MoneyGram 2010 Annual Report Download - page 97

Download and view the complete annual report

Please find page 97 of the 2010 MoneyGram annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 158

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158

Table of Contents
MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 Statements of Income (Loss). For the years ending December 31, 2010 and 2009, the Company's SPEs had
cash and cash equivalents of $83.2 million and $143.6 million, respectively, and payment service obligations of $76.9 million and
$115.3 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 certain limited circumstances, the related financial institution customers have the right to either demand
liquidation of the segregated assets or to replace the Company as the administrator of the SPE. Such limited circumstances consist of
material (and in most cases continued) failure of MoneyGram to uphold its warranties and obligations pursuant to its underlying
agreements with the financial institution customers.
Certain structured investments owned by the Company represent beneficial interests in grantor trusts or other similar entities. These trusts
typically contain an investment grade security, generally a United States Treasury strip, and an investment in the residual interest in a
collateralized debt obligation, or in some cases, a limited partnership interest. For certain of these trusts, the Company owns a percentage
of the beneficial interests which results in the Company absorbing a majority of the expected losses. Therefore, the Company
consolidates these trusts by recording and accounting for the assets of the trust separately in the consolidated financial statements.
Management Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ
from those estimates.
Substantially Restricted — The Company's licensed entity MPSI is regulated by various state agencies that generally require the
Company to maintain a pool of assets with an investment rating of A or higher ("permissible investments") in an amount generally equal
to the payment service obligations, as defined by each state, for those regulated payment instruments, namely teller checks, agent checks,
money orders and money transfers. The regulatory payment service assets measure varies by state, but in all cases excludes investments
rated below A-. The most restrictive states may also exclude assets held at banks that do not belong to a national insurance program,
varying amounts of accounts receivable balances and/or assets held in one of the SPEs. 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 agencies for payment service obligations resulting from
outstanding cashier's checks or for amounts payable to agents and brokers.
F-12