rights Agreement. The registration statement also would permit the Company to offer and sell up to $500 million of its common stock, preferred
stock, debt securities or any combination of these, from time to time, subject to market conditions and the Company's capital needs. The registration
statement is subject to review by the SEC and has not yet been declared effective by the SEC.
Credit Ratings — As of December 31, 2010 our credit ratings from Moody's, S&P and Fitch Ratings ("Fitch") were B1, B+ and B+, respectively,
with a stable outlook assigned by the three credit rating agencies. Our credit facilities, regulatory capital requirements and other obligations are not
impacted by the level of our credit ratings. However, higher credit ratings could increase our ability to attract capital, minimize our weighted average
cost of capital and obtain more favorable terms with our lenders, agents and clearing and cash management banks.
Mezzanine Equity — Our Series B Stock pays a cash dividend of 10 percent. At the Company's option, we may accrue dividends at a rate of
12.5 percent through March 25, 2013 and 15.0 percent thereafter. We have accrued dividends from the issuance of Series B Stock through
December 31, 2010.
Contractual and Regulatory Capital
Regulatory Capital Requirements — We have capital requirements relating to government regulations in the United States and other countries where
we operate. Such regulations typically require us to maintain certain assets in a defined ratio to our payment service obligations. Through our wholly
owned subsidiary and licensed entity, MPSI, we are regulated in the United States by various state agencies that generally require us to maintain a
pool of liquid assets and investments in an amount generally equal to the regulatory payment service obligation measure, as defined by each state,
for our regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. The regulatory requirements do not
require us to specify individual assets held to meet our payment service obligations, 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. Provided we maintain a total pool of liquid assets sufficient to meet the
regulatory and contractual requirements, we are able to withdraw, deposit or sell our individual liquid assets at will, without prior notice, penalty or
limitations.
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The regulatory requirements in the United States are similar to our internal measure of assets in excess of payment service obligations set forth in
Table 9 — Assets in Excess of Payment Service Obligations. The regulatory payment service assets measure varies by state. The most restrictive
states may exclude assets held at banks that do not belong to a national insurance program, varying amounts of accounts receivable balances and/or
assets held in the SPEs. The regulatory payment service obligation measure varies by state, but in all cases is substantially lower than our payment
service obligations as disclosed in the Consolidated Balance Sheets as we are not regulated by state agencies for payment service obligations
resulting from outstanding cashier's checks or for amounts payable to agents and brokers. All states require MPSI to maintain positive net worth,
with one state also requiring MPSI to maintain positive tangible net worth of $100.0 million.
We are also subject to regulatory requirements in various countries outside of the United States, which typically results in needing to either prefund
agent settlements or hold minimum required levels of cash within the applicable country. The most material of these requirements is in the United
Kingdom, where our licensed entity, MoneyGram International Limited, is required to maintain a cash and cash equivalent balance equal to
outstanding payment instruments issued in the European community. This amount will fluctuate based on our level of activity within the European
Community, and is likely to increase over time as our business expands in that region. Assets used to meet these regulatory requirements support our
payment service obligations, but are not available to satisfy other liquidity needs. As of December 31, 2010, we had approximately $50.2 million of
cash deployed outside of the United States to meet regulatory requirements.
We were in compliance with all financial regulatory requirements as of December 31, 2010. We believe that our liquidity and capital resources will
remain sufficient to ensure on-going compliance with all financial regulatory requirements.
Available-for-sale Investments — Our investment portfolio includes $160.9 million of available-for-sale investments as of December 31, 2010.
United States government agency residential mortgage-backed securities and United States government agency debentures compose $137.2 million
of our available-for-sale investments, while other asset-backed securities compose the remaining $23.7 million. In completing our 2008
Recapitalization in 2008, we contemplated that our other asset-backed securities might decline further in value. Accordingly, the capital raised
assumed a zero value for these securities. As a result, further unrealized losses and impairments on these securities are already funded and would not
cause us to seek additional capital or financing.
Contractual Obligations — The following table includes aggregated information about the Company's contractual obligations that impact our
liquidity and capital needs. The table includes information about payments due under specified contractual obligations, aggregated by type of
contractual obligation.
Other Funding Sources and Requirements
Table 11 — Contractual Obligations
(Amounts in thousands)
Debt, including interest payments
Operating leases
Other obligations
Total contractual cash obligations
Payments due by period
Less than
1 year
1-3 years
4-5 years
More than
5 years
76,473 $
11,782
300
88,555 $
286,328 $
22,940
—
309,268 $
132,500 $
7,482
—
139,982 $
648,142
5,479
—
653,621
$
$
Total
1,143,444 $
47,683
300
1,191,427 $
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Debt consists of amounts outstanding under our senior facility and the second lien notes at December 31, 2010, as shown in Table 10 — Schedule of
Credit Facilities. Our Consolidated Balance Sheet at December 31, 2010 includes $639.9 million of debt, net of unamortized discounts of
$1.3 million, and less than $0.1 million of accrued interest on the debt. 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, 2010, and assuming no prepayments of principal and the continued payment of
interest on the second lien notes. Operating leases consist of various leases for buildings and equipment used in our business. Other obligations are
unfunded capital commitments related to our limited partnership interests included in "Other asset-backed securities" in our investment portfolio.
We have other commitments as described further below that are not included in Table 11 as the timing and/or amount of payments are difficult to
estimate.
The Company's Series B Stock has a cash dividend rate of 10 percent. At the Company's option, dividends may be accrued through March 25, 2013
at a rate of 12.5 percent in lieu of paying a cash dividend. Due to restrictions in our debt agreements, we elected to accrue the dividends in 2010 and
expect that dividends will be accrued for at least the next 12 months. While no dividends have been declared as of December 31, 2010, we have
accrued dividends of $125.0 million in our Consolidated Balance Sheets as accumulated and unpaid dividends are included in the redemption price
of the Series B Stock regardless of whether dividends have been declared.
We have a funded, noncontributory pension plan that is frozen to both future benefit accruals and new participants. Our funding policy has
historically been to contribute the minimum contribution required by applicable regulations. We made contributions of $3.1 million to the defined
benefit pension plan during 2010. We anticipate a minimum contribution of up to $7.9 million to the pension plan trust in 2011. We also have
certain unfunded pension and postretirement plans that require benefit payments over extended periods of time. During 2010, we paid benefits
totaling $5.4 million related to these unfunded plans. Benefit payments under these unfunded plans are expected to be $4.6 million in 2011.
Expected contributions and benefit payments under these plans are not included in the above table as it is difficult to estimate the timing and amount
of benefit payments and required contributions beyond the next 12 months. See Note 10 — Pensions and Other Benefits of the Notes to the
Consolidated Financial Statements for further information.
As of December 31, 2010, the liability for unrecognized tax benefits was $10.2 million. As there is a high degree of uncertainty regarding the timing
of potential future cash outflows associated with liabilities, 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, 2010, the minimum commission guarantees had a maximum
payment of $2.2 million over a weighted average remaining term of 1.7 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, 2010, the liability for minimum commission guarantees is $0.3 million. Minimum
commission guarantees are not reflected in the table above.
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Analysis of Cash Flows
Table 12 — Cash Flows from Operating Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net income (loss)
Total adjustments to reconcile net income (loss)
Net cash provided by operating activities before changes in payment service assets and obligations
Change in cash and cash equivalents (substantially restricted)
Change in trading investments and related put options, net (substantially restricted)
Change in receivables, net (substantially restricted)
Change in payment service obligations
Net change in payment service assets and obligations
Net cash provided by (used in) continuing operating activities
2010
2009
2008
$
(261,385)
43,801 $
(1,906) $
341,740
72,398 158,909
80,355
116,199 157,003
510,883 700,557 (2,524,402)
—
128,752
(658,782) (594,545) (2,324,486)
(55,462) 325,531 (4,720,136)
60,737 $ 482,534 $ (4,639,781)
29,400
32,900
63,037 186,619
$
Table 12 summarizes the net cash flows from operating activities. Operating activities provided net cash of $60.7 million in 2010. Cash generated
from our operations was primarily used to pay $165.0 million of principal and $83.5 million of interest on our debt, $40.2 million of capital
expenditures, $27.2 million for signing bonuses and normal operating expenditures. These expenditures were offset by proceeds of $141.0 million
from the maturity of available-for-sale investments and $29.4 million from a trading security that was called, all of which was reinvested in cash
equivalents. We received an income tax refund of $3.8 million during 2010 and made income tax payments of $3.9 million.
Operating activities provided net cash of $482.5 million in 2009. In addition to normal operating expenses, cash generated from operations was used
to pay $186.9 million of principal and $94.4 million of interest on our debt, $37.9 million of capital expenditures and $22.2 million for signing
bonuses. We received an income tax refund of $43.5 million during 2009 and made income tax payments of $2.2 million. We also reinvested
$141.0 million and $32.9 million of proceeds from our available-for-sale investments and trading investments, respectively, into cash and cash
equivalents during 2009.
Operating activities used net cash of $4.6 billion in 2008. Besides normal operating activities, cash provided by continuing operations was used to
pay $84.0 million of interest on our debt, $57.7 million for signing bonuses and $29.7 million to terminate our interest rate swaps. We also received
an income tax refund of $24.7 million during 2008 and did not make any tax payments. During 2008, we used $4.7 billion of proceeds from the sale
and normal maturity of available-for-sale securities and the 2008 Recapitalization to invest in cash equivalents and settle payment service
obligations for instruments sold by departing official check financial institution customers in connection with the official check restructuring.
To understand the cash flow activity of our core business, the cash flows from operating activities relating to the payment service assets and
obligations should be reviewed in conjunction with the cash flows from investing activities related to our short-term investments and
available-for-sale investments.
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Table 13 — Cash Flows from Investing Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net investment activity
Purchases of property and equipment
Cash paid for acquisitions, net of cash acquired
Proceeds from disposal of property and equipment
Proceeds from sale of business
Net cash provided by (used in) investing activities
2010
2009
2008
$
$
135,216 $
(40,191)
(330)
7,537
—
102,232 $
(259,001) $
(37,948)
(3,210)
—
4,500
(295,659) $
3,389,331
(38,470)
(2,928)
—
—
3,347,933
Table 13 summarizes the net cash flows from investing activities, primarily consisting of activity related to short-term investments and
available-for-sale investments. Investing activities provided cash of $102.2 million during 2010, primarily from proceeds of $141.0 million from the
maturity of available-for-sale investments. Investing activities used cash of $295.7. million in 2009, primarily from the purchase of $400.0 million of
short-term investments, or time deposits and certificates of deposits with maturities greater than three months but no longer than twelve months,
partially offset by $141.0 million of proceeds from the maturity of available-for-sale investments. For 2008, investing activities relate primarily to
$2.9 billion of proceeds from the realignment of the investment portfolio and $493.3 million of proceeds from the normal maturity of
available-for-sale investments. Proceeds from net investment activity for all years presented were reinvested in cash and cash equivalents.
Other investing activity consisted of capital expenditures of $40.2 million, $37.9 million and $38.5 million for 2010, 2009 and 2008, respectively,
for agent equipment, signage and infrastructure to support the growth of the business and our continued investment in technology platforms to
support the growth of the business and enhance operating efficiencies. Included in the Consolidated Balance Sheets under "Accounts payable and
other liabilities" and "Property and equipment" is $3.9 million of property and equipment received by the Company, but not paid as of December 31,
2010. These amounts were paid in January 2011. We expect our total capital expenditures in 2011 to range from approximately $43.0 million to
$51.0 million as we continue to invest in our technology infrastructure and agent network to support future growth, enhance operating efficiencies
and address regulatory trends.
In 2010, we generated $7.5 million of proceeds from the sale of the corporate airplane and paid $0.3 million for the acquisition of Blue Dolphin net
of cash acquired. In 2009, we received proceeds of $4.5 million from the sale of FSMC, Inc. and paid $3.2 million in connection with the acquisition
of Raphaels Bank. In 2008, we acquired two of our super-agents in Spain, MoneyCard and Cambios Sol, for $2.9 million (net of cash acquired of
$5.5 million).
Table 14 — Cash Flows from Financing Activities
YEAR ENDED DECEMBER 31,
(Amounts in thousands)
Net proceeds from the issuance of debt
Payment on debt
Payments on credit facilities
Net proceeds from the issuance of preferred stock
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
2010
2009
2008
$
$
— $
(165,000)
—
—
2,031
(162,969) $
— $
(41,875)
(145,000)
—
—
(186,875) $
685,945
(1,875)
(100,000)
707,778
—
1,291,848
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Table 14 summarizes the net cash flows from financing activities. In 2010, financing activities used $165.0 million of cash for prepayments on
Tranche B of our senior facility, and provided $2.0 million of cash from the exercise of stock options. In 2009, we made payments totaling
$145.0 million to pay our revolving credit facility in full. We also made payments totaling $41.9 million on Tranche B of our senior facility,
consisting of a $40.0 million prepayment and $1.9 million of mandatory quarterly payments. In 2008, financing activities generated $1.4 billion of
cash from the 2008 Recapitalization, net of $100.0 million of related transaction costs. From these proceeds, we paid $101.9 million toward the
senior facility; the remaining proceeds were invested in cash and cash equivalents as shown in Table 12 — Cash Flows from Operating Activities.
Mezzanine Equity and Stockholders' Deficit
Mezzanine Equity — See Note 11 — Mezzanine Equity of the Notes to the Consolidated Financial Statements for information regarding the
mezzanine equity.
Stockholders' Deficit — On May 9, 2007, our Board of Directors approved a 5,000,000 share increase in our current authorization to purchase shares
of common stock, bringing our total authorization to 12,000,000 shares. We suspended the buyback program in the fourth quarter of 2007. As of
December 31, 2010, we had 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.
Under the terms of the equity instruments and debt issued in connection with the 2008 Recapitalization, we are limited in our ability to pay
dividends on our common stock. No dividends were paid on our common stock in 2010 and we do not anticipate declaring any dividends on our
common stock during 2011.
ENTERPRISE RISK MANAGEMENT
Risk is an inherent part of any business. Our most prominent risk exposures are credit, interest rate, foreign currency exchange and operational risk.
See Part 1, Item 1A "Risk Factors" for a description of the principal risks to our business. Appropriately managing risk is important to the success of
our business, and the extent to which we effectively manage each of the various types of risk is critical to our financial condition and profitability.
Our risk management objective is to monitor and control risk exposures to produce steady earnings growth and long-term economic value.
Management implements policies approved by our Board of Directors that cover our investment, capital, credit and foreign currency practices and
strategies. The Board receives periodic reports regarding each of these areas and approves significant changes to policy and strategy. An Asset/
Liability Committee, composed of senior management, routinely reviews investment and risk management strategies and results. A Credit
Committee, composed of senior management, routinely reviews credit exposure to our agents.
Following is a discussion of the strategies we use to manage and mitigate the risks we have deemed most critical to our business. While containing
forward-looking statements related to risks and uncertainties, this discussion and related analyses are not predictions of future events. MoneyGram's
actual results could differ materially from those anticipated due to various factors discussed under "Cautionary Statements Regarding Forward-
Looking Statements'' and under "Risk Factors" in Part 1, Item 1A of this Annual Report on Form 10-K.
Credit Risk
Credit risk, or the potential risk that we may not collect amounts owed to us, affects our business primarily through receivables, investments and
derivative financial instruments. In addition, the concentration of our cash, cash equivalents and investments at large financial institutions exposes us
to credit risk.
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Table of Contents
Investment Portfolio — Credit risk from our investment portfolio relates to the risk that we may be unable to collect the interest or principal owed to
us under the legal terms of the various securities. Our primary exposure to credit risk arises through the concentration of a large amount of our
investment portfolio at a few large financial institutions ("financial institution risk"), as well as a concentration in securities issued by, or
collateralized by, U.S. government agencies. We manage credit risk related to our investment portfolio by investing in short-term assets and in
issuers with strong credit ratings. Our investment policy permits the investment of funds only in cash, cash equivalents, short-term investments and
securities issued by U.S. government agencies with a maturity of 13 months or less.
The financial institutions holding significant portions of our investment portfolio act as custodians for our asset accounts, serve as counterparties to
our foreign currency transactions and conduct cash transfers on our behalf for the purpose of clearing our payment instruments and related agent
receivables and agent payables. Through certain check clearing agreements and other contracts, we are required to utilize several of these financial
institutions. As a result of the credit market crisis, several financial institutions have faced capital and liquidity issues that led them to restrict credit
exposure. This has led certain financial institutions to require that we maintain pre-defined levels of cash, cash equivalents and investments at these
financial institutions overnight, with no restrictions to our usage of the assets during the day. While the credit market crisis and recession affected all
financial institutions, those institutions holding our assets are well capitalized, and there have been no significant concerns as to their ability to honor
all obligations related to our holdings.
We manage financial institution risk by entering into clearing and cash management agreements primarily with major financial institutions, and
regularly monitoring the credit ratings of these financial institutions. Our financial institution risk is further mitigated as the majority of our cash
equivalents and investments held by these institutions are invested in securities issued by U.S. government agencies or money market instruments
collateralized by U.S. government agencies, which have the implicit or explicit guarantee of the U.S. government depending upon the issuing
agency. Our non-interest bearing cash held at our domestic clearing and cash management banks was covered under the Temporary Liquidity
Guarantee Program ("TLGP") through December 31, 2010 as those banks opted into the program. The Federal Deposit Insurance Corporation
("FDIC") created the TLGP program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior
unsecured debt of banks, thrifts and certain holding companies, and providing full coverage of non-interest bearing deposit transaction accounts,
regardless of dollar amount. In addition, official checks issued by our financial institution customers were treated as deposits under the TLGP.
The TLGP expired on December 31, 2010, but has been replaced by provisions in the recently passed Dodd-Frank Act, which amend the Federal
Deposit Insurance Act ("FDI Act") to provide unlimited FDIC insurance on non-interest bearing accounts through December 31, 2012. In addition to
cash in non-interest bearing accounts, the final rule's definition of non-interest bearing transaction accounts encompasses "official checks" issued by
insured depository institutions. Official checks, such as cashier checks and money orders issued by insured depository institutions, are "deposits" as
defined under the FDI Act. The payee of the official check is the insured party. The legislation will also allow banks to begin paying interest on
demand deposit accounts beginning on July 21, 2011. However, this alternative does not provide unlimited insurance coverage.
With respect to our credit union customers, our credit exposure is partially mitigated by National Credit Union Administration insurance. However,
as our credit union customers were not insured by a TLGP-equivalent program, we have required certain credit union customers to provide us with
larger balances on deposit and/or to issue cashier's checks only. While the value of these assets are not at risk in a disruption or collapse of a
counterparty financial institution, the delay in accessing our assets could adversely affect our liquidity and potentially our earnings depending upon
the severity of the delay and corrective actions we may need to take. Corrective actions could include draws upon our senior facility to provide
short-term liquidity until our assets are released, reimbursements of costs or payment of penalties to our agents and higher banking fees to transition
banking relationships in a short timeframe.
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The concentration in U.S. government agencies includes agencies placed under conservatorship by the U.S. government in 2008 and extended
unlimited lines of credit from the U.S. Treasury. The implicit guarantee of the U.S. government and its actions to date support our belief that the
U.S. government will honor the obligations of its agencies if the agencies are unable to do so themselves.
The following table shows categories of our investment portfolio held within and outside of the United States, with each section progressing from
the Company's perceived lowest to highest credit risk. All but $23.7 million of the investment portfolio is invested in cash, cash equivalents, short-
term investments and investments issued or collateralized by U.S. government agencies. Approximately 95 percent of the portfolio is invested in
cash, cash equivalents and short-term investments, with 92 percent invested in financial institutions located within the United States. Cash and cash
equivalents held in financial institutions outside of the United States is placed to comply with local requirements or for operating use by our
international entities. At December 31, 2010, our investment portfolio was distributed among 55 financial institutions as shown below. To prevent
duplication in counts, the number of financial institutions holding our investment portfolio is shown on an incremental basis.
(Amounts in thousands)
Cash equivalents collateralized by securities issued by U.S. government agencies
Available-for-sale investments issued or collateralized by U.S. government agencies
Cash, cash equivalents and short-term investments at institutions
Cash, cash equivalents and short-term investments at institutions
Cash, cash equivalents and short-term investments at institutions
Cash, cash equivalents and short-term investments at institutions
Other asset-backed securities
rated AA
rated A
rated BBB
rated below BBB
Investment portfolio held within the United States
Cash held on-hand at owned retail locations
Cash, cash equivalents and short-term investments held at institutions rated AA
Cash, cash equivalents and short-term investments at institutions
Cash, cash equivalents and short-term investments at institutions
rated A
rated below A
Investment portfolio held outside the United States
Total investment portfolio
60
Number of
Financial
Institutions
Amount
Percent of
Investment
Portfolio
N/A
6 $ 1,818,137
137,226
5 1,243,820
106,432
4
409
2
13,592
9
23,710
N/A
26 3,343,326
8,512
N/A
15,480
1
45,813
10
19,515
18
29
89,320
55 $ 3,432,646
53%
4%
36%
3%
—
—
1%
97%
—
1%
1%
1%
3%
100%
Table of Contents
Receivables — Credit risk related to receivables is the risk that we are unable to collect the funds owed to us by our agents and financial institution
customers who have collected the principal amount and fees associated with the sale of our payment instruments from the consumer on our behalf.
Substantially all of the business conducted by our Global Funds Transfer segment is conducted through independent agents, while the business
conducted by the Financial Paper Products segment is conducted through both independent financial institution customers and agents. Our agents
and financial institution customers receive the principal amount and fees related to the sale of our payment instruments, and we must then collect
these funds from them. As a result, we have credit exposure to our agents and financial institution customers. Agents typically have from one to
three days to remit the funds, with longer remittance schedules granted to international agents and certain domestic agents. As of December 31,
2010, we had credit exposure to our agents of $594.0 million in the aggregate spread across over 15,000 agents, of which three agents owed us in
excess of $15.0 million each. As of December 31, 2010, we had a credit exposure to our official check financial institution customers of
approximately $375.7 million in the aggregate spread across 1,400 financial institutions, of which one owed us in excess of $15.0 million.
Our strategy in managing credit risk related to receivables is to ensure that the revenue generation from an agent or financial institution customer is
sufficient to provide for an appropriate level of credit risk and to reduce concentrations of risk through diversification, termination of agents or
financial institution customers with poor risk-reward ratios or other means. Management's decision during the fourth quarter of 2008 to terminate its
ACH Commerce business was based primarily on a review of the credit risk associated with that business.
As our official checks are issued solely through financial institution customers, we do not consider our credit exposure related to receivables to be
significant for official checks. Due to the larger average principal amount of money orders, we consider our credit exposure from money orders to be
of higher risk than exposure due to money transfers. However, in the current macroeconomic environment and as a result of our international
growth, credit risk related to our money transfer products is increasing. While the extent of credit risk may vary by product, the process for
mitigating risk is substantially the same. We assess the creditworthiness of each potential agent before accepting them into our distribution network.
This underwriting process includes not only a determination of whether to accept a new agent, but also the remittance schedule and volume of
transactions that the agent will be allowed to perform in a given timeframe. We actively monitor the credit risk of our existing agents by conducting
periodic comprehensive financial reviews and cash flow analyses of our agents that average high volumes of transactions and monitoring remittance
patterns versus reported sales on a daily basis. In the current macroeconomic environment, we have tightened our underwriting requirements and
have initiated earlier action against agents with a pattern of delayed or late remittances. We also utilize software embedded in our money transfer
and retail money order point of sale equipment which provides credit risk management abilities. First, this software allows us to control both the
number and dollar amount of transactions that can be completed by both agent and location in a particular timeframe. Second, this software allows
us to monitor for suspicious transactions or volumes of sales, which assists us in uncovering irregularities such as money laundering, fraud or agent
self-use. Finally, the software allows us to remotely disable the point of sale equipment to prevent agents from transacting 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. Where appropriate, we will also require bank-issued lines of credit to support our receivables and guarantees
from the owners or parent companies, although such guarantees are often unsecured.
The risk related to official checks is mitigated by only selling these products through financial institution customers, who have never defaulted on
their remittances to us and have had only rare instances of delayed remittances. Substantially all of our financial institution customers have a
next-day remit requirement, which reduces the build-up of credit exposure at each financial institution. In addition, the termination of our top 10
financial institution customers in connection with the restructuring of our official check business in 2008 has resulted in less credit exposure at a
relatively small number of financial institutions.
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Agents who only sell money orders typically have longer remit timeframes than other agents; in addition, the per transaction revenue tends to be
smaller for money orders than for money transfers. As part of our review of the money order business, we evaluated our money order only agents to
identify agents where the credit risk outweighs the revenue potential. The Company considered various mitigation actions for the identified agents,
including termination of relationships, reductions in permitted transaction volumes and dollars, repricing the fees charged to the agent and
prefunding by the agent of average remittances.
Derivative Financial Instruments — Credit risk related to our derivative financial instruments relates to the risk that we are unable to collect
amounts owed to us by the counterparties to our derivative agreements. With the termination of our interest rate swaps in the second quarter of 2008,
our derivative financial instruments are used solely to manage exposures to fluctuations in foreign currency exchange rates. If the counterparties to
any of our derivative financial instruments were to default on payments or experience credit rating downgrades, the value of the derivative financial
instruments would decline and adversely impact our operating income. We manage credit risk related to derivative financial instruments by entering
into agreements with only major financial institutions and regularly monitoring the credit ratings of these financial institutions. We also only enter
into agreements with financial institutions that are experienced in the foreign currency upon which the agreement is based.
Interest Rate Risk
Interest rate risk represents the risk that our operating results are negatively impacted, and our investment portfolio declines in value, due to changes
in interest rates. Given the nature of the realigned investment portfolio, particularly the high credit rating of financial institutions holding or issuing
our cash, cash equivalents and short-term investments, along with the implicit guarantee of the U.S. government backing our money markets and
majority of available-for-sale investments, we believe there is a low risk that the value of these securities would decline such that we would have a
material adverse change in our operating results. As of December 31, 2010, the Company held $538.6 million, or 16%, of the investment portfolio in
fixed rate investments.
At December 31, 2010, the Company's "Other asset-backed securities" are priced on average at five cents on the dollar for a total fair value of
$23.7 million. While the Company does believe its "Other asset-backed securities" are at a risk of further decline, the 2008 Recapitalization
completed on March 25, 2008 included funds to cover all losses on these securities, as well as the trading investments. Accordingly, any resulting
adverse movement in our stockholders' equity or assets in excess of payment service obligations from further declines in investments would not
result in regulatory or contractual compliance exceptions.
Our operating results are primarily impacted by interest rate risk through our net investment margin, which is investment revenue less commissions
expense. As the money transfer business is not materially affected by investment revenue and pays commissions that are not tied to an interest rate
index, interest rate risk has the most impact on our money order and official check businesses. After the portfolio realignment, we are invested
primarily in interest-bearing cash accounts, deposit accounts, time deposits and certificates of deposit, and U.S. government money market funds.
These types of investments have minimal risk of declines in fair value from changes in interest rates, with the interest rate resetting frequently, if not
daily. Our commissions paid to financial institution customers are variable rate, based primarily on the federal funds effective rate and are reset
daily. Accordingly, both our investment revenue and our investment commissions expense will decrease when rates decline and increase when rates
rise. As a result of our repricing initiative, described below, and the frequent resetting of interest rates earned on the investment portfolio, we believe
that investment revenue and investment commissions would increase or decrease approximately in tandem. In addition, the investment portfolio and
commission interest rates may differ, resulting in basis risk. We do not believe this risk is material and therefore do not currently employ any
hedging strategies to address the basis risk between our commission rates and our investment portfolio, nor do we currently expect to employ such
hedging strategies. As a result, our net investment margin may be adversely impacted if changes in the commission rate move by a larger percentage
than the yield on our investment portfolio.
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In the second quarter of 2008, we repriced our official check product to an average of federal funds effective rate less 85 basis points to better match
our investment commission rate with our lower yield realigned portfolio. In the current environment, the federal funds effective rate is so low that
most of our financial institution customers are in a "negative" commission position, in that we do not owe any commissions to our customers. While
many of our contracts require the financial institution customers to pay us the negative commission amount, we have opted not to require such
payment at this time. As the revenue earned by our financial institution customers from the sale of our official checks primarily comes from the
receipt of their investment commissions from us, the negative commissions reduce the revenue our financial institution customers earn from our
product. Accordingly, our financial institution customers may sharply reduce their issuances of official checks or choose to not renew their contracts
with us if the negative commission positions continue. A substantial decline in the amount of official checks sold would reduce our investment
balances, which would in turn result in lower investment revenue for us. As official checks are still required for many financial transactions,
including home closings and vehicle purchases, we believe that risk is naturally mitigated in part. We continue to assess the potential impact of
negative commissions on our official check business. While there are currently no plans for changes to our business as a result of the negative
commissions, we may elect in the future to change some portion of our compensation structure for select financial institution customers to mitigate
the risk of substantial declines in our investment balances.
Our senior facility is floating rate debt, resulting in decreases to interest expense in a declining rate environment and increases to interest expense
when rates rise. The Company may elect an interest rate for the senior facility at each reset period based on the United States prime bank rate or the
Eurodollar rate. For the revolving credit facility and Tranche A, the interest rate is either the United States prime bank rate plus 250 basis points or
the Eurodollar rate plus 350 basis points. As of December 31, 2010 the Company has no outstanding balance related to the revolving credit facility.
For Tranche B, the interest rate is either the United States prime bank rate plus 400 basis points or the Eurodollar rate plus 500 basis points. Under
the terms of the senior facility, the interest rate determined using the Eurodollar index has a minimum rate of 2.50 percent. Throughout 2010, the
Company elected to use the United States prime bank rate as its basis. Elections are based on the index which we believe will yield the lowest
interest rate until the next reset date. Interest rate risk is managed in part through index election.
The income statement simulation analysis below incorporates substantially all of our interest rate 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. Components of our pre-tax income that are interest rate sensitive include "Investment revenue,"
"Investment commissions expense" and "Interest expense." As a result of the current federal funds rate environment, the outcome of the income
statement simulation analysis on "Investment commissions expense" in a declining rate scenario is not meaningful as we have no downside risk. In
the current federal funds rate environment, the worst case scenario is that we would not owe any commissions to our financial institution customers
as the commission rate would decline to zero or become negative. Accordingly, we have not presented the impact of the simulation in a declining
rate environment for "Investment commissions expense." The following table summarizes the changes to affected components of the income
statement under various scenarios.
Basis Point Change in Interest Rates
(Amounts in thousands)
Interest income
Percent change
Investment commissions expense
Percent change
Interest expense
Percent change
Pre-tax loss from continuing operations
Percent change
Down
200
Down
100
Down
50
$ (974)
$ (862)
$ (765)
$
(6.1)%
(5.4)%
(4.8)%
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
63
NM
NM
NM
NM
NM
NM
Up
50
3,398
21.3%
(72)
(11.5)%
(188)
(0.2)%
$
$
$
Up
100
6,802
$
42.6%
(502)
(80.4)%
(230)
(0.3)%
$
$
$
$
$
3,137
$
6,069
$
4.2%
8.1%
Up
200
13,512
84.6%
(7,347)
(1177.4)%
(250)
(0.3)%
5,915
7.9%
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Foreign Currency Risk
We are exposed to foreign currency risk in the ordinary course of business as we offer our products and services through a network of agents and
financial institutions with locations in 190 countries and operate subsidiaries in 11 countries. As this risk may have an adverse effect on our earnings
and equity, we hedge material transactional exposures when feasible using forward or option contracts. Translation risk, generated from translating
foreign currency-denominated earnings into U.S. dollars for reporting purposes, is not hedged as this is not considered an economic exposure. In
2010, the decline of the euro exchange rate (net of hedging activities) resulted in a net decrease to our operating results of $3.0 million over 2009.
By policy, we do not speculate in foreign currencies; all currency trades relate to underlying transactional exposures.
Our primary source of transactional currency risk is the money transfer business in which funds are frequently transferred cross-border and we settle
with agents in multiple currencies. Although this risk is somewhat limited due to the fact that these transactions are short-term in nature, we
currently manage some of this risk with forward contracts to protect against potential short-term market volatility. In addition, we buy and sell in the
spot market daily to settle transactions. The primary currency pairs, based on volume, that are traded against the dollar in the spot and forward
markets include the European euro, Mexican peso, British pound and Indian rupee. The duration of forward contracts is typically less than one
month.
Realized and unrealized gains or losses on transactional currency risk hedges and any associated revaluation of balance sheet exposures are recorded
in "Transaction and operations support" in the Consolidated Statement of Income (Loss). The fair market value of any open hedges at period end are
recorded in "Other assets" in the Consolidated Balance Sheets. The net effect of changes in foreign exchange rates and the related forward contracts
for the year ended December 31, 2010 was a loss of $5.4 million. We do not currently have any forward contracts that are designated as hedges for
accounting purposes.
Had the euro appreciated/depreciated relative to the U.S. dollar by 20 percent from actual exchange rates for 2010, pre-tax operating income would
have increased/decreased $11.1 million for the year. This sensitivity analysis does not consider the impact of our hedging program.
Operational Risk
Operational risk represents the potential for loss resulting from our operations. This may include, but is not limited to the risk of fraud by employees
or external parties, business continuation and disaster recovery, errors related to transaction processing and technology, unauthorized transactions
and breaches of information security and compliance requirements. This risk may also include the potential legal actions that could arise as a result
of an operational deficiency or as a result of noncompliance with applicable regulatory requirements. Management has direct responsibility for
identifying, controlling and monitoring operational risks within their business. Business managers maintain a system of controls to provide
transaction authorization and execution, safeguarding of assets from misuse or theft, and to ensure the quality of financial and other data. Our
Business Resiliency group works with each business function to develop plans to support business resumption activities including technology,
networks and data centers. Our internal audit function tests the system of internal controls through risk-based audit procedures and reports on the
effectiveness of internal controls to executive management and the Audit Committee of the Board of Directors.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures in the consolidated financial statements. Actual results could differ from those estimates. On a
regular basis, management reviews its accounting policies, assumptions and estimates to ensure that our financial statements are presented fairly and
in accordance with GAAP. See Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for a
comprehensive list of our accounting policies.
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Critical accounting policies are those policies that management believes are most important to the portrayal of our 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, including the methodology and
disclosures related to those estimates.
Fair Value of Investment Securities — Investment securities classified as trading and available-for-sale are recorded at fair value. Realized gains and
losses and other-than-temporary impairments related to these investment securities, along with unrealized gains and losses related to trading
securities, are reported in the "Net securities (gains) losses" line in the Consolidated Statements of Income (Loss). Unrealized gains and losses
related to available-for-sale securities are recorded in accumulated other comprehensive loss in stockholders' deficit.
We measure fair value as an "exit price," or the exchange price that would be received for an asset in an orderly transaction between market
participants on the measurement date. A three-level hierarchy has been established for fair value measurements based upon the observability of the
inputs to the valuation of an asset or liability, and requires that the use of observable inputs be maximized and the use of unobservable inputs be
minimized. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs.
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 for
similar securities, broker quotes or industry-standard models that utilize independently sourced market parameters.
We receive prices from an independent pricing service for the vast majority of the fair value of our investment securities. We verify these prices
through periodic internal valuations, as well as through comparison to comparable securities, any broker 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. We receive prices from an independent pricing service for all investments classified as residential mortgage-backed securities and U.S.
government agencies, as well as certain other asset-backed securities.
For investments that are not actively traded, or for which there is not sufficient observable market information, we estimate fair value using broker
quotes when available. When such quotes are not available, and to verify broker quotes received, we estimate fair value using industry-standard
pricing models that utilize independently sourced market observable parameters, discount margins for comparable securities adjusted for differences
in our 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. We maximize the use of market observable information to the extent possible, and make our best
estimate of the assumptions that a similar market participant would make. Our other asset-backed securities are primarily valued through the use of
broker quotes or internal valuations.
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 as it
relates to our other asset-backed securities. As of December 31, 2010, we continue to hold investments classified as other asset-backed securities
with a fair value of $23.7 million. Using the highest and lowest prices received as part of the valuation process described above, the range of fair
value for these securities was $23.2 million to $31.6 million. At December 31, 2010, $20.8 million, or less than 1 percent, of our total investment
portfolio was valued using internal pricing information. No third party price was able to be obtained for these securities.
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Goodwill — We perform impairment testing of our goodwill balances annually as of November 30, and whenever an impairment indicator is
identified. The testing is performed by comparing the estimated fair value of our reporting units to their carrying values. The fair value of our
reporting units is estimated based on expected future cash flows discounted using a weighted-average cost of capital rate (the "discount rate"). Our
discount rate is based on our debt and equity balances, adjusted for current market conditions and investor expectations of return on our equity. In
addition, an assumed terminal value is used to project future cash flows beyond base years. Assumptions used in our impairment testing, such as
forecasted growth rates and the discount rate, 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.
In connection with the annual impairment test for 2010, we assessed the Global Funds Transfer reporting unit, which had assigned goodwill of
$428.7 million. No goodwill is assigned to the other reporting units. The annual impairment test indicated a fair value for the Global Funds Transfer
reporting unit that was substantially in excess of the reporting unit's carrying value. This excess is consistent with our expectations for the reporting
unit and market indicators. Accordingly, we believe the goodwill assigned to the Global Funds Transfer reporting unit is not impaired. If the
discount rate for the Global Funds Transfer reporting unit increases by 50 basis points from the rate used in our fair value estimate, fair value would
be reduced by approximately $78.4 million, assuming all other components of the fair value estimate remain unchanged. If the growth rate for the
Global Funds Transfer reporting unit decreases by 50 basis points from the rate used in our fair value estimate, fair value would be reduced by
approximately $28.2 million, assuming all other components of the fair value estimate remain unchanged. Our estimated fair value for the Global
Funds Transfer reporting unit would continue to be substantially in excess under either scenario.
Pension obligations — Through our qualified pension plan and various supplemental executive retirement plans, collectively referred to as our
"pension" plans, we provide defined benefit pension plan coverage to certain of our employees and former employees of Viad. Our pension
obligations under these plans are measured as of December 31 (the "measurement date"). Pension benefits and the related expense are based upon
actuarial projections using assumptions regarding mortality, discount rates, long-term return on assets and other factors. Following are the weighted-
average actuarial assumptions used in calculating the benefit obligation as of each measurement date 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
2010
2009
2008
5.80%
8.00%
5.75%
5.30%
5.75%
6.30%
8.00%
5.75%
5.80%
5.75%
6.50%
8.00%
5.75%
6.30%
5.75%
At each measurement date, the discount rate is based on the then current interest rates for high-quality, long-term corporate debt securities with
maturities comparable to our obligations. The rate of compensation increase is applicable to the supplemental executive retirement plans (the
"SERPs") only and is based on historical compensation patterns for the plan participants and management's expectations for future compensation
patterns. During 2010, benefit accruals under all but one of the SERPs were frozen; for the one SERP, service credit is frozen, but future pay
increases continue to be applicable for active participants. Accordingly, the rate of compensation has a nominal impact on the valuation for 2010 and
future years.
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Our pension plan assets are primarily invested in interest-bearing cash accounts and commingled trust funds issued or sponsored by the plan trustee.
Our investments are periodically realigned in accordance with the investment guidelines. The expected return on pension plan assets is based on our
historical market experience, our pension plan investment strategy and our expectations for long-term rates of return. We also consider peer data and
historical returns to assess the reasonableness and appropriateness of our expected return. Our pension plan investment strategy is reviewed annually
and is based upon plan obligations, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. At
December 31, 2010, the pension assets are composed of approximately 60 percent in U.S. domestic and international equity stock funds,
approximately 34 percent in fixed income securities such as global bond funds and corporate obligations, approximately 4 percent in a real estate
limited partnership interest and approximately 2 percent in other securities.
The actual rate of return on average pension assets in 2010 was 4.8 percent, as compared to a 4.5 percent rate of return in 2009. We believe the 2010
returns indicate continued stabilization in the markets, and anticipate a return to historical long-term norms in the future. This is consistent with the
widely accepted capital market principle that assets with higher volatility generate greater long-term returns and the historical cyclicality of the
investment markets. Accordingly, we do not believe that the actual return for 2010 is significantly different from the long-term expected return used
to estimate the benefit obligation. In addition, the participants of our plans are relatively young, providing the plan assets with sufficient time to
recover to historical return rates.
Our assumptions reflect our historical experience and management's best judgment regarding future expectations. Certain of the assumptions,
particularly the discount rate and expected return on plan assets, require significant judgment and could have a material impact on the measurement
of our pension obligation. Changing the discount rate by 50 basis points would have increased/decreased 2010 pension expense by $0.4 million.
Changing the expected rate of return by 50 basis points would have increased/decreased 2010 pension expense by $0.5 million.
Income Taxes — We are subject to income taxes in the United States and various foreign jurisdictions. In determining taxable income, income or
losses before taxes are adjusted for various differences between local tax laws and generally accepted accounting principles. The 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 future tax consequences attributable to temporary differences that exist between the
financial statement carrying value of assets and liabilities and their respective tax basis, and operating loss and tax credit carry-backs and carry-
forwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted statutory tax rates that will apply in the years in
which we expect the temporary differences to be recovered or paid.
We establish valuation allowances for our deferred tax assets based on a more likely than not threshold. In assessing the need for a valuation
allowance, we consider both positive and negative evidence related to the likelihood that the deferred tax assets will be realized. If, based on the
weight of available evidence, it is deemed more likely than not that the deferred tax assets will not be realized, we establish or maintain a valuation
allowance. We weigh the positive and negative evidence commensurate with the extent it may be objectively verified. It is generally difficult for
positive evidence regarding projected future taxable income, exclusive of reversing taxable temporary differences, to outweigh objective negative
evidence, particularly cumulative losses. Our assessment of whether a valuation allowance is required or should be adjusted requires judgment and is
completed on a taxing jurisdiction basis. We consider, among other matters: the nature, frequency and severity of any cumulative financial reporting
losses; the ability to carry back losses to prior years; future reversals of existing taxable temporary differences; tax planning strategies; and
projections of future taxable income. The accounting treatment of our deferred taxes represents our best estimate of these items. A valuation
allowance established or revised as a result of our assessment is recorded through "Income tax expense (benefit)" in our Consolidated Statements of
Income (Loss). Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition
and results of operations.
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We account for our liability for unrecognized tax benefits using a two-step approach to recognizing and measuring uncertain tax positions. 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 upon audit by the tax authority, including resolution of any related appeals or litigation processes. 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. Actual tax amounts may be materially different from amounts accrued based upon the results of audits
by the tax authorities. The amount of income tax or benefit recognized in our Consolidated Statements of Income (Loss) includes the impact of
reserve provisions and changes to reserves that are considered appropriate based on current information and management's best estimate, as well as
any applicable related net interest and penalties.
Prior to our June 2004 spin-off from Viad, income taxes were determined on a separate return basis as if we had not been eligible to be included in
the consolidated income tax return of Viad and its affiliates. We are considered the divesting entity in the spin-off and treated as the "accounting
successor" to Viad, with the continuing business of Viad is referred to as "New Viad." As part of the spin-off, we 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 MoneyGram and Viad, subsequent adjustments may occur upon filing of amended returns or
resolution of audits by various taxing authorities.
Recent accounting developments are set forth in Note 2 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial
Statements.
Recent Accounting Developments
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 Part I, Item 1A titled "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 Debt Service and Dividend Obligations. Our substantial debt service and our covenant requirements may adversely impact our
ability to obtain additional financing and to operate and grow our business and may make us more vulnerable to negative economic conditions.
• Completion of the Proposed 2011 Recapitalization. Our proposed 2011 Recapitalization is subject to a number of conditions beyond our
control that may prevent, delay or otherwise materially adversely affect the completion of the 2011 Recapitalization.
• Significant Dilution to Stockholders and Control of Investors. The Series B Stock issued to the Investors at the closing of our 2008
Recapitalization, dividends accrued on the Series B Stock post-closing and special voting rights provided to the Investors' designees on the
Company's Board of Directors significantly dilute the interests of our existing stockholders and give the Investors control of the Company.
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• Sustained Disruptions in Financial Market or Financial Institution Liquidity. Disruption in the financial markets or at financial institutions
may adversely affect our liquidity, our agents' liquidity, our access to credit and capital, our agents' access to credit and capital and our
earnings on our investment portfolio.
• Sustained Negative Economic Conditions. Negative economic conditions generally and in geographic areas or industries that are important to
our business may cause a decline in our transaction volume, and we may be unable to timely and effectively reduce our operating costs or take
other actions in response to a significant decline in transaction volume.
• International Migration Patterns. A material slow down or complete disruption of international migration patterns could adversely affect our
money transfer volume and growth rate.
• Retention of Global Funds Transfer Agents and Billers. We may be unable to maintain retail agent or biller relationships or we may
experience a reduction in transaction volume from these relationships.
• 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, penalties or legal fees.
• Credit Risks. If we are unable to manage credit risks from our retail agents and official check financial institution customers, which risks may
increase during negative economic conditions, our business could be harmed.
• Fraud Risks. If we are unable to manage fraud risks from consumers or certain agents, which risks may increase during negative economic
conditions, our business could be harmed.
• Maintenance of Banking Relationships. We may be unable to maintain existing or establish new banking relationships, including the
Company's domestic and international clearing bank relationships, which could adversely affect our business, results of operation and our
financial condition.
• Interest Rate Fluctuations. Fluctuations in interest rates may negatively affect the net investment margin of our official check and money
order businesses.
• Repricing of our Official Check and Money Order Businesses. We may be unable to operate our official check and money order businesses
profitably as a result of our revised pricing strategies.
• Failure to Maintain Sufficient Capital. We may be unable to maintain sufficient capital to pursue our growth strategy, fund key strategic
initiatives, and meet evolving regulatory requirements.
• Failure to Attract and Retain Key Employees. We may be unable to attract and retain key employees.
• 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 to invest in new products or services and
infrastructure.
• Intellectual Property. If we are unable to adequately protect our brand and other intellectual property rights and avoid infringing on third-
party intellectual property rights, our business could be harmed.
• 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.
• United States and International Regulation. Failure by us or our agents to comply with the laws and regulatory requirements in the United
States and abroad, including the recently enacted Dodd-Frank Act and the regulations developed thereunder or changes in laws, regulations or
other industry practices and standards, could have an adverse effect on our results of operations, or change our relationships with our
customers, investors and other stakeholders.
• Changes in Laws. The Dodd-Frank Act, as well as regulations required thereby, and other laws or regulations that may be adopted in the
future, could adversely affect us.
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• Increased Regulation of Financial Services Companies. The Dodd-Frank Act increases the regulation of financial services companies
generally, including non-bank financial companies supervised by the Federal Reserve.
• Consumer Financial Protection Act. We will be subject to various provisions of the Consumer Financial Protection Act of 2010, which will
result in a new regulator with new and expanded compliance requirements, which is likely to increase our costs.
• Operation in Politically Volatile Areas. Offering money transfer services through agents in regions that are politically volatile or, in a limited
number of cases, are subject to certain OFAC restrictions, could cause contravention of U.S. law or regulations by us or our agents, subject us
to fines and penalties and cause us reputational harm.
• Network and Data Security. A significant security or privacy breach in our facilities, networks or databases could harm our business.
• Systems Interruption. A breakdown, catastrophic event, security breach, improper operation or other event impacting our systems or processes
or the systems or processes of our vendors, agents and financial institution customers could result in financial loss, loss of customers,
regulatory sanctions and damage to our brand and reputation.
• Technology Scalability. We may be unable to scale our technology to match our business and transactional growth.
• Company Retail Locations and Acquisitions. If we are unable to manage risks associated with running Company-owned retail locations and
acquiring businesses, our business could be harmed.
• International Risks. Our business and results of operation may be adversely affected by political, economic or other instability in countries
that are important to our business.
• Tax Matters. Changes in tax laws or an unfavorable outcome with respect to the audit of our tax returns or tax positions, or a failure by us to
establish adequate reserves for tax events, could adversely affect our results of operations.
• Status as a Bank Holding Company Subsidiary. As a deemed subsidiary of a bank holding company regulated under the BHC Act of 1956, we
are subject to supervision, regulation and regular examination by the Federal Reserve.
• 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.
• 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.
• Debt. If the Company issues a large amount of debt, it may be more difficult for the Company to obtain future financing and our cash flow
may not be sufficient to make required payments or repay our indebtedness when it matures.
• Anti-Takeover Provisions. Our charter documents and Delaware law contain provisions that may have the effect of delaying, deterring or
preventing a merger or change of control of our Company.
• NYSE Delisting. We may be unable to continue to satisfy the NYSE criteria for listing on the exchange.
• Other Factors. Additional risk factors may be described in our other filings with the SEC from time to time.
Actual results may differ materially from historical and anticipated results. These forward-looking statements speak only as of the date on which
such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date.
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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.
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-65. 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.
In the third quarter of 2010, the Company implemented a new technology system to enhance certain processes, particularly those related to its
partner set-up, settlement and partner servicing for the money transfer, bill payment and money order products. The new system will allow the
Company to increase the flexibility of our back office, improve operating efficiencies and automate certain controls and compliance efforts. Other
than process changes related to this implementation, there were no changes 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, 2010 that have materially affected, or are 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.
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PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this Item is contained in our definitive Proxy Statement for our 2011 Annual Meeting of Stockholders, and is
incorporated herein by reference.
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 called for by this Item is contained in our definitive Proxy Statement for our 2011 Annual Meeting of Stockholders, and is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information called for by this Item is contained in our definitive Proxy Statement for our 2011 Annual Meeting of Stockholders, and is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this Item is contained in our definitive Proxy Statement for our 2011 Annual Meeting of Stockholders, and is
incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information called for by this Item is contained in our definitive Proxy Statement for our 2011 Annual Meeting of Stockholders, and is
incorporated herein by reference.
72
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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.
73
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
Date: March 15, 2011
MoneyGram International, Inc.
(Registrant)
By:
/s/ Pamela H. Patsley
Pamela H. Patsley
(Principal Executive Officer)
Chairman 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 15, 2010.
/s/ Pamela H. Patsley
Pamela H. Patsley
/s/ James E. Shields
James E. Shields
/s/ Rebecca L. Lobsinger
Rebecca L. Lobsinger
*
J. Coley Clark
*
Victor W. Dahir
*
Thomas M. Hagerty
*
Scott L. Jaeckel
*
Seth W. Lawry
*
Ann Mather
*
Ganesh B. Rao
*
W. Bruce Turner
/s/ Timothy C. Everett
Timothy C. Everett
*As attorney-in-fact
Chairman and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
Vice President, Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Executive Vice President, General Counsel and Corporate Secretary
74
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Exhibit
Number
2.1
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
10.1
10.2
†10.3
†10.4
†10.5
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., as amended (Incorporated by reference from
Exhibit 3.1 to Registrant's Annual Report on Form 10-K filed on March 15, 2010).
Bylaws of MoneyGram International, Inc., as amended and restated September 10, 2009 (Incorporated by reference from Exhibit 3.01 to
Registrant's Current Report on Form 8-K filed on September 16, 2009).
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).
Certificate of Designations, Preferences and Rights of the Series B Participating Convertible Preferred Stock of MoneyGram
International, Inc. (Incorporated by reference from Exhibit 4.2 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
Certificate of Designations, Preferences and Rights of the Series B-1 Participating Convertible Preferred Stock of MoneyGram
International, Inc. (Incorporated by reference from Exhibit 4.3 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
Certificate of Designations, Preferences and Rights of the Series D Participating Convertible Preferred Stock of MoneyGram
International, Inc. (Incorporated by reference from Exhibit 4.4 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
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).
Indenture, dated as of March 25, 2008, 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 4.1 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
Registration Rights Agreement, dated as of March 25, 2008, by and among the several Investor parties named therein and MoneyGram
International, Inc. (Incorporated by reference from Exhibit 4.5 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
Exchange and Registration Rights Agreement, dated as of March 25, 2008, 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 4.6 to Registrant's Current Report on Form 8-K filed on March 28, 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).
MoneyGram International, Inc. 2005 Omnibus Incentive Plan, as amended February 17, 2010 (Incorporated by reference from
Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on February 22, 2010).
Form of Amended and Restated Non-Employee Director Indemnification Agreement between MoneyGram International, Inc. and Non-
Employee Directors of MoneyGram International, Inc. (Incorporated by reference from Exhibit 10.02 to Registrant's Current Report on
Form 8-K filed on February 13, 2009).
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Exhibit
Number
†10.6
†10.7
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
Description
Form of Employee Director Indemnification Agreement between MoneyGram International, Inc. and Employee Directors of MoneyGram
International, Inc. (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report on Form 8-K filed on February 13, 2009).
MoneyGram International, Inc. Performance Bonus Plan, as amended and restated February 17, 2010 (formerly known as the
MoneyGram International, Inc. Management and Line of Business Incentive Plan) (Incorporated by reference from Exhibit 10.02 to
Registrant's Current Report on Form 8-K filed on February 22, 1010).
Amended and Restated Trademark Security Agreement, dated as of March 25, 2008, by and between MoneyGram International, Inc. and
JPMorgan Chase Bank, N.A., as collateral agent (Incorporated by reference from Exhibit 10.10 to Registrants' Current Report on Form 8-
K filed on March 28, 2008).
Trademark Security Agreement, dated as of March 25, 2008, by and between PropertyBridge, Inc. and JPMorgan Chase Bank, N.A., as
collateral agent (Incorporated by reference from Exhibit 10.11 to Registrants' Current Report on Form 8-K filed on March 28, 2008).
Second Priority Trademark Security Agreement, dated as of March 25, 2008, by and between PropertyBridge, Inc., as grantor, and
Deutsche Bank Trust Company Americas, as collateral agent for the secured parties (Incorporated by reference from Exhibit 10.12 to
Registrants' Current Report on Form 8-K filed on March 28, 2008).
Second Priority Trademark Security Agreement, dated as of March 25, 2008, by and between MoneyGram International, Inc., as grantor,
and Deutsche Bank Trust Company Americas, as collateral agent for the secured parties (Incorporated by reference from Exhibit 10.13 to
Registrants' Current Report on Form 8-K filed on March 28, 2008).
Amended and Restated Patent Security Agreement, dated as of March 25, 2008, by and between MoneyGram International, Inc. and
JPMorgan Chase Bank, N.A., as collateral agent (Incorporated by reference from Exhibit 10.14 to Registrants' Current Report on Form 8-
K filed on March 28, 2008).
Patent Security Agreement, dated as of March 25, 2008, by and between MoneyGram Payment Systems, Inc. and JPMorgan Chase Bank,
N.A., as collateral agent (Incorporated by reference from Exhibit 10.15 to Registrants' Current Report on Form 8-K filed on March 28,
2008).
Second Priority Patent Security Agreement, dated as of March 25, 2008, by and between MoneyGram Payment Systems, Inc., as grantor,
and Deutsche Bank Trust Company Americas, as collateral agent for the secured parties (Incorporated by reference from Exhibit 10.16 to
Registrants' Current Report on Form 8-K filed on March 28, 2008).
Second Priority Patent Security Agreement, dated as of March 25, 2008, by and between MoneyGram International, Inc., as grantor, and
Deutsche Bank Trust Company Americas, as collateral agent for the secured parties (Incorporated by reference from Exhibit 10.17 to
Registrants' Current Report on Form 8-K filed on March 28, 2008).
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).
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).
First Amendment of the Amended and Restated MoneyGram International, Inc. Executive Severance Plan (Tier I) (Incorporated by
reference from Exhibit 10.20 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
MoneyGram International, Inc. Special Executive Severance Plan (Tier I) dated March 25, 2008 (Incorporated by reference from
Exhibit 10.18 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
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).
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Exhibit
Number
†10.22
†10.23
†10.24
†10.25
†10.26
†10.27
+10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
Description
First Amendment of the Amended and Restated MoneyGram International, Inc. Executive Severance Plan (Tier II) (Incorporated by
reference from Exhibit 10.21 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
MoneyGram International, Inc. Special Executive Severance Plan (Tier II) dated March 25, 2008 (Incorporated by reference from
Exhibit 10.19 to Registrant's Current Report on Form 8-K filed on March 28, 2008).
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).
First Amendment of MoneyGram Supplemental Pension Plan (Incorporated by reference from Exhibit 10.28 to Amendment No. 1 to
Registrant's Annual Report on Form 10-K/A filed on August 9, 2010).
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).
Second Amended and Restated Credit Agreement, dated as of March 25, 2008, 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 and the other lenders party thereto (Incorporated by reference from Exhibit 10.30 to Registrant's
Annual Report on Form 10-K filed on March 15, 2010).
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).
Amended and Restated Security Agreement, dated as of March 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., as collateral agent (Incorporated by reference from Exhibit 10.8 to Registrant's Current Report on
Form 8-K filed on March 28, 2008).
Second Priority Security Agreement, dated as of March 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
Deutsche Bank Trust Company Americas, as collateral agent (Incorporated by reference from Exhibit 10.9 to Registrant's Current Report
on Form 8-K filed on March 28, 2008).
Amended and Restated Pledge Agreement, dated as of March 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 10.6 to Registrant's Current Report on Form 8-K filed on
March 28, 2008).
Second Priority Pledge Agreement, dated as of March 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
Deutsche Bank Trust Company Americas (Incorporated by reference from Exhibit 10.7 to Registrant's Current Report on Form 8-K filed
on March 28, 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).
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).
77
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Exhibit
Number
10.36
10.37
10.38
+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
Description
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).
Fee Arrangement Letter, dated as of March 25, 2008, by and between the Investor parties named therein, 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 28, 2008).
Subscription Agreement, dated as of March 25, 2008, by and between MoneyGram International, Inc. and The Goldman Sachs Group,
Inc. (Incorporated by reference from Exhibit 10.4 to Registrant's Current Report on Form 8-K filed on March 28, 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 10.41 to Registrant's Annual Report on Form 10-K filed on March 15, 2010).
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).
Second Amended and Restated Note Purchase Agreement, dated as of March 24, 2008, among MoneyGram Payment Systems
Worldwide, Inc., MoneyGram International, Inc., GSMP V Onshore US, Ltd., GSMP V Offshore US, Ltd., and GSMP V Institutional US,
Ltd. (Incorporated by reference from Exhibit 10.5 to Registrant's Current Report on Form 8-K filed on March 28, 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 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. 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 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).
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Exhibit
Number
†10.52
†10.53
†10.54
†10.55
†10.56
†10.57
†10.58
†10.59
†10.60
†10.61
†10.62
†10.63
†10.64
†10.65
†10.66
†10.67
Description
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 Non-Qualified Stock Option Agreement, effective August 11, 2009
(version 1) (Incorporated by reference from Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q filed on November 9, 2009).
Form of MoneyGram International, Inc. 2005 Omnibus Incentive Plan Non-Qualified Stock Option Agreement, effective August 11, 2009
(version 2) (Incorporated by reference from Exhibit 10.9 to Registrant's Quarterly Report on Form 10-Q filed on November 9, 2009).
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).
Amended and Restated Employment Agreement, dated September 1, 2009, between MoneyGram International, Inc. and Pamela H.
Patsley (Incorporated by reference from Exhibit 10.02 to Registrant's Current Report on Form 8-K filed on September 4, 2009).
Non-Qualified Stock Option Agreement, dated January 21, 2009, between MoneyGram International, Inc. and Pamela H. Patsley
(Incorporated by reference from Exhibit 10.02 to Registrant's Current Report on Form 8-K filed on January 22, 2009).
Non-Qualified Stock Option Agreement, dated May 12, 2009, between MoneyGram International, Inc. and Pamela H. Patsley
(Incorporated by reference from Exhibit 10.02 to Registrant's Current Report on Form 8-K filed on May 18, 2009).
Non-Qualified Stock Option Agreement, dated August 31, 2009, between MoneyGram International, Inc. and Pamela H. Patsley
(Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on September 4, 2009).
Amendment to Non-Qualified Stock Option Agreements, dated August 31, 2009, between MoneyGram International, Inc. and Pamela H.
Patsley (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report on Form 8-K filed on September 4, 2009).
Non-Qualified Stock Option Agreement, dated August 11, 2009, between MoneyGram International, Inc. and Daniel J. O'Malley
(Incorporated by reference from Exhibit 10.02 to Registrant's Current Report on Form 8-K filed on August 13, 2009).
Employee Trade Secret, Confidential Information and Post-Employment Restriction Agreement, dated August 11, 2009, between
MoneyGram International, Inc. and Daniel J. O'Malley (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report on
Form 8-K filed on August 13, 2009).
Separation Agreement and Release of All Claims, dated as of June 18, 2008, between MoneyGram International, Inc. and Philip W. Milne
(Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on June 19, 2008).
Confidential Separation Agreement and Release of All Claims, dated as of April 7, 2008, by and between MoneyGram International, Inc.
and Long Lake Partners, L.P. and William J. Putney (Incorporated by reference from Exhibit 99.01 to Registrant's Current Report on
Form 8-K filed on April 11, 2008).
Independent Consulting Agreement, dated as of April 8, 2008, by and between MoneyGram Payment Systems, Inc., including all of its
parent organizations, holding companies, predecessors, divisions, affiliates, related companies and joint ventures, business units and
subsidiaries, and William J. Putney (Incorporated by reference from Exhibit 99.02 to Registrant's Current Report on Form 8-K filed on
April 11, 2008).
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Exhibit
Number
†10.68
†10.69
†10.70
†10.71
†10.72
†10.73
†10.74
†10.75
†10.76
†10.77
†10.78
†10.79
†10.80
10.81
†10.82
10.83
†10.84
†10.85
Description
Separation Agreement and Release of All Claims, dated as of March 20, 2009, between MoneyGram International, Inc. and David J.
Parrin (Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on March 20, 2009).
Separation Agreement and Release of All Claims, dated as of March 25, 2009, between MoneyGram International, Inc. and Mary A.
Dutra (Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on March 27, 2009)
Non-Qualified Stock Option Agreement, dated May 6, 2009, between MoneyGram International, Inc. and Anthony P. Ryan (Incorporated
by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on May 12, 2009).
Severance Agreement, dated as of May 6, 2009, between MoneyGram International, Inc. and Anthony P. Ryan (Incorporated by reference
from Exhibit 10.02 to Registrant's Current Report on Form 8-K filed on May 12, 2009).
Employee Trade Secret, Confidential Information and Post-Employment Restriction Agreement, dated May 6, 2009, between
MoneyGram Payment Systems, Inc. and Anthony P. Ryan (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report
on Form 8-K filed on May 12, 2009).
Agreement and Release, dated May 6, 2009, between MoneyGram International, Inc. and Anthony P. Ryan (Incorporated by reference
from Exhibit 10.04 to Registrant's Current Report on Form 8-K filed on May 12, 2009).
Separation Agreement and Release of All Claims, dated October 21, 2009, between MoneyGram International, Inc. and Anthony P. Ryan
(Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on October 22, 2009).
Separation Agreement and Release of All Claims, dated as of July 16, 2009, between MoneyGram International, Inc. and Teresa H.
Johnson (Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on July 16, 2009).
Offer Letter, dated July 28, 2009, between MoneyGram International, Inc. and Jeffrey R. Woods (Incorporated by reference from
Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on July 30, 2009).
Non-Qualified Stock Option Agreement, dated August 11, 2009, between MoneyGram International, Inc. and Jeffrey R. Woods
(Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on August 13, 2009).
Separation Agreement and Release of All Claims, dated as of January 15, 2010, between MoneyGram International, Inc. and Jeffrey R.
Woods (Incorporated by reference from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed on January 19, 2010).
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).
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
(Incorporated by reference from Exhibit 10.71 to Registrant's Annual Report on Form 10-K filed on March 25, 2008).
Form of Employee Trade Secret, Confidential Information and Post-Employment Restriction Agreement (Incorporated by reference from
Exhibit 10.27 to Registrant's Quarterly Report on Form 10-Q filed on May 12, 2008).
MoneyGram International, Inc. Severance Plan (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report on Form 8-
K/A filed November 22, 2010).
80
Table of Contents
Exhibit
Number
†10.86
†10.87
†10.88
†10.89
†10.90
†10.91
†10.92
†10.93
†10.94
†10.95
†10.96
Description
MoneyGram International, Inc. Deferred Compensation Plan, as amended and restated April 12, 2010 (Incorporated by reference from
Exhibit 10.1 to Registrant's Current Report on Form 8-K filed April 14, 2010).
2005 Deferred Compensation Plan for Directors of MoneyGram International, Inc., as amended and restated April 12, 2010 (Incorporated
by reference from Exhibit 10.2 to Registrant's Current Report on Form 8-K filed April 14, 2010).
Deferred Compensation Plan for Directors of MoneyGram International Inc., as amended and restated April 12, 2010 (Incorporated by
reference from Exhibit 10.3 to Registrant's Current Report on Form 8-K filed April 14, 2010).
Letter Agreement, by and between MoneyGram International, Inc. and James E. Shields, effective as of July 13, 2010 (Incorporated by
reference from Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q filed August 9, 2010).
Severance Agreement, by and between MoneyGram International, Inc. and James E. Shields, dated July 13, 2010 (Incorporated by
reference from Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q filed August 9, 2010).
Employee Trade Secret, Confidential Information and Post-Employment Restriction Agreement, by and between MoneyGram
International, Inc. and James E. Shields, dated July 21, 2010 (Incorporated by reference from Exhibit 10.9 to Registrant's Quarterly
Report on Form 10-Q filed August 9, 2010).
Compromise Agreement, dated April 21, 2010, between MoneyGram International Ltd. and John Hempsey (Incorporated by reference
from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed April 26, 2010).
Letter Agreement, by and between MoneyGram International, Inc. and Jean C. Benson, dated June 3, 2010 (Incorporated by reference
from Exhibit 10.01 to Registrant's Current Report on Form 8-K filed June 9, 2010).
Summary of Non-Employee Director Compensation Agreements, effective May 26, 2010 (Incorporated by reference from Exhibit 10.10
to Registrant's Quarterly Report on Form 10-Q filed August 9, 2010).
Form of MoneyGram International, Inc. Restricted Stock Unit Award Agreement (Incorporated by reference from Exhibit 10.11 to
Registrant's Quarterly Report on Form 10-Q filed August 9, 2010).
MoneyGram International, Inc. Deferred Compensation Plan, as amended and restated February 16, 2011 (Incorporated by reference from
Exhibit 10.01 to Registrant's Current Report on Form 8-K filed February 23, 2011).
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.
81
Table of Contents
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, 2010 and 2009
Consolidated Statements of Income (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2010, 2009 and 2008
Notes to the Consolidated Financial Statements
F-1
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
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, 2010. 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, 2010.
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/ Pamela H. Patsley
Pamela H. Patsley
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ James E. Shields
James E. Shields
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MoneyGram International, Inc.
Dallas, Texas
We have audited the internal control over financial reporting of MoneyGram International, Inc. and subsidiaries (the "Company") as of
December 31, 2010, 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, 2010, 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, 2010 of the Company and our report dated March 15, 2011 expressed an unqualified
opinion on those financial statements.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 15, 2011
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
MoneyGram International, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of MoneyGram International, Inc. and subsidiaries (the "Company") as of
December 31, 2010 and 2009, and the related consolidated statements of income (loss), comprehensive income (loss), cash flows and stockholders'
deficit for each of the three years in the period ended December 31, 2010. 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, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2010, 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, 2010, 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 15, 2011 expressed an unqualified opinion on
the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 15, 2011
F-4
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)
Short-term investments (substantially restricted)
Trading investments and related put options (substantially restricted)
Available-for-sale investments (substantially restricted)
Property and equipment
Goodwill
Other assets
Total assets
LIABILITIES
Payment service obligations
Debt
Pension and other postretirement benefits
Accounts payable and other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (NOTE 15)
MEZZANINE EQUITY
Participating Convertible Preferred Stock-Series B, $0.01 par value, 760,000 shares authorized, 495,000 shares issued and
outstanding
Participating Convertible Preferred Stock-Series B-1, $0.01 par value, 500,000 shares authorized, 272,500 shares issued
and outstanding
Total mezzanine equity
STOCKHOLDERS' DEFICIT
Preferred shares, $0.01 par value, none issued
Common shares, $0.01 par value, 1,300,000,000 shares authorized, 88,556,077 shares issued
Additional paid-in capital
Retained loss
Unearned employee benefits
Accumulated other comprehensive loss
Treasury stock: 4,935,555 and 6,040,958 shares in 2010 and 2009
Total stockholders' deficit
Total liabilities, mezzanine equity and stockholders' deficit
See Notes to Consolidated Financial Statements
F-5
2010
2009
— $
—
$
2,865,941 3,376,824
982,319 1,054,381
400,000
405,769
26,951
—
298,633
160,936
127,972
115,111
425,630
428,691
219,272
156,969
$5,115,736 $5,929,663
$4,184,736 $4,843,454
796,791
119,170
188,933
5,058,865 5,948,348
639,946
120,536
113,647
628,199
539,084
371,154
999,353
325,244
864,328
—
886
—
(771,544)
—
(31,879)
(139,945)
(942,482)
—
886
—
(694,914)
(8)
(35,671)
(153,306)
(883,013)
$5,115,736 $5,929,663
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
REVENUE
Fee and other revenue
Investment revenue
Total revenue
EXPENSES
Fee and other commissions expense
Investment commissions expense
Total commissions expense
Compensation and benefits
Transaction and operations support
Occupancy, equipment and supplies
Depreciation and amortization
Total operating expenses
OPERATING INCOME
Other expense (income)
Net securities (gains) losses
Interest expense
Other
Total other expenses, net
Income (loss) before income taxes
Income tax expense (benefit)
NET INCOME(LOSS)
BASIC AND DILUTED LOSS PER COMMON SHARE
Net loss available to common stockholders:
Net income (loss) as reported
Accrued preferred stock dividends
Accretion recognized on preferred stock
Net loss available to common stockholders
Weighted-average outstanding common shares
2010
2009
2008
$
1,145,312 $
21,341
1,166,653
1,128,492 $
33,219
1,161,711
500,759
737
501,496
226,422
185,782
46,481
48,074
1,008,255
158,398
(2,115)
102,133
—
100,018
58,380
14,579
43,801 $
(1.10) $
43,801 $
(125,005)
(10,020)
(91,224)
83,186
497,105
1,362
498,467
199,053
284,277
47,425
57,091
1,086,313
75,398
(7,790)
107,911
(2,401)
97,720
(22,322)
(20,416)
(1,906) $
(1.48) $
(1,906) $
(110,279)
(10,213)
(122,398)
82,499
$
$
$
1,108,451
162,130
1,270,581
502,317
102,292
604,609
224,580
219,905
45,994
56,672
1,151,760
118,821
340,688
95,020
20,304
456,012
(337,191)
(75,806)
(261,385)
(4.19)
(261,385)
(76,593)
(7,736)
(345,714)
82,456
See Notes to Consolidated Financial Statements
F-6
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
FOR THE YEAR ENDED DECEMBER 31,
(Amounts in thousands)
NET INCOME(LOSS)
OTHER COMPREHENSIVE INCOME(LOSS)
Net unrealized gains (losses) on available-for-sale securities:
Net holding gains (losses) arising during the period, net of tax expense (benefit) of $0, $0 and $(134,570)
Reclassification adjustment for net realized losses included in net income (loss), net of tax benefit of $0, $0 and
$124,097
Net unrealized (losses) gains on derivative financial instruments:
Net holding gains arising during the period, net of tax expense of $1,329
Reclassification adjustment for net unrealized (gains) losses included in net income (loss), net of tax (expense)
benefit of $(478) and $11,006
Pension and postretirement benefit plans:
Reclassification of prior service costs for pension and postretirement benefit plans recorded to net income (loss),
net of tax benefit of $32, $106 and $38
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income (loss),
2010
2009
2008
$43,801 $(1,906) $(261,385)
4,452 3,107 (219,561)
334 4,071 202,475
(17,086)
4,786 7,178
— —
2,168
—
—
(780)
(780)
17,957
20,125
52
173
62
net of tax benefit of $1,913, $2,785 and $1,679
2,740
3,122 4,543
(28,405)
Valuation adjustment for pension and postretirement benefit plans, net of tax benefit of $2,697, $2,251 and $17,409 (4,400) (3,672)
3,039
Unrealized foreign currency translation gains (losses), net of tax expense (benefit) of $142, $(249) and $1,863
(406)
3,792 7,036
Other comprehensive income (loss)
(19,525)
$47,593 $ 5,130 $(280,910)
COMPREHENSIVE INCOME(LOSS)
232
See Notes to Consolidated Financial Statements
F-7
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 income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Provision for deferred income taxes
Depreciation and amortization
Other-than-temporary impairment charges
Net (gain) loss on sales and maturities of investments
Unrealized (gains) losses on trading investments and related put options
Net amortization of investment premiums and discounts
Valuation loss on embedded derivative
Asset impairments and adjustments
Signing bonus amortization
Signing bonus payments
Amortization of debt discount and deferred financing costs
Debt extinguishment loss
Provision for uncollectible receivables
Non-cash compensation and pension expense
Other non-cash items, net
Change 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 and related put options (substantially restricted)
Change in receivables, net (substantially restricted)
Change in payment service obligations
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments classified as available-for-sale (substantially restricted)
Proceeds from maturities of investments classified as available-for-sale (substantially restricted)
Purchase of short-term investments (substantially restricted)
Proceeds from maturities of short-term investments (substantially restricted)
Purchases of property and equipment
Proceeds from disposal of property and equipment
Proceeds from disposal of a business
Cash paid for acquisitions, net of cash acquired
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt
Transaction costs for issuance and amendment of debt
Payments on debt
Payments on revolving credit facility
Proceeds from issuance of preferred stock
Transaction costs for issuance of preferred stock
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS — Beginning of period
CASH AND CASH EQUIVALENTS — End of period
See Notes to Consolidated Financial Statements
F-8
$
$
2010
2009
2008
$
43,801 $
(1,906) $
(261,385)
10,023
48,074
334
(2,449)
—
193
—
2,158
29,247
(27,172)
17,492
—
6,404
35,106
2,154
232
(16,545)
(32,853)
72,398
510,883
29,400
63,037
(658,782)
60,737
—
140,985
(707,137)
701,368
(40,191)
7,537
—
(330)
102,232
—
—
(165,000)
—
—
—
2,031
(162,969)
—
— $
— $
(14,915)
57,091
4,069
(7,555)
(4,304)
740
—
18,228
35,280
(22,176)
12,765
—
21,432
9,608
4,650
(406)
31,246
13,156
158,909
700,557
32,900
186,619
(594,545)
482,534
—
140,999
(400,000)
—
(37,948)
—
4,500
(3,210)
(295,659)
—
—
(41,875)
(145,000)
—
—
—
(186,875)
—
— $
— $
(425)
56,672
70,274
256,299
14,115
735
16,030
8,809
37,261
(57,960)
7,484
1,499
12,396
12,596
11,709
3,039
(13,171)
(95,622)
341,740
(2,524,402)
—
128,752
(2,324,486)
(4,639,781)
2,896,011
493,320
—
—
(38,470)
—
—
(2,928)
3,347,933
733,750
(47,805)
(1,875)
(100,000)
760,000
(52,222)
—
1,291,848
—
—
—
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Common
Stock
Additional
Paid-In
Capital
Retained
Loss
Unearned
Employee
Benefits
Accumulated
Other
Comprehensive
Loss
(Amounts in thousands)
December 31, 2007
Cumulative adjustment for SFAS No. 158 change of measurement date
Net loss
Reclassification of embedded derivative liability
Accrued dividends on preferred stock
Accretion on preferred stock
Employee benefit plans
Net unrealized loss on available-for-sale securities
Net unrealized gain 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
Unrealized foreign currency translation adjustment
December 31, 2008
Net loss
Accrued dividends on preferred stock
Accretion on preferred stock
Employee benefit plans
Net unrealized gain on available-for-sale securities
Reclassification of unrealized gain on derivative financial instruments, net
of tax
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
Unrealized foreign currency translation adjustment
December 31, 2009
Net income
Accrued dividends on preferred stock
Accretion on preferred stock
Employee benefit plans
Net unrealized gain on available-for-sale securities
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
Unrealized foreign currency translation adjustment
December 31, 2010
$
886 $
73,077 $ (387,479) $
(390)
(261,385)
(3,280) $
70,827
(76,593)
(7,736)
2,749
2,856
886
62,324
(66,525)
(10,213)
14,414
(649,254)
(1,906)
(43,754)
(424)
416
886
—
(25,570)
(10,020)
35,590
(694,914)
43,801
(99,435)
(8)
(20,996)
8
$
886 $
— $ (771,544) $
— $
See Notes to Consolidated Financial Statements
F-9
Total
Treasury
Stock
(150,006) $(488,517)
(1,857)
(261,385)
70,827
(76,593)
(7,736)
3,050
(17,086)
20,125
(2,555)
(21,715) $
(1,467)
(17,086)
20,125
62
2,740
(28,405)
3,039
(42,707)
7,178
(780)
173
4,543
(3,672)
(406)
(35,671)
4,786
52
3,122
62
2,740
(28,405)
3,039
(152,561) (781,736)
(1,906)
(110,279)
(10,213)
14,085
7,178
(745)
(780)
173
4,543
(3,672)
(406)
(153,306) (883,013)
43,801
(125,005)
(10,020)
27,963
4,786
13,361
52
3,122
(4,400)
232
(31,879) $
(4,400)
232
(139,945) $(942,482)
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of the Business
MoneyGram International, Inc. and its wholly owned subsidiaries ("MoneyGram") offers products and services under its two reporting segments:
Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfer services and bill payment
services to consumers through a network of agents. The Financial Paper Products segment provides payment processing services, primarily official
check outsourcing services, and money orders through financial institutions and agents. The Company's headquarters is located in Dallas, Texas,
United States of America. References to "MoneyGram," the "Company," "we," "us" and "our" are to MoneyGram International, Inc. and its
subsidiaries and consolidated entities.
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. Effective December 31, 2005, the entity that was formerly
Travelers was merged into MoneyGram Payment Systems, Inc. ("MPSI"), a wholly owned subsidiary of MoneyGram, with MPSI remaining as the
surviving corporation.
On March 25, 2008, the Company completed a recapitalization, pursuant to which the Company received $1.5 billion of gross equity and debt
capital (collectively, the "2008 Recapitalization") to support the long-term needs of the business and provide necessary capital due to the Company's
investment portfolio losses as described in Note 5 — Investment Portfolio. The equity component of the 2008 Recapitalization consisted of the sale
in a private placement of Series B Participating Convertible Preferred Stock of the Company (the "B Stock") and Series B-1 Participating
Convertible Preferred Stock of the Company (the "B-1 Stock," and collectively with the B Stock, the "Series B Stock"). The debt component of the
2008 Recapitalization consisted of a senior secured amended and restated credit agreement entered into with a group of lenders (the "senior facility")
and the issuance of senior secured second lien notes (the "second lien notes"). See Note 9 — Debt and Note 11 — Mezzanine Equity for further
information regarding the equity and debt components.
Participation Agreement between the Investors and Walmart Stores, Inc. — On February 11, 2008, the affiliates of Thomas H. Lee Partners, L.P.
("THL") and affiliates of Goldman, Sachs & Co. ("Goldman Sachs," and collectively with THL, the "Investors") entered into a Participation
Agreement (as amended on March 17, 2008) with Walmart Stores, Inc. ("Walmart") in connection with the 2008 Recapitalization. The Company is
not a direct party to the Participation Agreement, which was negotiated solely between the Investors and Walmart. Under the terms of the
Participation Agreement, the Investors are obligated to pay Walmart certain percentages of accumulated cash payments received by the Investors in
excess of the Investors' original investment in the Company. Cash payments include dividends paid by the Company to the Investors and any cash
payments received by the Investors in connection with the sale of any shares of the Company's stock to an unaffiliated third party or upon
redemption by the Company. Walmart, in its sole discretion, may elect to receive payments in cash or equivalent shares of stock held by the
Investors.
F-10
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company has no obligation to Walmart or additional obligations to the Investors under the terms of the Participation Agreement. However, as
the Company indirectly benefited from the agreement, the Company recognizes the Participation Agreement in its consolidated financial statements
as if the Company itself entered into the agreement with Walmart. As Walmart may elect to receive any payments under the Participation Agreement
in cash, the agreement is accounted for as a liability award. The Company will recognize a liability equal to the fair value of the Participation
Agreement through a charge to the Consolidated Statements of Income (Loss) based upon the probability that certain performance conditions will be
met. The liability will be remeasured each period until settlement, with changes in fair value recognized in the Consolidated Statements of Income
(Loss). Walmart's ability to earn the award under the Participation Agreement is conditioned upon the Investors receiving cash payments related to
the Company's preferred stock in excess of the Investors' original investment in the Company. While it is probable that performance conditions will
be met at December 31, 2010, the fair value of the liability is zero at this time as the Company's discount rate, based on contractual debt and equity
rates of returns and implied market premiums, exceeds the dividend rate on the preferred stock.
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 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.
During the fourth quarter of 2010, the Company revised the presentation of its Consolidated Statements of Income (Loss) as a result of an internal
review to enhance external reporting and management reporting. As a result of this review, the Company will no longer present net revenue,
previously measured as total revenue less total commissions expense, as this measure was not found to be a meaningful metric internally or to our
external users. The Company will continue to separately disclose "Commissions expense." The Company has also presented an operating income
measure consistent with management reporting and to more clearly delineate operating and non-operating items. As a result, certain items are now
presented below the operating income line based on management's assessment of their nature as non-operating, including securities (gains) losses,
interest expense and (gains) losses related to cash flow hedges. In the Consolidated Balance Sheets, the Company has reclassified amounts related to
intangible assets into "Other assets" due to immateriality. In the Consolidated Statements of Cash Flows, the Company has separately broken out
"Signing bonus payments," which were previously included in "Change in other assets," to enhance transparency. All prior periods have been
reclassified to conform to this new presentation.
Correction of Presentation of Short-term Investments — The Company has corrected the presentation of certain investments in time deposits and
certificates of deposit in the 2009 and 2008 consolidated financial statements, reflecting the fact that these investments have original maturities in
excess of three months but no greater than thirteen months. In the accompanying Consolidated Balance Sheet as of December 31, 2009,
$400.0 million of investments previously presented as "Cash and cash equivalents (substantially restricted)" have now been properly presented as
"Short-term investments (substantially restricted)." In addition, the related gross purchases and gross maturities of such short-term investments,
previously presented net within "Change in cash and cash equivalents (substantially restricted)" in operating activities, have been properly presented
as cash flows from investing activities in the 2009 and 2008 Consolidated Statements of Cash Flows.
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. The Company participates in various trust
arrangements (special purpose entities or "SPEs") related to official check processing agreements with financial institutions and structured
investments within the investment portfolio.
F-11
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Working in cooperation with certain financial institutions, the Company historically established separate consolidated SPEs that provided these
financial institutions with additional assurance of its ability to clear their official checks. The Company maintains control of the assets of the SPEs
and receives all investment revenue generated by the assets. The Company remains liable to satisfy the obligations of the SPEs, both contractually
and by operation of the Uniform Commercial Code, as issuer and drawer of the official checks. As the Company is the primary beneficiary and bears
the primary burden of any losses, the SPEs are consolidated in the consolidated financial statements. The assets of the SPEs are recorded in the
Consolidated Balance Sheets in a manner consistent with the assets of the Company based on the nature of the asset. Accordingly, the obligations
have been recorded in the Consolidated Balance Sheets under "Payment service obligations." The investment revenue generated by the assets of the
SPEs is allocated to the Financial Paper Products segment in the Consolidated Statements of Income (Loss). For the years ending December 31,
2010 and 2009, the Company's SPEs had cash and cash equivalents of $83.2 million and $143.6 million, respectively, and payment service
obligations of $76.9 million and $115.3 million, respectively.
In connection with the SPEs, the Company must maintain certain specified ratios of greater than 100 percent of segregated assets to outstanding
payment instruments. These specified ratios require the Company to contribute additional assets if the fair value of the segregated assets is less than
the outstanding payment instruments at any time. The segregated assets consist solely of cash and cash equivalents; therefore, the Company does not
anticipate a need to contribute additional assets in the future to maintain the specified ratios as required by the SPEs. Under certain limited
circumstances, the related financial institution customers have the right to either demand liquidation of the segregated assets or to replace the
Company 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 customers.
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 United States 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.
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.
Substantially Restricted — The Company's licensed entity MPSI is regulated by various state agencies that generally require the Company to
maintain a pool of assets with an investment rating of A or higher ("permissible investments") in an amount generally equal to the payment service
obligations, as defined by each state, for those regulated payment instruments, namely teller checks, agent checks, money orders and money
transfers. The regulatory payment service assets measure varies by state, but in all cases excludes investments rated below A-. The most restrictive
states may also exclude assets held at banks that do not belong to a national insurance program, varying amounts of accounts receivable balances
and/or assets held in one of the SPEs. The regulatory payment service obligations measure varies by state, but in all cases is substantially lower than
the Company's payment service obligations as disclosed in the Consolidated Balance Sheets as the Company is not regulated by state agencies for
payment service obligations resulting from outstanding cashier's checks or for amounts payable to agents and brokers.
F-12
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In connection with its credit facilities, one clearing bank agreement and the SPEs, the Company also has certain financial covenants that require it to
maintain pre-defined ratios of certain assets to payment service obligations. The financial covenants under the credit facilities are described in
Note 9 — Debt. One clearing bank agreement has financial covenants that include the maintenance of total cash, cash equivalents, receivables and
investments in an amount at least equal to payment service obligations, as disclosed in the Consolidated Balance Sheets, as well as the maintenance
of a minimum 103 percent ratio of total assets held at that bank to instruments estimated to clear through that bank. Financial covenants related to
the SPEs include the maintenance of specified ratios of cash, cash equivalents and investments held in the SPE to the outstanding payment
instruments issued by the related financial institution customer.
The regulatory and contractual requirements do not require the Company to specify individual assets held to meet its payment service obligations,
nor is the Company required to deposit specific assets into a trust, escrow or other special account. Rather, the Company must maintain a pool of
liquid assets sufficient to comply with the requirements. No third party places limitations, legal or otherwise, on the Company regarding the use of
its individual liquid assets. The Company is able to withdraw, deposit or sell its individual liquid assets at will, with no prior notice or penalty,
provided the Company maintains a total pool of liquid assets sufficient to meet the regulatory and contractual requirements.
The Company is not regulated by state agencies for payment service obligations resulting from outstanding cashier's checks; however, the Company
restricts a portion of the funds related to these payment instruments due to contractual arrangements and Company policy. Assets restricted for
regulatory or contractual reasons are not available to satisfy working capital or other financing requirements. Consequently, the Company considers
a significant amount of cash and cash equivalents, receivables and investments to be restricted to satisfy the liability to pay the principal amount of
regulated payment service obligations upon presentment. Cash and cash equivalents, receivables and investments exceeding payment service
obligations are generally available; however, management considers a portion of these amounts as providing additional assurance that business
needs and regulatory requirements are maintained during the normal fluctuations in the value of the Company's payment service assets and
obligations. The following table shows the amount of assets in excess of payment service obligations at December 31:
(Amounts in thousands)
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Short-term investments (substantially restricted)
Trading investments and related put options (substantially restricted)
Available-for-sale investments (substantially restricted)
Payment service obligations
Assets in excess of payment service obligations
2010
2009
2,865,941 $
982,319
405,769
—
160,936
4,414,965
(4,184,736)
230,229 $
3,376,824
1,054,381
400,000
26,951
298,633
5,156,789
(4,843,454)
313,335
$
$
Regulatory requirements also require MPSI to maintain positive net worth, with one state requiring that MPSI maintain positive tangible net worth.
In its most restrictive state, the Company had excess permissible investments of $423.2 million over the state's payment service obligations measure
at December 31, 2010, with substantially higher excess permissible investments for most other states. The Company was in compliance with its
contractual and financial regulatory requirements as of December 31, 2010.
Cash and Cash Equivalents (substantially restricted) — The Company defines cash and cash equivalents as cash on hand and all highly liquid debt
instruments with original maturities of three months or less at the purchase date.
F-13
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Receivables, net (substantially restricted) — The Company has receivables due from financial institutions and agents for payment instruments sold
and amounts advanced by the Company to certain agents for operational and local regulatory compliance purposes. 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 as determined based on known delinquent
accounts and historical trends. Receivables are generally considered past due one day after the contractual remittance schedule, which is typically
one to three days after the sale of the underlying payment instrument. Receivables are evaluated for collectability 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
Charged to expense
Write-offs, net of recoveries
Ending balance
2010
2009
2008
$
$
$
24,535
6,404
(10,968)
$
19,971
$
16,178
21,432
(13,075)
$
24,535
8,019
12,396
(4,237)
16,178
Investments (substantially restricted) — The Company classifies securities as short-term, trading or available-for-sale in its Consolidated Balance
Sheets. The Company has no securities classified as held-to-maturity. Time deposits and certificates of deposits with original maturities of greater
than three months are classified as short-term investments and recorded at amortized cost. 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 Income (Loss). Securities held for indefinite periods of time, including any securities that may be sold to
assist in the clearing of payment service obligations or in the management of the investment portfolio, are classified as available-for-sale securities.
These securities are recorded at fair value, with the net after-tax unrealized gain or loss recorded as a separate component of stockholders' deficit.
Realized gains and losses and other-than-temporary impairments are recorded in the Consolidated Statements of Income (Loss).
Interest income on "Residential mortgage-backed securities" for which risk of credit loss is deemed remote is recorded utilizing the level yield
method. Changes in estimated cash flows, both positive and negative, are accounted for with retrospective changes to the carrying value of
investments in order to maintain a level yield over the life of the investment. Interest income on mortgage-backed securities for which risk of credit
loss is not deemed remote is recorded under the prospective method as adjustments of yield.
Starting in the second quarter of 2008, the Company applies the cost recovery method of accounting for interest to its investments categorized as
"Other asset-backed securities." The cost recovery method accounts for interest on a cash basis and treats any interest payments received as deemed
recoveries of principal, reducing the book value of the related security. When the book value of the related security is reduced to zero, interest
payments are then recognized as income upon receipt. The Company began applying the cost recovery method of accounting as it believes it is
probable that the Company will not recover all, or substantially all, of its principal investment and interest for its "Other asset-backed securities"
given the sustained deterioration in the market, the collapse of many asset-backed securities and the low levels to which the securities have been
written down.
F-14
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Securities with gross unrealized losses at the balance sheet date are subject to a process for identifying other-than-temporary impairments. Securities
that the Company deems to be other-than-temporarily impaired are written down to fair value in the period the impairment occurs. 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 an
individual security basis. The Company considers a wide range of factors about the security and uses its best judgment in evaluating the cause of the
decline in the estimated fair value of the security and the prospects for recovery. The Company considers an investment to be other-than-temporarily
impaired when it is deemed probable that the Company will not receive all of the cash flows contractually stipulated for the investment. 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. 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. Securities gains and losses are recognized upon the
sale, call or maturity of securities using the specific identification method to determine the cost basis of securities sold. Unrealized gains and losses
resulting from changes in the fair value of trading investments and put options related to trading investments are recognized in the period in which
the change occurs. Any impairment charges and other securities gains and losses are included in the Consolidated Statements of Income (Loss)
under "Net securities (gains) losses."
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; commissions owed to financial institution customers and agents for
instruments sold; amounts owed to investment brokers for purchased securities; and unclaimed instruments owed to various states. These obligations
are recognized by the Company at the time the underlying transactions occur.
Fair Value of Financial Instruments — Financial instruments consist of cash and cash equivalents, investments, derivatives and debt. The carrying
values of cash and cash equivalents and short-term investments approximate fair value due to the short-term nature of these instruments. The
carrying value of the Company's senior facility approximates fair value as interest related to the debt is variable rate. The carrying value of the
Company's fixed-rate notes also approximates fair value as the contractual interest rate is comparable to debt with similar maturities issued by
companies with similar credit qualities. See Note 4 — Fair Value Measurement for information regarding the principles and processes used to
estimate the fair value of investments and derivatives.
Derivative Financial Instruments — The Company recognizes derivative instruments in the Consolidated Balance Sheets at fair value. The
accounting for changes in the fair value depends on the intended use of the derivative and the resulting designation. For a derivative instrument
designated as a fair value hedge, the Company recognizes the change in fair value in earnings in the period of change, together with the offsetting
change in the hedged item. For a derivative instrument designated as a cash flow hedge, the Company initially reports the effective portion of the
derivative's change in fair value in "Accumulated other comprehensive loss" in the Consolidated Balance Sheets, and subsequently reclassifies the
net change in fair value into earnings when the hedged exposure affects earnings.
The Company evaluated the hedge effectiveness of its derivatives designated as cash flow hedges at inception and on an on-going basis. Hedge
ineffectiveness, if any, is recorded in earnings on the same line as the underlying transaction risk. When a derivative is no longer expected to be
highly effective, hedge accounting is discontinued. Gain or loss on derivatives designated as cash flow hedges that were terminated or discontinued
was recorded in "Investment commissions expense" or "Interest expense" in the Consolidated Statements of Income (Loss) based on the underlying
transaction risk the derivative was originally hedging. 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" under the operating section or in "Other" expense in the non-operating section in
the Consolidated Statements of Income (Loss) based on the Company's purpose for entering into the derivatives.
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.
F-15
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property and Equipment — Property and equipment includes agent equipment, communication equipment, computer hardware, computer software,
leasehold improvements, office furniture and equipment, land and signs, and is stated at cost net of accumulated depreciation. Property and
equipment, with the exception of land, is depreciated using a straight-line method over the term of the lease or license. Land is not depreciated. The
cost and related accumulated depreciation of assets sold or disposed of are removed from the financial statements, with the resulting gain or loss, if
any, recognized under the caption "Occupancy, equipment and supplies" in the Consolidated Statements of Income (Loss). Estimated useful lives by
major asset category are generally as follows:
Agent equipment
Communication equipment
Computer hardware
Computer software
Leasehold improvements
Office furniture and equipment
Signage
3 years
5 years
3 years
Lesser of the license term or 5-7 years
Lesser of the lease term or 10 years
Lesser of the useful life or 7 years
3 years
For the years ended December 31, 2010 and 2009, software development costs of $14.2 million and $9.8 million, respectively, were capitalized. At
December 31, 2010 and 2009, there is $40.9 million and $35.5 million, respectively, of unamortized software development costs included in
property and equipment.
Tenant allowances for leasehold improvements are capitalized as leasehold improvements upon completion of the improvement and depreciated
over the shorter of the remaining term of the lease or 10 years.
Goodwill and Intangible Assets — Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business
combinations and is assigned to the reporting unit in which the acquired business will operate. Intangible assets are recorded at their estimated fair
value at the date of acquisition or at cost if internally developed. Goodwill and intangible assets with indefinite lives are not amortized, but are
instead subject to impairment testing. Intangible assets with finite lives are amortized using a straight-line method over their respective useful lives
as follows:
Customer lists
Patents
Non-compete agreements
Trademarks
Developed technology
3-15 years
15 years
3 years
36-40 years
5 years
Goodwill and intangible assets are tested for impairment annually as of November 30, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Goodwill is tested for impairment using a fair-value based approach, and is assessed at the reporting
unit level. The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed
to be an indicator of potential impairment, in which case a second step is performed comparing the recorded amount of goodwill to its implied fair
value. Intangible assets with finite lives and other long-lived assets are tested for impairment by comparing the carrying value of the assets to the
estimated future undiscounted cash flows to be generated by the asset. 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.
F-16
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Payments on Long-Term Contracts — The Company makes payments to certain agents and financial institution customers as an incentive to enter
into long-term contracts. The payments, or signing bonuses, are generally required to be refunded pro rata in the event of nonperformance under, or
cancellation of, the contract by the customer. For contracts requiring payments to be refunded, the signing bonuses are capitalized and amortized
over the life of the related contract as such costs are recoverable through future operations or, in the case of early termination, through penalties or
refunds. Amortization of signing bonuses on long-term contracts is recorded in "Fee and other commissions expense" in the Consolidated Statements
of Income (Loss). The carrying values of the signing bonuses are reviewed annually or whenever events or changes in circumstances indicate that
the carrying amounts may not be recoverable. Signing bonuses for contracts that do not require a refund in the event of nonperformance or
cancellation are expensed upon payment in "Fee and other commissions expense" in the Consolidated Statements of Income (Loss).
Income Taxes — The provision for income taxes is computed based on the pre-tax income included in the Consolidated Statements of Income
(Loss). Deferred tax assets and liabilities are recorded based on the future tax consequences attributable to temporary differences that exist between
the financial statement carrying value of assets and liabilities and their respective tax basis, and operating loss and tax credit carry-backs and carry-
forwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted statutory tax rates that will apply in the years in
which we expect the temporary differences to be recovered or paid. Our ability to realize our deferred tax assets depends on our ability to generate
sufficient taxable income within the carry-back or carry-forward periods provided for in the tax law. We establish valuation allowances for our
deferred tax assets based on a more likely than not threshold. To the extent management believes that recovery is not likely, a valuation allowance is
established in the period in which the determination is made.
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 (benefit)" in the Consolidated Statements
of Income (Loss). See Note 14 — Income Taxes for further discussion.
Treasury Stock — Repurchased common stock is stated at cost and is presented as a separate component of stockholders' deficit. See Note 12 —
Stockholders' Deficit for further discussion.
Foreign Currency Translation — The Company converts assets and liabilities of foreign operations to their United States dollar equivalents at rates
in effect at the balance sheet dates, recording the 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 United States 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 Income (Loss).
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 and foreign exchange revenue.
• Transaction fees consist primarily of fees earned on money transfer, money order, bill payment and official check transactions. The money
transfer transaction fees vary based on the principal value 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 on money transfer transactions involving
different "send" and "receive" currencies. Foreign exchange revenue is recognized at the time the exchange in funds occurs.
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Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
• Other revenue consists of service charges on aged outstanding money orders, money order dispenser fees and other miscellaneous charges.
Through 2009, other revenue also included processing fees on rebate checks and controlled disbursements. These fees are recognized in the
period the item is processed or earned.
• Investment revenue is derived from the investment of funds generated from the sale of payment instruments, primarily official checks and
money orders, and consists of interest income, dividend income and amortization of premiums and discounts. Interest and dividends are
recognized as earned, with the exception of interest related to available-for-sale investments classified as "Other asset-backed securities." For
"Other asset-backed securities," interest is recognized using the cost recovery method as described under the accounting policy for
"Investments (substantially restricted)." Premiums and discounts on investments are amortized using a straight-line method over the life of the
investment.
Fee and Other Commissions Expense — The Company pays fee commissions to third-party agents for money transfer and bill payment services. In
a money transfer transaction, both the agent initiating the transaction and the agent disbursing the funds receive a commission that 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. Other commissions expense includes the amortization of capitalized signing bonuses.
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, as well as costs associated with interest rate swaps hedging commission payments and
the sale of receivables program. The Company terminated its interest rate swaps in the second quarter of 2008, as described in Note 6 — Derivative
Financial Instruments, and terminated its sale of receivable program in the first quarter of 2008. Commissions paid to financial institution customers
generally are variable based on short-term interest rates. Investment commissions are recognized each month based on the average outstanding
balances of each financial institution customer and their contractual variable rate for that month.
Marketing and Advertising Expense — Marketing and advertising costs are expensed as incurred or at the time the advertising first takes place.
Marketing and advertising expense was $47.1 million, $40.2 million and $52.9 million for 2010, 2009 and 2008, respectively.
Stock-Based Compensation — All stock-based compensation awards are measured at fair value at the date of grant and expensed over their vesting
or service periods. For awards meeting the criteria for equity treatment, expense is recognized using the straight-line method. For awards meeting the
criteria for liability treatment, the fair value is remeasured at each period and the pro-rata portion of the expense is recognized using the straight-line
method. See Note 13 — Stock-Based Compensation for further discussion of the Company's stock-based compensation.
Restructuring and Related Expenses — Restructuring and related expenses may consist of direct and incremental costs associated with restructuring
and related activities, including severance; outplacement and other employee related benefits; facility closures, cease-use or related charges; asset
impairments or accelerated depreciation; and other expenses related to relocation of various operations to existing or new Company facilities and
third-party providers, including hiring, training, relocation, travel and professional fees. The Company records severance-related expenses once they
are both probable and estimable related to severance provided under an on-going benefit arrangement. One-time, involuntary benefit arrangements
and other exit costs are generally recognized when the liability is incurred. The Company evaluates impairment issues associated with restructuring
activities when the carrying amount of the assets may not be fully recoverable, and also reviews the appropriateness of the remaining useful lives of
impacted fixed assets.
In connection with restructuring and related activities during 2010, the Company recorded total expenses of $5.9 million, comprised of $3.0 million
of severance costs in the "Compensation and benefits" line, $1.3 million of costs in the "Transaction and operations support" line and $1.6 million of
facilities and related asset write-off charges in the "Occupancy, equipment and supplies" line of the Consolidated Statements of Income (Loss).
F-18
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings Per Share — The Company utilizes the two-class method for computing basic earnings per common share, which reflects the amount of
undistributed earnings allocated to the common stockholders using the participation percentage of each class of stock. Undistributed earnings is
determined as the Company's net loss less dividends declared or accumulated on preferred stock less any preferred stock accretion. The undistributed
earnings allocated to the common stockholders are divided by the weighted-average number of common shares outstanding during the period to
compute basic earnings per common share. Diluted earnings per common share reflects the potential dilution that could result if securities or
incremental shares arising out of the Company's stock-based compensation plans and the outstanding shares of Series B Stock were exercised or
converted into common stock. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method and the
conversion of the Series B Stock using the if-converted method.
Potential common shares are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive. All
potential common shares are anti-dilutive in periods of net loss available to common stockholders. Stock options are anti-dilutive when the exercise
price of these instruments is greater than the average market price of the Company's common stock for the period. The Series B Stock is anti-dilutive
when the incremental earnings per share of Series B Stock on an if-converted basis is greater than the basic earnings per common share. Following
are the potential common shares excluded from diluted earnings per common share as their effect would be anti-dilutive:
(Amounts in thousands)
Shares related to stock options
Shares related to restricted stock
Shares related to preferred stock
Shares excluded from the computation
2010
2009
2008
37,321
1
431,751
469,073
21,636
28
381,749
403,413
3,577
127
337,637
341,341
Recent Accounting Pronouncements and Related Developments — In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. The amendments in this update require, among other things, new disclosures and clarifications of existing disclosures related to
transfers in and out of Level 1 and Level 2 fair value measurements, further disaggregation of fair value measurement disclosures for each class of
assets and liabilities and additional details of valuation techniques and inputs utilized. This update is consistent with the Company's current
accounting application for fair value measurements and disclosures and did not have a material impact on its Consolidated Financial Statements.
In March 2010, the Patient Protection and Affordable Care Act and the Healthcare and Education Reconciliation Act of 2010 (collectively, the
"Act") was signed into law. The Company has evaluated the impact of the Act and has made the appropriate adjustments with no material impact to
its Consolidated Financial Statements.
Note 3 — Acquisitions and Disposals
Blue Dolphin Financial Services N.V. — On February 5, 2010, the Company acquired Blue Dolphin Financial Services N.V. ("Blue Dolphin"), a
former super-agent in the Netherlands, for a purchase price of $1.4 million, including cash acquired of $1.1 million, and an earn-out potential of up
to $1.4 million. The final earn-out was calculated as of December 31, 2010 in the amount of $0.8 million. As a result, the Company recorded a gain
of $0.2 million in the "Transaction and operations support" line in the Consolidated Statements of Income (Loss). The acquisition of Blue Dolphin
provided the Company with the opportunity for further network expansion in the Netherlands and Belgium under the European Union Payment
Services Directive and additional control over sales and marketing activities.
F-19
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company finalized its purchase price allocation in 2010, resulting in $3.1 million of goodwill assigned to the Company's Global Funds Transfer
segment, and the forgiveness of $2.7 million of liabilities. The Company incurred $0.1 million of transaction costs related to the acquisition in 2010,
which are included in the "Transaction and operations support" line in the Consolidated Statements of Income (Loss). The operating results of Blue
Dolphin subsequent to the acquisition date are included in the Company's Consolidated Statements of Income (Loss). The financial impact of the
acquisition is not material to the Consolidated Balance Sheets or Consolidated Statements of Income (Loss).
R. Raphaels & Sons PLC — On February 2, 2009, the Company acquired the French assets of R. Raphaels & Sons PLC ("Raphaels Bank") for a
purchase price of $3.2 million. The acquisition of Raphaels Bank provided the Company with five money transfer stores in and around Paris, France
that have been integrated into its French retail operations.
The Company finalized its purchase price allocation in 2010, resulting in $2.0 million of goodwill assigned to the Company's Global Funds Transfer
segment. The Company incurred $0.2 million of transaction costs related to this acquisition in 2008 which are included in the "Transaction and
operations support" line in the Consolidated Statements of Income (Loss). The operating results of Raphaels Bank subsequent to the acquisition date
are included in the Company's Consolidated Statements of Income (Loss). The financial impact of the acquisition is not material to the Consolidated
Balance Sheets or Consolidated Statements of Income (Loss).
FSMC, Inc. — On May 15, 2009, the Company's subsidiary FSMC, Inc. ("FSMC"), entered into an asset purchase agreement with Solutran, Inc. to
sell certain assets and rights for a price of $4.5 million. As a result of the sale, which was completed in the third quarter of 2009, the Company
recorded an impairment charge of $0.6 million to write off goodwill associated with FSMC. This impairment charge is recorded in the "Transaction
and operations support" line in the Consolidated Statements of Income (Loss). The operating results of FSMC are not material to the Company's
Consolidated Statements of Income (Loss) and the assets and liabilities are not material to the Company's Consolidated Balance Sheets. FSMC is
included in the Company's "Other" results for segment reporting purposes.
ACH Commerce — After evaluating the Company's market opportunity for certain of its electronic payment services, the Company announced a
decision in December 2008 to exit the ACH Commerce business. In connection with this decision, the Company recognized an impairment charge of
$8.8 million to write off the goodwill associated with ACH Commerce. In the third quarter of 2009, the Company recorded an impairment charge of
$1.4 million on its proprietary software related to ACH Commerce. The impairment charge was recorded in the "Transaction and operations
support" line in the Consolidated Statements of Income (Loss). ACH Commerce is not material to the Consolidated Statements of Income (Loss) or
the Consolidated Balance Sheets. ACH Commerce is included in the Company's "Other" results for segment reporting purposes.
MoneyCard World Express, S.A. and Cambios Sol S.A. — In July 2008, the Company acquired MoneyCard World Express, S.A. ("MoneyCard")
and Cambios Sol S.A. ("Cambios Sol"), two of its former super-agents in Spain, for purchase prices of $3.4 million and $4.5 million, respectively,
including cash acquired of $1.4 million and $4.1 million, respectively. The acquisition of these money transfer entities provided the Company with a
money transfer license in Spain, as well as the opportunity for further network expansion and more control over marketing and promotional activities
in the region.
F-20
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2009, the Company finalized its purchase price allocation, resulting in goodwill of $4.3 million assigned to the Company's Global Funds Transfer
segment and $1.4 million of intangible assets. The intangible assets consist primarily of customer lists and developed technology and are being
amortized over useful lives ranging from three to five years. In addition, the Company recognized an indefinite life intangible asset of $0.6 million
relating to the money transfer license. The purchase price allocation includes $0.5 million of transaction costs. The operating results of MoneyCard
and Cambios Sol subsequent to the acquisition dates are included in the Company's Consolidated Statements of Income (Loss). The financial impact
of the acquisitions is not material to the Consolidated Balance Sheets or Consolidated Statements of Income (Loss).
Property Bridge — After evaluating the Company's market opportunity for certain of its electronic payment services, the Company received
approval from its Board of Directors in January 2011 and began to actively pursue the sale of Property Bridge in February 2011. Assets, liabilities,
revenue and expenses related to Property Bridge are immaterial to the Consolidated Balance Sheets as of December 31, 2010 and the Consolidated
Statements of Income (Loss) for the year ended December 31, 2010.
Other Disposals — During 2010, the Company completed the sale of its corporate airplane with net proceeds of $7.5 million. Upon completion of
the sale in the third quarter of 2010 the Company recorded an impairment charge of $1.5 million. In 2009, in connection with this decision to sell the
airplane, the Company recognized a $7.0 million impairment charge. Impairment charges are recorded in the "Transaction and operations support"
line in the Consolidated Statements of Income (Loss).
Note 4 — Fair Value Measurement
The Company records certain of its assets and liabilities at fair value. Fair value is defined as the exchange price that would be received for an asset
or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. A three-level
hierarchy is used for fair value measurements based upon the observability of the inputs to the valuation of an asset or liability as of the
measurement date. Under the hierarchy, the highest priority is given to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1), followed by observable inputs (Level 2) and unobservable inputs (Level 3). A financial instrument's level within the hierarchy is based on
the lowest level of any input that is significant to the fair value measurement. Following is a description of the Company's valuation methodologies
for assets and liabilities measured at fair value:
Investments — For United States government agencies and residential mortgage-backed securities collateralized by United States government
agency securities, fair value measures are generally obtained from independent sources, including a pricing service. Because market quotes are
generally not readily available or accessible for these specific securities, the pricing service generally measures fair value through the use of pricing
models and observable inputs for similar assets and market data. Accordingly, these securities are classified as Level 2 financial instruments. The
Company periodically corroborates the valuations provided by the pricing service through internal valuations utilizing externally developed cash
flow models, comparison to actual transaction prices for any sold securities and any broker quotes received on the same security.
F-21
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For other asset-backed securities, investments in limited partnerships and trading investments, market quotes are generally not available. If available,
the Company will utilize a fair value measurement from a pricing service. The pricing service utilizes a pricing model based on market observable
data and indices, such as quotes for comparable securities, yield curves, default indices, interest rates and historical prepayment speeds. If a fair
value measurement is not available from the pricing service, the Company will utilize a broker quote if available. Due to a general lack of
transparency in the process that the brokers use to develop prices, most valuations that are based on brokers' quotes are classified as Level 3. If no
broker quote is available, or if such quote cannot be corroborated by market data or internal valuations, the Company will perform internal
valuations utilizing externally developed cash flow models. These pricing models are based on market observable spreads and, when available,
observable market indices. The pricing models also use inputs such as the rate of future prepayments and expected default rates on the principal,
which are derived by the Company based on the characteristics of the underlying structure and historical prepayment speeds experienced at the
interest rate levels projected for the underlying collateral. The pricing models for certain asset-backed securities also include significant non-
observable inputs such as internally assessed credit ratings for non-rated securities, combined with externally provided credit spreads. Observability
of market inputs to the valuation models used for pricing certain of the Company's investments deteriorated with the disruption to the credit markets
as overall liquidity and trading activity in these sectors has been substantially reduced. Accordingly, securities valued using a pricing model have
consistently been classified as Level 3 financial instruments.
The Company also records the investments in its defined benefit pension plan trust at fair value. The majority of the plan's investments are interest-
bearing cash or common collective trusts issued and held by the plan's trustee. The fair value of plan investments held by the trustee of the plan are
determined by the trustee based on the current market values of the underlying assets. In instances where market prices are not available, market
values are determined by using bid quotations obtained from major market makers or security exchanges or bid quotations for identical or similar
obligations. See Note 10 — Pension and Other Benefits for further description of investments held by the plan.
Other Financial Instruments — Other financial instruments consisted of put options related to trading investments. The fair value of the put options
related to trading investments were estimated using the expected cash flows from the instruments through their assumed exercise date. These cash
flows were discounted at a rate corroborated by market data for a financial institution comparable to the put option counter-party, as well as the
Company's interest rate on its debt. The discounted cash flows of the put options were then reduced by the estimated fair value of the related trading
investments. Given the subjectivity of the discount rate and the estimated fair value of the trading investments, the Company classified its put
options related to trading investments as Level 3 financial instruments. The fair value of the put options was remeasured each period, with the
change in fair value recognized in earnings.
Debt — Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is
estimated using market quotations, where available, credit ratings, observable market indices and other market data. As of December 31, 2010, the
fair value of Tranche A and Tranche B under the Company's senior facility is estimated at $95.3 million and $40.0 million, respectively, as
compared to carrying values of $100.0 million and $39.9 million, respectively. As of December 31, 2010, the fair value of the Company's second
lien notes is estimated at $520.0 million as compared to a $500.0 million carrying value. See Note 9 — Debt for more information on the
Company's debt.
Derivatives — Derivatives consist of forward contracts to hedge income statement exposure to foreign currency exchange risk arising from the
Company's assets and liabilities denominated in foreign currencies. The Company's forward contracts are well-established products, allowing the use
of standardized models that use market based inputs. These models do not contain a high level of subjectivity and the inputs are readily observable.
Accordingly, the Company has classified its forward contracts as Level 2 financial instruments.
F-22
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company has financial liabilities related to its forward contracts recorded at a fair value of $0.5 million and less than $0.1 million at
December 31, 2010 and 2009. Due to the immateriality of these amounts, the Company has presented the assets and liabilities associated with its
forward contracts as a net asset position in the table below. Following are the Company's financial assets recorded at fair value by hierarchy level as
of December 31:
(Amounts in thousands)
Available-for-sale investments (substantially restricted):
United States government agencies
Residential mortgage-backed securities — agencies
Other asset-backed securities
Forward contracts
Total financial assets
(Amounts in thousands)
Trading investments and related put options (substantially restricted)
Available-for-sale investments (substantially restricted):
United States government agencies
Residential mortgage-backed securities — agencies
Other asset-backed securities
Forward contracts
Total financial assets
Level 1
Level 2
Level 3
Total
2010
$
$
— $
—
—
—
— $
8,641 $
128,585
—
582
137,808 $
— $
—
23,710
—
23,710 $
8,641
128,585
23,710
582
161,518
Level 1
$
— $
Level 2
2009
Level 3
Total
— $
26,951 $
26,951
—
—
—
—
— $
7,715
268,830
—
5,332
281,877 $
—
—
22,088
—
49,039 $
7,715
268,830
22,088
5,332
330,916
$
The table below provides a roll-forward of the financial assets classified in Level 3 which are measured at fair value on a recurring basis for the
years ended December 31:
(Amounts in thousands)
Beginning balance
Realized gains
Realized losses
Principal paydowns
Other-than-temporary impairments
Unrealized gains — instruments still held at the reporting date
Unrealized losses — instruments still held at the reporting date
$
Ending balance
2010
Other
Asset-Backed
Securities
Trading
Investments
and Related
Put Options
$
26,951 $
2,449
—
(29,400)
—
—
—
— $
F-23
Trading
Investments
and Related
Put Options
2009
Other
Asset-Backed
Securities
Total
Level 3
Financial
Assets
49,039 $
2,449
—
(33,111)
(334)
7,632
(1,965)
23,710 $
22,088 $
—
—
(3,711)
(334)
7,632
(1,965)
23,710 $
47,990 $
7,557
—
(32,900)
—
4,304
—
26,951 $
Total
Level 3
Financial
Assets
77,518
7,557
(2)
(39,317)
(4,069)
8,861
(1,509)
49,039
29,528 $
—
(2)
(6,417)
(4,069)
4,557
(1,509)
22,088 $
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5 — Investment Portfolio
The Company's portfolio is invested in cash and cash equivalents, short-term investments, trading investments and available-for-sale investments, all
of which are substantially restricted as described in Note 2 — Summary of Significant Accounting Policies. Components of the Company's
investment portfolio as of December 31, are as follows:
(Amounts in thousands)
Cash
Money markets
Deposits
Cash and cash equivalents (substantially restricted)
Short-term investments (substantially restricted)
Trading investments and related put options (substantially restricted)
Available-for-sale investments (substantially restricted)
Total investment portfolio
2010
1,042,381 $
1,818,138
5,422
2,865,941
405,769
—
160,936
3,432,646 $
2009
1,243,060
1,933,764
200,000
3,376,824
400,000
26,951
298,633
4,102,408
$
$
Cash and Cash Equivalents (substantially restricted) — Cash and cash equivalents consist of cash, money-market securities and time deposits. Cash
primarily consists of interest-bearing deposit accounts and non-interest bearing transaction accounts. The Company's money-market securities are
invested in six funds, all of which are AAA rated and consist of United States Treasury bills, notes or other obligations issued or guaranteed by the
United States government and its agencies, as well as repurchase agreements secured by such instruments. Deposits consist of time deposits with
original maturities of three months or less, and are issued from financial institutions rated AA as of the date of this filing.
Short-Term Investments (substantially restricted) — Short-term investments consist of time deposits and certificates of deposit with original
maturities of greater than three months but no more than thirteen months, and are issued from financial institutions rated AA as of the date of this
filing.
Trading Investments and Related Put Options (substantially restricted) — At December 31, 2009, the Company had one trading investment with a
fair value of $11.8 million on a par value of $29.4 million, and a related put option with a fair value of $15.2 million. The trading investment was
called at par in February 2010, resulting in a $2.4 million gain recorded in "Net securities (gains) losses," net of the reversal of the related put option.
Two trading investments were called at par during 2009, resulting in a $7.6 million gain recorded in "Net securities (gains) losses," net of the
reversal of the related put options. The fair value of the remaining trading investment was $11.8 million on a par value of $29.4 million as of
December 31, 2009, which was unchanged from the prior year. The fair value of the related put option was $15.2 million, reflecting a valuation gain
of $4.3 million from the passage of time.
The Company recorded a $14.1 million net valuation loss on its trading investments and related put options during the year ended December 31,
2008 due to market concerns regarding the capital position of the monoline insurers and their intent to pay dividends on their preferred stock.
F-24
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Available-for-sale Investments (substantially restricted) — Available-for-sale investments consist of mortgage-backed securities, asset-backed
securities and agency debenture securities. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale
investments are as follows at December 31:
(Amounts in thousands, except net average price)
Residential mortgage-backed securities-agencies
Other asset-backed securities
United States government agencies
Total
Amortized
Cost
Gross
Unrealized
Gains
2010
Gross
Unrealized
Losses
$
$
121,677 $
10,690
7,273
139,640 $
7,001 $
13,020
1,368
21,389 $
(93) $
—
—
(93) $
Fair
Value
128,585 $
23,710
8,641
160,936 $
Net
Average
Price
106.37
4.68
96.01
25.27
(Amounts in thousands, except net average price)
Residential mortgage-backed securities — agencies
Other asset-backed securities
United States government agencies
Total
Amortized
Cost
Gross
Unrealized
Gains
2009
Gross
Unrealized
Losses
$
$
259,563 $
15,706
6,854
282,123 $
9,296 $
6,382
861
16,539 $
(29) $
—
—
(29) $
Fair
Net
Average
Price
Value
268,830 $
22,088
7,715
298,633 $
104.13
3.74
85.72
34.84
At December 31, 2010 and 2009, approximately 85 percent and 93 percent, respectively, of the available-for-sale portfolio is invested in debentures
of United States government agencies or securities collateralized by United States government agency debentures. These securities have always had
the implicit backing of the United States government and the Company expects to receive full par value upon maturity or pay-down, as well as all
interest payments. The Other asset-backed securities continue to have market exposure. The Company has factored this risk into its fair value
estimates, with the average price of an asset-backed security at $0.05 per dollar of par at December 31, 2010.
Gains and Losses and Other-Than-Temporary Impairments — At December 31, 2010 and 2009, net unrealized gains of $21.3 million and
$16.5 million, respectively, are included in the Consolidated Balance Sheets in "Accumulated other comprehensive loss." During 2010, 2009 and
2008, net losses of $0.3 million, $4.1 million and $326.6 million, respectively, were reclassified from "Accumulated other comprehensive loss" to
"Net securities (gains) losses" in connection with other-than-temporary impairments and realized gains and losses recognized during the year. "Net
securities (gains) losses" were as follows for the year ended December 31:
(Amounts in thousands)
Realized gains from available-for-sale investments
Realized losses from available-for-sale investments
Other-than-temporary impairments from available-for-sale investments
Valuation (gains) losses on trading investments and related put options
Realized gains from trading investments and related put options
Net securities (gains) losses
F-25
2010
2009
2008
$
$
— $
—
334
—
(2,449)
(2,115) $
— $
2
4,069
(4,304)
(7,557)
(7,790) $
(34,200)
290,498
70,274
14,116
—
340,688
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company realigned its investment portfolio during the first quarter of 2008, resulting in the sale of securities with a fair value of $3.2 billion
(after other-than-temporary impairment charges) for proceeds of $2.9 billion and a net realized loss of $256.3 million. The net realized loss was the
result of further deterioration in the markets during the first quarter of 2008 and the short timeframe over which the Company sold its securities.
Proceeds from the sales were reinvested in cash and cash equivalents to supplement the Company's assets in excess of payment service obligations.
Other-than-temporary impairment charges of $70.3 million during 2008 were the result of further deterioration in the markets. The Company
continues to have the intent to sell its investments classified as Other asset-backed securities.
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 across the rating
agencies for disclosure purposes. Securities issued or backed by United States government agencies are included in the AAA rating category.
Investment grade is defined as a security having a Moody's equivalent rating of Aaa, Aa, A or Baa or an S&P or Fitch equivalent rating of AAA,
AA, A or BBB. The Company's investments at December 31 consisted of the following ratings:
(Dollars in thousands)
AAA, including United States agencies
A
BBB
Below investment grade
Total
Number of
Fair
Percent of
Number of
Fair
Percent of
2010
2009
Securities
Value
25 $ 136,893
—
0
0
—
24,043
64
89 $ 160,936
Investments
Securities
85%
—
—
15%
100%
Value
34 $ 276,215
415
1
1,842
1
20,161
69
105 $ 298,633
Investments
92%
0%
1%
7%
100%
Had the Company used the lowest rating from the rating agencies in the information presented above, there would be no change to investments rated
A or better as of December 31, 2010 and 2009.
Contractual Maturities — The amortized cost and fair value of available-for-sale securities at December 31, 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)
After one year through five years
Mortgage-backed and other asset-backed securities
Total
2010
2009
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
7,273 $
132,367
139,640 $
8,641 $
152,295
160,936 $
6,854 $
275,269
282,123 $
7,715
290,918
298,633
Fair Value Determination — The Company uses various sources of pricing for its fair value estimates of its available-for-sale portfolio. The
percentage of the portfolio for which the various pricing sources were used is as follows at December 31, 2010 and 2009: 81 percent and 91 percent,
respectively, used a third party pricing service; 6 percent and 4 percent, respectively, used broker pricing; and 13 percent and 5 percent, respectively,
used internal pricing.
Assessment of Unrealized Losses — At December 31, 2010 and 2009, the Company had nominal unrealized losses in its available-for-sale portfolio,
with one Residential mortgage-backed agency security in an unrealized loss position aged 12 months or more, after the recognition of
other-than-temporary impairment charges.
F-26
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 6 — Derivative Financial Instruments
The Company uses forward contracts to hedge income statement exposure to foreign currency exchange risk arising from its assets and liabilities
denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as hedges for accounting
purposes. The "Transaction and operations support" line in the Consolidated Statements of Income (Loss) reflects losses of $5.4 million,
$5.3 million and $5.5 million in 2010, 2009 and 2008, respectively. These losses reflect changes in foreign exchange rates on foreign-denominated
receivables and payables, and are net of a gain of $1.8 million, a loss of $5.2 million, and a gain of $4.3 million from the related forward contracts
for 2010, 2009 and 2008, respectively. As of December 31, 2010 and 2009, the Company had $123.8 million and $59.4 million, respectively, of
outstanding notional amounts relating to its forward contracts.
At December 31, the Company reflects the following fair values of derivative forward contract instruments in its Consolidated Balance Sheets:
(Amounts in thousands)
Forward contracts
Balance
Sheet
Location
Other assets
Derivative Assets
2010
2009
Derivative Liabilities
2010
$
1,117 $
5,361
$
535
2009
$
29
The Company is exposed to credit loss in the event of non-performance 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.
Historically, the Company entered into foreign currency forward contracts with 12-month durations to hedge forecasted foreign currency money
transfer transactions. The Company designated these forward contracts as cash flow hedges. All cash flow hedges matured in 2009. The Company
recognized a gain of $2.4 million and a loss of $2.8 million for the years ended December 31, 2009 and 2008, respectively, in the "Other" expense
line in the non-operating section of the Consolidated Statements of Income (Loss), including $0.8 million of unrealized gains and $2.2 million of
unrealized losses reclassified from "Accumulated other comprehensive income (loss)" upon the final settlement of these cash flow hedges for the
years ending December 31, 2009 and 2008.
The Company historically used interest rate swaps to hedge the variability of cash flows from its floating rate debt, as well as its floating rate
commission payments to financial institution customers in the Financial Paper Products segment, primarily relating to the official check product. In
connection with its restructuring of the official check business in 2008, the Company terminated certain of its financial institution customer
relationships. The termination of the relationships led the Company to discontinue hedge accounting treatment in 2008 as the forecasted transaction
would no longer occur. The commission swaps were terminated in 2008, resulting in a $27.7 million loss being recognized in "Investment
commissions expense" in the Consolidated Statements of Income (Loss). Additionally, as described in Note 9 — Debt, the Company's senior facility
was deemed extinguished as a result of the modifications made in connection with the 2008 Recapitalization. As a result, the Company discontinued
hedge accounting treatment of its debt swap and terminated the swap in 2008. As a result of the swap termination, the Company recognized a
$2.0 million loss in "Interest expense" in the Consolidated Statements of Income (Loss).
F-27
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As described in Note 11 — Mezzanine Equity, the Company's Series B Stock `contains a conversion option allowing the stockholder to convert the
Series B Stock into shares of common stock. As the Certificate of Designation for the Series B Stock does not explicitly state that a net-cash
settlement is not required in the event the Company has insufficient shares of common stock to effect a conversion, guidance from the Securities and
Exchange Commission (the "SEC") requires the Company to presume a net-cash settlement would be required. As a result, the conversion option
met the definition of an embedded derivative requiring bifurcation and liability accounting treatment to the extent the Company did not have
sufficient shares to effect a full conversion. As of March 31, 2008 and June 30, 2008, the Company had a shortfall of committed and authorized
common stock, requiring the Company to recognize an embedded derivative. On August 11, 2008, the Investors and the Company formally clarified
that the provisions of the Series B Stock do not allow the Investors to require the Company to net-cash settle the conversion option if the Company
does not have sufficient shares of common stock to effect a conversion. Effective with this agreement, the Series B Stock conversion option no
longer met the criteria for an embedded derivative requiring bifurcation and liability accounting treatment. Accordingly, the Company remeasured
the liability through August 11, 2008 and then recorded the liability to "Additional paid-in capital" in the third quarter of 2008. The increase in the
fair value of the liability from the issuance of the B Stock through August 11, 2008 of $16.0 million was recognized in the "Valuation loss on
embedded derivatives" line in the Consolidated Statements of Income (Loss). There will be no further impact to the Company's Consolidated
Statements of Income (Loss) as no further remeasurement of the conversion option is required.
The Series B Stock also contains a change of control redemption option which, upon exercise, requires the Company to cash settle the par value of
the Series B Stock and any accumulated unpaid dividends at a 1 percent premium. As the cash settlement is made at a premium, the change of
control redemption option meets the definition of an embedded derivative requiring bifurcation and liability accounting treatment. The fair value of
the change of control redemption option was de minimus as of December 31, 2010 and 2009.
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
$
$
F-28
2010
2009
$
2,907
32,633
23,947
67,766
62,774
187,604
377,631
(262,520)
$
115,111
2,907
38,871
21,378
78,973
51,584
186,601
380,314
(252,342)
127,972
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
2010
2009
2008
$
$
3,772 $
3,885
8,989
8,688
20,314
45,648 $
4,600 $
3,526
11,449
10,891
23,351
53,817 $
4,055
2,593
10,393
11,558
23,692
52,291
At December 31, 2010 and 2009, there was $3.9 million and $1.2 million, respectively, of property and equipment that had been received by the
Company and included in "Accounts payable and other liabilities" in the Consolidated Balance Sheets.
In connection with its decision to sell its corporate airplane, the Company recognized a $7.0 million impairment charge in 2009 and a $1.5 million
impairment charge in 2010. The sale was completed in the third quarter of 2010. In 2009, the Company fully impaired $1.4 million of software
related to its ACH Commerce business based on changes in its exit plan. In 2008, the Company decided to discontinue certain software development
projects and recognized an impairment charge of $0.9 million. All impairment charges are included in the "Transaction and operations support" line
in the Consolidated Statements of Income (Loss).
Note 8 — Goodwill and Intangible Assets
Following is a roll-forward of goodwill by reporting segment:
(Amounts in thousands)
Balance at beginning of year:
Goodwill
Accumulated impairment charges
Goodwill acquired
Impairment charge
Divestitures
Balance at end of year:
Goodwill
Accumulated impairment charges
Global Funds Transfer
2009
2010
Financial Paper Products
2009
2010
Other
2010
2009
$
428,806 $
(3,176)
425,630
3,061
—
—
426,794 $
—
426,794
2,012
(3,176)
—
431,867
(3,176)
428,691 $
428,806
(3,176)
425,630 $
$
2,487
(2,487)
—
—
—
—
2,487
(2,487)
—
$
$
2,487 $
—
2,487
—
(2,487)
—
2,487
(2,487)
— $
15,746 $
(15,746)
—
—
—
—
15,746
(15,746)
— $
20,220
(15,164)
5,056
—
(582)
(4,474)
15,746
(15,746)
—
Goodwill acquired in 2010 relates to the acquisition of Blue Dolphin. Goodwill acquired in 2009 relates to the acquisition of Raphaels Bank.
Goodwill related to these acquisitions is not deductible for tax purposes.
The Company impaired $3.2 million of goodwill in 2009 allocated to the Global Funds Transfer segment associated with a decision to discontinue
certain bill payment product offerings. In connection with the sale of FSMC in 2009, the Company recorded a charge of $0.6 million to impair
goodwill that was in excess of the final sale price. In addition, goodwill was reduced by $4.5 million from the sale of FSMC. The FSMC reporting
unit is not a component of the Global Funds Transfer or Financial Paper Products segments.
F-29
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company performed an annual assessment of goodwill during the fourth quarters of 2010, 2009 and 2008. As a result of the 2009 annual
assessment, it was determined that the fair value of the retail money order reporting unit, a component of the Financial Paper Products segment, was
fully impaired. The Company recorded an impairment charge of $2.5 million to the Financial Paper Products segment in 2009, which was calculated
as the excess of the implied fair value of the retail money order reporting unit over the carrying amount of goodwill. There were no impairments
recognized in 2010 and 2008 as a result of the annual impairment test. Goodwill impairment charges are included in the "Transaction and operations
support" line of the Consolidated Statements of Income (Loss).
Intangible assets at December 31 consist of the following:
(Amounts in thousands)
Amortized intangible assets:
Customer lists
Non-compete agreements
Trademarks and license
Developed technology
Total intangible assets
2010
2009
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
$
$
15,592 $
137
613
1,519
17,861 $
(11,149) $
(40)
(15)
(965)
(12,169) $
4,443 $
97
598
554
5,692 $
15,307 $
200
597
1,519
17,623 $
(9,130) $
(150)
(1)
(662)
(9,943) $
6,177
50
596
857
7,680
In 2010, the Company recorded impairment charges of $0.4 million related to customer lists as a result of acquired customer terminations. In 2009,
the Company recorded impairment charges of $3.6 million related to customer lists and trademarks associated with its retail money order business.
Intangible impairment charges are included in the "Transaction and operations support" line of the Consolidated Statements of Income (Loss). No
impairments of intangible assets were identified during 2008.
Intangible asset amortization expense for 2010, 2009 and 2008 was $2.4 million, $3.3 million and $4.4 million, respectively. The estimated future
intangible asset amortization expense is $1.2 million, $0.7 million, $0.4 million, $0.3 million and $0.3 million for 2011, 2012, 2013, 2014 and 2015,
respectively.
Note 9 — Debt
Following is a summary of the outstanding debt at December 31:
(Amounts in thousands)
Senior Tranche A Loan, due 2013
Senior Tranche B Loan, net of unamortized discount, due 2013
Second lien notes, due 2018
Total debt
2010
Weighted-
Average
Interest Rate
2009
Weighted-
Average
Interest Rate
Amount
5.75% $
7.25%
13.25%
$
100,000
196,791
500,000
796,791
5.75%
7.25%
13.25%
Amount
$
100,000
39,946
500,000
639,946
$
F-30
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Senior Facility — On March 25, 2008, the Company's wholly owned subsidiary MoneyGram Payment Systems Worldwide, Inc. ("Worldwide")
entered into a senior secured amended and restated credit agreement of $600.0 million with JPMorgan Chase Bank, N.A. ("JPMorgan") as
Administrative Agent for a group of lenders (the "senior facility"). The senior facility was composed of a $100.0 million tranche A term loan
("Tranche A"), a $250.0 million tranche B term loan ("Tranche B") and a $250.0 million revolving credit facility, each of which matures in March
2013. Tranche B was issued by the Company at a discount of 93.5 percent, or $16.3 million, which was recorded as a reduction to the carrying value
of Tranche B and is being amortized over the life of the debt using the effective interest method. A portion of the proceeds from the issuance of
Tranche B was used to repay $100.0 million of the revolving credit facility on March 25, 2008.
The Company may elect an interest rate for the senior facility at each reset period based on the United States prime bank rate or the Eurodollar rate.
The interest rate election may be made individually for each term loan and each draw under the revolving credit facility. For Tranche A and the
revolving credit facility, the interest rate is either the United States prime bank rate plus 250 basis points or the Eurodollar rate plus 350 basis points.
For Tranche B, the interest rate is either the United States prime bank rate plus 400 basis points or the Eurodollar rate plus 500 basis points. Under
the terms of the senior facility, the interest rate determined using the Eurodollar index has a minimum rate of 2.50 percent. Fees on the daily unused
availability under the revolving credit facility are 50 basis points. Substantially all of the Company's non-financial assets are pledged as collateral for
the loans under the senior facility, with the collateral guaranteed by the Company's material domestic subsidiaries. The non-financial assets of the
material domestic subsidiaries are pledged as collateral for these guarantees.
During 2010 and 2009, the Company elected the United States prime bank rate as its interest basis. In 2010 and 2009, the Company prepaid
$165.0 million and $40.0 million, respectively, of its Tranche B loan. In 2009, the Company also paid $1.9 million of mandatory quarterly
Tranche B payments. All mandatory payments through maturity have been satisfied. In 2009, the Company repaid $145.0 million outstanding under
its revolving credit facility. As of December 31, 2010, the Company has $243.2 million of availability under the revolving credit facility, net of
$6.8 million of outstanding letters of credit which reduce the amount available. Amortization of the debt discount on Tranche B of $8.2 million,
$4.8 million and $2.0 million during 2010, 2009 and 2008, respectively, is recorded in "Interest expense" in the Consolidated Statements of Income
(Loss). Amortization of the debt discount in 2010 and 2009 includes pro-rata write-offs of $5.9 million and $1.9 million, respectively, as a result of
the Tranche B prepayments.
Second Lien Notes — As part of the 2008 Recapitalization, Worldwide issued $500.0 million of senior secured second lien notes to Goldman Sachs
(the "second lien notes"), which will mature in March 2018. The interest rate on the second lien notes is 13.25 percent per year. Prior to March 25,
2011, the Company has the option to capitalize interest at a rate of 15.25 percent. If interest is capitalized, 0.50 percent of the interest is payable in
cash and 14.75 percent is capitalized into the outstanding principal balance. The Company paid the interest through December 31, 2010 and
anticipates that it will continue to pay the interest on the second lien notes for the foreseeable future.
Prior to the fifth anniversary, the Company may redeem some or all of the second lien notes at a price equal to 100 percent of the principal, plus any
accrued and unpaid interest plus a premium equal to the greater of 1 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. Starting with the fifth anniversary, the Company may redeem some or all of the second lien notes at prices expressed as a
percentage of the outstanding principal amount of the second lien notes plus accrued and unpaid interest, starting at approximately 107 percent on
the fifth anniversary, decreasing to 100 percent on or after the eighth anniversary. Upon a change of control, the Company is required to make an
offer to repurchase the second lien 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 second lien notes with proceeds of certain asset sales that have not been reinvested in accordance
with the terms of the second lien notes or have not been used to repay certain debt.
F-31
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inter-creditor Agreement — In connection with the above financing arrangements, the lenders under both the senior facility and the second lien
notes entered into 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.
Debt Covenants and other restrictions — Borrowings under the Company's debt agreements are subject to various covenants that limit the
Company's ability to: incur additional indebtedness; effect mergers and consolidations; sell assets or subsidiary stock; pay dividends and other
restricted payments; invest in certain assets; and effect loans, advances and certain other transactions with affiliates. In addition, the senior facility
has a covenant that places limitations on the use of proceeds from borrowings under the facility.
Both the senior facility and the second lien notes contain a financial covenant requiring the Company to maintain a minimum liquidity ratio of at
least 1:1 for certain assets to outstanding payment service obligations. The senior facility also has two financial covenants referred to as the interest
coverage ratio and senior secured debt ratio. The Company must maintain a minimum interest coverage ratio of 1.75:1 through September 30, 2012
and 2:1 from December 31, 2012 through maturity. The senior secured debt ratio is not permitted to exceed 5.5:1 through September 30, 2011, 5:1
from December 31, 2011 through September 30, 2012 and 4.5:1 from December 31, 2012 through maturity. At December 31, 2010, the Company is
in compliance with its financial covenants.
Deferred Financing Costs — In connection with the waivers obtained on the senior facility during the first quarter of 2008, the Company capitalized
financing costs of $1.5 million. The Company also capitalized $19.6 million and $33.4 million of financing costs for the amendment and restatement
of the senior facility and the issuance of the second lien notes, respectively. These costs were capitalized in "Other assets" in the Consolidated
Balance Sheets and are being amortized over the term of the related debt using the effective interest method.
Amortization of deferred financing costs of $9.3 million, $8.0 million and $5.5 million for the years ended December 31, 2010, 2009, and 2008,
respectively, is recorded in "Interest expense" in the Consolidated Statements of Income (Loss). Amortization during 2010 and 2009 includes
$2.7 million and $0.9 million, respectively, for the write-off of a pro rata portion of deferred financing costs in connection with the prepayments on
Tranche B. In connection with the modification of the senior facility in 2008, the Company recognized a debt extinguishment loss of $1.5 million,
reducing deferred financing costs.
Interest Paid in Cash — The Company paid $83.5 million, $94.4 million and $84.0 million of interest in 2010, 2009 and 2008, respectively.
Note 10 — Pensions and Other Benefits
Pension Benefits — The Pension Plan is a frozen non-contributory funded defined benefit pension plan under which no new service or compensation
credits are accrued by the plan participants. Cash accumulation accounts continue to be credited with interest credits until participants withdraw their
money from the Pension Plan. It is the Company's policy to fund the minimum required contribution each year.
Supplemental Executive Retirement Plans — The Company has obligations under various Supplemental Executive Retirement Plans ("SERPs"),
which are unfunded non-qualified defined benefit pension plans providing postretirement income to their participants. As of December 31, 2010, all
benefit accruals under the SERPs are frozen with the exception of one plan for which service is frozen but future pay increases are reflected for
active participants. It is the Company's policy to fund the SERPs as benefits are paid.
F-32
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
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 its participants. The Company amended the postretirement benefit plan to close it to new participants as of December 31, 2009. In
November 2010, the Board of Directors approved a change to the plan whereby participants eligible for Medicare coverage will no longer be eligible
for coverage under the plan effective July 1, 2011. The Company has determined that its postretirement benefit 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
Company's funding policy is to make contributions to the postretirement benefits plans as benefits are paid.
Actuarial Valuation Assumptions — The measurement date for the Company's defined benefit pension plan, SERPs and postretirement benefit plans
is December 31. 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:
Pension and SERPs
2009
2008
2010
Postretirement Benefits
2009
2008
2010
Net periodic benefit cost:
Discount rate
Expected return on plan assets
Rate of compensation increase
Initial healthcare cost trend rate
Ultimate healthcare cost trend rate
Year ultimate healthcare cost trend rate is reached
Projected benefit obligation:
Discount rate
Rate of compensation increase
Initial healthcare cost trend rate
Ultimate healthcare cost trend rate
Year ultimate healthcare cost trend rate is reached
5.80% 6.30% 6.50%
8.00% 8.00% 8.00% —
5.75% 5.75% 5.75% —
—
—
—
—
—
—
—
—
—
2019
5.80%
6.30%
6.50%
—
—
—
—
9.50%
5.00%
8.50%
5.00%
9.00%
5.00%
2013
2013
5.30% 5.80% 6.30%
5.75% 5.75% 5.75% —
—
—
—
—
—
—
—
—
—
2019
9.00%
5.00%
5.30%
5.80%
6.30%
—
—
9.50%
5.00%
8.50%
5.00%
2019
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 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.
A one-percentage point change in assumed health care trends would have the following effects for 2010:
(Amounts in thousands)
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
F-33
One Percentage
Point Increase
6
$
106
One Percentage
Point Decrease
(5)
$
(90)
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pension Assets — The Company employs a total return investment approach whereby a mix of equity 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 United States and non-United States 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 an 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 defined benefit pension plan by asset category at the measurement date of December 31 is
as follows:
Equity securities
Fixed income securities
Real estate
Other
Total
2010
2009
59.8%
34.4%
3.9%
1.9%
100.0%
55.6%
35.0%
5.5%
3.9%
100.0%
The Company records its pension assets at fair value as described in Note 4 — Fair Value Measurement. Following is a description of the Plan's
investments at fair value and valuation methodologies:
• Short-term investment fund — This fund is comprised of interest-bearing cash accounts and time deposits with original maturities of less than
three months, and is valued at historical cost, which approximates fair value. Amounts in these investments are typically the result of
temporary timing differences between receipts from other investments and reinvestment of those funds or benefit payments to plan
participants.
• Common collective trusts issued and held by the trustee — These investments in equity and fixed income securities comprise the substantial
portion of the pension plan trust and are held in various common/collective trusts that are maintained by the trustee, who is regulated,
supervised and subject to periodic examination by a state or federal agency. Common collective trusts are held by the trustee for the collective
investment and reinvestment of assets contributed from employee benefit plans maintained by more than one employer or a controlled group
of corporations. The fair value of the common collective trust is determined based on the price per unit held as of the end of a period as
determined by the trustee in accordance with their valuation methodology.
• Real estate — The pension plan trust holds an investment in a real estate development project. The fair value of this investment represents the
estimated market value of the plan's related ownership percentage of the project based upon an appraisal as of each balance sheet date. As of
December 31, 2010 and 2009, there is no unfunded commitment or potential redemptions related to this asset. The fund strategy for this asset
is long-term capital appreciation.
• Experience fund investment contracts — These investments are actuarially determined annuity reserves for certain participants for whom
annuities were purchased under a group annuity contract and were superseded and converted into an investment contract. The fair value is
determined by multiplying their balances at cost times a discount factor, which is intended to recognize the difference between the investment
yield at cost and the investment yield which prevailed generally at the balance sheet date for new investments of similar nature. The Company
liquidated all but one of these investments in 2010 and invested the proceeds into common collective trusts. The remaining balance at
December 31, 2010 relates to one contract which was in the process of being liquidated at period-end.
F-34
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Following are the Plan's financial assets recorded at fair value by hierarchy level as of December 31:
(Amounts in thousands)
Short-term investment fund
Common collective trust — equity securities
Large Cap securities
Small Cap securities
International securities
Common collective trust — fixed income securities
Core fixed income
Long duration fixed income
Real estate
Experience fund investment contracts
Total financial assets
(Amounts in thousands)
Short-term investment fund
Common collective trust — equity securities
Large Cap securities
Small Cap securities
International securities
Common collective trust — fixed income securities
Core fixed income
Long duration fixed income
Real estate
Experience fund investment contracts
Total financial assets
Level 1
Level 2
Level 3
Total
2010
$
1,949 $
— $
—
—
—
4,943
—
—
—
6,892 $
$
47,178
10,641
6,282
13,949
17,973
—
27
96,050 $
2009
— $
—
—
—
—
—
4,194
—
4,194 $
1,949
47,178
10,641
6,282
18,892
17,973
4,194
27
107,136
Level 1
Level 2
Level 3
Total
$
2,298 $
— $
—
—
—
5,008
—
—
—
7,306 $
38,326
9,681
9,237
24,323
6,655
—
1,692
89,914 $
$
— $
—
—
—
—
—
5,688
—
5,688 $
2,298
38,326
9,681
9,237
29,331
6,655
5,688
1,692
102,908
The Company's pension plan assets include one security that the Company considers to be a Level 3 asset for valuation purposes. This security is an
investment in a real estate joint venture and requires the use of unobservable inputs in its fair value measurement. The fair value of this asset as of
December 31, 2010 and 2009 was $4.2 million and $5.7 million, respectively. The change in reported net asset value for this asset resulted in an
unrealized loss of $1.5 million for 2010 and an unrealized gain of $0.9 million for 2009.
F-35
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Plan Financial Information — Net periodic benefit expense (income) for the defined benefit 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 (credit)
Recognized net actuarial loss
Curtailment (gain) loss
Net periodic expense (benefit)
2010
Pension and SERPs
2009
2008
2010
2009
2008
Postretirement Benefits
$
$
— $
11,876
(8,664)
84
4,782
—
8,078 $
894 $
12,659
(9,403)
346
3,777
(1,535)
6,738 $
1,069 $ — $
12,678
253
(10,275) —
414 —
15
658 —
268 $
7,072 $
2,528
572 $
837
—
(352)
—
(12,804)
(11,747) $
543
822
—
(352)
—
—
1,013
On January 1, 2008, the Company adopted a change in measurement date for its defined benefit pension plan and SERPs and the defined benefit
postretirement benefit plans in accordance with applicable accounting guidance. The change in measurement date was adopted using the transition
method of measuring its plan assets and benefit obligations as of January 1, 2008. Net periodic costs of $0.4 million for the period from the
Company's previous measurement date of November 30, 2007 through January 1, 2008 were recognized as a separate adjustment to "Retained loss,"
net of tax. Changes in the fair value of the plan assets and benefit obligation for this period were recognized as an adjustment of $1.5 million to the
opening balance of "Accumulated other comprehensive loss" in 2008.
The Company recognized a net $1.5 million curtailment gain in 2009 from the amendment of two SERPs and accumulated participant terminations.
The amendment of the postretirement benefit plan resulted in a curtailment gain of $12.8 million in 2009. During 2008, the Company recorded a
curtailment loss of $0.7 million under the SERPs related to the departure of the Company's former chief executive officer and another executive
officer. The postretirement benefits expense for 2010, 2009 and 2008 was reduced by less than $0.4 million due to subsidies received under the
Medicare Prescription Drug, Improvement and Modernization Act of 2003. Subsidies to be received under the Medicare Act in 2011 are not
expected to be material.
Amounts recognized in other comprehensive income (loss) and net periodic benefit expense as of December 31 are as follows:
(Amounts in thousands)
Net actuarial loss
Prior service credit
Amortization of net actuarial loss
Amortization of prior service cost
Total recognized in other comprehensive income (loss)
Total recognized in net periodic expense
Total recognized in net periodic expense and other comprehensive income (loss)
F-36
Pension and
SERPs
2010
Postretirement
Benefits
$
$
$
$
10,150 $
—
(4,782)
(84)
5,284 $
8,078 $
13,362 $
1,100
(4,153)
(15)
—
(3,068)
268
(2,800)
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands)
Net actuarial loss
Amortization of net actuarial loss
Amortization of prior service (cost) credit
Curtailment gain (loss)
Prior service (costs) credit
Net actuarial loss
Total recognized in other comprehensive income (loss)
Total recognized in net periodic expense (benefit)
Total recognized in net periodic expense (benefit) and other comprehensive income (loss)
(Amounts in thousands)
Net actuarial loss (gain)
Amortization of net actuarial loss
Amortization of prior service (cost) credit
Total recognized in other comprehensive income (loss)
Total recognized in net periodic expense
Total recognized in net periodic expense and other comprehensive income (loss)
Pension and
SERPs
2009
Postretirement
Benefits
$
$
$
$
2,837 $
(3,777)
(346)
(2,124)
(2,577)
(5,987) $
6,738 $
751 $
3,086
—
352
1,839
(973)
4,304
(11,747)
(7,443)
Pension and
SERPs
2008
Postretirement
Benefits
48,039
(2,740)
(414)
44,885 $
7,072 $
51,957 $
$
$
$
(442)
—
352
(90)
1,013
923
The estimated net loss and prior service cost for the defined benefit pension plan and SERPs that will be amortized from "Accumulated other
comprehensive loss" into "Net periodic benefit expense" during 2011 is $6.3 million ($3.9 million net of tax) and less than $0.1 million,
respectively. The estimated net loss and prior service credit for the for the postretirement benefit plans that will be amortized from "Accumulated
other comprehensive loss" into "Net periodic benefit expense" during 2011 is $0.2 million ($0.1 million, net of tax) and $0.6 million ($0.4 million
net of tax), respectively. These amounts are a result of the plan amendment to the postretirement benefit plans effective in 2011 as discussed further
above.
F-37
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The benefit obligation and plan assets, changes to the benefit obligation and plan assets, and the funded status of the defined benefit 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 year
Service cost
Interest cost
Actuarial loss
Plan amendments
Medicare Part D reimbursements
Benefits paid
Benefit obligation at the end of the year
(Amounts in thousands)
Change in plan assets:
Fair value of plan assets at the beginning of the year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at the end of the year
Unfunded status at the end of the year
Pension and SERPs
2010
2009
Postretirement Benefits
2009
2010
$
$
211,616 $
—
11,876
11,417
—
—
(13,418)
221,491 $
207,454 $
894
12,659
9,352
(6,236)
—
(12,507)
211,616 $
$
4,521
—
253
1,100
(4,154)
32
(725)
$
1,027
13,416
572
837
2,018
(11,937)
3
(388)
4,521
Pension and SERPs
2010
2009
Postretirement Benefits
2009
2010
$
$
$
102,908 $
9,931
7,715
(13,418)
107,136 $
95,551 $
15,918
3,946
(12,507)
102,908 $
$
—
—
725
(725)
—
$
—
—
388
(388)
—
(114,355) $
(108,708) $
(1,027) $
(4,521)
The unfunded status of the Pension and SERPs increased by approximately 5 percent as the benefit obligation increased $9.9 million while the fair
value of the pension plan assets increased $4.2 million during the year. The unfunded status of the defined benefit pension plan was $45.8 million
and $43.0 million at December 31, 2010 and 2009, respectively, and the unfunded status of the SERPs was $68.6 million and $65.7 million at
December 31, 2010 and 2009, respectively.
Following are the components recognized in the Consolidated Balance Sheets relating to the defined benefit 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 liability
Accumulated other comprehensive loss:
Pension and SERPs
2009
2010
Postretirement Benefits
2010
2009
$ (114,355) $ (108,708) $ (1,027) $ (4,521)
Unrealized losses for pension and postretirement benefits, net of tax
Prior service cost (credit) for pension and postretirement benefits, net of tax
59,706
171
56,378
223
1,067
(2,575)
542
—
F-38
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The projected benefit obligation and accumulated benefit obligation for the defined benefit pension plan, SERPs and the postretirement benefit plans
are in excess of the fair value of plan assets as shown below:
(Amounts in thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
Pension Plan
2010
152,904 $
152,904
107,136
2009
145,933 $
145,933
102,908
SERPs
2010
68,587 $
68,587
—
2009
65,683 $
65,683
—
Postretirement Benefits
2009
2010
1,027
—
—
$
4,521
—
—
Estimated future benefit payments for the defined benefit pension plan and SERPs and the postretirement benefit plans are as follows:
(Amounts in thousands)
Pension and SERPs
Postretirement benefits
2011
2012
2013
2014
2015
2016-20
$
14,284 $
111
14,602 $
95
14,393 $
105
14,478 $
112
20,000 $
93
74,274
334
The Company has a minimum required contribution of approximately $7.9 million for the defined benefit pension plan in 2011, and 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 $4.6 million in 2011.
Employee Savings Plan — The Company has an employee savings plan that qualifies under Section 401(k) of the Internal Revenue Code of 1986, as
amended. Contributions to, and costs of, the 401(k) defined contribution plan totaled $3.4 million, $3.7 million and $3.7 million in 2010, 2009 and
2008, respectively. MoneyGram does not have an employee stock ownership plan.
Deferred Compensation Plans — Under the Deferred Compensation Plan for Directors of MoneyGram International, Inc., non-employee directors
were allowed to defer all or part of their retainers, fees and stock awards in the form of stock units or cash prior to 2009. In 2007, the plan was
amended to require that a portion of the retainer received by non-employee directors be deferred in stock units. In 2008, the plan was amended to
state that directors who join the Board on or after March 24, 2008 shall not be eligible to participate in the plan. Effective January 1, 2009, voluntary
deferrals of director fees and stock unit retainers under the plan were permanently discontinued. Deferrals made prior to 2009 will remain in the plan
until such amounts become distributable in accordance with the Director's deferral elections. In April 2010, the plan was amended to convert stock
unit accounts into cash. Deferred cash accounts are credited quarterly with interest based on the one-year Constant Maturity rate.
Under the Deferred Compensation Plan for Management, prior to 2010, certain employees could elect to defer their base compensation and incentive
pay in the form of cash. In addition, the Company made contributions to certain participants' accounts for profit sharing contributions beyond the
IRS qualified plan limits. In April 2010, the plan was amended to discontinue all future deferrals under the plan. Management deferred accounts are
generally payable based upon the timing and method elected by the participant. In April 2010, the plan was amended to convert stock unit accounts
to cash. Deferred cash accounts are credited quarterly with interest at the one-year Constant Maturity rate.
In February 2011, the plan was amended to (a) terminate all employee deferral accounts on the amendment date and pay each participant the balance
of the participant's account in a lump sum one year from termination and (b) cash out all employer deferral accounts if and when the account balance
falls below the applicable dollar amount under Section 402(g)(1)(B) of the Internal Revenue Code.
F-39
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The deferred compensation plans are unfunded and unsecured, and the Company is not required to physically segregate any assets in connection
with the deferred accounts. The Company has rabbi trusts associated with each deferred compensation plan which are funded through voluntary
contributions by the Company. At December 31, 2010 and 2009, the Company had a liability related to the deferred compensation plans of
$3.8 million and $5.0 million, respectively, recorded in the "Accounts payable and other liabilities" component in the Consolidated Balance Sheets.
The rabbi trusts had a market value of $10.7 million and $10.0 million at December 31, 2010 and 2009, respectively, recorded in "Other assets" in
the Consolidated Balance Sheets.
Note 11 — Mezzanine Equity
Preferred Stock — In connection with the 2008 Recapitalization, the Company issued 495,000 shares of B Stock and 265,000 shares of B-1 Stock to
the Investors for a purchase price of $495.0 million and $265.0 million, respectively. As a result of the issuance of the Series B Stock, the Investors
had an equity interest of approximately 79 percent on March 25, 2008. With the accrual of dividends, the Investors had an equity interest of
approximately 84 percent and 82 percent on December 31, 2010 and 2009, respectively. In addition, the Company capitalized $107.5 million of
transaction costs, including $7.5 million paid through the issuance of 7,500 shares of B-1 Stock to Goldman Sachs. The B Stock is convertible into
shares of common stock of the Company at a price of $2.50 per share, subject to adjustment. The B-1 Stock is convertible into B Stock by any
stockholder other than Goldman Sachs. While held by Goldman Sachs, the B-1 Stock is convertible into Series D Participating Convertible Preferred
Stock ("Series D Stock").
The Series B Stock pays a cash dividend of 10 percent. At the Company's option, dividends may be accrued through March 25, 2013 at a rate of
12.5 percent in lieu of paying a cash dividend. If the Company is unable to pay the dividends in cash after March 25, 2013, dividends will accrue at a
rate of 15 percent. The Company anticipates that it will accrue dividends on the Series B Stock for at least the next 12 months. While no dividends
have been declared as of December 31, 2010, the Company has accrued dividends through a charge to "Additional paid-in capital" to the extent
available and through a charge to "Retained loss" for the remainder as accumulated and unpaid dividends are included in the redemption price of the
Series B Stock. The Series B Stock also participates in any dividends declared on the common stock on an as-converted basis.
The Series B Stock may be redeemed at the option of the Company after March 25, 2013 if the average market price of its common stock exceeds
$15.00, subject to adjustment, during a period of thirty consecutive trading days. The Series B Stock will be redeemable at the option of the
Investors after March 25, 2018 or upon a change of control. As of December 31, 2010, the Company believes that it is not probable that the Series B
Stock will become redeemable as (a) the contingencies for the change of control redemption option and the optional redemption by the Company are
not met, and (b) these two contingencies may occur prior to the ability of the Investors to exercise their option to redeem. The B Stock votes as a
class with the common stock of the Company and has a number of votes equal to (i) the number of shares of common stock issuable if all
outstanding shares of B Stock were converted plus (ii) the number of shares of common stock issuable if all outstanding shares of B-1 Stock were
converted into B Stock and subsequently converted into common stock.
F-40
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Series B Stock is recorded in the Company's Consolidated Balance Sheets as "Mezzanine equity" as it has redemption features not solely within
the Company's control. The conversion feature in the B Stock met the definition of an embedded derivative requiring bifurcation during a portion of
2008. The change of control redemption option contained in the Series B Stock meets the definition of an embedded derivative requiring bifurcation.
The original fair value of the embedded derivatives of $54.8 million was recognized as a reduction of "Mezzanine equity." See Note 6 — Derivative
Financial Instruments for further discussion of the embedded derivatives in the Series B Stock. The Company capitalized transaction costs totaling
$37.6 million and $17.2 million relating to the issuance of the B Stock and B-1 Stock, respectively, through a reduction of "Mezzanine equity." As it
is probable the Series B Stock will become redeemable in 2018, these transaction costs, along with the discount recorded in connection with the
embedded derivatives, will be accreted to the Series B Stock redemption value of $767.5 million plus any accumulated but unpaid dividends over a
10-year period using the effective interest method. Following is a summary of mezzanine equity activity:
(Amounts in thousands)
Balance at December 31, 2008
Dividends accrued
Accretion
Tax benefit on transaction costs
Balance at December 31, 2009
Dividends accrued
Accretion
Balance at December 31, 2010
B Stock
B-1 Stock
Series
B Stock
$
$
458,408 $
71,124
8,539
1,013
539,084
80,622
8,493
628,199 $
283,804 $
39,155
1,674
611
325,244
44,383
1,527
371,154 $
742,212
110,279
10,213
1,624
864,328
125,005
10,020
999,353
Equity Registration Rights Agreement — The Company and the Investors also entered into a Registration Rights Agreement (the "Equity
Registration Rights Agreement") on March 25, 2008, with respect to the Series B Stock and D Stock, and the common stock owned by the Investors
and their affiliates (collectively, the "Registrable Securities"). Under the terms of the Equity Registration Rights Agreement, we are required, after a
specified holding period, to use our reasonable best efforts to promptly file with the SEC a shelf registration statement relating to the offer and sale
of the Registrable Securities. We are obligated to keep such shelf registration statement continuously effective under the Securities Act of 1933, as
amended (the "Securities Act"), until the earlier of (1) the date as of which all of the Registrable Securities have been sold, (2) the date as of which
each of the holders of the Registrable Securities is permitted to sell its Registrable Securities without registration pursuant to Rule 144 under the
Securities Act and (3) fifteen years. The holders of the Registrable Securities are also entitled to five demand registrations and unlimited piggyback
registrations during the term of the Equity Registration Rights Agreement. On December 14, 2010, we filed a shelf registration statement on
Form S-3 with the Securities and Exchange Commission which would permit the offer and sale of the Registrable Securities, as required by the
terms of the Equity Registration Rights Agreement. The registration statement also would permit the Company to offer and sell up to $500 million
of its common stock, preferred stock, debt securities or any combination of these, from time to time, subject to market conditions and the Company's
capital needs. The registration statement is subject to review by the SEC and has not yet been declared effective by the SEC.
F-41
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12 — Stockholders' Deficit
Preferred Stock — The Company's Certificate of Incorporation provides for the issuance of up to 7,000,000 shares of preferred stock that may be
issued in one or more series, with each series to have certain rights and preferences as shall be determined by unlimited discretion of the Company's
Board of Directors, including, without limitation, voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences.
At December 31, 2010 and 2009, the Company had the following designations of preferred shares: 2,000,000 shares of Series A junior participating
preferred stock ("Series A Stock"); 760,000 shares of B Stock; 500,000 shares of B-1 Stock; and 200,000 shares of Series D Stock. At December 31,
2010 and 2009, no Series A Stock or Series D Stock is issued or outstanding. See Note 11 — Mezzanine Equity for further information on the B
Stock, B-1 Stock and Series D Stock.
Common Stock — The Company's Certificate of Incorporation provides for the issuance of up to 1,300,000,000 shares of common stock with a par
value of $0.01. In connection with the spin-off, MoneyGram was recapitalized such that there were 88,556,077 shares of MoneyGram common
stock issued. 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 the Company's financial condition, results of operations, cash requirements, prospects and such other factors as the Board of Directors
may deem relevant. No dividends were paid in 2010. Under the terms of the equity securities and debt issued in connection with the 2008
Recapitalization, the Company's ability to declare or pay dividends or distributions to the stockholders of the Company's common stock is severely
limited. The following is a summary of common stock issued and outstanding at December 31:
(Amounts in thousands)
Common shares issued
Treasury stock
Common shares outstanding
2010
2009
88,556
(4,936)
83,620
88,556
(6,041)
82,515
Treasury Stock — The Board of Directors has authorized the repurchase of a total of 12,000,000 shares. As of December 31, 2010, the Company has
repurchased 6,795,000 shares of common stock under this authorization and has remaining authorization to repurchase up to 5,205,000 shares. There
were no shares repurchased during 2010 or 2009. Following is a summary of treasury stock share activity:
(Amounts in thousands)
Balance at December 31, 2008
Submission of shares for withholding taxes upon release of restricted stock and
forfeiture of shares of restricted stock
Balance at December 31, 2009
Exercise of stock options and release of restricted stock, net of shares surrendered
for withholding taxes
Balance at December 31, 2010
F-42
Treasury Stock
Shares
5,999
42
6,041
(1,105)
4,936
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accumulated Other Comprehensive Loss — The components of "Accumulated other comprehensive loss" at December 31 include:
(Amounts in thousands)
Net unrealized gains on securities classified as available-for-sale
Cumulative foreign currency translation adjustments
Prior service credit (cost) for pension and postretirement benefits, net of tax
Unrealized losses on pension and postretirement benefits, net of tax
Accumulated other comprehensive loss
Note 13 — Stock-Based Compensation
2010
2009
$
$
21,296 $
5,194
2,404
(60,773)
(31,879) $
16,510
4,962
(223)
(56,920)
(35,671)
In connection with the spin-off, each holder of a Viad stock option was issued a stock option for MoneyGram common stock. The exercise price of
each MoneyGram stock option issued in connection with the spin-off equals the exercise price of the Viad 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 subsequent to the date of spin-off and the
denominator of which was that price plus the closing price of a share of Viad common stock on the first trading day subsequent to the date of spin-
off (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 restricted
stock units; (d) dividend equivalents; (e) performance based awards; and (f) stock and other stock-based awards. Shares related to 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. In May 2009, the stockholders of the Company
approved a modification of the 2005 Omnibus Incentive Plan to increase the authorization for the issuance of awards from 7,500,000 shares of
common stock to 47,000,000 shares of common stock. In May 2010, the stockholders of the Company approved a modification to the 2005 Omnibus
Incentive Plan to increase the aggregate number of shares that may be granted to an eligible person in any calendar year from 10 million to
12 million shares, along with adding and clarifying provisions regarding certain limitations for performance awards denominated in shares and cash.
As of December 31, 2010, the Company has remaining authorization to issue awards of up to 7,170,657 shares of common stock.
Stock Options — Beginning in 2009, option awards are generally granted with an exercise price equal to the closing market price of the Company's
common stock on the date of grant. No stock options were granted in 2008. All outstanding stock options contain certain forfeiture and non-compete
provisions.
F-43
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pursuant to the terms of options granted in 2009 and 2010, 50 percent of the options awarded become exercisable through the passage of time (the
"Time-based Tranche") and 50 percent of the options awarded become exercisable upon the achievement of certain conditions (the "Performance-
based Tranche"). The Time-based Tranche generally becomes exercisable over a five-year period in either (a) an equal number of shares each year
or (b) for some issuances in 2009, a tranched vesting schedule whereby 15 percent of the Time-based Tranche vests immediately and then at rates of
10 to 20 percent each year. The Performance-based Tranche becomes exercisable upon the achievement within five years of grant of the earlier of
(a) a pre-defined common stock price for any period of 20 consecutive trading days, (b) a change in control of the Company resulting in a pre-
defined per share consideration or (c) in the event the Company's common stock does not trade on a United States exchange or trading market, a
public offering resulting in the Company's common stock meeting pre-defined equity values. All options granted in 2009 and 2010 have a term of
10 years.
For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model for the Time-
based Tranches and a combination of Monte-Carlo simulation and the Black-Scholes single option pricing model for the Performance-based
Tranches. 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 used the simplified method to estimate the expected term of the award and historical information to estimate the forfeiture rate. As the
pattern of changes in the value of the Company's common stock since late 2007 is substantially different from historical patterns, the nature of
options granted since 2008 is substantially different from historical grants and there have been minimal stock option exercises since 2007, the
Company is unable to make a more refined estimate than the use of the simplified method. The expected term represents the period of time that
options are expected to be outstanding and the forfeiture rate represents the number of unvested options that will be forfeited by grantees due 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 the Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for
periods within the expected term of the option, while the risk-free rate for the Monte-Carlo simulation is based on the five-year United States
Treasury yield in effect at the time of grant. Compensation cost, net of expected forfeitures, is recognized using a straight-line method over the
vesting or service period. The following table provides weighted-average grant-date fair value and assumptions utilized to estimate the grant-date
fair value of the options granted during the years ended December 31:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life
Weighted-average grant-date fair value per option
F-44
2010
0.0%
72.9%-74.8%
1.8%-3.3%
5.3-6.5 years
$2.05
2009
0.0%
72.8%-76.9%
2.3%-3.2%
5.3-6.5 years
$1.49
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Following is a summary of stock option activity for 2010:
Options outstanding at December 31, 2009
Granted
Exercised
Forfeited/Expired
Options outstanding at December 31, 2010
Vested or expected to vest at December 31, 2010
Options exercisable at December 31, 2010
Weighted-
Average
Exercise
Price
Shares
38,145,414 $
13,000,000
(1,098,750)
(10,149,190)
39,897,474 $
39,528,786 $
7,007,474 $
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
($000)
3.35
2.87
1.85
3.08
3.31
3.32
6.96
8.49 years $
8.50 years $
6.70 years $
12,766
12,670
3,102
Restricted Stock — 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 for 2010:
Restricted stock outstanding at December 31, 2009
Vested
Restricted stock outstanding at December 31, 2010
Total
Shares
9,674 $
(9,674)
— $
Weighted
Average
Price
29.26
29.26
—
Restricted Stock Units — In May 2010, the Company granted an aggregate of 223,888 restricted stock units to members of the Board of Directors,
excluding the Chairman of the Board, as compensation for services to be provided. The restricted stock units vest on the first anniversary of their
issuance and may only be settled in the Company's common stock. The restricted stock units were valued at the quoted market price of the
Company's common stock on the date of grant and are being expensed to the "Compensation and benefits" line in the Consolidated Statements of
Income (Loss) using the straight-line method over the vesting period.
Following is a summary of information related to the Company's stock-based awards:
(Amounts in thousands)
Expense recognized related to options
Expense recognized related to restricted stock
Expense recognized related to restricted stock units
Intrinsic value of options exercised
Market value of restricted stock vested
Cash received from option exercises
2010
2009
2008
$
25,643 $
8
360
1,263
283
2,031
14,459 $
(307)
—
—
1,550
—
3,274
417
—
—
1,200
—
The following represents stock-based compensation information as of December 31, 2010:
(Amounts in thousands)
Unrecognized compensation expense
Remaining weighted-average vesting period
Options
Restricted Stock
Units
$
35,788
1.4 years
$
240
0.4 years
F-45
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 14 — Income Taxes
The components of income (loss) before income taxes are as follows for the year ended December 31:
(Amounts in thousands)
United States
Foreign
Income (loss) before income taxes
2010
2009
2008
$
$
56,872 $
1,508
58,380 $
(19,975) $
(2,347)
(22,322) $
(345,063)
7,872
(337,191)
International income consists of statutory income and losses from the Company's international subsidiaries. Most of the Company's wholly owned
subsidiaries recognize revenue based solely on services agreements with MPSI. Income tax expense (benefit) is as follows for the year ended
December 31:
(Amounts in thousands)
Current:
Federal
State
Foreign
Current income tax expense (benefit)
Deferred income tax expense (benefit)
Income tax expense (benefit)
2010
2009
2008
$
$
(757) $
147
5,166
4,556
10,023
14,579 $
(8,172) $
669
2,002
(5,501)
(14,915)
(20,416) $
(55,980)
(8,064)
(13,938)
(77,982)
2,176
(75,806)
As of December 31, 2010 and 2009, the Company had a net income tax payable of $6.3 million recorded in the "Accounts payable and other
liabilities" line in the Consolidated Balance Sheets and a net income tax receivable of $1.3 million recorded in the "Other assets" line in the
Consolidated Balance Sheets, respectively. The Company received a $3.8 million federal income tax refund in 2010 and a $43.5 million federal
income tax refund in 2009. Income taxes paid were $3.9 million, $2.2 million and $1.7 million for 2010, 2009 and 2008, 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)
Income tax at statutory federal income tax rate
Tax effect of:
State income tax, net of federal income tax effect
Valuation allowance
Non-taxable loss on embedded derivatives
Decrease in tax reserve
Other
Tax-exempt income
Income tax expense (benefit)
2010
2009
2008
$
20,433 $
(7,813) $
(118,017)
1,309
(10,016)
—
(377)
3,230
14,579
—
14,579 $
2,051
(16,090)
—
(2,469)
3,905
(20,416)
—
(20,416) $
1,634
44,639
5,611
(7,761)
(1,186)
(75,080)
(726)
(75,806)
$
F-46
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We had tax expense of $14.6 million in 2010, including the release of $11.9 million of valuation allowances on deferred tax assets in the
U.S. jurisdiction. The decrease in the tax reserve in 2010 was driven by the favorable settlement or closing of years subject to state audit. "Other" for
2010 includes a change in the tax treatment of the Medicare subsidy under the 2010 federal healthcare legislation and adjustments to the deferred
taxes on fixed assets. Changes in facts and circumstances in the future may cause us to record additional tax benefits as further deferred tax valuation
allowances are released and carry-forwards are utilized.
We had a tax benefit of $20.4 million in 2009, primarily reflecting the release of $17.6 million of valuation allowances on deferred tax assets. Our
pre-tax net loss of $22.3 million, when adjusted for our estimated book to tax differences, resulted in taxable income, which allowed us to release
some valuation allowances on our tax loss carryovers. These book to tax differences include impairments on securities and other assets and accruals
related to separated employees, litigation and unrealized foreign exchange losses. The decrease in tax reserve in 2009 was driven by the favorable
settlement or closing of years subject to state audit. Included in "Other" for 2009 is $1.6 million of expense for the reversal of tax benefits upon the
forfeiture of share-based awards and $2.3 million of expense on asset impairments.
In 2008, we had a $75.8 million tax benefit, primarily reflecting the recognition of a $90.5 million benefit in the fourth quarter of 2008 upon the
completion of an evaluation of the technical merits of tax positions with respect to part of the net securities losses in 2008 and 2007. The
$90.5 million benefit relates to the amount of tax carry-back we were able to utilize to recover tax payments made for fiscal 2005 through 2007.
During the second quarter of 2010, the IRS completed its examination of the Company's consolidated income tax returns for 2005 to 2007, and
issued its Revenue Agent Report ("RAR") challenging the Company's tax position relating to net securities losses and disallowing $687.0 million of
deductions taken in the 2007 tax return. The Company disagrees with the RAR regarding the net securities losses and filed a protest letter. The
Company has had initial conferences with the IRS Appeals Office in 2010, and will continue these conferences in 2011. As of December 31, 2010,
the Company has recognized a cumulative benefit of approximately $95.0 million relating to its net securities losses.
The Company's deferred tax assets and liabilities at December 31 are composed of the following:
(Amounts in thousands)
Deferred tax assets:
Postretirement benefits and other employee benefits
Tax loss carryovers
Tax credit carryovers
Basis difference in revalued investments
Bad debt and other reserves
Other
Valuation allowance
Total deferred tax asset
Deferred tax liabilities:
Depreciation and amortization
Gross deferred tax liability
Net deferred tax (liability) asset
F-47
2010
2009
54,754 $
328,398
47,602
106,863
7,185
—
(485,790)
59,012
(63,316)
(63,316)
(4,304) $
49,145
319,005
46,577
114,708
8,990
22,703
(496,149)
64,979
(61,520)
(61,520)
3,459
$
$
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net deferred tax asset positions are reflected in the "Other assets" line in the Consolidated Balance Sheets, while net deferred tax liability positions
are included in the "Accounts payable and other liabilities" line in the Consolidated Balance Sheets. Essentially all of the deferred tax assets relate to
the U.S. jurisdiction. The Company has determined that a valuation allowance is required for a significant portion of the deferred tax assets as there
is not sufficient positive evidence to overcome the significant negative evidence of a three year cumulative loss. Changes in facts and circumstances
in the future may cause the Company to record additional tax benefits as further deferred tax valuation allowances are released and carry-forwards
are utilized. The Company continues to evaluate additional available tax positions related to the net securities losses in prior years.
The amount and expiration dates of tax loss carry-forwards (not tax effected) and credit carry-forwards as of December 31, 2010 are as follows:
(Amounts in thousands)
United States federal and state loss carry-forwards
United States federal tax credit carry-forwards
United States federal tax credit carry-forwards
Expiration
Date
2012 - 2030 $
2015 - 2028
Indefinite
Amount
892,974
31,357
16,245
The Company, or one of its subsidiaries, files income tax returns in the United States federal jurisdiction and various states and foreign jurisdictions.
With a few exceptions, the Company is no longer subject to foreign or United States federal, state and local income tax examinations for years prior
to 2005. The Company is subject to foreign, United States federal and certain state income tax examinations for 2005 through 2009, with a United
States federal income tax examination for 2005 through 2007 currently in administrative appeals.
Unrecognized tax benefits are recorded in "Accounts payable and other liabilities" in the Consolidated Balance Sheets. Following is a reconciliation
of unrecognized tax benefits for the year ended December 31:
(Amounts in thousands)
Beginning balance
Additions based on tax positions related to the current year
Settlements
Lapse in statute of limitations
Reductions for tax positions of prior years
Foreign currency translation
Ending balance
2010
2009
2008
$
$
10,711 $
—
(296)
(211)
—
—
10,204 $
13,089 $
832
(1,029)
(2,181)
—
—
10,711 $
33,669
5,711
—
(479)
(19,204)
(6,608)
13,089
As of December 31, 2010, the liability for unrecognized tax benefits was $10.2 million, of which $3.7 million could impact the effective tax rate if
recognized. The Company accrues interest and penalties for unrecognized tax benefits through "Income tax expense (benefit)" in the Consolidated
Statements of Income (Loss). For the years ended December 31, 2010, 2009 and 2008, the Company accrued approximately $0.3 million,
$0.6 million and $2.8 million, respectively, in interest and penalties in its Consolidated Statements of Income (Loss), respectively. As of
December 31, 2010 and 2009, the Company had a liability of $1.7 million each year for interest and penalties related to its unrecognized tax
benefits. As of December 31, 2010, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax positions
over the next 12 months.
The Company does not consider its earnings in its foreign entities to be permanently reinvested. As of December 31, 2010 and 2009, a deferred tax
liability of $4.8 million and $6.2 million, respectively, was recognized for the unremitted earnings of its foreign entities.
F-48
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 15 — Commitments and Contingencies
Operating Leases — The Company has various non-cancelable operating leases for buildings and equipment that terminate through 2021. 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 recognized as a reduction of rent expense under the straight-line
method over the term of the lease. Tenant improvements are capitalized as leasehold improvements and depreciated over the shorter of the remaining
term of the lease or 10 years. At December 31, 2010, the deferred rent liability relating to these incentives was $1.9 million.
Rent expense under operating leases was $15.3 million, $13.8 million and $12.7 million during 2010, 2009 and 2008, respectively. Minimum future
rental payments for all non-cancelable operating leases with an initial term of more than one year are (amounts in thousands):
2011
2012
2013
2014
2015
Thereafter
Total
$
$
11,782
9,255
7,137
6,549
5,887
7,073
47,683
Legal Proceedings — The Company is involved in various claims, litigations and government inquiries that arise from time to time in the ordinary
course of the Company's business. All of these matters are subject to uncertainties and outcomes that are not predictable with certainty. The
Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains
insurance coverage for many claims and litigations alleged. Management does not believe that after final disposition any of these matters is likely to
have a material adverse impact on the Company's financial condition, results of operations and cash flows.
In relation to various legal matters, including those described below, the Company had $2.3 million and $97.9 million of liability recorded in the
"Accounts payable and other liabilities" line in the Consolidated Balance Sheets as of December 31, 2010 and 2009, respectively. As of
December 31, 2009, the Company had a $61.0 million related receivable from insurance carriers in the "Other assets" line in the Consolidated
Balance Sheets. A net gain of $12.7 million and charges totaling $54.9 million, net of insurance recoveries, and $0.3 million were recorded in the
"Transaction and operations support" line in the Consolidated Statements of Income (Loss) during 2010, 2009 and 2008, respectively
F-49
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Federal Securities Class Actions — As previously disclosed, on March 9, 2010, the Company and certain of its present and former officers and
directors entered into a Settlement Agreement, subject to final approval of the court, to settle a consolidated class action case originally filed on
October 3, 2008 in the United States District Court for the District of Minnesota captioned In re MoneyGram International, Inc. Securities
Litigation. The settlement provides for a cash payment of $80.0 million, all but $20.0 million of which would be paid by the Company's insurance
carriers. At a hearing on June 18, 2010, the Court issued a final order and judgment approving the settlement. The settlement became effective on
July 26, 2010, when the time to appeal the Court's final order and judgment expired without any appeal having been filed. The Company paid
$20.0 million into an escrow account in March 2010 and the insurance carrier paid $60.0 million in April 2010, resulting in full settlement of the
Company's liability in this matter.
Minnesota Stockholder Derivative Claims — Certain of the Company's present and former officers and directors were defendants in a consolidated
stockholder derivative action in the United States District Court for the District of Minnesota captioned In re MoneyGram International, Inc.
Derivative Litigation. The Consolidated Complaint in this action, which was filed on November 18, 2009 and arises out of the same matters at issue
in the securities class action, alleges claims on behalf of the Company for, among other things, breach of fiduciary duties, unjust enrichment, abuse
of control, and gross mismanagement. On February 24, 2010, the parties entered into a non-binding Memorandum of Understanding pursuant to
which they agreed, subject to final approval of the parties and the court, to settle this action. On March 31, 2010, the parties entered into a
Stipulation of Settlement agreeing to settle the case on terms largely consistent with the Memorandum of Understanding. On April 1, 2010, the
Court issued an Order that preliminarily approved the settlement, providing for notice to stockholders and scheduled a hearing on the settlement for
June 18, 2010. The Stipulation of Settlement provides for changes to the Company's business, corporate governance and internal controls, some of
which have already been implemented in whole or in part. The Company also agreed to pay attorney fees and expenses to the plaintiff's counsel in
the amount of $1.3 million, with $1.0 million to be paid by the Company's insurance carriers. On June 21, 2010, the Court denied an objection to the
settlement filed by a MoneyGram shareholder, Russell L. Berney, and issued a final order and judgment approving the settlement. On July 20, 2010,
Mr. Berney filed a notice of appeal of the final order and judgment in the United States Court of Appeals for the Eighth Circuit. On October 5, 2010,
the Company entered into a Settlement Agreement to settle the claims brought individually by Mr. Berney in this proceeding and the California
Action discussed below.
ERISA Class Action — On April 22, 2008, Delilah Morrison, on behalf of herself and all other MoneyGram 401(k) Plan participants, brought an
action in the United States District Court for the District of Minnesota. The complaint alleged claims under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), including claims that the defendants breached fiduciary duties by failing to manage the plan's
investment in Company stock, and by continuing to offer Company stock as an investment option when the stock was no longer a prudent
investment. The complaint also alleged that defendants failed to provide complete and accurate information regarding Company stock sufficient to
advise plan participants of the risks involved with investing in Company stock and breached fiduciary duties by failing to avoid conflicts of interests
and to properly monitor the performance of plan fiduciaries and fiduciary appointees. Finally, the complaint alleged that to the extent that the
Company is not a fiduciary, it is liable for knowingly participating in the fiduciary breaches as alleged. On August 7, 2008, plaintiff amended the
complaint to add an additional plaintiff, name additional defendants and additional allegations. For relief, the complaint sought damages based on
what the most profitable alternatives to Company stock would have yielded, unspecified equitable relief, costs and attorneys' fees. On March 25,
2009, the Court granted in part and denied in part defendants' motion to dismiss. On April 30, 2010, plaintiffs filed a motion for class certification,
which defendants opposed in a brief filed May 28, 2010. On June 8, 2010, defendants filed a motion for partial summary judgment. Both motions
were scheduled for hearing before the Court on October 22, 2010. On October 13, 2010, the Company entered into a Settlement Agreement which
provides for a cash payment of $4.5 million, all but approximately $0.7 million of which was paid by the Company's insurance carrier. The Court
issued a final judgment and order approving the Settlement Agreement in October 2010.
F-50
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
California Action — On January 22, 2008, Russell L. Berney filed a complaint in Los Angeles Superior Court against the Company and its officers
and directors, Thomas H. Lee Partners, L.P., and PropertyBridge, Inc. and two of its officers, alleging false and negligent misrepresentation,
violations of California securities laws and unfair business practices with regard to disclosure of the Company's investments. The complaint also
alleged derivative claims against the Company's Board of Directors relating to the Board's oversight of disclosure of the Company's investments and
with regard to the Company's negotiations with Thomas H. Lee Partners, L.P. and Euronet Worldwide, Inc. The complaint seeks monetary damages,
disgorgement, restitution or rescission of stock purchases, rescission of agreements with third parties, constructive trust and declaratory and
injunctive relief, as well as attorneys' fees and costs. In July 2008, an amended complaint was filed asserting an additional claim for declaratory
relief. In September 2009, an amended complaint was filed alleging additional facts and naming additional defendants. The Company's previously
disclosed settlement in the Minnesota Stockholder Derivative Litigation and the Minnesota District Court's April 1, 2010 Order preliminarily
approving the settlement in the Minnesota Stockholder Derivative Litigation contain provisions enjoining MoneyGram stockholders from
commencing or continuing to prosecute any litigation involving the claims to be settled in that case. On April 5, 2010, the California court stayed
proceedings in this action pending the settlement hearing in the Minnesota Stockholder Derivative Litigation. The final order and judgment issued in
connection with the Minnesota Stockholder Derivative Litigation on June 21, 2010 enjoined Mr. Berney from prosecuting the derivative claims
alleged in the California Action that were settled in the Minnesota Stockholder Action. On October 5, 2010, the Company entered into a Settlement
Agreement to settle the claims brought individually by Mr. Berney against the Company and the defendants. The Court issued a final judgment and
order approving the Settlement Agreement in October 2010.
Patent Action — On September 25, 2009, the United States District Court for the Western District of Texas, Austin returned a jury verdict in a patent
suit brought against the Company by Western Union on May 11, 2007, styled Western Union v. MoneyGram Payment Systems, Inc., alleging patent
infringement and seeking damages and an injunction. The District Court awarded $16.5 million to Western Union. The Company appealed the
verdict. On December 7, 2010 the Court of Appeals for the Federal Circuit ruled in favor of the Company, reversing the District Court's ruling on the
grounds of obviousness of the three underlying patents that were the subject of the appeal. The District Court proceeding also had involved a fourth
patent, as to which no appeal was sought. The liability on that particular patent is expected to be approximately $150,000 subject to a review by the
District Court. Western Union filed a petition for a re-hearing before the same panel of appellate judges or the entire appellate court "en banc",
which petition was denied by the Appellate Court on February 11, 2011.
Other Matters — The Company has been served with subpoenas to produce documents and testify before the Grand Jury in the Middle District of
Pennsylvania. The subpoenas seek information in relation to the Company's U.S. and Canadian agents, as well as certain transactions involving such
agents, fraud complaint data, and the Company's consumer anti-fraud program during the period 2004 to 2009. In addition, the Financial Crimes
Enforcement Network of the US Treasury ("FinCEN") has requested information concerning the Company's reporting of fraudulent transactions
during this period. The Company has provided the information requested pursuant to the subpoenas and continues to provide documents relating to
its agents and the investigation. In November 2010, the Company met with the Assistant U.S. Attorney for the Middle District of Pennsylvania
("AUSA") and representatives of FinCEN to discuss the investigation. The Company is in the process of providing additional information and
scheduling a follow up meeting with the AUSA and FinCEN. No claims have been made against the Company at this time.
The Company has also received Civil Investigative Demands from a working group of nine state attorneys general who have initiated an
investigation into whether the Company has taken adequate steps to prevent consumer fraud. The Civil Investigative Demands seek information and
documents relating to the Company's procedures to prevent fraudulent transfers and consumer complaint information. The Company continues to
cooperate with the states in this matter. No claims have been made against the Company at this time.
F-51
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Due to the early stage of these other matters, the Company is unable to predict the outcome or the possible loss, or range of loss, if any, resulting
therefrom.
In connection with its agreement with the Federal Trade Commission ("FTC"), the Company is making enhancements to its consumer anti-fraud
program and, in 2009, paid $18.0 million into an FTC-administered fund to refund consumers who have been victimized through third-party fraud.
Credit Facilities — At December 31, 2010, the Company has overdraft facilities through its senior facility consisting of $6.8 million of letters of
credit to assist in the management of investments and the clearing of payment service obligations. All of these letters of credit are outstanding as of
December 31, 2010. These overdraft facilities reduce amounts available under the senior facility. Fees on the letters of credit are paid in accordance
with the terms of the senior facility described in Note 9 — Debt.
Other Commitments — The Company has agreements with certain co-investors to provide funds related to investments in limited partnership
interests. As of December 31, 2010, the total amount of unfunded commitments related to these agreements was $0.3 million. The amortization
expense was recognized as part of "Transaction and operations support" expense in the Consolidated Statements of Income (Loss).
Minimum Commission Guarantees — In limited circumstances as an incentive to new or renewing agents, the Company may grant minimum
commission guarantees for a specified period of time at a contractually specified amount. Under the guarantees, the Company will pay to the agent
the difference between the contractually specified minimum commission and the actual commissions earned by the agent. Expense related to the
guarantee is recognized in the "Fee commissions expense" line in the Consolidated Statements of Income (Loss).
As of December 31, 2010, the liability for minimum commission guarantees is $0.3 million and the maximum amount that could be paid under the
minimum commission guarantees is $2.2 million over a weighted average remaining term of 1.7 years. The maximum payment is calculated as the
contractually guaranteed minimum commission times the remaining term of the contract and, therefore, assumes that the agent generates no money
transfer transactions during the remainder of its contract. However, under the terms of certain agent contracts, the Company may terminate the
contract if the projected or actual volume of transactions falls beneath a contractually specified amount. With respect to minimum commission
guarantees expiring in 2010 and 2009, the Company paid $0.5 million and $0.7 million, respectively, or 22 percent and 18 percent, respectively, of
the estimated maximum payment for the year.
Note 16 — Segment Information
The Company's reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served.
The Company primarily manages its business through two reporting segments, Global Funds Transfer and Financial Paper Products. The Global
Funds Transfer segment provides global money transfers and bill payment services to consumers through a network of agents and, in select markets,
company-operated locations. The Financial Paper Products segment provides money orders to consumers through retail and financial institution
locations in the United States and Puerto Rico, and provides official check services to financial institutions in the United States. One agent of both
the Global Funds Transfer segment and the Financial Paper Products segment accounted for 30 percent, 29 percent and 26 percent of total revenue in
2010, 2009 and 2008, respectively. Businesses which are not operated within these segments are categorized as "Other," and primarily relate to
discontinued products and businesses. Segment pre-tax operating income and segment operating margin are used to review operating performance
and allocate resources.
F-52
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Global Funds Transfer segment is managed as two geographical regions or operating segments, the Americas and EMEAAP, to coordinate
sales, agent management and marketing activities. The Americas region includes the United States, Canada, Mexico, the Caribbean and Latin
America. EMEAAP is composed of Europe, Middle East, Africa and the Asia Pacific region. The Company monitor's performance and allocates
resources at both a regional and reporting segment level. As the two regions routinely interact in completing money transfer transactions and share
systems, processes and licenses, we view the Global Funds Transfer segment as one global network. The nature of the consumers and products
offered is the same for each region, and the regions utilize the same agent network, systems and support functions. In addition, the regions have
similar regulatory requirements and economic characteristics. Accordingly, we aggregate the two operating segments into one reporting segment.
Segment accounting policies are the same as those described in Note 2 — Summary of Significant Accounting Policies. The Company manages its
investment portfolio on a consolidated level, with no specific investment security assigned to a particular segment. However, investment revenue is
allocated to each segment based on the average investable balances generated by that segment's sale of payment instruments during the period. Net
securities (gains) losses are not allocated to the segments as the investment portfolio is managed at a consolidated level. While the derivatives
portfolio is also managed on a consolidated level, each derivative instrument is utilized in a manner that can be identified to a particular segment.
Interest rate swaps historically used to hedge variable rate commissions were identified with the official check product in the Financial Paper
Products segment, while forward foreign exchange contracts are identified with the money transfer product in the Global Funds Transfer segment.
Any interest rate swaps related to the Company's credit agreements are not allocated to the segments.
Also excluded from operating income for Global Funds Transfer and Financial Paper Products are interest and other expenses related to the
Company's credit agreements, items related to the Company's preferred stock, operating income from businesses categorized as "Other," certain
pension and benefit obligation expenses, director deferred compensation plan expenses, executive severance and related costs, certain legal and
corporate costs not related to the performance of the segments and restructuring and reorganization costs. Unallocated expenses in 2010 include
$5.9 million of costs associated with restructuring initiatives and $1.8 million of asset impairments in addition to other net corporate costs of $7.4
million not allocated to the segments. Unallocated expenses in 2009 include $20.3 million of legal reserves related to securities litigation and
stockholder derivative claims, a net curtailment gain on benefit plans of $14.3 million, $7.0 million of asset impairments and $4.4 million of
executive severance and related costs in addition to other net corporate costs of $12.9 million not allocated to the segments.
The following tables set forth operating results, depreciation and amortization, capital expenditures and assets by segment for the year ended
December 31:
(Amounts in thousands)
Revenue
Global Funds Transfer:
Money transfer
Bill payment
Total Global Funds Transfer
Financial Paper Products:
Money order
Official check
Total Financial Paper Products
Other
Total revenue
2010
2009
2008
926,733 $
126,548
1,053,281
68,293
41,222
109,515
3,857
1,166,653 $
890,838 $
134,611
1,025,449
74,880
47,903
122,783
13,479
1,161,711 $
874,722
141,207
1,015,929
86,312
151,881
238,193
16,459
1,270,581
$
$
F-53
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Amounts in thousands)
Segment operating income:
Global Funds Transfer
Financial Paper Products
Other
Total segment operating income
Net securities (gains) losses
Interest expense
Other
Other unallocated expenses
Income (loss) before income taxes
(Amounts in thousands)
Depreciation and amortization:
Global Funds Transfer
Financial Paper Products
Other
Total depreciation and amortization
Capital expenditures:
Global Funds Transfer
Financial Paper Products
Other
Total capital expenditures
(Amounts in thousands)
Assets:
Global Funds Transfer
Financial Paper Products
Other
Total assets
2010
2009
2008
$
$
139,314 $
36,508
(2,367)
173,455
(2,115)
102,133
—
15,057
58,380 $
82,647 $
27,372
(4,316)
105,703
(7,790)
107,911
(2,401)
30,305
(22,322) $
142,203
30,169
(19,883)
152,489
340,688
95,020
20,304
33,668
(337,191)
2010
2009
2008
$
$
$
$
40,489 $
7,527
58
48,074 $
37,090 $
5,935
—
43,025 $
43,512 $
12,590
989
57,091 $
32,236 $
6,005
17
38,258 $
2010
2009
$
$
1,017,574 $
3,797,911
300,251
5,115,736 $
44,540
11,132
1,000
56,672
35,352
5,005
—
40,357
1,150,820
4,403,829
375,014
5,929,663
Geographic areas — International operations are located principally in Europe. International 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
International
Total revenue
2010
2009
2008
$
$
762,276 $
404,377
1,166,653 $
F-54
789,222 $
372,489
1,161,711 $
888,348
382,233
1,270,581
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 17 — Subsequent Event
On March 7, 2011, the Company entered into a Recapitalization Agreement with THL and Goldman Sachs pursuant to which (i) THL will convert
all of the shares of B Stock into shares of common stock in accordance with the Certificate of Designations, Preferences and Rights of Series B
Participating Convertible Preferred Stock of MoneyGram International, Inc., (ii) Goldman Sachs will convert all of the shares of B-1 Stock into
shares of D Stock in accordance with the Certificate of Designations, Preferences and Rights of Series B-1 Participating Convertible Preferred Stock
of MoneyGram International, Inc., and (iii) THL will receive approximately 28.2 million additional shares of common stock and $140.8 million in
cash, and Goldman Sachs will receive approximately 15,504 additional shares of D Stock (equivalent to approximately 15.5 million shares of
common stock) and $77.5 million in cash (such transactions, collectively, the "2011 Recapitalization").
Concurrently with entering into the Recapitalization Agreement, Worldwide and the Company entered into a Consent Agreement with the holders of
the second lien notes in which the parties have agreed to enter into a supplemental indenture to the indenture governing the second lien notes that
will, among other things, amend the indenture in order to permit the 2011 Recapitalization. In addition, the Company is currently working with
certain of its relationship banks to put in place a new senior secured credit facility comprised of a revolver and a term loan, which would refinance
the Company's existing senior secured credit facility and provide the funding for the 2011 Recapitalization.
The 2011 Recapitalization has been approved unanimously by the Company's board of directors following the recommendation of a special
committee comprised of independent and disinterested members of our board of directors, and is subject to various conditions contained in the
Recapitalization Agreement, including the approval of the 2011 Recapitalization or any other matter that requires approval under the
Recapitalization Agreement (collectively the "Stockholder Approval Matters") by the affirmative vote of a majority of the outstanding shares of our
common stock and B Stock (on an as-converted basis), voting as a single class, and the affirmative vote of a majority of the outstanding shares of
our common stock (not including the B Stock or any other stock of the Company held by any Investor), in each case voting on the Stockholder
Approval Matters and the Company's receipt of sufficient financing to consummate the 2011 Recapitalization.
If the 2011 Recapitalization is completed as intended, all amounts included in mezzanine equity would be converted into components of
stockholders' deficit. Unamortized transaction costs and discounts related to the mezzanine equity would be charged against additional paid-in
capital to the extent available, with the remaining amount charged to retained loss. The conversion of the B Stock would result in an increase to
common stock and additional paid-in capital, while the conversion of the B-1 Stock would result in the recognition of the D Stock within
stockholders' deficit. The shares of common stock and D Stock issued as additional consideration, along with additional consideration to be paid in
cash, would be charged against retained loss and would reduce the amount of income available to common stockholders in the calculation of
earnings per share for the period in which the conversion is completed. Upon entering into a new senior secured credit facility, the Company
anticipates that the unamortized discounts and deferred financing costs related to the existing senior facility would be expensed in 2011.
Note 18 — Quarterly Financial Data (Unaudited)
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.
F-55
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2010 Fiscal Quarters
(Amounts in thousands, except per share data)
Revenue
Total operating expenses
Operating income
Total other expenses, net
Income before income taxes
Net income
Loss per common share
Basic and diluted
2009 Fiscal Quarters
(Amounts in thousands, except per share data)
Revenue
Total operating expenses
Operating income
Total other expenses, net
Income (loss) before income taxes
Net income (loss)
Loss per common share
Basic and diluted
First
Second (1)
Third (1)
Fourth (1)
286,504 $
251,442
35,062
22,015
13,047 $
10,812 $
283,897 $
247,119
36,778
27,717
9,061 $
6,848 $
292,887 $
254,413
38,474
24,689
13,785 $
9,985 $
303,365
255,281
48,084
25,597
22,487
16,156
(0.26) $
(0.31) $
(0.30) $
(0.23)
First
Second (2)
Third (2)
Fourth (2)
278,102 $
240,446
37,656
25,252
12,404 $
11,841 $
286,280 $
268,123
18,157
21,747
(3,590) $
(3,317) $
301,712 $
297,027
4,685
23,389
(18,704) $
(18,304) $
295,617
280,717
14,900
27,332
(12,432)
7,874
(0.20) $
(0.40) $
(0.60) $
(0.29)
$
$
$
$
$
$
$
$
(1) Operating expenses in the second quarter of 2010 include an impairment charge of $1.5 million. Operating expenses in the second, third and
fourth quarters of 2010 include restructuring and reorganization costs of $1.9 million, $1.6 million and $2.3 million, respectively. Operating
expenses in the third quarter of 2010 include legal accruals of $1.8 million. Operating expenses in the fourth quarter of 2010 include the reversal
of a legal accrual of $16.4 million.
(2) Operating expenses in the second and third quarters of 2009 include legal accruals of $12.0 million and $22.5 million, respectively. Operating
expenses in the fourth quarter of 2009 include $20.3 million of legal accruals and a $15.5 million curtailment gain on the Company's benefit
plans.
Note 19 — Condensed Consolidating Financial Statements
In the event the Company offers debt securities pursuant to an effective registration statement on Form S-3, these debt securities may be guaranteed
by certain of its subsidiaries. Accordingly, the Company is providing condensed consolidating financial information in accordance with SEC
Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. If the
Company issues debt securities, the following 100 percent directly or indirectly owned subsidiaries could fully and unconditionally guarantee the
debt securities on a joint and several basis: MoneyGram Payment Systems Worldwide, Inc.; MoneyGram Payment Systems, Inc.; PropertyBridge,
Inc.; and MoneyGram of New York LLC (collectively, the "Guarantors").
F-56
Table of Contents
INTERNATIONAL, INC. AND SUBSIDIARIES
MONEYGRAM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following information represents condensed, consolidating Balance Sheets as of December 31, 2010 and 2009, along with condensed,
consolidating Statements of Income (Loss) and Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008. The condensed,
consolidating financial information presents financial information in separate columns for MoneyGram International, Inc. on a Parent-only basis
carrying its investment in subsidiaries under the equity method; Guarantors on a combined basis, carrying investments in subsidiaries that are not
expected to guarantee the debt (collectively, the "Non-Guarantors") under the equity method; Non-Guarantors on a combined basis; and eliminating
entries. The eliminating entries primarily reflect intercompany transactions, such as accounts receivable and payable, fee revenue and commissions
expense and the elimination of equity investments and income in subsidiaries. As described in Note 2 — Summary of Significant Accounting
Policies the Company has corrected the presentation of certain investments in time deposits and certificates of deposit in the 2009 and 2008
condensed, consolidating financial statements.
F-57
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31, 2010
(Amounts in thousands)
ASSETS
Cash and cash equivalents
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Short-term investments (substantially restricted)
Investments and related put options (substantially restricted)
Property and equipment
Goodwill
Other assets
Equity investments in subsidiaries
Intercompany receivables
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT (EQUITY)
Payment service obligations
Debt
Pension and other postretirement benefits
Accounts payable and other liabilities
Intercompany liabilities
Total liabilities
Mezzanine equity
Total stockholders' deficit (equity)
Total liabilities, mezzanine equity and stockholders' deficit (equity)
Parent
Subsidiary
Guarantors
Non-
Guarantors Eliminations Consolidated
$
— $
108
—
—
—
—
—
—
265,990
$ 266,098 $
$
— $
—
—
6,631
202,596
209,227
999,353
(942,482)
$ 266,098 $
— $
2,704,865
970,108
405,769
160,936
93,006
306,878
141,469
168,978
260,803
— $
160,968
12,211
—
—
22,105
121,813
15,500
—
—
5,212,812 $ 332,597 $
—
— $
2,865,941
—
982,319
—
405,769
—
160,936
—
115,111
—
428,691
—
156,969
—
—
(434,968)
(260,803)
—
(695,771) $ 5,115,736
4,095,734 $
639,946
119,008
92,134
—
4,946,822
—
265,990
89,002 $
—
1,528
14,882
58,207
163,619
—
168,978
5,212,812 $ 332,597 $
— $ 4,184,736
639,946
—
120,536
—
113,647
—
(260,803)
—
5,058,865
(260,803)
999,353
—
(942,482)
(434,968)
(695,771) $ 5,115,736
F-58
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING STATEMENTS OF INCOME(LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2010
(Amounts in thousands)
REVENUE
Fee and other revenue
Investment revenue
Total revenue
EXPENSES
Fee and other commissions expense
Investment commissions expense
Total commissions expense
Compensation and benefits
Transaction and operations support
Occupancy, equipment and supplies
Depreciation and amortization
Total operating expenses
OPERATING (LOSS) INCOME
Other expense (income)
Net securities (gains) losses
Interest expense
Other
Total other expenses, net
(Loss) income before income taxes
Income tax (benefit) expense
(Loss) income after income taxes
Equity income (loss) in subsidiaries
NET INCOME(LOSS)
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
$
$
— $
—
—
—
—
—
(217)
1,564
—
—
1,347
(1,347)
—
—
—
—
(1,347)
(471)
(876)
44,677
43,801 $
F-59
1,125,014 $
21,080
1,146,094
527,539
737
528,276
175,521
208,966
36,987
37,412
987,162
158,932
(2,115)
102,133
—
100,018
58,914
11,113
47,801
(3,124)
44,677 $
204,267 $
261
204,528
91,647
—
91,647
51,118
40,794
9,494
10,662
203,715
813
—
—
—
—
813
3,937
(3,124)
—
(3,124) $
(183,969) $
—
(183,969)
(118,427)
—
(118,427)
—
(65,542)
—
—
(183,969)
—
—
—
—
—
—
—
—
(41,553)
(41,553) $
1,145,312
21,341
1,166,653
500,759
737
501,496
226,422
185,782
46,481
48,074
1,008,255
158,398
(2,115)
102,133
—
100,018
58,380
14,579
43,801
—
43,801
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2010
(Amounts in thousands)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments
Net purchases of short-term investments
Purchases of property and equipment, net of disposals
Cash paid for acquisitions, net of cash acquired
Capital contributions to subsidiaries
Dividends from subsidiaries
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt
Proceeds from exercise of stock options
Intercompany financings
Capital contributions from parent
Dividends to parent
Net cash used in financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS — Beginning of period
CASH AND CASH EQUIVALENTS — End of period
Parent
$ (21,872) $
Subsidiary
Guarantors
Non-
Guarantors Eliminations Consolidated
60,737
9,580 $
— $
73,029 $
—
—
—
—
20,000
20,000
—
2,031
(159)
—
—
1,872
—
—
— $
$
F-60
140,985
(5,769)
(17,901)
(1,436)
(4,067)
—
111,812
(165,000)
—
159
(20,000)
(184,841)
—
— $
—
—
(14,753)
1,106
—
—
(13,647)
—
—
—
4,067
—
4,067
—
—
— $
—
—
—
—
4,067
(20,000)
(15,933)
—
—
—
(4,067)
20,000
15,933
—
— $
140,985
(5,769)
(32,654)
(330)
—
—
102,232
(165,000)
2,031
—
—
—
(162,969)
—
—
—
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31, 2009
(Amounts in thousands)
ASSETS
Cash and cash equivalents
Cash and cash equivalents (substantially restricted)
Receivables, net (substantially restricted)
Short-term investments (substantially restricted)
Investments and related put options (substantially restricted)
Property and equipment
Goodwill
Other assets
Equity investments in subsidiaries
Intercompany receivables
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT (EQUITY)
Payment service obligations
Debt
Pension and other postretirement benefits
Accounts payable and other liabilities
Intercompany liabilities
Total liabilities
Mezzanine equity
Total stockholders' deficit (equity)
Total liabilities, mezzanine equity and stockholders' deficit (equity)
Parent
Subsidiary
Guarantors
Non-
Guarantors Eliminations Consolidated
$
— $
—
—
—
—
—
—
60,294
237,521
$ 297,815 $
$
— $
—
—
87,773
228,727
316,500
864,328
(883,013)
$ 297,815 $
— $
3,170,259
1,047,459
400,000
325,584
111,015
306,878
129,983
164,676
301,227
— $
206,565
6,922
—
—
16,957
118,752
28,995
—
—
5,957,081 $ 378,191 $
—
— $
3,376,824
—
1,054,381
—
400,000
—
325,584
—
127,972
—
425,630
—
219,272
—
—
(402,197)
(301,227)
—
(703,424) $ 5,929,663
796,791
118,069
85,180
—
5,719,560
—
237,521
4,719,520 $ 123,934 $
—
1,101
15,980
72,500
213,515
—
164,676
5,957,081 $ 378,191 $
— $ 4,843,454
796,791
—
119,170
—
188,933
—
(301,227)
—
5,948,348
(301,227)
864,328
—
(402,197)
(883,013)
(703,424) $ 5,929,663
F-61
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING STATEMENTS OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31, 2009
(Amounts in thousands)
REVENUE
Fee and other revenue
Investment revenue
Total revenue
EXPENSES
Fee and other commissions expense
Investment commissions expense
Total commissions expense
Compensation and benefits
Transaction and operations support
Occupancy, equipment and supplies
Depreciation and amortization
Total operating expenses
OPERATING (LOSS) INCOME
Other expense (income)
Net securities (gains) losses
Interest expense
Other
Total other expenses, net
(Loss) income before income taxes
Income tax (benefit) expense
(Loss) income after income taxes
Equity income (loss) in subsidiaries
NET (LOSS) INCOME
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
$
$
— $
—
—
—
—
—
3,942
42,878
—
—
46,820
(46,820)
—
—
—
—
(46,820)
(16,387)
(30,433)
28,527
(1,906) $
F-62
1,123,375 $
31,208
1,154,583
514,142
1,362
515,504
155,008
267,375
37,999
44,979
1,020,865
133,718
(7,790)
107,911
(2,401)
97,720
35,998
(6,010)
42,008
(13,481)
28,527 $
126,810 $
2,011
128,821
21,573
—
21,573
40,103
57,107
9,426
12,112
140,321
(11,500)
—
—
—
—
(11,500)
1,981
(13,481)
—
(13,481) $
(121,693) $
—
(121,693)
(38,610)
—
(38,610)
—
(83,083)
—
—
(121,693)
—
—
—
—
—
—
—
—
(15,046)
(15,046) $
1,128,492
33,219
1,161,711
497,105
1,362
498,467
199,053
284,277
47,425
57,091
1,086,313
75,398
(7,790)
107,911
(2,401)
97,720
(22,322)
(20,416)
(1,906)
—
(1,906)
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2009
(Amounts in thousands)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments
Net purchases of short-term investments
Purchases of property and equipment
Cash paid for acquisitions, net of cash acquired
Proceeds from disposal of a business
Dividends from subsidiaries
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt
Intercompany financings
Dividends to parent
Net cash (used in) provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS — Beginning of period
CASH AND CASH EQUIVALENTS — End of period
F-63
Parent
$ 25,847 $
Subsidiary
Guarantors
Non-
Guarantors Eliminations Consolidated
482,534
32,924 $
— $
423,763 $
—
—
—
—
—
—
—
—
(25,847)
—
(25,847)
—
—
— $
$
140,999
(400,000)
(26,253)
—
4,500
18,019
(262,735)
(186,875)
25,847
—
(161,028)
—
— $
—
—
(11,695)
(3,210)
—
—
(14,905)
—
—
(18,019)
(18,019)
—
—
— $
—
—
—
—
—
(18,019)
(18,019)
—
—
18,019
18,019
—
— $
140,999
(400,000)
(37,948)
(3,210)
4,500
—
(295,659)
(186,875)
—
—
(186,875)
—
—
—
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING STATEMENTS OF (LOSS) INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008
(Amounts in thousands)
REVENUE
Fee and other revenue
Investment revenue
Total revenue
EXPENSES
Fee and other commissions expense
Investment commissions expense
Total commissions expense
Compensation and benefits
Transaction and operations support
Occupancy, equipment and supplies
Depreciation and amortization
Total operating expenses
OPERATING (LOSS) INCOME
Other expense (income)
Net securities (gains) losses
Interest expense
Other
Total other expenses, net
(Loss) income before income taxes
Income tax (benefit) expense
(Loss) income after income taxes
Equity (loss) income in subsidiaries
NET (LOSS) INCOME
Parent
Subsidiary
Guarantors
Non-
Guarantors
Eliminations
Consolidated
$
$
— $
—
—
—
—
—
17,688
12,406
—
—
30,094
(30,094)
—
6,478
16,030
22,508
(52,602)
(18,411)
(34,191)
(227,194)
(261,385) $
F-64
1,101,379 $
135,218
1,236,597
519,792
102,292
622,084
170,525
242,566
39,599
44,984
1,119,758
116,839
246,719
88,542
4,274
339,535
(222,696)
(58,580)
(164,116)
(63,078)
(227,194) $
116,407 $
26,912
143,319
12,015
—
12,015
36,367
44,778
6,395
11,688
111,243
32,076
93,969
—
—
93,969
(61,893)
1,185
(63,078)
—
(63,078) $
(109,335) $
—
(109,335)
(29,490)
—
(29,490)
—
(79,845)
—
—
(109,335)
—
—
—
—
—
—
—
—
290,272
290,272 $
1,108,451
162,130
1,270,581
502,317
102,292
604,609
224,580
219,905
45,994
56,672
1,151,760
118,821
340,688
95,020
20,304
456,012
(337,191)
(75,806)
(261,385)
—
(261,385)
Table of Contents
MONEYGRAM
INTERNATIONAL, INC.
CONDENSED,
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2008
(Amounts in thousands)
NET CASH PROVIDED USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments
Proceeds from maturities of investments
Purchases of property and equipment
Cash paid for acquisitions, net of cash acquired
Capital contributions to subsidiaries
Dividends from subsidiaries
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of debt
Payments on debt
Net proceeds from issuance of preferred stock
Intercompany financings
Capital contributions from parent
Dividends to parent
Net cash provided by (used in) financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS — Beginning of period
CASH AND CASH EQUIVALENTS — End of period
Parent
Subsidiary
Guarantors
Non-
Guarantors Eliminations Consolidated
— $ (4,639,781)
$ (46,315) $ (3,880,047) $ (713,419) $
—
—
—
—
(760,000)
—
(760,000)
2,004,482
351,983
(31,537)
(474)
891,529
141,337
(6,933)
(2,454)
310,060
—
2,634,514 1,023,479
—
—
707,778
98,537
—
—
806,315
—
—
— $
685,945
(101,875)
—
(98,537)
760,000
—
1,245,533
—
— $
—
—
—
—
—
(310,060)
(310,060)
—
—
— $
—
—
—
—
760,000
(310,060)
449,940
—
—
—
—
(760,000)
310,060
(449,940)
—
— $
2,896,011
493,320
(38,470)
(2,928)
—
—
3,347,933
685,945
(101,875)
707,778
—
—
—
1,291,848
—
—
—
$
F-65
Table of Contents
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F-66
SUBSIDIARIES
OF
MONEYGRAM INTERNATIONAL, INC.
EXHIBIT 21
Blue Dolphin Financial Services N.V. (Belgium)
Blue Dolphin Financial Services (Nederland) B.V. (Netherlands)
Blue Dolphin Financial Services s.r.o. (Czech Republic)
Ferrum Trust (Delaware)
Hematite Trust (Delaware)
MIL Overseas Limited (United Kingdom)
MIL Overseas Nigeria Limited (Nigeria)
MoneyGram France, S.A. (France)
MoneyGram India Private Ltd. (India)
MoneyGram International Holdings Limited (United Kingdom)
MoneyGram International Limited (Jordan)
MoneyGram International Limited (United Kingdom)
MoneyGram International Pte. Ltd (Singapore)
MoneyGram of New York LLC (Delaware)
MoneyGram Overseas (Pty) Limited South Africa (South Africa)
MoneyGram Payment Systems Bulgaria, EOOD (Bulgaria)
MoneyGram Payment Systems Canada, Inc. (Ontario)
MoneyGram Payment Systems, Inc. (Delaware)
MoneyGram Payment Systems Italy S.r.l. (Italy)
MoneyGram Payment Systems Spain, S.A. (Spain)
MoneyGram Payment Systems Worldwide, Inc. (Delaware)
PropertyBridge, Inc. (Delaware)
Travelers Express Co. (P.R.), Inc. (Puerto Rico)
Tsavorite Trust (Delaware)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-159709, No. 333-125122 and No. 333-116976 on Form S-8 and in
Registration Statement No. 333-171151 on Form S-3 of our reports dated March 15, 2011, 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, 2010.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
March 15, 2011
Exhibit 23
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each director whose signature appears below constitutes and appoints Timothy C. Everett and Corinna Ulrich,
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 MoneyGram International, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 2010, 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.
EXHIBIT 24
/s/ J. Coley Clark
J. Coley Clark
/s/ Victor W. Dahir
Victor W. Dahir
/s/ Thomas M. Hagerty
Thomas M. Hagerty
/s/ Scott L. Jaeckel
Scott L. Jaeckel
/s/ Seth W. Lawry
Seth W. Lawry
/s/ Ann Mather
Ann Mather
/s/ Ganesh B. Rao
Ganesh B. Rao
/s/ W. Bruce Turner
W. Bruce Turner
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
March 11, 2011
Exhibit 31.1
I, Pamela H. Patsley, certify that:
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
1.
2.
I have reviewed this Annual Report on Form 10-K of MoneyGram International, Inc. for the fiscal year ended December 31, 2010;
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.
b.
c.
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;
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;
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 15, 2011
/s/ Pamela H. Patsley
Pamela H. Patsley
Chairman and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, James E. Shields, certify that:
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
1.
2.
I have reviewed this Annual Report on Form 10-K of MoneyGram International, Inc. for the fiscal year ended December 31, 2010;
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.
b.
c.
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;
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;
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 15, 2011
/s/ James E. Shields
James E. Shields
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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 (the "Report"), of MoneyGram International, Inc. (the "Company") for the period ended December 31,
2010, as filed with the Securities and Exchange Commission on the date hereof I, Pamela H. Patsley, Chairman 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.1
Date: March 15, 2011
/s/ Pamela H. Patsley
Pamela H. Patsley
Chairman and Chief Executive Officer
(Principal Executive Officer)
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 (the "Report"), of MoneyGram International, Inc. (the "Company") for the period ended December 31,
2010, as filed with the Securities and Exchange Commission on the date hereof I, James E. Shields, 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Exhibit 32.2
Date: March 15, 2011
/s/ James E. Shields
James E. Shields
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)