MoneyGram 2007 Annual Report Download

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MONEYGRAM INTERNATIONAL INC (MGI)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/25/2008
Filed Period 12/31/2007

Table of contents

  • Page 1
    MONEYGRAM INTERNATIONAL INC (MGI) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/25/2008 Filed Period 12/31/2007

  • Page 2
    ... reporting company o The market value of common stock held by non-affiliates of the registrant, computed by reference to the last sales price as reported on the New York Stock Exchange as of June 29, 2007, the last business day of the registrant's most recently completed second fiscal quarter...

  • Page 3
    ... 1. Business Corporate History and Acquisitions Capital Transaction Global Funds Transfer Segment Payment Systems Segment Clearing and Cash Management Bank Relationships Sales and Marketing Product and Infrastructure Development and Enhancements Competition Regulation Intellectual Property Employees...

  • Page 4
    ... super agent of our money transfer business in Italy. The acquisition of Money Express provides us with the opportunity for further network expansion and more control of marketing and promotional activities in the region. MoneyGram Payment Systems Italy, S.r.l. was established, which manages the...

  • Page 5
    ... owned by the Investors have been sold. The Investors are also entitled to five demand registrations and unlimited piggyback registrations. As part of the Capital Transaction, MoneyGram Payment Systems Worldwide, Inc. ("Worldwide"), a wholly owned subsidiary of the Company, issued Goldman Sachs $500...

  • Page 6
    ... increases over the term of the contract and agreed to create a trust for the benefit of consumers who purchase money transfers and money orders at Wal-Mart locations. During 2007, our largest agent in the United Kingdom increased the number of locations offering money transfers as they completed...

  • Page 7
    ... service that allows customers to send a money transfer at www.emoneygram.com using a credit card, debit card or a debit from a bank account. Finally, we offer our money transfer services through Company-owned retail locations. In the United States, we have Company-owned retail locations in New York...

  • Page 8
    ... select one-time or recurring ACH, credit or debit card payments to our contracted billers. Payment Systems Segment Our Payment Systems segment primarily provides financial institutions with payment processing services, which include official check outsourcing services and money orders for sale to...

  • Page 9
    ... store retailers and bank locations. We also have dedicated sales and marketing teams that market our bill payment services directly to billers. Finally, we have a dedicated team of sales and marketing professionals that market our PrimeLink official check services, money transfer services...

  • Page 10
    ...purchase and reload at designated MoneyGram agent locations throughout the United States. Throughout 2006 and 2007, we continued to implement a full suite of ACH and electronic bill payment services that provide consumers with pay-by-telephone, pay-by-IVR and pay-by-web options. Our new utility bill...

  • Page 11
    ... as banks and niche person-to-person money transfer service providers that serve select send and receive corridors, and other providers of money orders, including the U.S. Postal Service and a subsidiary of First Data Corporation. Walk-in and electronic bill payment services within the Global Funds...

  • Page 12
    ... policies and procedures and work to make our business practices flexible in order to help us comply with the most current legal requirements. In most cases, our money transfer services are offered through third party agents with whom we contract and our ability to directly control our agents...

  • Page 13
    ...-time employees in the United States and 433 full-time employees internationally. In addition, we use contractors to support certain of our domestic and international sales and marketing efforts. None of our employees are represented by a labor union and we consider our employee relations to be good...

  • Page 14
    ...President and Chief Operating Officer of MoneyGram since November 2007. Mr. Ryan previously served as Executive Vice President/President, MoneyGram Global Payment Products and Services from August 2006 to November 2007, Executive Vice President/ Division President Global Funds Transfer from November...

  • Page 15
    ... 55416 and our telephone number is (952) 591-3000. Our website address is www.moneygram.com. We make our reports on Forms 10-K, 10-Q and 8-K, Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports, available electronically free of charge in the Investor Relations section of our...

  • Page 16
    ... be dedicated to the payment of interest and principal on our debt, which reduces the funds available to us for our operations, acquisitions, product development or other corporate initiatives; • our ability to pay cash dividends to the holders of our common stock is significantly restricted, and...

  • Page 17
    ... business are generated primarily by the investment of funds we receive from the sale of payment instruments. In turn, we pay commissions to our official check customers based on the outstanding balance produced by that customer's sale of official checks, calculated at a rate based on short term...

  • Page 18
    ... the commission rates we pay to our official check customers. Litigation or investigations involving MoneyGram or our agents, which could result in material settlements, fines or penalties, may adversely affect our business, financial condition and results of operations. We have received a notice...

  • Page 19
    ... 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...

  • Page 20
    ... internal processing capabilities or services similar to ours and do not outsource these services. Recent levels of growth in consumer money transfer transactions, bill payment transactions and other payment products may not continue. In addition, consolidation among payment services companies...

  • Page 21
    ... our employees and our internal systems and processes to process these transactions in an efficient, uninterrupted and error-free manner. In addition, we rely on third-party vendors in our business, including clearing and processing banks that clear our money orders and official checks, and process...

  • Page 22
    ... retail locations for the sale of our products and services. Operating such retail locations presents new risks for us. After substantial capital investment in such retail locations it is uncertain how such locations will be accepted in the market and how quickly transaction volume will increase...

  • Page 23
    ... of capital and management's attention from our core business that results from opening retail locations or acquiring or opening new businesses could adversely affect our business, financial condition and results of operations. A material slow down or complete disruption in international migration...

  • Page 24
    ... 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...

  • Page 25
    ... Center Call Center Both Both Payment Systems Global Funds Transfer 173,662 75,000 44,000 113,849 12/31/2015 1/31/2012 1/31/2012 3/31/2012 Information concerning our material properties, all of which are leased, including location, use, approximate area in square feet and lease terms, is set...

  • Page 26
    ..., other than in connection with employees' exercise of stock options. The following table sets forth information in connection with repurchases of shares of our common stock during the quarterly period ended December 31, 2007. Total Number of Shares Purchased as Part of Publicly Announced Plan or...

  • Page 27
    ... of payment services companies used in 2007 and the S&P 500 Index. Our common stock began trading on the New York Stock Exchange on June 22, 2004 on a when-issued basis in connection with the spin-off. The peer group index of payment services companies in 2007 consists of: CSG Systems International...

  • Page 28
    ... Other Selected Data Capital expenditures Depreciation and amortization Cash dividends declared per share (8) Average investable balances (9) Net investment margin (10) Approximate number of countries and territories served Number of money order locations (11) Number of money transfer locations (11...

  • Page 29
    ...in this Annual Report on Form 10-K. Basis of Presentation On December 18, 2003, MoneyGram International, Inc. ("MoneyGram") was incorporated in the state of Delaware as a subsidiary of Viad Corp ("Viad") to effect the spin off of Viad's payment services business operated by Travelers Express Company...

  • Page 30
    ... created a need for long-term capital. In December 2007, we completed our strategic review of our Payment Systems segment. As a result of this review, we have begun to restructure our official check business model by changing our commission structure and exiting certain large customer relationships...

  • Page 31
    ... service fees charged to consumers and through our investments. Fee and other revenue consist of transaction fees, foreign exchange and miscellaneous revenue. Transaction fees are fees earned on the sale of money transfers, retail money order and bill payment products and official check transactions...

  • Page 32
    ... transaction volume. Total expenses, excluding commissions, increased 16 percent over 2006, reflecting increased infrastructure costs supporting the growth in our money transfer business and our global network, higher costs to support compliance activities and enhancements to our technology systems...

  • Page 33
    .... The change in the Euro exchange rate increased revenue by $3.2 million compared to 2005. Fee commissions consist primarily of fees paid to our third-party agents for the money transfer service. We generally do not pay fee commissions on our money order products. Fee commissions expense grew at...

  • Page 34
    ...volume grows. We use tiered commission rates as an incentive for select agents to grow transaction volume by paying our agents for performance and allowing them to participate in adding market share for MoneyGram. The change in the Euro exchange rate increased fee commissions by $9.7 million in 2007...

  • Page 35
    ... of the cost of receivables sold. The impact of rising rates in 2006 was significantly offset by lower swap costs. Lower swap costs are the result of maturing high rate swaps replaced by lower rate swaps, increases in short-term rates and lower notional swap balances. The Company had $1.4 billion...

  • Page 36
    ..., the number of employees increased by 21 percent over 2005 to drive and support money transfer growth. Transaction and operations support - Transaction and operations support expenses include marketing costs, professional fees and other outside services costs, telecommunications and forms expense...

  • Page 37
    ... connections between our agents and our marketing, sales, customer service and accounting functions. The new system and associated processes are intended to increase the flexibility of our back office, thereby improving operating efficiencies. In 2007, we capitalized software costs of approximately...

  • Page 38
    ... the ability to electronically accept deposits and rent payments. Residents can pay rent online, by phone or in person and set up recurring payments. PropertyBridge is a component of the Company's Global Funds Transfer segment. The Company has finalized its purchase price allocation, resulting in...

  • Page 39
    ... global money transfer services, money orders and bill payment services to consumers through a network of agents. Fee revenue is driven by transaction volume and fees per transaction. In addition, investment and related income is generated by investing funds received from the sale of money orders...

  • Page 40
    ... in the international markets, to about 143,000 locations. Our simplified pricing initiatives, which were initiated in the first half of 2005, included reducing the number of pricing tiers or bands, allowing us to manage our price-volume dynamic while streamlining the point of sale process 37

  • Page 41
    ... volume by paying the agents for performance and allowing the agent to participate in adding market share for MoneyGram. Our largest agent, Wal-Mart, achieved new tiers in the third quarter of 2006 and the fourth quarter of 2007. In conjunction with our Capital Transaction, we extended the term...

  • Page 42
    .... An additional provision for agent loss impacted the 2005 operating margin by (0.9) percentage points. Table 7 - Payment Systems Segment 2007 vs. 2006 2006 vs. 2005 YEAR ENDED DECEMBER 31, (Amounts in thousands) 2007 2006 2005 Official check and payment processing revenue Fee and other revenue...

  • Page 43
    ... sales of official checks, money orders and other payment instruments, the timing of the collections of receivables and the timing of the presentment of such instruments for payment. In addition, we strive to maintain adequate liquidity for capital expenditures and other normal operating cash needs...

  • Page 44
    ... domestic and international cash management banks for ACH and wire transfer services to move customer funds and make agent payments. The relationships with these clearing banks and cash management banks are a critical component of the Company's ability to move monies on a global and timely basis. We...

  • Page 45
    Table of Contents provide for long-term capital needs. We strive to have cash, cash equivalents, receivables and investments in excess of our PSO in an amount which allows us to maintain compliance with all contractual and regulatory requirements during normal fluctuations in the value of our ...

  • Page 46
    ... a result of the accumulating rating downgrades of the underlying collateral securities. As the market continued its substantial deterioration in December 2007, we identified a need for additional capital as we anticipated that we would not be in compliance with our Total Company Ratio and our Debt...

  • Page 47
    ...Company and, in one case, creating a trust for the benefit of the agent's consumers. These changes have altered our total liquidity needs and changed the timing of cash inflows and outflows. While we believe the Capital Transaction will restore more ordinary funding protocols with the clearing banks...

  • Page 48
    ... connection with the Capital Transaction, the Company paid Goldman Sachs an investment banking advisory fee equal to $7.5 million in the form of 7,500 shares of Series B-1 Preferred Stock. The Series B Stock pays a cash dividend of ten percent. At our option, we may accrue dividends at a rate of 12...

  • Page 49
    ... part of the Capital Transaction, Worldwide issued Goldman Sachs $500.0 million of senior secured second lien notes (the "Notes"), which will mature in March 2018. The interest rate on the Notes is 13.25 percent per year unless interest is capitalized, in which case the interest rate increases to 15...

  • Page 50
    ... remedies available to them for a limited period of time both before and following a default under the financing arrangements. Restructuring of the Official Check Business In December 2007, the Company completed its review of our Payment Systems segment. As a result of this review, the Company has...

  • Page 51
    ... no money transfer transactions during the remainder of its contract. As of December 31, 2007, the liability for minimum commission guarantees is $4.4 million. Minimum commission guarantees are not reflected in the table above. Included in the Consolidated Balance Sheets under "Accounts payable...

  • Page 52
    ... additional working capital provided from normal operating activities. To understand the cash flow activity of our business, the cash provided by (used in) operating activities relating to the payment service assets and obligations should be reviewed in conjunction with the cash provided by (used in...

  • Page 53
    ... a payment from a previous owner of Money Express. In 2005, we acquired ACH Commerce. Table 12 - Cash Flows Provided By or Used in Financing Activities YEAR ENDED DECEMBER 31, (Amounts in thousands) 2007 2006 2005 Net debt activity Proceeds and tax benefit from exercise of stock options Purchase of...

  • Page 54
    ...risk, credit risk, operational risk, regulatory risk and foreign currency exchange risk. See Part 1, Item 1A "Risk Factors" for a description of the principal risks to our business. Our risk management objective is to monitor and control risk exposures to produce steady earnings growth and long-term...

  • Page 55
    ... received by agents in connection with money transfers and money orders, which are due to be remitted to the Company. Investments - Our strategy has been to maximize the relative value versus return on each security, sector and collateral class. We used a comprehensive process to manage our credit...

  • Page 56
    ... prevent agents from issuing money orders or performing money transfers if suspicious activity is noted or remittances are not received according to the agent's contract. The point of sale software requires each location to be re-authorized on a daily basis for transaction processing. Interest Rate...

  • Page 57
    ... foreign exchange rates affecting certain receivables and payables denominated in foreign currencies. We offer our products and services through a network of agents and financial institutions with locations in over 180 countries. Foreign exchange risk is managed through the structure of our business...

  • Page 58
    ...limited to, interest rate yield curves, reported trades, broker or dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. The Company receives prices from an independent pricing service for a majority of our investments. We verify these prices through periodic internal...

  • Page 59
    ...percent, of our investment portfolio was valued using internal pricing information. Of this amount, $52.0 million related to investments for which no price was received from the third party pricing service or brokers. Had the Company used the third party price to value the remaining $35.8 million of...

  • Page 60
    ... Assets, requires annual impairment testing of goodwill based on the estimated fair value of MoneyGram's reporting units. The fair value of MoneyGram's reporting units is estimated based on discounted expected future cash flows using a weighted average cost of capital rate. Additionally, an...

  • Page 61
    ... plan liabilities, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. MoneyGram's asset allocation at December 31, 2007 consists of approximately 62.8 percent in large capitalization and international equity stock funds, approximately 30.4 percent in...

  • Page 62
    ... expected return used to determine the benefit obligation. Changing the expected rate of return by 50 basis points would have increased/decreased 2007 pension expense by $0.6 million. Income Taxes - The Company is subject to income taxes in the U.S. and various foreign jurisdictions. Our operations...

  • Page 63
    ...Transfer Agents. We may be unable to renew material retail agent customer contracts, or we may experience a loss of business from significant agents or customers. • Operation of Payment Systems Segment. We may be unable to operate our Payment Systems segment profitably pursuant to our new official...

  • Page 64
    ... reduce the use and acceptance of our services. • New Retail Locations and Acquisitions. Opening new Company-owned retail locations and acquiring businesses subjects us to new risks and may cause a diversion of capital and management's attention from our core business. • International Migration...

  • Page 65
    ...this Annual Report on Form 10-K. Additionally, in 2007, the Company's Chief Executive Officer certified to the New York Stock Exchange ("NYSE") that he was not aware of any violation by the Company of the NYSE's corporate governance listing standards. No change in the Company's internal control over...

  • Page 66
    ... Annual Report on Form 10-K. All of our employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions (the "Principal Officers"), are subject to our Code of Ethics and our Always Honest policy...

  • Page 67
    ...," "Policy and Procedures Regarding Transactions with Related Persons" and "Transactions with Related Persons" in our definitive Proxy Statement for our 2008 Annual Meeting of Stockholders is incorporated herein by reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information contained...

  • Page 68
    ... duly authorized. MoneyGram International, Inc. (Registrant) Date: March 25, 2008 By: /s/ Philip W. Milne Philip W. Milne Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 69
    /s/ Teresa H. Johnson Teresa H. Johnson *As attorney-in-fact 65 Executive Vice President, General Counsel and Secretary

  • Page 70
    ... Stock of MoneyGram International, Inc. (Incorporated by reference from Exhibit 99.4 to Registrant's Current Report on Form 8-K filed on March 18, 2008). 10.1 Employee Benefits Agreement, dated as of June 30, 2004, by and among Viad Corp, MoneyGram International, Inc. and Travelers Express Company...

  • Page 71
    ... among MoneyGram International, Inc., MoneyGram Payment Systems Worldwide, Inc. and JPMorgan Chase Bank, N.A., individually and as letter of credit issuer, swing line lender, administrative agent and collateral agent (Incorporated by reference from Exhibit 99.8 to Registrant's Current Report on Form...

  • Page 72
    ...to Registrant's Current Report on Form 8-K filed on March 18, 2008). 10.35 Form of Indenture, by and among MoneyGram International, Inc., MoneyGram Payment Systems Worldwide, Inc., the other guarantors party thereto and Deutsche Bank Trust Company Americas, a New York banking corporation, as trustee...

  • Page 73
    ...to Registrant's Annual Report on Form 10-K filed on March 1, 2006). †10.51 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...

  • Page 74
    ... Compensation Trust (Incorporated by reference from Exhibit 99.05 to Registrant's Current Report on Form 8-K filed on November 22, 2005). +10.71 Money Services Agreement between Wal-Mart Stores, Inc. and MoneyGram Payment Systems, Inc. dated February 1, 2005 as amended. *21 Subsidiaries of the...

  • Page 75
    MoneyGram International, Inc. Annual Report on Form 10-K Items 8 and 15(a) Index to Financial Statements Management's Responsibility Statement Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2007 and 2006 Consolidated Statements of (Loss) ...

  • Page 76
    ... 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...

  • Page 77
    ... 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...

  • Page 78
    ... with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations...

  • Page 79
    Table of Contents MONEYGRAM INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, (Amounts in thousands, except share data) 2007 2006 ASSETS Cash and cash equivalents Cash and cash equivalents (substantially restricted) Receivables, net (substantially restricted) Trading investments (...

  • Page 80
    ... share data) 2007 2006 2005 REVENUE Fee and other revenue Investment revenue Net securities losses Total revenue Fee commissions expense Investment commissions expense Total commissions expense Net (losses) revenue EXPENSES Compensation and benefits Transaction and operations support Depreciation...

  • Page 81
    ...Contents MONEYGRAM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE YEAR ENDED DECEMBER 31, (Amounts in thousands) 2007 2006 2005 $(1,071,997) $124,054 $112,946 NET (LOSS) INCOME OTHER COMPREHENSIVE (LOSS) INCOME Net unrealized gains (losses) on available-for-sale...

  • Page 82
    ... in payment service obligations Net cash (used in) provided by continuing operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investments classified as available-for-sale Proceeds from maturities of investments classified as available-for-sale Purchases of investments...

  • Page 83
    ... in thousands, except share data) Common Additional Stock Capital Total December 31, 2004 Net income Dividends ($0.07 per share) Employee benefit plans Treasury shares acquired Unrealized foreign currency translation adjustment Unrealized loss on available-for-sale securities Unrealized gain on...

  • Page 84
    ... bill payment services to consumers through a network of agents. The Payment Systems segment provides financial institutions with payment processing services, primarily official check outsourcing services and money orders for sale to their customers and processes controlled disbursements. MoneyGram...

  • Page 85
    ... estimates. Cash and Cash Equivalents, Receivables and Investments - The Company generates funds from the sale of money orders, official checks (including cashier's checks, teller checks and agent checks) and other payment instruments, all of which are classified as "Payment service obligations" in...

  • Page 86
    ...our money order agents. The sale is recorded in accordance with SFAS No. 140. Upon sale, the Company removes the sold agent receivables from the Consolidated Balance Sheets as the Company has surrendered control over those receivables. Investments (substantially restricted) - The Company's available...

  • Page 87
    .... With the completion of the Capital Transaction, as of March 25, 2008, the Company was in compliance with all regulatory requirements for all states. The Company has unrestricted cash and cash equivalents, receivables and investments to the extent those assets exceed all payment service obligations...

  • Page 88
    ... for trading or speculative purposes and limits exposure to individual counterparties to manage credit risk. Fair Value of Financial Instruments - Financial instruments consist of cash and cash equivalents, investments, derivatives, receivables, payment service obligations, accounts payable and debt...

  • Page 89
    ... December 31, 2007 and 2006, software development costs of $12.5 million and $14.8 million, respectively, were capitalized in accordance with Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. At December 31, 2007 and 2006, there...

  • Page 90
    ... customer. Payments are capitalized and amortized over the life of the related agent or financial institution contracts as management is satisfied that such costs are recoverable through future operations, minimums, penalties or refunds in case of early termination. Amortization of payments on long...

  • Page 91
    ...) on international money transfer transactions. Foreign exchange revenue is recognized at the time the exchange in funds occurs. - Other revenue consists of processing fees on rebate checks and controlled disbursements, service charges on aged outstanding money orders, money order dispenser fees and...

  • Page 92
    ... the average market price of the common stock for the period, both of which would have had an anti-dilutive effect on earnings per share. Stock Based Compensation - Effective January 1, 2005, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS No. 123R"), using the modified...

  • Page 93
    ... Company must apply the provisions of the Guide, which includes a requirement to carry investments at fair value. The effective date of SOP 07-1 has been indefinitely deferred. In June 2007, the EITF approved Issue No. 06-11, Accounting for Income Tax Benefits on Dividends on Share-Based Payment...

  • Page 94
    ... ability to electronically accept deposits and rent payments. Residents can pay rent online, by phone or in person and set up recurring payments. PropertyBridge is a component of the Company's Global Funds Transfer segment. In 2007, the Company finalized its purchase price allocation, which included...

  • Page 95
    ...2049, with auction dates typically 28 days after the date the Company purchases the security. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments are as follows at December 31, 2007: Amortized Cost Gross Unrealized Gains Gross Unrealized...

  • Page 96
    ..."Obligations of states and political subdivisions" and "Other asset-backed securities" were downgraded. The rating agencies are continuing to review the credit ratings of securities. At December 31, the Company's investment portfolio consisted of the following ratings: Number of Securities 2007 Fair...

  • Page 97
    ... the rating agencies continued their review of securities, issuing broad rating downgrades based on high levels of assumed future defaults. Under the terms of most asset-backed securities, ratings downgrades of collateral securities can reduce the cash flows to all but the most senior investors even...

  • Page 98
    .... At December 31, 2007, $273.0 million, or less than 7 percent of the fair value of the Company's $4,187.4 million investment portfolio, had direct exposure to sub-prime mortgages as collateral. Nearly all of these securities had investment grade ratings. In considering securities collateralized...

  • Page 99
    .... If a security was sold during the time that the Company was completing its valuation process for the investment portfolio as of December 31, 2007, the ultimate sales price for that security was used for valuation purposes as the sales price was deemed to be the most representative estimate of fair...

  • Page 100
    ..., the acquiring party sold securities totaling $646.8 million to a QSPE, including substantially all of the securities originally purchased from the Company. The Company acquired the preferred shares of the QSPE and accounts for this investment at fair value as an available-for-sale investment in...

  • Page 101
    ... to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. The Company uses derivative instruments primarily to manage exposures to fluctuations in interest rates and foreign currency...

  • Page 102
    ... cash flow available for investments. The receivables were sold to two commercial paper conduit trusts and represent a small percentage of the total assets in each trust. The Company's rights and obligations are limited to the receivables transferred, and the transactions are accounted for as sales...

  • Page 103
    ... quarter of 2006, the Company decided to discontinue a software development project and recognized an impairment loss of $0.9 million. This impairment loss relates to the Payment Systems segment and was included in the Consolidated Statement of (Loss) Income in "Transaction and operations support...

  • Page 104
    ... and 2006 relates to the acquisition of PropertyBridge and Money Express, respectively, and was allocated to the Global Funds Transfer segment. In 2007, the Company finalized its purchase price allocation for Money Express, which resulted in a decrease of $0.3 million to goodwill. Goodwill for both...

  • Page 105
    ... charge of $6.4 million was included in the Consolidated Statements of (Loss) Income in "Transactions and operations support." There were no impairments for 2006 or 2005. In response to the results of the strategic review of the Payment Systems segment, the decline in the Company's stock price...

  • Page 106
    ... the Company's foreign subsidiaries. MoneyGram International Limited ("MIL"), a wholly owned subsidiary of MoneyGram, recognizes revenue based on a services agreement between MIL and MPSI. Through 2005, MIL recognized revenue associated with the money transfer transactions generated by agents signed...

  • Page 107
    Table of Contents MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Income tax expense related to continuing operations is as follows for the year ended December 31: (Amounts in thousands) 2007 2006 2005 Current: Federal State Foreign Current ...

  • Page 108
    ...to 2004. The Company is currently subject to U.S. Federal, certain state and foreign income tax examinations for 2004 through 2006. The Company adopted the provisions of FIN No. 48 on January 1, 2007. The cumulative effect of applying FIN No. 48 is reported as an adjustment to the opening balance of...

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    ... and the continuing business of Viad is referred to as "New Viad." As part of the Distribution, the Company entered into a Tax Sharing Agreement with Viad which provides for, among other things, the allocation between MoneyGram and New Viad of federal, state, local and foreign tax liabilities and...

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    ... and $14.4 million, respectively, in dividends on its common stock. As disclosed in Note 9 - Debt, the Company received a waiver of default under the Senior Credit Agreement and 364 Day Facility. This waiver prohibits the Company from paying any cash dividends while it is in default of the covenants...

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    ... one sold business, which represented eight percent of Viad's benefit obligation at December 31, 2003. Effective December 31, 2003, benefits under the pension plan ceased accruing service or compensation credits with no change in benefits earned through this date. Cash accumulation accounts should...

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    ... 2007 2006 2005 2007 Postretirement Benefits 2006 2005 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...

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    ... before long-term capital market assumptions are determined. The long-term portfolio return also takes proper consideration of diversification and rebalancing. Peer data and historical returns are reviewed for reasonableness and appropriateness. The health care cost trend rate assumption has...

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    ...expense for the year ended December 31, 2007 are as follows: Pension and SERPs Postretirement Benefits Net actuarial gain Amortization of net actuarial gain Prior service credit Amortization of prior service (credit) cost Total recognized in other comprehensive loss Total recognized in net periodic...

  • Page 115
    ...benefits of the current and former employees assigned to MoneyGram, and the related trust received a transfer of the corresponding account balances. MoneyGram does not have an employee stock ownership plan. Employee Equity Trust - Viad sold treasury stock in 1992 to its employee equity trust to fund...

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    ... plan limits. Beginning with the 2006 plan year, eligible employees may defer incentive pay in the form of cash. Management deferred accounts are generally payable on the deferral date based upon the timing and method elected by the participant. Deferred stock unit accounts are credited quarterly...

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    ...is based on the historical volatility of the price of the Company's common stock since the spin-off on June 30, 2004. The Company uses historical information to estimate the expected term and forfeiture rates of options. The expected term represents the period of time that options are expected to be...

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    ...000 shares of common stock, of which 25,000 shares vested immediately and 25,000 shares vested in May 2006. Restricted stock awards were valued at the quoted market price of the Company's common stock on the date of grant and expensed using the straight-line method over the vesting or service period...

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    ... 31, 2007, the Company has various uncommitted repurchase agreements, letters of credit and overdraft facilities totaling $2.3 billion to assist in the management of investments and the clearing of payment service obligations. These credit facilities are in addition to available amounts under...

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    ... network of global retail agents and domestic money orders. In addition, Global Funds Transfer provides a full line of bill payment services. The Payment Systems segment primarily provides official check services for financial institutions in the United States, and processes controlled disbursements...

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    ... reported in the financial statements for the year ended December 31: (Amounts in thousands) 2007 2006 2005 Revenue Global Funds Transfer: Money transfer Retail money order Payment Systems: Official check and payment processing Other Other Total revenue Operating (loss) income Global Funds Transfer...

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    ...Geographic areas - Foreign operations are located principally in Europe. Foreign revenues are defined as revenues generated from money transfer transactions originating in a country other than the United States. Long lived assets are principally located in the United States. The table below presents...

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    ... will be invested in cash equivalents. Following is pro forma financial data representing the composition of the available-for-sale investment portfolio as if the sale of the investments had occurred as of December 31, 2007: Fair Value As Reported December 31, 2007 Pro Forma Fair Value December...

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    ..., the Company completed a Capital Transaction, pursuant to which the Company received $1.5 billion of equity and debt capital to support the long term needs of the business and provide necessary capital due to the investment portfolio losses. The terms of the Capital Transaction are set forth below...

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    ...by the Investors have been sold. The Investors are also entitled to five demand registrations and unlimited piggyback registrations. Senior Credit Facility - As part of the Capital Transaction, the Company's wholly owned subsidiary MoneyGram Payment Systems Worldwide, Inc. ("Worldwide") entered into...

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    ... upon the fifth anniversary plus (b) all required interest payments due through such fifth anniversary using the treasury rate plus 50 basis points. Upon a change of control, the Company is required to make an offer to repurchase the Notes at a price equal to 101 percent of the principal amount plus...

  • Page 127
    ...regular hours of operation. Seller and Company agree that Seller shall provide the Services in all of the Locations in which Company has provided Seller access to Company's Money Order and Money Transfer System (collectively, the "Systems"). Seller's acceptance of any form of payment other than cash...

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    ..., or if the Money Transfer System network is not working properly. Company agrees to provide upgrades to the System as deemed necessary by Company from time to time, and as they become generally available to Company's network. Company agrees that it will pay the cost of any enhancements or...

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    ... be from day to day. As used in this Agreement, "prime rate" means the prime rate published by The Wall Street Journal for corporate loans by large U.S. money center commercial banks. Interest will not exceed the amount or rate that may lawfully be charged, and any amount contracted for, charged, or...

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    ...third party to provide money transfer services for the remainder of the current term of this Agreement. Termination for Material Adverse Change. In the event that, in the commercially reasonable good faith judgment of Company, there has been a material adverse change in Company's business or network...

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    ... agreed upon marketing plan, budget and schedule, both at the corporate level as well as at the individual Locations. Company shall be solely responsible for advertising and promoting the MoneyGram branded Money Order, Money Transfer and Express Payment network generally, and shall pay all costs and...

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    ... first to the highest ranking officer of the party who shall have operational responsibility for the Service and in turn to the Vice President and General Manager Global Funds Transfer of MoneyGram and Senior Vice President Wal-Mart Stores, Financial Services Division respectively as necessary in...

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    ... emergency bill payment service pursuant to which consumers may pay bills at Seller locations for same-day credit to billers with whom Company has contracted. "Good Reason" means any event outside the control of Company that increases the cost to Company of processing money transfer transactions for...

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    ...her money transfer transaction history through participation in the program. "Multi-Currency System" means a proprietary system developed by Company that enables Company to set currency exchange rates among local currencies. "Total Consumer Cost" as to transactions completed entirely in U.S. dollars...

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    ...money order forms that a reasonably prudent person would give to his own cash; and Company receives notice, including the serial numbers of the missing blank money orders, by telephone within 24 hours of the time that Seller learns (or should have known) of such loss. 4. REQUESTS FOR STOP PAYMENTS...

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    ... Service"). If Company develops the Safe to Cash Service, Company will make it available to Seller for a charge. If Seller uses the service according to instructions, Company and not Seller will be liable for any money order that Seller cashes based on information in the systems that the money order...

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    MONEY CENTER EXPRESS (MCX) MONEY ORDER PILOT The parties intend to pilot a kiosk called the "Money Center Express" or "MCX," in connection with certain third parties, for the sale of incremental Company money orders. The money orders sold through the MCX kiosk during the pilot are subject to the ...

  • Page 138
    ...Receive request. Company will not refuse Transfer Send or Receive requests unreasonably. CONSUMER FEE PRICING; TRANSFER SEND AND EXPRESS PAYMENT TRANSACTIONS. a. For each Transfer Send and Express Payment transaction, Seller shall collect from the consumer the Transfer Amount and applicable Wal-Mart...

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    ...-Currency System from time to time. d. Company agrees that it will use best efforts to establish Total Consumer Costs that are lower than the published Total Consumer Costs established by any money transfer service competitor with a larger market share than Company, for comparable money transfer...

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    ...for the Transfer Amount(s) and Wal-Mart Consumer Fee(s) relating to Transfer Send and Express Payment transactions initiated by Seller ("Company Amounts") shall be totaled on a daily basis and Seller shall transfer said amount into a banking account designated by Company by bank wire transfer on the...

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    ... Vice President & Chief Financial Officer Accepted for Travelers Express Company, Inc. and MoneyGram Payment Systems, Inc.: SIGNATURE: /S/ Anthony P. Ryan PRINT NAME: Anthony P. Ryan TITLE: VP/GM Schedule A Schedule B Schedule C List of Locations Service Level Agreement Agent Connect Addendum 15

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    ... have completed the pilot phase of the MCX project, and intend to roll-out kiosks called the "Money Center Express" ("MCX") or "Money Services Express" ("MSX"), in connection with certain third parties, for the sale of incremental Company money orders. The term "MCX" will be used to represent both...

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    ... by the table below and section ii., above. ** Money Orders: Customer Service Desk and MCX Money Order Product MCX Units Transactions Below [*] [*] Average Items/Store/Month Fee or Rebate per Item for all Money Orders F= Fee to Company; R= Rebate to...

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    ... originally stated. III. Additional Products and Services. This Addendum shall modify the Money Services Agreement and related attachments with respect to Money Orders and the Money Center Express (MCX) and Money Services Express (MSX) programs. The terms and conditions applicable to Money Transfers...

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    Wal-Mart Stores, Inc. Signature: /S/ Jane J. Thompson Print Name: Title: President, Financial Services 19 Jane J. Thompson MoneyGram Payment Systems, Inc. Signature: /S/ Anthony P. Ryan Print Name: Title: President, GFT Anthony P. Ryan

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    ...: A. MoneyGram Payment Systems, Inc., on its own behalf and as successor to Traveler's Express Company, Inc. ("MoneyGram") and WalMart Stores, Inc. ("Seller") are parties to that certain Money Services Agreement effective February 1, 2005 relating to the rendering of Money Order, Money Transfer and...

  • Page 147
    ...and MoneyGram shall use commercially reasonable efforts to establish a Trust in order to maintain funds for the purpose of ensuring payment of Money Orders when such Money Orders are present for payment. MoneyGram and the Seller shall execute a Trust Agreement which contains the terms and conditions...

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    ... provide any required notice to the parties involved in the transaction for the recapitalization of MoneyGram International, Inc. V. Money Order Fees. During the Special Remit Program and prior to the establishment of the Trust, money order fees payable by Seller to Company shall be paid as follows...

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    Amendment 3 to Money Services Agreement RECITALS: A. MoneyGram Payment Systems, Inc. ("Company") and Wal-Mart Stores, Inc. ("Seller") are parties to that certain Money Services Agreement effective February 1, 2005 relating to the rendering of Money Order, Money Transfer and related services, and as ...

  • Page 150
    ... control with") means possession of the power, whether by contract, equity ownership or otherwise, to direct the policies or management of a Person. "Beneficially Own" and "Beneficial Ownership" are used herein as defined in Rules 13d-3 and 13d-5 of the Exchange Act, but without taking into account...

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    ... in the Purchase Agreement or any transaction documents related thereto. The Transaction shall not constitute a Change in Control or [*]. Wal-Mart Stores, Inc. Signature: /S/ Jane J. Thompson Print Name: Jane J. Thompson Title: SVP and President of Financial Services MoneyGram Payment Systems, Inc...

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    ... Company, Inc., MoneyGram Payment Systems, Inc. and Wal-Mart Stores, Inc. (the "Money Services Agreement"). Terms used in this Agreement but not otherwise defined herein shall have the meanings provided by the Money Services Agreement. Whereas, the Money Services Agreement provides that the parties...

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    .... (b) Computer Systems Availability. The Service will be available to Seller for the processing of both Money Order Services and Money Transfer Services initiated through Company's DeltaWorks POS Devices at the Locations 99.9% of the Committed Time during each calendar month. Availability shall be...

  • Page 154
    ... phone to Seller's Global Communications Services (GCS) at 479-277-2674, available 24 hours per day / 7 days per week. (iv) Company will provide one single point of contact in case of technical questions or emergencies, and a backup contact, in case the primary is not available. 2.7 Support Services...

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    ...to operations or usability issues to Seller personnel. (v) Response Times. Company and Seller agree to the following response times schedule for Errors reported to Company utilizing the above severity designations previously defined. Three (3) or more failures (in a single calendar month) by Company...

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    ... address the problem or send replacement equipment. The expected time frame for replacement of MCX Equipment is ___ days. Dated this 1st day of February, 2005. Travelers Express Company, Inc. and MoneyGram Payment Systems, Inc. By: /S/ Anthony P. Ryan Name: Anthony P. Ryan Its: VP/GM Wal-Mart Stores...

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    ... of any Company Order to the Trustee under the Trust Agreement. Wal-Mart will continue to provide all reporting to MoneyGram on Money Orders and Money Transfers sold in Wal-Mart Locations that was provided prior to the establishment of the Trust, unless otherwise mutually agreed by the parties. If...

  • Page 158
    ... • MoneyGram Overseas (Pty) Limited South Africa • MoneyGram India Private Ltd. • MoneyGram of New York LLC (Delaware) MoneyGram Payment Systems Canada, Inc. (Ontario) MoneyGram Payment Systems Italy S.r.l. (Italy) PropertyBridge, Inc. (Delaware) Travelers Express Co. (P.R.) Inc. (Puerto Rico...

  • Page 159
    ... financial statements of MoneyGram International, Inc., and the effectiveness of MoneyGram International, Inc.'s internal control over financial reporting, appearing in the Annual Report on Form 10-K of MoneyGram International, Inc. for the year ended December 31, 2007. /s/ DELOITTE & TOUCHE LLP...

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    ..., to sign the Form 10-K Annual Report of MoneyGram International, Inc. for the fiscal year ended December 31, 2007, and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting...

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    ... 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 Any fraud, whether or not material, that involves management or other employees who have...

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    ... 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 Any fraud, whether or not material, that involves management or other employees who have...

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    ... the Annual Report on Form 10-K of MoneyGram International, Inc. (the "Company") for the period ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philip W. Milne, Chairman, President and Chief Executive Officer of the Company, certify...

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    ... with the Annual Report on Form 10-K of MoneyGram International, Inc. (the "Company") for the period ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David J. Parrin, Executive Vice President and Chief Financial Officer of the...