MoneyGram 2009 Annual Report Download - page 87

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the agreement with Walmart. As Walmart may elect to receive any payments under the Participation Agreement in cash, the agreement is
accounted for as a liability award. The Company will recognize a liability equal to the fair value of the Participation Agreement through a
charge to the Consolidated Statements of Loss based upon the probability that certain performance conditions will be met. The liability
will be remeasured each period until settlement, with changes in fair value recognized in the Consolidated Statements of Loss. Walmart's
ability to earn the award under the Participation Agreement is conditioned upon the Investors receiving cash payments related to the
Company's preferred stock in excess of the Investors' original investment in the Company. While it is probable that performance
conditions will be met at December 31, 2009, the fair value of the liability is zero at this time as the Company's discount rate, based on its
debt interest rates and credit rating, exceeds the dividend rate on the preferred stock.
Note 3 — 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 Sheets are unclassified due to the short-term
nature of the settlement obligations, contrasted with the ability to invest cash awaiting settlement in long-term investment securities.
During 2009, the Company reclassified its put options related to trading investments from "Other assets" to "Trading investments and
related put options (substantially restricted)" in its Consolidated Balance Sheets to reflect the interaction of the two assets. Consistent
with its classification of current tax positions, during 2009 the Company reclassified its net deferred tax positions into "Other assets" or
"Accounts payable and other liabilities" depending on the net position. The balances as of December 31, 2008 have been revised to
conform to the current presentation. These reclassifications were not material and had no impact on net loss, net cash flows from
continuing operating activities or stockholders' deficit as previously reported.
Principles of Consolidation — The consolidated financial statements include the accounts of MoneyGram International, Inc. and its
subsidiaries. Inter-company profits, transactions and account balances have been eliminated in consolidation. The Company participates
in various trust arrangements (special purpose entities or "SPEs") related to official check processing agreements with financial
institutions and structured investments within the investment portfolio.
Working in cooperation with certain financial institutions, the Company historically established separate consolidated SPEs that provided
these financial institutions with additional assurance of its ability to clear their official checks. The Company maintains control of the
assets of the SPEs and receives all investment revenue generated by the assets. The Company remains liable to satisfy the obligations of
the SPEs, both contractually and by operation of the Uniform Commercial Code, as issuer and drawer of the official checks. As the
Company is the primary beneficiary and bears the primary burden of any losses, the SPEs are consolidated in the Consolidated Financial
Statements. The assets of the SPEs are recorded in the Consolidated Balance Sheets in a manner consistent with the assets of the
Company based on the nature of the asset. 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 allocated to the Financial Paper Products
segment in the Consolidated Statement of Loss. For the years ending December 31, 2009 and 2008, the Company's SPEs had cash and
cash equivalents of $143.6 million and $281.2 million, respectively, and payment service obligations of $115.3 million and
$239.8 million, respectively.
In connection with the SPEs, the Company must maintain certain specified ratios of greater than 100 percent of segregated assets to
outstanding payment instruments. These specified ratios require the Company to contribute additional assets if the fair value of the
segregated assets is less than the outstanding payment instruments at any time. The segregated assets consist solely of cash and cash
equivalents; therefore, the Company does not anticipate a need to contribute additional assets in the future to maintain the specified ratios
as required by the SPEs. Under
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