MoneyGram 2004 Annual Report Download - page 28

Table of Contents
defined benefit pension trusts shall be equal to the minimum funding required by applicable regulations. During 2004, MoneyGram contributed $2.2 million
to the funded pension plans and expects to contribute $13.0 million in 2005. MoneyGram also has certain unfunded pension and postretirement plans that
require benefit payments over extended periods of time. During 2004, we paid benefits totaling $2.8 million related to these unfunded plans. Benefit payments
under these unfunded plans are expected to be $3.0 million in 2005. Expected contributions and benefit payments under these plans are not included in the
table above. See "Critical Accounting Policies — Pension obligations" for further discussion of these plans.
We have agreements with clearing banks that provide processing and clearing functions for money orders and official checks. One clearing bank contract has
covenants that include maintenance of total cash and cash equivalents, receivables and investments substantially restricted for payment services obligations at
least equal to total outstanding payment service obligations, as well as maintenance of a minimum ratio of total assets held at that bank to instruments clearing
through that bank of 103 percent. We are in compliance with these covenants at December 31, 2004.
Working in cooperation with various financial institutions, we established separate consolidated entities (special purpose entities) and processes that provide
these financial institutions with additional assurance of our ability to clear their official checks. These processes include maintenance of specified ratios of
segregated investments to outstanding payment instruments, typically 1 to 1. In one instance, alternative credit support has been purchased that provides
backstop funding as additional security for payment of instruments. However, we remain liable to satisfy the obligations, both contractually and/or by
operation of the Uniform Commercial Code, as issuer and drawer of the official checks. Accordingly, the obligations have been recorded in the Consolidated
Balance Sheets under "Payment service obligations." Under limited circumstances, clients have the right to either demand liquidation of the segregated assets
or replace us as the administrator of the special-purpose entity. Such limited circumstances consist of material (and in most cases continued) failure of
MoneyGram to uphold its warranties and obligations pursuant to its underlying agreements with the financial institution clients. While an orderly liquidation
of assets would be required, any of these actions by a client could nonetheless diminish the value of the total investment portfolio, decrease earnings, and
result in loss of the client or other customers or prospects. We offer the special purpose entity to certain financial institution clients as a benefit unique in the
payment services industry.
The Company has investment grade ratings of BBB/ Baa2 and a stable outlook from the major credit rating agencies. Our ability to maintain an investment
grade rating is important because it affects the cost of borrowing and certain financial institution customers require that we maintain an investment grade
rating. Any ratings downgrade could increase our cost of borrowing or require certain actions to be performed to rectify such a situation. A downgrade could
also have an effect on our ability to attract new customers and retain existing customers.
Although no assurance can be given, we expect operating cash flows and short-term borrowings to be sufficient to finance our ongoing business, maintain
adequate capital levels, and meet debt and clearing agreement covenants and investment grade rating requirements. Should financing requirements exceed
such sources of funds, we believe we have adequate external financing sources available, including unused commitments under our credit facilities, to cover
any shortfall.
Stockholders' Equity
On June 30, 2004, MoneyGram charged the historical cost carrying amount of the net assets of Viad in the amount of $426.6 million directly to equity as a
dividend.
On November 18, 2004, the Board authorized a plan to repurchase, at the Company's discretion, up to 2,000,000 shares of MoneyGram common stock. The
Company repurchased 770,299 shares of its common stock under this plan at an average cost of $21.01 per share.
On August 19, 2004, the Board of Directors of MoneyGram International, Inc. declared the Company's initial quarterly cash dividend of $0.01 per share on
the common stock. This first quarterly dividend totaling $0.9 million was paid on October 1, 2004 to stockholders of record at the close of business on
September 16, 2004. On November 18, 2004, the Board of Directors declared a quarterly cash dividend of $0.01 per share of common stock to be paid on
January 3, 2005 to stockholders of record on Decem- 25