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Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of the Business
MoneyGram International, Inc. offers products and services including global money transfer, bill payment services, issuance and processing of money orders,
processing of official checks and share drafts, controlled disbursement processing and routine bill payment service. These products and services are offered to
consumers and businesses through a network of agents and financial institution customers located around the world.
On December 18, 2003, MoneyGram International, Inc. ("MoneyGram") was incorporated in the state of Delaware as a subsidiary of Viad Corp ("Viad") to
effect the spin off of Viad's payment services business operated by Travelers Express Company, Inc. ("Travelers") to its stockholders. 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, June 24, 2004. Due to the relative significance of MoneyGram to Viad, MoneyGram is the divesting entity and treated as the
"accounting successor" to Viad for financial reporting purposes in accordance with Emerging Issues Task Force ("EITF") Issue No. 02-11, Accounting for
Reverse Spinoffs. See Note 3 regarding the spin-off transaction and resulting discontinued operations of Viad. Effective December 31, 2005, the entity that
was formerly Travelers was merged into MoneyGram Payment Systems, Inc. ("MPSI"), with MPSI remaining as the surviving corporation. References to
"MoneyGram," the "Company," "we," "us" and "our" are to MoneyGram International, Inc. and its subsidiaries and consolidated entities.
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.
Principles of Consolidation — The consolidated financial statements include the accounts of MoneyGram International, Inc. and its subsidiaries. All material
inter-company profits, transactions, and account balances have been eliminated in consolidation.
Consolidation of Special Purpose Entities — We participate in various trust arrangements (special purpose entities) related to official check processing
agreements with financial institutions and structured investments within the investment portfolio. The Company has determined that these special purpose
entities meet the definition of a variable interest entity under FIN 46R, Consolidation of Variable Interest Entities, and must be included in our consolidated
financial statements. Working in cooperation with certain financial institutions, we have 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 some cases, 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 by operation of the Uniform Commercial Code, as issuer and drawer of the official checks. Accordingly, the obligations have been recorded
in the Consolidated Balance Sheets under "Payment service obligations." Under certain limited circumstances, clients have the right to either demand
liquidation of the segregated assets or to replace us as the administrator of the 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 F-10