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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 transfers, 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 of June 24, 2004. Due to the relative
significance of MoneyGram to Viad, MoneyGram is the divesting entity and treated as the "accounting successor" to Viad for financial
reporting purposes in accordance with Emerging Issues Task Force ("EITF") Issue No. 02-11, Accounting for Reverse Spinoffs. 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 ("SPE") meet the definition of a variable interest entity under Financial Interpretation ("FIN") 46R,
Consolidation of Variable Interest Entities, and must be included in our consolidated financial statements. Working in cooperation with
certain financial institutions, 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. 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 SPE. Such limited
circumstances consist of material (and in most cases continued) failure of MoneyGram to uphold its warranties and obligations pursuant to
its underlying agreements with the financial institution clients. While an orderly liquidation of assets would be required, any of these actions
by a client could nonetheless diminish the value of the total investment portfolio, decrease earnings, and result in loss of the client or other
customers or prospects. We offer the SPE to certain financial institution clients as a benefit unique in the payment services industry.
Certain structured investments we own represent beneficial interests in grantor trusts or other similar entities. These trusts typically contain
an investment grade security, generally a U.S. Treasury strip, and an investment in the residual interest in a collateralized debt obligation, or
in some cases, a limited partnership interest. For certain of these trusts, the Company
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