XNYS:MGI Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNYS:MGI (): Fair Value Estimate
Premium
XNYS:MGI (): Consider Buying
Premium
XNYS:MGI (): Consider Selling
Premium
XNYS:MGI (): Fair Value Uncertainty
Premium
XNYS:MGI (): Economic Moat
Premium
XNYS:MGI (): Stewardship
Premium
 
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(mark one)

    x     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the Quarterly Period Ended June 30, 2012

 

    ¨     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from         to         .

Commission File Number: 001-31950

 

 

MONEYGRAM INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   16-1690064

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2828 N. Harwood St., 15th Floor

Dallas, Texas

  75201
(Address of principal executive offices)   (Zip Code)

(214) 999-7552

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer    ¨    Accelerated filer    x
Non-accelerated filer    ¨  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 6, 2012, 57,856,925 shares of common stock, $0.01 par value, were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION   

Item 1. Financial Statements

     3   

Consolidated Balance Sheets

     3   

Consolidated Statements of (Loss) Income

     4   

Consolidated Statements of Comprehensive (Loss) Income

     5   

Consolidated Statements of Cash Flows

     6   

Consolidated Statement of Stockholders’ Deficit

     7   

Notes to Consolidated Financial Statements

     8   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     36   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     50   

Item 4. Controls and Procedures

     50   
PART II. OTHER INFORMATION   

Item 1. Legal Proceedings

     50   

Item 1A. Risk Factors

     52   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     52   

Item 6. Exhibits

     53   

Signatures

     54   

Exhibit Index

     55   

EX-31.1

  
EX-31.2   
EX-32.1   
EX-32.2   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

UNAUDITED

 

(Amounts in thousands, except share data)

   June 30,
2012
    December 31,
2011
 

ASSETS

    

Cash and cash equivalents

   $ —        $ —     

Cash and cash equivalents (substantially restricted)

     2,548,257        2,572,174   

Receivables, net (substantially restricted)

     1,266,882        1,220,065   

Short-term investments (substantially restricted)

     524,055        522,024   

Available-for-sale investments (substantially restricted)

     85,281        102,771   

Property and equipment

     117,032        116,341   

Goodwill

     428,691        428,691   

Other assets

     214,864        213,512   
  

 

 

   

 

 

 

Total assets

   $ 5,185,062      $ 5,175,578   
  

 

 

   

 

 

 

LIABILITIES

    

Payment service obligations

   $ 4,155,880      $ 4,205,375   

Debt

     810,365        810,888   

Pension and other postretirement benefits

     116,353        120,252   

Accounts payable and other liabilities

     218,567        149,261   
  

 

 

   

 

 

 

Total liabilities

     5,301,165        5,285,776   

COMMITMENTS AND CONTINGENCIES (NOTE 13)

    

STOCKHOLDERS’ DEFICIT

    

Participating Convertible Preferred Stock - Series D, $0.01 par value, 200,000 shares authorized, 109,239 issued at June 30, 2012 and December 31, 2011, respectively

     281,898        281,898   

Common Stock, $0.01 par value, 162,500,000 shares authorized, 62,263,963 shares issued at June 30, 2012 and December 31, 2011, respectively

     623        623   

Additional paid-in capital

     994,076        989,188   

Retained loss

     (1,231,304     (1,216,543

Accumulated other comprehensive loss

     (34,657     (38,028

Treasury stock: 4,407,038 and 4,429,184 shares at June 30, 2012 and December 31, 2011, respectively

     (126,739     (127,336
  

 

 

   

 

 

 

Total stockholders’ deficit

     (116,103     (110,198
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 5,185,062      $ 5,175,578   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

3


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

UNAUDITED

 

      Three Months Ended June 30,     Six Months Ended June 30,  

(Amounts in thousands, except per share data)

   2012     2011     2012     2011  

REVENUE

        

Fee and other revenue

   $ 326,706      $ 304,074      $ 641,624      $ 594,083   

Investment revenue

     3,436        5,879        6,613        9,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     330,142        309,953        648,237        603,977   

EXPENSES

        

Fee and other commissions expense

     146,673        135,561        288,588        264,621   

Investment commissions expense

     103        111        180        251   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total commissions expense

     146,776        135,672        288,768        264,872   

Compensation and benefits

     59,030        57,913        118,094        117,208   

Transaction and operations support

     98,008        58,594        156,222        109,003   

Occupancy, equipment and supplies

     12,142        11,637        24,353        23,390   

Depreciation and amortization

     11,053        11,879        21,736        23,545   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     327,009        275,695        609,173        538,018   
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING INCOME

     3,133        34,258        39,064        65,959   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (income) expense

        

Net securities gains

     —          (32,816     —          (32,816

Interest expense

     17,637        22,873        35,520        43,486   

Other

     347        14,856        347        14,856   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses, net

     17,984        4,913        35,867        25,526   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (14,851     29,345        3,197        40,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

     10,205        2,941        17,984        (16
  

 

 

   

 

 

   

 

 

   

 

 

 

NET (LOSS) INCOME

   $ (25,056   $ 26,404      $ (14,787   $ 40,449   
  

 

 

   

 

 

   

 

 

   

 

 

 

LOSS PER COMMON SHARE

        

Basic and diluted

   $ (0.35   $ (10.97   $ (0.21   $ (18.10

Net loss available to common stockholders:

        

Net (loss) income as reported

   $ (25,056   $ 26,404      $ (14,787   $ 40,449   

Accrued dividends on mezzanine equity

     —          —          —          (30,934

Accretion on mezzanine equity

     —          (77,465     —          (80,023

Additional consideration issued in connection with conversion of mezzanine equity

     —          (366,797     —          (366,797

Cash dividends paid on mezzanine equity

     —          (20,477     —          (20,477
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss available to common stockholders

   $ (25,056   $ (438,335   $ (14,787   $ (457,782
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average outstanding common shares and equivalents used in computing earnings per share

        

Basic and diluted

     71,502        39,959        71,496        25,288   

See Notes to Consolidated Financial Statements

 

4


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

UNAUDITED

 

     Three Months Ended June 30,     Six Months Ended June 30,  

(Amounts in thousands)

   2012     2011     2012     2011  

NET (LOSS) INCOME

   $ (25,056   $ 26,404      $ (14,787   $ 40,449   

OTHER COMPREHENSIVE (LOSS) INCOME

        

Net unrealized gains on available-for-sale securities:

        

Net holding gains arising during the period, net of tax expense of $53 and $0 for the three months ended June 30, 2012 and 2011, respectively and $585 and $0 for the six months ended June 30, 2012 and 2011, respectively

     434        3,083        1,408        5,028   

Reclassification adjustment for net realized losses included in net income, net of tax benefit of $0 for the three and six months ended June 30, 2012 and 2011, respectively

     —          4        —          4   
  

 

 

   

 

 

   

 

 

   

 

 

 
     434        3,087        1,408        5,032   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pension and postretirement benefit plans:

        

Reclassification of prior service credit recorded to net income, net of tax expense of $56 and $57 for the three months ended June 30, 2012 and 2011, respectively, and $113 and $114 for the six months ended June 30, 2012 and 2011, respectively

     (93     (92     (185     (185

Reclassification of net actuarial loss recorded to net income, net of tax benefit of $595 and $620, for the three months ended June 30, 2012 and 2011, respectively, and $1,191 and $1,242 for the six months ended June 30, 2012 and 2011, respectively

     972        1,012        1,944        2,024   

Unrealized foreign currency translation (losses) gains, net of tax (benefit) expense of $(1,127) and $205 for the three months ended June 30, 2012 and 2011, respectively, and $125 and $648 for the six months ended June 30, 2012 and 2011, respectively

     (1,839     334        204        1,058   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (526     4,341        3,371        7,929   
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE (LOSS) INCOME

   $ (25,582   $ 30,745      $ (11,416   $ 48,378   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

5


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

     Three Months Ended June 30,     Six Months Ended June 30,  

(Amounts in thousands)

   2012     2011     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

        

Net (loss) income

   $ (25,056   $ 26,404      $ (14,787   $ 40,449   

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

        

Depreciation and amortization

     11,053        11,879        21,736        23,545   

Net securities gains

     —          (32,820     —          (32,820

Asset impairments and net losses upon disposal

     230        4,254        477        3,972   

Loss on debt extinguishment

     —          5,221        —          5,221   

Amortization of debt discount and deferred financing costs

     1,397        2,806        2,794        4,397   

Provision for uncollectible receivables

     1,517        549        2,980        1,898   

Non-cash compensation and pension expense

     3,976        5,771        9,307        12,693   

Legal accruals

     38,034        —          38,034        —     

Other non-cash items, net

     1,063        (299     (420     156   

Changes in foreign currency translation adjustments

     (1,839     335        204        1,058   

Signing bonus amortization

     8,041        8,119        16,384        16,067   

Signing bonus payments

     (1,406     (6,025     (6,340     (12,803

Change in other assets

     1,349        (12,433     1,807        (8,194

Change in accounts payable and other liabilities

     19,844        16,067        15,414        (3,761
  

 

 

   

 

 

   

 

 

   

 

 

 

Total adjustments

     83,259        3,424        102,377        11,429   

Change in cash and cash equivalents (substantially restricted)

     (1,007     90,343        23,917        180,275   

Change in receivables (substantially restricted)

     (57,893     (68,771     (49,797     (44,746

Change in payment service obligations

     3,276        97,696        (49,495     (41,775
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     2,579        149,096        12,215        145,632   
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

        

Proceeds from maturities of investments classified as available-for-sale (substantially restricted)

     8,447        14,281        19,267        31,743   

Proceeds from settlement of investments

     —          19,221        —          19,221   

Purchases of short-term investments (substantially restricted)

     (112,733     (111,259     (324,489     (316,700

Proceeds from maturities of short-term investments (substantially restricted)

     113,525        5,316        323,638        205,816   

Purchases of property and equipment

     (11,663     (15,217     (30,295     (24,190

Proceeds from disposal of property and equipment

     219        —          391        —     

Cash paid for acquisitions, net of cash acquired

     —          (53     —          (53
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (2,205     (87,711     (11,488     (84,163
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

        

Proceeds from issuance of debt

     —          389,025        —          389,025   

Transaction costs for issuance and amendment of debt

     —          (17,062     —          (17,062

Payments on debt

     (375     (191,250     (750     (191,250

Additional consideration issued in connection with conversion of mezzanine equity

     —          (218,333     —          (218,333

Transaction costs for the conversion and issuance of stock

     —          (3,469     —          (3,736

Cash dividends paid on mezzanine equity

     —          (20,477     —          (20,477

Proceeds from exercise of stock options

     1        181        23        364   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (374     (61,385     (727     (61,469
  

 

 

   

 

 

   

 

 

   

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

     —          —          —          —     

CASH AND CASH EQUIVALENTS - Beginning of period

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS - End of period

   $ —        $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

6


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

UNAUDITED

 

(Amounts in thousands)

   Preferred
Stock
     Common
Stock
     Additional
Paid-In
Capital
     Retained
Loss
    Accumulated
Other
Comprehensive

Loss
    Treasury
Stock
    Total  

December 31, 2011

   $ 281,898       $ 623       $ 989,188       $ (1,216,543   $ (38,028   $ (127,336   $ (110,198

Net loss

              (14,787         (14,787

Employee benefit plans

     —           —           4,541         26        —          597        5,164   

Capital contribution from investors

     —           —           347         —          —          —          347   

Net unrealized gain on available-for-sale securities, net of tax

     —           —           —           —          1,408        —          1,408   

Amortization of prior service cost for pension and postretirement benefits, net of tax

     —           —           —           —          (185     —          (185

Amortization of unrealized losses on pension and postretirement benefits, net of tax

     —           —           —           —          1,944        —          1,944   

Unrealized foreign currency translation adjustment

     —           —           —           —          204        —          204   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2012

   $ 281,898       $ 623       $ 994,076       $ (1,231,304   $ (34,657   $ (126,739   $ (116,103
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

 

7


Table of Contents

MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements of MoneyGram International, Inc. (“MoneyGram” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for future periods. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Participation Agreement between the Investors and Walmart Stores, Inc. — As previously disclosed, affiliates of Thomas H. Lee Partners, L.P. (“THL”) and affiliates of Goldman, Sachs & Co. (“Goldman Sachs” and collectively with THL, the “Investors”) have a Participation Agreement with Walmart Stores, Inc. (“Walmart”), under which the Investors are obligated to pay Walmart certain percentages of any accumulated cash payments received by the Investors in excess of the Investors’ original investment in the Company. While the Company is not a party to, and has no obligations to Walmart or additional obligations to the Investors under the Participation Agreement, the Company must recognize the Participation Agreement in its consolidated financial statements as the Company indirectly benefits from the agreement. A liability and the related expense associated with the Participation Agreement are recognized by the Company in the period in which it becomes probable that a liquidity event will occur that would require the Investors to make a payment to Walmart (a “liquidity event”). Upon payment by the Investors to Walmart, the liability is released through a credit to the Company’s additional paid-in capital.

During the three months ended June 30, 2012, one of the Investors sold all of its common stock to an unrelated third-party, resulting in cumulative participation securities payments in excess of its original investment basis. As of June 30, 2012, the performance condition for only this Investor has been achieved. The Investor paid $0.3 million to Walmart for settlement in full of its obligation under the Participation Agreement. As a result, the Company has recognized expense and a corresponding increase to additional paid-in capital during the three and six months ended June 30, 2012.

Any future payments by the Investors to Walmart may result in expense that could be material to the Company’s financial position or results of operations, but would have no impact on the Company’s cash flows. As liquidity events are dependent on many external factors and uncertainties, the Company does not consider a liquidity event to be probable at this time for any other Investors, and has not recognized any further liability or expense related to the Participation Agreement.

Note 2 — Assets in Excess of Payment Service Obligations

The following table shows the amount of assets in excess of payment service obligations at June 30, 2012 and December 31, 2011:

 

     June 30,     December 31,  

(Amounts in thousands)

   2012     2011  

Cash and cash equivalents (substantially restricted)

   $ 2,548,257      $ 2,572,174   

Receivables, net (substantially restricted)

     1,266,882        1,220,065   

Short-term investments (substantially restricted)

     524,055        522,024   

Available-for-sale investments (substantially restricted)

     85,281        102,771   
  

 

 

   

 

 

 
     4,424,475        4,417,034   

Payment service obligations

     (4,155,880     (4,205,375
  

 

 

   

 

 

 

Assets in excess of payment service obligations

   $ 268,595      $ 211,659   
  

 

 

   

 

 

 

The Company was in compliance with its contractual and financial regulatory requirements as of June 30, 2012 and December 31, 2011.

 

8


Table of Contents

Note 3 — Fair Value Measurement

The following tables set forth the Company’s financial assets and liabilities measured at fair value by hierarchy level:

 

     Fair Value at June 30, 2012  

(Amounts in thousands)

   Level 1      Level 2      Level 3      Total  

Financial assets:

           

Available-for-sale investments (substantially restricted):

           

United States government agencies

   $ —         $ 8,970       $ —         $ 8,970   

Residential mortgage-backed securities - agencies

     —           49,614         —           49,614   

Other asset-backed securities

     —           —           26,697         26,697   

Investment related to deferred compensation trust

     8,327         —           —           8,327   

Forward contracts

     —           1,423         —           1,423   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 8,327       $ 60,007       $ 26,697       $ 95,031   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Forward contracts

   $ —         $ 214       $ —         $ 214   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value at December 31, 2011  

(Amounts in thousands)

   Level 1      Level 2      Level 3      Total  

Financial assets:

           

Available-for-sale investments (substantially restricted):

           

United States government agencies

   $ —         $ 8,827       $ —         $ 8,827   

Residential mortgage-backed securities - agencies

     —           69,712         —           69,712   

Other asset-backed securities

     —           —           24,232         24,232   

Investment related to deferred compensation trust

     8,118         —           —           8,118   

Forward contracts

     —           399         —           399   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ 8,118       $ 78,938       $ 24,232       $ 111,288   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

           
  

 

 

    

 

 

    

 

 

    

 

 

 

Forward contracts

   $ —         $ 46       $ —         $ 46   
  

 

 

    

 

 

    

 

 

    

 

 

 

For other asset–backed securities, market quotes are generally not available. If available, the Company will utilize a fair value measurement from a pricing service. The pricing service utilizes a pricing model based on market observable data and indices, such as quotes for comparable securities, yield curves, default indices, interest rates and historical prepayment speeds. If a fair value measurement is not available from the pricing service, the Company will utilize a broker quote if available. Due to a general lack of transparency in the process that the brokers use to develop prices, most valuations that are based on brokers’ quotes are classified as Level 3. If no broker quote is available, or if such quote cannot be corroborated by market data or internal valuations, the Company will perform internal valuations utilizing externally developed cash flow models. These pricing models are based on market observable spreads and, when available, observable market indices. The pricing models also use inputs such as the rate of future prepayments and expected default rates on the principal, which are derived by the Company based on the characteristics of the underlying structure and historical prepayment speeds experienced at the interest rate levels projected for the underlying collateral. The pricing models for certain asset–backed securities also include significant non–observable inputs such as internally assessed credit ratings for non–rated securities, combined with externally provided credit spreads. Observability of market inputs to the valuation models used for pricing certain of the Company’s investments deteriorated with the disruption to the credit markets as

 

9


Table of Contents

overall liquidity and trading activity in these sectors has been substantially reduced. Accordingly, securities valued using a pricing model have consistently been classified as Level 3 financial instruments. Following is a summary of the unobservable inputs used in Other asset-backed securities classified as Level 3:

 

            June 30, 2012     December 31, 2011  

(Amounts in thousands)

  Unobservable
Input
    Pricing   Source   Market
Value
    Net
Average
Price
    Market
Value
    Net
Average
Price
 

Alt-A

  Price   Third-party pricing service   $ 151      $ 12.90      $ 210      $ 14.57   

Home Equity

  Price   Third-party pricing service     199        39.99        185        23.35   

Bank Loans and Trust Preferred

  Price   Broker     5        0.01        4        0.01   

Direct Exposure to Subprime

  Price   Third-party pricing service     38        0.89        61        0.86   

Indirect Exposure - High Grade

  Discount margin   Manual     3,849        3.2        3,776        3.14   

Indirect Exposure - Mezzanine

  Price   Broker     15,671        6.95        13,010        5.63   

Other

  Discount margin   Manual     6,784        36.41        6,986        37.5   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

      $ 26,697      $ 6.16      $ 24,232      $ 5.49   
     

 

 

   

 

 

   

 

 

   

 

 

 

The table below provides a roll-forward of the “Other asset-backed securities,” the only financial assets classified in Level 3, which are measured at fair value on a recurring basis, for the three and six months ended June 30, 2012 and 2011:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Beginning balance

   $ 25,397      $ 26,340      $ 24,232      $ 23,710   

Principal paydowns

     (70     (94     (134     (504

Other-than-temporary impairments

     —          (4     —          (4

Unrealized gains - instruments still held at the reporting date

     1,657        5,436        3,707        9,529   

Unrealized losses - instruments still held at the reporting date

     (287     (2,004     (1,108     (3,057
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 26,697      $ 29,674      $ 26,697      $ 29,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Realized gains and losses and other-than-temporary impairments related to these available-for-sale investment securities are reported in the “Net securities gains” line in the Consolidated Statements of (Loss) Income while unrealized gains and losses related to available-for-sale securities are recorded in accumulated other comprehensive loss in stockholders’ deficit.

Assets and liabilities that are disclosed at fair value

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is estimated using market quotations, where available, credit ratings, observable market indices and other market data (Level 2). As of June 30, 2012, the fair value of the senior secured facility is $479.1 million compared to the carrying value of $485.4 million. As of June 30, 2012, the fair value of the Company’s second lien notes is estimated at $337.2 million compared to a carrying value of $325.0 million. As of December 31, 2011, the fair value of the senior secured facility was $479.8 million compared to the carrying value of $489.6 million. As of December 31, 2011 the fair value of the Company’s second lien notes was estimated at $335.6 million compared to a carrying value of $325.0 million.

Note 4 — Investment Portfolio

Components of the Company’s investment portfolio are as follows:

 

(Amounts in thousands)

   June 30,
2012
     December 31,
2011
 

Cash

   $ 2,126,441       $ 2,016,451   

Money markets

     421,794         555,659   

Deposits

     22         64   
  

 

 

    

 

 

 

Cash and cash equivalents (substantially restricted)

     2,548,257         2,572,174   

Short-term investments (substantially restricted)

     524,055         522,024   

Available-for-sale investments (substantially restricted)

     85,281         102,771   
  

 

 

    

 

 

 

Total investment portfolio

   $ 3,157,593       $ 3,196,969   
  

 

 

    

 

 

 

Cash and Cash Equivalents (substantially restricted) — Cash and cash equivalents consist of cash, money-market securities and deposits. Cash primarily consists of interest-bearing deposit accounts and non-interest bearing transaction accounts. The Company’s money-market securities are invested in six funds, all of which are AAA rated and consist of United States Treasury bills, notes or other obligations issued or guaranteed by the United States government and its agencies, as well as repurchase agreements secured by such instruments. Deposits consist of a time deposits with original maturities of three months or less, and are issued from financial institutions that are rated BBB or better as of the date of this filing.

 

10


Table of Contents

Short-term Investments (substantially restricted) — Short-term investments consist of time deposits and certificates of deposit with original maturities of greater than three months but no more than twelve months, and are issued from financial institutions rated AA- or better as of the date of this filing.

Available-for-sale Investments (substantially restricted) — Available-for-sale investments consist of mortgage-backed securities, asset-backed securities and agency debenture securities. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments are as follows at June 30, 2012:

 

     June 30, 2012  

(Amounts in thousands, except net average price)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
     Net
Average
Price
 

Residential mortgage-backed securities-agencies

   $ 45,828       $ 3,786       $ —         $ 49,614       $ 109.04   

Other asset-backed securities

     8,615         18,082         —           26,697         6.16   

United States government agencies

     7,959         1,011         —           8,970         99.67   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 62,402       $ 22,879       $ —         $ 85,281       $ 17.48   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments were as follows at December 31, 2011:

 

     December 31, 2011  

(Amounts in thousands, except net average price)

   Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair Value      Net
Average
Price
 

Residential mortgage-backed securities - agencies

   $ 65,211       $ 4,501       $ —         $ 69,712       $ 107.63   

Other asset-backed securities

     8,951         15,281         —           24,232         5.49   

United States government agencies

     7,723         1,104         —           8,827         98.08   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 81,885       $ 20,886       $ —         $ 102,771       $ 21.83   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012 and December 31, 2011, approximately 69 percent and 76 percent, respectively, of the available-for-sale portfolio are invested in debentures of United States government agencies or securities collateralized by United States government agency debentures. These securities have the implicit backing of the United States government, and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments. The “Other asset-backed securities” continue to have market exposure, as factored into the fair value estimates, with the average price of an asset-backed security at $0.06 per dollar of par at June 30, 2012.

Gains and Losses and Other-Than-Temporary Impairments — At June 30, 2012 and December 31, 2011, net unrealized gains of $22.9 million and $21.5 million, respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During the three and six months ended June 30, 2012, no losses were reclassified from “Accumulated other comprehensive (loss) income” to “Net securities gains” in connection with other-than-temporary impairments and realized gains and losses recognized during the period. During the second quarter of 2011, the Company recognized settlements of $32.8 million, equal to all of the outstanding principal from two securities classified in “Other asset-backed securities.” These securities had previously been written down to a nominal fair value, resulting in a realized gain of $32.8 million recorded in “Net securities gains” in the Consolidated Statements of (Loss) Income. “Net securities gains” were as follows:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011       2012        2011  

Realized gains from available-for-sale investments

   $ —         $ (32,820   $ —         $ (32,820

Other-than-temporary impairments from available-for-sale investments

     —           4        —           4   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net securities gains

   $ —         $ (32,816   $ —         $ (32,816
  

 

 

    

 

 

   

 

 

    

 

 

 

 

11


Table of Contents

Investment Ratings — In rating the securities in its investment portfolio, the Company uses ratings from Moody’s Investor Service (“Moody’s”), Standard & Poors (“S&P”) and Fitch Ratings (“Fitch”). If the rating agencies have split ratings, the Company uses the highest rating across the rating agencies for disclosure purposes. Securities issued or backed by United States government agencies are included in the AAA rating category. Investment grade is defined as a security having a Moody’s equivalent rating of Aaa, Aa, A or Baa or an S&P or Fitch equivalent rating of AAA, AA, A or BBB. The Company’s investments at June 30, 2012 and December 31, 2011 consisted of the following ratings:

 

     June 30, 2012     December 31, 2011  

(Dollars in thousands)

   Number of
Securities
     Fair
Value
     Percent of
Investments
    Number of
Securities
     Fair Value      Percent of
Investments
 

AAA, including United States agencies

     20       $ 58,275         68     24       $ 78,267         76

Below investment grade

     58         27,006         32     60         24,504         24
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

     78       $ 85,281         100     84       $ 102,771         100
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Had the Company used the lowest rating from the rating agencies in the information presented above, there would be no change to investments rated A or better at June 30, 2012, and less than a $0.1 million change at December 31, 2011.

Contractual Maturities — The amortized cost and fair value of available-for-sale securities at June 30, 2012 and December 31, 2011, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties. Maturities of mortgage-backed and other asset-backed securities depend on the repayment characteristics and experience of the underlying obligations.

 

     June 30, 2012      December 31, 2011  

(Amounts in thousands)

   Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

One year or less

   $ 1,000       $ 1,023       $ —         $ —     

After one year through five years

     6,959         7,948         7,723         8,827   

Mortgage-backed and other asset-backed securities

     54,443         76,310         74,162         93,944   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 62,402       $ 85,281       $ 81,885       $ 102,771   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value Determination — The Company uses various sources of pricing for its fair value estimates of its available-for-sale portfolio. The percentage of the portfolio for which the various pricing sources were used is as follows at June 30, 2012 and December 31, 2011: 60 percent and 69 percent, respectively, used a third party pricing service; 18 percent and 13 percent, respectively, used broker pricing; and 22 percent and 18 percent, respectively, used internal pricing.

Assessment of Unrealized Losses — The Company had no unrealized losses in its available-for-sale portfolio at June 30, 2012 and at December 31, 2011.

Note 5 — Derivative Financial Instruments

The Company uses forward contracts to manage its foreign currency needs and exchange risk arising from its assets and liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as hedges for accounting purposes.

The “Transaction and operations support” line in the Consolidated Statements of (Loss) Income includes the following losses (gains) related to assets and liabilities denominated in foreign currencies:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Net realized foreign currency losses (gains)

   $ 5,630      $ (2,130   $ 1,144        (8,720

Net (gains) losses from the related forward contracts

     (5,267     4,440        (1,302     12,525   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net losses (gains) from foreign currency transactions and related forward contracts

   $ 363      $ 2,310      $ (158   $ 3,805   
  

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2012 and December 31, 2011, the Company had $81.6 million and $65.5 million, respectively, of outstanding notional amounts relating to its forward contracts. At June 30, 2012 and December 31, 2011, the Company reflects the following fair values of derivative forward contract instruments in its Consolidated Balance Sheets:

 

            Derivative Assets      Derivative Liabilities  

(Amounts in thousands)

   Balance Sheet
Location
     June 30,
2012
     December 31,
2011
     June 30,
2012
     December 31,
2011
 

Forward contracts

     Other liabilities       $ 1,423       $ —         $ 214       $ —     
     

 

 

    

 

 

    

 

 

    

 

 

 

Forward contracts

     Other assets       $ —         $ 399       $ —         $ 46   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

12


Table of Contents

Note 6 — Property and Equipment

Property and equipment consists of the following at June 30, 2012 and December 31, 2011:

 

(Amounts in thousands)

   June 30,
2012
    December 31,
2011
 

Computer hardware and software

   $ 209,832      $ 196,168   

Signage

     83,801        80,303   

Agent equipment

     69,121        69,643   

Office furniture and equipment

     36,062        36,733   

Leasehold improvements

     24,878        27,562   

Land

     410        410   
  

 

 

   

 

 

 
     424,104        410,819   

Accumulated depreciation

     (307,072     (294,478
  

 

 

   

 

 

 

Total property and equipment

   $ 117,032      $ 116,341   
  

 

 

   

 

 

 

Depreciation expense for the three and six months ended June 30, 2012 and 2011 is as follows:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011      2012      2011  

Computer hardware and software

   $ 5,492       $ 5,373       $ 10,554       $ 10,783   

Signage

     2,980         2,381         5,750         4,652   

Agent equipment

     1,042         1,815         2,121         3,619   

Office furniture and equipment

     875         1,005         1,776         1,977   

Leasehold improvements

     591         963         1,300         1,836   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total depreciation expense

   $ 10,980       $ 11,537       $ 21,501       $ 22,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012 and December 31, 2011, there were $2.9 million and $9.9 million, respectively, of property and equipment that had been received by the Company and included in “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

During the three and six months ended June 30, 2012, the Company recognized disposal losses of $0.4 million and $0.7 million, respectively, on furniture and equipment related to the closing of two office locations. The losses were recorded in the “Occupancy, equipment and supplies” line in the Consolidated Statements of (Loss) Income.

Following its decision to sell land in 2011, the Company recognized a $2.3 million impairment during the second quarter of 2011 in the “Other” line in the Consolidated Statements of (Loss) Income.

 

13


Table of Contents

Note 7 — Intangible Assets

Intangible assets consist of the following:

 

     June 30, 2012      December 31, 2011  

(Amounts in thousands)

   Gross
Carrying
Value
     Accumulated
Amortization
    Net
Carrying
Value
     Gross
Carrying
Value
     Accumulated
Amortization
    Net
Carrying
Value
 

Amortized intangible assets:

               

Customer lists

   $ 3,835       $ (2,819   $ 1,016       $ 7,272       $ (6,074   $ 1,198   

Non-compete agreements

     137         (108     29         137         (68     69   

Trademarks and license

     636         (1     635         597         (1     596   

Developed technology

     146         (117     29         146         (100     46   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 4,754       $ (3,045   $ 1,709       $ 8,152       $ (6,243   $ 1,909   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

In the second quarter of 2011, the Company acquired the agent contracts of a former Spain super-agent for a purchase price of $1.0 million. The acquisition of these agent contracts provided the Company with further network expansion in its money transfer business in its Global Funds Transfer segment. The agent contracts are amortized over a life of four years.

In connection with disposition activity, the Company recognized an impairment charge of $1.8 million in the second quarter of 2011, for certain agent contracts utilized in our Global Funds transfer segment, as recorded in the “Other” line in the Consolidated Statements of (Loss) Income.

Intangible asset amortization expense was $0.1 million and $0.2 million for the three and six months ended June 30, 2012, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2011, respectively.

As of June 30, 2012, the estimated future intangible asset amortization expense is as follows (amounts in thousands):

 

Year 1

   $ 313   

Year 2

     215   

Year 3

     188   

Year 4

     64   

Year 5

     64   

Thereafter

     231   
  

 

 

 

Total

   $ 1,075   
  

 

 

 

Note 8 — Debt

Following is a summary of the Company’s outstanding debt at June 30, 2012:

 

     2011 Credit Agreement              

(Amounts in thousands)

   Senior secured
credit facility
due 2017
    Senior secured
incremental term
loan due 2017
    Second Lien
Notes

due 2018
    Total Debt  

Balance at December 31, 2011

   $ 339,232      $ 146,656      $ 325,000      $ 810,888   

Payments

     —          (750     —          (750

Accretion of discount

     65        162        —          227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 339,297      $ 146,068      $ 325,000      $ 810,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average interest rate

     4.36     4.38     13.25  
  

 

 

   

 

 

   

 

 

   

2008 Senior Facility — In connection with the Company’s recapitalization transaction in May 2011 (the “2011 Recapitalization”), the 2008 senior facility was terminated. Prior to the termination, the Company was able to elect an interest rate for the 2008 senior facility at each reset period based on the JP Morgan prime bank rate or the Eurodollar rate. During the six months ended June 30, 2011, the Company elected the JP Morgan prime bank rate as its interest basis. The Company recognized $0.2 million of discount accretion through the “Interest expense” line in the Consolidated Statements of Income during the six months ending June 30, 2011.

2011 Credit Agreement — The Company may elect an interest rate under the agreement governing the Company’s senior secured credit facility (the “2011 Credit Agreement”) at each reset period based on the Bank of America (“BOA”) prime bank rate or the Eurodollar rate. The interest rate election may be made individually for the term loan, incremental term loan and each draw under the revolving credit facility. The interest rate is either the BOA prime rate plus 225 basis points or the Eurodollar rate plus

 

14


Table of Contents

300 basis points. Since inception of the 2011 Credit Agreement, the Company elected the Eurodollar rate as its primary interest basis, with a minimal amount of the term debt at the BOA alternate base rate. Under the terms of the 2011 Credit Agreement, the interest rate determined using the Eurodollar rate has a minimum rate of 1.25 percent.

Fees on the daily unused availability under the revolving credit facility are 62.5 basis points. Substantially all of the Company’s non-financial assets are pledged as collateral for the loans under the 2011 Credit Agreement, with the collateral guaranteed by the Company’s material domestic subsidiaries. The non-financial assets of the material domestic subsidiaries are pledged as collateral for these guarantees. As of June 30, 2012, the Company had $137.3 million of availability under the revolving credit facility, net of $12.7 million of outstanding letters of credit that reduce the amount available. At June 30, 2012 there were no amounts outstanding under the revolving credit facility.

Amortization of the debt discount for each of the three and six months ended June 30, 2011 includes a pro-rata write-off of $0.1 million as a result of the term debt prepayment. Following is the debt discount amortization recorded in “Interest expense” in the Consolidated Statements of (Loss) Income for the three months and six months ended June 30:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011      2012      2011  

Amortization of debt discount

   $ 117       $ 93       $ 227       $ 237   

Write-off of debt discount upon prepayments

     —           123         —           123   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total amortization of discount

   $ 117       $ 216       $ 227       $ 360   
  

 

 

    

 

 

    

 

 

    

 

 

 

Second Lien Notes —Prior to the fifth anniversary, the Company may redeem some or all of the second lien notes at a price equal to 100 percent of the principal, plus any accrued and unpaid interest plus a premium equal to the greater of one percent or an amount calculated by discounting the sum of (a) the redemption payment that would be due upon the fifth anniversary plus (b) all required interest payments due through such fifth anniversary using the treasury rate plus 50 basis points. Starting with the fifth anniversary, the Company may redeem some or all of the second lien notes at prices expressed as a percentage of the outstanding principal amount of the second lien notes plus accrued and unpaid interest, starting at approximately 107 percent on the fifth anniversary, decreasing to 100 percent on or after the eighth anniversary. Upon a change of control, the Company is required to make an offer to repurchase the second lien notes at a price equal to 101 percent of the principal amount plus accrued and unpaid interest. The Company is also required to make an offer to repurchase the second lien notes with proceeds of certain asset sales that have not been reinvested in accordance with the terms of the second lien notes or have not been used to repay certain debt.

Inter-creditor Agreement — In connection with the above financing arrangements, both the lenders under the 2011 Credit Agreement and the trustee on behalf of the holders of the second lien notes entered into an inter-creditor agreement under which the lenders and trustee have agreed to waive certain rights and limit the exercise of certain remedies available to them for a limited period of time, both before and following a default under the financing arrangements.

Debt Covenants and Other Restrictions — Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness; create or incur additional liens; effect mergers and consolidations; make certain acquisitions; sell assets or subsidiary stock; pay dividends and other restricted payments; invest in certain assets; and effect loans, advances and certain other transactions with affiliates. In addition, the 2011 Credit Agreement has a covenant that places limitations on the use of proceeds from borrowings under the facility.

 

15


Table of Contents

The indenture governing the second lien notes contains a financial covenant requiring the Company to maintain a minimum liquidity ratio of at least 1:1 for certain assets to outstanding payment service obligations. The 2011 Credit Agreement also has quarterly financial covenants to maintain the following interest coverage and total leverage ratios:

 

      Interest
Coverage
Minimum
Ratio
     Total
Leverage
Not To
Exceed
 

Present through September 30, 2012

     2.00:1         4.75:1   

December 31, 2012 through September 30, 2013

     2.15:1         4.625:1   

December 31, 2013 through September 30, 2014

     2.15:1         4.375:1   

December 31, 2014 through September 30, 2015

     2.25:1         4.00:1   

December 31, 2015 through September 30, 2016

     2.25:1         3.75:1   

December 31, 2016 through maturity

     2.25:1         3.50:1   

At June 30, 2012, the Company is in compliance with its financial covenants.

Deferred Financing Costs — During the three months ended June 30, 2011, the Company capitalized financing costs of $12.8 million associated with the 2011 Credit Agreement and $5.0 million for the amendment of the indenture governing the second lien notes. These costs were capitalized in “Other assets” in the Consolidated Balance Sheets and are being amortized over the term of the related debt using the effective interest method.

Amortization is recorded in “Interest expense” in the Consolidated Statements of Income. Following is a summary of the deferred financing costs at June 30, 2012:

 

     2011 Credit Agreement              

(Amounts in thousands)

   Senior secured
credit facility
    Senior secured
incremental term
    Senior revolving
credit facility
    Second Lien
Notes
    Total Deferred
Financing Costs
 

Balance at December 31, 2011

   $ 6,882      $ 3,092      $ 3,523      $ 16,649      $ 30,146   

Amortization of deferred financing costs

     (586     (266     (402     (1,299     (2,553

Write-off of deferred financing costs

     —          (14     —          —          (14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 6,296      $ 2,812      $ 3,121      $ 15,350      $ 27,579   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest Paid in Cash — The Company paid $15.9 million and $32.4 million of interest for the three and six months ended June 30, 2012, respectively, and $20.0 million and $38.7 million for the three and six months ended June 30, 2011, respectively.

Maturities — At June 30, 2012, debt totaling $481.0 million will mature in 2017 and $325.0 million will mature in 2018, while debt principal totaling $7.9 million will be paid in increments of $0.4 million quarterly through 2017.

Note 9 — Pensions and Other Benefits

Net periodic benefit expense for the Company’s defined benefit pension plan and combined supplemental executive retirement plans (“SERPs”) includes the following components:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Interest cost

   $ 2,639      $ 2,841      $ 5,278      $ 5,682   

Expected return on plan assets

     (1,968     (2,056     (3,937     (4,111

Amortization of prior service cost

     7        7        14        14   

Recognized net actuarial loss

     1,470        1,572        2,940        3,144   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit expense

   $ 2,148      $ 2,364      $ 4,295      $ 4,729   
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefits paid through the defined benefit pension plan were $2.3 million and $4.7 million for the three and six months ended June 30, 2012, respectively, and $2.3 million and $4.5 million for the three and six months ended June 30, 2011, respectively. The Company made contributions to the defined benefit pension plan of $2.0 million and $3.4 million during the three months and six months ended June 30, 2012, respectively, and $1.4 million and $2.3 million for the three and six months ended June 30, 2011, respectively. Benefits paid through, and contributions made to, the combined SERPs were $0.7 million and $1.6 million for the three and six months ended June 30, 2012, respectively, and $0.8 million and $1.9 million for the three and six months ended June 30, 2011, respectively.

 

16


Table of Contents

Following is a summary of the net actuarial loss and prior service costs for the defined benefit pension plan and combined SERPs that the Company amortized from “Accumulated other comprehensive (loss) income” into “Net periodic benefit expense”:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Net actuarial loss

   $ 1,470      $ 1,572      $ 2,940      $ 3,144   

Tax benefit on net actuarial loss

     (559     (597     (1,117     (1,195

Prior service costs

     7        7        14        14   

Tax benefit on prior service costs

     (3     (2     (6     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amortization from accumulated other comprehensive income

   $ 915      $ 980      $ 1,831      $ 1,958   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit expense for the Company’s postretirement benefit plans includes the following components:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Interest cost

   $ 24      $ 13      $ 48      $ 26   

Amortization of prior service credit

     (157     (156     (313     (313

Recognized net actuarial loss

     97        61        195        122   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit expense

   $ (36   $ (82   $ (70   $ (165
  

 

 

   

 

 

   

 

 

   

 

 

 

Benefits paid through, and contributions made to, the postretirement benefit plans were $0.1 million for both the three and six months ended June 30, 2012, respectively, and $0.1 million for both the three and six months ended June 30, 2011, respectively.

Following is a summary of the net actuarial loss and prior service credit for the postretirement benefit plans that the Company amortized from “Accumulated other comprehensive loss” into “Net periodic benefit expense”:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Net actuarial loss

   $ 97      $ 61      $ 195      $ 122   

Tax benefit on net actuarial loss

     (37     (24     (74     (47

Prior service costs

     (157     (156     (313     (313

Tax expense on prior service costs

     60        59        119        119   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amortization from accumulated other comprehensive income

   $ (37   $ (60   $ (73   $ (119
  

 

 

   

 

 

   

 

 

   

 

 

 

Contribution expense for the 401(k) defined contribution plan was $1.0 million and $1.8 million for the three and six months ended June 30, 2012, respectively, compared to $0.9 million and $1.7 million for the three and six months ended June 30, 2011, respectively.

International Benefit Plans — The Company’s international subsidiaries have certain defined contribution benefit plans. Contributions expense related to international plans was $0.3 million and $0.7 million for the three months and six months ended June 30, 2012, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2011, respectively.

Deferred Compensation Plans — The deferred compensation plans are unfunded and unsecured, and the Company is not required to physically segregate any assets in connection with the deferred accounts. The Company has rabbi trusts associated with each deferred compensation plans that are funded through voluntary contributions by the Company. At June 30, 2012 and December 31, 2011, the Company had a liability related to the deferred compensation plans of $2.6 million and $3.4 million, respectively, recorded in the “Accounts payable and other liabilities” line in the Consolidated Balance Sheets. The rabbi trusts had a market value of $8.3 million and $8.1 million at June 30, 2012 and December 31, 2011, respectively, recorded in “Other assets” in the Consolidated Balance Sheets.

In the first quarter of 2011, the MoneyGram International, Inc. Deferred Compensation Plan, a non-qualified, frozen, deferred compensation plan for a select group of management and highly compensated employees, was amended to terminate all employee deferral accounts on the amendment date and pay each participant the balance of their account in a lump sum no earlier than one year from termination and no later than December 31, 2012. In the six months ended June 30, 2012, the Company made $0.5 million in payments and no further payments are due.

 

17


Table of Contents

Note 10 — Stockholders’ Deficit

Reverse Stock Split — On November 14, 2011, the Company filed a certificate of amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s common stock at a reverse stock split ratio of 1-for-8. All share and per share amounts have been retroactively adjusted to reflect the stock split with the exception of the Company’s treasury stock, which was not a part of the reverse stock split.

Following is a summary of the activity of the Company’s stock authorized, issued and outstanding:

 

     D Stock      Common Stock      Treasury
Stock
 

(Amounts in thousands)

   Authorized      Issued      Outstanding      Authorized      Issued      Outstanding     

December 31, 2011

     200         109         109         162,500         62,264         57,835         (4,429

Stock option exercise and release of restricted stock units

     —           —           —           —           —           22         22   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

June 30, 2012

     200         109         109         162,500         62,264         57,857         (4,407
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Common Stock — The holders of MoneyGram common stock are entitled to one vote per share on all matters to be voted upon by its stockholders. The holders of common stock have no preemptive, conversion or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The determination to pay dividends on common stock will be at the discretion of the Board of Directors and will depend on applicable laws and the Company’s financial condition, results of operations, cash requirements, prospects and such other factors as the Board of Directors may deem relevant. No dividends were paid during the three and six months ended June 30, 2012. The Company’s ability to declare or pay dividends or distributions to the holders of the Company’s common stock is restricted under the Company’s 2011 Credit Agreement and the indenture governing the Company’s second lien notes.

Accumulated Other Comprehensive Loss — The components of “Accumulated other comprehensive loss” at June 30, 2012 and December 31, 2011 include:

 

(Amounts in thousands)

   June 30,
2012
    December 31,
2011
 

Net unrealized gains on securities classified as available-for-sale, net of tax

   $ 22,887      $ 21,479   

Cumulative foreign currency translation adjustments, net of tax

     1,225        1,021   

Prior service credit for pension and postretirement benefits, net of tax

     1,849        2,034   

Unrealized losses on pension and postretirement benefits, net of tax

     (60,618     (62,562
  

 

 

   

 

 

 

Accumulated other comprehensive loss

   $ (34,657   $ (38,028
  

 

 

   

 

 

 

Note 11 — Stock-Based Compensation

The MoneyGram International, Inc. 2005 Omnibus Incentive Plan (“2005 Plan”) provides for the granting of equity-based compensation awards, including stock options, stock appreciation rights, restricted stock units and restricted stock awards (collectively, “share-based awards”) to officers, employees and directors. The Company is authorized to issue a total of 5,875,000 of share-based awards. As of June 30, 2012, the Company has remaining authorization to issue future grants of up to 1,672,833 shares.

The calculated fair value of share-based awards is recognized as compensation cost using the straight-line method over the vesting or service period in the Company’s financial statements. Stock-based compensation is recognized only for those options, restricted stock units and stock appreciation rights expected to vest, with forfeitures estimated at the date of grant and evaluated and adjusted periodically to reflect the Company’s historical experience and future expectations. Any change in the forfeiture assumption will be accounted for as a change in estimate, with the cumulative effect of the change on periods previously reported being reflected in the financial statements of the period in which the change is made.

Following is a summary of stock-based compensation expense for the three and six months ended June 30:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011      2012      2011  

Expense recognized related to stock options

   $ 1,161       $ 2,658       $ 4,343       $ 7,109   

Expense recognized related to restricted stock units

     456         174         797         322   

Expense related to stock appreciation rights

     11         —           20         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Stock-based compensation expense

   $ 1,628       $ 2,832       $ 5,160       $ 7,431   
  

 

 

    

 

 

    

 

 

    

 

 

 

Employee stock based compensation included a $1.2 million expense reversal for the three and six months ended June 30, 2012 from forfeitures upon executive employee terminations.

 

18


Table of Contents

Stock Options — Option awards are generally granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant. All outstanding stock options contain certain forfeiture and non-compete provisions.

Pursuant to the terms of grants made in 2012, options awarded become exercisable through the passage of time annually over a four-year period in an equal number of shares each year, and have a term of 10 years.

For purposes of determining the fair value of stock options awarded in 2012, the Company uses the Black-Scholes single option pricing model. The following table provides weighted-average grant-date fair value and assumptions utilized to estimate the grant-date fair value of the 2012 options:

 

Expected dividend yield (1)

     0.0%   

Expected volatility (2)

     71.2% -71.8%   

Risk-free interest rate (3)

     1.2% -1.5%   

Expected life (4)

     6.3 years   

Weighted-average grant-date fair value per option

   $ 11.04   

 

(1) 

Expected dividend yield represents the level of dividends expected to be paid on the Company’s common stock over the expected term of the option. The Company does not anticipate declaring any dividends at this time.

(2) 

Expected volatility is the amount by which the Company’s stock price has fluctuated or will fluctuate during the expected term of the option. The Company’s expected volatility is calculated based on the historical volatility of the price of the Company’s common stock since the spin-off from Viad Corporation on June 30, 2004. The Company also considers any known or anticipated factors that will likely impact future volatility.

(3) 

The risk-free interest rate for the Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for periods within the expected term of the option.

(4) 

Expected life represents the period of time that options are expected to be outstanding. The expected life was determined using the simplified method as the pattern of changes in the value of the Company’s common stock and exercise activity since late 2007 has been inconsistent and substantially different from historical patterns. Additionally, there have been minimal stock option exercises which would be representative of the Company’s normal exercise activity since 2007. Accordingly, the Company does not believe that historical terms are relevant to the assessment of the expected term of the grant. Based on these factors, the Company does not believe that it has the ability to make a more refined estimate than the use of the simplified method.

A summary of the Company’s stock option activity for the six months ended June 30, 2012 is as follows:

 

      Shares     Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value
($000)
 

Options outstanding at December 31, 2011

     5,365,085      $ 23.45         

Granted

     140,848        16.75         

Exercised

     (1,250     17.36         

Forfeited/Expired

     (714,409     29.83         
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding at June 30, 2012

     4,790,274      $ 22.30         7.09 years       $ 1,698   
  

 

 

   

 

 

    

 

 

    

 

 

 

Vested or expected to vest at June 30, 2012

     4,641,553      $ 22.35         7.02 years       $ 1,698   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable at June 30, 2012

     1,303,523      $ 26.48         5.99 years       $ 1,037   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

The following is a summary of the Company’s stock option compensation information:

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011      2012      2011  

Intrinsic value of options exercised

   $ —         $ 73       $ 1       $ 154   

Cash received from option exercises

   $ 1       $ 181       $ 22         364   

Unrecognized stock option expense

   $ 16,542            

Remaining weighted-average vesting period

     1.0 years            

Restricted Stock Units — In the first half of 2012, the Company issued grants of performance-based restricted stock units to certain employees, which will vest and become payable in shares of common stock to the extent the Company attains the performance goals applicable to the performance period. The performance goal is based on the degree to which the Company’s average annual adjusted EBITDA, defined as earnings before interest, taxes, depreciation and amortization and less certain non-recurring or other unexpected expenses, meets, exceeds or falls short of the target performance goal of achieving an average annual adjusted EBITDA increase of 10 percent over a three year period. Under the terms of the grant, 50 percent of the target restricted stock units may vest on the second anniversary and 50 percent may vest on the third anniversary if the performance goal is achieved as of that date. The number of restricted stock units that vest is determined on a pro rata basis by the extent to which the performance goal is met within a threshold minimum and maximum. In the event the target performance goal is not met, but the Company achieves a minimum performance goal of an average annual adjusted EBITDA growth of five percent, the participant will be entitled to 50 percent of the target number of restricted stock units. In the event the Company achieves its maximum performance goal of an average annual adjusted EBITDA growth of 20 percent, the participant will be entitled to 200 percent of the target number of restricted stock units.

The fair value of restricted stock units is calculated based on the stock price at the time of grant. For performance-based restricted stock units, expense is recognized if achievement of the performance goal is deemed probable, with the amount of expense recognized based on the Company’s best estimate of the ultimate achievement level. For the 2012 grants of performance-based restricted stock units, the grant date fair value at the minimum, target and maximum thresholds is $0.9 million, $1.7 million and $3.4 million, respectively. As of June 30, 2012, the Company believes it is probable it will achieve the performance goal at the target level on the third anniversary.

In April 2012, the Company granted an aggregate of 48,474 restricted stock units to members of the Board of Directors, excluding the Chairman of Board, as compensation for services to be provided. The restricted stock units vest on the first anniversary of their issuance and may only be settled in the Company’s common stock.

For grants to employees, expense is recognized in the “Compensation and benefits” line and expense for grants to Directors is recorded in the “Transaction and operations support” line in the Consolidated Statements of Income using the straight-line method over the vesting period.

A summary of the Company’s restricted stock unit activity for the six months ended June 30, 2012 is as follows:

 

      Total
Shares
    Weighted
Average
Price
 

Restricted stock units outstanding at December 31, 2011

     337,676      $ 17.77   

Granted

     254,030        16.65   

Vested

     (20,896     28.72   

Forfeited

     (27,300     17.03   
  

 

 

   

 

 

 

Restricted stock units outstanding at June 30, 2012

     543,510      $ 16.86   
  

 

 

   

 

 

 

The fair value of restricted stock units vested is $0.6 million for both the three and six months ended June 30, 2012 and $0.6 million for both the three and six months ended June 30, 2011. As of June 30, 2012, the Company’s outstanding restricted stock units had unrecognized compensation expense of $3.7 million and a remaining weighted-average vesting period of 2.2 years. Unrecognized restricted stock unit expense and the remaining weighted-average vesting period are presented under the Company’s current estimate of achievement of the target performance goal on the third anniversary. Unrecognized restricted stock unit expense as of June 30, 2012 under the minimum and maximum thresholds is $2.2 million and $6.8 million, respectively.

Note 12 — Income Taxes

For the three and six months ended June 30, 2012, the Company had $10.2 million and $18.0 million, respectively, of income tax expense on pre-tax (loss) income of $(14.9) million and $3.2 million, respectively, resulting from the non-deductibility of certain legal accruals and related expenses. The Company paid $0.7 million and $0.8 million of federal and state income taxes for the three and six months ended June 30, 2012, respectively.

 

20


Table of Contents

For the three months ended June 30, 2011, the Company had $2.9 million of income tax expense on pre-tax income of $29.3 million, primarily reflecting $2.9 million of tax on an investment security settlement received in the second quarter of 2011. For the six months ended June 30, 2011, the Company had nominal income tax benefit on pre-tax income of $40.4 million, reflecting a discrete benefit of $3.5 million for the reversal of a portion of the valuation allowance on domestic deferred tax assets, which was partially offset by the $2.9 million of tax on an investment security settlement. The Company paid $0.4 million and $0.5 million of federal and state income taxes for the three and six months ended June 30, 2011, respectively.

Changes in facts and circumstances may cause the Company to record additional tax expense or benefits in the future.

For the three and six months ended June 30, 2012, interest and penalties for unrecognized tax benefits were $0.1 million and $0.2 million, respectively, compared to nominal amounts for both the three and six months ended June 30, 2011. The Company records interest and penalties for unrecognized tax benefits in “Income tax expense (benefit)” in the Consolidated Statements of (Loss) Income. As of June 30, 2012 and December 31, 2011, the Company had a liability of $1.7 million and $1.6 million, respectively, for interest and penalties within “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

During the second quarter of 2010, the Internal Revenue Service (the “IRS”) completed its examination of the Company’s consolidated income tax returns for 2005 to 2007 and issued a Notice of Deficiency related to these items in April 2012 (the “2005-2007 Notice of Deficiency”). The Company is also currently under examination for its 2008 and 2009 tax returns, which had similar deductions, and received a Revenue Agent Report (“RAR”) for 2008 and 2009 in April 2012. The Company anticipates receiving a Notice of Deficiency for 2008 and 2009 within the next 12 months. The Company filed a petition with the United States Tax Court on May 14, 2012 contesting the adjustments in the 2005-2007 Notice of Deficiency and plans to petition the United States Tax Court for 2008 and 2009 as well. Approximately $955.0 million of cumulative deductions were taken for net securities losses in its 2007, 2008 and 2009 tax returns. As of June 30, 2012, the Company has recognized a cumulative benefit of approximately $136.1 million relating to these deductions. The Company continues to believe that the amounts recorded in its consolidated financial statements reflect its best estimate of the ultimate outcome of this matter.

Note 13 — Commitments and Contingencies

Operating Leases — The Company has various non-cancelable operating leases for buildings and equipment that terminate through 2021. Certain of these leases contain rent holidays and rent escalation clauses based on pre-determined annual rate increases. The Company recognizes rent expense under the straight-line method over the term of the lease. Any difference between the straight-line rent amounts and amounts payable under the leases are recorded as deferred rent in “Accounts payable and other liabilities” in the Consolidated Balance Sheets. Cash or lease incentives received under certain leases are recorded as deferred rent when the incentive is received and amortized as a reduction to rent over the term of the lease using the straight-line method. Incentives received relating to tenant improvements are recognized as a reduction of rent expense under the straight-line method over the term of the lease. Tenant improvements are capitalized as leasehold improvements and depreciated over the shorter of the remaining term of the lease or 10 years. At June 30, 2012, the deferred rent liability relating to these incentives was $2.2 million.

Rent expense under operating leases was $4.1 million and $7.9 million for the three and six months ended June 30, 2012, respectively, and $3.8 million and $8.0 million for the three and six months ended June 30, 2011, respectively. Minimum future rental payments for all non-cancelable operating leases with an initial term of more than one year are (amounts in thousands):

 

Year 1

   $ 13,052   

Year 2

     12,242   

Year 3

     10,697   

Year 4

     5,606   

Year 5

     2,821   

Thereafter

     9,231   
  

 

 

 

Total

   $ 53,649   
  

 

 

 

Credit Facilities — At June 30, 2012, the Company has overdraft facilities through its senior facility consisting of $12.7 million of letters of credit to assist in the management of investments and the clearing of payment service obligations. All of these letters of credit are outstanding as of June 30, 2012. These overdraft facilities reduce amounts available under the senior facility. Fees on the letters of credit are paid in accordance with the terms of the senior facility described in Note 8 — Debt.

Minimum Commission Guarantees — In limited circumstances as an incentive to new or renewing agents, the Company may grant minimum commission guarantees for a specified period of time at a contractually specified amount. Under the guarantees, the Company will pay to the agent the difference between the contractually specified minimum commission and the actual commissions earned by the agent. Expense related to the guarantee is recognized in the “Fee commissions expense” line in the Consolidated Statements of (Loss) Income.

 

21


Table of Contents

As of June 30, 2012, the liability for minimum commission guarantees was $3.5 million and the maximum amount that could be paid under the minimum commission guarantees was $12.5 million over a weighted average remaining term of 2.9 years. The maximum payment is calculated as the contractually guaranteed minimum commission times the remaining term of the contract and, therefore, assumes that the agent generates no money transfer transactions during the remainder of its contract. However, under the terms of certain agent contracts, the Company may terminate the contract if the projected or actual volume of transactions falls beneath a contractually specified amount. With respect to minimum commission guarantees expiring in the six months ended June 30, 2012 and 2011, the Company paid $0.5 million and $0.1 million, respectively, or 19 percent and 21 percent, respectively, of the estimated maximum payment for the year.

Other Commitments — The Company has agreements with certain co-investors to provide funds related to investments in limited partnership interests. As of June 30, 2012, the total amount of unfunded commitments related to these agreements was $0.3 million.

Legal Proceedings — The matters set forth below are subject to uncertainties and outcomes that are not predictable with certainty. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigations alleged. In relation to various legal matters, including those described below, the Company had $43.6 million and $3.0 million of liability recorded in the “Accounts payable and other liabilities” line in the Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011, respectively. Legal accruals and settlement charges of $36.5 million and $38.1 million, net of insurance recoveries of $2.8 million, were recorded in the “Transaction and operations support” line in the Consolidated Statements of (Loss) Income during the three and six months ended June 30, 2012, and charges of $0.4 million and $1.4 million were recorded during the three and six months ended June 30, 2011, respectively.

Litigation Commenced Against the Company:

Stockholder Litigation — On April 15, 2011 a complaint was filed in the Court of Chancery of the State of Delaware by Willie R. Pittman purporting to be a class action complaint on behalf of all stockholders and a stockholder derivative complaint against the Company, THL, Goldman Sachs and each of the Company’s directors. Ms. Pittman alleged in her complaint that she is a stockholder of the Company and asserted, among other things, (i) breach of fiduciary duty and disclosure claims against the Company’s directors, THL and Goldman Sachs, (ii) breach of the Company’s certificate of incorporation claims against the Company, THL and Goldman Sachs, and (iii) claims for aiding and abetting breach of fiduciary duties against Goldman Sachs. Ms. Pittman purported to sue on her own behalf and on behalf of the Company and its stockholders. Pittman sought to, among other things, enjoin or rescind the 2011 Recapitalization. On April 29, 2011 the plaintiff filed an amended complaint to add two additional plaintiffs, Susan Seales and Stephen Selzer. On May 16, 2011 a hearing to enjoin or rescind the 2011 Recapitalization was held in the Court of Chancery of the State of Delaware (the “Delaware Court”), and at the hearing, the plaintiffs’ request for a preliminary injunction was denied. The 2011 Recapitalization was completed on May 18, 2011. Since that time, Ms. Pittman has withdrawn as a putative class representative; Ms. Seales and Mr. Selzer remain as plaintiffs. The plaintiffs sought to recover damages of some or all of the cash and stock payments made to THL and Goldman Sachs by the Company in connection with the 2011 Recapitalization.

On May 12, 2011 a complaint was filed in the County Court at Law No. 3 in Dallas County, Texas by Hilary Kramer purporting to be a class action complaint on behalf of all stockholders and a stockholder derivative complaint against the Company, THL, Goldman Sachs and each of the Company’s directors. Ms. Kramer alleged in her complaint that she is a stockholder of the Company and asserted, among other things, (i) breach of fiduciary duty claims against the Company’s directors, THL and Goldman Sachs and (ii) claims for aiding and abetting breach of fiduciary duties against Goldman Sachs. Ms. Kramer purported to sue on her own behalf and on behalf of the Company and its stockholders. Ms. Kramer sought to, among other things, enjoin the 2011 Recapitalization. The defendants have moved for the Texas court to stay this litigation in favor of the Pittman litigation in Delaware, which has an overlapping class definition.

On July 20, 2012, the parties in the Pittman litigation applied for preliminary approval of a proposed settlement, the terms of which are set forth in a Stipulation and Agreement of Compromise and Settlement, dated as of July 19, 2012 (the “Stipulation”). The Stipulation, which is still subject to preliminary and final approval by the Delaware Court, provides for a settlement payment of $10.0 million, to be distributed pro rata to certain stockholders, net of any attorneys’ fees awarded by the Delaware Court. During the three and six months ended June 30, 2012, the Company recognized $6.5 million of expense for the proposed settlement. The Company, THL, Goldman Sachs, the Company’s directors and other parties agreed to share financial responsibility for funding the settlement payment as follows: (i) the Company will contribute $3.5 million; (ii) the Company’s insurer will contribute $2.8 million under the Company’s director and officer liability policy; (iii) THL and the individuals nominated by THL as directors of the Company, referred to Collectively herein as the THL Directors, will waive all future rights to receive cash or equity compensation from the Company for services by the THL Directors or any other directors nominated by THL, and the Company will contribute $2.0 million toward the settlement payment in recognition of such waiver; (iv) Goldman Sachs has agreed to waive reimbursements of $1.0 million of legal fees and expenses associated with the Company’s 2011 Recapitalization, and the Company will contribute this amount toward the settlement payment; and (v) other parties with rights related to the 2011 Recapitalization have agreed to waive reimbursement of $0.8 million of legal fees and expenses, and the Company will contribute this amount toward the settlement payment.

The Stipulation also includes a release by the putative class of stockholders of all claims with respect to the allegations in the action or relating to the 2011 Recapitalization. The Delaware Court has set a hearing on October 10, 2012 to consider final approval of the settlement and entry of judgment. If the settlement is approved, the action will be dismissed with prejudice on the merits, and the Company will seek to dismiss the Texas action as well.

 

22


Table of Contents

Other Matters — The Company is involved in various claims and litigation that arise from time to time in the ordinary course of the Company’s business. Management does not believe that after final disposition any of these matters is likely to have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

Government Investigations:

MDPA/DOJ Matter — MoneyGram has been served with subpoenas to produce documents and testify before a grand jury in the U.S. District Court for the Middle District of Pennsylvania. The subpoenas sought information related to, inter alia, MoneyGram’s U.S. and Canadian agents, as well as certain transactions involving such agents, fraud complaint data, and MoneyGram’s consumer anti-fraud program during the period from 2004 to 2009. MoneyGram has provided information requested pursuant to the subpoenas and continues to provide additional information relating to the investigation. In addition, the Company was provided with subpoenas for the testimony of certain current and former employees in connection with the investigation. Interviews of one former executive officer and one former chief executive officer of the Company have taken place. The U.S. Department of the Treasury Financial Crimes Enforcement Network, or FinCEN, also requested information, which information was subsequently provided by MoneyGram, concerning MoneyGram’s reporting of fraudulent transactions during this period. In November 2010, MoneyGram met with representatives from the U.S. Attorney’s Office for the Middle District of Pennsylvania, or the MDPA USAO, and representatives of FinCEN to discuss the investigation. In July 2011, MoneyGram had further discussions with the MDPA USAO and representatives of the Asset Forfeiture and Money Laundering Section of the U.S. Department of Justice, or the US DOJ. MoneyGram has been informed that it is being investigated by the federal grand jury in connection with these matters for the period 2004 to early 2009 as well as MoneyGram’s anti-money laundering program during that period. In January 2012, meetings were held between representatives of the Company, the MDPA USAO and the Criminal Division of the US DOJ to discuss the investigation. During the course of these discussions, the Company was advised that consideration was being given to a range of possible outcomes, including the seeking of criminal penalties against the Company.

On March 19, 2012, the Company entered into a tolling agreement with the U.S. Attorney’s Office for the Middle District of Pennsylvania and the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice that tolled the statute of limitations applicable to any criminal proceedings that the government might later initiate to include the period from March 23, 2012 through and including December 31, 2012.

MoneyGram continues to engage in discussions and to cooperate with the government representatives regarding the investigation. However, the Company is unable to determine at this time what the final resolution of the investigation will be, including the nature of any proceeding and the manner in which it will be resolved. In the second quarter, the Company recorded an accrual of $30.0 million in connection with a possible resolution of this matter, based on the facts and circumstances known at this time. However, the Company is unable at this time to reasonably estimate the ultimate loss and no assurance can be given that costs and payments made in connection with this matter will not exceed the amount currently recorded or that the government will not also seek to impose non-monetary remedies or penalties.

State Civil Investigative Demands — MoneyGram has also received Civil Investigative Demands from a working group of nine state attorneys general who have initiated an investigation into whether the Company has taken adequate steps to prevent consumer fraud during the period from 2007 to 2011. The Civil Investigative Demands seek information and documents relating to the Company’s procedures to prevent fraudulent transfers and consumer complaint information. MoneyGram continues to cooperate fully with the states in this matter. MoneyGram has submitted the information and documents requested by the states. No claims have been made against MoneyGram at this time.

Other Matters — The Company is involved in various government inquiries and other matters that arise from time to time. Management does not believe that after final disposition any of these matters is likely to have a material adverse impact on the Company’s financial condition, results of operations and cash flows.

Action Commenced by the Company:

CDO Litigation — In March 2012, the Company initiated an arbitration proceeding before the Financial Industry Regulatory Authority (“FINRA”) against Goldman Sachs & Co. (“Goldman”). The arbitration relates to MoneyGram’s purchase of Residential Mortgage Backed Securities and Collateral Debt Obligations that Goldman sold to MoneyGram during the 2005

 

23


Table of Contents

through 2007 timeframe. The Company alleges, among other things, that Goldman made material misrepresentations and omissions in connection with the sale of these products, ultimately causing significant losses to the Company for which the Company is currently seeking damages. Goldman owns, together with certain of its affiliates, approximately 19 percent of the shares of the Company’s common stock on a diluted basis, assuming conversion of the Company’s Series D Participating Convertible Preferred Stock (“D Stock”) currently owned by Goldman and its affiliates.

Tax Litigation — On May 14, 2012, the Company filed a petition in the United States Tax Court challenging the 2005-2007 Notice of Deficiency, pursuant to which the IRS determined that the Company owes additional corporate income taxes because certain deductions relating to securities losses were capital in nature, rather than ordinary losses. The Company asserts that it properly deducted its securities losses and that, consequently, no additional corporate income taxes are owed. If the Company’s petition is denied in its entirety, the Company would be required to make cash payments of $110.1 million based on benefits taken through June 30, 2012. The IRS filed a response to the Company’s petition on July 18, 2012 reasserting its original position.

Note 14 — Earnings per Common Share

For discrete periods from January 1, 2008 through June 30, 2011, the Company utilized the two-class method for computing basic earnings per common share, which reflects the amount of undistributed earnings allocated to the common stockholders using the participation percentage of each class of stock. Undistributed earnings was determined as the Company’s net income less dividends declared, accumulated, deemed or paid on preferred stock. The undistributed earnings allocated to the common stockholders are divided by the weighted-average number of common shares outstanding during the period to compute basic earnings per common share.

For all periods in which it is outstanding, the D Stock is included in the weighted-average number of common shares outstanding utilized to calculate basic earnings per common share because the D Stock is deemed a common stock equivalent. Diluted earnings per common share reflects the potential dilution that could result if securities or incremental shares arising out of the Company’s stock-based compensation plans and the outstanding shares of the Company’s Series B Participating Convertible Preferred Stock and the Company’s Series B-1 Participating Convertible Preferred Stock (collectively, the “Series B Stock”) were exercised or converted into common stock. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method and the conversion of the Series B Stock using the if-converted method.

Effective for discrete periods beginning after June 30, 2011, the Company no longer applies the two-class method of calculating basic earnings per share because the Series B Stock is no longer outstanding and the D Stock is deemed a common stock equivalent.

Potential common shares are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common stockholders. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company’s common stock for the period. The Series B Stock is anti-dilutive when the incremental earnings per share of Series B Stock on an if-converted basis is greater than the basic earnings per common share. Following are the weighted-average potential common shares excluded from diluted earnings per common share as their effect would be anti-dilutive:

 

     Three Months Ended
June  30,
     Six Months Ended
June 30,
 

(Amounts in thousands)

   2012      2011      2012      2011  

Shares related to stock options

     5,045         5,101         5,200         5,117   

Shares related to restricted stock and restricted stock units

     500         28         422         28   

Shares related to preferred stock

     —           29,283         —           42,327   
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares excluded from the computation

     5,545         34,412         5,622         47,472   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 15 — Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, (“ASU 2011-04”). ASU 2011-04 amends Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. The Company adopted ASU 2011-04 on January 1, 2012, which resulted in additional fair value measurement disclosures.

 

24


Table of Contents

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income, (“ASU 2011-05”) to amend financial statement presentation guidance for other comprehensive income (“OCI”). Under ASU 2011-05, the statement of income and OCI can be presented either as a continuous statement or in two separate consecutive statements. As such, the option to present the components of OCI as part of the statement of stockholders’ equity is eliminated. The amendments in ASU 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 was adopted on January 1, 2012 with no impact to the Company’s Consolidated Financial Statements.

Note 16 — Segment Information

The Company’s reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served. The Company primarily manages its business through two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfers and bill payment services to consumers through a network of agents and, in select markets, company-operated locations. The Financial Paper Products segment provides money orders to consumers through retail and financial institution locations in the United States and Puerto Rico, and provides official check services to financial institutions in the United States. One of the Company’s agents of both the Global Funds Transfer segment and the Financial Paper Products segment accounted for 28.1 percent and 28.3 percent of total revenue for the three months ended June 30, 2012 and 2011, respectively, and 28.6 percent and 29.2 percent for the six months ended June 30, 2012 and 2011, respectively.

The following tables set forth revenue, operating results, depreciation and amortization, capital expenditures and assets by segment:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Revenue

        

Global Funds Transfer:

        

Money transfer

   $ 282,262      $ 256,285      $ 550,753      $ 495,989   

Bill payment

     26,008        27,554        53,652        57,631   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Global Funds Transfer

     308,270        283,839        604,405        553,620   

Financial Paper Products:

        

Money order

     14,518        15,623        29,408        31,353   

Official check

     7,001        10,016        13,779        18,182   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Paper Products

     21,519        25,639        43,187        49,535   

Other

     353        475        645        822   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

   $ 330,142      $ 309,953      $ 648,237      $ 603,977   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended
June 30,
    Six Months Ended
June 30,
 

(Amounts in thousands)

   2012     2011     2012     2011  

Segment operating income:

        

Global Funds Transfer

   $ 38,626      $ 25,911      $ 71,908      $ 52,358   

Financial Paper Products

     8,080        9,344        17,070        17,724   

Other

     (488     (400     (1,057     (663
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating income

     46,218        34,855        87,921        69,419   

Other unallocated expenses

     43,085        597        48,857        3,460   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income

     3,133        34,258        39,064        65,959   

Net securities gains

     —          (32,816     —          (32,816

Interest expense

     17,637        22,873        35,520        43,486   

Other

     347        14,856        347        14,856   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

   $ (14,851   $ 29,345      $ 3,197      $ 40,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

(Amounts in thousands)

   2012      2011      2012      2011  

Depreciation and amortization:

           

Global Funds Transfer

   $ 9,416       $ 10,351       $ 19,166       $ 20,464   

Financial Paper Products

     897         1,504         1,812         3,049   

Other

     740         24         758         32   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total depreciation and amortization

   $ 11,053       $ 11,879       $ 21,736       $ 23,545   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures:

           

Global Funds Transfer

   $ 10,416       $ 11,601       $ 19,953       $ 18,492   

Financial Paper Products

     1,292         2,611         3,325         3,485   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total capital expenditures

   $ 11,708       $ 14,212       $ 23,278       $ 21,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     June 30,      December 31,  

(Amounts in thousands)

   2012      2011  

Assets:

     

Global Funds Transfer

   $ 1,445,862       $ 1,247,355   

Financial Paper Products

     3,447,031         3,683,393   

Other

     292,169         244,830   
  

 

 

    

 

 

 

Total assets

   $ 5,185,062       $ 5,175,578   
  

 

 

    

 

 

 

Geographic areas — International operations are located principally in Europe. International revenues are defined as revenues generated from money transfer transactions originating in a country other than the United States. The table below presents revenue by major geographic area for the three and six months ended June 30:

 

     Three Months Ended      Six Months Ended  
     June 30,      June 30,  

(Amounts in thousands)

   2012      2011      2012      2011  

United States

   $ 205,079       $ 192,205       $ 405,611       $ 380,103   

International

     125,063         117,748         242,626         223,874   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 330,142       $ 309,953       $ 648,237       $ 603,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 17 — Condensed Consolidating Financial Statements

In the event the Company offers debt securities pursuant to its registration statement on Form S-3, such debt securities may be guaranteed by certain of its subsidiaries. Accordingly, the Company is providing condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. If the Company issues debt securities, the following 100 percent directly or indirectly owned subsidiaries could fully and unconditionally guarantee the debt securities on a joint and several basis: MoneyGram Payment Systems Worldwide, Inc.; MoneyGram Payment Systems, Inc.; and MoneyGram of New York LLC (collectively, the “Guarantors”).

The following information represents condensed, consolidating Balance Sheets as of June 30, 2012 and December 31, 2011, along with condensed, consolidating Statements of (Loss) Income, Statements of Comprehensive (Loss) Income and Statements of Cash Flows for the three and six months ended June 30, 2012 and 2011. The condensed, consolidating financial information presents financial information in separate columns for MoneyGram International, Inc. on a parent-only basis carrying its investment in subsidiaries under the equity method; Guarantors on a combined basis, carrying investments in subsidiaries that are not expected to guarantee the debt (collectively, the “Non-Guarantors”) under the equity method; Non-Guarantors on a combined basis; and eliminating entries. The eliminating entries primarily reflect intercompany transactions, such as accounts receivable and payable, fee revenue and commissions expense and the elimination of equity investments and income in subsidiaries.

 

26


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING BALANCE SHEETS

AS OF JUNE 30, 2012

 

(Amounts in thousands)

   Parent     Subsidiary
Guarantors
    Non-
Guarantors
     Eliminations     Consolidated  

ASSETS

           

Cash and cash equivalents

   $ —        $ —        $ —         $ —        $ —     

Cash and cash equivalents (substantially restricted)

     547        2,457,501        90,209         —          2,548,257   

Receivables, net (substantially restricted)

     —          1,248,250        18,632         —          1,266,882   

Short-term investments (substantially restricted)

     —          500,000        24,055         —          524,055   

Available-for-sale investments (substantially restricted)

     —          85,281        —           —          85,281   

Property and equipment

     —          89,941        27,091         —          117,032   

Goodwill

     —          306,878        121,813         —          428,691   

Other assets

     10,072        185,225        19,567         —          214,864   

Equity investments in subsidiaries

     80,798        173,247        —           (254,045     —     

Intercompany receivables

     —          173,416        —           (173,416     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 91,417      $ 5,219,739      $ 301,367       $ (427,461   $ 5,185,062   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

           

Payment service obligations

   $ —        $ 4,102,134      $ 53,746       $ —        $ 4,155,880   

Debt

     —          810,365        —           —          810,365   

Pension and other postretirement benefits

     —          114,606        1,747         —          116,353   

Accounts payable and other liabilities

     84,860        111,855        21,852         —          218,567   

Intercompany liabilities

     122,660        (19     50,775         (173,416     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     207,520        5,138,941        128,120         (173,416     5,301,165   

Total stockholders’ (deficit) equity

     (116,103     80,798        173,247         (254,045     (116,103
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 91,417      $ 5,219,739      $ 301,367       $ (427,461   $ 5,185,062   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2011

 

(Amounts in thousands)

   Parent     Subsidiary
Guarantors
     Non-
Guarantors
     Eliminations     Consolidated  

ASSETS

            

Cash and cash equivalents

   $ —        $ —         $ —         $ —        $ —     

Cash and cash equivalents (substantially restricted)

     524        2,462,106         109,544         —          2,572,174   

Receivables, net (substantially restricted)

     —          1,204,903         15,162         —          1,220,065   

Short-term investments (substantially restricted)

     —          500,000         22,024         —          522,024   

Available-for-sale investments (substantially restricted)

     —          102,771         —           —          102,771   

Property and equipment

     —          87,172         29,169         —          116,341   

Goodwill

     —          306,878         121,813         —          428,691   

Other assets

     4,820        190,295         18,397         —          213,512   

Equity investments in subsidiaries

     85,436        177,385         —           (262,821     —     

Intercompany receivables

     —          187,441         —           (187,441     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 90,780      $ 5,218,951       $ 316,109       $ (450,262   $ 5,175,578   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

            

Payment service obligations

   $ —        $ 4,138,418       $ 66,957       $ —        $ 4,205,375   

Debt

     —          810,888         —           —          810,888   

Pension and other postretirement benefits

     —          118,580         1,672         —          120,252   

Accounts payable and other liabilities

     54,803        65,629         28,829         —          149,261   

Intercompany liabilities

     146,175        —           41,266         (187,441     —     
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     200,978        5,133,515         138,724         (187,441     5,285,776   

Total stockholders’ (deficit) equity

     (110,198     85,436         177,385         (262,821     (110,198
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 90,780      $ 5,218,951       $ 316,109       $ (450,262   $ 5,175,578   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF (LOSS) INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2012

 

(Amounts in thousands)

   Parent     Subsidiary
Guarantors
    Non-
Guarantors
    Eliminations     Consolidated  

REVENUE

          

Fee and other revenue

   $ —        $ 352,844      $ 71,870      $ (98,008   $ 326,706   

Investment revenue

     —          3,238        198        —          3,436   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          356,082        72,068        (98,008     330,142   

EXPENSES

          

Fee and other commissions expense

     —          184,742        42,263        (80,332     146,673   

Investment commissions expense

     —          103        —          —          103   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commissions expense

     —          184,845        42,263        (80,332     146,776   

Compensation and benefits

     —          42,292        16,738        —          59,030   

Transaction and operations support

     8,845        93,676        13,163        (17,676     98,008   

Occupancy, equipment and supplies

     —          8,572        3,570        —          12,142   

Depreciation and amortization

     —          7,967        3,086        —          11,053   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,845        337,352        78,820        (98,008     327,009   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING (LOSS) INCOME

     (8,845     18,730        (6,752     —          3,133   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

          

Interest expense

     —          17,637        —          —          17,637   

Other

     347        —          —          —          347   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses, net

     347        17,637        —          —          17,984   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (9,192     1,093        (6,752     —          (14,851

Income tax (benefit) expense

     (3,563     15,239        (1,471     —          10,205   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income after income taxes

     (5,629     (14,146     (5,281     —          (25,056

Equity (loss) income in subsidiaries

     (19,427     (5,281     —          24,708        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET (LOSS) INCOME

   $ (25,056   $ (19,427   $ (5,281   $ 24,708      $ (25,056
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF (LOSS) INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2012

 

(Amounts in thousands)

   Parent     Subsidiary
Guarantors
    Non-
Guarantors
    Eliminations     Consolidated  

REVENUE

          

Fee and other revenue

   $ —        $ 693,211      $ 141,182      $ (192,769   $ 641,624   

Investment revenue

     —          6,181        432        —          6,613   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     —          699,392        141,614        (192,769     648,237   

EXPENSES

          

Fee and other commissions expense

     —          364,196        80,136        (155,744     288,588   

Investment commissions expense

     —          180        —          —          180   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commissions expense

     —          364,376        80,136        (155,744     288,768   

Compensation and benefits

     —          86,318        31,776        —          118,094   

Transaction and operations support

     10,611        157,698        24,938        (37,025     156,222   

Occupancy, equipment and supplies

     —          17,591        6,762        —          24,353   

Depreciation and amortization

     —          15,566        6,170        —          21,736   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,611        641,549        149,782        (192,769     609,173   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING (LOSS) INCOME

     (10,611     57,843        (8,168     —          39,064   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense

          

Interest expense

     —          35,520        —          —          35,520   

Other

     347        —          —          —          347   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses, net

     347        35,520        —          —          35,867   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (10,958     22,323        (8,168     —          3,197   

Income tax (benefit) expense

     (4,181     23,600        (1,435     —          17,984   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income after income taxes

     (6,777     (1,277     (6,733     —          (14,787

Equity (loss) income in subsidiaries

     (8,010     (6,733     —          14,743        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET (LOSS) INCOME

   $ (14,787   $ (8,010   $ (6,733   $ 14,743      $ (14,787
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


Table of Contents

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF INCOME (LOSS)

FOR THE THREE MONTHS ENDED JUNE 30, 2011