MoneyGram 2007 Annual Report Download - page 84

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of the Business
MoneyGram International, Inc. ("MoneyGram") offers products and services under its two operating segments, Global Funds Transfer
and Payment Systems. The Global Funds Transfer segment provides global money transfer services, money orders and 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 has offices in six states in the United States, seven countries in Europe, six countries in Asia, two countries in Africa and in
Australia. The Company's headquarters are located in Minneapolis, Minnesota, U.S.A.
MoneyGram International, Inc. ("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 in accordance with Emerging Issues Task Force ("EITF") Issue No. 02-11, Accounting
for Reverse Spinoffs. Effective December 31, 2005, the entity that was formerly Travelers was merged into MoneyGram Payment
Systems, Inc., a wholly owned subsidiary of MoneyGram ("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.
Capital Transaction — During September 2007, the asset-backed securities market and broader credit markets began to show significant
disruption, with a general lack of liquidity in the markets and deterioration in fair value of mortgage-backed securities triggered by
concerns surrounding sub-prime mortgages. In response to these concerns, the rating agencies undertook extensive reviews of asset-
backed securities, particularly mortgage-backed securities. In November and December 2007, the asset-backed securities and credit
markets experienced further substantial deterioration under increasing concerns over defaults on mortgages and debt in general, as well as
an increasingly negative view of all structured investments and the credit market in general. In addition, the rating agencies continued
their review of securities, issuing broad rating downgrades based on high levels of assumed future defaults. Under the terms of certain of
the Company's asset-backed securities, ratings downgrades of collateral securities can reduce the cash flows to all but the most senior
investors even if there have been no actual losses incurred by the collateral securities. In December 2007, the Company began to
experience adverse changes to the cash flows from some of its asset-backed investments as a result of the accumulating rating
downgrades of collateral securities. As the market continued its substantial deterioration, the Company identified a need for additional
capital. Through meetings with potential investors in late December 2007 and early January 2008, it became evident that the Company
would need to divest certain investments in connection with any recapitalization to eliminate the risk of any further deterioration in the
investment portfolio. The Company commenced a plan in January 2008 to realign its investment portfolio away from asset-backed
securities and into highly liquid assets through the sale of a substantial portion of the investment portfolio. As a result of these
developments, the Company recognized $1.2 billion of other-than-temporary impairments in December 2007.
On March 25, 2008, the Company completed a recapitalization transaction pursuant to which the Company received a substantial infusion
of both equity and debt capital (the "Capital Transaction"). See Note 18 — Subsequent Events for further discussion of the Capital
Transaction.
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
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