Document
Table of Contents

 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended March 31, 2019.
¨
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
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12895497&doc=13
MONEYGRAM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
16-1690064
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
2828 N. Harwood St., 15th Floor
Dallas, Texas
 
75201
(Zip Code)
(Address of principal executive offices)
 
 
(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  þ        No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 files).    Yes  þ        No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
 
¨
  
Accelerated filer
 
þ
Non-accelerated filer
 
¨ 
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨        No  þ
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class
 Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value
 MGI
The NASDAQ Stock Market LLC
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 7, 2019, 56,390,754 shares of common stock, $0.01 par value, were outstanding.
 
 
 
 
 


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TABLE OF CONTENTS
 
 
 
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
 
(Amounts in millions, except share data)
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
129.9

 
$
145.5

Settlement assets
3,416.3

 
3,373.8

Property and equipment, net
187.6

 
193.9

Goodwill
442.2

 
442.2

Other assets
189.3

 
140.7

Total assets
$
4,365.3

 
$
4,296.1

LIABILITIES
 
 
 
Payment service obligations
$
3,416.3

 
$
3,373.8

Debt, net
899.2

 
901.0

Pension and other postretirement benefits
71.9

 
76.6

Accounts payable and other liabilities
260.2

 
213.5

Total liabilities
4,647.6

 
4,564.9

COMMITMENTS AND CONTINGENCIES (NOTE 12)


 


STOCKHOLDERS’ DEFICIT
 
 
 
Participating convertible preferred stock - series D, $0.01 par value, 200,000 shares authorized, 71,282 issued at March 31, 2019 and December 31, 2018
183.9

 
183.9

Common stock, $0.01 par value, 162,500,000 shares authorized, 58,823,567 shares issued at March 31, 2019 and December 31, 2018
0.6

 
0.6

Additional paid-in capital
1,049.4

 
1,046.8

Retained loss
(1,411.5
)
 
(1,403.6
)
Accumulated other comprehensive loss
(84.7
)
 
(67.5
)
Treasury stock: 2,508,798 and 3,207,118 shares at March 31, 2019 and December 31, 2018, respectively
(20.0
)
 
(29.0
)
Total stockholders’ deficit
(282.3
)
 
(268.8
)
Total liabilities and stockholders’ deficit
$
4,365.3

 
$
4,296.1

See Notes to the Condensed Consolidated Financial Statements

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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
 
 
Three Months Ended March 31,
(Amounts in millions, except per share data)
2019
 
2018
REVENUE
 
 
 
Fee and other revenue
$
301.0

 
$
370.1

Investment revenue
14.4

 
9.9

Total revenue
315.4

 
380.0

EXPENSES
 
 
 
Fee and other commissions expense
149.6

 
176.5

Investment commissions expense
6.3

 
3.5

Direct transaction expense
5.0

 
5.5

Total commissions and direct transaction expenses
160.9

 
185.5

Compensation and benefits
59.4

 
79.3

Transaction and operations support
52.1

 
74.8

Occupancy, equipment and supplies
15.4

 
16.6

Depreciation and amortization
19.0

 
18.1

Total operating expenses
306.8

 
374.3

OPERATING INCOME
8.6

 
5.7

Other expenses (income)
 
 
 
Interest expense
13.9

 
12.3

Other non-operating expense (income)
1.6

 
(28.5
)
Total other expenses (income)
15.5

 
(16.2
)
(Loss) income before income taxes
(6.9
)
 
21.9

Income tax expense
6.6

 
14.8

NET (LOSS) INCOME
$
(13.5
)
 
$
7.1

 
 
 
 
(LOSS) EARNINGS PER COMMON SHARE
 
 
 
Basic
$
(0.21
)
 
$
0.11

Diluted
$
(0.21
)
 
$
0.11

 
 
 
 
Weighted-average outstanding common shares and equivalents used in computing (loss) earnings per share
 
 
 
Basic
64.8

 
63.8

Diluted
64.8

 
66.2

See Notes to the Condensed Consolidated Financial Statements

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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
UNAUDITED
 
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
NET (LOSS) INCOME
$
(13.5
)
 
$
7.1

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
Net change in unrealized holding gains on available-for-sale securities arising during the period
0.2

 
(0.2
)
Net change in pension liability due to amortization of prior service credit and net actuarial loss, net of tax benefit of $0.1 and $0.2 for the three months ended March 31, 2019 and 2018, respectively
0.8

 
0.9

Unrealized foreign currency translation adjustments, net of tax benefit (expense) of $0.0 and ($0.6) for the three months ended March 31, 2019 and 2018, respectively
(3.1
)
 
2.7

Other comprehensive (loss) income
(2.1
)
 
3.4

COMPREHENSIVE (LOSS) INCOME
$
(15.6
)
 
$
10.5

See Notes to the Condensed Consolidated Financial Statements

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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
 
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net (loss) income
$
(13.5
)
 
$
7.1

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19.0

 
18.1

Signing bonus amortization
11.7

 
14.0

Amortization of debt discount and debt issuance costs
0.7

 
0.8

Non-cash compensation and pension expense
4.1

 
6.2

Signing bonus payments
(10.1
)
 
(11.8
)
Change in other assets
(4.0
)
 
(5.1
)
Change in accounts payable and other liabilities
(12.0
)
 
(0.2
)
Other non-cash items, net
4.4

 
1.4

Net cash provided by operating activities
0.3

 
30.5

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(12.7
)
 
(12.3
)
Net cash used in investing activities
(12.7
)
 
(12.3
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Principal payments on debt
(2.5
)
 
(2.4
)
Payments to tax authorities for stock-based compensation
(0.7
)
 
(6.1
)
Net cash used in financing activities
(3.2
)
 
(8.5
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(15.6
)
 
9.7

CASH AND CASH EQUIVALENTS—Beginning of period
145.5

 
190.0

CASH AND CASH EQUIVALENTS—End of period
$
129.9

 
$
199.7

See Notes to the Condensed Consolidated Financial Statements

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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
UNAUDITED

(Amounts in millions)
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Loss
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
January 1, 2019
$
183.9

 
$
0.6

 
$
1,046.8

 
$
(1,403.6
)
 
$
(67.5
)
 
$
(29.0
)
 
$
(268.8
)
Net loss

 

 

 
(13.5
)
 

 

 
(13.5
)
Stock-based compensation activity

 

 
2.6

 
(9.5
)
 

 
9.0

 
2.1

Cumulative effect of adoption of ASU 2018-02

 

 

 
15.1

 
(15.1
)
 

 

Other comprehensive loss

 

 

 

 
(2.1
)
 

 
(2.1
)
March 31, 2019
$
183.9

 
$
0.6

 
$
1,049.4

 
$
(1,411.5
)
 
$
(84.7
)
 
$
(20.0
)
 
$
(282.3
)
(Amounts in millions)
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Loss
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
January 1, 2018
$
183.9

 
$
0.6

 
$
1,034.8

 
$
(1,336.1
)
 
$
(63.0
)
 
$
(65.5
)
 
$
(245.3
)
Net income

 

 

 
7.1

 

 

 
7.1

Stock-based compensation activity

 

 
4.8

 
(43.0
)
 

 
36.1

 
(2.1
)
Cumulative effect of adoption of ASU 2016-16

 

 

 
4.2

 

 

 
4.2

Other comprehensive income

 

 

 

 
3.4

 

 
3.4

March 31, 2018
$
183.9

 
$
0.6

 
$
1,039.6

 
$
(1,367.8
)
 
$
(59.6
)
 
$
(29.4
)
 
$
(232.7
)



See Notes to the Condensed Consolidated Financial Statements

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MONEYGRAM INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

Note 1 — Description of the Business and Basis of Presentation
References to “MoneyGram,” the “Company,” “we,” “us” and “our” are to MoneyGram International, Inc. and its subsidiaries.
Nature of Operations — MoneyGram offers products and services under its two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfer services and bill payment services to consumers. We primarily offer services through third-party agents, including retail chains, independent retailers, post offices and other financial institutions. We also offer Digital solutions such as moneygram.com, mobile solutions, account deposit and kiosk-based services. Additionally, we have limited Company-operated retail locations. The Financial Paper Products segment provides official check outsourcing services and money orders through financial institutions and agent locations.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of MoneyGram are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The Condensed Consolidated Balance Sheets are unclassified due to the timing uncertainty surrounding the payment of settlement obligations.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on historical experience, future expectations and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and assumptions are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.
Recent Accounting Pronouncements and Related Developments — In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). ASU 2016-02 requires organizations to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about leasing arrangements. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The FASB retained the distinction between finance leases and operating leases, leaving the effect of leases in the statement of comprehensive income and the statement of cash flows largely unchanged from previous GAAP. To further assist with adoption and implementation of ASU 2016-02, the FASB issued the following ASUs:
ASU 2018-10 (Issued July 2018) — Codification Improvements to Topic 842, Leases
ASU 2018-11 (Issued July 2018) — Leases (Topic 842): Targeted Improvements
ASU 2018-20 (Issued December 2018) — Leases (Topic 842): Narrow-Scope Improvements for Lessors
ASU 2019-01 (Issued March 2019) — Leases (Topic 842): Codification Improvements
ASU 2018-11 provided entities with an additional transition method to adopt the new lease standard. Under this new transition method, an entity initially applies the new lease standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if any. The new lease standard is effective for fiscal years beginning after December 15, 2018. The Company adopted these standards in the first quarter of 2019 utilizing the transition method allowed under ASU 2018-11. See Note 16 — Leases for more information related to the Company's leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new credit impairment standard changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. To further assist with adoption and implementation of ASU 2016-02, the FASB issued the following ASU:
ASU 2018-19 (Issued November 2018) — Codification Improvements to Topic 326, Financial Instruments - Credit Losses
These ASUs are effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. MoneyGram will not be early adopting these standards. We are still evaluating these ASUs, but we do not believe the adoption will have a material impact on our consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the standard allow

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a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the legislation commonly known as the “Tax Cuts and Jobs Act” (“TCJA”). The Company adopted ASU 2018-02 in the first quarter of 2019 and applied the amendments from the accounting update in the period of adoption. The Company reclassified $15.1 million from Accumulated other comprehensive loss to Retained loss on the Condensed Consolidated Balance Sheets. ASU 2018-02 did not have an impact on the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. See Note 9 — Stockholders' Deficit for more information.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Plans - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefits Plans. The amendments in this standard require that entities now disclose the weighted-average interest credit ratings for cash balance plans and other plans with promised interest credit ratings and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period, as well as clarify and remove certain other disclosures. This standard is effective for fiscal years ending after December 15, 2020, and, although early adoption is permitted, MoneyGram will not be early adopting this standard. The impact of this ASU is still being evaluated, but management does not expect this standard to have a material impact on our consolidated financial statements.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its condensed consolidated financial statements.

Note 2 — Restructuring and Reorganization Costs

In 2018, the Company initiated a restructuring and reorganization program (the "Digital Transformation Program") to modernize the business, reduce operating expenses, focus on improving profitability and better align the organization to deliver new digital touch-points for customers and agents. The Digital Transformation Program was substantially completed in the first quarter of 2019. As of March 31, 2019, the Company incurred $24.0 million in restructuring and reorganization costs and expects to incur approximately $0.5 million of additional costs primarily related to legal and other costs. The actual timing and costs of the plan may differ from the Company’s current expectations and estimates. On the Condensed Consolidated Statements of Operations, the severance and outplacement benefits and reorganization costs are recorded in "Compensation and benefits," the real estate lease termination and other associated costs are recorded in "Occupancy, equipment and supplies" and "Depreciation and amortization" and the legal and other costs are recorded in "Transaction and operations support."
The following table is a roll-forward of the restructuring and reorganization costs accrual as of March 31, 2019:
(Amounts in millions)
Digital Transformation Program
Balance, December 31, 2018
$
6.3

Expenses
3.6

Cash payments
(4.2
)
Non-cash operating expenses
(0.1
)
Balance, March 31, 2019
$
5.6

The following table is a summary of the cumulative restructuring and reorganization costs incurred to date in operating expenses and the estimated remaining restructuring and reorganization costs to be incurred as of March 31, 2019:
(Amounts in millions)
Digital Transformation Program
Cumulative restructuring costs incurred to date in operating expenses
$
23.5

Estimated additional restructuring costs to be incurred
0.5

Total restructuring costs incurred and to be incurred
24.0

Total reorganization costs incurred and to be incurred
0.5

Total restructuring and reorganization costs incurred and to be incurred
$
24.5


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The following table summarizes the restructuring costs recorded:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Restructuring costs in operating expenses:
 
 
 
Compensation and benefits
$
3.0

 
$
6.0

Transaction and operations support
0.3

 
1.2

Occupancy, equipment and supplies
0.2

 
0.1

Depreciation
0.1

 

Total restructuring costs in operating expenses
$
3.6

 
$
7.3

The following table is a summary of the total cumulative restructuring and reorganization costs incurred to date in operating expenses and the total estimated remaining restructuring costs to be incurred by reporting segment:
(Amounts in millions)
Global Funds Transfer
 
Other
 
Total
Restructuring costs:
 
 
 
 
 
Balance, December 31, 2018
$
19.9

 
$

 
$
19.9

First quarter 2019
3.6

 

 
3.6

Total cumulative restructuring costs incurred to date in operating expenses
23.5

 

 
23.5

Total estimated additional restructuring costs to be incurred
0.5

 

 
0.5

Total restructuring costs incurred and to be incurred
24.0

 

 
24.0

Reorganization costs:
 
 
 
 
 
Balance, December 31, 2018

 
0.5

 
0.5

Total reorganization costs incurred and to be incurred

 
0.5

 
0.5

Total restructuring and reorganization costs incurred and to be incurred
$
24.0

 
$
0.5

 
$
24.5


Note 3 — Settlement Assets and Payment Service Obligations
The Company records payment service obligations relating to amounts payable under money transfers, money orders and consumer payment service arrangements. These obligations are recognized by the Company at the time the underlying transaction occurs. The Company records corresponding settlement assets, which represent funds received or to be received for unsettled money transfers, money orders and consumer payments.
The following table summarizes the amount of settlement assets and payment service obligations:
(Amounts in millions)
March 31, 2019
 
December 31, 2018
Settlement assets:
 
 
 
Settlement cash and cash equivalents
$
1,381.5

 
$
1,435.7

Receivables, net
971.7

 
777.7

Interest-bearing investments
1,057.4

 
1,154.7

Available-for-sale investments
5.7

 
5.7

 
$
3,416.3

 
$
3,373.8

Payment service obligations
$
(3,416.3
)
 
$
(3,373.8
)

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Note 4 — Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date.
The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis:
(Amounts in millions)
Level 2
 
Level 3
 
Total
March 31, 2019
 
 
 
 
 
Financial assets:
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
Residential mortgage-backed securities
$
4.3

 
$

 
$
4.3

Asset-backed and other securities

 
1.4

 
1.4

Forward contracts
1.2

 

 
1.2

Total financial assets
$
5.5

 
$
1.4

 
$
6.9

Financial liabilities:
 
 
 
 
 
Forward contracts
$

 
$

 
$

 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
Financial assets:
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
Residential mortgage-backed securities
$
4.5

 
$

 
$
4.5

Asset-backed and other securities

 
1.2

 
1.2

Forward contracts

 

 

Total financial assets
$
4.5

 
$
1.2

 
$
5.7

Financial liabilities:
 
 
 
 
 
Forward contracts
$
1.2

 
$

 
$
1.2

The following table provides a roll-forward of the asset-backed and other securities classified as Level 3, which are measured at fair value on a recurring basis:
 
Three Months Ended March 31,
(Amounts in millions)
2019
Beginning balance
$
1.2

Change in unrealized gains
0.2

Ending balance
$
1.4

Assets and liabilities that are disclosed at fair value Debt and interest-bearing investments are carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is estimated using an observable market quotation (Level 2). The following table is a summary of the Company's fair value and carrying value of debt:
 
Fair Value
 
Carrying Value
(Amounts in millions)
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Senior secured credit facility
$
847.8

 
$
737.1

 
$
901.9

 
$
904.4

The carrying amounts for the Company's cash and cash equivalents, settlement cash and cash equivalents, interest-bearing investments and payment service obligations approximate fair value as of March 31, 2019 and December 31, 2018.

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Note 5 — Investment Portfolio

The following table shows the components of the investment portfolio:
(Amounts in millions)
March 31, 2019
 
December 31, 2018
Cash
$
1,508.9

 
$
1,578.7

Money market securities
2.5

 
2.5

Cash and cash equivalents (1)
1,511.4

 
1,581.2

Interest-bearing investments
1,057.4

 
1,154.7

Available-for-sale investments
5.7

 
5.7

Total investment portfolio
$
2,574.5

 
$
2,741.6

(1) For purposes of the disclosure of the investment portfolio as a whole, the cash and cash equivalents balance includes settlement cash and cash equivalents.
The following table is a summary of the amortized cost and fair value of available-for-sale investments:
(Amounts in millions)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Fair
Value
March 31, 2019
 
 
 
 
 
Residential mortgage-backed securities
$
4.0

 
$
0.3

 
$
4.3

Asset-backed and other securities
0.2

 
1.2

 
1.4

Total
$
4.2

 
$
1.5

 
$
5.7

 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
Residential mortgage-backed securities
$
4.2

 
$
0.3

 
$
4.5

Asset-backed and other securities
0.2

 
1.0

 
1.2

Total
$
4.4

 
$
1.3

 
$
5.7

As of March 31, 2019 and December 31, 2018, 75% and 79%, respectively, of the fair value of the available-for-sale portfolio were invested in residential mortgage-backed securities issued by U.S. government agencies. These securities have the implicit backing of the U.S. government and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments.
Gains and Losses For the three months ended March 31, 2019 and 2018, the Company had nominal net realized gains or losses. The Company had nominal unrealized losses in its available-for-sale portfolio as of March 31, 2019 and December 31, 2018.
Contractual Maturities — 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 residential mortgage-backed and asset-backed and other securities depend on the repayment characteristics and experience of the underlying obligations. 

Note 6 — Derivative Financial Instruments

The Company uses forward contracts to manage its foreign currency needs and foreign currency exchange risk arising from its assets and liabilities denominated in foreign currencies. While these contracts may mitigate certain foreign currency risk, they are not designated as hedges for accounting purposes and will result in gains and losses. The Company also reports gains and losses from the spread differential between the rate set for its transactions and the actual cost of currency at the time the Company buys or sells in the open market.
The following net gains related to assets and liabilities denominated in foreign currencies are included in the “Transaction and operations support” line in the Condensed Consolidated Statements of Operations and in the "Net cash provided by operating activities" line in the Condensed Consolidated Statements of Cash Flows:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Net realized foreign currency (loss) gain
$
(3.5
)
 
$
0.5

Net gain (loss) from the related forward contracts
5.1

 
(0.5
)
Net gains from foreign currency transactions and related forward contracts
$
1.6

 
$

As of March 31, 2019 and December 31, 2018, the Company had $332.6 million and $300.2 million, respectively, of outstanding notional amounts relating to its foreign currency forward contracts. As of March 31, 2019 and December 31, 2018, the Company reflects the following fair values of derivative forward contract instruments in its Condensed Consolidated Balance Sheets: 
 

 
Gross Amount of Recognized Assets
 
Gross Amount of Offset
 
Net Amount of Assets Presented in the Consolidated Balance Sheets
(Amounts in millions)
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Forward contracts
Other assets
 
$
1.9

 
$
0.2

 
$
(0.7
)
 
$
(0.2
)
 
$
1.2

 
$

 
 
 
Gross Amount of Recognized Liabilities
 
Gross Amount of Offset
 
Net Amount of Liabilities Presented in the Consolidated Balance Sheets
(Amounts in millions)
Balance Sheet Location
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
 
March 31, 2019
 
December 31, 2018
Forward contracts
Accounts payable and other liabilities
 
$
0.7

 
$
1.4

 
$
(0.7
)
 
$
(0.2
)
 
$

 
$
1.2

The Company's forward contracts are primarily executed with counterparties governed by International Swaps and Derivatives Association agreements that generally include standard netting arrangements. Asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity.
The Company is exposed to credit loss in the event of non-performance by counterparties to its derivative contracts. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. Collateral generally is not required of the counterparties or of the Company. In the unlikely event the counterparty fails to meet the contractual terms of the derivative contract, the Company’s risk is limited to the fair value of the instrument. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.

Note 7 — Debt
The following is a summary of the Company's outstanding debt:
 
March 31, 2019
 
December 31, 2018
(Amounts in millions, except percentages)
Effective Interest Rate
 
 
 
Effective Interest Rate
 
 
Senior secured credit facility due 2020
5.75
%
 
$
901.9

 
5.59
%
 
$
904.4

Unamortized debt issuance costs and debt discount
 
 
(2.7
)
 
 
 
(3.4
)
Total debt, net
 
 
$
899.2

 
 
 
$
901.0

The Company's effective interest rate on the senior secured borrowings increased from 5.59% at December 31, 2018 to 5.75% at March 31, 2019 due to an increase in the Eurodollar rate.
The Company’s senior secured credit facility of $901.9 million will mature in March 2020. Over the past few months, the Company has been in discussions with its current lenders and other sources of junior capital to support the reduction and refinancing of its existing credit facility. As of the filing date, we believe our plan will be effectively implemented prior to the maturity of the senior term loan.

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Revolving Credit Facility — As of March 31, 2019, the Company had no outstanding letters of credit and no borrowings under the revolving credit facility, and subsequent to the January 31, 2019 amendment, the Company has $45.0 million of availability through September 28, 2019. Pursuant to an amendment to our credit agreement, dated January 31, 2019, among other things, the maximum secured leverage for the first quarter of 2019 increased from 3.500:1 to 4.250:1 and for the second quarter of 2019 increased from 3.500:1 to 4.500:1. In addition, the amendment decreased the aggregate revolving credit commitments from $85.8 million to $45.0 million and tightened certain negative covenant baskets for the benefit of the revolving lenders only when the pro forma secured leverage ratio of the Company is greater than 3.75:1. The Amendment also provides that in the event the Company’s cash balance exceeds $140.0 million at the end of any month, the Company would be required to use such excess cash to pay any outstanding obligations to the revolving lenders under our credit agreement, and that the Company may not draw on the revolving credit facility to the extent that the Company would have a cash balance in excess of $140.0 million after giving effect to such borrowing.
Debt Covenants and Other Restrictions — Borrowings under the existing credit agreement that provides for the senior secured facility due 2020 and the revolving credit facility are subject to various limitations that restrict the Company’s ability to: incur additional indebtedness; create or incur additional liens; effect mergers and consolidations; make certain acquisitions or investments; sell assets or subsidiary stock; pay dividends and other restricted payments; and effect loans, advances and certain other transactions with affiliates. In addition, the revolving credit facility has covenants that place limitations on the use of proceeds from borrowings under the facility.
The revolving credit facility contains certain financial covenants, in addition to the non-financial covenants described above. The Company is required to maintain asset coverage greater than its payment service obligations. Assets used in the determination of the asset coverage covenant are cash and cash equivalents and settlement assets. The Company's assets in excess of payment service obligations used for the asset coverage calculation, which is equal to total cash and cash equivalents and settlement assets less payment service obligations, are $129.9 million and $145.5 million as of March 31, 2019 and December 31, 2018, respectively.
Our existing credit agreement also has quarterly financial covenants to maintain the following interest coverage and secured leverage ratios:
 
Interest Coverage Minimum Ratio
 
Secured Leverage Ratio Not to Exceed
January 1, 2019 through March 31, 2019
2.25:1
 
4.250:1
April 1, 2019 through June 30, 2019
2.25:1
 
4.500:1
As of March 31, 2019, the Company was in compliance with its financial covenants: our interest coverage ratio was 4.71 to 1.00 and our secured leverage ratio was 3.680 to 1.00. We continuously monitor our compliance with our debt covenants.
Second Lien Term Facility — On May 8, 2019, the Company announced that Bank of America, N.A. arranged a $245.0 million senior secured second lien term facility (the “Second Lien Term Facility”) for MoneyGram. The Second Lien Term Facility will be led by BPC Lending I LLC, an affiliate of Beach Point Capital Management, which has committed to provide the full amount of the Second Lien Term Facility. The Carlyle Group, or an affiliate thereof, will be participating in a portion of the Second Lien Term Facility. The Second Lien Term Facility would bear interest at 13.0% per annum, a portion of which would be payable in kind at the Company’s option, as well as provide for customary fees and an original issue discount. The Company expects to use the net proceeds from the Second Lien Term Facility, together with available working capital, to prepay $245.0 million of debt outstanding under the First Lien Term Facility (as defined below).
The closing of the Second Lien Term Facility is conditioned on, among other things, the Company refinancing or extending the maturity date under its existing Revolving Credit Facility and senior secured credit facility (together with the Revolving Credit Facility, the “First Lien Facilities”). The refinancing or extension of the First Lien Facilities, the arrangement of which is expected to commence in the near future, together with obtaining the Second Lien Term Facility, are collectively referred to as the “Refinancing.”
Upon the closing of the Second Lien Term Facility, the Company would issue warrants (the “Warrants”) to the lenders under the Second Lien Term Facility representing 8% of the fully diluted then-outstanding common stock of the Company, assuming full conversion of the Company’s Series D Participating Convertible Preferred Stock (the “fully-diluted common stock”). The Company agreed to deliver a portion of the Warrants in connection with the arrangement of the Second Lien Term Facility (representing 1.5% of the fully diluted common stock (the “Initial Warrants”)). Upon the closing of the Second Lien Term Facility, the Initial Warrants would be applied towards, and be a part of (and not in addition to) the Warrants representing 8.0% of the fully-diluted common stock to be delivered to the lenders upon the closing.
The Initial Warrants are required to be delivered to the lenders upon the earliest of (i) the closing of the Second Lien Term Facility, (ii) July 8, 2019 and (iii) the Company’s termination of the financing arrangement (in each case, regardless of whether the Second

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Lien Term Facility is funded). In the event the Second Lien Term Facility closes, each Warrant would be exercisable, in whole or in part, at an exercise price equal to $0.01 per share following either (a) a “change of control,” (b) the repayment in full of all amounts outstanding under the Second Lien Term Facility, (c) the maturity date of the Second Lien Term Facility or (d) the occurrence and continuance of an event of default under the Second Lien Term Facility. If the Second Lien Term Facility does not close, each Initial Warrant would be exercisable, in whole or in part, at an exercise price equal to $0.01 per share upon the earlier of (i) November 7, 2019 and (ii) a "change of control." All Warrants would expire ten years after the closing of the Second Lien Term Facility.
The Second Lien Term Facility would mature upon the earlier of (i) six years after the closing of the Second Lien Term Facility and (ii) twelve months following the stated maturity date of the refinanced or extended First Lien Term Facility, which is currently expected to mature in five years. The Company’s entry into the Second Lien Term Facility is subject to various conditions, including the refinancing or extension of the First Lien Facilities, the negotiation and execution of definitive documentation with respect to the Second Lien Term Facility and the First Lien Facilities and various customary closing conditions. There can be no assurance as to whether or when the Company will reach an agreement to refinance or extend the First Lien Facilities, the Refinancing will be consummated or the terms of the refinanced or extended First Lien Facilities and Second Lien Term Facility to be included in the Refinancing will be revised in material respects prior to its completion.

Note 8 — Pension and Other Benefits

The following table is a summary of net periodic benefit expense for the Company's defined benefit pension plan ("Pension Plan") and supplemental executive retirement plans ("SERPs"), collectively referred to as "Pension":
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Interest cost
$
1.7

 
$
1.6

Expected return on plan assets
(1.1
)
 
(1.3
)
Amortization of net actuarial loss
0.9

 
1.1

Net periodic benefit expense
$
1.5

 
$
1.4

The Company had nominal net periodic benefit expense for the three months ended March 31, 2019 and 2018, for its postretirement medical benefit plan. Net periodic benefit expense for the Pension and Postretirement Benefits is recorded in "Other non-operating expense (income)" on the Condensed Consolidated Statements of Operations.

Note 9 — Stockholders' Deficit

Common Stock — No dividends were paid during the three months ended March 31, 2019 or March 31, 2018.
Accumulated Other Comprehensive Loss — The following table is a summary of the significant amounts reclassified out of each component of "Accumulated other comprehensive loss":
 
Three Months Ended March 31,
 
 
(Amounts in millions)
2019
 
2018
 
Statement of Operations Location
Pension and Postretirement Benefits adjustments:
 
 
 
 
 
Amortization of net actuarial loss
$
0.9

 
$
1.1

 
"Other non-operating expense (income)"
Total before tax
0.9

 
1.1

 
 
Tax benefit, net
(0.1
)
 
(0.2
)
 
 
Total reclassified for the period, net of tax
$
0.8

 
$
0.9

 
 

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The following table is a summary of the changes to Accumulated other comprehensive loss by component:
(Amounts in millions)
Net Unrealized Gains on Securities Classified as Available-for-sale, Net of Tax
 
Cumulative Foreign Currency Translation Adjustments, Net of Tax
 
Pension and Postretirement Benefits Adjustment, Net of Tax
 
Total
January 1, 2019
$
1.9

 
$
(24.2
)
 
$
(45.2
)
 
$
(67.5
)
Cumulative effect of adoption of ASU 2018-02

 
(3.7
)
 
(11.4
)
 
(15.1
)
Other comprehensive income (loss) before reclassification
0.2

 
(3.1
)
 

 
(2.9
)
Amounts reclassified from accumulated other comprehensive loss

 

 
0.8

 
0.8

Net current period other comprehensive income (loss)
0.2

 
(3.1
)
 
0.8

 
(2.1
)
March 31, 2019
$
2.1

 
$
(31.0
)
 
$
(55.8
)
 
$
(84.7
)
(Amounts in millions)
Net Unrealized Gains on Securities Classified as Available-for-sale, Net of Tax
 
Cumulative Foreign Currency Translation Adjustments, Net of Tax
 
Pension and Postretirement Benefits Adjustment, Net of Tax
 
Total
January 1, 2018
$
2.2

 
$
(10.4
)
 
$
(54.8
)
 
$
(63.0
)
Other comprehensive (loss) income before reclassification
(0.2
)
 
2.7

 

 
2.5

Amounts reclassified from accumulated other comprehensive loss

 

 
0.9

 
0.9

Net current period other comprehensive (loss) income
(0.2
)
 
2.7

 
0.9

 
3.4

March 31, 2018
$
2.0

 
$
(7.7
)
 
$
(53.9
)
 
$
(59.6
)
In the first quarter of 2019, the Company adopted ASU 2018-02 and elected to reclassify the stranded tax effects resulting from the TCJA, which changed the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, among other things. The effect from the rate change resulted in a pension and postretirement benefits adjustment reclassification of $11.4 million from Accumulated other comprehensive loss to Retained loss. Additionally, the Company reclassified $3.7 million from cumulative foreign currency translation adjustment to Retained loss related to the rate reduction associated with the taxation of the Company's foreign subsidiaries.

Note 10 — Stock-Based Compensation

The following table is a summary of the Company's stock-based compensation expense:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Stock-based compensation expense
$
2.6

 
$
4.8

Stock Options — The following table is a summary of the Company’s stock option activity: 
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
($000,000)
Options outstanding at December 31, 2018
1,628,829

 
$
17.20

 
1.4 years
 
$

Forfeited/Expired
(422,686
)
 
12.03

 
 
 
 
Options outstanding, vested or expected to vest, and exercisable at March 31, 2019
1,206,143

 
$
19.02

 
1.6 years
 
$

As of March 31, 2019, the Company had no unrecognized stock option expense related to outstanding options.

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Restricted Stock Units — In February 2019, the Company granted time-based restricted stock units. The time-based restricted stock units vest in three equal installments on each anniversary of the grant date.
The following table is a summary of the Company’s restricted stock unit activity:
 
Total
Shares
 
Weighted-Average Grant-Date Fair Value
 
Weighted-Average Remaining Contractual Term
 
Aggregate Intrinsic Value ($000,000)
Restricted stock units outstanding at December 31, 2018
2,272,606

 
$
9.73

 
0.8 years
 
$
4.5

Granted
1,744,970

 
2.48

 
 
 
 
Vested and converted to shares
(1,004,660
)
 
8.81

 
 
 
 
Forfeited
(123,683
)
 
10.82

 
 
 
 
Restricted stock units outstanding at March 31, 2019
2,889,233

 
$
5.62

 
1.6 years
 
$
5.9

Restricted stock units vested and deferred at March 31, 2019
39,869

 
$
8.15

 

 
$
0.1

The following table is a summary of the Company's restricted stock unit compensation information:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Weighted-average grant-date fair value of restricted stock units vested during the period
$
8.9

 
$
15.4

Total intrinsic value of vested and converted shares
$
2.5

 
$
21.7

As of March 31, 2019, the Company’s outstanding restricted stock units had unrecognized compensation expense of $13.0 million with a remaining weighted-average vesting period of 1.6 years.

Note 11 — Income Taxes

For the three months ended March 31, 2019, the Company recognized income tax expense of $6.6 million on a pre-tax loss of $6.9 million primarily due to non-deductible expenses, U.S. taxation of foreign earnings, the reversal of tax benefits on share-based compensation, partially offset by U.S. tax credits net of valuation allowance. Additionally, as a result of the issuance of the final Section 965 regulations by the U.S. Treasury Department and the Internal Revenue Service (the "IRS") on January 15, 2019, the Company recorded a discrete tax expense of $0.7 million for an increase in its one-time transition tax.
For the three months ended March 31, 2018, the Company recognized income tax expense of $14.8 million on pre-tax income of $21.9 million, primarily due to non-deductible expenses, including the accrual related to the deferred prosecution agreement (the "DPA"), as discussed in more detail in Note 12 — Commitments and Contingencies, and the adverse tax consequences related to the new provisions enacted under the TCJA, also known as H.R. 1 - 115th Congress, which result in multiple taxation of a single item of income.
Unrecognized tax benefits are recorded in “Accounts payable and other liabilities” in the Condensed Consolidated Balance Sheets. As of March 31, 2019 and December 31, 2018, the liability for unrecognized tax benefits was $18.2 million and $17.9 million, respectively, exclusive of interest and penalties. For the three months ended March 31, 2019 and 2018, the net amount of unrecognized tax benefits that if recognized could impact the effective tax rate was $18.2 million and $17.8 million, respectively. The Company accrues interest and penalties for unrecognized tax benefits through “Income tax expense” in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2019 and 2018, the Company's accrual for interest and penalties increased by $0.3 million and $0.6 million, respectively. As of March 31, 2019 and December 31, 2018, the Company had a liability of $7.6 million and $7.3 million, respectively, accrued for interest and penalties within "Accounts payable and other liabilities." As a result of the Company's litigation related to its securities losses discussed in more detail in Note 12 — Commitments and Contingencies, it is possible that there could be a significant decrease to the total amount of unrecognized tax benefits over the next 12 months. However, as of March 31, 2019, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax positions over the next 12 months.

Note 12 — Commitments and Contingencies
Legal Proceedings — The matters set forth below are subject to uncertainties and outcomes that are not predictable. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains

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insurance coverage for many claims and litigation matters. In relation to various legal matters, including those described below, the Company had $57.6 million and $57.5 million of liability recorded in the “Accounts payable and other liabilities” line in the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, respectively. A nominal charge was recorded for legal proceedings for the three months ended March 31, 2019 and 2018, in the “Transaction and operations support” line in the Condensed Consolidated Statements of Operations.
Litigation Commenced Against the Company:
Class Action Securities Litigation On November 14, 2018, a putative securities class action lawsuit was filed in the United States District Court for the Northern District of Illinois against MoneyGram and certain of its executive officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and alleges that MoneyGram made material misrepresentations regarding its compliance with the stipulated order for permanent injunction and final judgment that MoneyGram entered into with the Federal Trade Commission ("FTC") in October 2009 and with the deferred prosecution agreement that MoneyGram entered into with the U.S. Attorney’s Office for the Middle District of Pennsylvania and the U.S. Department of Justice in November 2012. The lawsuit seeks unspecified damages, equitable relief, interest, and costs and attorneys’ fees. The Company intends to vigorously defend this matter. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.  
Shareholder Derivative Litigation — On February 19 and 20, 2019, two virtually identical shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Texas. The suits, which have since been consolidated, purport to assert claims derivatively on behalf of MoneyGram against MoneyGram’s directors and certain of its executive officers for violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and for common-law breach of fiduciary duty and unjust enrichment. The complaints assert that the individual defendants caused MoneyGram to make material misstatements regarding MoneyGram’s compliance with the stipulated order and deferred prosecution agreement described in the preceding paragraph and breached their fiduciary duties in connection with MoneyGram’s compliance programs. The lawsuit seeks unspecified damages, equitable relief, interest, and costs and attorneys’ fees. The Company intends to vigorously defend this matter. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.
Books and Records Requests — The Company has received multiple requests from various putative shareholders for inspection of books and records pursuant to Section 220 of the Delaware General Corporation Law relating to the subject matter of the putative class and derivative lawsuits described in the preceding paragraphs. On February 26, 2019, two of these shareholders filed a petition in the Delaware Court of Chancery to compel MoneyGram to produce books and records in accordance with their request. The Company intends to vigorously defend these matters. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.  
It is possible that additional shareholder lawsuits could be filed relating to the subject matter of the class action, derivative actions and Section 220 requests.
Other Matters — The Company is involved in various other 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 or cash flows.
Government Investigations:
OFAC — In 2015, we initiated an internal investigation to identify any payments processed by the Company that were violations of the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") sanctions regulations. We notified OFAC of the internal investigation, which was conducted in conjunction with the Company's outside counsel. On March 28, 2017, we filed a Voluntary Self-Disclosure with OFAC regarding the findings of our internal investigation. OFAC is currently reviewing the results of the Company’s investigation. At this time, it is not possible to determine the outcome of this matter, or the significance, if any, to our business, financial condition, or operations, and we cannot predict when OFAC will conclude its review of our Voluntary Self-Disclosure.
Deferred Prosecution Agreement — In November 2012, we announced that a settlement was reached with the U.S. Attorney's Office for the Middle District of Pennsylvania (the "MDPA") and the U.S. Department of Justice, Criminal Division, Money Laundering and Asset Recovery Section (the “U.S. DOJ”) relating to the previously disclosed investigation of transactions involving certain of our U.S. and Canadian agents, as well as fraud complaint data and the consumer anti-fraud program, during the period from 2003 to early 2009. In connection with this settlement, we entered into the DPA with the MDPA and U.S. DOJ (collectively, the "Government") dated November 9, 2012. 
On November 1, 2017, the Company agreed to a stipulation with the Government that the five-year term of the Company’s DPA be extended for 90 days to February 6, 2018. Between January 31, 2018 and September 14, 2018, the Company agreed to enter into various extensions of the DPA with the Government, with the last extension ending on November 6, 2018. Each extension of the DPA extended all terms of the DPA, including the term of the monitorship for an equivalent period. The purpose of the extensions

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was to provide the Company and the Government additional time to discuss whether the Company was in compliance with the DPA.
On November 8, 2018, the Company announced that it entered into (1) an Amendment to and Extension of Deferred Prosecution Agreement (the “Amended DPA”) with the Government and (2) a Stipulated Order for Compensatory Relief and Modified Order for Permanent Injunction (the “Consent Order”) with the FTC. The motions underlying the Amended DPA and Consent Order focus primarily on the Company’s anti-fraud and anti-money laundering programs, including whether the Company had adequate controls to prevent third parties from using its systems to commit fraud. The Amended DPA amended and extended the original DPA entered into on November 9, 2012 by and between the Company and the Government. The DPA, Amended DPA and Consent Order are collectively referred to herein as the “Agreements.”
Under the Agreements, the Company will, among other things, (1) pay an aggregate amount of $125.0 million to the Government, of which $70.0 million was paid in November 2018 and the remaining $55.0 million must be paid by May 8, 2020, eighteen months after the date of the Amended DPA, and is being made available to reimburse consumers who were the victims of third-party fraud conducted through the Company’s money transfer services, and (2) continue to retain an independent compliance monitor until May 10, 2021 to review and assess actions taken by the Company under the Agreements to further enhance its compliance program. No separate payment to the FTC is required under the Agreements. If the Company fails to comply with the Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards or regulatory consequences which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
NYDFS — On June 22, 2018, the Company received a request for production of documents from the New York Department of Financial Services (the “NYDFS”) related to the subject of the DPA and FTC matters described above. This request followed previous inquiries by the NYDFS regarding certain of our New York based agents. Following the June 22, 2018 request for production, the Company received and responded to several inquiries from the NYDFS related to this matter. The NYDFS did not indicate what, if any, action it intended to take in connection with this matter, although it is possible that it could seek additional information, initiate civil litigation and/or seek to impose fines, damages or other regulatory consequences, any or all of which could have an adverse effect on the Company’s business, financial condition, results of operations and cash flows. The Company is unable to predict the outcome, or the possible loss or range of loss, if any, that could be associated with this matter.
Other Matters — The Company is involved in various other government inquiries and other matters that arise from time to time. Management does not believe that after final disposition any of these other matters is likely to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.
Actions Commenced by the Company:
Tax Litigation — The IRS completed its examination of the Company’s consolidated income tax returns through 2013 and issued Notices of Deficiency for 2005-2007 and 2009, and an Examination Report for 2008. The Notices of Deficiency and Examination Report disallow, among other items, approximately $900.0 million of ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012 and December 2012, the Company filed petitions in the U.S. Tax Court challenging the 2005-2007 and 2009 Notices of Deficiency, respectively. In 2013, the Company reached a partial settlement with the IRS allowing ordinary loss treatment on $186.9 million of deductions in dispute. In January 2015, the U.S. Tax Court granted the IRS's motion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. The Company filed a notice of appeal with the U.S. Tax Court on July 27, 2015 for an appeal to the U.S. Court of Appeals for the Fifth Circuit. Oral arguments were held before the Fifth Circuit on June 7, 2016, and on November 15, 2016, the Fifth Circuit vacated the Tax Court's decision and remanded the case to the Tax Court for further proceedings. The Company filed a motion for summary judgment in the Tax Court on May 31, 2017. On August 23, 2017, the IRS filed a motion for summary judgment and its response to the Company’s motion for summary judgment. The Tax Court directed the parties to agree to a joint stipulation of facts, which the parties have filed with the court. Each party has since filed updated memorandums in support of its motions for summary judgment in the Tax Court. The Tax Court is expected to schedule oral argument on this matter in mid-2019.
The January 2015 Tax Court decision was a change in facts which warranted reassessment of the Company's uncertain tax position. Although the Company believes that it has substantive tax law arguments in favor of its position and has appealed the ruling, the reassessment resulted in the Company determining that it is no longer more likely than not that its existing position will be sustained. Accordingly, the Company re-characterized certain deductions relating to securities losses to be capital in nature, rather than ordinary. The Company recorded a full valuation allowance against these losses in the quarter ended March 31, 2015. This change increased "Income tax expense" in the Consolidated Statements of Operations in the quarter ended March 31, 2015 by $63.7 million. During 2015, the Company made payments to the IRS of $61.0 million for federal tax payments and associated interest related to the matter. The November 2016 Fifth Circuit decision to remand the case back to the U.S. Tax Court does not change the Company’s current assessment regarding the likelihood that these deductions will be sustained. Accordingly, no change in the valuation allowance was made as of March 31, 2019. Pending the outcome of the Tax Court proceeding, the Company may be required to file amended state returns and make additional cash payments of up to $19.7 million on amounts that have previously been accrued.

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Note 13 — Earnings per Common Share
For all periods in which it is outstanding, the Series D Participating Convertible Preferred Stock (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 were exercised or converted into common stock. Diluted earnings per common share assumes the exercise of stock options using the treasury stock method.
The following table is a reconciliation of the weighted-average amounts used in calculating (loss) earnings per share:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Basic common shares outstanding
64.8

 
63.8

Shares related to stock options and restricted stock units

 
2.4

Diluted common shares outstanding
64.8

 
66.2

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 following table summarizes the weighted-average potential common shares excluded from diluted (loss) earnings per common share as their effect would be anti-dilutive:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Shares related to stock options
1.3

 
1.9

Shares related to restricted stock units
2.5

 
0.1

Shares excluded from the computation
3.8

 
2.0


Note 14 — 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 has two reporting segments: Global Funds Transfer and Financial Paper Products. See Note 1 — Description of the Business and Basis for Presentation for further discussion on our segments. Walmart Inc. is our only agent, for both the Global Funds Transfer segment and the Financial Paper Products segment, that accounts for more than 10% of total revenue. For the three months ended March 31, 2019 and 2018, Walmart accounted for 16% and 17%, respectively, of total revenue.
The following table is a summary of the total revenue by segment:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Global Funds Transfer revenue
 
 
 
Money transfer revenue
$
273.3

 
$
336.6

Bill payment revenue
15.9

 
20.8

Total Global Funds Transfer revenue
289.2

 
357.4

Financial Paper Products revenue
 
 
 
Money order revenue
13.9

 
13.4

Official check revenue
12.3

 
9.2

Total Financial Paper Products revenue
26.2

 
22.6

Total revenue
$
315.4

 
$
380.0


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The following table is a summary of the operating income by segment and detail of the (loss) income before income taxes: 
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Global Funds Transfer operating income
$
1.1

 
$
1.4

Financial Paper Products operating income
8.2

 
5.6

Total segment operating income
9.3

 
7.0

Other operating loss
(0.7
)
 
(1.3
)
Total operating income
8.6

 
5.7

Interest expense
13.9

 
12.3

Other non-operating expense (income)
1.6

 
(28.5
)
(Loss) income before income taxes
$
(6.9
)
 
$
21.9

The following table sets forth assets by segment:
(Amounts in millions)
March 31, 2019
 
December 31, 2018
Global Funds Transfer
$
1,389.6

 
$
1,287.1

Financial Paper Products
2,914.0

 
2,950.7

Other
61.7

 
58.3

Total assets
$
4,365.3

 
$
4,296.1


Note 15 — Revenue Recognition
The following table is a summary of the Company's revenue streams disaggregated by services and products for each segment and timing of revenue recognition for such services and products excluding other revenue:
 
Three Months Ended March 31,
(Amounts in millions)
2019
 
2018
Global Funds Transfer revenue
 
 
 
Money transfer fee revenue
$
269.9

 
$
330.6

Bill payment services fee revenue
15.9

 
20.8

Other revenue
3.4

 
6.0

Total Global Funds Transfer fee and other revenue
289.2

 
357.4

Financial Paper Products revenue
 
 
 
Money order fee revenue
2.3

 
3.1

Official check outsourcing services fee revenue
2.1

 
2.2

Other revenue
7.4

 
7.4

Total Financial Paper Products fee and other revenue
11.8

 
12.7

Investment revenue
14.4

 
9.9

Total revenue
$
315.4

 
$
380.0

 
 
 
 
Timing of revenue recognition:
 
 
 
Services and products transferred at a point in time
$
288.1

 
$
354.5

Products transferred over time
2.1

 
2.2

Total revenue from services and products
290.2

 
356.7

Investment revenue
14.4

 
9.9

Other revenue
10.8

 
13.4

Total revenue
$
315.4

 
$
380.0


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Due to the short-term nature of the Company's services and products, the amount of contract assets and liabilities on the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018, is negligible. Assets for unsettled money transfers, money orders and consumer payments are included in "Settlement assets" with a corresponding liability recorded in "Payment service obligations" on the Condensed Consolidated Balance Sheets. For more information on these assets and liabilities see Note 3 — Settlement Assets and Payment Service Obligations.

Note 16 — Leases
The Company's leases consist primarily of operating leases for buildings, equipment and vehicles. Upon adoption of ASC 842 on January 1, 2019, the Company recognized an operating lease liability of $57.1 million and a Right-of-Use ("ROU") operating asset of $53.9 million. The lease liability is calculated based on the remaining minimum rental payments under current leasing standards for existing operating leases and the ROU asset is calculated the same as the lease liability, but it includes $3.2 million of accrued rent as of December 31, 2018. The ROU asset is presented on the Condensed Consolidated Balance Sheets as part of "Other assets" and the lease liability is included in "Accounts payable and other liabilities." The amortization of the ROU asset and changes in the lease liability are presented as part of "Change in other assets" and "Change in accounts payable and other liabilities," respectively, on the Condensed Consolidated Statements of Cash Flows. As of March 31, 2019, the Company had an ROU asset of $49.6 million and a lease liability of $53.0 million on the Condensed Consolidated Balance Sheets. We elected the package of practical expedients, which permitted us to not reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We did not elect the use of the hindsight practical expedient or the practical expedient pertaining to land easements, as the latter was not applicable to us. We also elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we did not recognize ROU assets or lease liabilities. The Company elected the practical expedient to not separate lease and non-lease components for our real estate and vehicle leases.
The Company's various noncancellable operating leases for buildings, equipment and vehicles terminate through 2028. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As of March 31, 2019, the leases had a weighted-average remaining lease term of 4.6 years. As most of our leases do not provide an implicit rate, the Company utilized the portfolio approach in determining the discount rate. The portfolios were grouped based on lease type and geographical location. As of March 31, 2019, the weighted-average discount rate was 4.5%.
The Company recognizes rent expense for operating leases under the straight-line method over the term of the lease where differences between the monthly cash payments and the lease expense are offset to the ROU asset on the Condensed Consolidated Balance Sheet. Lease expense for buildings and equipment is included in the “Occupancy, equipment and supplies” line on the Condensed Consolidated Statements of Operations, while lease expense for our vehicles is included in the "Compensation and benefits" line. Some of the Company's building leases include rent expense that is associated with an index or a rate. Subsequent changes from the original index or rate would be treated as variable lease expense. Furthermore, future changes to the non-lease components of our real estate and vehicle leases will be treated as variable lease expenses. Tenant improvements are capitalized as leasehold improvements and depreciated over the shorter of the remaining term of the lease or 10 years.
The following table is a summary of the Company’s lease expense for its operating leases:
 
Three Months Ended March 31,
(Amounts in millions)
2019
Buildings, equipment and vehicle leases
$
4.1

Short-term lease cost
0.4

Total lease cost
$
4.5

Supplemental cash flow information related to leases was as follows:
 
Three Months Ended March 31,
(Amounts in millions)
2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
5.2


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Maturities of operating lease liabilities as of March 31, 2019 were as follows:
(Amounts in millions)
Future Minimum Lease Payments
April 1, 2019 to December 31, 2019
$
11.4

2020
14.3

2021
12.0

2022
9.1

2023
5.8

Thereafter
5.3

Total
57.9

Less: present value discount
(4.9
)
Lease liability - operating
$
53.0

Future minimum lease payments for our noncancellable leases as of December 31, 2018, prior to the adoption of the new lease standard discussed in Note 1 — Description of the Business and Basis of Presentation, were as follows:
(Amounts in millions)
Future Minimum Lease Payments
2019
$
17.5

2020
14.7

2021
12.3

2022
9.2

2023
5.8

Thereafter
5.2

Total
$
64.7


Note 17 — Condensed Consolidating Financial Statements

In the event the Company offers debt securities pursuant to an effective registration statement on Form S-3, these debt securities may be guaranteed by certain of its subsidiaries. Accordingly, the Company is providing condensed consolidating financial information in accordance with Securities and Exchange Commission 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 International Payment Systems, Inc. (collectively, the “Guarantors”).
The following information represents Condensed Consolidating Balance Sheets as of March 31, 2019 and December 31, 2018, along with Condensed Consolidating Statements of Operations and Statements of Cash Flows for the three months ended March 31, 2019 and 2018. 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.


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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2019

(Amounts in millions)
Parent
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
129.9

 
$

 
$
129.9

Settlement assets

 
3,349.8

 
66.5

 

 
3,416.3

Property and equipment, net

 
178.4

 
9.2

 

 
187.6

Goodwill

 
440.3

 
1.9

 

 
442.2

Other assets
66.3

 
334.8

 
67.6

 
(279.4
)
 
189.3

Equity investments in subsidiaries
762.1

 
186.4

 

 
(948.5
)
 

Intercompany receivables

 
63.4

 
278.9

 
(342.3
)
 

Total assets
$
828.4

 
$
4,553.1

 
$
554.0

 
$
(1,570.2
)
 
$
4,365.3

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
 
 
 
 
 
 
 
 
 
Payment service obligations
$

 
$
3,349.8

 
$
66.5

 
$

 
$
3,416.3

Debt, net
899.2

 

 

 

 
899.2

Pension and other postretirement benefits

 
71.9

 

 

 
71.9

Accounts payable and other liabilities
1.9

 
280.4

 
257.3

 
(279.4
)
 
260.2

Intercompany liabilities
209.6

 
88.9

 
43.8

 
(342.3
)
 

Total liabilities
1,110.7

 
3,791.0

 
367.6

 
(621.7
)
 
4,647.6

Total stockholders’ (deficit) equity
(282.3
)
 
762.1

 
186.4

 
(948.5
)
 
(282.3
)
Total liabilities and stockholders’ (deficit) equity
$
828.4

 
$
4,553.1

 
$
554.0

 
$
(1,570.2
)
 
$
4,365.3





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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Amounts in millions)
Parent
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
REVENUE
 
 
 
 
 
 
 
 
 
Fee and other revenue
$

 
$
236.2

 
$
87.2

 
$
(22.4
)
 
$
301.0

Investment revenue

 
14.2

 
0.2

 

 
14.4

Total revenue

 
250.4

 
87.4

 
(22.4
)
 
315.4

EXPENSES
 
 
 
 
 
 
 
 
 
Fee and other commissions expense

 
98.6

 
51.0

 

 
149.6

Investment commissions expense

 
6.3

 

 

 
6.3

Direct transaction expense

 
5.0

 

 

 
5.0

Total commissions and direct transaction expenses

 
109.9

 
51.0

 

 
160.9

Compensation and benefits

 
38.2

 
21.2

 

 
59.4

Transaction and operations support
0.5

 
64.6

 
9.4

 
(22.4
)
 
52.1

Occupancy, equipment and supplies

 
12.1

 
3.3

 

 
15.4

Depreciation and amortization

 
24.4

 
1.7

 
(7.1
)
 
19.0

Total operating expenses
0.5

 
249.2

 
86.6

 
(29.5
)
 
306.8

OPERATING (LOSS) INCOME
(0.5
)
 
1.2

 
0.8

 
7.1

 
8.6

Other expenses
 
 
 
 
 
 
 
 
 
Interest expense
13.9

 

 

 

 
13.9

Other non-operating expense
0.1

 
1.5

 

 

 
1.6

Total other expenses
14.0

 
1.5

 

 

 
15.5

(Loss) income before income taxes
(14.5
)
 
(0.3
)
 
0.8

 
7.1

 
(6.9
)
Income tax (benefit) expense
(3.3
)
 
9.3

 
0.6

 

 
6.6

(Loss) income after income taxes
(11.2
)
 
(9.6
)
 
0.2

 
7.1

 
(13.5
)
Equity (loss) income in subsidiaries
(9.4
)
 
0.2

 

 
9.2

 

NET (LOSS) INCOME
(20.6
)
 
(9.4
)
 
0.2

 
16.3

 
(13.5
)
OTHER COMPREHENSIVE INCOME (LOSS)
(2.1
)
 
(2.1
)
 
(3.1
)
 
5.2

 
(2.1
)
COMPREHENSIVE INCOME (LOSS)
$
(22.7
)
 
$
(11.5
)
 
$
(2.9
)
 
$
21.5

 
$
(15.6
)

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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2019

(Amounts in millions)
Parent
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
$
(13.0
)
 
$
(40.4
)
 
$
53.7

 
$

 
$
0.3

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment

 
(11.9
)
 
(0.8
)
 

 
(12.7
)
Intercompany investments

 
68.5

 

 
(68.5
)
 

Dividend from subsidiary guarantors
15.5

 

 

 
(15.5
)
 

Net cash provided by (used in) investing activities
15.5

 
56.6

 
(0.8
)
 
(84.0
)
 
(12.7
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Principal payments on debt
(2.5
)
 

 

 

 
(2.5
)
Dividend to parent

 
(15.5
)
 

 
15.5

 

Intercompany financings

 

 
(68.5
)
 
68.5

 

Payments to tax authorities for stock-based compensation

 
(0.7
)
 

 

 
(0.7
)
Net cash used in financing activities
(2.5
)
 
(16.2
)
 
(68.5
)
 
84.0

 
(3.2
)
NET CHANGE IN CASH AND CASH EQUIVALENTS

 

 
(15.6
)
 

 
(15.6
)
CASH AND CASH EQUIVALENTS—Beginning of period

 

 
145.5

 

 
145.5

CASH AND CASH EQUIVALENTS—End of period
$

 
$

 
$
129.9

 
$

 
$
129.9



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MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2018
 
(Amounts in millions)
Parent
 
Subsidiary
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
145.5

 
$

 
$
145.5

Settlement assets

 
3,313.1

 
60.7

 

 
3,373.8

Property and equipment, net

 
182.7

 
11.2

 

 
193.9

Goodwill

 
440.3

 
1.9

 

 
442.2

Other assets
63.1

 
257.6

 
33.6

 
(213.6
)
 
140.7

Equity investments in subsidiaries
779.8

 
180.9

 

 
(960.7
)
 

Intercompany receivables

 
188.5

 
174.5

 
(363.0
)
 

Total assets
$
842.9

 
$
4,563.1

 
$
427.4

 
$
(1,537.3
)
 
$
4,296.1

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
 
 
 
 
 
 
 
 
 
Payment service obligations
$

 
$
3,313.1

 
$
60.7

 
$

 
$
3,373.8

Debt, net
901.0

 

 

 

 
901.0

Pension and other postretirement benefits

 
76.6

 

 

 
76.6

Accounts payable and other liabilities
1.7

 
247.5

 
177.9

 
(213.6
)
 
213.5

Intercompany liabilities
209.0

 
146.1

 
7.9

 
(363.0
)
 

Total liabilities
1,111.7

 
3,783.3

 
246.5

 
(576.6
)
 
4,564.9

Total stockholders’ (deficit) equity
(268.8
)
 
779.8