Moneygram International, Inc.
MONEYGRAM INTERNATIONAL INC (Form: 10-Q, Received: 05/05/2017 06:07:20)
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 March 31, 2017
¨
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., 15 th  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,” “smaller reporting company,” and “emerging growth 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
 
¨
 
 
 
 
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   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 May 3, 2017 , 54,022,994  shares of common stock, $0.01 par value, were outstanding.
 


Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
 
(Amounts in millions, except share data)
March 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Cash and cash equivalents
$
127.4

 
$
157.2

Settlement assets
3,492.9

 
3,634.3

Property and equipment, net
204.8

 
201.0

Goodwill
442.2

 
442.2

Other assets
170.2

 
162.7

Total assets
$
4,437.5

 
$
4,597.4

 
 
 
 
LIABILITIES
 
 
 
Payment service obligations
$
3,492.9

 
$
3,634.3

Debt, net
913.4

 
915.2

Pension and other postretirement benefits
79.6

 
87.6

Accounts payable and other liabilities
150.9

 
168.7

Total liabilities
4,636.8

 
4,805.8

 
 
 
 
COMMITMENTS AND CONTINGENCIES (NOTE 11)

 

 
 
 
 
STOCKHOLDERS’ DEFICIT
 
 
 
Participating convertible preferred stock - series D, $0.01 par value, 200,000 shares authorized, 71,282 issued at March 31, 2017 and December 31, 2016
183.9

 
183.9

Common stock, $0.01 par value, 162,500,000 shares authorized, 58,823,567 shares issued at March 31, 2017 and December 31, 2016
0.6

 
0.6

Additional paid-in capital
1,024.3

 
1,020.3

Retained loss
(1,283.5
)
 
(1,247.6
)
Accumulated other comprehensive loss
(50.9
)
 
(53.9
)
Treasury stock: 4,856,901 and 6,058,856 shares at March 31, 2017 and December 31, 2016, respectively
(73.7
)
 
(111.7
)
Total stockholders’ deficit
(199.3
)
 
(208.4
)
Total liabilities and stockholders’ deficit
$
4,437.5

 
$
4,597.4

See Notes to the Condensed Consolidated Financial Statements



1


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
 
 
Three Months Ended March 31,
(Amounts in millions, except per share data)
2017
 
2016
REVENUE
 
 
 
Fee and other revenue
$
380.3

 
$
383.4

Investment revenue
5.8

 
3.7

Total revenue
386.1

 
387.1

EXPENSES
 
 
 
Fee and other commissions expense
186.0

 
191.0

Investment commissions expense
1.3

 
0.5

Total commissions expense
187.3

 
191.5

Compensation and benefits
71.5

 
71.7

Transaction and operations support
71.6

 
64.5

Occupancy, equipment and supplies
15.3

 
15.2

Depreciation and amortization
18.3

 
21.1

Total operating expenses
364.0

 
364.0

OPERATING INCOME
22.1

 
23.1

Other expense
 
 
 
Interest expense
10.8

 
11.3

Total other expense
10.8

 
11.3

Income before income taxes
11.3

 
11.8

Income tax expense
2.5

 
16.0

NET INCOME (LOSS)
$
8.8

 
$
(4.2
)
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE
 
 
 
Basic
$
0.14

 
$
(0.07
)
Diluted
$
0.13

 
$
(0.07
)
 
 
 
 
Weighted-average outstanding common shares and equivalents used in computing earnings (loss) per common share
 
 
 
Basic
62.1

 
62.4

Diluted
66.1

 
62.4

See Notes to the Condensed Consolidated Financial Statements


2


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
 
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
NET INCOME (LOSS)
$
8.8

 
$
(4.2
)
OTHER COMPREHENSIVE INCOME
 
 
 
Net change in unrealized holding gains on available-for-sale securities arising during the period, net of tax expense of $0.0 for each of the three months ended March 31, 2017 and 2016
0.1

 

Net change in pension liability due to amortization of prior service credit and net actuarial loss, net of tax benefit of $0.4 and $0.5 for the three months ended March 31, 2017 and 2016, respectively
0.7

 
0.8

Unrealized foreign currency translation adjustments, net of tax expense of $0.0 and $2.8 for the three months ended March 31, 2017 and 2016, respectively
2.2

 
1.2

Other comprehensive income
3.0

 
2.0

COMPREHENSIVE INCOME (LOSS)
$
11.8

 
$
(2.2
)
See Notes to the Condensed Consolidated Financial Statements


3


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED


 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
8.8

 
$
(4.2
)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
18.3

 
21.1

Signing bonus amortization
13.0

 
14.3

Signing bonus payments
(10.2
)
 
(7.4
)
Amortization of debt issuance costs and debt discount
0.8

 
0.9

Non-cash compensation and pension expense
5.3

 
6.7

Change in other assets
(8.6
)
 
(1.2
)
Change in accounts payable and other liabilities
(37.1
)
 
(30.1
)
Other non-cash items, net
0.1

 

Net cash (used in) provided by operating activities
(9.6
)
 
0.1

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property and equipment
(18.6
)
 
(18.0
)
Net cash used in investing activities
(18.6
)
 
(18.0
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Principal payments on debt
(2.5
)
 
(2.5
)
Proceeds from exercise of stock options
0.9

 

Stock repurchases

 
(1.9
)
Payments to tax authorities for stock-based compensation

 
(0.7
)
Net cash used in financing activities
(1.6
)
 
(5.1
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(29.8
)
 
(23.0
)
CASH AND CASH EQUIVALENTS—Beginning of period
157.2

 
164.5

CASH AND CASH EQUIVALENTS—End of period
$
127.4

 
$
141.5

Supplemental cash flow information:
 
 
 
Cash payments for interest
$
10.0

 
$
10.4

Cash taxes, net
$
0.7

 
$
2.4

See Notes to the Condensed Consolidated Financial Statements


4


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, 2017
$
183.9

 
$
0.6

 
$
1,020.3

 
$
(1,247.6
)
 
$
(53.9
)
 
$
(111.7
)
 
$
(208.4
)
Net income

 

 

 
8.8

 

 

 
8.8

Stock-based compensation activity

 

 
4.0

 
(44.7
)
 

 
38.0

 
(2.7
)
Other comprehensive income

 

 

 

 
3.0

 

 
3.0

March 31, 2017
$
183.9

 
$
0.6

 
$
1,024.3

 
$
(1,283.5
)
 
$
(50.9
)
 
$
(73.7
)
 
$
(199.3
)

(Amounts in millions)
Preferred
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Loss
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
January 1, 2016
$
183.9

 
$
0.6

 
$
1,002.4

 
$
(1,226.8
)
 
$
(48.7
)
 
$
(134.2
)
 
$
(222.8
)
Net loss

 

 

 
(4.2
)
 

 

 
(4.2
)
Stock-based compensation activity

 

 
5.0

 
(29.1
)
 

 
26.7

 
2.6

Stock repurchases

 

 

 

 

 
(1.9
)
 
(1.9
)
Other comprehensive income

 

 

 

 
2.0

 

 
2.0

March 31, 2016
$
183.9

 
$
0.6

 
$
1,007.4

 
$
(1,260.1
)
 
$
(46.7
)
 
$
(109.4
)
 
$
(224.3
)
See Notes to the Condensed Consolidated Financial Statements


5


MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES
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 Company-operated retail locations in the U.S. and Western Europe. 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”) 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 months ended March 31, 2017 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, 2016 .
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 Developmen ts — In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09,  Revenue from Contracts with Customers (Topic 606) . The new guidance sets forth a five-step revenue recognition model which replaces the current revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance and requires more detailed disclosures. To further assist with adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:
ASU 2016-08 (Issued March 2016) —  Principal versus Agent Consideration (Reporting Revenue Gross versus Net)
ASU 2016-10 (Issued April 2016) —  Identifying Performance Obligations and Licensing
ASU 2016-12 (Issued May 2016) —  Narrow-Scope Improvements and Practical Expedients
ASU 2016-20 (Issued December 2016) —   Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
These ASUs are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but not before interim and annual reporting periods beginning after December 15, 2016. The Company will not be early adopting these standards and will use the cumulative effect transition method upon adoption. Based on our initial evaluation for money transfer and bill payment services provided by the Global Funds Transfer segment, the Company has determined that each of these services includes only one performance obligation to the customer and the satisfaction of that performance obligation occurs at a point in time, which is not a change from how we currently recognize revenue. The Company continues to evaluate all other impacts from these standards as they pertain to our money transfer and bill payment services and the impacts on products and services provided by our Financial Paper Products segment.
In February 2016, the FASB issued 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. ASU 2016-02 mandates a modified retrospective transition method and is effective for fiscal years beginning after December 15, 2018. Early adoption of the amendment is permitted. The Company has begun evaluating and planning for the adoption and implementation of ASU 2016-02. The impact of this ASU on the Company’s consolidated financial statements is still being evaluated.


6


In April 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. Under the new ASU, companies are allowed to withhold up to the employees' maximum statutory tax rates in the applicable jurisdictions without resulting in liability classification. Further, the ASU requires that cash payments to tax authorities in connection with shares withheld to meet statutory tax withholding requirements be presented as a financing activity in the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016. The Company adopted ASU 2016-09 in the first quarter of 2017. Prior to the adoption of ASU 2016-09, the Company presented cash payments to tax authorities in connection with shares withheld to meet statutory tax withholdings requirements as an operating activity in its statement of cash flows. Upon adoption of this ASU the presentation of these payments was reclassified to a financing activity and prior period Condensed Consolidated Statements of Cash Flows have been updated to reflect this change.
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 consolidated financial statements.
Merger Agreement  — On January 26, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, Alipay (UK) Limited, a United Kingdom limited company (“Alipay”), Matrix Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Alipay (“Merger Sub”) and, solely for purposes of certain specified provisions in the Merger Agreement, Alipay (Hong Kong) Holding Limited, a Hong Kong limited company. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Alipay, and holders of the Company’s common stock would be entitled to receive $13.25 in cash, less any required withholding taxes, for each share of the Company’s common stock, on an as-converted basis, owned at the effective time of the Merger. On April 15, 2017, the Company entered into the First Amendment to the Agreement and Plan of Merger (the “Merger Agreement Amendment”) to the Merger Agreement. The Merger Agreement Amendment increased the merger consideration to $18.00 per share and also increased the termination fee payable by the Company in connection with the termination of the Merger Agreement under specified circumstances, including the termination of the Merger Agreement by the Company to accept a Company Superior Proposal (as defined in the Merger Agreement), the termination of the Merger Agreement by Alipay following a change of recommendation by the Company’s Board of Directors, and other customary circumstances. Completion of the Merger is subject to a number of conditions, including the receipt of regulatory approvals and shareholder approval.

Note 2 — Settlement Assets and Payment Service Obligations

Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders and consumer payments. The Company records corresponding 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 transactions occur.
The following table summarizes the amount of Settlement assets and Payment service obligations:
(Amounts in millions)
March 31, 2017
 
December 31, 2016
Settlement assets:
 
 
 
Settlement cash and cash equivalents
$
1,461.0

 
$
1,365.0

Receivables, net
861.1

 
999.4

Interest-bearing investments
1,153.4

 
1,252.1

Available-for-sale investments
17.4

 
17.8

 
$
3,492.9

 
$
3,634.3

Payment service obligations
$
(3,492.9
)
 
$
(3,634.3
)


7



Note 3 — 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, 2017
 
 
 
 
 
Financial assets:
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
Residential mortgage-backed securities
$
6.8

 
$

 
$
6.8

Asset-backed and other securities

 
10.6

 
10.6

Forward contracts
0.2

 

 
0.2

Total financial assets
$
7.0

 
$
10.6

 
$
17.6

Financial liabilities:
 
 
 
 
 
Forward contracts
$
0.7

 
$

 
$
0.7

 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
Financial assets:
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
Residential mortgage-backed securities
$
7.2

 
$

 
$
7.2

Asset-backed and other securities

 
10.6

 
10.6

Forward contracts
2.4

 

 
2.4

Total financial assets
$
9.6

 
$
10.6

 
$
20.2

Financial liabilities:
 
 
 
 
 
Forward contracts
$
0.1

 
$

 
$
0.1

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)
2017
 
2016
Beginning balance
$
10.6

 
$
11.6

Principal paydowns
(0.1
)
 
(0.2
)
Change in unrealized gains
0.1

 

Ending balance
$
10.6

 
$
11.4

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, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
Senior secured credit facility
$
921.5

 
$
912.5

 
$
921.5

 
$
924.0

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, 2017 and December 31, 2016 .


8



Note 4 — Investment Portfolio

The following table shows the components of the investment portfolio:
(Amounts in millions)
March 31, 2017
 
December 31, 2016
Cash
$
1,580.7

 
$
1,514.5

Money market securities
7.7

 
7.7

Cash and cash equivalents (1)
1,588.4

 
1,522.2

Interest-bearing investments
1,153.4

 
1,252.1

Available-for-sale investments
17.4

 
17.8

Total investment portfolio
$
2,759.2

 
$
2,792.1

(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:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Fair
Value
(Amounts in millions)
 
 
March 31, 2017
 
 
 
 
 
Residential mortgage-backed securities
$
6.2

 
$
0.6

 
$
6.8

Asset-backed and other securities
0.9

 
9.7

 
10.6

Total
$
7.1

 
$
10.3

 
$
17.4

 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
Residential mortgage-backed securities
$
6.6

 
$
0.6

 
$
7.2

Asset-backed and other securities
1.0

 
9.6

 
10.6

Total
$
7.6

 
$
10.2

 
$
17.8

As of March 31, 2017 and December 31, 2016 , 39% and 40% , respectively, 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, 2017 and 2016 , the Company had no net realized gains or losses. The Company had nominal and no gross unrealized losses in its available-for-sale portfolio as of  March 31, 2017 and December 31, 2016 , respectively. See summary of net unrealized gains included in Accumulated other comprehensive loss in Note 8 — Stockholders' Deficit .
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.  


9



Note 5 — Derivative Financial Instruments

The following gains (losses) 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 (used in) provided by operating activities" line in the Condensed Consolidated Statements of Cash Flows:
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Net realized foreign currency gains
$
3.0

 
$
6.7

Net (losses) gains from the related forward contracts
(2.0
)
 
4.0

Net gains from foreign currency transactions and related forward contracts
$
1.0

 
$
10.7

As of March 31, 2017 and December 31, 2016 , the Company had $318.0 million and $294.5 million , respectively, of outstanding notional amounts relating to its foreign currency forward contracts. 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 Condensed Consolidated Balance Sheets
 
Balance Sheet
Location
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
(Amounts in millions)
 
 
 
 
 
 
Forward contracts
Other assets
 
$
0.5

 
$
2.6

 
$
(0.3
)
 
$
(0.2
)
 
$
0.2

 
$
2.4

 
 
 
Gross Amount of Recognized Liabilities
 
Gross Amount of Offset
 
Net Amount of Liabilities Presented in the Condensed Consolidated Balance Sheets
 
Balance Sheet
Location
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
(Amounts in millions)
 
 
 
 
 
 
Forward contracts
Accounts payable and other liabilities
 
$
1.0

 
$
0.3

 
$
(0.3
)
 
$
(0.2
)
 
$
0.7

 
$
0.1

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. 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.


10



Note 6 — Debt

The following is a summary of the Company’s outstanding debt:
(Amounts in millions, except percentages)
Effective Interest Rate
 
March 31, 2017
 
December 31, 2016
Senior secured credit facility due 2020
4.25
%
 
$
921.5

 
$
924.0

Unamortized debt issuance costs and debt discount
 
 
(8.1
)
 
(8.8
)
Total debt, net
 
 
$
913.4

 
$
915.2

Revolving Credit Facility — As of March 31, 2017 , the Company had no outstanding letters of credit and no borrowings under its revolving credit facility, leaving $125.0 million of availability thereunder.
Debt Covenants and Other Restrictions  — Borrowings under the 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 following table shows the components of our assets in excess of payment service obligations used for the asset coverage calculation:
(Amounts in millions)
March 31, 2017
 
December 31, 2016
Cash and cash equivalents
$
127.4

 
$
157.2

Settlement assets
3,492.9

 
3,634.3

Total cash and cash equivalents and settlement assets
3,620.3

 
3,791.5

Payment service obligations
(3,492.9
)
 
(3,634.3
)
Assets in excess of payment service obligations
$
127.4

 
$
157.2

The credit agreement also has quarterly financial covenants to maintain the following interest coverage and secured leverage ratios:
 
Interest Coverage Minimum Ratio
 
Secured Leverage Not to Exceed
January 1, 2017 through December 31, 2017
2.25:1
 
4.250:1
January 1, 2018 through June 30, 2018
2.25:1
 
4.000:1
July 1, 2018 through December 31, 2018
2.25:1
 
3.750:1
January 1, 2019 through maturity
2.25:1
 
3.500:1
As of March 31, 2017 , the Company was in compliance with its financial covenants: our interest coverage ratio was 6.67 to 1.00 and our secured leverage ratio was 3.345 to 1.00. We continuously monitor our compliance with our debt covenants.


11



Note 7 — Pensions and Other Benefits

The following table is a summary of net periodic benefit expense for the Company's defined pension plan ("Pension Plan") and supplemental executive retirement plans ("SERPs"), collectively referred to as "Pension":
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Interest cost
1.5

 
1.7

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

 
1.4

Net periodic benefit expense
$
1.3

 
$
1.8

The following table is a summary of net periodic benefit income for the Company’s postretirement medical benefit plan ("Postretirement Benefits"):
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Amortization of prior service credit
$
(0.1
)
 
$
(0.1
)
Amortization of net actuarial loss
0.1

 

Net periodic benefit income
$

 
$
(0.1
)

Note 8 — Stockholders’ Deficit

Common Stock No dividends were paid during the three months ended March 31, 2017 or March 31, 2016 .
Accumulated Other Comprehensive Loss  — The following tables are 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, 2017
$
10.8

 
$
(19.9
)
 
$
(44.8
)
 
$
(53.9
)
Other comprehensive income before reclassification
0.1

 
2.2

 

 
2.3

Amounts reclassified from accumulated other comprehensive loss

 

 
0.7

 
0.7

Net current period other comprehensive income
0.1

 
2.2

 
0.7

 
3.0

March 31, 2017
$
10.9

 
$
(17.7
)
 
$
(44.1
)
 
$
(50.9
)
 
 
 
 
 
 
 
 
January 1, 2016
$
11.1

 
$
(13.5
)
 
$
(46.3
)
 
$
(48.7
)
Other comprehensive income before reclassification
0.1

 
1.2

 

 
1.3

Amounts reclassified from accumulated other comprehensive loss
(0.1
)
 

 
0.8

 
0.7

Net current period other comprehensive income

 
1.2

 
0.8

 
2.0

March 31, 2016
$
11.1

 
$
(12.3
)
 
$
(45.5
)
 
$
(46.7
)


12


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,
 
Statement of Operations Location
(Amounts in millions)
2017
 
2016
 
Change in unrealized gains on securities classified as available-for-sale, before and net of tax
$

 
$
(0.1
)
 
"Investment revenue"
 
 
 
 
 
 
Pension and Postretirement Benefits adjustments:
 
 
 
 
 
Amortization of prior service credit
(0.1
)
 
(0.1
)
 
"Compensation and benefits"
Amortization of net actuarial loss
1.2

 
1.4

 
"Compensation and benefits"
Total before tax
1.1

 
1.3

 
 
Tax benefit
(0.4
)
 
(0.5
)
 
 
Total, net of tax
0.7

 
0.8

 
 
 
 
 
 
 
 
Total reclassified for the period, net of tax
$
0.7

 
$
0.7

 
 

Note 9 — 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)
2017
 
2016
Expense recognized related to stock options
$
0.3

 
$
0.9

Expense recognized related to restricted stock units
3.7

 
4.1

Stock-based compensation expense
$
4.0

 
$
5.0

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, 2016
2,485,461

 
$
18.02

 
4.0 years
 
$

Exercised
(54,472
)
 
13.88

 
 
 
 
Forfeited/Expired
(110,934
)
 
26.31

 
 
 
 
Options outstanding at March 31, 2017
2,320,055

 
$
17.72

 
3.6 years
 
$
2.9

Vested or expected to vest at March 31, 2017
2,319,415

 
$
17.72

 
3.6 years
 
$
2.9

Options exercisable at March 31, 2017
2,273,235

 
$
17.77

 
3.5 years
 
$
2.8

As of March 31, 2017 , the unrecognized stock option expense related to outstanding options was $0.2 million with a remaining weighted-average vesting period of 0.4 years .


13


Restricted Stock Units — In February 2017, the Company issued time-based and performance-based restricted stock units. The time-based restricted stock units vest in three equal installments on each anniversary of the grant date. The performance-based restricted stock units are subject to performance conditions that must be satisfied. If such performance conditions are satisfied at the conclusion of a one-year performance period, the performance-based restricted stock units will vest in three equal installments on each anniversary of the grant date. With respect to the performance-based restricted stock units, up to 50% of such awards become eligible to vest over such three year period if a target level of Adjusted EBITDA is achieved for the year ended December 31, 2017. Adjusted EBITDA is EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization) adjusted for certain significant items. The other 50% of the performance-based restricted stock units become eligible to vest over such three year period if a target level of revenue is achieved for the year ended December 31, 2017. The performance-based restricted stock units have a threshold level of performance for each of the target levels. Achievement of the threshold level will result in vesting of 50% of the target levels discussed above. The number of performance-based restricted stock units that will vest for performance achievement between the threshold and target will be determined based on a straight-line interpolation. No performance-based restricted stock units will vest for performance achievement below the thresholds.
The following table is a summary of the Company’s restricted stock unit activity:
 
Total
Shares
 
Weighted
Average
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
($000,000)
Restricted stock units outstanding at December 31, 2016
4,630,038

 
$
7.68

 
0.9 years
 
$
54.7

Granted
1,316,881

 
12.72

 
 
 
 
Vested and converted to shares
(1,731,135
)
 
7.63

 
 
 
 
Forfeited
(474,417
)
 
14.91

 
 
 
 
Restricted stock units outstanding at March 31, 2017
3,741,367

 
$
8.56

 
1.4 years
 
$
62.9

Restricted stock units vested and outstanding at March 31, 2017
69,253

 
$
6.81

 
 
 
$
1.2

As of March 31, 2017 , the Company’s outstanding restricted stock units had unrecognized compensation expense of $26.6 million . Unrecognized restricted stock unit expense and the remaining weighted-average vesting period are presented using the Company’s current estimate of achievement of performance goals. The grant-date fair value of restricted stock units vested and converted was $13.2 million and $12.9 million for the three months ended March 31, 2017 and 2016 , respectively.

Note 10 — Income Taxes
For the three months ended March 31, 2017 , the Company recognized income tax expense of $2.5 million on a pre-tax income of $11.3 million . The recorded income tax expense for the three months ended March 31, 2017 differs from taxes calculated at the statutory rate primarily due to the recognition of excess tax benefits on stock-based compensation vested during the quarter.
For the three months ended March 31, 2016 , the Company recognized an income tax expense of  $16.0 million on pre-tax income of $11.8 million . The recorded income tax expense for the three months ended March 31, 2016 differs from taxes calculated at the statutory rate primarily due to tax expense of $7.7 million from the settlement reached with the Internal Revenue Service (the "IRS") related to the deduction of payments previously made by the Company to the Asset Forfeiture and Money Laundering Section of the Department of Justice ("U.S. DOJ") pursuant to the Deferred Prosecution Agreement with the U.S. Attorney's Office for the Middle District of Pennsylvania and the U.S. DOJ (the "Deferred Prosecution Agreement"), the reversal of tax benefits of $2.8 million on share-based compensation and a tax expense of $1.1 million related to non-deductible executive compensation.
The IRS completed its examination of the Company’s consolidated income tax returns for the tax years 2011 through 2013 and issued a Revenue Agent Report (“RAR”) in the first quarter of 2015 that included disallowing $100.0 million of deductions related to payments the Company made to the U.S. DOJ pursuant to the Deferred Prosecution Agreement. In April 2016, the Company entered into a settlement agreement with the IRS allowing a deduction of $39.3 million . As of December 31, 2016, the Company had fully settled this matter with $21.2 million of existing deferred tax assets and $0.5 million of cash after recognizing an additional $7.7 million of Income tax expense for the three months ended March 31, 2016 . The state tax liabilities related to the federal settlement have yet to be settled due to the pending implications of the security losses.


14


Unrecognized tax benefits are recorded in “Accounts payable and other liabilities” in the Condensed Consolidated Balance Sheets. As of March 31, 2017 and December 31, 2016 , the liability for unrecognized tax benefits was $24.2 million . For the three months ended March 31, 2017 and 2016 , the net amount of unrecognized tax benefits that if recognized could impact the effective tax rate was $16.7 million and $38.2 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, 2017 and 2016 , the Company's accrual for interest and penalties increased by $0.6 million and $0.5 million , respectively. As of March 31, 2017 and December 31, 2016 , the Company had a liability of $7.0 million and $6.4 million , respectively, for interest and penalties related to its unrecognized tax benefits. As a result of the Company's litigation related to its securities losses previously discussed, it is possible that there could be a significant decrease to the total amount of unrecognized tax benefits over the next 12 months. As of March 31, 2017 , it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax positions over the next 12 months.

Note 11 — Commitments and Contingencies

Participation Agreement between the Investors and Wal-Mart Stores, Inc.  — Upon completion of the proposed Merger, described in Note 1 — Description of the Business and Basis of Presentation , the Company may recognize an expense and a corresponding increase to additional paid-in capital in regards to the Participation Agreement of approximately $30 million . As of March 31, 2017, the Company has not recognized any further liability or expense because completion of the Merger remains subject to certain closing conditions that have not yet been satisfied.
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 insurance coverage for many claims and litigation matters. In relation to various legal matters, including those described below, the Company had $2.0 million and $1.2 million of liability recorded in the “Accounts payable and other liabilities” line in the Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 , respectively. A charge of $0.9 million and a nominal charge were recorded for legal proceedings during the three months ended March 31, 2017 and 2016 , respectively, in the "Transaction and operations support" line in the Condensed Consolidated Statements of Operations.
Litigation Commenced Against the Company:
Class Action Securities Litigation On April 15, 2015, a securities class action lawsuit was filed in the Superior Court of the State of Delaware, County of New Castle, against MoneyGram, all of its directors, certain of its executive officers, Thomas H. Lee Partners, L.P., Goldman, Sachs & Co. and the underwriters of the secondary public offering of the Company’s common stock that closed on April 2, 2014 (the “2014 Offering”). The lawsuit was brought by the Iron Workers District Council of New England Pension Fund seeking to represent a class consisting of all purchasers of the Company’s common stock issued pursuant and/or traceable to the Company’s registration statement and prospectus, and all documents incorporated by reference therein, for the 2014 Offering. The lawsuit alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, due to allegedly false and misleading statements in connection with the 2014 Offering and seeks unspecified damages and other relief. In May 2015, MoneyGram and the other defendants filed a notice of removal to the federal district court of the District of Delaware. In September 2016, the court denied plaintiffs' motion to remand. The Company believes that the claims are without merit and intends to vigorously defend against the lawsuit. The Company is unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.
Merger-Related Litigation — On March 13, 2017 and March 17, 2017, respectively, putative securities class action lawsuits challenging the Merger were filed in the United States District Court for the District of Delaware and the United States District Court for the Northern District of Texas against MoneyGram and its directors. One of the lawsuits also named as defendants certain of our executive officers, Alipay and other parties to the Merger. The plaintiffs, our stockholders, challenged the Merger and the disclosures made in connection with the Merger. The lawsuits alleged violations of various securities laws and regulations due to allegedly material and misleading omissions in the preliminary proxy statement filed in connection with the Merger. Additionally, the lawsuits alleged that the Merger Agreement is unfair to our stockholders, resulted from an inadequate process, and contains terms that will supposedly deter third parties from making alternative offers. The plaintiffs sought to enjoin the Merger and to recover damages, costs and attorneys’ fees in unspecified amounts. On April 26, 2017 and April 28, 2017, the plaintiffs in the Delaware and Texas suits, respectively, filed notices of voluntary dismissal of those actions.
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 and cash flows.


15


Government Investigations:
State Civil Investigative Demands — MoneyGram received Civil Investigative Demands from a working group of nine state attorneys general who initiated an investigation into whether the Company took adequate steps to prevent consumer fraud during the period from 2007 to 2014. On February 11, 2016, the Company entered into a settlement agreement with 49 states and the District of Columbia to settle any civil or administrative claims such attorneys general may have asserted under their consumer protection laws through the date of the settlement agreement in connection with the investigation. Under the settlement agreement, the Company made a non-refundable payment of $13.0 million to the participating states in March 2016 to be used by the states to provide restitution to consumers. The Company also agreed to implement certain enhancements to its compliance program and provide periodic reports to the states party to the settlement agreement.
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 and cash flows.
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 their review of our Voluntary Self-Disclosure.
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 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 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, 2017 . 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 $17.8 million on amounts that have previously been accrued.


16



Note 12 — 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 (loss) per common share because the D Stock is deemed a common stock equivalent. Diluted earnings (loss) 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 (loss) 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 earnings (loss) per share:
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Basic common shares outstanding
62.1

 
62.4

Shares related to stock options and restricted stock units
4.0

 

Diluted common shares outstanding
66.1

 
62.4

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 and restricted stock units are anti-dilutive if they are subject to performance conditions that have not been met. The following table summarizes the weighted-average potential common shares excluded from diluted earnings (loss) per common share, as their effect would be anti-dilutive:
 
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Shares related to stock options
1.9

 
3.0

Shares related to restricted stock units
0.2

 
4.1

Shares excluded from the computation
2.1

 
7.1


Note 13 — 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. One of the Company’s agents for both the Global Funds Transfer segment and the Financial Paper Products segment accounted for 18% and 19% of total revenue for the three months ended March 31, 2017 and 2016 , respectively.
The following table is a summary of the total revenue by segment:
   
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Global Funds Transfer revenue:
 
 
 
Money transfer revenue
$
341.7

 
$
344.9

Bill payment revenue
25.1

 
24.1

Total Global Funds Transfer revenue
366.8

 
369.0

Financial Paper Products revenue:
 
 
 
Money order revenue
12.5

 
12.7

Official check revenue
6.8

 
5.4

Total Financial Paper Products revenue
19.3

 
18.1

Total revenue
$
386.1

 
$
387.1



17


The following table is a summary of the operating income by segment and detail of the income before income taxes:
   
Three Months Ended March 31,
(Amounts in millions)
2017
 
2016
Global Funds Transfer operating income
$
26.1

 
$
23.7

Financial Paper Products operating income
4.8

 
4.5

Total segment operating income
30.9

 
28.2

Other operating loss
(8.8
)
 
(5.1
)
Total operating income
22.1

 
23.1

Interest expense
10.8

 
11.3

Income before income taxes
$
11.3

 
$
11.8

The following table sets forth the assets by segment:
(Amounts in millions)
March 31, 2017
 
December 31, 2016
Global Funds Transfer
$
2,217.7

 
$
2,213.9

Financial Paper Products
2,065.6

 
2,198.3

Other
154.2

 
185.2

Total assets
$
4,437.5

 
$
4,597.4


Note 14 — 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 the 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 of New York LLC (collectively, the “Guarantors”).
The following information represents Condensed Consolidating Balance Sheets as of March 31, 2017 and December 31, 2016 , Condensed Consolidating Statements of Operations for the three months ended March 31, 2017 and 2016 and Condensed Consolidating Statements of Cash Flows for the three months ended March 31, 2017 and 2016 . 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.


18


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2017
 
(Amounts in millions)
Parent
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
0.9

 
$
107.5

 
$
19.0

 
$

 
$
127.4

Settlement assets

 
3,364.2

 
128.7

 

 
3,492.9

Property and equipment, net

 
188.7

 
16.1

 

 
204.8

Goodwill

 
315.4

 
126.8

 

 
442.2

Other assets
40.0

 
141.3

 
41.2

 
(52.3
)
 
170.2

Equity investments in subsidiaries
879.3

 
238.0

 

 
(1,117.3
)
 

Intercompany receivables

 
146.3

 
57.5

 
(203.8
)
 

Total assets
$
920.2

 
$
4,501.4

 
$
389.3

 
$
(1,373.4
)
 
$
4,437.5

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

 
$
3,374.5

 
$
118.4

 
$

 
$
3,492.9

Debt
913.4

 

 

 

 
913.4

Pension and other postretirement benefits

 
79.6

 

 

 
79.6

Accounts payable and other liabilities
2.3

 
168.0

 
32.9

 
(52.3
)
 
150.9

Intercompany liabilities
203.8

 

 

 
(203.8
)
 

Total liabilities
1,119.5

 
3,622.1

 
151.3

 
(256.1
)
 
4,636.8

Total stockholders’ (deficit) equity
(199.3
)
 
879.3

 
238.0

 
(1,117.3
)
 
(199.3
)
Total liabilities and stockholders’ (deficit) equity
$
920.2

 
$
4,501.4

 
$
389.3

 
$
(1,373.4
)
 
$
4,437.5



19


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2016
 
(Amounts in millions)
Parent
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
128.8

 
$
28.4

 
$

 
$
157.2

Settlement assets

 
3,504.7

 
129.6

 

 
3,634.3

Property and equipment, net

 
184.3

 
16.7

 

 
201.0

Goodwill

 
315.3

 
126.9

 

 
442.2

Other assets
36.0

 
146.0

 
39.4

 
(58.7
)
 
162.7

Equity investments in subsidiaries
879.1

 
232.3

 

 
(1,111.4
)
 

Intercompany receivables

 
155.1

 
51.3

 
(206.4
)
 

Total assets
$
915.1

 
$
4,666.5

 
$
392.3

 
$
(1,376.5
)
 
$
4,597.4

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

 
$
3,525.4

 
$
108.9

 
$

 
$
3,634.3

Debt
915.2

 

 

 

 
915.2

Pension and other postretirement benefits

 
87.6

 

 

 
87.6

Accounts payable and other liabilities
1.9

 
174.4

 
51.1

 
(58.7
)
 
168.7

Intercompany liabilities
206.4

 

 

 
(206.4
)
 

Total liabilities
1,123.5

 
3,787.4

 
160.0

 
(265.1
)
 
4,805.8

Total stockholders’ (deficit) equity
(208.4
)
 
879.1

 
232.3

 
(1,111.4
)
 
(208.4
)
Total liabilities and stockholders’ (deficit) equity
$
915.1

 
$
4,666.5

 
$
392.3

 
$
(1,376.5
)
 
$
4,597.4





20


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(Amounts in millions)
Parent
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
REVENUE
 
 
 
 
 
 
 
 
 
Fee and other revenue
$

 
$
365.4

 
$
94.0

 
$
(79.1
)
 
$
380.3

Investment revenue

 
5.8

 

 

 
5.8

Total revenue

 
371.2

 
94.0

 
(79.1
)
 
386.1

EXPENSES
 
 
 
 
 
 
 
 
 
Fee and other commissions expense

 
180.6

 
48.9

 
(43.5
)
 
186.0

Investment commissions expense

 
1.3

 

 

 
1.3

Total commissions expense

 
181.9

 
48.9

 
(43.5
)
 
187.3

Compensation and benefits

 
48.0

 
23.5

 

 
71.5

Transaction and operations support
0.4

 
95.2

 
11.6

 
(35.6
)
 
71.6

Occupancy, equipment and supplies

 
11.8

 
3.5

 

 
15.3

Depreciation and amortization

 
15.5

 
2.8

 

 
18.3

Total operating expenses
0.4

 
352.4

 
90.3

 
(79.1
)
 
364.0

OPERATING (LOSS) INCOME
(0.4
)
 
18.8

 
3.7

 

 
22.1

Other expense
 
 
 
 
 
 
 
 
 
Interest expense
10.8

 

 

 

 
10.8

Total other expense
10.8

 

 

 

 
10.8

(Loss) income before income taxes
(11.2
)
 
18.8

 
3.7

 

 
11.3

Income tax (benefit) expense
(4.1
)
 
6.4

 
0.2

 

 
2.5

(Loss) income after income taxes
(7.1
)
 
12.4

 
3.5

 

 
8.8

Equity income in subsidiaries
15.9

 
3.5

 

 
(19.4
)
 

NET INCOME
8.8

 
15.9

 
3.5

 
(19.4
)
 
8.8

TOTAL OTHER COMPREHENSIVE INCOME
3.0

 
3.0

 
2.1

 
(5.1
)
 
3.0

COMPREHENSIVE INCOME
$
11.8

 
$
18.9

 
$
5.6

 
$
(24.5
)
 
$
11.8






21


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(Amounts in millions)
Parent
 
Subsidiary Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
REVENUE
 
 
 
 
 
 
 
 
 
Fee and other revenue
$

 
$
381.6

 
$
92.4

 
$
(90.6
)
 
$
383.4

Investment revenue

 
3.7

 

 

 
3.7

Total revenue

 
385.3

 
92.4

 
(90.6
)
 
387.1

OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
Fee and other commissions expense

 
186.1

 
54.8

 
(49.9
)
 
191.0

Investment commissions expense

 
0.5

 

 

 
0.5

Total commissions expense

 
186.6

 
54.8

 
(49.9
)
 
191.5

Compensation and benefits

 
49.5

 
22.2

 

 
71.7

Transaction and operations support
0.4

 
92.6

 
12.2

 
(40.7
)
 
64.5

Occupancy, equipment and supplies

 
11.3

 
3.9

 

 
15.2

Depreciation and amortization

 
17.7

 
3.4

 

 
21.1

Total operating expenses
0.4

 
357.7

 
96.5

 
(90.6
)
 
364.0

OPERATING (LOSS) INCOME
(0.4
)
 
27.6

 
(4.1
)
 

 
23.1

Other expense
 
 
 
 
 
 
 
 
 
Interest expense
11.3

 

 

 

 
11.3

Total other expense
11.3

 

 

 

 
11.3

(Loss) income before income taxes
(11.7
)
 
27.6

 
(4.1
)
 

 
11.8

Income tax (benefit) expense
(4.3
)
 
24.5

 
(4.2
)
 

 
16.0

(Loss) income after income taxes
(7.4
)
 
3.1

 
0.1

 

 
(4.2
)
Equity income in subsidiaries
3.2

 
0.1

 

 
(3.3
)
 

NET (LOSS) INCOME
(4.2
)
 
3.2

 
0.1

 
(3.3
)
 
(4.2
)
TOTAL OTHER COMPREHENSIVE INCOME
2.0

 
4.3

 
5.4

 
(9.7
)
 
2.0

COMPREHENSIVE (LOSS) INCOME
$
(2.2
)
 
$
7.5

 
$
5.5

 
$
(13.0
)
 
$
(2.2
)



22


MONEYGRAM INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017
(Amounts in millions)
Parent