MONEYGRAM INTERNATIONAL INC (Form: 10-Q, Received: 11/09/2012 07:19:17)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 September 30, 2012

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

for the transition period from to .

Commission File Number: 001-31950

MONEYGRAM INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


Delaware		16-1690064
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2828 N. Harwood St., 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 ¨ No x

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):

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 November 6, 2012, 57,856,925 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			3
Consolidated Statements of (Loss) Income			4
Consolidated Statements of Comprehensive (Loss) Income			5
Consolidated Statements of Cash Flows			6
Consolidated Statement of Stockholders’ Deficit			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			50
Item 4. Controls and Procedures			51

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			51
Item 1A. Risk Factors			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			55
Item 6. Exhibits			55

Signatures			56
Exhibit Index			57
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

UNAUDITED


*(Amounts in thousands, except share data)*	September 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	—		$	—
Cash and cash equivalents (substantially restricted)		2,539,844			2,572,174
Receivables, net (substantially restricted)		1,330,018			1,220,065
Short-term investments (substantially restricted)		524,428			522,024
Available-for-sale investments (substantially restricted)		79,907			102,771
Property and equipment		119,906			116,341
Goodwill		428,691			428,691
Other assets		224,201			213,512

Total assets	$	5,246,995		$	5,175,578

LIABILITIES
Payment service obligations	$	4,208,052		$	4,205,375
Debt		810,112			810,888
Pension and other postretirement benefits		110,931			120,252
Accounts payable and other liabilities		281,513			149,261

Total liabilities		5,410,608			5,285,776

COMMITMENTS AND CONTINGENCIES (NOTE 13)

STOCKHOLDERS’ DEFICIT
Participating Convertible Preferred Stock - Series D, $0.01 par value, 200,000 shares authorized, 109,239 issued at September 30, 2012 and December 31, 2011, respectively		281,898			281,898
Common Stock, $0.01 par value, 162,500,000 shares authorized, 62,263,963 shares issued at September 30, 2012 and December 31, 2011, respectively		623			623
Additional paid-in capital		999,464			989,188
Retained loss		(1,286,065	)		(1,216,543	)
Accumulated other comprehensive loss		(32,794	)		(38,028	)
Treasury stock: 4,407,038 and 4,429,184 shares at September 30, 2012 and December 31, 2011, respectively		(126,739	)		(127,336	)

Total stockholders’ deficit		(163,613	)		(110,198	)

Total liabilities and stockholders’ deficit	$	5,246,995		$	5,175,578

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME

UNAUDITED


	Three Months Ended September 30,					Nine Months Ended September 30,
*(Amounts in thousands, except per share data)*	2012			2011		2012			2011
REVENUE
Fee and other revenue	$	335,630		$	318,022	$	977,254		$	912,105
Investment revenue		2,920			3,925		9,533			13,819

Total revenue		338,550			321,947		986,787			925,924
EXPENSES
Fee and other commissions expense		152,372			141,010		440,960			405,631
Investment commissions expense		94			99		274			350

Total commissions expense		152,466			141,109		441,234			405,981
Compensation and benefits		54,744			60,635		172,838			177,843
Transaction and operations support		135,604			57,375		291,826			166,378
Occupancy, equipment and supplies		12,270			11,090		36,623			34,480
Depreciation and amortization		10,840			11,413		32,576			34,958

Total operating expenses		365,924			281,622		975,097			819,640

OPERATING (LOSS) INCOME		(27,374	)		40,325		11,690			106,284

Other (income) expense
Net securities gains		—			—		—			(32,816	)
Interest expense		17,710			22,234		53,230			65,720
Other		50			770		397			15,626

Total other expenses, net		17,760			23,004		53,627			48,530

(Loss) income before income taxes		(45,134	)		17,321		(41,937	)		57,754

Income tax expense		9,626			1,487		27,610			1,471

NET (LOSS) INCOME	$	(54,760	)	$	15,834	$	(69,547	)	$	56,283

(LOSS) INCOME PER COMMON SHARE
Basic	$	(0.77	)	$	0.22	$	(0.97	)	$	(10.82	)
Diluted	$	(0.77	)	$	0.22	$	(0.97	)	$	(10.82	)

Net (loss) income available to common stockholders:
Net (loss) income as reported	$	(54,760	)	$	15,834	$	(69,547	)	$	56,283
Accrued dividends on mezzanine equity		—			—		—			(30,934	)
Accretion on mezzanine equity		—			—		—			(80,023	)
Additional consideration issued in connection with conversion of mezzanine equity		—			—		—			(366,797	)
Cash dividends paid on mezzanine equity		—			—		—			(20,477	)

Net (loss) income available to common stockholders	$	(54,760	)	$	15,834	$	(69,547	)	$	(441,948	)

Weighted-average outstanding common shares and equivalents used in computing (loss) income per share
Basic		71,512			71,478		71,501			40,854
Diluted		71,512			72,176		71,501			40,854

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

UNAUDITED


	Three Months Ended September 30,						Nine Months Ended September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
NET (LOSS) INCOME	$	(54,760	)	$	15,834		$	(69,547	)	$	56,283
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gains (losses) on available-for-sale securities:
Net holding gains (losses) arising during the period, net of tax expense of $61 and $0 for the three months ended September 30, 2012 and 2011, respectively and $646 and $0 for the nine months ended September 30, 2012 and 2011, respectively		873			(2,903	)		2,281			2,125
Reclassification adjustment for net realized losses included in net income, net of tax benefit of $0 for the three and nine months ended September 30, 2012 and 2011		—			—			—			4

		873			(2,903	)		2,281			2,129

Pension and postretirement benefit plans:
Reclassification of prior service credit recorded to net income, net of tax expense of $57 and $57 for the three months ended September 30, 2012 and 2011, respectively, and $170 and $170 for the nine months ended September 30, 2012 and 2011, respectively		(92	)		(92	)		(277	)		(277	)
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $596 and $621, for the three months ended September 30, 2012 and 2011, respectively, and $1,787 and $1,862 for the nine months ended September 30, 2012 and 2011, respectively		972			1,012			2,916			3,036

Unrealized foreign currency translation gains (losses), net of tax expense (benefit) of $67 and $(513) for the three months ended September 30, 2012 and 2011, respectively, and $192 and $(103) for the nine months ended September 30, 2012 and 2011, respectively		110			(1,324	)		314			(266	)

Other comprehensive income (loss)		1,863			(3,307	)		5,234			4,622

COMPREHENSIVE (LOSS) INCOME	$	(52,897	)	$	12,527		$	(64,313	)	$	60,905

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED


	Three Months Ended September 30,						Nine Months Ended September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(54,760	)	$	15,834		$	(69,547	)	$	56,283
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization		10,840			11,413			32,576			34,958
Net securities gains		—			—			—			(32,820	)
Asset impairments and net losses upon disposal		133			800			610			4,772
Loss on debt extinguishment		—			—			—			5,221
Amortization of debt discount and deferred financing costs		1,418			1,539			4,212			5,936
Provision for uncollectible receivables		1,782			2,669			4,762			4,567
Non-cash compensation and pension expense		4,532			6,931			13,839			19,624
Legal accruals		61,999			—			100,033			—
Other non-cash items, net		(1,193	)		1,054			(1,613	)		1,210
Changes in foreign currency translation adjustments		113			(1,324	)		317			(266	)
Signing bonus amortization		8,377			8,115			24,761			24,182
Signing bonus payments		(16,297	)		(7,568	)		(22,637	)		(20,371	)
Change in other assets		(2,455	)		12,800			(648	)		4,606
Change in accounts payable and other liabilities		(4,115	)		(21,325	)		11,299			(25,086	)

Total adjustments		65,134			15,104			167,511			26,533
Change in cash and cash equivalents (substantially restricted)		8,413			102,191			32,330			282,466
Change in receivables (substantially restricted)		(64,918	)		(63,387	)		(114,715	)		(108,133	)
Change in payment service obligations		52,172			(84,770	)		2,677			(126,545	)

Net cash provided by (used in) operating activities		6,041			(15,028	)		18,256			130,604

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments classified as available-for-sale (substantially restricted)		6,202			12,538			25,469			44,281
Proceeds from settlement of investments		—			13,599			—			32,820
Purchases of short-term investments (substantially restricted)		(11,057	)		(10,113	)		(335,546	)		(326,813	)
Proceeds from maturities of short-term investments (substantially restricted)		11,752			5,394			335,390			211,210
Purchases of property and equipment		(12,918	)		(7,243	)		(43,213	)		(31,433	)
Proceeds from disposal of property and equipment		355			501			746			501
Cash paid for acquisitions, net of cash acquired		—			—			—			(53	)

Net cash (used in) provided by investing activities		(5,666	)		14,676			(17,154	)		(69,487	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt		—			—			—			389,025
Transaction costs for issuance and amendment of debt		—			—			—			(17,062	)
Payments on debt		(375	)		—			(1,125	)		(191,250	)
Additional consideration issued in connection with conversion of mezzanine equity		—			—			—			(218,333	)
Transaction costs for the conversion and issuance of stock		—			—			—			(3,736	)
Cash dividends paid on mezzanine equity		—			—			—			(20,477	)
Proceeds from exercise of stock options		—			352			23			716

Net cash (used in) provided by financing activities		(375	)		352			(1,102	)		(61,117	)

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.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

UNAUDITED


*(Amounts in thousands)*	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Loss			Accumulated Other Comprehensive Loss			Treasury Stock			Total
December 31, 2011	$	281,898	$	623	$	989,188	$	(1,216,543	)	$	(38,028	)	$	(127,336	)	$	(110,198	)
Net loss		—		—		—		(69,547	)		—			—			(69,547	)
Employee benefit plans		—		—		6,929		25			—			597			7,551
Capital contribution from investors		—		—		3,347		—			—			—			3,347
Net unrealized gain on available-for-sale securities, net of tax		—		—		—		—			2,281			—			2,281
Amortization of prior service cost for pension and postretirement benefits, net of tax		—		—		—		—			(277	)		—			(277	)
Amortization of unrealized losses on pension and postretirement benefits, net of tax		—		—		—		—			2,916			—			2,916
Unrealized foreign currency translation adjustment, net of tax		—		—		—		—			314			—			314

September 30, 2012	$	281,898	$	623	$	999,464	$	(1,286,065	)	$	(32,794	)	$	(126,739	)	$	(163,613	)

See Notes to Consolidated Financial Statements

MONEYGRAM INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation

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

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

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

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

Note 2 — Assets in Excess of Payment Service Obligations

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


	September 30,			December 31,
*(Amounts in thousands)*	2012			2011
Cash and cash equivalents (substantially restricted)	$	2,539,844		$	2,572,174
Receivables, net (substantially restricted)		1,330,018			1,220,065
Short-term investments (substantially restricted)		524,428			522,024
Available-for-sale investments (substantially restricted)		79,907			102,771

		4,474,197			4,417,034
Payment service obligations		(4,208,052	)		(4,205,375	)

Assets in excess of payment service obligations	$	266,145		$	211,659

The Company was in compliance with its contractual and financial regulatory requirements as of September 30, 2012 and December 31, 2011. We continue to monitor our covenants and make necessary adjustments to ensure compliance. We believe that we will remain in compliance with our debt covenants during 2012.

Note 3 — Fair Value Measurement

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


	Fair Value at September 30, 2012
*(Amounts in thousands)*	Level 1		Level 2		Level 3		Total
Financial assets:
Available-for-sale investments (substantially restricted):
United States government agencies	$	—	$	8,913	$	—	$	8,913
Residential mortgage-backed securities - agencies		—		43,176		—		43,176
Other asset-backed securities		—		—		27,818		27,818
Investment related to deferred compensation trust		8,314		—		—		8,314
Forward contracts		—		356		—		356

Total financial assets	$	8,314	$	52,445	$	27,818	$	88,577

Financial liabilities:
Forward contracts	$	—	$	103	$	—	$	103


	Fair Value at December 31, 2011
*(Amounts in thousands)*	Level 1		Level 2		Level 3		Total
Financial assets:
Available-for-sale investments (substantially restricted):
United States government agencies	$	—	$	8,827	$	—	$	8,827
Residential mortgage-backed securities - agencies		—		69,712		—		69,712
Other asset-backed securities		—		—		24,232		24,232
Investment related to deferred compensation trust		8,118		—		—		8,118
Forward contracts		—		399		—		399

Total financial assets	$	8,118	$	78,938	$	24,232	$	111,288

Financial liabilities:
Forward contracts	$	—	$	46	$	—	$	46

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

Following is a summary of the unobservable inputs used in Other asset-backed securities classified as Level 3:


			September 30, 2012				December 31, 2011
	Unobservable	Pricing	Market		Net Average		Market		Net Average
*(Amounts in thousands except net average price)*	Input	Source	Value		Price		Value		Price
Alt-A	Price	Third party pricing service	$	123	$	12.48	$	210	$	14.57
Home Equity	Price	Third party pricing service		223		44.81		185		23.35
Bank Loans and Trust Preferred	Price	Broker		4		0.01		4		0.01
Direct Exposure to Subprime	Price	Third party pricing service		24		0.67		61		0.86
Indirect Exposure - High Grade	Discount margin	Manual		3,926		3.26		3,776		3.14
Indirect Exposure - Mezzanine	Price	Broker		16,846		7.47		13,010		5.63
Other	Discount margin	Manual		6,672		35.81		6,986		37.50

Total			$	27,818	$	6.43	$	24,232	$	5.49

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Beginning balance	$	26,697		$	29,674		$	24,232		$	23,710
Principal paydowns		(66	)		(93	)		(200	)		(597	)
Other-than-temporary impairments		—			—			—			(4	)
Unrealized gains - instruments still held at the reporting date		1,538			139			5,245			9,667
Unrealized losses - instruments still held at the reporting date		(351	)		(2,320	)		(1,459	)		(5,376	)

Ending balance	$	27,818		$	27,400		$	27,818		$	27,400

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

Assets and liabilities that are disclosed at fair value

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is estimated using market quotations, where available, credit ratings, observable market indices and other market data (Level 2). As of September 30, 2012, the fair value of the senior secured facility is $486.7 million compared to the carrying value of $485.1 million. As of September 30, 2012, the fair value of the Company’s second lien notes is estimated at $339.6 million compared to a carrying value of $325.0 million. As of December 31, 2011, the fair value of the senior secured facility was $479.8 million compared to the carrying value of $489.6 million. As of December 31, 2011, the fair value of the Company’s second lien notes was estimated at $335.6 million compared to a carrying value of $325.0 million.

Note 4 — Investment Portfolio

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


	September 30,		December 31,
*(Amounts in thousands)*	2012		2011
Cash	$	2,092,374	$	2,016,451
Money markets		447,469		555,659
Deposits		1		64

Cash and cash equivalents (substantially restricted)		2,539,844		2,572,174
Short-term investments (substantially restricted)		524,428		522,024
Available-for-sale investments (substantially restricted)		79,907		102,771

Total investment portfolio	$	3,144,179	$	3,196,969

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

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


	September 30, 2012
			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	$	39,575	$	3,601	$	—	$	43,176	$	109.87
Other asset-backed securities		8,437		19,381		—		27,818		6.43
United States government agencies		8,081		832		—		8,913		99.03

Total	$	56,093	$	23,814	$	—	$	79,907	$	16.62

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


	December 31, 2011
			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	$	65,211	$	4,501	$	—	$	69,712	$	107.63
Other asset-backed securities		8,951		15,281		—		24,232		5.49
United States government agencies		7,723		1,104		—		8,827		98.08

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

At September 30, 2012 and December 31, 2011, approximately 65 percent and 76 percent, respectively, of the available-for-sale portfolio were invested in debentures of United States government agencies or securities collateralized by United States government agency debentures. These securities have the implicit backing of the United States government, and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments. The “Other asset-backed securities” continue to have market exposure, as factored into the fair value estimates, with the average price of an asset-backed security at $0.06 per dollar of par at September 30, 2012.

Gains and Losses and Other-Than-Temporary Impairments — At September 30, 2012 and December 31, 2011, net unrealized gains of $23.8 million and $21.5 million, respectively, are included in the Consolidated Balance Sheets in “Accumulated other comprehensive loss.” During the three and nine months ended September 30, 2012, no gains or losses were reclassified from “Accumulated other comprehensive income (loss)” to “Net securities gains” in connection with other-than-temporary impairments and realized gains and losses recognized during the period. During the nine months ended September 30, 2011, the Company recognized settlements of $32.8 million, equal to all of the outstanding principal from two securities classified in “Other asset-backed securities.” These securities had previously been written down to a nominal fair value, resulting in a realized gain of $32.8 million recorded in “Net securities gains” in the Consolidated Statements of (Loss) Income. “Net securities gains” were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Realized gains from available-for-sale investments	$	—	$	—	$	—	$	(32,820	)
Other-than-temporary impairments from available-for-sale investments		—		—		—		4

Net securities gains	$	—	$	—	$	—	$	(32,816	)

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 September 30, 2012 and December 31, 2011 consisted of the following ratings:


	September 30, 2012							December 31, 2011
	Number of		Fair		Percent of			Number of		Fair		Percent of
*(Dollars in thousands)*	Securities		Value		Investments			Securities		Value		Investments
AAA, including United States agencies		21	$	51,870		65	%		24	$	78,267		76	%
Below investment grade		57		28,037		35	%		60		24,504		24	%

Total		78	$	79,907		100	%		84	$	102,771		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 September 30, 2012 and December 31, 2011 .

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


	September 30, 2012				December 31, 2011
	Amortized		Fair		Amortized		Fair
*(Amounts in thousands)*	Cost		Value		Cost		Value
One year or less	$	1,000	$	1,013	$	—	$	—
After one year through five years		7,081		7,900		7,723		8,827
Mortgage-backed and other asset-backed securities		48,012		70,994		74,162		93,944

Total	$	56,093	$	79,907	$	81,885	$	102,771

Fair Value Determination — The Company uses various sources of pricing for its fair value estimates of its available-for-sale portfolio. The percentage of the portfolio for which the various pricing sources were used is as follows at September 30, 2012 and December 31, 2011: 56 percent and 69 percent, respectively, used a third party pricing service; 21 percent and 13 percent, respectively, used broker pricing; and 23 percent and 18 percent, respectively, used internal pricing.

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

Note 5 — Derivative Financial Instruments

The Company uses forward contracts to manage its foreign currency needs and exchange risk arising from its assets and liabilities denominated in foreign currencies. While these contracts economically hedge foreign currency risk, they are not designated as hedges for accounting purposes. The “Transaction and operations support” line in the Consolidated Statements of (Loss) Income includes the following losses related to assets and liabilities denominated in foreign currencies:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Net realized foreign currency (gains) losses	$	(1,401	)	$	7,269		$	(257	)	$	(1,451	)
Net losses (gains) from the related forward contracts		3,796			(4,065	)		2,494			8,461

Net losses from foreign currency transactions and related forward contracts	$	2,395		$	3,204		$	2,237		$	7,010

At September 30, 2012 and December 31, 2011, the Company had $77.1 million and $65.5 million, respectively, of outstanding notional amounts relating to its forward contracts. At September 30, 2012 and December 31, 2011, the Company reflects the following fair values of derivative forward contract instruments in its Consolidated Balance Sheets:

Derivative Assets

Derivative Liabilities

Balance Sheet

September 30,

December 31,

September 30,

December 31,

(Amounts in thousands)

Location

2012

2011

2012

2011

Forward contracts

Other assets

356

399

103

Note 6 — Property and Equipment

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


	September 30,			December 31,
*(Amounts in thousands)*	2012			2011
Computer hardware and software	$	217,235		$	196,168
Signage		87,590			80,303
Agent equipment		71,137			69,643
Office furniture and equipment		36,275			36,733
Leasehold improvements		25,405			27,562
Land		—			410

		437,642			410,819
Accumulated depreciation		(317,736	)		(294,478	)

Total property and equipment	$	119,906		$	116,341

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Computer hardware and software	$	5,333	$	5,128	$	15,888	$	15,911
Signage		2,906		2,400		8,656		7,052
Agent equipment		1,012		1,591		3,133		5,210
Office furniture and equipment		888		993		2,664		2,970
Leasehold improvements		594		944		1,893		2,780

Total depreciation expense	$	10,733	$	11,056	$	32,234	$	33,923

At September 30, 2012 and December 31, 2011, there were $4.0 million and $9.9 million, respectively, of property and equipment that had been received by the Company and included in “Accounts payable and other liabilities” in the Consolidated Balance Sheets.

During the three and nine months ended September 30, 2012, the Company recognized disposal losses of less than $0.1 million and $0.8 million, respectively, on furniture and equipment related to the closing of two office locations. The losses were recorded in the “Occupancy, equipment and supplies” line in the Consolidated Statements of (Loss) Income.

Following its decision to sell land in 2011, the Company recognized a $2.3 million impairment during the nine months ended September 30, 2011 in the “Other” line in the Consolidated Statements of (Loss) Income. The Company also recognized a $0.5 million impairment charge during the three and nine months ended September 30, 2011 for software in connection with the disposition of a business.

Note 7 — Intangible Assets

Intangible assets consist of the following:


	September 30, 2012							December 31, 2011
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
*(Amounts in thousands)*	Value		Amortization			Value		Value		Amortization			Value
Intangible assets:
Customer lists	$	3,835	$	(2,894	)	$	941	$	7,272	$	(6,074	)	$	1,198
Non-compete agreements		137		(122	)		15		137		(68	)		69
Trademarks and license		597		(1	)		596		597		(1	)		596
Developed technology		146		(142	)		4		146		(100	)		46

Total intangible assets	$	4,715	$	(3,159	)	$	1,556	$	8,152	$	(6,243	)	$	1,909

In the nine months ended September 30, 2011, the Company acquired the agent contracts of a former super-agent in Spain for a purchase price of $1.0 million. The acquisition of these agent contracts provided the Company with further network expansion in its money transfer business in its Global Funds Transfer segment. The agent contracts are amortized over a life of four years.

In connection with disposition activity, the Company recognized an impairment charge of $1.8 million in the nine months ended September 30, 2011, for certain agent contracts utilized in our Global Funds transfer segment, as recorded in the “Other” line in the Consolidated Statements of (Loss) Income.

Intangible asset amortization expense was $0.1 million and $0.3 million for the three and nine months ended September 30, 2012, respectively, and $0.4 million and $1.0 million for the three and nine months ended September 30, 2011, respectively.

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


Year 1	$	253
Year 2		218
Year 3		138
Year 4		61
Year 5		61
Thereafter		229

Total	$	960

Note 8 — Debt

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


	2011 Credit Agreement
	Senior secured			Senior secured			Second Lien
	credit facility			incremental term			Notes
*(Amounts in thousands)*	due 2017			loan due 2017			due 2018			Total Debt
Balance at December 31, 2011	$	339,232		$	146,656		$	325,000		$	810,888
Payments		—			(1,125	)		—			(1,125	)
Accretion of discount		98			251			—			349

Balance at September 30, 2012	$	339,330		$	145,782		$	325,000		$	810,112

Weighted average interest rate		4.33	%		4.34	%		13.25	%

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

2011 Credit Agreement — The Company may elect an interest rate under the agreement governing the Company’s senior secured credit facility (the “2011 Credit Agreement”) at each reset period based on the Bank of America (“BOA”) prime bank rate or the Eurodollar rate. The interest rate election may be made individually for the term loan, incremental term loan and each draw under the revolving credit facility. The interest rate is either the BOA prime rate plus 200 basis points or the Eurodollar rate plus 300 basis points. Since inception of the 2011 Credit Agreement, the Company elected the Eurodollar rate as its primary interest basis, with a minimal amount of the term debt at the BOA prime bank rate. Under the terms of the 2011 Credit Agreement, the interest rate determined using the Eurodollar rate has a minimum rate of 1.25 percent.

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

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Amortization of debt discount	$	122	$	33	$	349	$	270
Write-off of debt discount upon prepayments		—		—		—		123

Total amortization of discount	$	122	$	33	$	349	$	393

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

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

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

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


	Interest		Total
	Coverage		Leverage
	Minimum		Not To
	Ratio		Exceed
Present through September 30, 2012		2.00:1		4.75:1
December 31, 2012 through September 30, 2013		2.15:1		4.625:1
December 31, 2013 through September 30, 2014		2.15:1		4.375:1
December 31, 2014 through September 30, 2015		2.25:1		4.00:1
December 31, 2015 through September 30, 2016		2.25:1		3.75:1
December 31, 2016 through maturity		2.25:1		3.50:1

At September 30, 2012, the Company is in compliance with its financial covenants. We continue to monitor our covenants and make necessary adjustments to ensure compliance. We believe that we will remain in compliance with our debt covenants during 2012.

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

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


	2011 Credit Agreement
	Senior secured			Senior secured			Senior revolving			Second Lien			Total Deferred
*(Amounts in thousands)*	credit facility			incremental term			credit facility			Notes			Financing Costs
Balance at December 31, 2011	$	6,882		$	3,092		$	3,523		$	16,649		$	30,146
Amortization of deferred financing costs		(882	)		(398	)		(605	)		(1,957	)		(3,842	)
Write-off of deferred financing costs		—			(21	)		—			—			(21	)

Balance at September 30, 2012	$	6,000		$	2,673		$	2,918		$	14,692		$	26,283

Interest Paid in Cash — The Company paid $16.5 million and $48.9 million of interest for the three and nine months ended September 30, 2012, respectively, and $21.1 million and $59.8 million for the three and nine months ended September 30, 2011, respectively.

Maturities — At September 30, 2012, debt totaling $481.0 million will mature in 2017 and $325.0 million will mature in 2018, while debt principal totaling $7.5 million will be paid in increments of $0.4 million quarterly through 2017.

Note 9 — Pensions and Other Benefits

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Interest cost	$	2,639		$	2,841		$	7,917		$	8,523
Expected return on plan assets		(1,969	)		(2,056	)		(5,906	)		(6,167	)
Amortization of prior service cost		8			7			22			21
Recognized net actuarial loss		1,470			1,572			4,410			4,716

Net periodic benefit expense	$	2,148		$	2,364		$	6,443		$	7,093

We have a noncontributory pension plan that is frozen to both future benefit accruals and new participants. Benefits paid through the defined benefit pension plan were $2.3 million and $7.0 million for the three and nine months ended September 30, 2012, respectively, and $2.2 million and $6.8 million for the three and nine months ended September 30, 2011, respectively. The Company made contributions to the defined benefit pension plan of $4.8 million and $8.2 million during the three months and nine months ended September 30, 2012, respectively, and $2.7 million and $5.0 million for the three and nine months ended September 30, 2011, respectively. Benefits paid through, and contributions made to, the combined SERPs were $1.2 million and $2.8 million for the three and nine months ended September 30, 2012, respectively, and $0.7 million and $2.7 million for the three and nine months ended September 30, 2011, respectively.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Net actuarial loss	$	1,470		$	1,572		$	4,410		$	4,715
Tax benefit on net actuarial loss		(559	)		(598	)		(1,676	)		(1,793	)
Prior service costs		7			7			22			22
Tax benefit on prior service costs		(2	)		(2	)		(8	)		(8	)

Net amortization from accumulated other comprehensive loss	$	916		$	979		$	2,748		$	2,936

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Interest cost	$	24		$	13		$	72		$	38
Amortization of prior service credit		(156	)		(156	)		(469	)		(469	)
Recognized net actuarial loss		98			61			293			183

Net periodic benefit expense	$	(34	)	$	(82	)	$	(104	)	$	(248	)

Benefits paid through, and contributions made to, the postretirement benefit plans were less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2012, respectively, and $0.5 million and $0.6 million for the three and nine months ended September 30, 2011, respectively.

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


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Net actuarial loss	$	98		$	61		$	293		$	183
Tax benefit on net actuarial loss		(37	)		(23	)		(111	)		(69	)
Prior service costs		(156	)		(156	)		(469	)		(469	)
Tax expense on prior service costs		59			59			178			178

Net amortization from accumulated other comprehensive loss	$	(36	)	$	(59	)	$	(109	)	$	(177	)

Contribution expense for the 401(k) defined contribution plan was $0.9 million and $2.7 million for the three and nine months ended September 30, 2012, respectively, compared to $0.8 million and $2.5 million for the three and nine months ended September 30, 2011, respectively.

International Benefit Plans — The Company’s international subsidiaries have certain defined contribution benefit plans. Contributions expense related to international plans was $0.3 million and $1.0 million for the three months and nine months ended September 30, 2012, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2011, respectively.

Deferred Compensation Plans — The deferred compensation plans are unfunded and unsecured, and the Company is not required to physically segregate any assets in connection with the deferred accounts. The Company has rabbi trusts associated with each deferred compensation plan that are funded through voluntary contributions by the Company. At September 30, 2012 and December 31, 2011, the Company had a liability related to the deferred compensation plans of $2.5 million and $3.4 million, respectively, recorded in the “Accounts payable and other liabilities” line in the Consolidated Balance Sheets. The rabbi trusts had a market value of $8.3 million and $8.1 million at September 30, 2012 and December 31, 2011, respectively, recorded in “Other assets” in the Consolidated Balance Sheets.

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

Note 10 — Stockholders’ Deficit

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

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


	D Stock						Common Stock						Treasury
*(Amounts in thousands)*	Authorized		Issued		Outstanding		Authorized		Issued		Outstanding		Stock
December 31, 2011		200		109		109		162,500		62,264		57,835		(4,429	)
Stock option exercise and release of restricted stock units		—		—		—		—		—		22		22

September 30, 2012		200		109		109		162,500		62,264		57,857		(4,407	)

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

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


*(Amounts in thousands)*	September 30, 2012			December 31, 2011
Net unrealized gains on securities classified as available-for-sale, net of tax	$	23,760		$	21,479
Cumulative foreign currency translation adjustments, net of tax		1,335			1,021
Prior service credit for pension and postretirement benefits, net of tax		1,757			2,034
Unrealized losses on pension and postretirement benefits, net of tax		(59,646	)		(62,562	)

Accumulated other comprehensive loss	$	(32,794	)	$	(38,028	)

Note 11 — Stock-Based Compensation

The MoneyGram International, Inc. 2005 Omnibus Incentive Plan (“2005 Plan”) provides for the granting of equity-based compensation awards, including stock options, stock appreciation rights, restricted stock units and restricted stock awards (collectively, “share-based awards”) to officers, employees and directors. The Company is authorized to issue a total of 5,875,000 of share-based awards. As of September 30, 2012, the Company has remaining authorization to issue future grants of up to 1,794,484 shares.

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Expense recognized related to stock options	$	1,878	$	4,252	$	6,221	$	11,692
Expense recognized related to restricted stock units		518		151		1,316		473
Expense related to stock appreciation rights		22		—		42		—

Stock-based compensation expense	$	2,418	$	4,403	$	7,579	$	12,165

Employee stock based compensation included a $1.2 million expense reversal for the nine months ended September 30, 2012 from forfeitures due to executive employee terminations.

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

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

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


Expected dividend yield ⁽¹⁾		0.0%
Expected volatility ⁽²⁾		69.8% - 71.8%
Risk-free interest rate ⁽³⁾		0.9% - 1.5%
Expected life ⁽⁴⁾		6.3 years
Weighted-average grant-date fair value per option	$	10.60

⁽¹⁾	Expected dividend yield represents the level of dividends expected to be paid on the Company’s common stock over the expected term of the option. The Company does not anticipate declaring any dividends at this time.

⁽²⁾

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

⁽³⁾	The risk-free interest rate for the Black-Scholes model is based on the United States Treasury yield curve in effect at the time of grant for periods within the expected term of the option.

⁽⁴⁾

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

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


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Options outstanding at December 31, 2011		5,365,085		$	23.45
Granted		170,041			16.59
Exercised		(1,250	)		17.36
Forfeited/Expired		(935,250	)		29.06

Options outstanding at September 30, 2012		4,598,626		$	22.06		7.16 years	$	1,939

Vested or expected to vest at September 30, 2012		4,480,944		$	22.09		7.12 years	$	1,937

Options exercisable at September 30, 2012		1,518,334		$	25.24		5.97 years	$	1,179

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Intrinsic value of options exercised	$	—	$	68	$	1	$	222
Cash received from option exercises	$	—	$	352	$	23	$	716
Unrecognized stock option expense	$	14,241
Remaining weighted-average vesting period		1.1 years

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

The fair value of restricted stock units is calculated based on the stock price at the time of grant. For performance-based restricted stock units, expense is recognized if achievement of the performance goal is deemed probable, with the amount of expense recognized based on the Company’s best estimate of the ultimate achievement level. For the 2012 grants of performance-based restricted stock units, the grant date fair value at the minimum, target and maximum thresholds is $1.0 million, $1.9 million and $3.8 million, respectively. As of September 30, 2012, the Company believes it is probable it will achieve the performance goal at the target level on the third anniversary.

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

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

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


	Total Shares			Weighted Average Price
Restricted stock units outstanding at December 31, 2011		337,676		$	17.77
Granted		279,230			16.58
Vested		(20,896	)		28.72
Forfeited		(49,432	)		17.05

Restricted stock units outstanding at September 30, 2012		546,578		$	16.81

The fair value of restricted stock units vested is $0.6 million for the nine months ended September 30, 2012 and 2011, respectively. As of September 30, 2012, the Company’s outstanding restricted stock units had unrecognized compensation expense of $3.3 million and a remaining weighted-average vesting period of 2.0 years.

Unrecognized restricted stock unit expense and the remaining weighted-average vesting period are presented under the Company’s current estimate of achievement of the target performance goal on the third anniversary. Unrecognized restricted stock unit expense as of September 30, 2012 under the minimum and maximum thresholds is $1.9 million and $6.3 million, respectively.

Note 12 — Income Taxes

For the three and nine months ended September 30, 2012, the Company had $9.6 million and $27.6 million, respectively, of income tax expense on pre-tax loss of $45.1 million and $41.9 million, respectively, resulting from the non-deductibility of certain legal accruals and related expenses. The Company paid $0.1 million and $0.9 million of federal and state income taxes for the three and nine months ended September 30, 2012, respectively.

For the three months ended September 30, 2011, the Company had $1.5 million of income tax expense on pre-tax income of $17.3 million, primarily reflecting $7.2 million of benefits for the reversal of a portion of the valuation allowance on domestic deferred tax assets. For the nine months ended September 30, 2011, the Company had $1.5 million of income tax expense on pre-tax income of $57.8 million, reflecting benefits of $13.7 million for the reversal of a portion of the valuation allowance on domestic deferred tax assets and $2.9 million of tax on an investment security settlement. The effective tax rates for the three and nine months ended September 30, 2011 reflect 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 beginning March 31, 2011 and expectations that the Company will maintain a cumulative income position in the future. The Company paid $0.1 million and $0.6 million of federal and state income taxes for the three and nine months ended September 30, 2011, respectively.

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

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

The Internal Revenue Service (the “IRS”) has completed its examination of the Company’s consolidated income tax returns through 2009. The IRS issued a Notice of Deficiency for 2005-2007 in April 2012 (the “2005-2007 Notice of Deficiency”). The Company filed a petition with the United States Tax Court in May 2012 contesting adjustments in the 2005-2007 Notice of Deficiency related to the net security losses. In August 2012, the IRS issued an Examination Report for 2008 and in October 2012 the IRS issued a Notice of Deficiency for 2009 (the “2009 Notice of Deficiency”). The Company has 90 days to petition the United States Tax Court for the 2009 Notice of Deficiency. Approximately $955.0 million of cumulative deductions were taken for net securities losses in its 2007, 2008 and 2009 tax returns. As of September 30, 2012, the Company has recognized a cumulative benefit of approximately $136.1 million relating to these deductions. The Company continues to believe that the amounts recorded in its consolidated financial statements reflect its best estimate of the ultimate outcome of this matter.

Note 13 — Commitments and Contingencies

Operating Leases — The Company has various non-cancelable operating leases for buildings and equipment that terminate through 2023. Certain of these leases contain rent holidays and rent escalation clauses based on pre-determined annual rate increases. The Company recognizes rent expense under the straight-line method over the term of the lease. Any difference between the straight-line rent amounts and amounts payable under the leases are recorded as deferred rent in “Accounts payable and other liabilities” in the Consolidated Balance Sheets. Cash or lease incentives received under certain leases are recorded as deferred rent when the incentive is received and amortized as a reduction to rent over the term of the lease using the straight-line method. Incentives received relating to tenant improvements are recognized as a reduction of rent expense under the straight-line method over the term of the lease. Tenant improvements are capitalized as leasehold improvements and depreciated over the shorter of the remaining term of the lease or 10 years. At September 30, 2012 and December 31, 2011, the deferred rent liability relating to these incentives was $2.5 million and $2.7 million, respectively.

Rent expense under operating leases was $4.0 million and $12.0 million for the three and nine months ended September 30, 2012, respectively, and $3.5 million and $11.4 million for the three and nine months ended September 30, 2011, respectively. Minimum future rental payments for all non-cancelable operating leases with an initial term of more than one year are as follows (amounts in thousands):


Year 1	$	14,269
Year 2		13,655
Year 3		11,387
Year 4		5,455
Year 5		4,033
Thereafter		13,745

Total	$	62,544

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

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

As of September 30, 2012, the liability for minimum commission guarantees was $3.4 million and the maximum amount that could be paid under the minimum commission guarantees was $12.1 million over a weighted average remaining term of 2.7 years. The maximum payment is calculated as the contractually guaranteed minimum commission times the remaining term of the contract and, therefore, assumes that the agent generates no money transfer transactions during the remainder of its contract. However, under the terms of certain agent contracts, the Company may terminate the contract if the projected or actual volume of transactions falls beneath a contractually specified amount. With respect to minimum commission guarantees expiring in the nine months ended September 30, 2012 and 2011, the Company paid $0.4 million and $0.2 million, respectively, or 16 percent and 31 percent, respectively, of the estimated maximum payment for the year.

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

Legal Proceedings — The matters set forth below are subject to uncertainties and outcomes that are not predictable. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigations alleged. In relation to various legal matters, including those described below, the Company had $103.6 million and $3.0 million of liability recorded in the “Accounts payable and other liabilities” line in the Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011, respectively. Legal accruals and settlement charges of $70.7 million and $108.8 million, net of insurance recoveries of $2.8 million, were recorded in the “Transaction and operations support” line in the Consolidated Statements of (Loss) Income during the three and nine months ended September 30, 2012, and charges of $0.2 million and $1.7 million were recorded during the three and nine months ended September 30, 2011, respectively.

Litigation Commenced Against the Company:

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

On October 10, 2012, the Delaware Court approved the terms of a settlement of the Pittman litigation and dismissed the action with prejudice on the merits, pending final determination of a fee award to class counsel. The terms of the settlement are set forth in a Stipulation and Agreement of Compromise and Settlement, dated as of July 19, 2012, referred to herein as the Stipulation. The Stipulation provides for a settlement payment of $10.0 million, to be distributed pro rata to certain stockholders, net of any attorneys’ fees awarded by the Delaware Court. During the three and nine months ended September 30, 2012, the Company recognized $6.5 million of expense for the proposed settlement. The Company, THL, Goldman Sachs, the Company’s directors and other parties agreed to share financial responsibility for funding the settlement payment as follows: (i) the Company will contribute $3.5 million; (ii) the Company’s insurer will contribute $2.8 million under the Company’s director and officer liability policy; (iii) THL and the individuals nominated by THL as directors of the Company, referred to collectively herein as the THL Directors, will waive all future rights to receive cash or equity compensation from the Company for services by the THL Directors or any other directors nominated by THL, and the Company will contribute $2.0 million toward the settlement payment in recognition of such waiver; (iv) Goldman Sachs has agreed to waive reimbursements of $1.0 million of legal fees and expenses associated with the Company’s 2011 Recapitalization, and the Company will contribute this amount toward the settlement payment; and (v) other parties with rights related to the 2011 Recapitalization have agreed to waive reimbursement of $0.8 million of legal fees and expenses, and the Company will contribute this amount toward the settlement payment. During the third quarter of 2012, the Company recognized $3.0 million of additional paid in capital for the amounts that THL and Goldman Sachs contributed for the settlement. The Stipulation also includes a release by the putative class of stockholders of all claims with respect to the allegations in the action or relating to the 2011 Recapitalization.

On May 12, 2011 a complaint was filed in the County Court at Law No. 3 in Dallas County, Texas by Hilary Kramer purporting to be a class action complaint on behalf of all stockholders and a stockholder derivative complaint against the Company, THL, Goldman Sachs and each of the Company’s directors. Ms. Kramer alleged in her complaint that she is a stockholder of the Company and asserted, among other things, (i) breach of fiduciary duty claims against the Company’s directors, THL and Goldman Sachs and (ii) claims for aiding and abetting breach of fiduciary duties against Goldman Sachs. Ms. Kramer purported to sue on her own behalf and on behalf of the Company and its stockholders. Ms. Kramer sought to, among other things, enjoin the 2011 Recapitalization. The defendants moved for the Texas court to stay this litigation in favor of the Pittman litigation in Delaware, which has an overlapping class definition. On October 22, 2012, the plaintiffs in the Kramer litigation filed a notice of non-suit, voluntarily dismissing the claims in Texas court.

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

Government Investigations:

MDPA/DOJ Matter — MoneyGram has been served with subpoenas to produce documents and testify before a grand jury in the U.S. District Court for the Middle District of Pennsylvania. The subpoenas sought information related to, inter alia , MoneyGram’s U.S. and Canadian agents, as well as certain transactions involving such agents, fraud complaint data, and MoneyGram’s consumer anti-fraud program during the period from 2003 to early 2009. MoneyGram provided information requested pursuant to the subpoenas and provided additional information relating to the investigation. In addition, the Company was provided with subpoenas for the testimony of certain current and former employees in connection with the investigation. Interviews of one former executive officer and one former chief executive officer of the Company have taken place. The U.S. Department of the Treasury Financial Crimes Enforcement Network, or FinCEN, also requested information, which information was subsequently provided by MoneyGram, concerning MoneyGram’s reporting of fraudulent transactions during this period. MoneyGram has been informed that it is being investigated by the federal grand jury in connection with these matters for the period 2003 to early 2009 as well as MoneyGram’s anti-money laundering program during that period.

On November 9, 2012, MoneyGram announced that it reached a settlement with the U.S. Attorney’s Office for the Middle District of Pennsylvania (“MDPA”) and the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice (“US DOJ”) relating to the investigation. In connection with this settlement, the Company entered into a deferred prosecution agreement (“DPA”) with the MDPA and US DOJ.

Under the DPA, the Company agreed to a forfeiture of $100.0 million that will be available to victims of the consumer fraud scams perpetrated through MoneyGram’s agents, of which $65.0 million must be paid within five business days from entering into the DPA and the remaining $35.0 million must be paid within 90 business days of the date of the agreement. As announced on July 26, 2012, MoneyGram made an accrual in the second quarter of 2012 for $30.0 million and as announced on November 9, 2012, the Company made an additional accrual in the third quarter of 2012 for $70.0 million.

Pursuant to the DPA, the MDPA and US DOJ will file a two-count criminal Information in the United States District Court for the Middle District of Pennsylvania, charging the Company with knowingly and intentionally aiding and abetting wire fraud and willfully failing to implement an effective anti-money laundering program. In consideration of, among other factors, the (a) past and future cooperation of the Company; (b) above-referenced forfeiture; (c) Company’s implementation and maintenance of remedial measures; and (d) Company’s undertaking to continue to enhance compliance beyond the enhancements already made, the MDPA and US DOJ will recommend to the Court that the prosecution of the Company be deferred during the duration of the DPA. The MDPA and US DOJ will seek dismissal with prejudice of the Information if the Company has complied with its obligations during the five-year period of the DPA.

Under the DPA, the Company has agreed, among other things, to retain an independent compliance monitor, selected by the MDPA and US DOJ from a pool of candidates proposed by the Company, who will report periodically to the MDPA and US DOJ and who will have authority to review the effectiveness of the internal controls, policies and procedures of the Company’s anti-fraud and anti-money laundering programs, the Company’s overall compliance with the Bank Secrecy Act, the Company’s maintenance of the remedial measures already undertaken, and the Company’s implementation of enhanced compliance procedures. The DPA provides that the monitor will serve for a period of five years, subject to adjustment to a shorter period under certain circumstances. Our risk factors, as updated in this Form 10-Q, set forth the risks relating to this matter. See “Risk Factors”.

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

Other Matters — The Company is involved in various 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.

Action Commenced by the Company:

CDO Litigation — In March 2012, the Company initiated an arbitration proceeding before the Financial Industry Regulatory Authority against Goldman Sachs & Co., or Goldman Sachs. The arbitration relates to MoneyGram’s purchase of Residential Mortgage Backed Securities and Collateral Debt Obligations that Goldman Sachs sold to MoneyGram during the 2005 through 2007 timeframe. The Company alleges, among other things, that Goldman Sachs made material misrepresentations and omissions in connection with the sale of these products, ultimately causing significant losses to the Company for which the Company is currently seeking damages. Goldman Sachs owns, together with certain of its affiliates, approximately 19 percent of the shares of the Company’s common stock on a diluted basis, assuming conversion of the Company’s Series D Participating Convertible Preferred Stock currently owned by Goldman Sachs and its affiliates.

Tax Litigation — On May 14, 2012, the Company filed a petition in the United States Tax Court challenging the 2005-2007 Notice of Deficiency, pursuant to which the IRS determined that the Company owes additional corporate income taxes because certain deductions relating to securities losses were capital in nature, rather than ordinary losses. The Company asserts that it properly deducted its securities losses and that, consequently, no additional corporate income taxes are owed. The IRS filed a response to the Company’s petition on July 18, 2012 reasserting its original position. In October 2012, the IRS issued a Notice of Deficiency for 2009. The Company has 90 days to petition the United States Tax Court regarding the 2009 Notice of Deficiency.

Note 14 — Earnings per Common Share

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

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Basic common shares outstanding		71,512		71,478		71,501		40,854
Shares related to stock options		—		677		—		—
Shares related to restricted stock and stock units		—		21		—		—

Diluted common shares outstanding		71,512		72,176		71,501		40,854

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Shares related to stock options		4,593		2,950		4,996		5,108
Shares related to restricted stock and restricted stock units		541		—		462		26
Shares related to preferred stock		—		—		—		28,062

Shares excluded from the computation		5,134		2,950		5,458		33,196

Note 15 — Recent Accounting Pronouncements

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

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

Note 16 — Segment Information

The Company’s reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served. The Company primarily manages its business through two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfers and bill payment services to consumers through a network of agents and, in select markets, company-operated locations. The Financial Paper Products segment provides money orders to consumers through retail and financial institution locations in the United States and Puerto Rico, and provides official check services to financial institutions in the United States. One of the Company’s agents of both the Global Funds Transfer segment and the Financial Paper Products segment accounted for 28.7 percent and 28.7 percent of total revenue for the three months ended September 30, 2012 and 2011, respectively, and 28.6 percent and 29.0 percent for the nine months ended September 30, 2012 and 2011, respectively.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Revenue
Global Funds Transfer:
Money transfer	$	291,443	$	270,614	$	842,196	$	766,603
Bill payment		26,439		28,278		80,091		85,909

Total Global Funds Transfer		317,882		298,892		922,287		852,512
Financial Paper Products:
Money order		13,918		14,820		43,326		46,173
Official check		6,373		7,663		20,152		25,845

Total Financial Paper Products		20,291		22,483		63,478		72,018
Other		377		572		1,022		1,394

Total revenue	$	338,550	$	321,947	$	986,787	$	925,924


	Three Months Ended September 30,						Nine Months Ended September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Segment operating income:
Global Funds Transfer	$	39,279		$	39,083		$	111,187		$	91,441
Financial Paper Products		7,564			5,533			24,634			23,257
Other		(531	)		(433	)		(1,588	)		(1,096	)

Total segment operating income		46,312			44,183			134,233			113,602
Other unallocated expenses		73,686			3,858			122,543			7,318

Total operating (loss) income		(27,374	)		40,325			11,690			106,284
Net securities gains		—			—			—			(32,816	)
Interest expense		17,710			22,234			53,230			65,720
Other		50			770			397			15,626

(Loss) income before income taxes	$	(45,134	)	$	17,321		$	(41,937	)	$	57,754


	Three Months Ended September 30,					Nine Months Ended September 30,
*(Amounts in thousands)*	2012			2011		2012		2011
Depreciation and amortization:
Global Funds Transfer	$	10,659		$	10,124	$	29,825	$	30,589
Financial Paper Products		830			1,272		2,642		4,320
Other		(649	)		17		109		49

Total depreciation and amortization	$	10,840		$	11,413	$	32,576	$	34,958

Capital expenditures:
Global Funds Transfer	$	11,910		$	7,265	$	31,863	$	25,758
Financial Paper Products		2,993			909		6,318		4,394

Total capital expenditures	$	14,903		$	8,174	$	38,181	$	30,152


*(Amounts in thousands)*	September 30, 2012		December 31, 2011
Assets:
Global Funds Transfer	$	1,558,126	$	1,247,355
Financial Paper Products		3,400,180		3,683,393
Other		288,689		244,830

Total assets	$	5,246,995	$	5,175,578

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


	Three Months Ended September 30,				Nine Months Ended September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
United States	$	206,412	$	196,300	$	612,023	$	576,403
International		132,138		125,647		374,764		349,521

Total revenue	$	338,550	$	321,947	$	986,787	$	925,924

Note 17 — Condensed Consolidating Financial Statements

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

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

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING BALANCE SHEETS

AS OF SEPTEMBER 30, 2012


				Subsidiary		Non-
*(Amounts in thousands)*	Parent			Guarantors		Guarantors		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	—		$	—	$	—	$	—		$	—
Cash and cash equivalents (substantially restricted)		547			2,452,844		86,453		—			2,539,844
Receivables, net (substantially restricted)		—			1,309,959		20,059		—			1,330,018
Short-term investments (substantially restricted)		—			500,000		24,428		—			524,428
Available-for-sale investments (substantially restricted)		—			79,907		—		—			79,907
Property and equipment		—			93,500		26,406		—			119,906
Goodwill		—			306,878		121,813		—			428,691
Other assets		10,223			197,012		16,966		—			224,201
Equity investments in subsidiaries		27,701			176,363		—		(204,064	)		—
Intercompany receivables		—			195,259		—		(195,259	)		—

Total assets	$	38,471		$	5,311,722	$	296,125	$	(399,323	)	$	5,246,995

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Payment service obligations	$	—		$	4,154,692	$	53,360	$	—		$	4,208,052
Debt		—			810,112		—		—			810,112
Pension and other postretirement benefits		—			109,104		1,827		—			110,931
Accounts payable and other liabilities		49,664			210,113		21,736		—			281,513
Intercompany liabilities		152,420			—		42,839		(195,259	)		—

Total liabilities		202,084			5,284,021		119,762		(195,259	)		5,410,608
Total stockholders’ (deficit) equity		(163,613	)		27,701		176,363		(204,064	)		(163,613	)

Total liabilities and stockholders’ (deficit) equity	$	38,471		$	5,311,722	$	296,125	$	(399,323	)	$	5,246,995

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2011


				Subsidiary		Non-
*(Amounts in thousands)*	Parent			Guarantors		Guarantors		Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	—		$	—	$	—	$	—		$	—
Cash and cash equivalents (substantially restricted)		524			2,462,106		109,544		—			2,572,174
Receivables, net (substantially restricted)		—			1,204,903		15,162		—			1,220,065
Short-term investments (substantially restricted)		—			500,000		22,024		—			522,024
Available-for-sale investments (substantially restricted)		—			102,771		—		—			102,771
Property and equipment		—			87,172		29,169		—			116,341
Goodwill		—			306,878		121,813		—			428,691
Other assets		4,820			190,295		18,397		—			213,512
Equity investments in subsidiaries		85,436			177,385		—		(262,821	)		—
Intercompany receivables		—			187,441		—		(187,441	)		—

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

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Payment service obligations	$	—		$	4,138,418	$	66,957	$	—		$	4,205,375
Debt		—			810,888		—		—			810,888
Pension and other postretirement benefits		—			118,580		1,672		—			120,252
Accounts payable and other liabilities		54,803			65,629		28,829		—			149,261
Intercompany liabilities		146,175			—		41,266		(187,441	)		—

Total liabilities		200,978			5,133,515		138,724		(187,441	)		5,285,776
Total stockholders’ (deficit) equity		(110,198	)		85,436		177,385		(262,821	)		(110,198	)

Total liabilities and stockholders’ (deficit) equity	$	90,780		$	5,218,951	$	316,109	$	(450,262	)	$	5,175,578

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF (LOSS) INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors		Eliminations			Consolidated
REVENUE
Fee and other revenue	$	—		$	362,120		$	76,012	$	(102,502	)	$	335,630
Investment revenue		—			2,788			132		—			2,920

Total revenue		—			364,908			76,144		(102,502	)		338,550
EXPENSES
Fee and other commissions expense		—			190,347			40,057		(78,032	)		152,372
Investment commissions expense		—			94			—		—			94

Total commissions expense		—			190,441			40,057		(78,032	)		152,466
Compensation and benefits		—			39,575			15,169		—			54,744
Transaction and operations support		(454	)		148,710			11,818		(24,470	)		135,604
Occupancy, equipment and supplies		—			8,984			3,286		—			12,270
Depreciation and amortization		—			7,831			3,009		—			10,840

Total operating expenses		(454	)		395,541			73,339		(102,502	)		365,924

OPERATING INCOME (LOSS)		454			(30,633	)		2,805		—			(27,374	)

Other expense
Interest expense		—			17,710			—		—			17,710
Other		—			50			—		—			50

Total other expenses, net		—			17,760			—		—			17,760

Income (loss) before income taxes		454			(48,393	)		2,805		—			(45,134	)
Income tax expense		253			9,360			13		—			9,626

Income (loss) after income taxes		201			(57,753	)		2,792		—			(54,760	)
Equity (loss) income in subsidiaries		(54,961	)		2,792			—		52,169			—

NET (LOSS) INCOME	$	(54,760	)	$	(54,961	)	$	2,792	$	52,169		$	(54,760	)

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF (LOSS) INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
REVENUE
Fee and other revenue	$	—		$	1,055,331		$	217,194		$	(295,271	)	$	977,254
Investment revenue		—			8,969			564			—			9,533

Total revenue		—			1,064,300			217,758			(295,271	)		986,787
EXPENSES
Fee and other commissions expense		—			554,543			120,193			(233,776	)		440,960
Investment commissions expense		—			274			—			—			274

Total commissions expense		—			554,817			120,193			(233,776	)		441,234
Compensation and benefits		—			125,893			46,945			—			172,838
Transaction and operations support		10,157			306,408			36,756			(61,495	)		291,826
Occupancy, equipment and supplies		—			26,575			10,048			—			36,623
Depreciation and amortization		—			23,397			9,179			—			32,576

Total operating expenses		10,157			1,037,090			223,121			(295,271	)		975,097

OPERATING (LOSS) INCOME		(10,157	)		27,210			(5,363	)		—			11,690

Other expense
Interest expense		—			53,230			—			—			53,230
Other		347			50			—			—			397

Total other expenses, net		347			53,280			—			—			53,627

Loss before income taxes		(10,504	)		(26,070	)		(5,363	)		—			(41,937	)
Income tax (benefit) expense		(3,928	)		32,960			(1,422	)		—			27,610

Loss after income taxes		(6,576	)		(59,030	)		(3,941	)		—			(69,547	)
Equity (loss) income in subsidiaries		(62,971	)		(3,941	)		—			66,912			—

NET (LOSS) INCOME	$	(69,547	)	$	(62,971	)	$	(3,941	)	$	66,912		$	(69,547	)

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF INCOME (LOSS)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary		Non-
*(Amounts in thousands)*	Parent			Guarantors		Guarantors		Eliminations			Consolidated
REVENUE
Fee and other revenue	$	—		$	310,022	$	80,905	$	(72,905	)	$	318,022
Investment revenue		—			3,718		207		—			3,925

Total revenue		—			313,740		81,112		(72,905	)		321,947
EXPENSES
Fee and other commissions expense		—			151,213		41,285		(51,488	)		141,010
Investment commissions expense		—			99		—		—			99

Total commissions expense		—			151,312		41,285		(51,488	)		141,109
Compensation and benefits		15			44,498		16,122		—			60,635
Transaction and operations support		2,868			62,200		13,724		(21,417	)		57,375
Occupancy, equipment and supplies		—			8,468		2,622		—			11,090
Depreciation and amortization		—			8,458		2,955		—			11,413

Total operating expenses		2,883			274,936		76,708		(72,905	)		281,622

OPERATING (LOSS) INCOME		(2,883	)		38,804		4,404		—			40,325

Other expense
Interest expense		—			22,234		—		—			22,234
Other		(115	)		885		—		—			770

Total other (income) expenses, net		(115	)		23,119		—		—			23,004

(Loss) income before income taxes		(2,768	)		15,685		4,404		—			17,321
Income tax (benefit) expense		(999	)		1,123		1,363		—			1,487

(Loss) income after income taxes		(1,769	)		14,562		3,041		—			15,834
Equity income (loss) in subsidiaries		17,603			3,041		—		(20,644	)		—

NET INCOME (LOSS)	$	15,834		$	17,603	$	3,041	$	(20,644	)	$	15,834

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF INCOME (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors		Eliminations			Consolidated
REVENUE
Fee and other revenue	$	—		$	892,195		$	211,223	$	(191,313	)	$	912,105
Investment revenue		—			13,404			415		—			13,819

Total revenue		—			905,599			211,638		(191,313	)		925,924
EXPENSES
Fee and other commissions expense		—			427,156			105,231		(126,756	)		405,631
Investment commissions expense		—			350			—		—			350

Total commissions expense		—			427,506			105,231		(126,756	)		405,981
Compensation and benefits		(16	)		131,589			46,270		—			177,843
Transaction and operations support		5,363			192,450			33,122		(64,557	)		166,378
Occupancy, equipment and supplies		—			26,028			8,452		—			34,480
Depreciation and amortization		—			26,452			8,506		—			34,958

Total operating expenses		5,347			804,025			201,581		(191,313	)		819,640

OPERATING (LOSS) INCOME		(5,347	)		101,574			10,057		—			106,284

Other expense (income)
Net securities gains		—			(32,816	)		—		—			(32,816	)
Interest expense		—			65,720			—		—			65,720
Other		5,405			10,221			—		—			15,626

Total other expenses, net		5,405			43,125			—		—			48,530

(Loss) income before income taxes		(10,752	)		58,449			10,057		—			57,754
Income tax (benefit) expense		(3,763	)		3,271			1,963		—			1,471

(Loss) income after income taxes		(6,989	)		55,178			8,094		—			56,283
Equity income (loss) in subsidiaries		63,272			8,094			—		(71,366	)		—

NET INCOME (LOSS)	$	56,283		$	63,272		$	8,094	$	(71,366	)	$	56,283

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors		Eliminations			Consolidated
NET (LOSS) INCOME	$	(54,760	)	$	(54,961	)	$	2,792	$	52,169		$	(54,760	)
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gains on available-for-sale securities:
Net holding gains arising during the period, net of tax expense of $61		873			873			—		(873	)		873
Pension and postretirement benefit plans:
Reclassification of prior service credit recorded to net income, net of tax expense of $57		(92	)		(92	)		—		92			(92	)
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $596		972			972			—		(972	)		972
Unrealized foreign currency translation gains, net of tax expense of $67		110			110			30		(140	)		110

Other comprehensive income (loss)		1,863			1,863			30		(1,893	)		1,863

COMPREHENSIVE (LOSS) INCOME	$	(52,897	)	$	(53,098	)	$	2,822	$	50,276		$	(52,897	)

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET (LOSS) INCOME	$	(69,547	)	$	(62,971	)	$	(3,941	)	$	66,912		$	(69,547	)
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gains on available-for-sale securities:
Net holding gains arising during the period, net of tax expense of $646		2,281			2,281			—			(2,281	)		2,281
Pension and postretirement benefit plans:
Reclassification of prior service credit recorded to net income, net of tax expense of $170		(277	)		(277	)		—			277			(277	)
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $1,787		2,916			2,916			—			(2,916	)		2,916
Unrealized foreign currency translation gains, net of tax expense of $192		314			314			(414	)		100			314

Other comprehensive income (loss)		5,234			5,234			(414	)		(4,820	)		5,234

COMPREHENSIVE (LOSS) INCOME	$	(64,313	)	$	(57,737	)	$	(4,355	)	$	62,092		$	(64,313	)

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET INCOME (LOSS)	$	15,834		$	17,603		$	3,041		$	(20,644	)	$	15,834
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gains on available-for-sale securities:
Net holding gains arising during the period, net of tax expense of $0		(2,903	)		(2,903	)		—			2,903			(2,903	)
Pension and postretirement benefit plans:
Reclassification of prior service credit recorded to net income, net of tax expense of $57		(92	)		(92	)		—			92			(92	)
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $621		1,012			1,012			—			(1,012	)		1,012
Unrealized foreign currency translation gains, net of tax benefit of $513		(1,324	)		(2,379	)		(852	)		3,231			(1,324	)

Other comprehensive (loss) income		(3,307	)		(4,362	)		(852	)		5,214			(3,307	)

COMPREHENSIVE INCOME (LOSS)	$	12,527		$	13,241		$	2,189		$	(15,430	)	$	12,527

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET INCOME (LOSS)	$	56,283		$	63,272		$	8,094		$	(71,366	)		56,283
OTHER COMPREHENSIVE INCOME (LOSS)
Net unrealized gains on available-for-sale securities:
Net holding gains arising during the period, net of tax expense of $0		2,125			2,125			—			(2,125	)		2,125
Reclassification adjustment for net realized losses included in net income, net of tax benefit of $0		4			4			—			(4	)		4
Pension and postretirement benefit plans:
Reclassification of prior service credit recorded to net income, net of tax expense of $170		(277	)		(277	)		—			277			(277	)
Reclassification of net actuarial loss recorded to net income, net of tax benefit of $1,862		3,036			3,036			—			(3,036	)		3,036
Unrealized foreign currency translation gains, net of tax benefit of $103		(266	)		(859	)		(301	)		1,160			(266	)

Other comprehensive income (loss)		4,622			4,029			(301	)		(3,728	)		4,622

COMPREHENSIVE INCOME (LOSS)	$	60,905		$	67,301		$	7,793		$	(75,094	)	$	60,905

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(29,761	)	$	33,747		$	2,055		$	—		$	6,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments (substantially restricted)		—			6,202			—			—			6,202
Purchases of short-term investments (substantially restricted)		—			—			(11,057	)		—			(11,057	)
Proceeds from maturities of short-term investments (substantially restricted)		—			—			11,752			—			11,752
Purchases of property and equipment, net of disposals		—			(9,875	)		(3,043	)		—			(12,918	)
Proceeds from disposal of assets and businesses		—			355			—			—			355
Capital contribution from subsidiary guarantors		—			(293	)		—			293			—

Net cash (used in) provided by investing activities		—			(3,611	)		(2,348	)		293			(5,666	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on debt		—			(375	)		—			—			(375	)
Intercompany financings		29,761			(29,761	)		—			—			—
Capital contribution to non-guarantors		—			—			293			(293	)		—

Net cash provided by (used in) financing activities		29,761			(30,136	)		293			(293	)		(375	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		—			—			—			—			—
CASH AND CASH EQUIVALENTS—Beginning of period		—			—			—			—			—

CASH AND CASH EQUIVALENTS—End of period	$	—		$	—		$	—		$	—		$	—

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(6,268	)	$	18,174		$	6,350		$	—		$	18,256
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments (substantially restricted)		—			25,469			—			—			25,469
Purchases of short-term investments (substantially restricted)		—			(300,000	)		(35,546	)		—			(335,546	)
Proceeds from maturities of short-term investments (substantially restricted)		—			300,000			35,390			—			335,390
Purchases of property and equipment, net of disposals		—			(33,686	)		(9,527	)		—			(43,213	)
Proceeds from disposal of assets and businesses		—			746			—			—			746
Capital contribution from subsidiary guarantors		—			(3,333	)		—			3,333			—

Net cash (used in) provided by investing activities		—			(10,804	)		(9,683	)		3,333			(17,154	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on debt		—			(1,125	)		—			—			(1,125	)
Proceeds from exercise of stock options		23			—			—			—			23
Intercompany financings		6,245			(6,245	)		—			—			—
Capital contribution to non-guarantors		—			—			3,333			(3,333	)		—

Net cash provided by (used in) financing activities		6,268			(7,370	)		3,333			(3,333	)		(1,102	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		—			—			—			—			—
CASH AND CASH EQUIVALENTS—Beginning of period		—			—			—			—			—

CASH AND CASH EQUIVALENTS—End of period	$	—		$	—		$	—		$	—		$	—

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(1,906	)	$	(18,250	)	$	5,128		$	—		$	(15,028	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments (substantially restricted)		—			12,538			—			—			12,538
Proceeds from settlement of investments (substantially restricted)		—			13,599			—			—			13,599
Purchases of short-term investments (substantially restricted)		—			—			(10,113	)		—			(10,113	)
Proceeds from maturities of short-term investments (substantially restricted)		—			—			5,394			—			5,394
Purchases of property and equipment, net of disposals		—			(5,033	)		(2,210	)		—			(7,243	)
Proceeds from disposal of property and equipment		—			501			—			—			501
Dividends to parent/Capital contribution from subsidiary guarantors		242			(1,801	)		—			1,559			—

Net cash provided by (used in) investing activities		242			19,804			(6,929	)		1,559			14,676

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		352			—			—			—			352
Intercompany financings		1,312			(1,312	)		—			—			—
Dividends from guarantors/Capital contribution to non-guarantors		—			(242	)		1,801			(1,559	)		—

Net cash provided by (used in) financing activities		1,664			(1,554	)		1,801			(1,559	)		352

NET CHANGE IN CASH AND CASH EQUIVALENTS		—			—			—			—			—
CASH AND CASH EQUIVALENTS—Beginning of period		—			—			—			—			—

CASH AND CASH EQUIVALENTS—End of period	$	—		$	—		$	—		$	—		$	—

MONEYGRAM INTERNATIONAL, INC.

CONDENSED, CONSOLIDATING STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011


				Subsidiary			Non-
*(Amounts in thousands)*	Parent			Guarantors			Guarantors			Eliminations			Consolidated
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	$	(1,231	)	$	101,487		$	30,348		$	—		$	130,604
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale investments (substantially restricted)		—			44,281			—			—			44,281
Proceeds from settlement of investments (substantially restricted)		—			32,820			—			—			32,820
Purchases of short-term investments (substantially restricted)		—			(294,142	)		(32,671	)		—			(326,813	)
Proceeds from maturities of short-term investments (substantially restricted)		—			200,500			10,710			—			211,210
Purchases of property and equipment		—			(19,190	)		(12,243	)		—			(31,433	)
Cash paid for acquisitions, net of cash acquired		—			—			(53	)		—			(53	)
Proceeds from disposal of property and equipment		—			501			—			—			501
Dividends to parent/Capital contribution from subsidiary guarantors		241,557			(3,909	)		—			(237,648	)		—

Net cash provided by (used in) investing activities		241,557			(39,139	)		(34,257	)		(237,648	)		(69,487	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt		—			389,025			—			—			389,025
Transaction costs for issuance and amendment of debt		—			(17,062	)		—			—			(17,062	)
Payment on debt		—			(191,250	)		—			—			(191,250	)
Additional consideration in connection with conversion of mezzanine equity		(218,333	)		—			—			—			(218,333	)
Transaction costs for the conversion and issuance of stock		(3,736	)		—			—			—			(3,736	)
Cash dividends paid		(20,477	)		—			—			—			(20,477	)
Proceeds from exercise of stock options		716			—			—			—			716
Intercompany financings		1,504			(1,504	)		—			—			—
Dividends from guarantors/Capital contribution to non-guarantors		—			(241,557	)		3,909			237,648			—

Net cash (used in) provided by financing activities		(240,326	)		(62,348	)		3,909			237,648			(61,117	)

NET CHANGE IN CASH AND CASH EQUIVALENTS		—			—			—			—			—
CASH AND CASH EQUIVALENTS—Beginning of period		—			—			—			—			—

CASH AND CASH EQUIVALENTS—End of period	$	—		$	—		$	—		$	—		$	—

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and related Notes of MoneyGram International, Inc. (“MoneyGram,” the “Company,” “we,” “us” and “our”). This discussion contains forward-looking statements that involve risks and uncertainties. MoneyGram’s actual results could differ materially from those anticipated due to various factors discussed under “Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q.

Following is a summary of the key metrics and trends reviewed by the Company:

•

Management evaluates operating performance through EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization) and Adjusted EBITDA (EBITDA adjusted for significant items) financial measures. We believe that EBITDA and adjusted EBITDA enhance investors’ understanding of our business and performance. See page 41 for further discussion of EBITDA and Adjusted EBITDA.

•

Management assesses financial condition through assets in excess of payment service obligations (“AEPSO”). The Company’s management utilizes AEPSO in assessing the Company’s liquidity and capital resources. See page 46 for further discussion of AEPSO.

RESULTS OF OPERATIONS


	Three Months Ended								Nine Months Ended
	September 30,					%			September 30,						%
*(Amounts in thousands)*	2012			2011		Change			2012			2011			Change
	(unaudited)			(unaudited)					(unaudited)			(unaudited)
Revenue
Fee and other revenue	$	335,630		$	318,022		6	%	$	977,254		$	912,105			7	%
Investment revenue		2,920			3,925		(26	)%		9,533			13,819			(31	)%

Total revenue		338,550			321,947		5	%		986,787			925,924			7	%

Expenses
Fee and other commissions expense		152,372			141,010		8	%		440,960			405,631			9	%
Investment commissions expense		94			99		(5	)%		274			350			(22	)%

Total commissions expense		152,466			141,109		8	%		441,234			405,981			9	%
Compensation and benefits		54,744			60,635		(10	)%		172,838			177,843			(3	)%
Transaction and operations support		135,604			57,375		136	%		291,826			166,378			75	%
Occupancy, equipment and supplies		12,270			11,090		11	%		36,623			34,480			6	%
Depreciation and amortization		10,840			11,413		(5	)%		32,576			34,958			(7	)%

Total operating expenses		365,924			281,622		30	%		975,097			819,640			19	%

Operating (loss) income		(27,374	)		40,325		(168	)%		11,690			106,284			(89	)%

Other (income) expense
Net securities gains		—			—		—			—			(32,816	)		NM
Interest expense		17,710			22,234		(20	)%		53,230			65,720			(19	)%
Other		50			770		(94	)%		397			15,626			(97	)%

Total other expense, net		17,760			23,004		(23	)%		53,627			48,530			11	%

(Loss) income before income taxes		(45,134	)		17,321		(361	)%		(41,937	)		57,754			(173	)%

Income tax expense		9,626			1,487		547	%		27,610			1,471			1777	%

Net (loss) income	$	(54,760	)	$	15,834		(446	)%	$	(69,547	)	$	56,283			(224	)%

NM = Not meaningful

Following is a summary of our operating results in the third quarter of 2012 as compared to the third quarter of 2011:

•

Total fee and other revenue increased $17.6 million, or six percent, to $335.6 million in the third quarter of 2012 due to an increase in money transfer fee and other revenue, partially offset by lower revenue from bill payment products and the Financial Paper Products segment. Money transfer volume growth of 13 percent drove the increase in money transfer fee and other revenue, but was partially offset by a lower euro valuation against the U.S. dollar, changes in corridor mix and average face value per transaction. For the three months ended September 30, 2011, bill payment included $1.6 million of revenue for a divested business. See further discussion in the “Fee and Other Revenue and Commissions Expense” section.

•

Investment revenue decreased $1.0 million, or 26 percent, to $2.9 million in the third quarter of 2012 due to lower yields on our investments and a decline in average investable balances.

•

Total commissions expense increased $11.4 million, or eight percent, in the third quarter of 2012 due to money transfer volume growth, partially offset by a lower euro valuation against the U.S. dollar and lower commissions expense related to bill payment products.

•

Total operating expenses increased $84.3 million, or 30 percent, in the third quarter of 2012, driven by higher transaction and operations expense from additional legal accruals, contractor outsourcing and consultant expense, and marketing expense and an increase in commissions expense, partially offset by a decrease in compensation and benefits expense and a decrease in depreciation and amortization. For the three months ended September 30, 2012, operating expenses include $3.9 million of costs associated with restructuring and reorganization activities.

•

Interest expense decreased $4.5 million, or 20 percent, to $17.7 million in the third quarter of 2012, primarily due to lower interest rates from our refinancing activities in 2011.

•

In the third quarter of 2012, the Company had income tax expense of $9.6 million on pre-tax loss of $45.1 million, primarily reflecting the non-deductible treatment of certain legal accruals and related expenses.

•

The decrease in the euro to U.S. dollar exchange rate decreased total revenue by $8.2 million and total expenses by $6.4 million, for a net decrease to our (loss) income before income taxes of $1.8 million.

The following significant action was taken by the Company during the quarter:

Wal-Mart Contract — On September 30, 2012, the Company and Wal-Mart Stores, Inc. (“Wal-Mart”) entered into a new Master Trust Agreement, pursuant to which the Company will provide certain money transfer services, bill payment services and money order services for customers in Wal-Mart stores located in the United States and Puerto Rico (the “New Agreement”). The terms of the existing agreement between the Company and Wal-Mart remain in full force and effect until April 1, 2013, at which point the existing agreement will terminate in its entirety and be superceded by the New Agreement. The New Agreement has an initial term of three years, commencing on April 1, 2013. Pursuant to the terms of the New Agreement, the Company will serve as the “preferred provider” for money transfer services conducted at Wal-Mart agent locations that are not otherwise conducted under a Wal-Mart brand name, subject to certain exceptions. The Company will pay Wal-Mart certain fees and commissions for each money transfer, bill payment and money order transaction conducted at a Wal-Mart agent location. The commission rates in the New Agreement are substantially the same as in the Existing Agreement. In connection with the services to be provided pursuant to the New Agreement, the Company has agreed to certain expenditures for upgrading and development costs, and marketing, innovation, growth and development initiatives.

FEE AND OTHER REVENUE AND COMMISSIONS EXPENSE


	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
Fee and other revenue	$	335,630		$	318,022			6	%	$	977,254		$	912,105			7	%
Fee and other commissions expense		152,372			141,010			8	%		440,960			405,631			9	%
Fee and other commissions expense as a % of fee and other revenue		45.4	%		44.3	%					45.1	%		44.5	%

Fee and Other Revenue — For the three and nine months ended September 30, 2012, fee and other revenue growth of $17.6 million and $65.1 million, respectively, was primarily driven by money transfer transaction volume growth, partially offset by a lower euro valuation against the U.S. dollar, changes in corridor mix and average face value per transaction. Bill payment products primarily experienced revenue declines from lower average fees per transaction while money order and official check fee and other revenue decreased due to volume declines. See the “Segment Performance” section for more detailed discussion.

Fee and Other Commissions — For the three and nine months ended September 30, 2012, fee and other commissions expense growth of $11.4 million and $35.3 million, respectively, was primarily due to money transfer volume growth and commission rates, partially offset by a lower euro valuation against the U.S. dollar and lower Financial Paper Product volumes. For the three and nine months ended September 30, 2011 Financial Paper Products commissions included a $0.3 million benefit due to additional volume discounts for one agent.

Commissions expense grew at a faster rate than revenue due to corridor mix and payment at a higher tier from volume growth achievement for certain key agents. Commissions expense as a percentage of fee and other revenue increased in both the three and nine months ended September 30, 2012, primarily from the continued shift in overall product mix towards the Global Funds Transfer segment, particularly the money transfer product. Agents in the Global Funds Transfer segment are compensated through commissions we pay to them, whereas our Financial Paper Products agents and financial institution customers primarily earn their revenue through per item fees they charge directly to the consumer. See the “Segment Performance” section for more detailed discussion.

NET INVESTMENT REVENUE ANALYSIS


	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
Investment revenue	$	2,920		$	3,925			(26	)%	$	9,533		$	13,819			(31	)%
Investment commissions expense		(94	)		(99	)		5	%		(274	)		(350	)		22	%

Net investment revenue	$	2,826		$	3,826			(26	)%	$	9,259		$	13,469			(31	)%

Average balances:
Cash equivalents and investments	$	3,071,005		$	3,153,925			(3	)%	$	3,109,300		$	3,268,797			(5	)%
Payment service obligations	$	2,137,129		$	2,238,782			(5	)%	$	2,166,656		$	2,319,356			(7	)%

Average yields earned and rates paid:
Investment yield		0.38	%		0.49	%					0.41	%		0.57	%
Investment commission rate		0.02	%		0.02	%					0.02	%		0.02	%
Net investment margin		0.37	%		0.48	%					0.40	%		0.55	%

The average investment yield is calculated by dividing investment revenue by the average cash equivalents and investment balances for the period. The average investment commissions rate is calculated by dividing investment commissions expense by the average payment service obligations for the period. The net investment margin is calculated by dividing net investment revenue by the average cash equivalents and investment balances for the period, then dividing that amount by the number of days in the period and multiplying by the number of days in the year.

Investment revenue — Investment revenue consists of interest and dividends generated through the investment of cash balances received primarily from the sale of official checks, money orders and other payment instruments. Investment revenue decreased $1.0 million, or 26 percent, and $4.3 million, or 31 percent, in the three and nine months ended September 30, 2012, respectively, due to lower yields earned on our investment portfolio and lower average investment balances from the run-off of certain official check financial institution customers terminated in prior periods.

Investment commissions expense — Investment commissions expense consists of amounts paid to financial institution customers based on short-term interest rate indices times the average outstanding cash balances of official checks sold by the financial institution. There was a nominal change in investment commissions expense for the three months ended September 30, 2012 compared to September 30, 2011. During the nine months ended September 30, 2012, investment commissions expense decreased $0.1 million, or 22 percent, primarily from lower interest rates.

Net investment revenue and margin — As a result of the factors discussed above, net investment revenue decreased $1.0 million, or 26 percent, for the three months ended September 30, 2012, while the net investment margin decreased 0.11 percentage points. For the nine months ended September 30, 2012, net investment revenue decreased $4.2 million, or 31 percent, while the net investment margin decreased 0.15 percentage points.

OPERATING EXPENSES

The following discussion relates to operating expenses, other than commissions expense, which is discussed under the section “Fee and Other Revenue and Commissions Expense.”

Compensation and benefits — Compensation and benefits includes salaries and benefits, management incentive programs, related payroll taxes and other employee related costs. Following is a summary of the change in compensation and benefits:


*(Amounts in thousands)*	Three Months Ended			Nine Months Ended
For the period ended September 30, 2011	$	60,635		$	177,843
Change from:
Employee stock-based compensation		(2,038	)		(4,696	)
Salaries, related payroll taxes and incentive compensation		(1,611	)		(537	)
Restructuring and reorganization		(1,460	)		(337	)
Impact of change in Euro currency		(1,283	)		(2,827	)
Other employee benefits		501			3,392

For the period ended September 30, 2012	$	54,744		$	172,838

During the three and nine months ended September 30, 2012, employee stock–based compensation decreased from grants fully vesting in prior periods and forfeitures, partially offset by new grants with longer vesting periods. Restructuring and reorganization costs decreased due to the fact that the Company’s global transformation initiative will be substantially complete by December 31, 2012. Included in restructuring and reorganization for the three and nine months ended September 30, 2012, is $0.4 million and $0.5 million, respectively, of restructuring costs associated with the realignment of management.

Salaries, related payroll taxes and incentive compensation decreased from lower incentive compensation, reduced temporary help and headcount from our restructuring and outsourcing initiatives, partially offset by ordinary salary increases and higher sales incentives. Other employee benefits increased due to executive severance and higher insurance costs, partially offset by lower expenses from our benefit plans.

Transaction and operations support — Transaction and operations support expense primarily includes: marketing; professional fees and other outside services; telecommunications; agent support costs, including forms related to our products; non-compensation employee costs, including training, travel and relocation; bank charges; and the impact of foreign exchange rate movements on our monetary transactions, assets and liabilities denominated in a currency other than the U.S. dollar. Following is a summary of the change in transaction and operations support:


*(Amounts in thousands)*	Three Months Ended			Nine Months Ended
For the period ended September 30, 2011	$	57,375		$	166,378
Change from:
Legal accruals		70,752			111,021
Contractor, consultant and outsourcing		6,217			15,359
Marketing costs		4,970			6,848
Restructuring and reorganization		(1,232	)		(1,210	)
Impact of change in Euro currency		(913	)		(2,007	)
Foreign exchange gains		(784	)		(4,758	)
Other		(781	)		195

For the period ended September 30, 2012	$	135,604		$	291,826

For the three and nine months ended September 30, 2012, transaction and operations support expense increased from the following items:

•

Legal accruals and fees increased primarily due to regulatory matters and securities litigation, partially offset by lower capital transaction activities.

•

Consultant fees and outsourcing costs increased primarily due to the outsourcing of certain transactional support and information technology activities and our continued investment in the enhancement of our operational processes and systems that support our infrastructure.

•

Marketing costs increased from timing of marketing activities and due to our new loyalty program introduced in January 2012.

•

Foreign exchange gains decreased due to the impact of high volatility in foreign currency exchange rates on our growing assets, liabilities, revenue and expenses not denominated in the U.S. dollar.

For the three and nine months ended September 30, 2012, there were no restructuring costs. Reorganization costs decreased in the three and nine months ended September 30, 2012, primarily due to reduced consulting resource requirements as the Company’s global transformation initiatives near completion.

Occupancy, equipment and supplies — Occupancy, equipment and supplies includes facilities rent and maintenance costs, software and equipment maintenance costs, freight and delivery costs and supplies. Occupancy, equipment and supplies increased $1.2 million, or 11 percent, and $2.1 million, or six percent, for the three and nine months ended September 30, 2012, respectively, primarily due to additional software maintenance as we continued to invest in our operational systems. The Company incurred $0.4 million and $1.2 million, respectively, of facility-related costs associated with reorganization activities during the three and nine months ended September 30, 2012. The decrease in the euro exchange rate decreased occupancy, equipment and supplies by $0.3 million and $0.6 million, respectively, in the three and nine months ended September 30, 2012.

Depreciation and amortization — Depreciation and amortization includes depreciation on point of sale equipment, agent signage, computer hardware and software, office furniture and equipment, along with amortization of leasehold improvements, capitalized software development costs and intangible assets. Depreciation and amortization for the three and nine months ended September 30, 2012, decreased $0.6 million and $2.4 million, respectively, primarily from lower depreciation expense on point of sale equipment, office furniture and equipment and capitalized software, partially offset by an increase in signage depreciation. The decrease in the euro exchange rate decreased depreciation and amortization by $0.2 million and $0.5 million, respectively, in the three and nine months ended September 30, 2012.

OTHER EXPENSE

Net securities gains — The nine months ended September 30, 2011 reflects a realized gain of $32.8 million related to the receipt of settlements equal to all outstanding principal from two securities classified in “other asset-backed securities.” These securities had previously been written down to a nominal fair value.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
*(Amounts in thousands)*	2012		2011		2012		2011
Realized gains from available-for-sale investments	$	—	$	—	$	—	$	(32,820	)
Other-than-temporary impairments from available-for-sale investments		—		—		—		4

Net securities gains	$	—	$	—	$	—	$	(32,816	)

Interest expense — Interest expense decreased $4.5 million, or 20 percent, and $12.5 million, or 19 percent, for the three and nine months ended September 30, 2012, respectively, due to lower interest rates resulting from our refinancing activities in 2011.

Other — Other expense was $0.1 million and $0.4 million, respectively, for the three and nine months ended September 30, 2012, primarily due to the Investors’ payment to Walmart for the Participation Agreement. See Note 1 — Basis of Presentation of the Notes to Consolidated Financial Statements for further information.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
*(Amounts in thousands)*	2012		2011			2012		2011
Recapitalization costs	$	—	$	(114	)	$	—	$	5,407
Debt extinguishment loss		—		—			—		5,220
Contribution from investors		—		—			347		—
Loss on sale of land		50		—			50		—
Asset impairments		—		884			—		4,999

Other	$	50	$	770		$	397	$	15,626

The Company recognized expenses of $5.4 million during the nine months ended September 30, 2011, related to our May 2011 recapitalization, or the 2011 Recapitalization. We also recognized a $5.2 million debt extinguishment loss during the nine months ended September 30, 2011 in connection with the refinancing of our senior debt facility in May 2011. Asset impairments of $0.9 million and $5.0 million during the three and nine months ended September 30, 2011, respectively, relate to the disposition of a bill payment business in October 2011 and a $2.3 million impairment charge from the disposal of land held for non-operating purposes. The disposition of this land is part of our facilities rationalization efforts under our restructuring and reorganization program.

Income taxes — For the three and nine months ended September 30, 2012, the Company had $9.6 million and $27.6 million, respectively, of income tax expense on pre-tax loss of $45.1 million and $41.9 million, respectively, resulting from the non-deductible treatment of certain legal accruals and related expenses.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (“EBITDA”) AND

ADJUSTED EBITDA

We believe that EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization) and Adjusted EBITDA (EBITDA adjusted for significant items) provide useful information to investors because they are indicators of the strength and performance of ongoing business operations, including our ability to service debt and fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within our industry. In addition, our debt agreements require compliance with financial measures similar to Adjusted EBITDA. Finally, EBITDA and Adjusted EBITDA are financial measures used by management in reviewing results of operations, forecasting, assessing cash flow and capital, allocating resources and establishing employee incentive programs.

Although we believe EBITDA and Adjusted EBITDA enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an exclusive alternative to accompanying GAAP financial measures. The following table is a reconciliation of these non-GAAP financial measures to the related GAAP financial measures.


	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
(Loss) income before income taxes	$	(45,134	)	$	17,321			(361	)%	$	(41,937	)	$	57,754			(173	)%
Interest expense		17,710			22,234			(20	)%		53,230			65,720			(19	)%
Depreciation and amortization		10,840			11,413			(5	)%		32,576			34,958			(7	)%
Amortization of agent signing bonuses		8,377			8,115			3	%		24,761			24,182			2	%

EBITDA		(8,207	)		59,083			(114	)%		68,630			182,614			(62	)%

Significant items impacting EBITDA:
Net securities gains		—			—			0	%		—			(32,816	)		100	%
Severance and related costs		—			—			0	%		1,029			(31	)		3419	%
Restructuring and reorganization costs		3,949			6,375			(38	)%		14,163			17,259			(18	)%
Capital transaction costs		—			(114	)		100	%		—			5,407			(100	)%
Asset impairment charges		—			884			(100	)%		—			2,686			(100	)%
Contribution from investors		—			—			0	%		347			—			100	%
Debt extinguishment		—			—			0	%		—			5,220			(100	)%
Stock-based compensation expense		2,419			4,403			(45	)%		7,579			12,166			(38	)%
Legal accruals and related expenses		72,215			1,341			NM			115,463			3,954			NM

Adjusted EBITDA	$	70,376		$	71,972			(2	)%	$	207,211		$	196,459			5	%

NM = Not meaningful

For the three months ended September 30, 2012, EBITDA decreased $67.3 million, or 114 percent, to ($8.2) million from $59.1 million primarily due to the significant items impacting EBITDA in the table herein, the declining euro, increased consultant expense, marketing spend and lower investment revenue, partially offset by money transfer growth. Adjusted EBITDA for the three months ended September 30, 2012 decreased $1.6 million, or two percent, to $70.4 million from $72.0 million.

For the nine months ended September 30, 2012, EBITDA decreased $114.0 million, or 62 percent, to $68.6 million from $182.6 million primarily due to the significant items impacting EBITDA in the table herein and money transfer growth, partially offset by the declining euro and lower investment revenue. Adjusted EBITDA for the nine months ended September 30, 2012 increased $10.8 million, or five percent, to $207.2 million from $196.5 million.

SEGMENT PERFORMANCE

Our reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served. We primarily manage our business through two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfers and bill payment services to consumers through a network of agents and, in select markets, company-operated locations. The Financial Paper Products segment provides money orders to consumers through our retail and financial institution locations in the United States and Puerto Rico, and provides official check services to financial institutions in the United States. Businesses that are not operated within these segments are categorized as “Other” and primarily relate to discontinued products and businesses. Segment pre-tax operating income and segment operating margin are used to review operating performance and allocate resources.

We manage our investment portfolio on a consolidated level, with no specific investment security assigned to a particular segment. However, investment revenue is allocated to each segment based on the average investment balances generated by that segment’s sale of payment instruments during the period. Net securities gains are not allocated to the segments as the investment portfolio is managed at a consolidated level. While the derivatives portfolio is also managed on a consolidated level, each derivative instrument is utilized in a manner that can be identified to a particular segment. Forward foreign exchange contracts are identified with the money transfer product in the Global Funds Transfer segment.

Also excluded from operating income for Global Funds Transfer and Financial Paper Products are interest and other expenses related to our credit agreements, items related to our preferred stock, operating loss from businesses categorized as “Other,” certain pension and benefit obligation expenses, director deferred compensation plan expenses, executive severance and related costs and certain legal and corporate costs not related to the performance of the segments.


	Three Months Ended									Nine Months Ended
	September 30,									September 30,
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
Operating (loss) income:
Global Funds Transfer	$	39,279		$	39,083		$	196		$	111,187		$	91,441		$	19,746
Financial Paper Products		7,564			5,533			2,031			24,634			23,257			1,377
Other		(531	)		(433	)		(98	)		(1,588	)		(1,096	)		(492	)

Total segment operating income		46,312			44,183			2,129			134,233			113,602			20,631
Other unallocated expenses		73,686			3,858			69,828			122,543			7,318			115,225

Total operating (loss) income		(27,374	)		40,325			(67,699	)		11,690			106,284			(94,594	)
Net securities gains		—			—			—			—			(32,816	)		32,816
Interest expense		17,710			22,234			(4,524	)		53,230			65,720			(12,490	)
Other		50			770			(720	)		397			15,626			(15,229	)

(Loss) income before income taxes	$	(45,134	)	$	17,321		$	(62,455	)	$	(41,937	)	$	57,754		$	(99,691	)

GLOBAL FUNDS TRANSFER SEGMENT


	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
Money transfer revenue:
Fee and other revenue	$	291,305		$	270,407			8	%	$	841,628		$	766,198			10	%
Investment revenue		138			207			(33	)%		568			405			40	%

Total money transfer revenue		291,443			270,614			8	%		842,196			766,603			10	%
Bill payment revenue:
Fee and other revenue		26,439			28,278			(7	)%		80,091			85,905			(7	)%
Investment revenue		—			—			NM			—			4			(100	)%

Total bill payment revenue		26,439			28,278			(7	)%		80,091			85,909			(7	)%
Total Global Funds Transfer revenue:
Fee and other revenue		317,744			298,685			6	%		921,719			852,103			8	%
Investment revenue		138			207			(33	)%		568			409			39	%

Total Global Funds Transfer revenue	$	317,882		$	298,892			6	%	$	922,287		$	852,512			8	%

Commissions expense	$	151,996		$	140,857			8	%	$	439,799		$	404,149			9	%

Operating income	$	39,279		$	39,083			1	%	$	111,187		$	91,441			22	%
Operating margin		12.4	%		13.1	%					12.1	%		10.7	%

NM = Not meaningful

Global Funds Transfer revenue — Total revenue in the Global Funds Transfer segment consists primarily of fees on money transfers and bill payment transactions. For the three and nine months ended September 30, 2012, Global Funds Transfer total revenue increased $19.0 million and $69.8 million, respectively, driven by money transfer volume growth, partially offset by a decline in bill payment revenue. Bill payment fee and other revenue for the three months ended September 30, 2012 decreased $1.8 million due to $1.6 million of lower average fees per transaction and lower volume of $0.2 million. For the nine months ended September 30, 2012, bill payment fee and other revenue decreased $5.8 million due to lower average fees per transaction of $4.9 million and lower volumes of $0.9 million. Bill Payment revenue from divested businesses was $1.6 million and $4.9 million, respectively, for the three and nine months ended September 30, 2011.

For the three and nine months ended September 30, 2012, money transfer fee and other revenue increased eight percent and 10 percent, respectively, driven by the items noted in the following table.


Money Transfer Fee and Other Revenue	Three Months Ended			Nine Months Ended
*(Amounts in thousands)*
For the period ended September 30, 2011	$	270,407		$	766,198
Change from:
Volume		35,143			103,417
Euro exchange rate		(8,139	)		(18,061	)
Corridor mix and average face value per transaction		(5,358	)		(10,264	)
Other		(748	)		338

For the period ended September 30, 2012	$	291,305		$	841,628

Transactions and the related fee revenue are viewed as originating from the send side of a transaction. Accordingly, discussion of transactions by geographic location refers to the region originating a transaction. Money transfer transaction growth for the three and nine months ended September 30, 2012 as compared to the same period in the prior year is as follows:


	Three Months Ended			Nine Months Ended
Total transactions		13	%		14	%
Transactions originating outside of the United States		18	%		18	%
United States outbound transactions		13	%		12	%
United States to United States transactions		9	%		11	%

Transactions sent to Mexico grew by 19 percent for both the three and nine months ended September 30, 2012. Transactions from the United States to Mexico represented approximately nine percent of our total transactions for both the three and nine months ended September 30, 2012. The money transfer agent base expanded 15 percent to approximately 293,000 locations as of September 30, 2012, compared to approximately 256,000 locations as of September 30, 2011, primarily due to expansion in Eastern Europe, the Indian subcontinent, Western Europe and Africa.

Global Funds Transfer commissions expense — Commissions expense consists primarily of fees paid to our third–party agents for money transfer and bill payment services, as well as the amortization of capitalized agent signing bonuses. For the three and nine months ended September 30, 2012, fee and other commissions expense increased eight percent and nine percent, respectively, driven by the items noted in the following table.


Global Funds Transfer Fee and Other Commissions Expense	Three Months Ended			Nine Months Ended
*(Amounts in thousands)*
For the period ended September 30, 2011	$	140,857		$	404,149
Change from:
Money Transfer volume growth		13,758			43,693
Euro exchange rate		(3,716	)		(8,241	)
Bill payment volumes		(758	)		(2,423	)
Money transfer commission rates		1,850			3,099
Signing bonus amortization		623			1,444
Bill payment commission rates		(618	)		(1,922	)

For the period ended September 30, 2012	$	151,996		$	439,799

Operating Margin — Operating margin in the Global Funds Transfer segment decreased to 12.4 percent for the three months ended September 30, 2012, respectively, from 13.1 percent for the three months ended September 30, 2011. The decrease in operating margin for the three months ended September 30, 2012 resulted from higher marketing spend and the lower euro. Operating margin increased to 12.1 percent in the nine months ended September 30, 2012 from 10.7 percent in the nine months ended September 30, 2011. The higher margin for the nine months ended September 30, 2012 reflects the growth in money transfer volume, partially offset by commissions expense, restructuring and reorganization costs and higher marketing expense.

FINANCIAL PAPER PRODUCTS SEGMENT


	Three Months Ended									Nine Months Ended
	September 30,						%			September 30,						%
*(Amounts in thousands)*	2012			2011			Change			2012			2011			Change
Money order revenue:
Fee and other revenue	$	13,450		$	14,181			(5	)%	$	41,761		$	43,568			(4	)%
Investment revenue		468			639			(27	)%		1,565			2,605			(40	)%

Total money order revenue		13,918			14,820			(6	)%		43,326			46,173			(6	)%

Official check revenue:
Fee and other revenue		4,382			4,947			(11	)%		13,724			16,162			(15	)%
Investment revenue		1,991			2,716			(27	)%		6,428			9,683			(34	)%

Total official check revenue		6,373			7,663			(17	)%		20,152			25,845			(22	)%

Total Financial Paper Products revenue:
Fee and other revenue		17,832			19,128			(7	)%		55,485			59,730			(7	)%
Investment revenue		2,459			3,355			(27	)%		7,993			12,288			(35	)%

Total Financial Paper Products revenue	$	20,291		$	22,483			(10	)%	$	63,478		$	72,018			(12	)%

Commissions expense	$	470		$	332			42	%	$	1,436		$	1,912			(25	)%

Operating income	$	7,564		$	5,533			37	%	$	24,634		$	23,257			6	%
Operating margin		37.3	%		24.6	%					38.8	%		32.3	%

Financial Paper Products revenue — Total revenue in the Financial Paper Products segment consists of per–item fees charged to our financial institution customers and retail agents and investment revenue.


*(Amounts in thousands)*	Three Months Ended			Nine Months Ended
For the period ended September 30, 2011	$	22,483		$	72,018
Change in:
Investment Revenue
Lower yields		(902	)		(3,612	)
Average investable balances		(103	)		(674	)
Other investment revenue		109			(10	)
Money order fee and other revenue		(731	)		(1,806	)
Official check fee and other revenue		(565	)		(2,438	)

For the period ended September 30, 2012	$	20,291		$	63,478

Money order fee and other revenue decreased in the three and nine months ended September 30, 2012 due to a six percent and four percent, respectively, decline in volumes attributed to the attrition of agents from repricing initiatives, the continued migration by consumers to other payment methods, consumer pricing increases as agents pass along fee increases and the general economic environment. See the “Net Investment Revenue Analysis” section for discussion related to changes in investment revenue.

Financial Paper Products commissions expense — Commissions expense in the Financial Paper Products segment includes payments made to financial institution customers based on amounts generated by the sale of official checks times short–term interest rate indices, payments on money order transactions and amortization of signing bonuses. Commissions expense increased 42 percent and decreased 25 percent, respectively, for the three and nine months ended September 30, 2012, due to the items in the following table. See the “Net Investment Revenue Analysis” section for further discussion of investment commissions expense.


*(Amounts in thousands)*	Three Months Ended			Nine Months Ended
For the period ended September 30, 2011	$	332		$	1,912
Change in:
Money order agent rebates from repricing initiatives		218			(217	)
Signing bonus amortization		(76	)		(183	)
Investable balances		(4	)		(23	)
Investment rate		—			(53	)

For the period ended September 30, 2012	$	470		$	1,436

Operating Margin — The operating margin for the Financial Paper Products segment increased to 37.3 percent and 38.8 percent, respectively, in the three and nine months ended September 30, 2012 from 24.6 percent and 32.3 percent, respectively, in the three and nine months ended September 30, 2011 due to lower commissions, partially offset by lower investment revenue. Commissions for the three and nine months ended September 30, 2011, included a $0.3 million benefit due to additional volume discounts for one agent.

LIQUIDITY AND CAPITAL RESOURCES

We have various resources available for purposes of managing liquidity and capital needs, including our investment portfolio, credit facilities and letters of credit. We refer to our cash and cash equivalents, short-term investments and available-for-sale investments collectively as our “investment portfolio.” Our primary sources of liquidity include cash flows generated by the sale of our payment instruments, our cash and cash equivalent and short-term balances, proceeds from our investment portfolio and credit capacity under our credit facilities. Our primary operating liquidity needs relate to the settlement of payment service obligations to our agents and financial institution customers, as well as general operating expenses.

Assets in Excess of Payment Service Obligations — We utilize the assets in excess of payment service obligations measure shown below in various liquidity and capital assessments. While assets in excess of payment service obligations, as defined, is a capital measure, it also serves as the foundation for various liquidity analyses.


	September 30,			December 31,
*(Amounts in thousands)*	2012			2011
Cash and cash equivalents (substantially restricted)	$	2,539,844		$	2,572,174
Receivables, net (substantially restricted)		1,330,018			1,220,065
Short-term investments (substantially restricted)		524,428			522,024
Available-for-sale investments (substantially restricted)		79,907			102,771

		4,474,197			4,417,034
Payment service obligations		(4,208,052	)		(4,205,375	)

Assets in excess of payment service obligations	$	266,145		$	211,659

Cash and Cash Equivalents and Short-term investments — To ensure we maintain adequate liquidity at all times, we keep a significant portion of our investment portfolio in cash and cash equivalents and short-term investments at financial institutions rated Aa3 or better by Moody’s Investor Service, or Moody’s, and AA- or better by Standard & Poors, or S&P, and in United States government money market funds rated Aaa by Moody’s and AAA by S&P. As of September 30, 2012, cash and cash equivalents and short-term investments totaled $3.1 billion, representing 97 percent of our total investment portfolio. Cash equivalents and short-term investments consist of money market funds that invest in United States government and government agency securities, time deposits and certificates of deposit.

Credit Facilities — Our credit facilities consist of a senior secured facility, which consists of a $150.0 million five-year revolver, a $390.0 million six-and-a-half year term loan and a $150.0 million incremental term loan, and second lien notes. See Note 8 — Debt of the Notes to Consolidated Financial Statements for further information. Outside of payments relating to refinance debt, we have paid down $428.4 million of our outstanding debt since January 1, 2009. Our revolving credit facility has $137.3 million of borrowing capacity as of September 30, 2012, net of $12.7 million of outstanding letters of credit.

Our credit facilities contain various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and/or causing acceleration of amounts due under the credit facilities. We were in compliance with all covenants as of September 30, 2012. We continue to monitor our covenants and make necessary adjustments to ensure compliance. We believe that we will remain in compliance with our debt covenants during 2012. The terms of our credit facilities also place restrictions on certain types of payments we may make, including dividends to our preferred and common stockholders, acquisitions, and the funding of foreign subsidiaries, among others. We do not anticipate these restrictions limiting our ability to grow the business either domestically or internationally. In addition, we may only make dividend payments to common stockholders subject to an incremental build-up based on our consolidated net income in future periods. No dividends were paid on our common stock in the three and nine months ended September 30, 2012, and we do not anticipate declaring any dividends on our common stock during 2012.

Regulatory Matters — During the three months ended September 30, 2012, the Company recorded an additional accrual of $70.0 million related to the MDPA/DOJ matter for a total accrual of $100.0 million at September 30, 2012, as disclosed in Note 13 to the Consolidated Financial Statements — Commitments and Contingencies . The Company has agreed to pay a forfeiture of $100.0 million, of which $65.0 million must be paid within five business days from entering into the agreement and the remaining $35.0 million must be paid within 90 business days of the date of the agreement. The Company has assessed its liquidity position and intends to use its existing cash and cash equivalents for these required payments.

Credit Ratings — As of the date of the filing, our credit ratings from Moody’s and S&P were B and BB-, respectively. Our credit facilities, regulatory capital requirements and other obligations are not impacted by the level of our credit ratings. However, higher credit ratings could increase our ability to attract capital, minimize our weighted average cost of capital and obtain more favorable terms with our lenders, agents and clearing and cash management banks.

Regulatory Financial Requirements — We were in compliance with all financial regulatory requirements as of September 30, 2012. We continue to monitor our covenants and make necessary adjustments to ensure compliance. We believe that we will remain in compliance with our debt covenants during 2012.

Available-for-sale Investments — Our investment portfolio includes $79.9 million of available-for-sale investments as of September 30, 2012. United States government agency residential mortgage-backed securities and United States government agency debentures compose $52.1 million of our available-for-sale investments, while other asset-backed securities compose the remaining $27.8 million. In completing our recapitalization transaction in March 2008, or the 2008 Recapitalization, we contemplated that our other asset-backed securities might decline further in value. Accordingly, the capital raised assumed a zero value for these securities. As a result, further unrealized losses and impairments on these securities are already funded and would not cause us to seek additional capital or financing.

Contractual Obligations — The following table includes aggregated information about the Company’s contractual obligations that impact our liquidity and capital needs. The table includes information about payments due under specified contractual obligations, aggregated by type of contractual obligation.


	Payments due by period
			Less than						More than
*(Amounts in thousands)*	Total		1 year		1-3 years		4-5 years		5 years
Debt, including interest payments	$	1,160,415	$	66,576	$	132,730	$	131,327	$	829,782
Operating leases		62,544		14,269		25,042		9,487		13,746
Signing bonuses		17,222		13,248		3,974		—		—
Signage		595		595		—		—		—
Marketing		10,298		10,298		—		—		—
Other obligations		291		291		—		—		—

Total contractual cash obligations	$	1,251,365	$	105,277	$	161,746	$	140,814	$	843,528

Debt consists of amounts outstanding under the 2011 Credit Agreement and the second lien notes at September 30, 2012, as disclosed in Note 8 — Debt of the Notes to Consolidated Financial Statements, as well as related interest payments, facility fees and annual commitment fees. Our Consolidated Balance Sheet at September 30, 2012 includes $810.1 million of debt, net of unamortized discounts of $3.4 million, and $0.1 million of accrued interest on the debt. The above table reflects the principal and interest that will be paid through the maturity of the debt using the rates in effect on September 30, 2012, and assuming no prepayments of principal and the continued payment of interest on the second lien notes. Operating leases consist of various leases for buildings and equipment used in our business. Other obligations are unfunded capital commitments related to our limited partnership interests included in “Other asset-backed securities” in our investment portfolio. We have other commitments as described further below that are not included in the table above as the timing and/or amount of payments are difficult to estimate.

We have a funded, noncontributory pension plan that is frozen to both future benefit accruals and new participants. Our funding policy has historically been to contribute the minimum contribution required by applicable regulations. We made contributions of $4.8 million and $8.2 million to the defined benefit pension plan during the three and nine months ended September 30, 2012, respectively. We anticipate a remaining minimum contribution of up to $2.0 million to the pension plan trust in 2012. We also have certain unfunded pension and postretirement plans that require benefit payments over extended periods of time. During the three and nine months ended September 30, 2012, we paid benefits totaling $1.3 million and $2.9 million, respectively, related to these unfunded plans. Benefit payments under these unfunded plans are expected to be $1.2 million for the remainder of 2012. Expected contributions and benefit payments under these plans are not included in the above table, as it is difficult to estimate the timing and amount of benefit payments and required contributions beyond the next 12 months.

As of September 30, 2012, the liability for unrecognized tax benefits was $9.6 million. As there is a high degree of uncertainty regarding the timing of potential future cash outflows associated with liabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid. In addition, the IRS issued a Notice of Deficiency for 2005-2007 in April 2012 (the “2005-2007 Notice of Deficiency”). In August 2012, the IRS issued an Examination Report for 2008 and in October 2012 the IRS issued a Notice of Deficiency for 2009 (the “2009 Notice of Deficiency”). The Company filed a petition with the United States Tax Court contesting the adjustments in the 2005-2007 Notice of Deficiency and has 90 days to petition the United States Tax Court for the 2009 Notice of Deficiency. If the Company’s position is denied in its entirety, the Company would be required to make cash payments of $111.1 million based on benefits taken through September 30, 2012. As there is a high degree of uncertainty regarding the timing of potential future cash outflows associated with liabilities, we are unable to make a reasonably reliable estimate of the amount and period in which these liabilities might be paid.

In limited circumstances, we may grant minimum commission guarantees as an incentive to new or renewing agents for a specified period of time at a contractually specified amount. Under the guarantees, we will pay to the agent the difference between the contractually specified minimum commission and the actual commissions earned by the agent. As of September 30, 2012, the minimum commission guarantees had a maximum payment of $12.1 million over a weighted-average remaining term of 2.7 years. The maximum payment is calculated as the contractually guaranteed minimum commission times the remaining term of the contract and, therefore, assumes that the agent generates no money transfer transactions during the remainder of its contract. As of September 30, 2012, the liability for minimum commission guarantees was $3.4 million. Minimum commission guarantees are not reflected in the table above.

Cash flows from operating activities

Operating activities generated net cash of $6.0 million and $18.3 million during the three and nine months ended September 30, 2012, respectively. Our net cash provided by operating activities before changes in payment service assets and obligations was $10.4 million and $98.0 million, respectively. Changes in our payments service assets and obligations utilized $4.3 million and $79.7 million, respectively, of operating cash flows during the three and nine months ended September 30, 2012, from the timing of collection and settlement of our payment service assets and obligations, as well as the changes in composition of our investment portfolio.

Operating activities used net cash of $15.0 million during the three months ended September 30, 2011. In addition to funding normal operating expenses and working capital, cash generated from our operations was primarily used to pay $21.1 million of interest on our debt, $7.2 million for capital expenditures, $7.6 million for signing bonuses, $1.8 million of payments related to the 2011 Recapitalization and $7.0 million of restructuring expenditures. These expenditures were offset by net proceeds of $21.4 million from the normal maturities of investments, all of which were reinvested in cash equivalents. Operating activities generated net cash of $130.6 million during the nine months ended September 30, 2011. In addition to funding normal operating expenses and working capital, cash generated from our operations was primarily used to pay a $50.0 million debt prepayment, $59.8 million of interest on our debt, $31.4 million for capital expenditures, $20.4 million of signing bonuses, $13.7 million of payments related to the 2011 Recapitalization and $14.5 million of restructuring expenditures. We also utilized $38.5 million of cash and cash equivalents and $288.3 million of proceeds from normal maturities within our investment portfolio to acquire $326.8 million of short-term investments.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Net (loss) income	$	(54,760	)	$	15,834		$	(69,547	)	$	56,283
Total adjustments to reconcile net (loss) income		65,134			15,104			167,511			26,533

Net cash provided by operating activities before changes in payment service assets and obligations		10,374			30,938			97,964			82,816

Change in cash and cash equivalents (substantially restricted)		8,413			102,191			32,330			282,466
Change in receivables, net (substantially restricted)		(64,918	)		(63,387	)		(114,715	)		(108,133	)
Change in payment service obligations		52,172			(84,770	)		2,677			(126,545	)

Net change in payment service assets and obligations		(4,333	)		(45,966	)		(79,708	)		47,788

Net cash provided by (used in) operating activities	$	6,041		$	(15,028	)	$	18,256		$	130,604

Cash flows from investing activities— Investing activities used cash of $5.7 million and $17.2 million during the three and nine months ended September 30, 2012, respectively, primarily for the purchase of short-term investments of $11.1 million and $335.5 million, respectively, and $12.9 million and $43.2 million, respectively, of capital expenditures, partially offset by proceeds of $18.0 million and $360.9 million, respectively, from the normal maturity of investments that were reinvested into short-term investments.

Investing activities provided cash of $14.7 million during the three months ended September 30, 2011, primarily from proceeds of $31.5 million from the maturity and settlement of available-for-sale and short-term investments and $0.5 million proceeds from disposal of property and equipment, partially offset by the purchase of $10.1 million of short-term investments and $7.2 million of capital expenditures. Investing activities used cash of $69.5 million during the nine months ended September 30, 2011, primarily for the purchase of $326.8 million of short-term investments and $31.4 million of capital expenditures, partially offset by proceeds of $288.3 million from the maturity and settlement of available-for-sale and short-term investments and proceeds of $0.5 million from disposal of property and equipment.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
*(Amounts in thousands)*	2012			2011			2012			2011
Net investment activity	$	6,897		$	21,418		$	25,313		$	(38,502	)
Purchases of property and equipment		(12,918	)		(7,243	)		(43,213	)		(31,433	)
Proceeds from disposals of property and equipment		355			501			746			501
Cash paid for acquisitions, net of cash acquired		—			—			—			(53	)

Net cash (used in) provided by investing activities	$	(5,666	)	$	14,676		$	(17,154	)	$	(69,487	)

Cash flows from financing activities— For the three and nine months ended September 30, 2012 financing activities used cash of $0.4 million and $1.1 million, respectively, associated with the required quarterly payment of debt, partially offset by and the exercise of stock options.

For the three months ended September 30, 2011, financing activities provided cash of $0.4 million from stock option exercises. For the nine months ended September 30, 2011, financing activities used cash of $61.1 million, primarily associated with the debt prepayment and the 2011 Recapitalization.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
*(Amounts in thousands)*	2012			2011		2012			2011
Proceeds from issuance of debt	$	—		$	—	$	—		$	389,025
Transaction costs for issuance and amendment of debt		—			—		—			(17,062	)
Payments on debt		(375	)		—		(1,125	)		(191,250	)
Additional consideration in connection with conversion of mezzanine equity		—			—		—			(218,333	)
Transaction costs for the conversion and issuance of stock		—			—		—			(3,736	)
Cash dividends paid on mezzanine equity		—			—		—			(20,477	)
Proceeds from exercise of stock options		—			352		23			716

Net cash (used in) provided by financing activities	$	(375	)	$	352	$	(1,102	)	$	(61,117	)

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the consolidated financial statements. Actual results could differ from those estimates. On a regular basis, management reviews the accounting policies, assumptions and estimates to ensure that our financial statements are presented fairly and in accordance with GAAP.

Critical accounting policies are those policies that management believes are most important to the portrayal of our financial position and results of operations, and that require management to make estimates that are difficult, subjective or complex. There were no changes to our critical accounting policies during the quarter ended September 30, 2012. For further information regarding our critical accounting policies, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

FORWARD–LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the documents incorporated by reference herein may contain forward-looking statements with respect to the financial condition, results of operation, plans, objectives, future performance and business of MoneyGram and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “believes” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described in Part I, Item 1A under the caption “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011, as well as the various factors described herein. These forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update publicly or revise any forward-looking statements for any reason, whether as a result of new information, future events or otherwise, except as required by federal securities law.

These forward-looking statements are based on management’s current expectations, beliefs and assumptions and are subject to certain risks, uncertainties and changes in circumstances due to a number of factors. These factors include, but are not limited to:

•

our ability to maintain key agent or biller relationships or a reduction in transaction volume from these relationships;

•

continued weakness in economic conditions, in both the United States and global markets;

•

the impact of the $100 million forfeiture on our financial condition and results of operations, the Company’s compliance with the terms of the deferred prosecution agreement, the effect of the settlement and compliance with the deferred prosecution agreement on the Company’s reputation and business;

•

the outcome of ongoing investigations by several state governments;

•

consumers’ confidence in our business;

•

a material slow down or complete disruption of international migration patterns;

•

the ability of us and our agents to comply with U.S. and international laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act;

•

litigation involving MoneyGram or its agents, which could result in material settlements, fines or penalties;

•

our offering of money transfer services through agents in regions that are politically volatile or, in a limited number of cases, that are subject to certain restrictions of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC);

•

our substantial debt service obligations, significant debt covenant requirements and credit rating;

•

sustained financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions;

•

our ability to maintain sufficient capital;

•

our ability to manage credit risks from our retail agents and official check financial institution customers;

•

the ability of MoneyGram and its agents to maintain adequate banking relationships;

•

our ability to retain partners to operate our official check and money order businesses;

•

our ability to manage fraud risks from consumers or agents;

•

our ability to compete effectively;

•

our ability to successfully develop and timely introduce new and enhanced products and services;

•

our investments in new products, services or infrastructure changes;

•

our ability to manage risks associated with our international sales and operations;

•

our ability to attract and retain key employees;

•

our ability to adequately protect our brand and intellectual property rights and to avoid infringing on the rights of others;

•

a security or privacy breach in our systems;

•

disruptions to our computer systems and data centers;

•

our ability to effectively operate and adapt our technology to match our business growth;

•

our ability to manage risks related to the operation of retail locations and the acquisition or start-up of businesses;

•

the European debt crisis and market perceptions concerning the euro, the potential re-introduction of individual currencies within the Eurozone or the potential dissolution of the euro;

•

changes in tax laws or an unfavorable outcome with respect to tax positions, or a failure by us to establish adequate reserves for tax events;

•

our ability to maintain effective internal controls;

•

our capital structure and the special voting rights provided to designees of Thomas H. Lee Partners and certain of its affiliates, referred to collectively herein as THL, on our Board of Directors; and

•

the risks and uncertainties described in this Quarterly Report on Form 10-Q, and those set forth in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Annual Report on Form 10-K for the year ended December 31, 2011, as well as any additional risk factors that may be described in our other filings with the Securities and Exchange Commission, or SEC, from time to time.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk since December 31, 2011. For further information on market risk, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Enterprise Risk Management” in the Company’s Annual Report on form 10-K for the year ended December 31, 2011.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed by the Company in its reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and include controls and procedures designed to ensure that information that the Company is required to disclose in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting — There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation Commenced Against the Company:

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

Sachs has agreed to waive reimbursements of $1.0 million of legal fees and expenses associated with the Company’s 2011 Recapitalization, and the Company will contribute this amount toward the settlement payment; and (v) other parties with rights related to the 2011 Recapitalization have agreed to waive reimbursement of $0.8 million of legal fees and expenses, and the Company will contribute this amount toward the settlement payment. During the third quarter of 2012, the Company recognized $3.0 million of additional paid in capital for the amounts that THL and Goldman Sachs contributed for the settlement. The Stipulation also includes a release by the putative class of stockholders of all claims with respect to the allegations in the action or relating to the 2011 Recapitalization.

Government Investigations:

Under the DPA, the Company agreed to a forfeiture of $100.0 million that will be available to victims of the consumer fraud scams perpetrated through MoneyGram’s agents, of which $65.0 million must be paid within five business days from entering into the DPA and the remaining $35.0 million must be paid within 90 days of the date of the agreement. As announced on July 26, 2012, MoneyGram made an accrual in the second quarter of 2012 for $30.0 million and as announced on November 9, 2012, the Company made an additional accrual in the third quarter of 2012 for $70.0 million.

Action Commenced by the Company:

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no changes in the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. For further information, refer to Part I, Item IA, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

The following risk factor replaces and supersedes, in its entirety, the risk factor relating to litigation and investigations in our Annual Report on Form 10-K for the year ended December 31, 2011:

Litigation or investigations involving us or our agents could result in material settlements, fines or penalties and may adversely affect our business, financial condition and results of operations.

We have been, and in the future may be, subject to allegations and complaints that individuals or entities have used our money transfer services for fraud-induced money transfers, as well as certain money laundering activities, which may result in fines, penalties, judgments, settlements and litigation expenses. We also are the subject from time to time of litigation related to our business. The outcome of such allegations, complaints, claims and litigation cannot be predicted.

Regulatory and judicial proceedings and potential adverse developments in connection with ongoing litigation may adversely affect our business, financial condition and results of operations. There may also be adverse publicity associated with lawsuits and investigations that could decrease agent and customer acceptance of our services. Additionally, our business has been in the past, and may be in the future, the subject of class action lawsuits, regulatory actions and investigations and other general litigation. The outcome of class action lawsuits, regulatory actions and investigations is difficult to assess or quantify but may include substantial fines and expenses, as well as the revocation of required licenses or registrations or the loss of approved status, which could have a material adverse effect on our business, financial position and results of operations. Plaintiffs or regulatory agencies in these lawsuits, actions or investigations may seek recovery of very large or indeterminate amounts, and the magnitude of these actions may remain unknown for substantial periods of time. The cost to defend or settle future lawsuits or investigations may be significant.

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

The following risk factor replaces and supersedes, in its entirety, the risk factor relating to the federal investigation in our Annual Report on Form 10-K for the year ended December 31, 2011:

We face possible uncertainties relating to compliance with and the impact of the deferred prosecution agreement entered into with the U.S. federal government.

In November 2012, we announced that we reached a settlement with the U.S. Attorney’s Office for the Middle District of Pennsylvania (“MDPA”) and the Asset Forfeiture and Money Laundering Section of the Criminal Division of the Department of Justice (“US DOJ”) relating to the investigation of transactions involving certain of the Company’s U.S. and Canadian agents, as well as its fraud complaint data and consumer anti-fraud program, during the period from 2003 to early 2009. In connection with this settlement, the Company entered into a deferred prosecution agreement (“DPA”) with the MDPA and US DOJ.

Under the DPA, the Company agreed to pay to the United States $100.0 million in restitution that will be available to victims of the consumer fraud scams perpetrated through MoneyGram agents. As announced on July 26, 2012, MoneyGram made an accrual in the second quarter of 2012 for $30.0 million and as announced on November 9, 2012, the Company made an additional accrual in the third quarter of 2012 for $70.0 million related to this matter.

Pursuant to the DPA, the MDPA and US DOJ will file a two-count criminal Information in the United States District Court for the Middle District of Pennsylvania. The MDPA and US DOJ will seek dismissal with prejudice of the Information if the Company has complied with its obligations during the five-year terms of the DPA. Under the DPA, the Company has agreed, among other things, to retain an independent compliance monitor for a period of five years, subject to adjustment to a shorter period under certain circumstances.

If the Company fails to comply with the DPA, the MDPA and US DOJ have the right to prosecute the complaint. While the Company expects to be in compliance with the DPA, a failure to comply, and a prosecution of the complaint by the MDPA and US DOJ, could lead to a severe material adverse effect upon the Company’s ability to conduct its business. Additionally, the terms of the settlement will impose additional costs upon the Company related to compliance and other required terms. Furthermore, this does not resolve all inquiries from other governmental agencies such as FinCEN, which could result in additional costs, expenses and fines. The Company does not anticipate material adverse consequence from entry into the DPA on the Company’s reputation and business, but there can be no assurance that such unanticipated consequences will not occur.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company’s Board of Directors has authorized the repurchase of a total of 12,000,000 common shares. The repurchase authorization is effective until such time as the Company has repurchased 12,000,000 common shares. Common stock tendered to the Company in connection with the exercise of stock options or vesting of restricted stock are not considered repurchased shares under the terms of the repurchase authorization. As of September 30, 2012, the Company has repurchased 6,795,017 common shares under this authorization and has remaining authorization to repurchase up to 5,204,983 shares. The Company did not repurchase any shares during the three months ended September 30, 2012. However, the Company may consider repurchasing shares from time-to-time, subject to limitations in its debt agreements.

ITEM 6. EXHIBITS

Exhibits are filed with this Quarterly Report on Form 10-Q as listed in the accompanying Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	MoneyGram International, Inc.
	(Registrant)

November 9, 2012	By:	/s/ W. ALEXANDER HOLMES
		W. Alexander Holmes
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Duly Authorized Officer)

EXHIBIT INDEX


Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of MoneyGram International, Inc., as amended (Incorporated by reference from Exhibit 3.1 to Registrant’s Annual Report on Form 10-K filed on March 15, 2010).

3.2		Certificate of Amendment of Amended and Restated Certificate of Incorporation of MoneyGram International, Inc., dated May 18, 2011 (Incorporated by reference from Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed May 23, 2011).

3.3		Certificate of Amendment of Amended and Restated Certificate of Incorporation of MoneyGram International, Inc., filed with the Secretary of State of the State of Delaware on November 14, 2011 (Incorporated by reference from Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed November 14, 2011).

3.4		Bylaws of MoneyGram International, Inc., as amended and restated September 10, 2009 (Incorporated by reference from Exhibit 3.01 to Registrant’s Current Report on Form 8-K filed on September 16, 2009).

3.5		Amendment to Bylaws of MoneyGram International, Inc., dated as of January 25, 2012 (Incorporated by reference from Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed January 27, 2012).

3.6		Amended and Restated Certificate of Designations, Preferences and Rights of Series D Participating Convertible Preferred Stock of MoneyGram International, Inc., dated May 18, 2011 (Incorporated by reference from Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed May 23, 2011).

10.1*		Stipulation and Agreement of Compromise and Settlement, dated as of July 19, 2012, by and among the plaintiffs and class representatives party thereto, MoneyGram International, Inc., Thomas H. Lee Partners, L.P., The Goldman Sachs Group, Inc. and certain individual defendants party thereto.

10.2*		Supplemental Agreement Regarding Settlement, dated as of July 20, 2012, by and among MoneyGram International, Inc., Thomas H. Lee Partners, L.P., The Goldman Sachs Group, Inc., certain individual defendants party thereto, and Federal Insurance Company.

10.3*		Letter Agreement, effective as of July 27, 2012, amending that certain Money Services Agreement, effective February 1, 2005, as amended, by and between MoneyGram Payment Systems, Inc. and Wal-Mart Stores, Inc.

10.4		Master Trust Agreement dated September 30, 2012 by and between MoneyGram Payment Systems, Inc. and Wal-Mart Stores, Inc. (Incorporated by reference from Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 1, 2012).

10.5		Amendment No. 1 to the Amended and Restated Employment Agreement, dated as of October 12, 2012, by and between MoneyGram International, Inc. and Pamela H. Patsley (Incorporated by reference from Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed October 17, 2012).

31.1*		Section 302 Certification of Chief Executive Officer

31.2*		Section 302 Certification of Chief Financial Officer

32.1*		Section 906 Certification of Chief Executive Officer

32.2*		Section 906 Certification of Chief Financial Officer

*	Filed herewith.

Exhibit 10.1

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

STIPULATION AND AGREEMENT OF COMPROMISE AND SETTLEMENT

This Stipulation and Agreement of Compromise and Settlement (“Stipulation”) is entered into this 19th day of July, 2012, by and between: (i) Plaintiff Willie R. Pittman and Plaintiffs and Class Representatives Susan Seales and Stephen T. Selzer on behalf of the Class (hereinafter defined together as the “Plaintiffs”) and (ii) Defendants MoneyGram International, Inc. (“MoneyGram” or the “Company”), Thomas H. Lee Partners, L.P. (“THL”), The Goldman Sachs Group, Inc. (“Goldman”), J. Coley Clark (“Clark”), Victor W. Dahir (“Dahir”), Thomas M. Hagerty (“Hagerty”), Scott L. Jaeckel (“Jaeckel”), Seth W. Lawry (“Lawry”), Ann Mather (“Mather”), Pamela Patsley (“Patsley”), Ganesh Rao (“Rao”), and W. Bruce Turner (“Turner,” together with Clark, Dahir, Hagerty, Jaeckel, Lawry, Mather, Patsley, and Rao collectively referred to as the “Individual Defendants,” and MoneyGram, THL, Goldman and the Individual Defendants collectively referred to as the “Defendants”), in the action captioned In re MoneyGram International, Inc., Shareholders Litigation , C.A. No. 6387-VCL (the “Action”), pending in the Court of Chancery of the State of Delaware (the “Court”), by their respective undersigned counsel.

WHEREAS, in March 2008, certain investment funds affiliated with THL and co-investors of the investment funds affiliated with THL (“THL Investors”) ¹ and Goldman and certain investment funds affiliated with Goldman (the “GS Investors” ² together with the THL Investors the “Investors”) became preferred stockholders of MoneyGram in connection with a $1.5 billion recapitalization;

The THL Investors are: Thomas H. Lee Equity Fund VI, L.P.; Thomas H. Lee Parallel Fund VI, L.P.; Thomas H. Lee Parallel (DT) Fund VI, L.P.; THL Equity Fund VI Investors (MoneyGram), LLC; THL Coinvestment Partners, L.P.; THL Operating Partners, L,P.; Great-West Investors, L.P.; Putnam Investments Employees’ Securities Company III LLC; and SPCP Group, LLC.

²	The GS Investors are; The Goldman Sachs Group, Inc.; GS Capital Partners VI Fund, L.P.; GS Capital Partners VI Offshore Fund, L.P.; GS Capital Partners VI GmbH & Co. KG; GS Capital Partners VI Parallel, L.P.; GSMP V Offshore US, Ltd.; GSMP V Onshore US, Ltd.; and GSMP V Institutional US Ltd.

WHEREAS, on May 26, 2010, MoneyGram established a Special Committee of its Board of Directors consisting of Dahir, Mather, Clark and Turner and resolved to empower the Special Committee to consider a recapitalization and to negotiate and, if appropriate, recommend a recapitalization to the Board;

WHEREAS, on March 7, 2011, the Special Committee recommended, and the Board approved, a recapitalization (the “Recapitalization”);

WHEREAS, on March 8, 2011, MoneyGram announced that it had entered into a recapitalization agreement dated as of March 7, 2011 (the “Recapitalization Agreement”), and pursuant to the terms of the Recapitalization Agreement: (1) the THL Investors converted all of their shares of Series B Participating Convertible Preferred Stock of the Company into 286,438,367 shares in the aggregate, of common stock of the Company, (2) the GS Investors converted all of their shares of Series B-1 Participating Convertible Preferred Stock into 157,685.7676 shares of Series D Participating Convertible Preferred Stock of the Company, and (3) the THL Investors received 28,162,866 additional shares of common stock and $154,021,019.24 in cash, and the GS Investors received 15,503.8002 additional shares of Series D Preferred Stock and $84,789,348.98 in cash;

WHEREAS, on March 9, 2011, MoneyGram filed a copy of the Recapitalization Agreement with the United States Securities and Exchange Commission (the “SEC”);

WHEREAS, on April 12, 2011, the Company filed its definitive proxy statement with the SEC in connection with the Recapitalization, setting a special meeting date of May 18, 2011 for a shareholder vote on the Recapitalization for stockholders of record as of the close of business on April 11, 2011. The proxy statement solicited proxies to approve (a) the March 7, 2011 Recapitalization Agreement; (b) the issuance of additional shares of MoneyGram common stock issuable directly to the THL Investors and additional shares of Series D Participating Convertible Preferred Stock issuable directly to the GS Investors at the closing of the Recapitalization; and (c) a proposal to amend the Company’s Amended and Restated Certificate of Incorporation to remove the GS Investors’ right to designate a director to serve on the Company’s board of directors;

WHEREAS, on April 15, 2011, Plaintiff Willie Pittman filed a Verified Class Action and Derivative Complaint challenging the proposed Recapitalization and, on April 29, 2011, a Verified Amended Class Action and Derivative Complaint (the “Complaint”) was filed in which Susan Seales and Stephen T. Selzer joined the action as Plaintiffs. In their Amended Complaint, Plaintiffs challenged the Recapitalizations and alleged claims against the Defendants for breach of fiduciary duty, breach of certificate of incorporation, disclosure violations, and aiding and abetting. Plaintiffs sought declaratory, equitable, injunctive, and monetary relief against all Defendants;

WHEREAS, on May 6, 2011, the Company filed a supplemental proxy statement with the SEC;

WHEREAS, following expedited discovery and briefing, the Court heard oral argument on Plaintiffs’ Motion for a Preliminary Injunction on May 16, 2011. At the conclusion of oral argument, the Court denied Plaintiffs’ Motion for a Preliminary Injunction;

WHEREAS, on May 18, 2011, the Company announced that at a special meeting of stockholders, a majority of the minority of the Company’s existing common stockholders approved (a) the March 7, 2011 Recapitalization Agreement; (b) the issuance of additional shares of MoneyGram common stock issuable directly to the THL Investors and additional shares of Series D Participating Convertible Preferred Stock issuable directly to the GS Investors at the closing of the Recapitalization; and (c) the proposal to amend the Company’s Amended and Restated Certificate of Incorporation to remove the GS Investors’ right to designate a director to serve on the Company’s board of directors. Thereafter, the Company refinanced its senior secured credit facility and the Company completed the Recapitalization and transactions contemplated by the Recapitalization Agreement;

WHEREAS, on July 5, 2011, the Court entered an order scheduling the Action for a five-day trial beginning April 23, 2012;

WHEREAS, on November 29, 2011, the Court entered an order: (a) certifying the Action as a class action on behalf of a non-opt out class defined as: All holders of common stock of MoneyGram together with their successors and assigns, during the period commencing March 7, 2011 (the date on which the board of directors of MoneyGram approved the Recapitalization) and ending at the effective time of the closing of the Recapitalization, excluding the Defendants and their associates, affiliates, legal representatives, heirs, successors in interest, transferees and assignees; (b) certifying Plaintiffs Seales and Selzer as Class Representatives; and (c) appointing Prickett, Jones & Elliott, PA. (“Prickett Jones”) and Kessler, Topaz, Meltzer & Check, LLP (“Kessler Topaz”) as Co-Lead Counsel for the Class;

WHEREAS, on December 16, 2011, the Court entered an order, rescheduling the trial for May 21-25, 2012;

WHEREAS, during the course of the litigation, the parties engaged in document production, written discovery and deposition discovery, including expert discovery. Twenty-one depositions were conducted during the course of the litigation. In addition, the parties litigated three motions to compel filed by Plaintiffs;

WHEREAS, on May 4, 2012, the parties filed their pretrial briefs and supporting exhibits, and on May 11, 2012, filed a pretrial stipulation and proposed order. At trial, Plaintiffs intended to try various theories of liability in support of their claims including that the Recapitalization was not entirely fair to MoneyGram’s common stockholders, that the stockholder vote taken on May 18, 2011 was uninformed, that the Recapitalization violated MoneyGram’s Certificate of Incorporation, that the Company issued an improper dividend to the THL Investors and the Goldman Investors, and that the THL Investors and the Goldman Investors improperly received certain monies paid to them in connection with the Recapitalization;

WHEREAS, Defendants deny all allegations of wrongdoing or liability and specifically maintain that they have not committed any violation of law or breaches of fiduciary duty, or engaged in any wrongdoing whatsoever, deny that they have aided or abetted any violations of law or breaches of fiduciary duty including in connection with the Recapitalization, the definitive proxy statement, the proxy supplement or otherwise and Defendants’ entry into this Stipulation is not an admission as to any of the claims asserted in the Action;

WHEREAS, Plaintiffs, through their counsel, based upon their investigation and the legal proceedings herein, have agreed to settle their individual, class, direct and derivative claims upon the terms and provisions hereinafter set forth and have concluded that the Settlement is fair, reasonable and adequate and in their best interest and the best interest of the Class and the Company;

WHEREAS, representatives of the parties to the Action have held extensive arm’s length discussions in an effort to resolve all claims asserted, or which could have been asserted, in the Action and entered into an oral agreement in principle on May 11, 2012 to settle the Action;

WHEREAS, the parties to the Action wish to settle and resolve all claims asserted, or which could have been asserted, in the Action; the parties have reached an agreement set forth in this Stipulation, providing for the settlement of the Action on the terms and conditions set forth below (the “Settlement”), subject to the approval of the Court; and Plaintiffs and Co-Lead Counsel for the Class believe that the Settlement is in the best interests of the Class;

NOW, THEREFORE, IT IS HEREBY AGREED by and among Plaintiffs and Defendants, by their undersigned attorneys, subject to the approval of the Court, and pursuant to Court of Chancery Rules 23(a), 23(b)(1) and (b)(2), and 23.1 and the other conditions set forth herein, for the good and valuable consideration set forth herein and conferred on Plaintiffs and the Class and the Company, the Action shall be finally and fully settled, compromised, and dismissed on the merits and with prejudice, and that the Released Claims (defined below) shall be finally and fully compromised, settled, released, and dismissed with prejudice as to the Released Persons in the manner and upon the terms and conditions hereafter set forth:

SETTLEMENT CONSIDERATION

1. In consideration for the full settlement, satisfaction, compromise and release of the Released Claims (as defined below), the Company, in its own right and acting as a depository, shall, upon the earlier of: (a) ten business days after the Court’s entry of the Scheduling Order (defined below) or (b) July 20, 2012, pay or cause to be paid $10 million (the “Settlement Fund”) into an interest-bearing account established by Co-Lead Counsel for the Class (the “Account”). No Defendant or Released Person shall, except as specifically provided in this Stipulation, have any obligation to pay or bear any amounts, expenses, costs, damages, assessments or fees to or for the benefit of Plaintiffs or any Class Members in connection with this Settlement, including but not limited to attorneys’ or experts’ fees and expenses for any counsel to any Class Member, or any costs of notice or settlement administration or otherwise.

DISTRIBUTION AND ADMINISTRATION OF THE SETTLEMENT FUND

2. MoneyGram shall bear all responsibility for costs and expenses for distribution and administration of the Settlement Fund to the Class as provided for herein. Co-Lead Counsel for the Class shall retain at MoneyGram’s expense a settlement administrator (“Settlement Administrator”), which shall, subject to the supervision, direction and approval of the Court, oversee administration and distribution of the Settlement Fund. The Settlement Administrator shall discharge the duties under the supervision of Co-Lead Counsel for the Class and subject to the jurisdiction of the Court. The Settlement Administrator will administer and distribute with the Court’s approval the Settlement Fund, on a pro rata basis, after deducting and paying any award of attorneys’ fees and expenses to Co-Lead Counsel for the Class, to all members of the Class who held MoneyGram common stock at the close of business on April 11, 2011. Within ten business days of entry of the Scheduling Order, MoneyGram shall provide or cause to be provided to the Settlement Administrator relevant lists of MoneyGram stockholders in electronic form suitable to the Settlement Administrator (such lists to be used solely for the purpose of administering the Settlement Fund).

a. The Settlement Fund, including all interest accruing thereon, shall be deemed to be in the custody of the Court and will remain subject to the jurisdiction of the Court until such time as it is distributed as provided for in this Stipulation or by Order of the Court. Any funds in the Account shall be invested in United States Treasury Bills (or a mutual fund invested solely in such instruments) and shall collect and reinvest all interest accrued thereon, except that any residual cash balances of less than $250,000 may be invested in an account that is fully insured by the United States Government or any agency thereof, including the FDIC. In the event that the yield on United States Treasury Bills is negative, in lieu of purchasing such Treasury Bills, all or any portion of the funds held in the Account may be deposited in a non-interest bearing account that is fully insured by the United States Government or any agency thereof, including the FDIC.

b. The Settlement Fund is intended to be a “qualified settlement fund” within the meaning of Treasury Regulation § 1.468B-1, and the Parties shall so treat it, and Co-Lead Counsel for the Class, as administrator of the Account within the meaning of Treasury Regulation § 1.468B-2(k)(3), shall be responsible for filing tax returns for the Account and paying from the Account any taxes, including any interest or penalties thereon (the “Taxes”), owed with respect to the Account. In addition, the Parties, as required, shall do all things that are necessary or advisable to carry out the provisions of this Paragraph.

c. All Taxes arising with respect to the income earned by the Settlement Fund, including any Taxes or tax treatments that may be imposed with respect to any income earned by the Settlement Fund for any period during which the Settlement Fund does not qualify as a qualified settlement fund for federal or state income tax purposes and any expenses and costs incurred in connection with the payment of taxes pursuant to this Paragraph (including, without limitation, expenses of tax attorneys and/or accountants and mailing, administration and distribution costs and expenses relating to the filing of all necessary or advisable tax returns (the “Tax Expenses”)), shall be paid out of the Settlement Fund. None of the Defendants or the Released Persons shall have any responsibility for the payment of Taxes or the Tax Expenses. Co-Lead Counsel for the Class or their agents shall timely and properly file all informational and other tax returns necessary or advisable with respect to the Settlement Fund and the distributions and payments therefrom, including, without limitation, the tax returns described in Treas. Reg. § 1.468B-2(k), and to the extent applicable, Treas. Reg. § 1.468B-2(l). All tax returns shall be consistent with the terms herein and in all events shall reflect that all taxes on the income earned by the Settlement Fund shall be paid out of the Settlement Fund. Co-Lead Counsel for the Class or their agents shall also timely pay Taxes and Tax Expenses out of the Settlement Fund, and are authorized to withdraw from the Account, without prior consent of Defendants or order of the Court, amounts necessary to pay Taxes and Tax Expenses. Defendants agree to timely provide Co-Lead Counsel for the Class the statement described in Treas. Reg. § 1.468B-3(e). The Parties agree to cooperate with Co-Lead Counsel for the Class, their agents, each other, and their tax advisors to the extent reasonably necessary to carry out the provisions of this Stipulation.

d. After reasonable and diligent efforts have been made to distribute the Settlement Fund to eligible Class members, any balance remaining in the Settlement Fund, including accrued interest, six (6) months after the distribution shall, if economically feasible, be reallocated to eligible Class members who have deposited or cashed their distribution check. Thereafter, any balance remaining in the Settlement Fund shall be paid to the Delaware Combined Campaign for Justice.

RELEASES

3. In exchange for payment of the Settlement Fund, and other good and valuable consideration, the receipt of which is hereby acknowledged, any and all claims, demands, losses, rights, actions, causes of action, liabilities, obligations, duties, judgments, suits, costs, expenses, matters and issues known or unknown, contingent or absolute, suspected or unsuspected, disclosed or undisclosed, liquidated or unliquidated, matured or unmatured, accrued or unaccrued, apparent or unapparent, of any kind or nature whatsoever including, but not limited to, any claims arising under federal, state or foreign law, common law, the Delaware General Corporation Law or any other statute, rule, or regulation, for damages, declaratory relief, injunctive relief, equitable relief, or any other remedies, that have been asserted, could have been asserted, or in the future could or might be asserted by any of the Plaintiffs, any Class Member, or the Company, in the Action or in any court, tribunal, forum or proceeding, whether individual, class, direct, derivative, representative, legal, equitable or any other type or in any other capacity, by or on behalf of Plaintiffs or any member of the Class, whether individual, direct, class, derivative, representative, legal, equitable or any other type or in any other capacity (collectively, the “Releasing Persons”) against Defendants, the THL Investors, the GS Investors and all of their respective families, parent entities, controlling persons, associates, affiliates, successors or subsidiaries and each and all of their respective present or past heirs, executors, estates, administrators, predecessors, successors, stockholders, assigns, parents, subsidiaries, associates, affiliates, employers, employees, agents, consultants, insurers, directors, managing directors, officers, partners, partnerships, principals,

limited liability companies, members, attorneys, bankers, consultants, trustees, insurers, co-insurers, reinsurers, accountants, financial or other advisors, investment bankers, underwriters, lenders, auditors, and any other representatives of any of these persons or entities (the “Released Persons”) (or any of them) that have arisen, could have arisen, arise now or hereafter arise from, or relate in any manner to, the allegations, conduct, facts, events, transactions, acts, occurrences, statements, representations, misrepresentations, omissions or any other matter, thing or cause whatsoever, referred to by, set forth in, or arising out of or otherwise related directly or indirectly to (i) any allegation made in the Action; (ii) any matter regarding or relating to in any way to the Recapitalization, including without limitation, any disclosures made in connection with any of the foregoing, except claims to enforce the Stipulation or the Settlement, and/or (iii) any claim relating to the improper payment of dividends or violation of MoneyGram’s certificate of incorporation (collectively, the “Released Claims”), shall be deemed completely, fully, finally, absolutely and forever discharged, dismissed with prejudice, settled, enjoined, released, relinquished and compromised, upon occurrence of all events referenced in Paragraph 10 of this Stipulation.

4. Any and all claims that any of Defendants or the Released Persons may have or could have asserted against Plaintiffs, their counsel, their advisors and the Class arising out of the initiation, litigation, and resolution of the Action, except claims to enforce the Stipulation or the Settlement shall be deemed to be completely released and enjoined as to Plaintiffs, their counsel, their advisors and the Class, upon occurrence of all events referenced in Paragraph 10 of this Stipulation.

5. The Settlement is intended to extinguish all such Released Claims and, consistent with such intentions, the foregoing Release by the Releasing Persons shall be deemed to include a waiver of their rights to the extent permitted by state law, federal law, foreign law, or any principle

of common law that may have the effect of limiting the releases set forth above. This shall include a waiver by the Releasing Persons of any rights pursuant to § 1542 of the California Civil Code (or any similar, comparable or equivalent provision) which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

The Releasing Persons acknowledge that they or members of the Class may discover facts in addition to or different from those that they now know or believe to be true with respect to the subject matter of this release, but that it is their intention, as plaintiffs and on behalf of the Class, to fully, finally, and forever settle and release any and all claims released hereby, whether known or unknown, suspected or unsuspected, which now exist or heretofore existed or may hereafter exist, and without regard to the subsequent discovery or existence of such additional or different facts.

SUBMISSION AND APPLICATION TO THE COURT

6. As soon as practicable after this Stipulation has been executed, Plaintiffs and Defendants shall jointly apply for a scheduling order substantially in the form attached hereto as Exhibit A (the “Scheduling Order”) establishing the procedure for: (i) the provision of notice of the Settlement to the Class (as defined herein) substantially in the form attached hereto as Exhibit B (the “Notice”), and (ii) the Court’s consideration of the Settlement, dismissal of the Action with prejudice, and Plaintiffs’ application for attorneys’ fees and expenses.

7. The Settlement Administrator at MoneyGram’s expense, shall be responsible for providing the Notice to the Class, regardless of whether the Settlement obtains Court approval or any conditions of the Settlement are not satisfied. At least 14 calendar days before the Settlement

Hearing (as defined below), MoneyGram shall cause to be filed with the Court an appropriate affidavit or declaration with respect to the preparation and mailing of the Notice. MoneyGram shall provide relevant stock list information to the Settlement Administrator promptly after execution of this Stipulation.

8. The parties further agree to use their best efforts to obtain Court approval of the Settlement and a dismissal with prejudice of the Action.

ORDER AND FINAL JUDGMENT

9. If the Court approves the Settlement (including any modification thereto made with the consent of the parties as provided for herein) following a hearing (the “Settlement Hearing”) as fair, reasonable, adequate and in the best interests of Plaintiffs, the Class, and the Company, Plaintiffs and Defendants shall request jointly that the Court enter an Order and Final Judgment substantially in the form attached hereto as Exhibit C, certifying the Class, dismissing the Action with prejudice, and awarding Plaintiffs any attorneys’ fees and expenses.

10. For purposes of effectuating this Settlement only, the Order and Final Judgment shall confirm:

a. certification of a non-opt out class pursuant to Court of Chancery Rules 23(a), 23(b)(1) and 23(b)(2), consisting of all holders of common stock of MoneyGram together with their successors and assigns, during the period commencing March 7, 2011, and ending May 18, 2011, the effective time of the closing of the Recapitalization, excluding (i) the Individual Defendants, MoneyGram, THL and their respective associates, affiliates, legal representatives, heirs, successors in interest, transferees and assignees, (ii) Goldman, its majority-owned affiliates, and each of their legal representatives, heirs, successors in interest, transferees and assignees, (iii) the THL Investors, and (iv) the GS Investors(the “Class”);

b. the appointment of Plaintiffs Seales and Selzer as Class Representatives; and

c. the appointment of Prickett, Jones & Elliott, P.A. and Kessler, Topaz, Meltzer & Check, LLP as Co-Lead Counsel for the Class.

CONDITIONS OF SETTLEMENT

11. This Stipulation shall be null and void and of no force and effect, unless otherwise agreed to by the parties pursuant to Paragraph 20, if:

a. the Settlement does not receive Court approval for any reason, with Court approval requiring each of the following:

i the dismissal with prejudice of the Action against all Defendants;

ii the entry of a final judgment in the Action in the form of Exhibit C approving the Settlement, providing for the dismissal with prejudice of the Action, approving the grant of a release by the Class to the Released Persons of the Released Claims, and enjoining all members of the Class or Releasing Persons from asserting any of the Released Claims;

iii such final judgment and dismissal of the Action being finally affirmed in whole on appeal or, if no appeal is taken, such final judgment and dismissal not being subject to appeal (or further appeal) by lapse of time or otherwise;

b. the Action is not dismissed with prejudice against all Defendants, or the dismissal of the Action does not become final and no longer subject to further appeal or review by lapse of time or otherwise; or

c. The full Settlement Fund is not deposited timely in the Account. In such event, this Stipulation shall not be deemed to prejudice in any way the respective positions of the parties with regard to the Action and all of the parties to this Stipulation shall be

deemed to have reverted to their respective litigation status immediately prior to May 11, 2012, all of the parties shall proceed in all respects as if the Stipulation had not been executed, and any and all funds paid into the Settlement Fund shall revert back to the contributor(s) of such funds.

12. All members of the Class shall be and are deemed bound by the judgment in this Action. The judgment to be entered pursuant to this Stipulation and the releases contained herein are intended with respect to the Released Claims (which includes, but is not limited to, all claims and issues that have or could have been raised) to have all preclusive effect available under law in any pending and/or future lawsuits, arbitrations or other proceedings maintained by or on behalf of, any of the Plaintiffs or any other members of the Class, as well as any and all of their respective successors-in-interest, successors, predecessors-in-interest, predecessors, representatives, trustees, executors, administrators, estates, heirs, assigns and transferees, immediate and remote, and any other person or entity acting for or on behalf of, or claiming under, any of them, and each of them, together with their predecessors-in-interest, predecessors, successors-in-interest, successors, and assigns.

13. Whether or not Court approval is obtained, the existence or contents of this Stipulation, and any negotiations, statements or proceedings in connection therewith shall not be deemed evidence of a presumption, concession or admission by any Plaintiff, Defendant, Released Person, or any other person of any fault, liability or wrongdoing or lack of any fault, liability or wrongdoing as to any facts or claims alleged or asserted in the Action or in any other action or proceeding (whether civil, criminal or administrative), or that Plaintiffs or Co-Lead Counsel for the Class, the Class, or any present or former stockholders of the Company, or any other person, has suffered any damage attributable in any manner to any Released Person in connection with such facts and claims. The existence of this Stipulation, its contents, or any negotiations, statements or

proceedings in connection therewith, shall not be offered or admitted in evidence or referred to, interpreted, construed, invoked, or otherwise used by any person for any purpose in the Action, except as may be necessary to enforce or obtain Court approval of the Settlement. Notwithstanding the foregoing, any of the Released Persons may file the Stipulation or any judgment or order of the Court related hereto, in any action pending or that may be brought against them, in order to support any and all defenses or counterclaims including, without limitation, those based on res judicata, collateral estoppel, release, good-faith settlement, judgment bar or reduction, or any other theory of claim preclusion or issue preclusion, or similar defense or counterclaim. This provision shall remain in force in the event the Settlement is terminated.

ATTORNEYS’ FEES AND EXPENSES

14. Co-Lead Counsel for the Class intend to apply to the Court for an award of attorneys’ fees of up to $3 million and expenses not to exceed $650,000 (the “Fee Application”). All fees and expenses that are awarded by the Court (the “Fee Award”) shall be paid from the Settlement Fund and shall be paid within five (5) business days of entry of an Order approving such award notwithstanding the existence of objections thereto, or the potential for appeal therefrom, provided, however, that in the event that the Fee Award is disapproved, reduced, reversed or otherwise modified, whether on appeal, further proceedings on remand, successful collateral attack or otherwise, then Co-Lead Counsel for the Class shall jointly or severally, within ten (10) business days after Co-Lead Counsel for the Class receives notice of any such disapproval, reduction, reversal or other modification, return to the Settlement Fund the difference between the attorneys’ fees and expenses awarded by the Court in the Fee Award on the one hand, and any attorneys’ fees and expenses ultimately and finally awarded on appeal, further proceedings on remand or otherwise on the other hand plus accrued interest at the same net rate as is earned by

the Settlement Fund. In the event that the Settlement is disapproved, reversed or otherwise modified, whether on appeal, further proceedings on remand, successful collateral attack or otherwise, then Co-Lead Counsel for the Class shall jointly or severally, within ten (10) business days after Co-Lead Counsel for the Class receives notice of any such disapproval, reversal or other modification, return to the Settlement Fund the attorneys’ fees and expenses awarded by the Court in the Fee Award plus accrued interest at the same net rate as is earned by the Settlement Fund. No other application for attorneys’ fees and expenses shall be filed, and Co-Lead Counsel for the Class expressly waive any right to seek any award of such fees and expenses except as provided in this paragraph. The parties agree that any approval of an award of attorneys’ fees and expenses shall not be a condition to final approval of the Settlement, nor shall the Court’s denial of the Fee Application: (i) delay the enforceability of this Stipulation; (ii) provide any of the parties with the right to terminate the Settlement; or (iii) affect or delay the binding effect or finality of the Judgment and the Release of the Released Claims. Any failure of the Court to approve the Settlement or the Settlement not becoming final shall not preclude Co-Lead Counsel for the Class from applying for an award of attorneys’ fees and expenses on grounds of mootness, and Defendants reserve the right to oppose any such mootness-fee application.

15. Co-Lead Counsel for the Class warrants that no portion of any such award of attorneys’ fees or expenses shall be paid to any of the Plaintiffs or any Class Member, except as may be approved by the Court.

16. Defendants and the Released Persons shall have no responsibility for the allocation of the Fee Award.

17. Except as specifically provided herein, Defendants shall bear no expenses, costs, damages, or fees alleged or incurred by Plaintiffs or by any member of the Class, or by any of their attorneys, experts, advisors, agents, or representatives. Court approval of the Settlement is not in any way conditioned on Court approval of the application of Co-Lead Counsel for the Class for fees and/or expenses.

NON-ASSIGNMENT OF CLAIMS

18. Plaintiffs and their counsel represent and warrant that none of Plaintiffs’ claims or causes of action referred to in this Stipulation or that could have been alleged in the Action has been assigned, encumbered or in any manner transferred in whole or in part.

STAY OF PROCEEDINGS

19. Upon the execution of this Stipulation, the parties agree that, except as provided herein, the Action will be stayed pending submission of the Settlement for the Court’s approval. The parties also agree to use their best efforts to prevent, stay or seek dismissal of or oppose entry of any interim or final relief in favor of any member of the Class in any other litigation against any of the parties to this Stipulation which challenges the Settlement, the Recapitalization, including any transactions contemplated thereby, or otherwise involves, directly or indirectly, a Released Claim.

ENTIRE AGREEMENT

20. This Stipulation constitutes the entire agreement among the parties with respect to the subject matter hereof, and may not be amended nor may any of its provisions be waived except by a writing signed by all of the Parties hereto.

COUNTERPARTS

21. This Stipulation may be executed in counterparts and transmitted by facsimile, via e-mail as a PDF file, or as an original signature by any of the signatories hereto, and as so executed shall constitute one agreement.

GOVERNING LAW

22. This Stipulation and the Settlement contemplated by it shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without regard to conflict of law principles. Any dispute arising out of or relating to this Stipulation or Settlement shall be filed and litigated exclusively in the Court, which shall retain jurisdiction over the parties and all such disputes. The parties expressly waive any right to demand a jury trial, and consent to service of process upon their attorneys by registered mail, in connection with any dispute brought in accordance with this paragraph.

EXECUTION AUTHORITY

23. Each of the attorneys executing this Stipulation has been duly empowered and authorized by his/her respective client(s) to do so.

SUCCESSORS AND ASSIGNS

24. This Stipulation shall be binding upon and shall inure to the benefit of the parties and their respective agents, successors, executors, heirs and assigns.

[Signature pages to follow]


OF COUNSEL:		PRICKETT, JONES & ELLIOTT, P.A.

KESSLER TOPAZ		/s/ Michael Hanrahan
MELTZER & CHECK, LLP		Michael Hanrahan (#941)
Marc A. Topaz		Gary F. Traynor (#2131)
Lee D. Rudy		Paul A. Fioravanti, Jr. (#3808)
Michael C. Wagner		J. Clayton Athey (#4378)
J. Daniel Albert		Kevin H. Davenport (#5327)
280 King of Prussia Road		1310 N. King Street
Radnor, Pennsylvania 19087		Wilmington, Delaware 19801
(610) 667-7706		(302) 888-6500
Counsel for Plaintiffs and the Class		Counsel for Plaintiffs and the Class

OF COUNSEL:		MORRIS NICHOLS ARSHT & TUNNELL LLP

Thomas R. Jackson		/s/ William M. Lafferty
Joshua S. Roseman		William M. Lafferty (#2755)
Samantha S. Cox		John P. DiTomo (#4850)
JONES DAY		Ryan D. Stottmann (#5237)
2727 North Harwood Street		1201 N Market Street, 18th Floor
Dallas, Texas 75201-1515		Wilmington, Delaware 19801
(214) 220-3939		(302) 658-9200
		Attorneys for Defendants J. Coley Clark,
		Victor W. Dahir, Ann Mather and W. Bruce
		Turner

OF COUNSEL:		SEITZ ROSS ARONSTAM & MORITZ LLP

Mark C. Hansen
Kevin B. Huff		/s/ Collins J. Seitz, Jr.
KELLOGG HUBER HANSEN TODD		Collins J. Seitz, Jr. (#2237)
EVANS & FIGEL, PLLC		Bradley R. Aronstam (#5129)
1615 M Street N.W., Suite 400		100 S. West Street
Washington, District of Columbia 20036		Wilmington, Delaware 19801
(202) 326-7900		(302) 576-1600
		Attorneys for Defendants Thomas H. Lee
		Partners, LP., Thomas M. Hagerty, Scott L.
		Jaeckel, Seth W. Lawry and Ganesh Rao


OF COUNSEL:		ABRAMS & BAYLISS LLP

William G. McGuinness
Stephanie J. Goldstein		/s/ Kevin G. Abrams
FRIED, FRANK, HARRIS,		Kevin G. Abrams (#2375)
SHRIVER & JACOBSON LLP		20 Montchanin Road, Suite 200
One New York Plaza		Wilmington, Delaware 19807
New York, New York 10004		(302) 778-1000
(212) 859-8000		Attorneys for The Goldman Sachs Group, Inc.

OF COUNSEL:		RICHARDS, LAYTON & FINGER, P.A.

John C. Wander
Daniel J. Kelly		/s/ Lisa A. Schmidt
Elizabeth C. Brandon		Lisa A. Schmidt (#3019)
VINSON & ELKINS		Brock E. Czeschin (#3938)
Trammell Crow Center		Steven J. Fineman (#4025)
2001 Ross Avenue		Scott W. Perkins (#5049)
Suite 3700		One Rodney Square
Dallas, Texas 75201		920 North King Street
(214) 220-7700		Wilmington, Delaware 19801
		(302) 651-7786
		Attorneys for Defendant MoneyGram
		International, Inc. and Pamela H. Patsley

Exhibit 10.2

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

SUPPLEMENTAL AGREEMENT REGARDING SETTLEMENT

This Supplemental Agreement Regarding Settlement (“ Supplemental Agreement ”) is entered into this 20th day of July, 2012, by and between: MoneyGram International, Inc. (“ MoneyGram ” or the “ Company ”), Thomas H. Lee Partners, L.P. (“ THL ”), The Goldman Sachs Group, Inc. (“ Goldman ”), J. Coley Clark (“ Clark ”), Victor W. Dahir (“ Dahir ”), Thomas M. Hagerty (“ Hagerty ”), Scott L. Jaeckel (“ Jaeckel ”), Seth W. Lawry (“ Lawry ”), Ann Mather (“ Mather ”), Pamela Patsley (“ Patsley ”), Ganesh Rao (“ Rao ”), and W. Bruce Turner (“ Turner )” together with Clark, Dahir, Hagerty, Jaeckel, Lawry, Mather, Patsley, and Rao collectively referred to as the “ Individual Defendants ”), and Federal Insurance Company (“ Federal ”), in connection with the settlement of the action captioned In re MoneyGram International, Inc., Shareholders Litigation , C.A. No. 6387-VCL (the “ Action ”), pending in the Court of Chancery of the State of Delaware (the “ Court ”).

WHEREAS, the parties to the Action intend to settle and resolve the claims asserted in the Action and have reached an agreement set forth in a Stipulation (attached hereto as Exhibit “A”), providing for the settlement of the Action on the terms and conditions set forth therein and subject to the approval of the Court.

WHEREAS, in the Stipulation, the Company, acting as depository, agreed, upon the earlier of: (a) ten business days after the Court’s entry of the Scheduling Order or (b) July 20, 2012, to pay or cause to be paid $10 million (the “Settlement Fund”) into an interest-bearing account established by counsel for Co-Lead Counsel for the Class. ¹

¹	This Supplemental Agreement incorporates the definitions used in the Stipulation.

WHEREAS, a third-party with rights related to the Recapitalization has agreed to return to MoneyGram those legal fees and expenses already paid by MoneyGram on its behalf, and/or waive pending reimbursements, as determined by MoneyGram, in a sum total of $750,000. MoneyGram will, in turn, contribute this $750,000 to the Settlement Fund.

NOW THEREFORE, the parties to this Supplemental Agreement have, in connection with the settlement set forth in the Stipulation, agreed as follows:

TERMS AND CONDITIONS

1. Payment to the Plaintiffs. MoneyGram shall make the payments to the Settlement Fund described in Paragraph 1 of the Stipulation, with the sole exception that Federal shall contribute $2,750,000 of the $10,000,000 directly to the Settlement Fund, on behalf of the Individual Defendants and MoneyGram pursuant to its coverage obligations under Federal Policy No. 8209-8703.

2. THL Contribution. As members of the MoneyGram Board of Directors, Hagerty, Rao, Jaeckel, and Lawry (the “THL Directors”) are entitled to receive annual compensation. Currently that compensation consists of an annual cash retainer of $90,000, and an equity award of restricted stock units valued at $90,000. Fees earned by the THL Directors, as well as reimbursements for Board-related expenses, are paid directly to THL Managers VI, LLC. These payments and restricted stock awards to directors are expected to continue for the foreseeable future. In consideration of MoneyGram’s payment to the Settlement Fund as set forth in Paragraph 1 hereof, THL and the THL Directors agree to waive all future rights to receive cash or equity compensation from MoneyGram for service by these Directors, or any other Directors appointed by THL, for service on the MoneyGram Board. MoneyGram has valued this waiver at a minimum of $2,000,000.

3. Goldman Waiver of Reimbursement. Pursuant to Section 6.15 of the Recapitalization Agreement, MoneyGram, among other things, is required to pay GS Investors’ reasonable legal fees and expenses in connection with any legal proceedings involving the Recapitalization. In consideration of MoneyGram’s payment to the Settlement Fund as set forth in Paragraph 1 hereof, Goldman agrees not to seek reimbursement of $1,000,000 of the overall total reasonable legal fees and expenses that have been or may be incurred by the GS Investors in connection with the Action. The GS Investors shall be entitled to seek reimbursement of reasonable fees and expenses over that amount.

4. Contingent on Final Judgment. In the event that the Conditions of Settlement set forth in Paragraph 11 of the Stipulation are not met, then all of the parties shall proceed in all respects as if the Stipulation and this Supplemental Agreement had not been executed, any and all funds paid into the Settlement Fund shall revert back to the contributor(s) of such funds, all waivers and agreements herein shall be deemed null and void, and any rights of reimbursement or compensation shall remain in place notwithstanding the terms hereof.

5. No Amendments. This Supplemental Agreement may not be amended nor may any of its provisions be waived except by a writing signed by all of the parties hereto.

6. Counterparts. This Supplemental Agreement may be executed in counterparts and transmitted by facsimile, via e-mail as a PDF file, or as an original signature by any of the signatories hereto, and as so executed shall constitute one agreement.

7. Governing Law. This Supplemental Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without regard to conflict of law principles. Any dispute arising out of or relating to this Supplemental Agreement shall be filed and litigated exclusively in the Court, which shall retain jurisdiction over the parties and all such disputes. The parties expressly waive any right to demand a jury trial, and consent to service of process upon their attorneys by registered mail, in connection with any dispute brought in accordance with this paragraph.

8. Execution Authority. Each of the attorneys executing this Supplemental Agreement has been duly empowered and authorized by his/her respective client(s) to do so.

9. Successors and Assigns. This Supplemental Agreement shall be binding upon and shall inure to the benefit of the parties and their respective agents, successors, executors, heirs and assigns.


MoneyGram International, Inc.		Special Transaction Committee of the MoneyGram Board of Directors

By:	/s/ John C. Wander	By:	/s/ Thomas R. Jackson
	Counsel		Counsel


Thomas H. Lee Partners, L.P.		Federal Insurance Company


By:	/s/ Kevin B. Huff	By:
	Counsel		Counsel


The Goldman Sachs Group, Inc.


By:	/s/ Stephanie Goldstein
	Counsel

Exhibit 10.3

LOGO

July 26, 2012

Mr. Daniel Eckert

Vice President, Walmart Financial Services

Wal-Mart Stores, Inc.

702 S.W. 8 ^th Street

Bentonville, AR 72716

Dear Dan:

MONEYGRAM Payment Systems, Inc. (“MONEYGRAM”) and Wal-Mart Stores, Inc. (“Wal-Mart”) are parties to that certain Money Services Agreement effective February 1, 2005, as amended (the “2005 Agreement”). Pursuant to Section XIII of the 2005 Agreement, upon the provision of at least one hundred and eighty (180) days notice by either party, the Agreement could terminate on January 31, 2013 (the “Termination Date”).

The parties have been discussing the continued provision of MoneyGram’s products and services to be offered in Wal-Mart stores, but the parties recognize Wal-Mart has also solicited other bids from potential vendors offering comparable services.

To date, neither party has given notice of its intent to terminate the Agreement on the Termination Date. In order to continue discussing a possible extension of the Agreement or new agreement, and based upon the rapidly approaching 180-day deadline for providing termination notice, upon Wal-Mart’s countersigning of this letter, both parties hereby agree to extend the Termination Date for the Agreement until March 31, 2013. Given the agreed upon extension of the Termination Date, the parties recognize and agree that the notice of termination date will now be October 2, 2012.

This letter agreement and/or any actions taken in connection with this letter agreement are not intended to, and shall not, create or give rise to any obligation on the part of either MONEYGRAM or Wal-Mart to: (I) enter into or execute any new contract; (ii) renew or extend the 2005 Agreement; (iii) discuss or continue to discuss or negotiate any new agreement or a renewal or extension of the 2005 Agreement; or (iv) pursue or enter into any agreement or contractual relationship with the other party. Except as expressly set forth in this letter agreement, nothing in this letter agreement shall waive any right or obligation of any party under the 2005 Agreement or under applicable law.

If you have any questions, please contact me at or Rex Northen at .

We look forward to talking with you further.


With kind regards,

MoneyGram Payment Systems, Inc.

By:		/s/ Pamela H. Patsley
		Pamela H. Patsley, Chief Executive Officer

Agreed and Acknowledged:


Wal-Mart Stores, Inc.

By:		/s/ Daniel Eckert
		Daniel Eckert, Vice President, Financial Services

Exhibit 31.1

Certification Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Pamela H. Patsley, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of MoneyGram International, Inc. for the period ended September 30, 2012;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 9, 2012		/s/ PAMELA H. PATSLEY
		Pamela H. Patsley
		Chairman and Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

Certification Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, W. Alexander Holmes, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of MoneyGram International, Inc. for the period ended September 30, 2012;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 9, 2012		/s/ W. ALEXANDER HOLMES
		W. Alexander Holmes
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32.1

Certification Pursuant to 18 U.S.C. §1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”), of MoneyGram International, Inc. (the “Company”) for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof I, Pamela H. Patsley, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 9, 2012		/s/ PAMELA H. PATSLEY
		Pamela H. Patsley
		Chairman and Chief Executive Officer (Principal Executive Officer)

Exhibit 32.2

Certification Pursuant to 18 U.S.C. §1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”), of MoneyGram International, Inc. (the “Company”) for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof I, W. Alexander Holmes, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: November 9, 2012		/s/ W. ALEXANDER HOLMES
		W. Alexander Holmes
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)