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MONEYGRAM INTERNATIONAL INC (MGI)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/03/2009
Filed Period 12/31/2008

Table of contents

  • Page 1
    MONEYGRAM INTERNATIONAL INC (MGI) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/03/2009 Filed Period 12/31/2008

  • Page 2
    ..., computed by reference to the last sales price as reported on the New York Stock Exchange as of June 30, 2008, the last business day of the registrant's most recently completed second fiscal quarter, was $74.0 million. 82,540,662 shares of common stock were outstanding as of February 23, 2009...

  • Page 3
    ... 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 Executive Officers of the...

  • Page 4
    ...to our customers. Our payment services enable consumers throughout the world, many of whom are not fully served by traditional financial institutions, to transfer money and pay bills, helping them meet the financial demands of their daily lives. Our payment services also help businesses operate more...

  • Page 5
    ... of the Capital Transaction, MoneyGram Payment Systems Worldwide, Inc. ("Worldwide"), a wholly-owned subsidiary of the Company, issued Goldman Sachs $500.0 million of senior secured second lien notes (the "Notes") with a 10 year maturity. Additionally, Worldwide entered into a senior secured amended...

  • Page 6
    ... growing MoneyGram eMoneyTransfer service, which allows customers to use the Internet to send a money transfer using a credit card, debit card or direct debit from a bank account. While currently available in the United States only, we intend to expand our eMoneyTransfer service internationally. 3

  • Page 7
    ...money transfer consumer fees at a price point below our primary competitor and above the niche players in the market. Money Orders: MoneyGram money orders, which are sold through our agent locations in the U.S. and Puerto Rico, can be presented by our consumers to make a payment or for cash. In 2008...

  • Page 8
    ... Visa debit cards, be reloadable at one of our U.S. agent locations and be usable at over 900,000 ATMs in the United States. Payment Systems Segment Our Payment Systems segment provides official check services and money orders for financial institutions, as well as check processing and controlled...

  • Page 9
    ...store retailers and bank locations. Dedicated sales and marketing teams also market our bill payment services directly to billers, including billers in key market verticals, and market our official check and money order services to financial institutions. Internationally, we have sales and marketing...

  • Page 10
    ... send and receive money and to pay bills in a variety of ways, we face increasing competition. These emerging technologies include online payment services, card-based services such as ATM cards and stored-value cards, bank to bank money transfers and mobile telephone payment services. Official check...

  • Page 11
    ... we contract and our ability to directly control our agents' compliance is limited. As a money services business, the Company and its agents are required to establish anti-money laundering compliance programs that include: (i) internal policies and controls; (ii) designation of a compliance officer...

  • Page 12
    ...us and our agents to comply with federal and state anti-money laundering laws and regulations. In connection with the Capital Transaction, we sold certain investments at a realized loss of $260.6 million. As a result of these portfolio sales, we were not in compliance for a brief period of time with...

  • Page 13
    ..., including a number of patents for automated money order dispensing systems and printing techniques, many of which have expired. We also have patent applications pending in the United States that relate to our money transfer, money order, PrimeLink and bill payment technologies and business methods...

  • Page 14
    ...as Manager of Payment Services and served in positions of increasing responsibility from 1988 to 1994. Prior to that, Ms. Dutra spent 15 years with Norwest Bank Minnesota, N.A. (now Wells Fargo Bank, N.A.). Mubashar Hameed, age 45, has served as Executive Vice President and Chief Information Officer...

  • Page 15
    Table of Contents Available Information Our principal executive offices are located at 1550 Utica Avenue South, Minneapolis, Minnesota 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 ...

  • Page 16
    ... increase our costs. Any delay or inability to settle our payment instruments, pay money transfers or make related settlements with our agents could adversely impact our business, financial condition and results of operations. • Banks upon which we rely to conduct our official check, money order...

  • Page 17
    ... key customers or are unable to maintain our Global Funds Transfer agent or biller networks, our business and results of operations could be adversely affected. Revenue from our money transfer and urgent bill payment services is derived from transactions conducted through our retail agent and biller...

  • Page 18
    ... our official check and money order businesses profitably as a result of historically low interest rates and our revised pricing strategies. Our revenues in the official check business are generated primarily by the investment of funds we receive from the sale of official checks. In turn, we pay...

  • Page 19
    ...international banks for international cash management, ACH and wire transfer services to pay money transfers and settle with our agents. We also rely on domestic banks to provide clearing, processing and settlement functions for our paper-based instruments, including official checks and money orders...

  • Page 20
    ... customers which may increase during an economic downturn. The vast majority of our Global Funds Transfer segment is conducted through independent agents that provide our products and services to consumers at their business locations. Our agents receive the proceeds from the sale of our payment...

  • Page 21
    ... our agents, financial institution customers and consumers. Many of our competitors offer electronic payment mechanisms, including Internet-based and cellular phone payment services, that could be substituted for traditional forms of payment, such as the money order, bill payment and money transfer...

  • Page 22
    ... countries where we operate, particularly in the European Union. We are also subject to financial services regulations, money transfer and payment instrument licensing regulations, currency control regulations, escheat laws, laws covering consumer privacy, data protection and information security...

  • Page 23
    ... the Capital Transaction, we recognized significant losses in our investment portfolio. As a result, we were not in compliance for a brief period of time with the minimum net worth requirements of the states in which we are licensed to conduct our money transfer and other payment services businesses...

  • Page 24
    ..., as well as to enhance our existing services and offer new services is dependent on our information technology systems. If we are unable to effectively manage the technology associated with our business, we could experience increased costs, reductions in system availability and loss of agents or...

  • Page 25
    ... or monitor international agents; and • failure to successfully manage our exposure to foreign currency exchange rates, in particular with respect to the Euro. Unfavorable outcomes of tax positions we take could adversely affect our tax expense. We file tax returns and take positions with respect...

  • Page 26
    ...meet the New York Stock Exchange ("NYSE") continued listing requirements, the NYSE may delist our common stock. Our common stock is currently listed on the NYSE. In December 2008, we received notice from the NYSE that we were below listing requirements because the 30-day average closing price of our...

  • Page 27
    ... and lease terms, is set forth above. We also have a number of other smaller office locations in California, Florida, New York, Tennessee, France, Germany, Italy and the United Kingdom, as well as small sales and marketing offices in Australia, China, Greece, Hong Kong, India, Nigeria, Russia, South...

  • Page 28
    ..., as well as attorneys' fees and costs. In July 2008, an amended complaint was filed asserting an additional claim for declaratory relief. SEC Inquiry - By letter dated February 4, 2008, the Company received notice from the Securities and Exchange Commission ("SEC") that it is conducting an informal...

  • Page 29
    ... PURCHASES OF EQUITY SECURITIES Our common stock is traded on the New York Stock Exchange under the symbol MGI. No dividends were declared by our Board of Directors in 2008. Our Board of Directors declared quarterly cash dividends totaling $0.20 per share of common stock during 2007. See "Management...

  • Page 30
    ... the New York Stock Exchange on June 22, 2004 on a when-issued basis in connection with our spin-off from Viad Corp. The peer group index of payment services companies consists of: CSG Systems International Inc., DST Systems, Inc., Euronet Worldwide Inc., Fidelity National Information Services, Inc...

  • Page 31
    ...information set forth below, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Basis of Presentation." YEAR ENDED DECEMBER 31, (Dollars and shares in thousands, except per share data) 2008 2007 2006 2005 2004 Operating Results Revenue Global Funds Transfer...

  • Page 32
    ... of our Global Funds Transfer segment. Net loss from continuing operations for 2007 includes a goodwill impairment of $6.4 million related to a component of our Payment Systems segment. (3) Unrestricted assets are substantially restricted assets less payment service obligations as calculated...

  • Page 33
    ... contracts. As of December 31, 2008, approximately $1.8 billion of balances for the top 10 customers have run off, with the remaining balances expected to run off over the next six to 15 months as the customers cease issuing new official checks and old issuances are presented to us for payment...

  • Page 34
    Table of Contents Money Order Repricing and Review - In the fourth quarter of 2008, we initiated the first phase of a repricing initiative for our money order product sold through retail agent locations. This initiative increases the per-item fee we receive for our money orders and reflects the ...

  • Page 35
    ...receiving location. Money order and bill payment transaction fees are fixed per transaction. Foreign exchange revenue is derived from the management of currency exchange spreads on international money transfer transactions. Miscellaneous revenue primarily consists of processing fees on rebate checks...

  • Page 36
    ... is a summary of our operating results from continuing operations in 2008: • Fee and other revenue increased 17 percent to $1,105.7 million in 2008 from $949.1 million in 2007, driven by continued growth in money transfer (including bill payment) transaction volume. Our Global Funds Transfer 33

  • Page 37
    ... orders and official check transactions. In 2008, fee and other revenue increased by $156.6 million, or 17 percent, compared to 2007, primarily driven by growth in money transfer. Money transfer (including bill payment) fee revenue grew 18 percent in 2008, while money transfer transaction volume...

  • Page 38
    ...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, which is reflected in each of the amounts above, increased fee...

  • Page 39
    ... balances generated by the sale of official checks only. The average balance in the table reflects only the payment service obligations for which commissions are paid and does not include the average balance of the sold receivables ($3.7 million, $349.9 million and $382.6 million for 2008, 2007...

  • Page 40
    ... and income from limited partnerships, as well as higher commission rates and swap costs in 2007. The net investment margin decreased three basis points to 2.28 percent in 2007 compared to 2006 for the same reasons. Table 4 - Net Securities Losses 2008 vs. 2007 2007 vs. 2006 YEAR ENDED DECEMBER 31...

  • Page 41
    ... marketing, professional fees and other outside services, telecommunications and agent forms related to our products. Transaction and operations support costs increased $28.8 million, or 15 percent, in 2008 compared to 2007. The Capital Transaction and restructuring of the official check business...

  • Page 42
    ... compliance activities and enhancements to our technology systems, as well as increased credit servicing fees. Provision for loss increased in 2007 by $4.6 million over 2006, with no noticeable trends driving the increase other than the growth in agents. Marketing costs increased $3.2 million, agent...

  • Page 43
    ... funds received from the sale of retail money orders until the instruments are settled. Payment Systems - This segment provides financial institutions in the United States with payment processing services, primarily official check outsourcing services, and money orders for sale to their customers...

  • Page 44
    ... before income taxes" as reported in the Consolidated Statements of (Loss) Income. Table 5 - Segment Information YEAR ENDED DECEMBER 31, (Amounts in thousands) 2008 2007 2006 Operating (loss) income: Global Funds Transfer Payment Systems Total segment operating (loss) income Interest expense Debt...

  • Page 45
    ... Funds Transfer Segment 2008 vs. 2007 2007 vs. 2006 YEAR ENDED DECEMBER 31, (Amounts in thousands) 2008 2007 2006 Money transfer revenue, including bill payment Fee and other revenue Investment revenue Net securities losses Total Money transfer revenue, including bill payment Retail money order...

  • Page 46
    ... the sale of receivables program. Commissions expense increased 16 percent in 2008, primarily driven by higher money transfer transaction volume, higher commission rates, amortization of signing bonuses and increases in the Euro exchange rate. Higher money transfer transaction volumes increased fee...

  • Page 47
    ... use tiered commission rates as an incentive for select agents to grow transaction volume by paying the agents for performance and allowing the agent to participate in adding market share for MoneyGram. Walmart achieved new tiers in the third quarter of 2006 and the fourth quarter of 2007. Operating...

  • Page 48
    ... in this table. 2008 Compared to 2007 Total revenue for the Payment Systems segment includes investment revenue, net securities gains and losses, per-item fees charged to our financial institution customers and fees earned on our rebate processing business. Total Payment Systems losses decreased...

  • Page 49
    ... financial institution customers based on official check average investable balances and short-term interest rate indices, as well as costs related to the sale of receivables program. For the Payment Systems segment, commissions expense also includes costs associated with interest rate swaps used to...

  • Page 50
    ... rates on our investment portfolio. We continue to see a trend among state, federal and international regulators toward enhanced scrutiny of anti-money laundering compliance. In addition, the European Union has adopted the European Commissions' 2007 Payment Services Directive, which creates a new...

  • Page 51
    ... security deposits and rent payments. Residents can pay rent online, by phone or in person and set up recurring payments. PropertyBridge is a component of our Global Funds Transfer segment. We incurred $0.2 million of transaction costs in connection with this acquisition. The final purchase price...

  • Page 52
    ...part of the Capital Transaction, our wholly owned subsidiary MoneyGram Payment Systems Worldwide, Inc. ("Worldwide") entered into a senior credit facility (the "Senior Facility") of $600.0 million with various lenders and JPMorgan Chase Bank, N.A ("JPMorgan"), as Administrative Agent for the lenders...

  • Page 53
    ... - As part of our Capital Transaction, our wholly-owned subsidiary Worldwide issued $500.0 million of senior secured second lien notes (the "Notes") maturing in March 2018 to Goldman Sachs. The interest rate on the Notes is 13.25 percent per year unless interest is capitalized, in which case the...

  • Page 54
    ... receive a similar amount on a daily basis from our agents and financial institutions for the face amount and related fees of our payment instruments sold. We use the in-coming funds from sales of new payment instruments to settle previously sold payment instruments that are presented for payment...

  • Page 55
    ... in completing this process, we would be required to establish a network of numerous smaller cash management banks. While this would not impact the timing of settling money transfers with the consumer, it could alter the pattern of settlement with our agents and increase our banking costs. Altering...

  • Page 56
    ...payment service obligation measure, as defined by the state, for our regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. The regulatory requirements are similar to, but less restrictive than, our internal unrestricted assets measure set forth in Table...

  • Page 57
    ...shortfalls. We do not anticipate the use of our Senior Facility to maintain compliance in the future. In the fourth quarter of 2008, we opted into a buy-back program related to all three of our auction rate securities. Under this program, we received the right to sell the ARS to the original trading...

  • Page 58
    ... interest payments due on the Notes and Table 9 assumes that the Company will continue to pay interest as due. Operating leases consist of various leases for buildings and equipment used in our business. Other obligations are unfunded capital commitments related to our limited partnership interests...

  • Page 59
    ...signing bonuses to new agents and $29.7 million to terminate our interest rate swaps. We also received an income tax refund of $24.7 million during 2008 and did not make any tax payments. During 2008, we used $4.7 billion of proceeds from the sale and normal maturity of available-for-sale securities...

  • Page 60
    ... Transaction to invest in cash equivalents and settle payment service obligations for instruments sold by departing official check financial institution customers in connection with the official check restructuring. Operating activities in 2007 used net cash of $355.8 million. Our payment service...

  • Page 61
    ... 2006, we acquired Money Express, our former super-agent in Italy. Table 12 - Cash Flows Provided By or Used in Financing Activities YEAR ENDED DECEMBER 31, (Amounts in thousands) 2008 2007 2006 Net proceeds from the issuance of debt Payment on debt Net change on credit facilities Net proceeds from...

  • Page 62
    ... for our asset accounts, serve as counterparties to our foreign currency transactions and conduct cash transfers on our behalf for the purpose of clearing our payment instruments and related agent receivables and agent payables. Through certain check clearing agreements and other contracts, we are...

  • Page 63
    ... liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts and certain holding companies and providing full coverage of noninterest bearing deposit transaction accounts, regardless of dollar amount. In addition, official checks issued by our financial...

  • Page 64
    ... embedded in our money transfer and retail money order point of sale equipment which provides credit risk management abilities. First, this software allows us to control both the number and dollar amount of transactions that can be completed by both agent and location in a particular timeframe...

  • Page 65
    ... in the second quarter of 2008, our derivative financial instruments are used solely to manage exposures to fluctuations in foreign currency exchange rates. If the counterparties to any of our derivative financial instruments were to default in payments or experience credit rating downgrades, the...

  • Page 66
    .... While many of our contracts require the financial institution customers to pay us the negative commission amount, we have opted not to require such payment at this time. As the revenue earned by our financial institution customers from the sale of our official checks primarily comes from the...

  • Page 67
    ... in foreign exchange rates affecting certain receivables and payables denominated in foreign currencies, as well as the potential adverse effect on our earnings originating in foreign currencies. We offer our products and services through a network of agents and financial institutions with locations...

  • Page 68
    ...available, as well as to verify broker quotes received, we estimate fair value using industry-standard pricing models, discount margins for comparable securities adjusted for differences in our security, risk and liquidity premiums observed in the market place, default rates, prepayment speeds, loss...

  • Page 69
    ... indicative of the actual exit price if the investment was sold at the measurement date. In the current market, the most subjective assumptions include the default rate of collateral securities and loss severity as it relates to our other asset-backed securities and illiquidity discounts for trading...

  • Page 70
    ... average cost of capital rate. Additionally, an assumed terminal value is used to project future cash flows beyond base years. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are consistent with our internal forecasts and operating plans. The...

  • Page 71
    ... the discount rate by 50 basis points would have increased/decreased 2008 pension expense by $0.6 million. The actual rate of return on average pension assets in 2008 was a decline of 26.3 percent as a result of the substantial disruption in the market and the global recession during the year, as...

  • Page 72
    ... plan assets with sufficient time to recover to historical return rates. Changing the expected rate of return by 50 basis points would have increased/decreased 2008 pension expense by $0.6 million. Income Taxes - We are subject to income taxes in the United States and various foreign jurisdictions...

  • Page 73
    ... to operate and grow our business and may make us more vulnerable to negative economic conditions. • Significant Dilution to Stockholders and Control of New Investors. The Series B Stock issued to the Investors at the closing of the Capital Transaction, dividends accrued on the Series B Stock post...

  • Page 74
    ... Operation in Politically Volatile Areas. Offering money transfer services through agents in regions that are politically volatile or, in a limited number of cases, are subject to certain Office of Foreign Assets Control ("OFAC") restrictions could cause contravention of U.S. law or regulations by...

  • Page 75
    ... this Annual Report on Form 10-K. Additionally, the Company's Chief Executive Officer certified to the New York Stock Exchange ("NYSE") in 2008 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 76
    ... to our Code of Ethics and our Always Honest policy. These documents are posted on our website at www.moneygram.com in the Investor Relations section, and are available in print free of charge to any stockholder who requests them at the address set forth below. We will disclose any amendments to, or...

  • Page 77
    ... "Index to Financial Statements and Schedules" are filed as part of this Annual Report on Form 10-K. All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto listed in the "Index to...

  • Page 78
    ...) Date: March 3, 2009 By: /s/ ANTHONY P. RYAN Anthony P. Ryan President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the...

  • Page 79
    /s/ Teresa H. Johnson Teresa H. Johnson *As attorney-in-fact 75 Executive Vice President, General Counsel and Secretary

  • Page 80
    ...'s Current Report on Form 8-K filed on March 28, 2008). 4.6 Indenture, dated as of March 25, 2008, 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...

  • Page 81
    .... and Employee Directors of MoneyGram International, Inc. (Incorporated by reference from Exhibit 10.03 to Registrant's Current Report on Form 8-K filed on February 13, 2009). †10.7 MoneyGram International, Inc. Management and Line of Business Incentive Plan, as amended and restated March 24, 2008...

  • Page 82
    ...Current Report on Form 8-K filed on January 31, 2008). 10.33 Second Amended and Restated Credit Agreement, dated as of March 25, 2008, among MoneyGram International, Inc., MoneyGram Payment Systems Worldwide, Inc. and JPMorgan Chase Bank, N.A., individually and as letter of credit issuer, swing line...

  • Page 83
    ...., MoneyGram Payment Systems Worldwide, Inc., PropertyBridge, Inc., MoneyGram of New York LLC, and JPMorgan Chase Bank, N.A., as collateral agent (Incorporated by reference from Exhibit 10.8 to Registrant's Current Report on Form 8-K filed on March 28, 2008). 10.39 Second Priority Security Agreement...

  • Page 84
    ... Number Description 10.50 MoneyGram Employee Equity Trust, effective as of June 30, 2004 (Incorporated by reference from Exhibit 10.16 to Registrant's Quarterly Report on Form 10-Q filed on August 13, 2004). †10.51 Form of MoneyGram International, Inc. 2004 Omnibus Incentive Plan Restricted Stock...

  • Page 85
    ...Wal-Mart Stores, Inc. and MoneyGram Payment Systems, Inc. dated February 1, 2005 as amended (Incorporated by reference from Exhibit 10.71 to Registrant's Annual Report on Form 10-K filed on March 25, 2008). 10.83 Form of Employee Trade Secret, Confidential Information and Post-Employment Restriction...

  • Page 86
    ... Section 906 Certification of Chief Executive Officer Section 906 Certification of Chief Financial Officer * Filed herewith. †Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. + Confidential information has been omitted from this...

  • Page 87
    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, 2008 and 2007 Consolidated Statements of (Loss) ...

  • Page 88
    ... in the United 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...

  • Page 89
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated March 3, 2009 expressed an unqualified opinion on those financial statements...

  • Page 90
    ... position of MoneyGram International, Inc. and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of...

  • Page 91
    Table of Contents MONEYGRAM INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, (Amounts in thousands, except share data) 2008 2007 ASSETS Cash and cash equivalents Cash and cash equivalents (substantially restricted) Receivables, net (substantially restricted) Trading investments (...

  • Page 92
    Table of Contents MONEYGRAM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF (LOSS) INCOME FOR THE YEAR ENDED DECEMBER 31, (Amounts in thousands, except per share data) 2008 2007 2006 REVENUE Fee and other revenue Investment revenue Net securities losses Total revenue Fee commissions expense ...

  • Page 93
    Table of Contents MONEYGRAM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME FOR THE YEAR ENDED DECEMBER 31, (Amounts in thousands) 2008 2007 2006 NET (LOSS) INCOME OTHER COMPREHENSIVE LOSS Net unrealized (losses) gains on available-for-sale securities: Net holding gains ...

  • Page 94
    ... from revolving credit facility Payment on revolving credit facility Proceeds from issuance of preferred stock Transaction costs for issuance of preferred stock Proceeds and tax benefit from exercise of stock options Purchase of treasury stock Cash dividends paid Net cash provided by (used in...

  • Page 95
    ... of FIN 48 Net loss Dividends ($0.20 per share) Employee benefit plans Treasury shares acquired Unrealized gain on available-for-sale securities Unrealized loss on derivative financial instruments Amortization of prior service cost for pension and postretirement benefits, net of tax Amortization...

  • Page 96
    ... 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, money orders for sale to their customers...

  • Page 97
    Table of Contents MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Second Lien Notes - As part of the Capital Transaction, Worldwide issued $500.0 million of senior secured second lien notes to Goldman Sachs (the "Notes"), which will mature in ...

  • Page 98
    ... of the official checks. Accordingly, the obligations have been recorded in the Consolidated Balance Sheets under "Payment service obligations." The investment revenue generated by the assets of the SPEs is recorded within the Payment Systems segment in the Consolidated Statement of (Loss) Income...

  • Page 99
    ... checks, agent checks, money orders and money transfers. The regulatory payment service obligations measure varies by state, but in all cases is substantially lower than the Company's payment service obligations as disclosed in the Consolidated Balance Sheets as the Company is not regulated by state...

  • Page 100
    ... - (Continued) available to satisfy working capital or other financing requirements. Consequently, we consider a significant amount of cash and cash equivalents, receivables and investments to be restricted to satisfy the liability to pay the face amount of regulated payment service obligations upon...

  • Page 101
    ... or losses reported in the Consolidated Statements of (Loss) Income. Securities held for indefinite periods of time, including any securities that may be sold to assist in the clearing of payment service obligations or in the management of securities, are classified as securities available-for-sale...

  • Page 102
    ... carrying values of cash, receivables, accounts payable and payment service obligations approximate fair value due to the short-term nature of these instruments. The carrying value of the Company's Senior Facility approximates fair value as interest related to the debt is variable rate. The carrying...

  • Page 103
    ... agent equipment, communication equipment, computer hardware, computer software, leasehold improvements, office furniture and equipment, land and signs, and is stated at cost net of accumulated depreciation. Property and equipment, with the exception of land, is depreciated using a straight-line...

  • Page 104
    ... the average exchange rate for the month. Foreign currency exchange transaction gains and losses are reported in "Transaction and operations support" in the Consolidated Statements of (Loss) Income. Revenue Recognition - The Company derives revenue primarily through service fees charged to consumers...

  • Page 105
    ...) 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 106
    ... FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. SFAS 158 requires the recognition of the funded status of a pension or postretirement plan in the balance sheet as an asset or liability. Unrecognized prior service cost and gains and losses...

  • Page 107
    ... Payment. The EITF reached a final conclusion that a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified restricted stock, restricted stock units and stock options should be recognized as an increase...

  • Page 108
    ... money transfer license in Spain, as well as the opportunity for further network expansion and more control over marketing and promotional activities in the region. The purchase price allocation as of December 31, 2008 includes $4.3 million of goodwill assigned to the Company's Global Funds Transfer...

  • Page 109
    ... to electronically accept security 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, resulting in...

  • Page 110
    ... using quoted market prices for identical or similar securities where possible, including broker quotes. If market quotes are not available, or broker quotes could not be corroborated by market observable data, the Company will value a security using a pricing service and externally developed cash...

  • Page 111
    ... can be derived principally from, or corroborated by, observable market data. The Company's derivative agreements related to interest rate swaps and foreign currency forward contracts are well-established products, allowing the use of pricing models that are widely accepted in the industry. These...

  • Page 112
    ... cash equivalents, trading investments and available-for-sale investments, all of which are substantially restricted as described in Note 3 - Summary of Significant Accounting Policies. During the first quarter of 2008, the Company realigned its investment portfolio away from asset-backed securities...

  • Page 113
    ..., money-market securities and time deposits. Cash primarily consists of interest-bearing deposit accounts and clearing accounts. The Company's money-market securities are invested in nine funds, all of which are AAA rated and are comprised of U.S. Treasury bills, notes or other obligations issued or...

  • Page 114
    ... charges, the amortized cost and fair value of available-for-sale investments were as follows at December 31, 2007: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Amounts in thousands) Obligations of states and political subdivisions Commercial mortgage-backed securities...

  • Page 115
    ... most senior investors, even if there have been no actual losses incurred by the collateral securities. Accumulating ratings downgrades began to negatively impact the Company's securities in late November 2007. As the Company commenced a plan to realign its portfolio during the first quarter of 2008...

  • Page 116
    ... market exposure. The Company has factored this risk into its fair value estimates, with the average price of an asset-backed security at $0.04 per dollar of par. Investment Ratings: In rating the securities in its investment portfolio, the Company uses ratings from Moody's Investor Service ("Moody...

  • Page 117
    ...of pricing used by the Company for its fair value estimates as a result of its valuation process as of December 31: 2008 (Amounts in thousands) Number of Securities Fair Value Percent Number of Securities 2007 Fair Value Percent Third party pricing service Broker pricing Internal pricing Sale price...

  • Page 118
    ... The Company historically used interest rate swaps to hedge the variability of cash flows from its floating rate debt, as well as its floating rate commission payments to financial institution customers of the Payment Systems segment, primarily relating to the official check product. In connection...

  • Page 119
    Table of Contents MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2008, the Company recognized a $6.8 million loss in "Transaction and operations support" in the Consolidated Statements of (Loss) Income related to its forward contracts, ...

  • Page 120
    ... which has been received by the Company and included in "Accounts payable and other liabilities" in the Consolidated Balance Sheets. During the fourth quarters of 2008, 2007 and 2006, the Company decided to discontinue certain software development projects and recognized an impairment charge of...

  • Page 121
    ...,337 Goodwill allocated to the Global Funds Transfer segment relates to the 2008 acquisitions of MoneyCard and Cambios Sol and the 2007 acquisition of PropertyBridge. The Company also finalized its purchase price allocation in 2007 for the Money Express acquisition completed in 2006, resulting in...

  • Page 122
    ... in the Payment Systems segment in 2007. Goodwill impairment charges are included in the "Transaction and operations support" line of the Consolidated Statements of (Loss) Income. Note 10 - Debt Following is a summary of the outstanding debt at December 31: 2008 WeightedAverage Interest Rate 2007...

  • Page 123
    ..." in the Consolidated Statements of (Loss) Income. Second Lien Notes - As part of the Capital Transaction, Worldwide issued Notes (as defined in Note 2 - Capital Transaction ) of $500.0 million to Goldman Sachs. Under the Notes, the Company has a quarterly principal payment of $0.6 million, with the...

  • Page 124
    ... noncontributory defined benefit pension plan under which no new service or compensation credits are accrued by the plan participants. Cash accumulation accounts continue to be credited with interest credits until participants withdraw their money from the Pension Plan. It is our policy to fund the...

  • Page 125
    ... of service and interest cost components Effect on postretirement benefit obligation $ 321 $ 3,331 (248) (1,746) Pension Assets - The Company employs a total return investment approach whereby a mix of equities and fixed income securities are used to maximize the long-term return of plan assets...

  • Page 126
    ... components for the years ended December 31: Pension and SERPs 2007 Postretirement Benefits 2007 2006 (Amounts in thousands) 2008 2006 2008 Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss Curtailment Net periodic...

  • Page 127
    ... 31 are as follows: (Amounts in thousands) Pension and SERPs 2008 2007 Postretirement Benefits 2008 2007 Change in benefit obligation: Benefit obligation at the beginning of the year Service cost Interest cost Actuarial (gain) or loss Plan amendments Adjustment for change in measurement date...

  • Page 128
    ... in 2008, 2007 and 2006, respectively. MoneyGram does not have an employee stock ownership plan. Employee Equity Trust - In connection with the spin-off, Viad transferred 1,632,964 shares of MoneyGram common stock to the MoneyGram International, Inc. Employee Equity Trust (the "Trust") to be used by...

  • Page 129
    ... to the participants' accounts for profit sharing contributions beyond the IRS qualified plan limits. 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 with dividend...

  • Page 130
    ... was issued with each share of MoneyGram common stock issued after the spin-off. As part of the Capital Transaction, the Company amended the Rights Agreement with Wells Fargo Bank, N.A. as rights agent to exempt the issuance of the Series B Stock from the Rights Agreement. On November 3, 2008, the...

  • Page 131
    .... No dividends were paid in 2008. Under the terms of the equity securities and debt issued in connection with the Capital Transaction, our ability to declare or pay dividends or distributions to the stockholders of the Company's common stock is severely limited. During 2007, the Company paid $16...

  • Page 132
    ... of tax obligations relating to an award, as well as previously issued shares used for payment of the exercise price or satisfaction of tax obligations relating to an award, become available for new grants through May 10, 2015. The Company plans to satisfy stock option exercises and vesting...

  • Page 133
    ... in effect at the time of grant. Compensation cost, net of expected forfeitures, is recognized using a straight-line method over the vesting or service period. The information provided in the following table is not applicable to 2008 as the Company did not grant any stock option awards. The weighted...

  • Page 134
    ... stock on the date of grant and expensed using the straight-line method over the vesting or service period of the award. Following is a summary of restricted stock activity for 2008: Total Shares Weighted Average Price Restricted stock outstanding at December 31, 2007 Granted Vested and issued...

  • Page 135
    ... recognize revenue based solely on services agreements with MPSI. Income tax (benefit) expense related to continuing operations is as follows for the year ended December 31: (Amounts in thousands) 2008 2007 2006 Current: Federal State Foreign Current income tax (benefit) expense Deferred income tax...

  • Page 136
    ... at December 31 are comprised of the following: (Amounts in thousands) 2008 2007 Deferred tax assets: Postretirement benefits and other employee benefits Tax loss carryovers Tax credit carryovers Unrealized loss on derivative financial investments Basis difference in revalued investments Bad debt...

  • Page 137
    ... of unrecognized tax benefits for 2008 is as follows: (Amounts in thousands) 2008 Balance at January 1 Additions based on tax positions related to the current year Reductions for tax positions of prior years Foreign currency translation Lapse in statute of limitations Balance at December 31...

  • Page 138
    ...Action - On April 22, 2008, Delilah Morrison, on behalf of herself and all other MoneyGram 401(k) Plan participants, brought an action in the United States District Court for the District of Minnesota. The complaint alleges claims under the Employee Retirement Income Security Act of 1974, as amended...

  • Page 139
    ..., as well as attorneys' fees and costs. In July 2008, an amended complaint was filed asserting an additional claim for declaratory relief. SEC Inquiry - By letter dated February 4, 2008, the Company received notice from the Securities and Exchange Commission ("SEC") that it is conducting an informal...

  • Page 140
    ... reportable segments: Global Funds Transfer - This segment provides global money transfer services. It also provides money orders and bill payment services to consumers through the U.S. network of agents and, in select markets, company-operated locations. Fee revenue is driven by transaction volume...

  • Page 141
    ...the year ended December 31: (Amounts in thousands) 2008 2007 2006 Revenue Global Funds Transfer: Money transfer, including bill payment Retail money order and other Payment Systems: Official check and payment processing Other Other Total revenue Operating (loss) income Global Funds Transfer Payment...

  • Page 142
    ... 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 revenue by major geographic area for the year ended December 31: (Amounts in thousands) 2008 2007 2006 United States...

  • Page 143
    Table of Contents MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 2007 Fiscal Quarters (Amounts in thousands, except per share data) First Second Third Fourth (2) Revenues Commission expense Net revenues (losses) Operating expenses, excluding...

  • Page 144
    ... Holdings Limited (United Kingdom) • MoneyGram International Limited (United Kingdom) • MIL Overseas Limited (United Kingdom) • MIL Overseas Nigeria Limited • MoneyGram Overseas (Pty) Limited South Africa • MoneyGram India Private Ltd. MoneyGram of New York LLC (Delaware) MoneyGram Payment...

  • Page 145
    ... 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, 2008. /s/ DELOITTE & TOUCHE LLP...

  • Page 146
    ...sign the Form 10-K Annual Report of MoneyGram International, Inc. for the fiscal year ended December 31, 2008, 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...agents or any of ...

  • Page 147
    ... record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ ANTHONY P. RYAN President and Chief Executive Officer Date...

  • Page 148
    ...process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ DAVID J. PARRIN Executive Vice President and Chief Financial Officer...

  • Page 149
    ... In connection with the Annual Report on Form 10-K of MoneyGram International, Inc. (the "Company") for the period ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anthony P. Ryan, President and Chief Executive Officer of the Company...

  • Page 150
    ... with the Annual Report on Form 10-K of MoneyGram International, Inc. (the "Company") for the period ended December 31, 2008, 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...