MoneyGram 2007 Annual Report Download - page 87

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Substantially Restricted — The Company is regulated by various state agencies which generally require the Company to maintain liquid
assets and investments with an investment rating of A or higher in an amount generally equal to the payment service obligation ("PSO")
for those regulated payment instruments, namely teller checks, agent checks, money orders, and money transfers. The regulatory
requirements are similar to, but less restrictive than, the Company's unrestricted assets measure. The regulatory PSO measure varies by
state, but in all cases is substantially lower than the Company's PSO as disclosed in the Consolidated Balance Sheets because the
Company is not regulated by state agencies for PSO resulting from outstanding cashier's checks or for amounts payable to agents and
brokers. Consequently, a significant amount of cash and cash equivalents, receivables and investments are restricted to satisfy the liability
to pay the face amount of regulated payment service obligations upon presentment. The Company is not regulated by state agencies for
payment service obligations resulting from outstanding cashier's checks; however, the Company restricts a portion of the funds related to
these payment instruments due to contractual arrangements and/or Company policy. Assets restricted for regulatory or contractual
reasons are not available to satisfy working capital or other financing requirements. The regulatory and contractual requirements do not
require the Company to specify individual assets held to meet our payment service obligations; nor is the Company required to deposit
specific assets into a trust, escrow or other special account. Rather, the Company must maintain a pool of liquid assets. No third party
places limitations, legal or otherwise, on the Company regarding the use of its individual liquid assets. The Company is able to withdraw,
deposit or sell its individual liquid assets at will, with no prior notice or penalty, provided the Company maintains a total pool of liquid
assets sufficient to meet the regulatory and contractual requirements.
Regulatory requirements also require MPSI, the licensed entity and wholly-owned operating subsidiary of the Company, to maintain
positive net worth, with one state also requiring that MPSI maintain positive tangible net worth. As of December 31, 2007, the Company
was in compliance with state regulatory requirements, with the exception of the requirement of one state to maintain positive tangible net
worth. As of December 31, 2007, the Company had excess assets over the states' payment service obligations ("cushion") under our most
restrictive state of $157.9 million. All other states had substantially higher cushions at December 31, 2007. Subsequent to December 31,
2007, the Company was out of compliance with certain other state regulatory requirements. The Company has not received notice of any
enforcement actions contemplated by the regulators, but the regulators reserve the right to take action in the future and could impose fines
and penalties related to the compliance failure. 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. These amounts are generally available; however, management considers a portion of these amounts as providing
additional assurance that regulatory requirements are maintained during the normal fluctuations in the value of investments. The
following table shows the total amount of unrestricted assets at December 31. The Company had a shortfall in its unrestricted assets at
December 31, 2007 due to the decline in the fair value of its investment portfolio.
(Amounts in thousands) 2007 2006
Cash and cash equivalents (substantially restricted) $ 1,552,949 $ 973,931
Receivables, net (substantially restricted) 1,408,220 1,758,682
Trading investments (substantially restricted) 62,105 145,500
Available for sale investments (substantially restricted) 4,187,384 5,690,600
7,210,658 8,568,713
Amounts restricted to cover payment service obligations (7,762,470) (8,209,789)
(Shortfall) excess in unrestricted assets $ (551,812) $ 358,924
See Note 18 — Subsequent Events for the impact of the Capital Transaction on the Company's unrestricted assets measure.
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