MoneyGram 2008 Annual Report Download - 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, including $2.2 million of losses reclassified from "Accumulated other comprehensive income"
upon the final settlement of the related forward contracts.
The Company is exposed to credit loss in the event of non-performance by counterparties to its derivative contracts. Collateral generally
is not required of the counterparties or of the Company. In the unlikely event a counterparty fails to meet the contractual terms of the
derivative contract, the Company's risk is limited to the fair value of the instrument. The Company actively monitors its exposure to
credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as
counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any
future instances of non-performance.
As described in Note 12 — Mezzanine Equity, the B Stock contains a conversion option allowing the stockholder to convert the B Stock
into shares of common stock. As the Certificate of Designation for the B Stock does not explicitly state that a net-cash settlement is not
required in the event the Company has insufficient shares of common stock to effect a conversion, guidance from the Securities and
Exchange Commission (the "SEC") requires the Company to presume a net-cash settlement would be required. As a result, the
conversion option met the definition of an embedded derivative requiring bifurcation and liability accounting treatment under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and related interpretative guidance to the extent the
Company did not have sufficient shares to effect a full conversion. As of March 31, 2008 and June 30, 2008, the Company had a shortfall
of committed and authorized common stock, requiring the Company to recognize an embedded derivative. On August 11, 2008, the
Investors and the Company formally clarified that the provisions of the B Stock do not allow the Investors to require the Company to net-
cash settle the conversion option if the Company does not have sufficient shares of common stock to effect a conversion. Effective with
this agreement, the B Stock conversion option no longer meets the criteria for an embedded derivative requiring bifurcation and liability
accounting treatment. Accordingly, the Company remeasured the liability through August 11, 2008 and then recorded the liability to
"Additional paid-in capital" in the third quarter of 2008. The increase in the fair value of the liability from the issuance of the B Stock
through August 11, 2008 of $16.0 million was recognized in the "Valuation loss on embedded derivatives" line in the Consolidated
Statements of (Loss) Income. There will be no further impact to the Company's Consolidated Statements of (Loss) Income as no further
remeasurement of the conversion option is required.
The Series B Stock also contain a change of control redemption option which, upon exercise, requires the Company to cash settle the par
value of the Series B Stock and any accumulated unpaid dividends at a one percent premium. As the cash settlement is made at a
premium, the change of control redemption option meets the definition of an embedded derivative requiring bifurcation and liability
accounting treatment under SFAS No. 133. The fair value of the change of control redemption option is de minimus as of December 31,
2008.
F-33