UNITED STATES SECURITIES AND EXCHANGE COMMMISSION

Washington, D.C. 20549

FORM 10-Q

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

		for the Quarterly Period Ended March 31, 2011

o		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		(I.R.S. Employer
incorporation or organization)		Identification No.)
2828 N. Harwood St., 15th Floor		75201
Dallas, Texas		(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 o

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 o No o

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

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, 2011, 83,710,522 shares of common stock, $0.01 par value, were outstanding.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
Consolidated Balance Sheets			4
Consolidated Statements of Income (Loss)			5
Consolidated Statements of Comprehensive Income (Loss)			6
Consolidated Statements of Cash Flows			7
Consolidated Statement of Stockholders’ Deficit			8
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 6. Exhibits			36
Signatures			37
Exhibit Index			38
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MONEYGRAM INTERNATIONAL, INC.

		March 31,				December 31,
(Amounts in thousands, except share data)		2011				2010
ASSETS
Cash and cash equivalents		$	—			$	—
Cash and cash equivalents (substantially restricted)			2,776,009				2,865,941
Receivables, net (substantially restricted)			956,945				982,319
Short-term investments (substantially restricted)			411,299				405,769
Available-for-sale investments (substantially restricted)			145,168				160,936
Property and equipment			111,100				115,111
Goodwill			428,691				428,691
Other assets			146,842				156,969
Total assets		$	4,976,054			$	5,115,736
LIABILITIES
Payment service obligations		$	4,045,265			$	4,184,736
Debt			640,090				639,946
Pension and other postretirement benefits			119,394				120,536
Accounts payable and other liabilities			91,944				113,647
Total liabilities			4,896,693				5,058,865
COMMITMENTS AND CONTINGENCIES (NOTE 13)
MEZZANINE EQUITY
Participating Convertible Preferred Stock-Series B, $0.01 par value, 760,000 shares authorized, 495,000 shares issued and outstanding			651,773				628,199
Participating Convertible Preferred Stock-Series B-1, $0.01 par value, 500,000 shares authorized, 272,500 shares issued and outstanding			383,348				371,154
Total mezzanine equity			1,035,121				999,353
STOCKHOLDERS’ DEFICIT
Preferred shares, $0.01 par value, none issued			—				—
Common shares, $0.01 par value, 1,300,000,000 shares authorized, 88,556,077 shares issued			886				886
Additional paid-in capital			—				—
Retained loss			(790,314	)			(771,544	)
Unearned employee benefits			—				—
Accumulated other comprehensive loss			(28,292	)			(31,879	)
Treasury stock: 4,845,555 and 4,935,555 shares at March 31, 2011 and December 31, 2010, respectively			(138,040	)			(139,945	)
Total stockholders’ deficit			(955,760	)			(942,482	)
Total liabilities, mezzanine equity and stockholders’ deficit		$	4,976,054			$	5,115,736

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended March 31,
(Amounts in thousands, except per share data)		2011				2010
REVENUE
Fee and other revenue		$	290,009			$	280,866
Investment revenue			4,015				5,638
Total revenue			294,024				286,504
EXPENSES
Fee and other commissions expense			129,060				122,410
Investment commissions expense			140				204
Total commissions expense			129,200				122,614
Compensation and benefits			59,295				57,562
Transaction and operations support			50,409				47,586
Occupancy, equipment and supplies			11,753				11,169
Depreciation and amortization			11,666				12,511
Total operating expenses			262,323				251,442
OPERATING INCOME			31,701				35,062
Other expense (income)
Net securities gains			—				(2,392	)
Interest expense			20,613				24,407
Total other expenses, net			20,613				22,015
Income before income taxes			11,088				13,047
Income tax (benefit) expense			(2,957	)			2,235
NET INCOME		$	14,045			$	10,812
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.26	)		$	(0.26	)
Net loss available to common stockholders:
Net income as reported		$	14,045			$	10,812
Accrued preferred stock dividends			(33,209	)			(29,369	)
Accretion recognized on preferred stock			(2,559	)			(2,845	)
Net loss available to common stockholders			(21,723	)			(21,402	)
Weighted-average outstanding common shares			83,638				82,632

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended March 31,
(Amounts in thousands)		2011				2010
NET INCOME		$	14,045			$	10,812
OTHER COMPREHENSIVE INCOME
Net unrealized gains on available-for-sale securities:
Net holding gains arising during the period			1,944				2,840
Reclassification adjustment for net realized losses included in net income			—				57
			1,944				2,897
Pension and postretirement benefit plans:
Reclassification of prior service (credit) costs for pension and postretirement benefit plans recorded to net income, net of tax (expense) benefit of $(57) and $8			(92	)			13
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax benefit of $621 and $546			1,012				892
Unrealized foreign currency translation gains (losses), net of tax expense (benefit) of $443 and $(906)			723				(1,478	)
Other comprehensive income			3,587				2,324
COMPREHENSIVE INCOME		$	17,632			$	13,136

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

		Three Months Ended March 31,
(Amounts in thousands)		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	14,045			$	10,812
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			11,666				12,511
Net gain (loss) on maturities of investments			—				(2,449	)
Net amortization of investment premiums and discounts			6				94
Asset impairments and adjustments			(282	)			57
Signing bonus amortization			7,948				7,330
Signing bonus payments			(6,778	)			(11,535	)
Amortization of debt discount and deferred financing costs			1,591				2,442
Provision for uncollectible receivables			1,349				2,465
Non-cash compensation and pension expense			6,922				9,201
Other non-cash items, net			449				103
Changes in foreign currency translation adjustments			723				(1,478	)
Change in other assets			4,239				(12,904	)
Change in accounts payable and other liabilities			(20,095	)			(390	)
Total adjustments			7,738				5,447
Change in cash and cash equivalents (substantially restricted)			89,932				598,733
Change in trading investments and related put options (substantially restricted)			—				29,400
Change in receivables (substantially restricted)			24,025				88,954
Change in payment service obligations			(139,471	)			(270,672	)
Net cash (used in) provided by operating activities			(3,731	)			462,674
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments classified as available-for-sale (substantially restricted)			17,462				43,323
Purchases of short-term investments (substantially restricted)			(205,441	)			(500,408	)
Proceeds from maturities of short-term investments (substantially restricted)			200,500				—
Purchases of property and equipment			(8,973	)			(6,324	)
Cash paid for acquisitions, net of cash acquired			—				(341	)
Net cash provided by (used in) investing activities			3,548				(463,750	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options			183				1,076
Net cash provided by financing activities			183				1,076
NET CHANGE IN CASH AND CASH EQUIVALENTS			—				—
CASH AND CASH EQUIVALENTS — Beginning of period			—				—
CASH AND CASH EQUIVALENTS — End of period		$	—			$	—

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

																		Accumulated
						Additional								Unearned				Other
		Common				Paid-In				Retained				Employee				Comprehensive				Treasury
(Amounts in thousands)		Stock				Capital				Loss				Benefits				Loss				Stock				Total
December 31, 2010		$	886			$	—			$	(771,544	)		$	—			$	(31,879	)		$	(139,945	)		$	(942,482	)
Net income											14,045																14,045
Accrued dividends on preferred stock							(2,115	)			(31,094	)															(33,209	)
Accretion on preferred stock							(2,559	)																			(2,559	)
Employee benefit plans							4,674				(1,721	)			—								1,905				4,858
Net unrealized gain on available-for-sale securities																			1,944								1,944
Amortization of prior service cost for pension and postretirement benefits, net of tax																			(92	)							(92	)
Amortization of unrealized losses on pension and postretirement benefits, net of tax																			1,012								1,012
Unrealized foreign currency translation adjustment																			723								723
March 31, 2011		$	886			$	—			$	(790,314	)		$	—			$	(28,292	)		$	(138,040	)		$	(955,760	)

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES

Note 1 — Basis of Presentation

The accompanying unaudited consolidated financial statements of MoneyGram International, Inc. (“MoneyGram“ or the “Company“) have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the three months ended March 31, 2011 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, 2010.

Correction of Presentation of Short-term Investments — In connection with the preparation of its consolidated financial statements for the year ended December 31, 2010, the Company corrected the presentation of certain investments in time deposits and certificates of deposit, reflecting the fact that these investments have original maturities in excess of three months but no greater than thirteen months. Accordingly, the related gross purchases and gross maturities of such short-term investments, previously presented within “Change in cash and cash equivalents (substantially restricted)” in operating activities, have been properly presented as cash flows from investing activities in the Consolidated Statement of Cash Flows for the three months ended March 31, 2010.

Note 2 — Proposed Recapitalization

On March 7, 2011, the Company entered into a Recapitalization Agreement, as amended on May 4, 2011, with affiliates of Thomas H. Lee Partners, L.P. (“THL”) and affiliates of Goldman, Sachs & Co. (“Goldman Sachs,” and collectively with THL, the “Investors”) pursuant to which (i) THL will convert all of its shares of Series B Participating Convertible Preferred Stock, par value $0.01 per share (the “B Stock”), into shares of common stock in accordance with the Certificate of Designations, Preferences and Rights of Series B Participating Convertible Preferred Stock of MoneyGram, (ii) Goldman Sachs will convert all of the shares of Series B-1 Participating Convertible Preferred Stock, par value $0.01 per share (the “B-1 Stock,” and collectively with the B Stock, the “Series B Stock”), into shares of Series D Participating Convertible Preferred Stock, par value $0.01 per share (the “D Stock”), in accordance with the Certificate of Designations, Preferences and Rights of Series B-1 Participating Convertible Preferred Stock of MoneyGram, and (iii) THL will receive approximately 28.2 million additional shares of common stock and $140.8 million in cash, and Goldman Sachs will receive approximately 15,504 additional shares of D Stock (equivalent to approximately 15.5 million shares of common stock) and $77.5 million in cash (such transactions, collectively, the “2011 Recapitalization”).

Concurrent with entering into the Recapitalization Agreement, MoneyGram Payment Systems Worldwide, Inc. and the Company entered into a Consent Agreement with the holders of the second lien notes pursuant to which the parties entered into a supplemental indenture to the indenture governing the Company’s second lien notes that, among other things, amended the indenture governing the second lien notes in order to permit the 2011 Recapitalization. On April 15, 2011, the syndication process was completed for a new $540 million senior secured credit facility (the “New Credit Facility”) consisting of a $150 million, five-year revolving credit facility and a $390 million, six-year term loan. Upon closing, the net proceeds from the term loan under the New Credit Facility would be used to consummate the 2011 Recapitalization and to refinance the Company’s existing credit facility. The proposed term loan is expected to bear interest at LIBOR plus 3.25 percent (with a LIBOR floor of 1.25 percent). Closing of the New Credit Facility is subject to finalization of a new credit agreement with the lenders on customary terms and conditions. Closing of the New Credit Facility is conditional upon the closing of the 2011 Recapitalization.

The 2011 Recapitalization has been approved unanimously by the Company’s board of directors following the recommendation of a special committee comprised of independent and disinterested members of our board of directors, and is subject to various conditions contained in the Recapitalization Agreement. These conditions include the approval of the 2011 Recapitalization by the affirmative vote of a majority of the outstanding shares of our common stock and B Stock (on an as-converted basis), voting as a single class, and the affirmative vote of a majority of the outstanding shares of our common stock (not including the B Stock or any other stock of the Company held by any Investor or any executive officer or director of the Company). Voting on the 2011 Recapitalization is currently scheduled for May 18, 2011 at a special meeting of the Company’s stockholders.

If the 2011 Recapitalization is completed as intended, all amounts included in mezzanine equity would be converted into components of stockholders’ deficit. Unamortized transaction costs and discounts related to the mezzanine equity would be charged against additional paid-in capital to the extent available, with the remaining amount charged to retained loss. The conversion of the B Stock would result in an increase to common stock and additional paid-in capital, while the conversion of the B-1 Stock would result in the recognition of the D Stock within stockholders’ deficit. The shares of common stock and D Stock issued as additional consideration, along with additional consideration to be paid in cash, would be charged against retained loss and would reduce the amount of income available to common stockholders in the calculation of earnings per share for the period in which the conversion is completed. Upon entering into the New Credit Facility, the Company anticipates that the unamortized discounts and deferred financing costs related to the existing senior facility would be expensed.

As previously disclosed, the Investors have a Participation Agreement with Walmart Stores, Inc. (“Walmart”), under which the Investors are obligated to pay Walmart certain percentages of any accumulated cash payments received by the Investors in excess of the Investors’ original investment in the Company. Under the terms of the Participation Agreement, the Investors are obligated to pay Walmart certain percentages of accumulated cash payments received by the Investors in excess of the Investor’s original investments in the Company. While the Company is not a party to, and has no obligations to Walmart or additional obligations to the Investors under the Participation Agreement, the Company must recognize the Participation Agreement in its consolidated financial statements as the Company indirectly benefited from the agreement. A liability and the related expense associated with the Participation Agreement would be recognized by the Company in the period in which it becomes probable that a liquidity event will occur that would require the Investors to make a payment to Walmart (a “liquidity event”). Upon payment by the Investors to Walmart, the liability would be released through a credit to the Company’s additional paid-in capital. As liquidity events are dependent on many external factors and uncertainties, the Company does not consider a liquidity event to be probable at this time, and has not recognized a liability or expense related to the Participation Agreement. The additional consideration to be paid to the Investors in connection with the 2011 Recapitalization would not result in a liquidity event as the amounts to be received by the Investors are less than their original investment in the Company.

Note 3 — Assets in Excess of Payment Service Obligations

The following table shows the amount of assets in excess of payment service obligations at March 31, 2011 and December 31, 2010:

		March 31,				December 31,
(Amounts in thousands)		2011				2010
Cash and cash equivalents (substantially restricted)		$	2,776,009			$	2,865,941
Receivables, net (substantially restricted)			956,945				982,319
Short-term investments (substantially restricted)			411,299				405,769
Available-for-sale investments (substantially restricted)			145,168				160,936
			4,289,421				4,414,965
Payment service obligations			(4,045,265	)			(4,184,736	)
Assets in excess of payment service obligations		$	244,156			$	230,229

The Company was in compliance with its contractual and financial regulatory requirements as of March 31, 2011 and December 31, 2010.

Note 4 — Fair Value Measurement

The following table sets forth the Company’s financial assets that are recorded at fair value, with forward contracts displayed on a net basis. At March 31, 2011 the Company has recorded liabilities associated with its forward contracts at a fair value of $1.6 million with corresponding receivables of $1.5 million, for a net liability position of $0.1 million. At December 31, 2010, the Company had recorded liabilities associated with its forward contracts at a fair value of $0.5 million, with corresponding receivables of $1.1 million, for a net asset position of $0.6 million.

		March 31, 2011
(Amounts in thousands)		Level 1				Level 2				Level 3				Total
Available-for-sale investments (substantially restricted):
United States government agencies		$	—			$	8,530			$	—			$	8,530
Residential mortgage-backed securities — agencies			—				110,298				—				110,298
Other asset-backed securities			—				—				26,340				26,340
Total financial assets		$	—			$	118,828			$	26,340			$	145,168

		December 31, 2010
(Amounts in thousands)		Level 1				Level 2				Level 3				Total
Available-for-sale investments (substantially restricted):
United States government agencies		$	—			$	8,641			$	—			$	8,641
Residential mortgage-backed securities — agencies			—				128,585				—				128,585
Other asset-backed securities			—				—				23,710				23,710
Forward contracts			—				582				—				582
Total financial assets		$	—			$	137,808			$	23,710			$	161,518

The tables below provide a roll-forward of the financial assets classified in Level 3 which are measured at fair value on a recurring basis for the three months ended March 31, 2011 and 2010.

		Three Months Ended								Three Months Ended
		March 31, 2011								March 31, 2010
						Total				Trading								Total
		Other				Level 3				Investments				Other				Level 3
		Asset-Backed				Financial				and Related				Asset-Backed				Financial
(Amounts in thousands)		Securities				Assets				Put Options				Securities				Assets
Beginning balance		$	23,710			$	23,710			$	26,951			$	22,088			$	49,039
Realized gains			—				—				2,449				—				2,449
Principal paydowns			(410	)			(410	)			(29,400	)			(909	)			(30,309	)
Other-than-temporary impairments			—				—				—				(57	)			(57	)
Unrealized gains — instruments still held at the reporting date			4,093				4,093				—				3,051				3,051
Unrealized losses — instruments still held at the reporting date			(1,053	)			(1,053	)			—				(340	)			(340	)
Ending balance		$	26,340			$	26,340			$	—			$	23,833			$	23,833

Debt — Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is estimated using market quotations, where available, credit ratings, observable market indices and other market data. As of March 31, 2011, the fair value of Tranche A and Tranche B under the Company’s senior facility is estimated at $98.7 million and $40.9 million, respectively. As of March 31, 2011, the fair value of the Company’s second lien notes is estimated at $525.0 million. See Note 7 — Debt for more information on the Company’s debt.

Note 5 — Investment Portfolio

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

		March 31,				December 31,
(Amounts in thousands)		2011				2010
Cash		$	1,991,979			$	1,042,381
Money markets			783,984				1,818,138
Deposits			46				5,422
Cash and cash equivalents (substantially restricted)			2,776,009				2,865,941
Short-term investments (substantially restricted)			411,299				405,769
Available-for-sale investments (substantially restricted)			145,168				160,936
Total investment portfolio		$	3,332,476			$	3,432,646

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

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

Available-for-sale Investments (substantially restricted) — Available-for-sale investments consist of mortgage-backed securities, asset-backed securities and agency debenture securities. After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments are as follows at March 31, 2011:

						Gross				Gross								Net
		Amortized				Unrealized				Unrealized				Fair				Average
(Amounts in thousands, except net average price)		Cost				Gains				Losses				Value				Price
Residential mortgage-backed securities-agencies		$	104,293			$	6,005			$	—			$	110,298			$	106.45
Other asset-backed securities			10,252				16,088				—				26,340				5.41
United States government agencies			7,383				1,147				—				8,530				94.78
Total		$	121,928			$	23,240			$	—			$	145,168			$	24.20

After other-than-temporary impairment charges, the amortized cost and fair value of available-for-sale investments were as follows at December 31, 2010:

						Gross				Gross								Net
		Amortized				Unrealized				Unrealized				Fair				Average
(Amounts in thousands, except net average price)		Cost				Gains				Losses				Value				Price
Residential mortgage-backed securities — agencies		$	121,677			$	7,001			$	(93	)		$	128,585			$	106.37
Other asset-backed securities			10,690				13,020				—				23,710				4.68
United States government agencies			7,273				1,368				—				8,641				96.01
Total		$	139,640			$	21,389			$	(93	)		$	160,936			$	25.27

At March 31, 2011 and December 31, 2010, approximately 82 percent and 85 percent, respectively, of the available-for-sale portfolio are invested in debentures of United States government agencies or securities collateralized by United States government agency debentures. These securities have the implicit backing of the United States government, and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments. The “Other asset-backed securities” continue to have market exposure, as factored into the fair value estimates, with the average price of an asset-backed security at $0.05 per dollar of par at March 31, 2011.

Gains and Losses and Other-Than-Temporary Impairments — At March 31, 2011 and December 31, 2010, net unrealized gains of $23.2 million and $21.3 million, respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During the three months ended March 31, 2011 and 2010, net losses of zero and less than $0.1 million, respectively, were reclassified from “Accumulated other comprehensive loss” to “Net securities gains” in connection with other-than-temporary impairments and realized gains and losses recognized during the period. “Net securities gains” were as follows:

		Three Months Ended
		March 31,
(Amounts in thousands)		2011				2010
Other-than-temporary impairments from available-for-sale investments		$	—			$	57
Realized gains from trading investments and related put options			—				(2,449	)
Net securities gains		$	—			$	(2,392	)

The Company’s final trading investment was called at par during the first quarter of 2010, resulting in a $2.5 million gain recorded in “Net securities gains,” net of the reversal of the related put options.

Investment Ratings — In rating the securities in its investment portfolio, the Company uses ratings from Moody’s Investor Service (“Moody’s”), Standard & Poors (“S&P”) and Fitch Ratings (“Fitch”). If the rating agencies have split ratings, the Company uses the highest rating across the rating agencies for disclosure purposes. Securities issued or backed by United States government agencies are included in the AAA rating category. Investment grade is defined as a security having a Moody’s equivalent rating of Aaa, Aa, A or Baa or an S&P or Fitch equivalent rating of AAA, AA, A or BBB. The Company’s investments at March 31, 2011 and December 31, 2010 consisted of the following ratings:

		March 31, 2011												December 31, 2010
		Number of				Fair				Percent of				Number of				Fair				Percent of
(Dollars in thousands)		Securities				Value				Investments				Securities				Value				Investments
AAA, including United States agencies			25			$	118,520				82	%			25			$	136,893				85	%
Below investment grade			63				26,648				18	%			64				24,043				15	%
Total			88			$	145,168				100	%			89			$	160,936				100	%

Had the Company used the lowest rating from the rating agencies in the information presented above, there would be less than a $0.1 million change to investments rated A or better at March 31, 2011, and no change at December 31, 2010.

Contractual Maturities — The amortized cost and fair value of available-for-sale securities at March 31, 2011 and December 31, 2010, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties. Maturities of mortgage-backed and other asset-backed securities depend on the repayment characteristics and experience of the underlying obligations.

		March 31, 2011								December 31, 2010
		Amortized				Fair				Amortized				Fair
(Amounts in thousands)		Cost				Value				Cost				Value
After one year through five years		$	7,383			$	8,530			$	7,273			$	8,641
Mortgage-backed and other asset-backed securities			114,545				136,638				132,367				152,295
Total		$	121,928			$	145,168			$	139,640			$	160,936

Note 6 — Derivative Financial Instruments

The Company uses forward contracts to hedge income statement exposure to foreign currency exchange risk arising from its assets and liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as hedges for accounting purposes. The “Transaction and operations support“ line in the Consolidated Statements of Income (Loss) reflects net foreign currency exchange losses of $1.5 million and $2.3 million for the three months ended March 31, 2011 and 2010, respectively. These losses reflect changes in foreign currency exchange rates on foreign-denominated receivables and payables from the related forward contracts, and are net of a loss on forward contracts of $8.1 million for the three months ended March 31, 2011 and a gain on forward contracts of $4.2 million for the three months ended March 31, 2010. At March 31, 2011 and December 31, 2010, the Company had $155.4 million and $123.8 million, respectively, of outstanding notional amounts relating to its forward contracts.

At March 31, 2011 and December 31, 2010, the Company reflects the following fair values of derivative forward contract instruments in its Consolidated Balance Sheets:

						Derivative Assets								Derivative Liabilities
		Balance Sheet				March 31,				December 31,				March 31,				December 31,
(Amounts in thousands)		Location				2011				2010				2011				2010
Forward contracts		Other assets				$	1,481			$	1,117			$	1,590			$	535

Note 7 — Debt

Following is a summary of the Company’s outstanding debt at March 31, 2011 and December 31, 2010:

		March 31, 2011								December 31, 2010
						Weighted-								Weighted-
						Average								Average
(Amounts in thousands)		Amount				Interest Rate				Amount				Interest Rate
Senior Tranche A Loan, due 2013		$	100,000				5.75	%		$	100,000				5.75	%
Senior Tranche B Loan, net of unamortized discount, due 2013			40,090				7.25	%			39,946				7.25	%
Senior revolving credit facility, due 2013			—				—				—				—
Second lien notes, due 2018			500,000				13.25	%			500,000				13.25	%
Total debt		$	640,090							$	639,946

Senior Facility — The Company may elect an interest rate for the senior facility at each reset period based on the United States prime bank rate or the Eurodollar rate. During 2011 and 2010, the Company elected the United States prime bank rate as its interest basis. Amortization of the debt discount on Tranche B of $0.1 million and $0.7 million during the three months ended March 31, 2011 and 2010, respectively, is recorded in “Interest expense“ in the Consolidated Statements of Income (Loss). As of March 31, 2011, the Company has $241.7 million of availability under the revolving credit facility, net of $8.3 million of outstanding letters of credit. In connection with the 2011 Recapitalization, the Company completed the syndication process for a new credit facility, the proceeds of which would be used to refinance the Senior Facility upon closing. See Note 2 — Proposed Recapitalization for further information.

Second Lien Notes — Prior to March 25, 2011, the Company had the option to capitalize interest at a rate of 15.25 percent for the second lien notes. If interest had been capitalized, 0.50 percent of the interest would have been payable in cash and 14.75 percent would have been capitalized into the outstanding principal balance. The Company paid the interest through March 31, 2011, and anticipates that it will continue to pay the interest on the notes for the foreseeable future.

Debt Covenants — At March 31, 2011, the Company is in compliance with its covenants.

Deferred Financing Costs — Amortization of deferred financing costs of $1.4 million and $1.7 million during the three months ended March 31, 2011 and 2010, respectively, is recorded in “Interest expense“ in the Consolidated Statements of Income (Loss).

Interest Paid in Cash — The Company paid $18.7 million and $21.7 million of interest for the three months ended March 31, 2011 and 2010, respectively.

Note 8 — Pensions and Other Benefits

Net periodic benefit expense for the Company’s defined benefit pension plan and combined supplemental executive retirement plans (“SERPs“) and postretirement benefit plans includes the following components for the three months ended March 31:

		Pension and SERP’s								Postretirement Benefits
(Amounts in thousands)		2011				2010				2011				2010
Service cost		$	—			$	—			$	—			$	—
Interest cost			2,841				2,969				13				63
Expected return on plan assets			(2,056	)			(2,166	)			—				—
Amortization of prior service cost (credit)			7				21				(156	)			—
Recognized net actuarial loss			1,572				1,196				61				4
Net periodic benefit expense		$	2,364			$	2,020			$	(82	)		$	67

Benefits paid through the defined benefit pension plan were $2.2 million and $3.1 million for the three months ended March 31, 2011 and 2010, respectively. The Company made contributions of $0.9 million to the defined benefit pension plan during the three months ended March 31, 2011. No contributions were made to the defined benefit pension plan during the three months ended March 31, 2010. Benefits paid through, and contributions made to, the combined SERPs were $1.1 million during both the three months ended March 31, 2011 and 2010. Benefits paid through, and contributions made to, the defined benefit postretirement plans were less than $0.1 million and $0.4 million during the three months ended March 31, 2011 and 2010, respectively. Contribution expense for the 401(k) defined contribution plan was $0.8 million for both the three months ended March 31, 2011 and 2010.

The net loss for the defined benefit pension plan and combined SERPs that the Company amortized from “Accumulated other comprehensive loss“ into “Net periodic benefit expense“ was $1.6 million ($1.0 million, net of tax) and $1.2 million ($0.7 million, net of tax) for the three months ended March 31, 2011 and 2010, respectively, while the prior service cost was nominal for both the three months ended March 31, 2011 and 2010. The net loss for the postretirement benefit plans that the Company amortized from “Accumulated other comprehensive loss” into “Net periodic benefit expense” was nominal for both the three months ended March 31, 2011 and 2010. The prior service credit for the postretirement benefit plans that the Company amortized from “Accumulated other comprehensive loss“ into “Net periodic benefit expense“ was $0.2 million ($0.1 million, net of tax) for the three months ended March 31, 2011 while the prior service cost was nominal for the three months ended March 31, 2010.

Deferred Compensation Plans — In February 2011, the MoneyGram International, Inc. Deferred Compensation Plan, a non-qualified, frozen, deferred compensation plan for a select group of management and highly compensated employees, was amended to (a) terminate all employee deferral accounts on the amendment date and pay each participant the balance of the participant’s account in a lump sum no earlier than one year from termination and no later than December 31, 2012; and (b) cash out all non-voluntary, employer deferral accounts if and when the account balance falls below the applicable dollar amount under Section 402(g)(1)(B) of the Internal Revenue Code. The Company intends to make payments due under (a) on or around March 2012, and under (b) in May 2011 and future dates as applicable.

Note 9 — Mezzanine Equity

Following is a summary of mezzanine equity activity related to the Company’s Series B Stock during the three months ended March 31, 2011:

										Series
(Amounts in thousands)		B Stock				B-1 Stock				B Stock
Balance at December 31, 2010		$	628,199			$	371,154			$	999,353
Dividends accrued			21,418				11,791				33,209
Accretion			2,156				403				2,559
Balance at March 31, 2011		$	651,773			$	383,348			$	1,035,121

In connection with the 2011 Recapitalization, the Company entered into the Recapitalization Agreement which, if consummated as contemplated, would result in the conversion of the Series B Stock into common stock and D Stock. See Note 2 — Proposed Recapitalization for further information.

Note 10 — Stockholders’ Deficit

Common Stock — Following is a summary of common stock issued and outstanding:

		March 31,				December 31,
(Amounts in thousands)		2011				2010
Common shares issued			88,556				88,556
Treasury stock			(4,846	)			(4,936	)
Common shares outstanding			83,710				83,620

Treasury Stock — Following is a summary of treasury stock share activity during the three months ended March 31, 2011:

		Treasury Stock
(Amounts in thousands)		Shares
Balance at December 31, 2010			4,936
Exercise of stock options			(90	)
Balance at March 31, 2011			4,846

Accumulated Other Comprehensive Loss — The components of “Accumulated other comprehensive loss“ are as follows:

		March 31,				December 31,
(Amounts in thousands)		2011				2010
Net unrealized gains on securities classified as available-for-sale		$	23,240			$	21,296
Cumulative foreign currency translation adjustments			5,917				5,194
Prior service cost for pension and postretirement benefits, net of tax			2,312				2,404
Unrealized losses on pension and postretirement benefits, net of tax			(59,761	)			(60,773	)
Accumulated other comprehensive loss		$	(28,292	)		$	(31,879	)

Note 11 — Stock-Based Compensation

The Company’s 2005 Omnibus Incentive Plan allows for the issuance under all awards of 47,000,000 shares of common stock. As of March 31, 2011, the Company has remaining authorization to issue awards of up to 4,854,957 shares of common stock. On April 4, 2011, the Board of Directors unanimously approved an amendment to the 2005 incentive plan to increase the aggregate number of shares reserved for the issuance under the 2005 incentive plan from 47,000,000 shares to 57,000,000 shares, subject to stockholder approval.

Stock Options — Pursuant to the terms of options granted in 2011, 50 percent of the options become exercisable through the passage of time (the “Time-based Tranche“) and 50 percent of the options become exercisable upon the achievement of certain conditions (the “Performance-based Tranche“). The Time-based Tranche generally becomes exercisable over a five-year period in either (a) an equal number of shares each year or (b) for some issuances in 2009, a tranched vesting schedule whereby 15 percent of the Time-based Tranche vests immediately and then at rates of 10 to 20 percent each year. The Performance-based Tranche becomes exercisable upon the achievement within five years of grant of the earlier of (a) a pre-defined common stock price for any period of 20 consecutive trading days, (b) a change in control of the Company resulting in a pre-defined per share consideration or (c) in the event the Company’s common stock does not trade on a United States exchange or trading market, a public offering resulting in the Company’s common stock meeting pre-defined equity values. All options granted in 2011 have a term of 10 years. These terms are consistent with options granted in 2010.

For purposes of determining the fair value of stock option awards, the Company uses the Black-Scholes single option pricing model for the Time-based Tranches and a combination of Monte-Carlo simulation and the Black-Scholes single option pricing model for the Performance-based Tranches. Expected volatility is based on the historical volatility of the price of the Company’s common stock since the Company’s spin-off from Viad Corporation on June 30, 2004. The Company used the simplified method to estimate the expected term of the award and historical information to estimate the forfeiture rate. As the pattern of changes in the value of the Company’s common stock since late 2007 has been substantially different from historical patterns, the nature of options granted since 2008 is substantially different from historical grants and there have been minimal stock option exercises since 2007, the Company is unable to make a more refined estimate than the use of the simplified method. The expected term represents the period of time that options are expected to be outstanding and the forfeiture rate represents the number of unvested options that will be forfeited by grantees due to termination of employment. In addition, the Company considers any expectations regarding future activity that could impact the expected term and forfeiture rate. The risk-free rate for the Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for periods within the expected term of the option, while the risk-free rate for the Monte-Carlo simulation is based on the five-year United States Treasury yield in effect at the time of grant. Compensation cost, net of expected forfeitures, is recognized using a straight-line method over the vesting or service period. The following table provides weighted-average grant-date fair value and assumptions utilized to estimate the grant-date fair value of the 2011 options.

Expected dividend yield			0.0	%
Expected volatility			72.4	%
Risk-free interest rate			2.9	%
Expected life		6.5 years
Weighted-average grant-date fair value per option		$	2.08

Following is a summary of stock option activity for 2011:

										Weighted-
						Weighted-				Average				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Contractual				Value
		Shares				Price				Term				($000)
Options outstanding at December 31, 2010			39,897,474			$	3.31
Granted			3,600,000				2.91
Exercised			(90,000	)			2.30
Forfeited/Expired			(1,970,516	)			8.62
Options outstanding at March 31, 2011			41,436,958			$	3.02			8.48 years				$	36,404
Vested or expected to vest at March 31, 2011			39,737,424			$	3.04			8.45 years				$	35,174
Options exercisable at March 31, 2011			7,701,958			$	4.89			7.11 years				$	8,347

As of March 31, 2011, the Company’s outstanding stock options had unrecognized compensation expense of $28.6 million and a remaining weighted-average vesting period of 1.5 years. The Company recorded compensation expense related to stock options of $4.5 million and $6.9 million for the three months ended March 31, 2011 and 2010 respectively. Compensation expense related to restricted stock units was $0.1 million for the three months ended March 31, 2011.

Note 12 — Income Taxes

For the three months ended March 31, 2011, the Company had $3.0 million of income tax benefit on pre-tax income of $11.1 million, primarily reflecting a discrete benefit of $3.5 million for the reversal of a portion of the valuation allowance on domestic deferred tax assets. The effective tax rate for 2011 reflects the expected utilization of net operating loss carry-forwards based on the Company’s review of current facts and circumstances, including the three year cumulative income position as of March 31, 2011 and expectations that the Company will maintain a cumulative income position in the future. Changes in facts and circumstances may cause the Company to record additional tax expense or benefits in the future. For the three months ended March 31, 2010, the Company had $2.2 million of income tax expense on pre-tax income of $13.0 million, primarily reflecting the reversal of book to tax differences, including a litigation accrual. The Company paid $0.1 million and $0.3 million of federal and state income taxes for the three months ended March 31, 2011 and 2010, respectively.

For both the three months ended March 31, 2011 and 2010, the Company recognized $0.1 million in interest and penalties for unrecognized tax benefits. The Company records interest and penalties for unrecognized tax benefits in “Income tax expense” in the Consolidated Statements of Income. As of March 31, 2011 and December 31, 2010, the Company had a liability of $1.8 million and $1.7 million, respectively, for interest and penalties within “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

During the second quarter of 2010, the IRS completed its examination of the Company’s consolidated income tax returns for 2005 to 2007, and issued its Revenue Agent Report (“RAR”) challenging the Company’s tax position relating to net securities losses and disallowing $687.0 million of deductions taken in the 2007 tax return. The Company disagrees with the RAR regarding the net securities losses and filed a protest letter. The Company has had initial conferences with the IRS Appeals Office in 2010, and will continue these conferences in 2011. As of December 31, 2010, the Company has recognized a cumulative federal benefit of approximately $105.5 million relating to its net securities losses.

Note 13 — Commitments and Contingencies

Legal Proceedings — The Company is involved in various claims, litigations and government inquiries that arise from time to time in the ordinary course of the Company’s business. All of these matters are subject to uncertainties and outcomes that are not predictable with certainty. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigations alleged. 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.

In relation to various legal matters, including those described below, the Company had $3.1 million and $2.3 million of liability recorded in the “Accounts payable and other liabilities” line in the Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010, respectively. A charge of $0.8 million was recorded in the “Transaction and operations support” line in the Consolidated Statements of Income (Loss) for the three months ended March 31, 2011 and no charges related to legal matters were recorded for the three months ended March 31, 2010.

Shareholder Litigation — On April 15, 2011, a complaint was filed in the Court of Chancery of the State of Delaware by Willie R. Pittman purporting to be a class action complaint on behalf of all shareholders and a shareholder derivative complaint against the Company, THL, Goldman Sachs and each of the Company’s directors. Ms. Pittman alleges in her complaint that she is a stockholder of the Company and asserts, among other things, (i) breach of fiduciary duty and disclosure claims against the Company’s directors, THL and Goldman Sachs, (ii) breach of the Company’s certificate of incorporation claims against the Company, THL and Goldman Sachs, and (iii) claims for aiding and abetting breach of fiduciary duties against Goldman Sachs. Ms. Pittman purports to sue on her own behalf and on behalf of the Company and its stockholders. Ms. Pittman seeks to, among other things, enjoin or rescind the proposed 2011 Recapitalization, pursuant to which, among other things, subject to the terms and conditions in the Recapitalization Agreement, THL will convert all of its shares of B Stock into common stock of the Company and Goldman Sachs will convert all of its shares of B-1 Stock into shares of D Stock of the Company. On April 29, 2011, the plaintiff filed an amended complaint to add two additional plaintiffs. The Company intends to defend the lawsuit vigorously, including opposing the request to enjoin the 2011 Recapitalization.

Patent Action — On September 25, 2009, the United States District Court for the Western District of Texas, Austin returned a jury verdict in a patent suit brought against the Company by Western Union on May 11, 2007, styled Western Union v. MoneyGram Payment Systems, Inc., alleging patent infringement and seeking damages and an injunction. The District Court awarded $16.5 million to Western Union. MoneyGram appealed the verdict, and on December 7, 2010 the Court of Appeals for the Federal Circuit ruled in favor of MoneyGram, reversing the District Court’s ruling on the grounds of obviousness of the three underlying patents that were the subject of the appeal. The District Court proceeding also involved a fourth patent, as to which no appeal was sought. The liability on that particular patent is expected to be approximately $0.2 million subject to a review by the District Court. Western Union filed a petition for a re-hearing before the same panel of appellate judges or the entire appellate court “en banc,” which petition was denied by the Appellate Court on February 11, 2011.

Note 14 — Earnings per Common Share

Following are the weighted-average potential common shares excluded from diluted earnings per common share as their effect would be anti-dilutive:

		Three Months Ended
		March 31, 2011
(Amounts in thousands)		2011				2010
Shares related to stock options			41,078				35,154
Shares related to restricted stock			—				5
Shares related to preferred stock			445,034				393,496

Note 15 — Segment Information

The Company conducts its business through two reportable segments, Global Funds Transfer and Financial Paper Products. Businesses that are not operated within these segments are categorized as “Other,“ and primarily relate to discontinued products and businesses. One of the Company’s agents of both the Global Funds Transfer segment and the Financial Paper Products segment accounted for 30.0 percent and 30.8 percent of the Company’s total revenue for the three months ended March 31, 2011 and 2010, respectively. The following tables set forth operating results, depreciation and amortization and capital expenditures by segment:

		Three Months Ended
		March 31,
(Amounts in thousands)		2011				2010
Revenue
Global Funds Transfer:
Money transfer		$	239,704			$	222,831
Bill payment			30,077				33,863
Total Global Funds Transfer			269,781				256,694
Financial Paper Products:
Money order			15,730				17,904
Official check			8,166				10,499
Total Financial Paper Products			23,896				28,403
Other			347				1,407
Total revenue		$	294,024			$	286,504

		Three Months Ended
		March 31,
(Amounts in thousands)		2011				2010
Segment operating income:
Global Funds Transfer		$	26,447			$	27,781
Financial Paper Products			8,380				8,903
Other			(263	)			(518	)
Total segment operating income			34,564				36,166
Net securities (gains) losses			—				(2,392	)
Interest expense			20,613				24,407
Other unallocated expenses			2,863				1,104
Income (loss) before income taxes		$	11,088			$	13,047

		Three Months Ended
		March 31,
(Amounts in thousands)		2011				2010
Depreciation and amortization:
Global Funds Transfer		$	10,113			$	9,812
Financial Paper Products			1,544				2,690
Other			9				9
Total depreciation and amortization		$	11,666			$	12,511
Capital expenditures:
Global Funds Transfer		$	6,891			$	5,807
Financial Paper Products			874				1,110
Other			—				—
Total capital expenditures		$	7,765			$	6,917

The following table presents revenue by major geographic area:

		Three Months Ended
		March 31,
(Amounts in thousands)		2011				2010
United States		$	187,898			$	195,463
International			106,126				91,041
Total revenue		$	294,024			$	286,504

Note 16 — Condensed Consolidating Financial Statements

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

The following information represents condensed, consolidating Balance Sheets as of March 31, 2011 and December 31, 2010, along with condensed, consolidating Statements of Income and Statements of Cash Flows for the three months ended March 31, 2011 and 2010. 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.

MONEYGRAM INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2011

						Subsidiary				Non-
(Amounts in thousands)		Parent				Guarantors				Guarantors				Eliminations				Consolidated
ASSETS
Cash and cash equivalents		$	—			$	—			$	—			$	—			$	—
Cash and cash equivalents (substantially restricted)			10				2,642,624				133,375				—				2,776,009
Receivables, net (substantially restricted)			—				945,017				11,928				—				956,945
Short-term investments (substantially restricted)			—				400,000				11,299				—				411,299
Available-for-sale investments (substantially restricted)			—				145,168				—				—				145,168
Property and equipment			—				87,304				23,796				—				111,100
Goodwill			—				306,878				121,813				—				428,691
Other assets			7,624				124,466				14,669				83				146,842
Equity investments in subsidiaries			284,268				177,158				—				(461,426	)			—
Intercompany receivables			—				253,165				—				(253,165	)			—
Total assets		$	291,902			$	5,081,780			$	316,880			$	(714,508	)		$	4,976,054
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Payment service obligations		$	—			$	3,972,823			$	72,442			$	—			$	4,045,265
Debt			—				640,090				—				—				640,090
Pension and other postretirement benefits			—				117,689				1,705				—				119,394
Accounts payable and other liabilities			11,819				66,910				13,215				—				91,944
Intercompany liabilities			200,722				—				52,360				(253,082	)			—
Total liabilities			212,541				4,797,512				139,722				(253,082	)			4,896,693
Mezzanine equity			1,035,121				—				—				—				1,035,121
Total stockholders’ (deficit) equity			(955,760	)			284,268				177,158				(461,426	)			(955,760	)
Total liabilities, mezzanine equity and stockholders’ (deficit) equity		$	291,902			$	5,081,780			$	316,880			$	(714,508	)		$	4,976,054

MONEYGRAM INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2010

						Subsidiary				Non-
(Amounts in thousands)		Parent				Guarantors				Guarantors				Eliminations				Consolidated
ASSETS
Cash and cash equivalents		$	—			$	—			$	—			$	—			$	—
Cash and cash equivalents (substantially restricted)			108				2,704,865				160,968				—				2,865,941
Receivables, net (substantially restricted)			—				970,108				12,211				—				982,319
Short-term investments (substantially restricted)			—				405,769				—				—				405,769
Investments and related put options (substantially restricted)			—				160,936				—				—				160,936
Property and equipment			—				93,006				22,105				—				115,111
Goodwill			—				306,878				121,813				—				428,691
Other assets			—				141,469				15,500				—				156,969
Equity investments in subsidiaries			265,990				168,978				—				(434,968	)			—
Intercompany receivables			—				260,803				—				(260,803	)			—
Total assets		$	266,098			$	5,212,812			$	332,597			$	(695,771	)		$	5,115,736
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Payment service obligations		$	—			$	4,095,734			$	89,002			$	—			$	4,184,736
Debt			—				639,946				—				—				639,946
Pension and other postretirement benefits			—				119,008				1,528				—				120,536
Accounts payable and other liabilities			6,631				92,134				14,882				—				113,647
Intercompany liabilities			202,596				—				58,207				(260,803	)			—
Total liabilities			209,227				4,946,822				163,619				(260,803	)			5,058,865
Mezzanine equity			999,353				—				—				—				999,353
Total stockholders’ (deficit) equity			(942,482	)			265,990				168,978				(434,968	)			(942,482	)
Total liabilities, mezzanine equity and stockholders’ (deficit) equity		$	266,098			$	5,212,812			$	332,597			$	(695,771	)		$	5,115,736

MONEYGRAM INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2011

						Subsidiary				Non-
(Amounts in thousands)		Parent				Guarantors				Guarantors				Eliminations				Consolidated
REVENUE
Fee and other revenue		$	—			$	284,678			$	63,273			$	(57,942	)		$	290,009
Investment revenue			—				3,935				80				—				4,015
Total revenue			—				288,613				63,353				(57,942	)			294,024
EXPENSES
Fee and other commissions expense			—				135,088				26,942				(32,970	)			129,060
Investment commissions expense			—				140				—				—				140
Total commissions expense			—				135,228				26,942				(32,970	)			129,200
Compensation and benefits			(31	)			44,142				15,184				—				59,295
Transaction and operations support			1,024				66,076				8,281				(24,972	)			50,409
Occupancy, equipment and supplies			—				8,811				2,942				—				11,753
Depreciation and amortization			—				9,037				2,629				—				11,666
Total operating expenses			993				263,294				55,978				(57,942	)			262,323
OPERATING (LOSS) INCOME			(993	)			25,319				7,375				—				31,701
Other expense
Interest expense			—				20,613				—				—				20,613
Total other expenses, net			—				20,613				—				—				20,613
(Loss) income before income taxes			(993	)			4,706				7,375				—				11,088
Income tax (benefit) expense			(347	)			(2,910	)			300				—				(2,957	)
(Loss) income after income taxes			(646	)			7,616				7,075				—				14,045
Equity income (loss) in subsidiaries			14,691				7,075				—				(21,766	)			—
NET INCOME (LOSS)		$	14,045			$	14,691			$	7,075			$	(21,766	)		$	14,045

MONEYGRAM INTERNATIONAL, INC.
CONDENSED, CONSOLIDATING STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2010

						Subsidiary				Non-
(Amounts in thousands)		Parent				Guarantors				Guarantors				Eliminations				Consolidated
REVENUE
Fee and other revenue		$	—			$	265,908			$	44,603			$	(29,645	)		$	280,866
Investment revenue			—				5,592				46				—				5,638
Total revenue			—				271,500				44,649				(29,645	)			286,504
EXPENSES
Fee and other commissions expense			—				128,188				12,934				(18,712	)			122,410
Investment commissions expense			—				204				—				—				204
Total commissions expense			—				128,392				12,934				(18,712	)			122,614
Compensation and benefits			(59	)			45,333				12,288				—				57,562
Transaction and operations support			2				46,293				12,224				(10,933	)			47,586
Occupancy, equipment and supplies			—				8,870				2,299				—				11,169
Depreciation and amortization			—				9,621				2,890				—				12,511
Total operating expenses			(57	)			238,509				42,635				(29,645	)			251,442
OPERATING (LOSS) INCOME			57				32,991				2,014				—				35,062
Other expense (income)
Net securities (gains) losses			—				(2,392	)			—				—				(2,392	)
Interest expense			—				24,407				—				—				24,407
Total other expenses, net			—				22,015				—				—				22,015
Income before income taxes			57				10,976				2,014				—				13,047
Income tax expense			19				1,939				277				—				2,235
Income after income taxes			38				9,037				1,737				—				10,812
Equity income (loss) in subsidiaries			10,774				1,737				—				(12,511	)			—
NET INCOME (LOSS)		$	10,812			$	10,774			$	1,737			$	(12,511	)		$	10,812