MoneyGram 2010 Annual Report Download - page 52

Table of Contents
For our Financial Paper Products segment, we expect the decline in overall paper-based transactions to continue in 2011. As a result of
the pricing initiatives undertaken in prior years, we have reduced the commission rates paid to our official check financial institution
customers and instituted certain per item and other fees for both the official check and money order services. In addition, the historically
low interest rate environment has resulted in low or no commissions being paid to our official check financial institution customers. As a
result, we anticipate that the Financial Paper Products segment will experience some financial institution and agent attrition in 2011. We
do not believe that an increase in interest rates in 2011 will have a significant impact to our investment margin as the interest rates earned
on the substantial portion of our investment portfolio reset on a frequent basis and our pricing initiatives have helped to mitigate interest
rate risk.
We continue to see a trend among state, federal and international regulators toward enhanced scrutiny of anti-money laundering
compliance, as well as consumer fraud prevention and education. As we continue to revise our processes and enhance our technology
systems to meet regulatory trends, our operating expenses for compliance may increase.
As we implement the second phase of our global transformation initiative in 2011, we anticipate that our operating expenses will increase
in the short-term as up-front expenditures will be required to achieve the expected long-term cost savings. Based on current plans for the
second phase, we anticipate incurring cash outlays of up to $22.0 million in 2011 related to restructuring, reorganization and technology
investment activities. Up to $15.0 million of these cash outlays are anticipated to be recognized as an expense in 2011, with the remaining
portion capitalized as internally-developed software and amortized over future periods.
Acquisition and Disposal Activity
Acquisition and disposal activity is set forth in Note 3 — Acquisitions and Disposals of the Notes to Consolidated Financial Statements.
2008 Recapitalization
On March 25, 2008, we completed a series of transactions pursuant to which we received an infusion of $1.5 billion of gross equity and
debt capital to support the long-term needs of the business and provide necessary capital due to the investment portfolio losses in late
2007 and the first quarter of 2008 (the "2008 Recapitalization"). The net proceeds of the 2008 Recapitalization were used to invest in
cash equivalents to supplement our unrestricted assets and to repay $100.0 million on our revolving credit facility. For the key terms of
the equity and debt capital issued, see Note 11 — Mezzanine Equity and Note 9 — Debt of the Notes to the Consolidated Financial
Statements.
Recent Developments
On March 7, 2011, we entered into a Recapitalization Agreement with THL and Goldman Sachs pursuant to which (i) THL will convert
all of the shares of B Stock into shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of
Series B Participating Convertible Preferred Stock of MoneyGram International, Inc., (ii) Goldman Sachs will convert all of the shares of
B-1 Stock into shares of D Stock in accordance with the Certificate of Designations, Preferences and Rights of Series B-1 Participating
Convertible Preferred Stock of MoneyGram International, Inc., and (iii) THL will receive approximately 28.2 million additional shares of
our common stock and $140.8 million in cash, and Goldman Sachs will receive approximately 15,504 additional shares of D Stock
(equivalent to approximately 15.5 million shares of our common stock) and $77.5 million in cash (such transactions, collectively, the
"2011 Recapitalization"). Concurrently with entering into the Recapitalization Agreement, Worldwide and the Company entered into a
Consent Agreement with the GS Note Holders in which the parties thereto have agreed to enter into a supplemental indenture to the
indenture governing the Notes that will, among other things, amend the indenture in order to permit the 2011 Recapitalization. See
"Business-Recent Developments" in this Form 10-K for further information regarding the 2011 Recapitalization, the Recapitalization
Agreement and the Consent Agreement.
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