The relative impactFace value— The principal amount of each completed transaction, excluding any fees related to the transaction.
Foreign currency— The impact of foreign currency exchange rate fluctuations on our financial results is typically calculated as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior-year period’s currency exchange rates. We use this method to calculate the impact of changes in foreign currency exchange rates on revenues, commissions and other operating expenses for all countries where the functional currency is not the U.S. dollar.
Termination of Merger Agreement
As previously disclosed, on January 26, 2017, the Company entered into an Agreement and Plan of Merger (as amended by the First Amendment to the Agreement and Plan of Merger, dated April 15, 2017, the “Merger Agreement”) with Alipay (UK) Limited, a United Kingdom limited company (“Alipay”), Matrix Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Alipay (“Merger Sub”), and, solely for purposes of certain specified provisions of the Merger Agreement, Alipay (Hong Kong) Holding Limited, a Hong Kong limited company, providing for the merger of Merger Sub with and into the Company, with the Company surviving as a wholly owned subsidiary of Alipay (the “Merger”).
The closing of the Merger was subject to certain conditions, including clearance by the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. The parties to the Merger Agreement were advised that CFIUS clearance of the Merger would not be forthcoming. After further discussion between the parties, they determined to cease efforts to seek CFIUS approval and entered into a Termination Agreement, dated January 2, 2018 (the “Termination Agreement”), pursuant to which they mutually terminated the Merger Agreement, with Alipay paying the Company a termination fee of $30.0 million. The parties also agreed to release each other from certain claims and liabilities arising out of or relating to the Merger Agreement or the transactions contemplated thereby.
In addition, pursuant to the Termination Agreement, the Company and Alipay agreed to work collaboratively to explore and develop non-exclusive strategic initiatives to bring together their capabilities in the remittance and digital payments markets to provide their respective customers with user-friendly, rapid-response and low-cost money transfer services into China, India, the Philippines and other markets.
Our Segments
We manage our business primarily through two reporting segments: Global Funds Transfer and Financial Paper Products. The following table presents the components of our consolidated revenue associated with our reporting segments for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
Global Funds Transfer | | | | | | |
Money transfer | | 91 | % | | 87 | % | | 88 | % |
Bill payment | | 4 | % | | 5 | % | | 5 | % |
Financial Paper Products | | | | | | |
Money order | | 3 | % | | 4 | % | | 4 | % |
Official check | | 2 | % | | 4 | % | | 3 | % |
Total revenue | | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
Global Funds Transfer | | | | | |
Money transfer | 89 | % | | 89 | % | | 89 | % |
Bill payment | 5 | % | | 6 | % | | 7 | % |
Financial Paper Products | | | | | |
Money order | 3 | % | | 3 | % | | 3 | % |
Official check | 3 | % | | 2 | % | | 1 | % |
Total revenue | 100 | % | | 100 | % | | 100 | % |
During 2017, 20162020, 2019 and 2015,2018, our 10 largest agents accounted for 34%30%, 36%32% and 37%33%, respectively, of total revenue and 35%31%, 37%34% and 39%34%, respectively, of Global Funds Transfer segment revenue. Wal-Mart Stores,Walmart Inc. (“Walmart”("Walmart") is our only agent that accounts for more than 10% of our total revenue. In 2017, 20162020, 2019 and 2015,2018 Walmart accounted for 17%13%, 18%16% and 19%, respectively,16% of total revenue.revenue, respectively. In 2020, 2019 and 2018 Walmart accounted for 18% of Global Funds Transfer revenue in 201713%, 16% and 19%16% of Global Funds Transfer segment revenue, in each of 2016 and 2015.respectively.
Global Funds Transfer Segment
The Global Funds Transfer segment is our primary revenue driver, providing global money transfer services and bill payment services principally as an alternative to banking services in more than 200 countries and territories around the world. We primarily offer services through third-party agents, including retail chains, independent retailers, post offices, banks and other financial institutions. We also offer digital solutions such as moneygram.com, mobile app solutions, account deposit and kiosk-based services. Additionally, we have limited Company-operated retail locations.
In June 2019, we entered into a commercial agreement with Ripple Labs, Inc., a developer of blockchain technology and a cryptocurrency named XRP, to unbankedutilize their On Demand Liquidity ("ODL") platform, as well as XRP, for cross-border foreign exchange transaction for the Company's own account. The Company is compensated by Ripple for developing and underbanked consumers.bringing liquidity to certain foreign exchange markets, facilitated by the ODL platform, and providing a reliable level of foreign exchange trading activity. We utilize a varietyrefer to this compensation as market development fees. Per the terms of proprietary point-of-sale platforms, including AgentConnect, which is integrated into an agent’s point-of-sale system, DeltaWorks and Delta T3, which are separatethe commercial agreement, the Company does not pay fees to Ripple for its usage of the ODL platform or the related software and stand-alone device platforms,there are no claw-back or refund provisions. The market development fees are recorded as a reduction of the "Transaction and moneygram.com.operations support" line in the accompanying Consolidated Statements of Operations. MoneyGram ceased transacting with Ripple under the commercial agreement in early December 2020 and has not since resumed trading. It is possible that MoneyGram will not resume transacting with Ripple under the commercial agreement and will be unable to receive the related market development fees in 2021 and beyond. See Note 20 — Related Partiesof the Notes to the Consolidated Financial Statements. We continue to focus on the growth of our Global Funds Transfer segment for outbound transactions originating in the U.S. and those originating outside of the U.S. During 2017 and 2016 sendsSends originated outside of the U.S. generated 47% each year55% in 2020, 52% in 2019 and 46%49% in 2015,2018 of our total Company revenue, and 50%, 49%59% in 2020, 57% in 2019 and 48% for 2017, 2016 and 2015, respectively,52% in 2018 of our total Global Funds Transfer segment revenue. In 2017,2020, our Global Funds Transfer segment had total revenue of $1.5$1.2 billion.
Money Transfer — We earn our money transfer revenues primarily from consumer transaction fees and the management of currency exchange spreads on money transfer transactions involving different “send”"send" and “receive”"receive" currencies. We have corridorCorridor pricing capabilities that provide us flexibility when establishing consumer fees and foreignnon-U.S. dollar exchange rates for our money transfer services, which allow us to remain competitive in all locations. In a cash-to-cash money transfer transaction, both the agent initiating and receiving the transaction and the receiving agent earn a commission that is generally a fixed fee or is based on a percentage of the fee charged to the consumer.consumer, or in certain cases a fixed commission. When a money transfer transaction is initiated at a MoneyGram-owned store, staging kiosk or via our online platform, typically only the agent receiving agentthe transaction earns a commission.
In certain countries, we have multi-currency technology that allows consumers to choose a currency when initiating or receiving a money transfer. The currency choice typically consists of local currency, U.S. dollars and/or euros. These capabilities allow consumers to know the amount that will be received in the selected currency.
The majority of our remittances constitute transactions in which cash is collected by one of our agents and funds are available for pick-up at another agent location. Typically, the designated recipient may receive the transferred funds within 10 minutes at any MoneyGram agent location. In select countries, the designated recipient may also receive the transferred funds via a deposit to the recipient’s bank account, mobile phone account or prepaid card. Through our online product offerings, consumers can remit funds from a bank account, credit card or debit card.
We offer a variety of services to provide the best consumer experience possible at our agent locations. We offer transaction-staging kiosks at select agent locations around the world. Our MoneyGram MobilePass product allows customers to stage a transaction on a mobile device or online and pay for the transaction at one of MoneyGram's thousands of locations across the U.S. Through our FormFree service, consumers are directed via phone to one of our customer care centers where a representative collects transaction information and enters it directly into our central data processing system.
In 2017, we offered our money transfer services on the internet via our moneygram.com service in the U.S., United Kingdom and Germany and through affiliate websites. Through moneygram.com, consumers have the ability to send money from the convenience of their home or internet-enabled mobile device to any of our agent locations worldwide or to a recipient's bank account through a debit or credit card or, in certain cases, funding with a U.S. checking account. Money transfer transactions through moneygram.com grew 24% and revenue grew 25% in 2017 over the prior year.
We also offer our money transfer services via virtual agents allowing our consumers to send international transfers conveniently from a website or their mobile phone in 27 countries. We continue to expand our money transfer services to consumers through the addition of transaction-staging kiosks, ATMs, prepaid cards and direct-to-bank account products in various markets around the world.Retail Channel
As of December 31, 2017,2020, our money transfer agent network had approximately 350,000more than 410,000 locations. Our agent network includes agents such as international post offices, formalbanks and alternativebroader financial institutionsservices, as well as large and small retailers. Additionally, we have Company-operateda limited number of Company-owned and operated retail locations in the U.S. and Western Europe. Some of our agents outside the U.S. manage sub-agents.sub-agents that offer MoneyGram branded services. We refer to these agents as super-agents. Although thesethe sub-agents are under contract with these super-agents, the sub-agent locations typically have access to similar technology and services as our other agent locations. Many of our agents have multiple locations, a large number of which operate in locations that are open outside of traditional banking hours, including nights and weekends. Our agents know the markets they serve, and they work with our sales and marketing teams to develop business plans for their markets. This may include contributing financial resources to, or otherwise supporting, our efforts to market MoneyGram's services.
Typically, retail send transactions are funded in cash. In retail receive transactions, the funds are available for the designated recipient to collect usually within 10 minutes at any MoneyGram agent location.
As of December 31, 2020, in over 70 countries, the designated recipient may also receive the transferred funds via a deposit to the recipient's bank account or mobile wallet account.
Digital Channel
We offer money transfer services through our direct-to-consumer digital business, MoneyGram Online ("MGO"), which includes our leading mobile app and moneygram.com. MGO is available in 37 countries and territories as of December 31, 2020. Through our Digital Channel, consumers can send money from the convenience of their own homes to any of our agent locations worldwide, a recipient's bank account or a recipient's mobile wallet. Consumers can fund their transactions from a bank account, debit card, or credit card. MGO, the Company’s single largest generator of money transfer transactions, maintains three of its individual country sites on the Company’s top 10 list of money transfer generating sources.MGO’s US site became the largest generator of money transfer transactions in December 2020, surpassing Walmart based on transactions. Cross-border money transfer transactions through MGO grew 152% in 2020 compared to the prior year.
We also offer money transfer services via digital partners, which enable our partners’ customers to send international money transfers online or through a mobile device to any MoneyGram pay-out location or directly to a recipient’s bank account or mobile wallet through the MoneyGram platform.
Transfers directly to bank accounts and mobile wallets are the third main component of our Digital Channel. Through the MoneyGram platform, customers had direct access to over 2 billion accounts in over 70 countries as of December 31, 2020. Total digital transactions represented 25% of money transfer transactions as of December 31, 2020.
Bill Payment Services — We earn our bill payment revenues primarily from fees charged to consumers for each transaction completed. Our primary bill payment service offering is our ExpressPayment service, which we offer at substantially all of our money transfer agent and Company-operated locations in the U.S., Canada and Puerto Rico, at certain agent locations in select Caribbean and European countries and through our Digitaldigital solutions.
Through our bill payment services, consumers can complete urgent bill payments, pay routine bills, or load and reload prepaid debit cards with cash at an agent location company-operated locations or through moneygram.com with a credit or debit card.moneygram.com. We offer consumers same-day and twotwo- or three daythree-day payment service options; the service option is dependent upon our agreement with the biller. We offer payment options to over 13,500 billersnearly 13,000 billers in key industries, including the ability to allow the consumer to load or reload funds to nearlyover 500 prepaidprepaid debit card programs. These industries include the credit card, mortgage, auto finance, telecommunications, corrections, health care, utilities, property management, prepaid card and collections industries.
Marketing — We haveThe global marketing and product management teams located in multiple geographical regions. We employ a strategy of developing products and marketing campaignsorganization employs an omnichannel approach that are global, yet can be tailored to address our consumer base and local needs. A key component of our marketing efforts is our global branding. We use a marketing mix to supporttailors our brand whichmessage to each specific market, culture and consumer preferences. The organization is increasingly focusing on digital marketing tactics to reach consumers. Our marketing strategy also includes traditional, digital and social media, point-of-sale materials, signageour MoneyGram Plus Rewards loyalty program that provides faster service at ourthe agent locations targeted marketing campaigns, seasonal campaignsin various countries around the world and sponsorships.gives consumers the benefit of earning discounts on future transactions and special promotions available only to loyalty members.
Sales — Our sales teams are organized by geographic area, product and delivery channel. We have dedicated teams that focusfocused on developing our agent and biller networks to enhance the reach of our money transfer and bill payment products. Our agent requirements vary depending upon the type of outlet, location and compliance and regulatory requirements. Our sales teams and strategic partnership teams continue to improve our agent relationships and overall network strength with a goal of providing the optimal agent and consumer experience.
Competition — The market for money transfer and bill payment services continues to beis very competitive on a regional and the World Bank estimates that in 2018 cross-border remittances will be over $600 billion.global basis. We generally compete for money transfer agents on customer experience, price, the basisability to conduct both digital and cash transactions, the convenience of value, service, quality, technical and operational differences, price,multiple receive options across a broad global network in over 200 countries & territories, commission payments, customer loyalty program initiatives, and marketing efforts. We compete for money transfer consumers on the basis of trust, convenience, availability of outlets, price, technology and brand recognition.
Our competitors include a small number of large money transfer and bill payment providers, financial institutions, banks and a large number of small niche money transfer service providers that serve select regions. Our largest competitor in the cross-border money transfer industry is The Western Union Company ("Western Union"), which also competes with our bill payment services and money order businesses. In 2014,Additionally, Walmart launchedhas a white labelwhite-label money transfer service, a program operated by a competitor of MoneyGram that allows consumers to transfer money between Walmart U.S. store locations. In 2018, Walmart launched Walmart2World, Powered by MoneyGram, a new white-label money transfer service that allows customers to send money from Walmart in the U.S. to any MoneyGram location in the world. On November 4, 2019, Walmart announced that the white-label money transfer service would now be joined by other brands in becoming part of a marketplace of money transfer services at Walmart stores across the U.S. On January 19, 2021, Walmart informed us of a new agreement that would enable Western Union money transfer, bill payment and money order services at U.S. Walmart locations.
We will encounter increasing competition as digitally-focused new technologies emerge that allow consumersentrants seek to send and receive moneygrow revenue through a variety of channels,customer acquisition initiatives focused on specific Corridors, but we believe we will continue to differentiate against the competition by competing on a global scale, addressing the entire remittance market by offering digital and cash capabilities, and delivering a superior customer experience in addition to continuing to be ana fintech innovator and a leader in the industry by diversifyingprotecting consumers through our core money transfer business through new channels, such as online, mobile solutions, kiosk and other digital offerings.unparalleled compliance engine.
Seasonality— A larger share of our annual money transfer revenues traditionally occurs in the third and fourth quarters as a result of major global holidays falling during or around this period.these periods.
Financial Paper Products Segment
Our Financial Paper Products segment provides money orders to consumers through our agents and financial institutions located throughout the U.S. and Puerto Rico and provides official check outsourcing services for financial institutionsbanks and credit unions across the U.S.
In 2017,2020, our Financial Paper Products segment generated revenues of $94.0$66.3 million from fee and other revenue and investment revenue. We earn revenue from the investment of funds underlying outstanding official checks and money orders. We refer to our cash and cash equivalents, settlement cash and cash equivalents, interest-bearing investments and available-for-sale investments collectively as our “investment"investment portfolio.”" Our investment portfolio primarily consists of low risk, highly liquid short-term U.S. government securities and bank deposits that produceearn a lowmarket rate of return.return for similar investments.
Money Orders — Consumers use our money orders to make payments in lieu of cash or personal checks. We generate revenue from money orders by charging per item and other fees, as well as from the investment of funds underlying outstanding money orders, which generally remain outstanding for approximately sixseven days. We sell money orders under the MoneyGram brand and on a private label or co-branded basis with certain agents and financial institutions in the U.S. As of December 31, 2017,2020, we issued money orders through our network of over 17,500 over 11,000 agents and financial institution locationsinstitutions located in the U.S. and Puerto Rico.
Official Check Outsourcing Services — Official checks are used by consumers where a payee requires a check drawn on a bank. Financial institutions also use official checks to pay their own obligations. Similar to money orders, we generate revenue from our official check outsourcing services through U.S. banks and credit unions by charging per item and other fees, as well as from the investment of funds underlying outstanding official checks, which generally remain outstanding for approximately fourfive days. As of December 31, 2017,2020, we provided official check outsourcing services through approximately 800approximately 1,100 financial institutions at approximately 5,600over 5,000 branch bank locations.
Marketing — We employ a wide range of marketing methods. We use a marketing mix to support our brand, which includes traditional, digital and social media, point of sale materials, signage at our agent locations and targeted marketing campaigns. Official checks are financial institution branded, and therefore, all marketing to this segment is business to business.
Sales — Our sales teams are organized by product and delivery channel. We have dedicated teams that focus on developing our agent and financial institution networks to enhance the reach of our official check and money order products. Our agent and financial institution requirements vary depending upon the type of outlet or location, and our sales teams continue to improve and strengthen these relationships with a goal of providing the optimal consumer experience with our agents and financial institutions.
Competition — Our money order competitors include a small number of large money order providers and a large number of small regional and niche money order providers. Our largest competitors in the money order industry are Western Union and the U.S. Postal Service. We generally compete for money order agents on the basis of value, service, quality, technical and
operational differences, price, commission and marketing efforts. We compete for money order consumers on the basis of trust, convenience, availability of outlets, price, technology and brand recognition.
Official check competitors include financial institution solution providers, such as core data processors and corporate credit unions. We generally compete against a financial institution’sinstitution's desire to perform these processes in-house with support from these types of organizations. We compete for official check customers on the basis of value, service, quality, technical and operational differences, price and commission.
Regulation
Compliance with laws and regulations is a highly complex and integral part of our day-to-day operations. Our operations are subject to a wide range of laws and regulations of the U.S. and other countries, including anti-money laundering laws and regulations; financial services regulations; currency control regulations; anti-bribery laws; regulations of the U.S. Treasury Department’s Office of Foreign Assets Control ("OFAC");sanctions laws and regulations; money transfer and payment instrument licensing laws; escheatment laws; privacy, data protection and information security laws; and consumer disclosure and consumer protection laws. Regulators worldwide are exercising heightened supervision of money transfer providers and requiring increased efforts to ensure compliance. Failure to comply with any applicable laws and regulations could result in restrictions on our ability to provide our products and services,
as well as the potential imposition of civil fines and possibly criminal penalties. See “the Risk Factors” sectionin Item 1A for additional discussion regarding potential impacts of failure to comply. We continually monitor and enhance our global compliance programs in light of the most recent legal and regulatory changes.
Deferred Prosecution Agreement — In November 2012, we announced that a settlement was reached with the U.S. Attorney's Office for the Middle District of Pennsylvania (the "MDPA")MDPA and the U.S. Department of Justice ("U.S. DOJ")DOJ relating to the previously disclosed investigation of transactions involving certain of our U.S. and Canadian agents, as well as fraud complaint data and the consumer anti-fraud program, during the period from 2003 to early 2009. In connection with this settlement, we entered into a five-year deferred prosecution agreement (the "DPA")the Amended DPA with the MDPA and U.S. DOJ (collectively, the "Government") dated November 8,9, 2012. Under the DPA, we agreed to a forfeiture of $100.0 million that is available as restitution to victims of the consumer fraud scams perpetrated through MoneyGram agents. Also under the DPA, we have agreed, among other things, to retain an independent compliance monitor for a period of five years and in the first quarter of 2013, Aaron Marcu, a litigation partner with Freshfields Bruckhaus Deringer, LLP in New York and head of its global financial institutions litigation group, was selected as our independent compliance monitor. We have received five annual reports from the compliance monitor, and we continue to make investments in various areas related to our compliance systems and operations in order to comply with the requirements contained in the DPA and recommendations of the compliance monitor.
On November 1, 2017, the Company agreed to a stipulation with the MDPA andGovernment that the DOJ (the “Government”) that thefive-year term of the Company’sCompany's DPA be extended for 90 days to February 6, 2018. OnBetween January 31, 2018 and September 14, 2018, the Company agreed to enter into various extensions of the DPA with the Government, thatwith the last extension ending on November 6, 2018. Each extension of the DPA extended all terms of the DPA, including the term of the DPA be extendedmonitorship for an additional 45 days to March 23, 2018.equivalent period. The purpose of the extension isextensions was to provide the Company and the Government additional time to discuss whether the Company iswas in compliance with the DPA. There can be no assurance
On November 8, 2018, the Company announced that it entered into (1) an Amendment to and Extension of Deferred Prosecution Agreement (the "Amended DPA") with the Government and (2) a Stipulated Order for Compensatory Relief and Modified Order for Permanent Injunction (the "Consent Order") with the FTC. The motions underlying the Amended DPA and Consent Order focus primarily on the Company's anti-fraud and anti-money laundering programs, including whether the Company had adequate controls to prevent third parties from using its systems to commit fraud. The Amended DPA amended and extended the original DPA entered into on November 9, 2012 by and between the Company and the Government. The DPA, Amended DPA and Consent Order are collectively referred to herein as the "Agreements." On February 24, 2020, the Company entered into an Amendment to Amendment to and Extension of Deferred Prosecution Agreement which extended the due date to November 8, 2020 for the final $55.0 million payment due to the Government pursuant to the Amended DPA. On July 24, 2020, the Company entered into the Second Amendment to Amendment to and Extension of Deferred Prosecution Agreement which further extended the due date of the $55.0 million payment to May 9, 2021 and also reduced the frequency of the reporting requirements under the Amended DPA from monthly to quarterly. The Company continues to engage in discussions with the Government regarding a potential reduction of the $55.0 million payment. The Company intends to fulfill its obligation regarding the final payment and the other terms of the Amended DPA.
Under the Agreements, as amended, the Company will, among other things, (1) pay an aggregate amount of $125.0 million to the Government, of which $70.0 million was paid in November 2018 and the remaining $55.0 million must be paid by May 9, 2021, and is to be made available by the Government to reimburse consumers who were the victims of third-party fraud conducted through the Company's money transfer services and (2) continue to be ableretain an independent compliance monitor until May 10, 2021 to negotiatereview and assess actions taken by the Company under the Agreements to further enhance its compliance program. No separate payment to the FTC is required under the Agreements. If the Company fails to comply with the Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards or regulatory consequences which could have a mutually satisfactory outcome during such 45 day period (or any further short-term extension of the DPA) or that such outcome will not include a further extension of the DPA, financial penalties or additional restrictionsmaterial adverse effect on the Company, including a monitorship period beyond the current monitorship that ends on April 30, 2018. Furthermore, there can be no assurance that the Government will not seek any other remedy, including criminal prosecutionCompany's business, financial condition, results of operations and financial penalties, in lieu of an extension of the DPA and monitorship.
The Company has recorded an $85.0 million accrual in connection with a possible resolution of this matter, based on the facts and circumstances known at the time. However, the Company is unable to reasonably estimate the ultimate loss and no assurance can be given that future costs and payments made in connection with this matter will not exceed the amount currently recorded or that the government will not also seek to impose non-monetary remedies or penalties.cash flows. See “Risk Factors — We face possible uncertainties relating to compliance with and the impact of the amended deferred prosecution agreement entered into with the U.S. federal government”government for additional information.information in Item 1A and the Legal Proceedings section in Item 3.
Anti-Money Laundering Compliance — Our services are subject to U.S. anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, as well as state laws and regulations and the anti-money laundering laws and regulations inof many of the countries in which we operate, particularly in the European Union. Countries in which we operate may require one or more of the following:
•reporting of large cash transactions and suspicious activity;
screening of transactions against government watch-lists, including but not limited to, the watch-list maintained by OFAC;
prohibition of transactions in, to or from certain countries, governments, individuals and entities;
•limitations on amounts that may be transferred by a consumer or from a jurisdiction at any one time or over specified periods of time, which require aggregation over multiple transactions;
•consumer information gathering and reporting requirements;
•consumer disclosure requirements, including language requirements and foreign currencynon-U.S. dollar restrictions;
•notification requirements as to the identity of contracting agents, governmental approval of contracting agents or requirements and limitations on contract terms with our agents;
•registration or licensing of the Company or our agents with a state or federal agency in the U.S. or with the central bank or other proper authority in a foreign country; and
•minimum capital or capital adequacy requirements.
Anti-money laundering regulations are constantly evolving and vary from country to country. We continuously monitor our compliance with anti-money laundering regulations and implement policies and procedures in light of the most current legal requirements.
We offer our money transfer services primarily through third-party agents with whom we contract and do not directly control. As a money services business, we and our agents are required to establish anti-money laundering compliance programs that include: (i) internal policies and controls; (ii) designation of a compliance officer; (iii) ongoing employee training and (iv) an independent review function. We have developed an anti-money laundering training manual available in multiple languages and a program to assist with the education of our agents on the various rules and regulations. We also offer in-person and online training as part of our agent compliance training program and engage in various agent oversight activities. We have also adopted a global compliance policy that outlines key principles of our compliance program to our agents.
In connection with regulatory requirements to assist in the prevention of money laundering, terrorist financing and other illegal activities and pursuant to legal obligations and authorizations, the Company makes information available to certain U.S. federal and state, as well as certain foreign, government agencies when required by law. In recent years, the Company has experienced an increase in data sharing requests by these agencies, particularly in connection with efforts to prevent money laundering or terrorist financing or reduce the risk of consumer fraud. In certain cases, the Company is also required by government agencies to deny transactions that may be related to persons suspected of money laundering, terrorist financing or other illegal activities, and as a result the Company may inadvertently deny transactions from customers who are making legal money transfers, which could lead to liability or reputational damage. Responding to these agency requests may result in increased operational costs.
Sanctions Compliance— In addition to anti-money laundering laws and regulations, our services are subject to sanctions laws and regulations promulgated by OFAC and other jurisdictions in which our services are offered. These sanctions laws and regulations require screening of transactions against government watch-lists, including but not limited to, the watch-lists maintained by OFAC, and prohibit transactions in, to or from certain countries, governments, individuals and entities. Sanctions regimes may also impose limitations on amounts that may be transferred by a consumer to or from a jurisdiction at any one time or over specified periods of time, requiring aggregation over multiple transactions, as well as transactional and other reporting to a government agency.
Money Transfer and Payment Instrument Licensing — In most countries, either we or our agents are required to obtain licenses or to register with a government authority in order to offer money transfer services. Almost all states in the U.S., the District of Columbia, Puerto Rico, the U.S. Virgin Islands and Guam require us to be licensed to conduct business within their jurisdictions. Our primary overseas operating subsidiary, MoneyGram International Ltd.,SRL, is a licensed payment institution under the Payment Services Regulations adopted in the United KingdomNational Bank of Belgium pursuant to the European Union Payment Services Directive ("PSD"). As a result ofThe Company, through its subsidiaries, is also licensed in other jurisdictions including the United Kingdom’s planned exit from the European Union, we have obtained authorization as a payment institution from the National Bank of Belgium for the conduct of our business in the European Union following the United Kingdom’s departure.Kingdom, Mexico, and Canada. In 2016, the PSD was amended by a revised Payment Services Directive (“PSD2”("PSD2"), which was implemented in the national law of the member states during or prior to January 2018.2018 and was further amended by the 4th and 5th Anti-Money Laundering Directives in the European Union. Among other changes, the PSD2, as amended, has increased the supervisory powers granted to member states with respect to activities performed by us and our agents in the European Union. We are also subject to increasingly significant licensing or other regulatory requirements in various other jurisdictions. The financial penalties associated with the failure to comply with anti-money laundering laws have increased in recent regulation, including the 4th Anti-Money Laundering Directive in the EU. These laws have increased and will continue to increase our costs and could also increase competition in some or all of our areas of service. Legislation that has been enacted or proposed in other jurisdictions could have similar effects. Licensing requirements may include minimum net worth, provision of surety bonds or letters of credit, compliance with operational procedures, agent oversight and the maintenance of reserves or “permissible investments”"permissible investments" in an amount equivalent to outstanding payment obligations, as defined by our various regulators. The types of securities that are considered “permissible investments”"permissible investments" vary across jurisdictions, but generally include cash and cash equivalents, U.S. government securities and other highly rated debt instruments. Many regulators require us to file reports on a quarterly or more frequent basis to verify our compliance with their requirements. Many regulators also subject us to periodic examinations and require us and our agents to comply with anti-money laundering and other laws and regulations.
Escheatment Regulations — Unclaimed property laws of every state in the U.S., the District of Columbia, Puerto Rico and the U.S. Virgin Islands require that we track certain information on all of our payment instruments and money transfers and, if they are unclaimed at the end of an applicable statutory abandonment period, that we remit the proceeds of the unclaimed property to the appropriate jurisdiction. Statutory abandonment periods for payment instruments and money transfers range from three to seven years. Certain foreign jurisdictions also have unclaimed property laws. These laws are evolving and are frequently unclear and inconsistent among various jurisdictions, making compliance challenging. We have an ongoing program designed to comply with escheatment laws as they apply to our business.
Data Privacy and Cybersecurity Laws and Regulations — We are subject to federal, state and international laws and regulations relating to the collection, use, retention, security, transfer, storage and disposal of personally identifiable information of our consumers, agents and employees. In the U.S., we are subject to various federal privacy laws, including the Gramm-Leach-Bliley Act, which requires that financial institutions provide consumers with privacy notices and have in place policies and procedures regarding the safeguarding of personal information. We are also subject to privacy and data breach laws of various states. Outside the U.S., we are subject to privacy laws of numerous countries and jurisdictions. In some cases, these laws are more restrictive than the U.S. laws and impose more stringent duties on companies or penalties for non-compliance. For example, the General Data Protection Regulation in the European Union effective May 2018, will impose("GDPR") imposes a higher standard of personal data protection with significant penalties for non-compliance for companies operating in the European Union or doing business with European Union residents. The new California Consumer Protection Act, which became effective on January 1, 2020, imposes heightened data privacy requirements on companies that collect information from California residents and creates a broad set of privacy rights and remedies modeled in part on the GDPR. In addition, government surveillance laws and data localization laws are evolving to address increased and changing threats and risks. All of theseThese laws are continuingcontinue to develop and may be inconsistent from jurisdiction to jurisdiction.
Dodd-Frank Act — The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law in 2010. The Dodd-Frank Act imposes additional regulatory requirements and creates additional regulatory oversight over us. The Dodd-Frank Act created a Bureau of Consumer Financial Protection (the "CFPB") which issues and enforces consumer protection initiatives governing financial products and services, including money transfer services, in the U.S.CFPB. The CFPB’sCFPB's Remittance Transfer Rule became effective on October 28, 2013. Its requirements include: a disclosure requirement to provide consumers sending funds internationally from the U.S. enhanced pre-transaction written disclosures, an obligation to resolve certain errors, including errors that may be outside our control, and an obligation to cancel transactions that have not been completed at a customer's request. As a “larger participant”"larger participant" in the market for international money transfers, we are subject to direct examination and supervision by the CFPB. We have modified our systems and consumer disclosures in light of the requirements of the Remittance Transfer Rule. In addition, under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services to engage in unfair, deceptive or abusive acts or practices. The CFPB has substantial rule making and enforcement authority to prevent unfair, deceptive or abusive acts or practices in connection with any transaction with a consumer for a financial product or service.
ForeignNon-U.S. Dollar Exchange Regulation — Our money transfer services are subject to foreign currencynon-U.S. dollar exchange statutes of the U.S., as well as similar state laws and the laws of certain other countries in which we operate. Certain of these statutes require registration or licensure and reporting. Others may impose currency exchange restrictions with which we must comply.
Regulation of Prepaid Cards — We sell our MoneyGram-branded prepaid card in the U.S., in addition to loading prepaid cards of other card issuers through our ExpressPayment offering. Our prepaid cards and related loading services may be subject to federal and state laws and regulations, including laws related to consumer protection, licensing, unclaimed property, anti-money laundering and the payment of wages. Certain of these federal and state statutes prohibit or limit fees and expiration dates on and/or require specific consumer disclosures related to certain categories of prepaid cards. We continually monitor our prepaid cards and related loading services in light of developments in such statutes and regulations.
Anti-Bribery Regulation — We are subject to regulations imposed by the Foreign Corrupt Practices Act (the "FCPA")FCPA in the U.S., the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions. We are subject to recordkeeping and other requirements imposed upon companies related to compliance with these laws. We maintain a compliance program designed to comply with applicable anti-bribery laws and regulations.regulation.
Clearing and Cash Management Bank Relationships
Our business involves the transfer of money on a global basis on behalf of our consumers, our agents and ourselves. We buy and sell a number of global currencies and maintain a network of settlement accounts to facilitate the funding of money transfers and foreign exchange trades to ensure that funds are received on a timely basis. Our relationships with the clearing, trading and cash management banks are critical to an efficient and reliable global funding network.
In the U.S., we have agreements with sixfour active clearing banks that provide clearing and processing functions for official checks, money orders and other draft instruments. We employ four banks to clear our official checks and three banks to clear our retail money orders. We believe that this network of banks provides sufficient capacity to handle the current and projected volumes of items for these services.
We maintain significant relationships with major international banks which provide the capability to transfer money electronically as well as through domestic electronic funds transfer networks and international wire transfer networks.systems. There are a limited number of banks that have the capabilities that are broad enough in scope to handle our volume and complexity. Consequently, we generally employ banks whose market is not limited to their own country or region, and have extensive systems capabilities and branch networks that can support settlement needs that are often unique to different countries around the world. In 2013, we activated our participation in the Society for Worldwide Interbank Financial Telecommunication ("SWIFT") network for international wire transfers, which improves access to all banks in the world while lowering the cost of these funds transfers.
Intellectual Property
The MoneyGram brand is important to our business. We have registered our MoneyGram trademark in the U.S. and in a majority of the other countries in which we do business. We maintain a portfolio of other trademarks that are material to our Company, which were previouslyare discussed above in the "Overview" Overview section. In addition, we maintain a portfolio of MoneyGram branded and related domain names.
We rely on a combination of patent, trademark and copyright laws and trade secret protection and confidentiality or license agreements to protect our proprietary rights in products, services, expertise and information. We believe the intellectual property rights in processing equipment, computer systems, software and business processes held by us and our subsidiaries provide us with a competitive advantage. We take appropriate measures to protect our intellectual property to the extent such intellectual property can be protected.
We own various patents relatedHuman Capital
Global Talent — At MoneyGram, our people are our most important asset, and the success of our global talent (human capital) is essential to the success of our money order and money transfer technologies which have given us competitive advantages in the marketplace. We also have patent applications pending in the U.S. that relate to our money transfer, money order and bill payment technologies and business methods. We anticipate that these applications, if granted, could give us continued competitive advantages in the marketplace.
Employees
Company. As of December 31, 2017,2020, we had 1,180 full-timeemployed 974 employees in the U.S. and 1,756 full-time1,295 employees outside of the U.S. In addition,
Attracting, recruiting, developing, and retaining diverse talent enables us to build a strong and dynamic company. We are focused on supporting our employees across the full employee lifecycle from candidate recruitment through the full employee experience. We have implemented a variety of global and local programs designed to promote employee wellness, particularly during difficult times such as the recent COVID-19 pandemic. For example, in 2020, we engage independent contractorsworked with our employees to support various aspects of our business. Noneprovide a fully virtual work place, accommodating school, family and health needs of our employees, offering additional training, work-from-home flexibility and increased mental health support through our employee assistance program and our benefits partners.
Employee Engagement — At MoneyGram, we provide a variety of employee engagement programs designed to ensure that our employees have a voice in their future and are engaged in our business. We solicit direct employee feedback related to new proposals and programs, and we also have a robust engagement team (“The Red Team”) with representatives across all of our regions and offices, with a focus on employee volunteerism and community service opportunities. We host monthly Lunch and Learn discussion on a variety of personal and Company development topics. We also work to keep our employees updated on Company opportunities and developments through quarterly Town Hall meetings with our CEO and full executive leadership team.
Talent Acquisition and Development — As a leading FinTech and digital payments company, we compete for top global talent around the U.S.world. We value our employees for who they are represented byas individuals, and we believe that a labor union.strong culture focused on respect for each employee as a valuable individual is essential to the successful acquisition, retention, and development of diverse talent. To that end, focus on inclusive hiring, employee development, positive coaching and mentorship, and internal and external educational opportunities. We have a robust in-house training program, and we likewise provide opportunities for formal and informal continuing education participation for our employees across their respective areas of expertise.
Employee Wellness — We value our employees and work to provide competitive programs to support the total wellness of our employees, including resources, programs and services to support our employees’ physical, mental, and financial wellness. We provide a variety of benefits to our employees globally, including a choice of comprehensive health insurance plans, fully-paid maternity and family leave, vacation and holiday time off, and retirement planning and financial well-being services in addition to retirement savings opportunities. We also provide fully paid employee time off for employee volunteerism and community service, and provide community service opportunities for our employees who wish to participate. We offer a number of Company-funded as well as optional benefits and discounts for our employees, from a variety of life, disability and critical care programs, pet insurance, legal services plans, rideshare and transportation opportunities and discount insurance packages. We are constantly reviewing and improving our global benefits packages across all markets to ensure that we are providing our employees the most competitive package of benefits to meet the needs of employees and families.
Diversity, Equity & Inclusion — Our focus on diversity, inclusion, equity, has grown from a corporate social responsibility program to a full DEI and Social Impact program. MoneyGram has boasted an inclusive and non-discriminatory workplace long before it was legally mandated, and our commitment to principles of diversity, equity and inclusion extend to our recruiting practices, or our vendors and trading partners, our employee experiences and our community service activities. MoneyGram engages in global programs to promote hiring of disabled employees, as well as a focus on racial, religious, ethnic and gender diversity. We are committed to providing an inclusive workplace, with specific focus on providing opportunities to all of our global workforce. We are committed to equal pay for equal work, inclusive leadership opportunities, and intentional focus on creating a workplace that celebrates and embraces our employees for who they are in all aspects of their lives.
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Executive Officers of the Registrant
W. Alexander Holmes, age 43,46, has served as Chief Executive Officer since January 2016 and Chairman of the Board since February 2018. Prior to that, Mr. Holmes served as Executive Vice President, Chief Financial Officer and Chief Operating Officer of the Company sincefrom February 2014 to December 2015 and Executive Vice President and Chief Financial Officer since fromMarch 2012.2012 to January 2014. He joined the Company in 2009 as Senior Vice President for Corporate Strategy and Investor Relations. From 2003 to 2009, Mr. Holmes served in a variety of positions at First Data Corporation, including chief of staff to the Chief Executive Officer, Director of Investor Relations and Senior Vice President of Global Sourcing & Strategic Initiatives. From 2002 to 2003, he managed Western Union’sUnion's Benelux region from its offices in Amsterdam.
Lawrence Angelilli, age 62,65, has served as Chief Financial Officer since January 2016. Prior to that, Mr. Angelilli served as Senior Vice President, Corporate Finance and Treasurer since 2014.from 2014 to 2016. He joined the Company in August 2011 as Senior Vice President and Treasurer. From 2009 to 2010, Mr. Angelilli served as Director of Underwriting at Hudson Advisors, a global asset management company affiliated with Lone Star Funds, a global private equity fund. From 1998 to 2009, he was Senior Vice President of Finance at Centex Corporation, a publicly traded homebuilder and mortgage originator.
Joann L. Chatfield,Kamila K. Chytil, age 52,41, has served as Chief MarketingOperating Officer since May 2017. Ms. Chatfield joined MoneyGram in May 2011 and has held various roles within the Company, including Director of Marketing, U.S. and Canada, Vice President, Global Marketing Services and Head of Marketing for North and South America.October 2019. Prior to joining MoneyGram,that, Ms. Chatfield held various management roles at Texans Credit Union and MCI, Inc. Ms. Chatfield has over 20 years of leadership experience in marketing, brand management, product marketing as well as vendor and sponsorship management.
Kamila K. Chytil, age 38, has served as Chief Global Operations Officer sincefrom May 2016.2016 to September 2019. Ms. Chytil joined the Company in May 2015 as Senior Vice President of key partnershipsKey Partnerships and payments. FromPayments. Prior to joining the Company, from 2011 to May 2015, Ms. Chytil was Senior Vice President and General Manager of retail payments at Fidelity National Information Services, Inc., a global provider of financial technology solutions, where she was responsible for e-commerce, check cashing and retail payments. From 2004 to 2011, Ms. Chytil held various other management roles at Fidelity National Information Services, overseeing analytics, risk management, and operations.
Laura Gardiner, age 50, has been Chief Human Resources and Communications Officer since February 2017. She joinedOn January 15, 2021, Ms. Chytil notified the Company that she would be resigning from her role on or around March 19, 2021 in April of 2012 asorder to accept a Senior Director of Human Resources and from 2014 to January 2017 served as Vice President of Human Resources. From 2010 to 2012,senior executive position with another company in an unrelated industry. The Company has initiated a search for Ms. Gardiner served as Director of Human Resources with Western Union, a global financial services company. From 2008 to 2009, Ms. Gardiner served as Vice President of Human Resources with Pronerve LLC, a neurophysiologic monitoring service company. Ms. Gardiner has over 20 years of experience in human resources and business roles in a variety of industries.Chytil’s successor.
Francis Aaron Henry,RobertL. Villaseñor, age 52,49, has served as General Counsel and Corporate Secretary since August 2012 and previouslyJanuary 2020. He served as interim General Counsel and Corporate Secretary from July 2012October 2019 to August 2012.January 2020. He joined the Company in January 2011July 2018 as Senior Vice President, AssistantAssociate General Counsel, Global RegulatoryCorporate and Privacy Officer. From 2008Securities and Assistant Secretary. In that role he oversaw the Corporate Securities and M&A legal function for the Company. He has over 20 years of experience representing public companies on a broad range of legal issues including public reporting, lending and capital markets transactions, mergers and acquisitions, strategic investments and various commercial matters. Prior to 2011, Mr. Henry was Assistant General CounselMoneyGram, he worked in the Corporate and Securities Group at Western UnionStarbucks Corporation from 2012 to 2018. Prior to Starbucks, he served as the chief corporate and from 2004 to 2008, he was Senior Counselsecurities attorney at Western Union.two other public companies. He began his career in private practice at the law firm of Gibson, Dunn & Crutcher LLP working in the areas of mergers and acquisitions and capital markets.
Grant A. Lines, age 53,56, has served as Chief Revenue Officer since January 2018. Prior to that, he served as Chief Revenue Officer, Africa, Middle East, Asia Pacific, Russia and CIS from February 2015 until January 2018. Mr. Lines previously served the Company as Executive Vice President, Asia-Pacific, South Asia and Middle East from February 2014 to February 2015. Prior to that, Mr. Lines served the Company as Senior Vice President, Asia-Pacific, South Asia and Middle East from February 2013 to February 2014. Prior to that,joining the Company, Mr. Lines served as General Manager of Black Label Solutions, a leading developer and supplier of computerized retail point of sale systems, from May 2011 to December 2012. He served as Managing Director of First Data Corporation’sCorporation's ANZ business, a global payment processing company, from September 2008 to February 2011. Prior to that, Mr. Lines held various positions in the industry.
Andres Villareal, age 53,56, has been Chief Compliance Officer since March 2016. He joined the Company in April 2015 as Senior Vice President and Deputy Chief Compliance Officer. From 2004 to April 2015, Mr. Villareal held various positions at Citigroup, a leading global bank, including Global Head of Compliance for Citi Commercial Bank and Chief Compliance Officer for Citi Assurance Services, a captive insurance company. Mr. Villareal has over 2729 years of experience in various compliance, legal and business roles in a variety of industries, including financial services, banking and insurance.
John D. StonehamChristopher H. Russell, age 39,55, has been Corporate Controller and Principalserved as Chief Accounting Officer since October 2015. Mr. Stoneham previouslyjoining the Company in November 2020.He most recently served as Vice President and Chief Accounting Officer of Kraton Corporation, a global specialty chemicals company, from June 2015 to November 13, 2020. From November 2018 to May 2019, he also served as Kraton Corporation’s Interim Controller since August 2015. From December 2012 to July 2015, Mr. Stoneham served in various accounting roles at the Company.Chief Financial Officer. Prior to December 2012,that, from 2014 to 2015 he served as Chief Accounting Officer for Prince International Corporation, a producer of engineered additives for niche applications, and from 2011 to 2014, Mr. StonehamRussell was employed with GE Power and Water, a subsidiary of General Electric Company, as the CorporateGlobal Controller for Cinsay, Inc., a software provider. From January 2011 to December 2011, he was the SEC Reporting Managerits Aero Derivatives business.Mr. Russell also previously worked at Archipelago Learning, a software-as-a-service provider of education products. Mr. StonehamErnst & Young LLP. and is a Certified Public Accountant and began his career at KPMG LLP, an accounting and financial advisory services firm.Accountant.
Available Information
Our website address is corporate.moneygram.com.www.moneygram.com. The information on our website is not part of this Annual Report on2020 Form 10-K. We make our reports on Forms 10-K, 10-Q and 8-K, Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports, available electronically free of charge in the Investor Relations section of our website (ir.moneygram.com)(ir.moneygram.com) as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (the "SEC"). Any materials filed with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE., Washington DC 20549. Information on the operation of the Public Reference Room can be found by calling the SEC at 1-800-SEC-0330.SEC. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which may be found at www.sec.gov.www.sec.gov.
Item 1A. RISK FACTORS
Various risks and uncertainties could affect our business. Any of the risks described below or elsewhere in this Annual Report onthe 2020 Form 10-K or our other filings with the SEC could have a material impact on our business, prospects, financial condition or results of operations.
RISK FACTORS
Risks Related to Our Business and Industry
The COVID-19 outbreak, declared a pandemic by the World Health Organization, is ongoing both in the United States and globally, and has adversely affected, and may continue to materially adversely affect, our business operations, financial condition, liquidity and cash flow. The extent to which the COVID-19 pandemic will further impact our business depends on future developments, which are highly uncertain and difficult to predict.
The outbreak of COVID-19, which was declared a pandemic by the World Health Organization, is ongoing both in the United States and globally, causing significant macroeconomic uncertainty, volatility and disruption. In response, many governments have initiated, resumed or extended social distancing rules, lockdowns or shelter-in-place orders resulting in the closure of many businesses. These actions have resulted in an overall reduction in consumer activity and the continued closure of some of our agent locations.
The COVID-19 pandemic and the related economic fallout began to adversely impact MoneyGram's results of operations in the middle of March 2020. The inability of our agents to operate normally has reduced the volume of consumer transactions in almost all of the 200 countries and territories in which we operate. These developments have negatively impacted and may continue to negatively impact our sales and operating margin as well as our workforce, agents and customers.
It is impossible to predict the scope and duration of the impact of the pandemic on our business as the situation is ever evolving and there are a number of uncertainties related to this pandemic. These uncertainties include, but are not limited to, the potential adverse effect on the global economy, our agent network, travel and transportation services, our employees and customers. Even though some governments lifted some restrictions on citizens and businesses during the second half of 2020, the resulting economic impact of COVID-19 could still continue to negatively impact our business and the recent resurgence of COVID-19 cases could result in further lockdowns and shelter-in-place orders by governments. The extent to which the COVID-19 pandemic will further impact our business depends on future developments, which are highly uncertain and difficult to predict, and accordingly, as the COVID-19 situation continues to evolve, additional adverse effects may arise that are currently unknown. All of these effects discussed above could have a material adverse effect on our near-term and long-term business operations, revenues, earnings, financial condition, liquidity and cash flows.
We face intense competition, and if we are unable to continue to compete effectively for any reason, including due to our enhanced compliance controls, our business, financial condition and results of operations could be adversely affected.
The markets in which we compete are highly competitive, and we face a variety of competitors across our businesses, some of which have larger and more established customer bases and substantially greater financial, marketing and other resources than we have. Money transfer, bill payment and money order services compete in a concentrated industry, with a small number of large competitors and a large number of small, niche competitors. Our money transfer products compete with a variety of financial and non-financial companies, including banks, card associations, web-based services, payment processors, informal remittance systems, consumer money transfer companies and others. The services are differentiated by features and functionalities, including brand recognition, customer service, reliability, distribution network and options, price, speed and convenience. Distribution channels such as online, account based and mobile solutions, account deposit and kiosk-based services continue to evolve and impact the competitive environment for money transfers. The electronic bill payment services within our Global Funds Transfer segment compete in a highly fragmented consumer-to-business payment industry. Our official check business competes primarily with financial institutions that have developed internal processing capabilities or services similar to ours and do not outsource official check services. Financial institutions could also offer competing official check outsourcing services to our existing and prospective official check customers.
Our future growth depends on our ability to compete effectively in money transfer, bill payment, money order and official check services. For example, if our products and services do not offer competitive features and functionalities, we may lose customers to our competitors, which could adversely affect our business, financial condition and results of operations. In addition, if we fail to price our services appropriately relative to our competitors, consumers may not use our services, which could adversely affect our business, financial condition and results of operations. For example, transaction volume where we face intense competition could be adversely affected by increasing pricing pressures between our money transfer services and those of some of our competitors, which could reduce margins and adversely affect our financial condition and results of operations. We have historically implemented and will likely continue to implement price adjustments from time to time in response to competition and other factors. If we reduce prices in order to more effectively compete, such reductions could adversely affect our financial condition and results of operations in the short term and may also adversely affect our financial condition and results of operations in the long term if transaction volumes do not increase sufficiently.
In addition, our enhanced compliance controls have negatively impacted, and may continue to negatively impact, our revenue and net income. In 2018 we launched enhanced compliance measures representing the highest standards in the industry, including new global customer verification standards for all money transfer services, which have significantly increased our operating expenses. While these measures have resulted in a decline in fraud rates, they have negatively impacted, and may continue to negatively impact, our revenue and net income. Such impacts could adversely affect our financial condition and results of operations in the short term and may also adversely affect our financial condition and results of operations in the long term if transaction volumes do not increase sufficiently.
If we lose key agents, our business with keysuch agents is reduced or we are unable to maintain our agent network under terms consistent with those currently in place, including due to increased costs or loss of business as a result of higher compliance standards, our business, financial condition and results of operations could be adversely affected.
Most of our revenue is earned through our agent network. In addition, our international agents may have subagent relationships in which we are not directly involved. If agents or their subagents decide to leave our network, our revenue and profits could be adversely affected. Agent loss may occur for a number of reasons, including competition from other money transfer providers, an agent’sagent's dissatisfaction with its relationship with us or the revenue earned from the relationship, or an agent’sagent's unwillingness or inability to comply with our standards or legal requirements, including those related to compliance with anti-money laundering regulations, anti-fraud measures or agent monitoring. Under the Amended DPA and Consent Order entered into with the Government and the FTC, we are subject to heightened requirements relating to agent oversight, which may result in agent attrition, and agents may decide to leave our network due to reputational concerns related to the Amended DPA and Consent Order, as well as being subject to oversight not required by other providers.
Agents may also generate fewer transactions or reduce locations for reasons unrelated to our relationship with them, including increased competition in their business, political unrest, general economic conditions, regulatory costs or other reasons. In addition, we may not be able to maintain our agent network under terms consistent with those already in place. Larger agents may demand additional financial concessions or may not agree to enter into exclusive arrangements, which could increase competitive pressure. The inability to maintain our agent contracts on terms consistent with those already in place, including in respect of exclusivity rights, could adversely affect our business, financial condition and results of operations.
A substantial portion of our agent network locations, transaction volume and revenue is attributable to or generated by a limited number of key agents. During 20172020 and 2016,2019, our ten largest agents accounted for 34%30% and 36%32%, respectively, of our total revenue. Our largest agent, Walmart, accounted for 17%13% and 18%16% of our total revenue in 20172020 and 2016,2019, respectively. The current term of our contract with Walmart expires on February 1, 2019. on March 30, 2024. If our contracts with our key agents, including Walmart, are not renewed or are terminated, or are renewed but on less favorable terms, or if such agents generate fewer transactions, or reduce their locations or allow our competitors to use their services (e.g. Ria and Western Union in Walmart), our business, financial condition and results of operations could be adversely affected. In addition, the introduction of additional competitive products by Walmart or our other key agents, including competing white labelwhite-label products, could reduce our business with those key agents and intensify industry competition, which could adversely affect our business, financial condition and results of operations.
Complex and evolving U.S. and international laws and regulation regarding privacy and data protection could result in claims, changes to our business practices, penalties, increased cost of operations or otherwise harm our business.
We are subject to requirements relating to data privacy and the collection, processing, storage, transfer and use of data under U.S. federal, state and foreign laws. For example, the FTC routinely investigates the privacy practices of companies and has commenced enforcement actions against many, resulting in multi-million dollar settlements and multi-year agreements governing the settling companies' privacy practices. In addition, the General Data Protection Regulation in the European Union, effective May 2018, imposed a higher standard of personal data protection with significant penalties for non-compliance for companies operating in the European Union or doing business with European Union residents. The new California Consumer Protection Act, which became effective on January 1, 2020, imposes heightened data privacy requirements on companies that
collect information from California residents. If we are unable to meet such requirements, we may be subject to significant fines or penalties. Furthermore, certain industry groups require us to adhere to privacy requirements in addition to federal, state and foreign laws, and certain of our business relationships depend upon our compliance with these requirements. As the number of jurisdictions enacting privacy and related laws increases and the scope of these laws and enforcement efforts expands, we will increasingly become subject to new and varying requirements. Failure to comply with existing or future data privacy laws, regulations and requirements, including by reason of inadvertent disclosure of personal information, could result in significant adverse consequences, including reputational harm, civil litigation, regulatory enforcement, costs of remediation, increased expenses for security systems and personnel, harm to our consumers and harm to our agents. These consequences could materially adversely affect our business, financial condition and results of operations.
In addition, the Company makes information available to certain U.S. federal and state, as well as certain foreign, government agencies in connection with regulatory requirements to assist in the prevention of money laundering and terrorist financing and pursuant to legal obligations and authorizations. In recent years, the Company has experienced increasing data sharing requests by these agencies, particularly in connection with efforts to prevent terrorist financing or reduce the risk of identity theft. During the same period, there has also been increased public attention to the corporate use and disclosure of personal information, accompanied by legislation and regulations intended to strengthen data protection, information security and consumer privacy. These regulatory goals may conflict, and the law in these areas is not consistent or settled. While we believe that we are compliant with our regulatory responsibilities, the legal, political and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings or other events could expose us to increased program costs, liability and reputational damage that could have a material adverse effect on our business, financial condition and results of operations.
A breach of security in the systems on which we rely could adversely affect our business, financial condition and results of operations.
We rely on a variety of technologies to provide security for our systems. Advances in computer capabilities, new discoveries affecting the efficacy of cryptography or other events or developments, including improper acts by third parties, may result in a compromise or breach of the security measures we use to protect our systems. We obtain, transmit and store confidential consumer, employer and agent information in connection with certain of our services. These activities are subject to laws and regulations in the U.S. and other jurisdictions. The requirements imposed by these laws and regulations, which often differ materially among the many jurisdictions, are designed to protect the privacy of personal information and to prevent that information from being inappropriately disclosed.
Any security breaches in our or our suppliers’ source code, computer networks, systems, databases or facilities could lead to the inappropriate use or disclosure of personally identifiable or proprietary information, which could harm our business and result in, among other things, unfavorable publicity, damage to our reputation, loss in our consumers' confidence in our or our agents' business, fines or penalties from regulatory or governmental authorities, a loss of consumers, lawsuits and potential financial losses. In addition, we may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches. Our agents, banks, digital asset exchanges and third-party independent contractors may also experience security breaches involving the storage and transmission of our data as well as the ability to initiate unauthorized transactions, funds transfers or digital asset transfers. If an entity gains improper access to our, our suppliers', agents' banks', digital asset exchanges' or our third-party independent contractors', source code, computer networks, systems, or databases or facilities, they may be able to steal, publish, delete or modify confidential customer information or generate unauthorized money transfers, funds transfers or digital asset transfers. Such a breach could expose us to monetary liability, losses and legal proceedings, lead to reputational harm, cause a disruption in our operations, or make our consumers and agents less confident in our services, which could have a material adverse effect on our business, financial condition and results of operations.
Cybersecurity threats continue to increase in frequency and sophistication; a successful cybersecurity attack could interrupt or disrupt our information technology systems or cause the loss of confidential or protected data which could disrupt our business, force us to incur excessive costs or cause reputational harm.
The size and complexity of our information systems make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from attacks by malicious third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise. While we have invested in the protection of data and information technology, there can be no assurance that our efforts will prevent or quickly identify service interruptions or security breaches. Any such interruption or breach of our systems could adversely affect our business operations and result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us.
Other attacks in recent years have included distributed denial of service ("DDoS") attacks, in which individuals or organizations flood commercial websites or application programming interfaces ("APIs") with extraordinarily high volumes of traffic with the
goal of disrupting the ability of commercial enterprises to process transactions and possibly making their websites or APIs unavailable to customers for extended periods of time. We, as well as other financial services companies, have been subject to such attacks.
We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
Consumer fraud could adversely affect our business, financial condition and results of operations.
Criminals are using increasingly sophisticated methods to engage in illegal activities such as identity theft, fraud and paper instrument counterfeiting. As we make more of our services available over the internet and other digital media, we subject ourselves to new types of consumer fraud risk because requirements relating to consumer authentication are more complex with internet services. Certain former agents have also engaged in fraud against consumers, and existing agents could engage in fraud against consumers. We use a variety of tools to protect against fraud; however, these tools may not always be successful. Allegations of fraud may result in fines, settlements, litigation expenses and reputational damage.
TheOur industry is under increasing scrutiny from federal, state and local regulators in the United StatesU.S. and regulatory agencies in many countries in connection with the potential for consumer fraud. The Amended DPA and FTC Consent Order to which the Company is subject resulted in part from this heightened scrutiny. If consumer fraud levels involving our services were to rise, it could lead to further regulatory intervention and reputational and financial damage. This, in turn, could lead to additional government enforcement actions and investigations, reduce the use and acceptance of our services or increase our compliance costs and thereby have a material adverse impact on our business, financial condition and results of operations.
MoneyGram and our agents are subject to numerous U.S. and international laws and regulations. Failure to comply with these laws and regulations could result in material settlements, fines or penalties, and changes in these laws or regulations could result in increased operating costs or reduced demand for our products or services, all of which may adversely affect our business, financial condition and results of operations.
We operate in a highly regulated environment, and our business is subject to a wide range of laws and regulations that vary from jurisdiction to jurisdiction. We are also subject to oversight by various governmental agencies, both in the U.S. and abroad. In light of the current conditions in the global financial markets and economy, lawmakers and regulators in the U.S. in particular have increased their focus on the regulation of the financial services industry. New or modified regulations and increased oversight may have unforeseen or unintended adverse effects on the financial services industry, which could affect our business and operations.
Our business is subject to a variety of regulations aimed at preventing money laundering and terrorism. We are subject to U.S. federal anti-money laundering laws, including the Bank Secrecy Act, and the requirements of OFAC, which prohibit us from transmitting money to specified countries or to or from prohibited individuals. Additionally, we are subject toas well as anti-money laundering laws in many other countries in which we operate, particularly in the European Union. We are also subject to sanctions laws and regulations, promulgated by OFAC and other jurisdictions. We are also subject to financial services regulations, money transfer and payment instrument licensing regulations, consumer protection laws, currency control regulations, escheatment laws, privacy and data protection laws and anti-bribery laws. Many of these laws are constantly evolving, andwith requirements that may be unclear and inconsistent across various jurisdictions, making compliance challenging. Subsequent legislation, regulation, litigation, court rulings or other events could expose us to increased program costs, liability and reputational damage.
We are considered a Money Services Business in the U.S. under the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001. As such, we are subject to reporting, recordkeeping and anti-money laundering provisions in the U.S. as well as many other jurisdictions. During 2017 and 2018, there were significant regulatory reviews and actions taken by U.S. and other regulators and law enforcement agencies against banks, Money Services Businesses and other financial institutions related to money laundering, and
the trend appears to be greater scrutiny by regulators of potential money laundering activity through financial institutions. We are also subject to regulatory oversight and enforcement by the U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN").Network. Any determination that we have violated the anti-money-laundering laws could have an adverse effect on our business, financial condition and results of operations.
The Dodd-Frank Act increases the regulation and oversight of the financial services industry. The Dodd-Frank Act addresses, among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, derivatives, lending limits, thrift charters and changes among the bank regulatory agencies. The Dodd-Frank Act requires enforcement by various governmental agencies, including the CFPB. Money transmitters such as the Company are subject to direct supervision by the CFPB and are required to provide additional consumer information and disclosures, adopt error resolution standards and adjust refund procedures for international transactions originating in the U.S. in a manner consistent with the Remittance Transfer Rule (a rule issued by the CFPB pursuant to the Dodd-Frank Act). In addition, the CFPB may adopt other regulations governing consumer financial services, including regulations defining unfair, deceptive, or abusive acts or practices, and new model disclosures. We could be subject to fines or other penalties if we are found to have violated the Dodd-Frank Act’sAct's prohibition against unfair, deceptive or abusive acts or practices. The CFPB’sCFPB's authority to change regulations
adopted in the past by other regulators could increase our compliance costs and litigation exposure. We may also be liable for failure of our agents to comply with the Dodd-Frank Act. The legislation and implementation of regulations associated with the Dodd-Frank Act have increased our costs of compliance and required changes in the way we and our agents conduct business. In addition, we are subject to periodic examination by the CFPB.
We are also subject to regulations imposed by the FCPA in the U.S., the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions. Because of the scope and nature of our global operations, we experience a higher risk associated with the FCPA and similar anti-bribery laws than many other companies. We are subject to recordkeeping and other requirements imposed upon companies related to compliance with these laws. In 2017,Between 2016 and 2021, there havehas been a significant increase in regulatory reviews and enforcement actions taken by the United StatesU.S. and other regulators related to anti-bribery laws, and the trend appears to be greater scrutiny on payments to, and relationships with, foreign entities and individuals.
We are also subject to the European Union’s Payment Services Directive (“PSD”),PSD2, as amended by the 4th and 5th Anti-Money Laundering Directives in the EU, which governs the regulatory regime for payment services in the European Union, and similar regulatory or licensing requirements in other jurisdictions. The PSDPSD2 and other international regulatory or licensing requirements may impose potential liability on us for the conduct of our agents and the commission of third-party fraud utilizing our services. If we fail to comply with the PSDPSD2 or such other requirements, we could be subject to fines or penalties or revocation of our licenses, which could adversely impact our business, financial condition and results of operations. Additionally, the U.S. and other countries periodically consider initiatives designed to lower costs of international remittances which, if implemented, may adversely impact our business, financial condition and results of operations.
In addition, we are subject to escheatment laws in the United StatesU.S. and certain foreign jurisdictions in which we conduct business. These laws are evolving and are frequently unclear and inconsistent among various jurisdictions, making compliance challenging. We have an ongoing program designed to comply with escheatment laws as they apply to our business. In the United States,U.S., we are subject to the laws of various states which from time to time take inconsistent or conflicting positions regarding the requirements to escheat property to a particular state. Certain foreign jurisdictions do not have escheatment provisions which apply to our transactions. In these jurisdictions where there is not a requirement to escheat, and when, by utilizing historical data we determine that the likelihood is remote that the item will be paid out, we record a reduction to our payment service obligation and recognize an equivalent amount as a component of fee and other revenue.
Any violation by us of the laws and regulations set forth above could lead to significant fines or penalties and could limit our ability to conduct business in some jurisdictions. In some cases, we could be liable for the failure of our agents or their subagents to comply with laws, which could have an adverse effect on our business, financial condition and results of operations. As a result, the risk of adverse regulatory action against the Company because of actions of its agents or their subagents and the cost to monitor our agents and their subagents has increased. In addition to these fines and penalties, a failure by us or our agents to comply with applicable laws and regulations also could seriously damage our reputation and result in diminished revenue and profit and increase our operating costs and could result in, among other things, revocation of required licenses or registrations, loss of approved status, termination of contracts with banks or retail representatives, administrative enforcement actions and fines, class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of these events could have a material adverse effect on our business, financial condition and results of operations.
In certain cases, regulations may provide administrative discretion regarding enforcement. As a result, regulations may be applied inconsistently across the industry, which could result in additional costs for the Company that may not be required to be incurred by some of its competitors. If the Company were required to maintain a price higher than its competitors to reflect its regulatory costs, this could harm its ability to compete effectively, which could adversely affect its business, financial condition and results of operations. In addition, changes in laws, regulations or other industry practices and standards, or interpretations of legal or regulatory requirements, may reduce the market for or value of our products or services or render our products or services less profitable or obsolete. For example, policy makerspolicymakers may impose heightened customer due diligence requirements or other restrictions,
fees or feestaxes on remittances. Changes in the laws affecting the kinds of entities that are permitted to act as money transfer agents (such as changes in requirements for capitalization or ownership) could adversely affect our ability to distribute certain of our services and the cost of providing such services. Many of our agents are in the check cashing industry. Any regulatory action that negatively impacts check cashers could also cause this portion of our agent base to decline. If onerous regulatory requirements wereare imposed on our agents, the requirements could lead to a loss of agents, which, in turn, could lead to a loss of retail business.
Litigation or investigations involving us, or our agents or other contractual counterparties could result in material settlements, fines or penalties and may adversely affect our business, financial condition and results of operations.
WeIn addition to the Amended DPA, 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 consumer acceptance of our services. Additionally, our business has been in the past, and may be in the future, the subject of class action lawsuits including securities litigation, regulatory actions and investigations and other general litigation. The outcome of class action lawsuits, including securities litigation, regulatory actions and investigations and other litigation 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 or consumers’consumers' confidence in our business. 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. In addition, improper activities, lawsuits or investigations involving our agents may adversely impact our business operations or reputation even if we are not directly involved.
We face possible uncertainties relating to compliance with, and the extension and impact of, the amended deferred prosecution agreement entered into with the U.S. federal government.Government.
InAs disclosed in Note 15—Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in this Annual Report, on November 2012,8, 2018, we announced that we had entered into a five-year(1) the Amended DPA with the MDPA/Government and (2) the Consent Order with the FTC. The Amended DPA amended and extended the original DPA entered into on November 9, 2012 by and between the Company and the U.S. DOJ relatingDOJ. On February 25, 2020, the Company entered into an Amendment to the period from 2003 to early 2009. PursuantAmended DPA providing for certain changes, and on July 24, 2020, the Company entered into the Second Amendment to the Amended DPA providing for certain further changes (all collectively, the MDPA/U.S. DOJ filed a two-count criminal Information in the U.S. District Court for the Middle District of Pennsylvania. "Agreements").Under the DPA,Agreements, as amended on July 24, 2020, the Company has agreed,will, among other things, (1) pay an aggregate amount of $125.0 million to the Government, of which $70.0 million was paid in November 2018 and the remaining $55.0 million must be paid by May 9, 2021, and is to be made available by the Government to reimburse consumers who were the victims of third-party fraud conducted through the Company's money transfer services and (2) continue to retain an independent compliance monitor (the “Compliance Monitor”) for a period of five years. On November 1, 2017,until May 10, 2021 to review and assess actions taken by the Company agreedunder the Agreements to a stipulation withfurther enhance its compliance program. No separate payment to the Government thatFTC is required under the term of the Company’s DPA be extended for 90 days to February 6, 2018. On January 31, 2018,Agreements. Although the Company agreed withexpects to fulfill its obligation under the Government that the term of the DPA be extended for an additional 45 days to March 23, 2018. The purpose of the extension is to provideAgreements, if the Company and the Government additional time to discuss whether the Company is in compliance with the DPA. There can be no assurance that the Company and the Government will be able to negotiate a mutually satisfactory outcome during such 45 day period (or during any further short-term extension of the DPA) or that such outcome will not include a further extension of the DPA, financial penalties or additional restrictions on the Company, including a monitorship period beyond the current monitorship that ends on April 30, 2018. The terms of any agreement with the Government could impose significant additional costs upon the Company related to compliance and other required terms, which could have an adverse impact on the Company's operations. Furthermore, there can be no assurance that the Government will not seek any other remedy, including criminal prosecution and financial penalties, in lieu of an extension of the DPA and the monitorship. A prosecution of the Company by the Government or the imposition of significant financial penalties could lead to a severe material adverse effect upon the Company’s ability to conduct its business. Furthermore, neither the DPA nor any agreement with the MDPA/U.S. DOJ would resolve any inquiries from other governmental agencies, which could result in additional costs, expenses and fines.
The Company has recorded an $85.0 million accrual in connection with a possible resolution of this matter, based on the facts and circumstances known at the time. However, the Company is unable to reasonably estimate the ultimate loss and no assurance can be given that future costs and payments made in connection with this matter will not exceed the amount currently recorded or that the government will not also seek to impose non-monetary remedies or penalties.
Current and proposed data privacy and cybersecurity laws and regulations could adversely affect our business, financial condition and results of operations.
We are subject to requirements relating to data privacy and cybersecurity under U.S. federal, state and foreign laws. For example, the United States Federal Trade Commission routinely investigates the privacy practices of companies and has commenced enforcement actions against many, resulting in multi-million dollar settlements and multi-year agreements governing the settling companies' privacy practices. In addition, the General Data Protection Regulation in the European Union, effective May 2018, will impose a higher standard of personal data protection with significant penalties for non-compliance for companies operating in the European Union or doing business with European Union residents. If we are unable to meet such requirements, we may be subject to significant fines or penalties. Furthermore, certain industry groups require us to adhere to privacy requirements in
addition to federal, state and foreign laws, and certain of our business relationships depend upon our compliance with these requirements. As the number of countries enacting privacy and related laws increases and the scope of these laws and enforcement efforts expands, we will increasingly become subject to new and varying requirements. Failurefails to comply with existing or future data privacy and cybersecurity laws, regulations and requirements, including by reason of inadvertent disclosure of personal information,the Agreements, it could result in significant adverse consequences, including reputational harm,face criminal prosecution, civil litigation, significant fines, damage awards or regulatory enforcement, costs of remediation, increased expenses for security systems and personnel, harm to our consumers and harm to our agents. These consequences, could materially adversely affect our business, financial condition and results of operations.
In addition, in connection with regulatory requirements to assist in the prevention of money laundering and terrorist financing and pursuant to legal obligations and authorizations, the Company makes information available to certain United States federal and state, as well as certain foreign, government agencies. In recent years, the Company has experienced increasing data sharing requests by these agencies, particularly in connection with efforts to prevent terrorist financing or reduce the risk of identity theft. During the same period, there has also been increased public attention to the corporate use and disclosure of personal information, accompanied by legislation and regulations intended to strengthen data protection, information security and consumer privacy. These regulatory goals may conflict, and the law in these areas is not consistent or settled. While we believe that we are compliant with our regulatory responsibilities, the legal, political and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings or other events could expose us to increased program costs, liability and reputational damage thatwhich could have a material adverse effect on ourthe Company's business including cash flows, financial condition, and results of operations.
The Company continues to engage in discussions with the Government regarding a potential reduction of the $55.0 million payment. The Company believes there is a reasonable basis to reduce the final payment, but there can be no assurance as to whether the Government will agree to reduce the final payment. If the Government does not agree to reduce the amount of the final payment and the Company does not receive additional working capital funds from debt or equity financing sources, there could be a material adverse effect on the Company's business, financial condition, credit ratings, results of operations and cash flows from making such payment.
If we fail to successfully develop and timely introduce new and enhanced products and services or if we make substantial investments in an unsuccessful new product, service or infrastructure change, our business, financial condition and results of operations could be adversely affected.
Our future growth will depend, in part, on our ability to continue to develop and successfully introduce new and enhanced methods of providing money transfer, bill payment, money order, official check and related services that keep pace with competitive introductions, technological changes and the demands and preferences of our agents, financial institution customers and consumers. If alternative payment mechanisms become widely substituted for our current products and services, and we do not develop and offer similar alternative payment mechanisms successfully and on a timely basis, our business, financial condition and results of operations could be adversely affected. We may make future investments or enter into strategic alliances to develop new technologies and services or to implement infrastructure changes to further our strategic objectives, strengthen our existing businesses and remain competitive. Such investments and strategic alliances, however, are inherently risky, and we cannot guarantee that such investments or strategic alliances will be successful. If such investments and strategic alliances are not successful, they could have a material adverse effect on our business, financial condition and results of operations.
Our substantial debt service obligations, significant debt maturities, significant debt covenant requirements, low market capitalization and our credit rating could impair our access to capital and financial condition and adversely affect our ability to operate and grow our business.
We have substantial interest expense on our debt and our ratings are below “investment"investment grade.” This requires that we" We also have significant debt maturities in June 2023 and June 2024. Our credit ratings have caused the Company to access non-investment grade capital markets that are subject to higher volatility and are costlier than those that support higher ratedcapital markets accessible to higher-rated companies. Since a significant portion of our cash flow from operations is dedicated to debt service, a reduction or interruption in cash flow could result in an event of default or significantly restrict our access to capital, including borrowings under our senior secured three-year revolving credit facility ("First Lien Revolving Credit Facility"). There is no assurance that we will be able to comply with our debt covenants or obtain additional capital. Our ratings below investment grade also create the potential forratings will result in a cost of capital that is higher than other companies with which we compete. Further, a significant portion of our debt is subject to floating interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increaseFluctuations in interest rates or changes in the terms of our debt or our inability to refinance our existing debt could have an adverse effect on our financial position and results of operations.
We are also subject to capital requirements imposed by various regulatory bodies throughout the world. We may need access to external capital to support these regulatory requirements in order to maintain our licenses and our ability to earn revenue in these jurisdictions. Our low market capitalization could limit our ability to access capital. An interruption of our access to capital could impair our ability to conduct business if our regulatory capital falls below requirements.
We have significant debt service obligations under our credit facilities, which could materially and adversely affect our financial condition and results of operations.
The terms of the First Lien Credit Facility (as defined herein) and Second Lien Term Credit Facility (as defined herein) provide for significantly higher effective interest rates than under the Company's prior senior secured credit facilities, which will increase the interest expense payable by the Company and could cause a decrease in the Company's cash flows and materially and adversely affect the Company's financial condition and results of operations. In addition, under the terms of the First Lien Credit Facility and Second Lien Term Credit Facility, we are subject to more restrictive covenants and limitations than under the Company's prior senior secured credit facilities. Failure to comply with such covenants could result in a default under the First Lien Credit Facility and Second Lien Term Credit Facility, and as a result, the commitments of the lenders thereunder may be terminated and the maturity of outstanding amounts could be accelerated.
We may be adversely affected by the potential discontinuation of LIBOR.
In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, publicly announced that it will no longer compel or persuade banks to make LIBOR submissions after 2021. This announcement is expected to effectively end LIBOR rates beginning in 2022, and while other alternatives have been proposed, it is unclear which, if any, alternative to LIBOR will be available and widely accepted in major financial markets.
While there is currently no consensus on what rate or rates may become accepted alternatives to LIBOR, a group of large banks, the Alternative Reference Rate Committee ("AARC"), selected the Secured Overnight Financing Rate ("SOFR") as an alternative to LIBOR for U.S. dollar denominated loans and securities. SOFR has been published by the Federal Reserve Bank of New York ("FRBNY") since May 2018, and it is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. The FRBNY currently publishes SOFR daily on its website at apps.newyorkfed.org/markets/autorates/sofr. The FRBNY states on its publication page for SOFR that use of SOFR is subject to important disclaimers, limitations and indemnification obligations, including that the FRBNY may alter the methods of calculation, publication schedule, rate revision practices or availability of SOFR at any time without notice. Because SOFR is published by the FRBNY based on data received from other sources, the Company has no control over its determination, calculation or publication. There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the parties that utilize SOFR as the reference rate for transactions. There is also no assurance that SOFR will be widely adopted as the replacement reference rate for LIBOR.
The First Lien Revolving Credit Facility (as defined herein) and the First Lien Term Credit Facility each permit both base rate borrowings and LIBOR borrowings, in each case plus a spread above the base rate or LIBOR rate, as applicable. If an alternative to LIBOR is not available and widely accepted after 2021, our ability to borrow at an alternative to the base rate under the First Lien Revolving Credit Facility and the First Lien Term Credit Facility may be adversely impacted, and the costs associated with any potential future borrowings may increase.
Weakness in economic conditions could adversely affect our business, financial condition and results of operations.
Our money transfer business relies in part on the overall strength of global and local economic conditions. Our consumers tend to be employed in industries such as construction, energy, manufacturing and retail that tend to be cyclical and more
significantly impacted by weak economic conditions than other industries. This may result in reduced job opportunities for our customers in the U.S. or other countries that are important to our business, which could adversely affect our business, financial condition and results of operations. For example, sustained weakness in the price of oil could adversely affect economic conditions and lead to reduced job opportunities in certain regions that constitute a significant portion of our total money transfer volume, which could result in a decrease in our transaction volume. In addition, increases in employment opportunities may lag other elements of any economic recovery.
Our agents or billers may have reduced sales or business as a result of weak economic conditions. As a result, our agents could reduce their number of locations or hours of operation, or cease doing business altogether. Our billers may have fewer consumers making payments to them, particularly billers in those industries that may be more affected by an economic downturn such as the automobile, mortgage and retail industries.
IfAs economic conditions were to deteriorate in a market important to our business, our revenue, financial condition and results of operations couldcan be adversely impacted. Additionally, if our consumer transactions decline due to deteriorating economic conditions, we may be unable to timely and effectively reduce our operating costs or take other actions in response, which could adversely affect our business, financial condition and results of operations.
A significant change or disruption in international migration patterns could adversely affect our business, financial condition and results of operations.
Our money transfer business relies in part on international migration patterns, as individuals move from their native countries to countries with greater economic opportunities or a more stable political environment. A significant portion of money transfer transactions are initiated by immigrants or refugees sending money back to their native countries. Changes in immigration laws that discourage international migration and political or other events (such as war, trade wars, terrorism or health emergencies including but not limited to the COVID-19 pandemic) that make it more difficult for individuals to migrate or work abroad could adversely affect our money transfer remittance volume or growth rate. Specifically, since the start of the COVID-19 pandemic, many governments have initiated, resumed or extended social distancing rules, lockdowns or shelter-in-place orders resulting in the inability of many individuals to migrate or work abroad, which has impacted our business. Even though some governments have lifted some of the restrictions on travel during the second half of 2020, the resulting economic impact of prior and ongoing COVID-19 governmental lockdown orders could still continue to negatively impact our business. Furthermore, continuing increases in COVID-19 cases occurring now or in the future could result in a return to lockdowns and shelter-in-place orders by governments which could negatively impact our business.
Additionally, sustained weakness in global economic conditions could reduce economic opportunities for migrant workers and result in reduced or disrupted international migration patterns. Reduced or disrupted international migration patterns, particularly in the U.S. or Europe, are likely to reduce money transfer transaction volumes and therefore have an adverse effect on our business, financial condition and results of operations. Furthermore, significant changes in international migration patterns could adversely affect our business, financial condition and results of operations.
There are a number of risks associated with our international sales and operations that could adversely affect our business.
We provide money transfer services between and among more than 200 countries and territories and continue to expand in various international markets. Our ability to grow in international markets and our future results could be adversely affected by a number of factors, including:
•changes in political and economic conditions and potential instability in certain regions, including in particular the recent civil unrest, terrorism, political turmoil and economic uncertainty in Africa, the Middle East and other regions;
•restrictions on money transfers to, from and between certain countries;
•currency controls, new currency adoptions and repatriation issues;
•changes in regulatory requirements or in foreign policy, including the adoption of domestic or foreign laws, regulations and interpretations detrimental to our business;
•possible increased costs and additional regulatory burdens imposed on our business;
•the implementation of U.S. sanctions, resulting in bank closures in certain countries and the ultimate freezing of our assets;
•burdens of complying with a wide variety of laws and regulations;
•possible fraud or theft losses, and lack of compliance by international representatives in foreign legal jurisdictions where collection and legal enforcement may be difficult or costly;
•reduced protection of our intellectual property rights;
•unfavorable tax rules or trade barriers;
•inability to secure, train or monitor international agents; and
•failure to successfully manage our exposure to foreign currencynon-U.S. dollar exchange rates, in particular with respect to the euro.
In particular, a portion of our revenue is generated in currencies other than the U.S. dollar. As a result, we are subject to risks associated with changes in the value of our revenues denominated in foreign currencies.non-U.S. dollars. In addition, we maintain significant foreign currencynon-U.S. dollar balances that are subject to volatility and could result in losses due to a devaluation of the U.S. dollar. As exchange rates among the U.S. dollar, the euro and other currencies fluctuate, the impact of these fluctuations may have a material adverse effect on our results of operations or financial condition as reported in U.S. dollars. See “Enterprise Risk Management-Foreign CurrencyManagement-Non-U.S. Dollar Risk” in Item 7A of this Annual Report on2020 Form 10-K for more information.
Because our business is particularly dependent on the efficient and uninterrupted operation of our information technology, computer network systems and data centers, disruptions to these systems and data centers could adversely affect our business, financial condition and results of operations.
Our ability to provide reliable services largely depends on the efficient and uninterrupted operation of our computer network systems and data centers. Our business involves the movement of large sums of money and the management of data necessary to do so. The success of our business particularly depends upon the efficient and error-free handling of transactions and data. We rely on the ability of our employees and our internal systems and processes, including our consumer applications, to process these transactions in an efficient, uninterrupted and error-free manner.
In the event of a breakdown, catastrophic event (such as fire, natural disaster, power loss, telecommunications failure or physical break-in), security breach, computer virus, improper operation, improper action by our employees, agents, consumers, financial institutions or third-party vendors or any other event impacting our systems or processes or our agents' or vendors' systems or processes, we could suffer financial loss, loss of consumers, regulatory sanctions, lawsuits and damage to our reputation or consumers' confidence in our business. The measures we have enacted, such as the implementation of disaster recovery plans and redundant computer systems, may not be successful. We may also experience problems other than system failures, including software defects, development delays and installation difficulties, which would harm our business and reputation and expose us to potential liability and increased operating expenses. In addition, any work stoppages or other labor actions by employees who support our systems or perform any of our major functions could adversely affect our business. Certain of our agent contracts, including our contract with Walmart, contain service level standards pertaining to the operation of our system, and give the agent a right to collect damages or engage other providers and, in extreme situations, a right of termination for system downtime exceeding agreed upon service levels. If we experience significant system interruptions or system failures, our business interruption insurance may not be adequate to compensate us for all losses or damages that we may incur.
In addition, our ability to continue to provide our services to a growing number of agents and consumers, as well as to enhance our existing services and offer new services, is dependent on our information technology systems. If we are unable to effectively manage the technology associated with our business, we could experience increased costs, reductions in system availability and loss of agents or consumers. Any failure of our systems in scalability, reliability and functionality could adversely impact our business, financial condition and results of operations.
We conduct money transfer transactions through agents in some regions that are politically volatile and economically unstable, which could increase our cost of operating in those regions.
We conduct money transfer transactions through agents in some regions that are politically volatile and economically unstable, which could increase our cost of operating in those regions. For example, it is possible that our money transfer services or other products could be used in contravention of applicable law or regulations. Such circumstances could result in increased compliance costs, regulatory inquiries, suspension or revocation of required licenses or registrations, seizure or forfeiture of assets and the imposition of civil and criminal fees and penalties, inability to settle due to currency restrictions or volatility, or other restrictions on our business operations. In addition to monetary fines or penalties that we could incur, we could be subject to reputational harm that could have a material adverse effect on our business, financial condition and results of operations.
We have submitted a Voluntary Self-Disclosure to OFAC that could result in penalties from OFAC, which could have a material adverse impact on our business or financial condition.
We have policies and procedures designed to prevent transactions that are subject to economic and trade sanctions programs administered by OFAC and by certain foreign jurisdictions that prohibit or restrict transactions to or from (or dealings with or involving) certain countries, their governments, and in certain circumstances, their nationals, as well as with certain individuals and entities such as narcotics traffickers, terrorists and terrorist organizations. If such policies and procedures are not effective in preventing such transactions, we may violate sanctions programs, which could have a material adverse impact on our business.
In 2015, we initiated an internal investigation to identify payments processed by the Company that were violations of OFAC sanctions regulations. We notified OFAC of the internal investigation, which was conducted in conjunction with the Company's outside counsel. On March 28, 2017, we filed a Voluntary Self-Disclosure with OFAC regarding the findings of our internal investigation. OFAC is currently reviewing the results of the Company’sCompany's investigation. OFAC has broad discretion to assess potential violations and impose penalties. At this time, it is not possible to determine the outcome of this matter, or the significance, if any, to our business, financial condition or operations, and we cannot predict when OFACthe matter will conclude their review of our Voluntary Self-Disclosure.be resolved. Adverse findings or penalties imposed by OFAC could have a material adverse impact on our business or financial condition.
Major bank failure or sustained financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions, could adversely affect our business, financial condition and results of operations.
We face certain risks in the event of a sustained deterioration of financial market liquidity, as well as in the event of sustained deterioration in the liquidity, or failure, of our clearing, cash management and custodial financial institutions. In particular:
•We may be unable to access funds in our investment portfolio, deposit accounts and clearing accounts on a timely basis to settle our payment instruments, pay money transfers and make related settlements to agents. Any resulting need to access other sources of liquidity or short-term borrowing would increase our costs. Any delay or inability to settle our payment instruments, pay money transfers or make related settlements with our agents could adversely impact our business, financial condition and results of operations.
•In the event of a major bank failure, we could face major risks to the recovery of our bank deposits used for the purpose of settling with our agents, and to the recovery of a significant portion of our investment portfolio. A substantial portion of our cash, cash equivalents and interest-bearing deposits are either held at banks that are not subject to insurance protection against loss or exceed the deposit insurance limit.
•Our First Lien Revolving Credit Facility is one source of funding for our corporate transactions and liquidity needs. If any of the bankslenders participating in our First Lien Revolving Credit Facility were unable or unwilling to fulfill its lending commitment to us, our short-term liquidity and ability to engage in corporate transactions, such as acquisitions, could be adversely affected.
•We may be unable to borrow from financial institutions or institutional investors on favorable terms, which could adversely impact our ability to pursue our growth strategy and fund key strategic initiatives, such as product development and acquisitions.initiatives.
If financial liquidity deteriorates, there can be no assurance we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.
An inability by us or our agents to maintain adequate banking relationships may adversely affect our business, financial condition and results of operations.
We rely on domestic and international banks for international cash management, electronic funds transfer and wire transfer services to pay money transfers and settle with our agents. We also rely on domestic banks to provide clearing, processing and settlement functions for our paper-based instruments, including official checks and money orders. Our relationships with these banks are a critical component of our ability to conduct our official check, money order and money transfer businesses. The inability on our part to maintain existing or establish new banking relationships sufficient to enable us to conduct our official check, money order and money transfer businesses could adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to establish and maintain adequate banking relationships.
If we cannot maintain sufficient relationships with large international banks that provide these services, we would be required to establish a global network of local banks to provide us with these services or implement alternative cash management procedures, which may result in increased costs. Relying on local banks in each country in which we do business could alter the complexity of our treasury operations, degrade the level of automation, visibility and service we currently receive from banks and affect patterns of settlement with our agents. This could result in an increase in operating costs and an increase in the amount of time it takes to concentrate agent remittances and to deliver agent payables, potentially adversely impacting our cash flow, working capital needs and exposure to local currency value fluctuations.
We and our agents are considered Money Service Businesses in the U.S. under the Bank Secrecy Act. U.S. regulators are increasingly taking the position that Money Service Businesses, as a class, are high risk businesses. In addition, the creation of anti-money laundering laws has created concern and awareness among banks of the negative implications of aiding and abetting money laundering activity. As a result, banks may choose not to provide banking services to Money Services Businesses in certain regions due to the risk of additional regulatory scrutiny and the cost of building and maintaining additional compliance functions. In addition, certain foreign banks have been forced to terminate relationships with Money Services Businesses by U.S. correspondent banks. As a result, we and certain of our agents have been denied access to retail banking services in certain markets by banks that have sought to reduce their exposure to Money Services Businesses and not as a result of any concern related to the Company’s
Company's compliance programs. If we or our agents are unable to obtain sufficient banking relationships, we or
they may not be able to offer our services in a particular region, which could adversely affect our business, financial condition and results of operations.
A breach of security in the systems on which we rely could adversely affect our business, financial condition and results of operations.
We rely on a variety of technologies to provide security for our systems. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments, including improper acts by third parties, may result in a compromise or breach of the security measures we use to protect our systems. We obtain, transmit and store confidential consumer, employer and agent information in connection with certain of our services. These activities are subject to laws and regulations in the U.S. and other jurisdictions. The requirements imposed by these laws and regulations, which often differ materially among the many jurisdictions, are designed to protect the privacy of personal information and to prevent that information from being inappropriately disclosed. Any security breaches in our computer networks, databases or facilities could lead to the inappropriate use or disclosure of personal information, which could harm our business and reputation, adversely affect consumers’ confidence in our or our agents' business, cause inquiries and fines or penalties from regulatory or governmental authorities, cause a loss of consumers, subject us to lawsuits and subject us to potential financial losses. In addition, we may be required to expend significant capital and other resources to protect against these security breaches or to alleviate problems caused by these breaches. Our agents and third-party independent contractors may also experience security breaches involving the storage and transmission of our data as well as the ability to initiate unauthorized transactions. If users gain improper access to our, our agents' or our third-party independent contractors' computer networks or databases, they may be able to steal, publish, delete or modify confidential customer information or generate unauthorized money transfers. Such a breach could expose us to monetary liability, losses and legal proceedings, lead to reputational harm, cause a disruption in our operations, or make our consumers and agents less confident in our services, which could have a material adverse effect on our business, financial condition and results of operations.
Because our business is particularly dependent on the efficient and uninterrupted operation of our information technology, computer network systems and data centers, disruptions to these systems and data centers could adversely affect our business, financial condition and results of operations.
Our ability to provide reliable services largely depends on the efficient and uninterrupted operation of our computer network systems and data centers. Our business involves the movement of large sums of money and the management of data necessary to do so. The success of our business particularly depends upon the efficient and error-free handling of transactions and data. We rely on the ability of our employees and our internal systems and processes to process these transactions in an efficient, uninterrupted and error-free manner.
In the event of a breakdown, catastrophic event (such as fire, natural disaster, power loss, telecommunications failure or physical break-in), security breach, computer virus, improper operation, improper action by our employees, agents, consumers, financial institutions or third-party vendors or any other event impacting our systems or processes or our agents' or vendors’ systems or processes, we could suffer financial loss, loss of consumers, regulatory sanctions, lawsuits and damage to our reputation or consumers’ confidence in our business. The measures we have enacted, such as the implementation of disaster recovery plans and redundant computer systems, may not be successful. We may also experience problems other than system failures, including software defects, development delays and installation difficulties, which would harm our business and reputation and expose us to potential liability and increased operating expenses. In addition, any work stoppages or other labor actions by employees who support our systems or perform any of our major functions could adversely affect our business. Certain of our agent contracts, including our contract with Walmart, contain service level standards pertaining to the operation of our system, and give the agent a right to collect damages or engage other providers and, in extreme situations, a right of termination for system downtime exceeding agreed upon service levels. If we experience significant system interruptions or system failures, our business interruption insurance may not be adequate to compensate us for all losses or damages that we may incur.
In addition, our ability to continue to provide our services to a growing number of agents and consumers, as well as to enhance our existing services and offer new services, is dependent on our information technology systems. If we are unable to effectively manage the technology associated with our business, we could experience increased costs, reductions in system availability and loss of agents or consumers. Any failure of our systems in scalability, reliability and functionality could adversely impact our business, financial condition and results of operations.
Changes in tax laws and unfavorable outcomes of tax positions we take could adversely affect our tax expense and liquidity.
From time to time, the U.S. federal, state, local and foreign state and local governments considermay enact legislation that could increase our effective tax rates. If changes to applicable tax laws are enacted that significantly increase our corporate effective tax rate, our net income could be negatively impacted.
We file tax returns and take positions with respect to federal, state, local and international taxation, and our tax returns and tax positions are subject to review and audit by taxing authorities. An unfavorable outcome in a tax review or audit could result in higher tax expense, including interest and penalties, which could adversely affect our financial condition, results of operations
and cash flows. We establish reserves for material known tax exposures; however, there can be no assurance that an actual taxation event would not exceed our reserves.
Recently enacted changes to the U.S. federal tax laws could adversely affect our business, financial condition and results of operations.
On December 22, 2017, the legislation commonly known as the “Tax Cuts and Jobs Act” (the “TCJA”), which significantly revises the Internal Revenue Code of 1986, as amended, was enacted. The TCJA, among other things, contains significant changes to the U.S. corporate tax laws, including a permanent reduction of the corporate income tax rate, a limitation on the deductibility of business interest expense, limitation of the deduction for certain net operating losses to 80% of current year taxable income, an indefinite net operating loss carryforward, immediate deductions for new investments in certain business assets instead of deductions for depreciation expense over time, modification or repeal of many business deductions and credits (including certain foreign tax credits), a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a modified territorial system (retaining certain existing rules and containing new rules designed to include in the U.S. income tax base certain income generated in non-U.S. territories whether or not that income has been repatriated to the U.S.), a minimum taxing system related to payments deemed to erode the U.S. tax base, and a one-time tax on accumulated offshore earnings held in cash and illiquid assets (with the latter taxed at a lower rate). We continue to examine the impact the TCJA may have on us, and it could adversely affect our business, financial condition and results of operations.
A significant change or disruption in international migration patterns could adversely affect our business, financial condition and results of operations.
Our money transfer business relies in part on international migration patterns, as individuals move from their native countries to countries with greater economic opportunities or a more stable political environment. A significant portion of money transfer transactions are initiated by immigrants or refugees sending money back to their native countries. Changes in immigration laws that discourage international migration and political or other events (such as war, terrorism or health emergencies) that make it more difficult for individuals to migrate or work abroad could adversely affect our money transfer remittance volume or growth rate. Sustained weakness in global economic conditions could reduce economic opportunities for migrant workers and result in reduced or disrupted international migration patterns. Reduced or disrupted international migration patterns, particularly in the U.S. or Europe, are likely to reduce money transfer transaction volumes and therefore have an adverse effect on our business, financial condition and results of operations. Furthermore, significant changes in international migration patterns could adversely affect our business, financial condition and results of operations.
We face credit risks from our agents and financial institutions with which we do business.
The vast majority of our money transfer, bill payment and money order business is conducted through independent agents that provide our products and services to consumers at their business locations. Our agents receive the proceeds from the sale of our payment instruments and money transfers, and we must then collect these funds from the agents. If an agent becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit payment instruments or money transfer proceeds to us, we must nonetheless pay the payment instrument or complete the money transfer on behalf of the consumer.
Moreover, we have made, and may make in the future, secured or unsecured loans to agents under limited circumstances or allow agents to retain our funds for a period of time before remitting them to us. As of December 31, 2017,2020, we had credit exposure to our agentsagents of $549.0$345.8 million in the aggregate spread across 14,344 agents.5,466 agents.
Financial institutions, which are utilized to conduct business for our Financial Paper Products segment, issue official checks and money orders and remit to us the face amounts of those instruments the day after they are issued. We may be liable for payment on all of those instruments. As of December 31, 2017,2020, we had credit exposure for official checks and money orders conducted by financial institutions of $293.7$331.2 million in the aggregate spread across 923915 financial institutions. In addition, we maintain balances in banks and digital asset exchanges around the world for our money transfer business. The deposits in these institutions may not have balance protection and, in the case of digital asset exchanges, may not be subject to regulation.
We monitor the creditworthiness of our agents and the financial institutions with which we do business on an ongoing basis. There can be no assurance that the models and approaches we use to assess and monitor the creditworthiness of our agents and these financial institutions will be sufficiently predictive, and we may be unable to detect and take steps to timely mitigate an increased credit risk.
In the event of an agent bankruptcy or a financial institution receivership or insolvency, we would generally be in the position of creditor, possibly with limited or no security, and we would therefore be at risk of a reduced recovery. We are not insured against credit losses, except in circumstances of agent theft or fraud. Significant credit losses could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to adequately protect our brand and the intellectual property rights related to our existing and any new or enhanced products and services, or if we infringe on the rights of others, our business, prospects, financial condition and results of operations could be adversely affected.
The MoneyGram brand is important to our business. We utilize trademark registrations in various countries and other tools to protect our brand. Our business would be harmed if we were unable to adequately protect our brand and the value of our brand was to decrease as a result.
We rely on a combination of patent, trademark and copyright laws, trade secret protection and confidentiality and license agreements to protect the intellectual property rights related to our products and services. We also investigate the intellectual property rights of third parties to prevent our infringement of those rights. We may be subject to third-party claims alleging that we infringe their intellectual property rights or have misappropriated other proprietary rights. We may be required to spend resources to defend such claims or to protect and police our own rights. We cannot be certain of the outcome of any such allegations. Some of our intellectual property rights may not be protected by intellectual property laws, particularly in foreign jurisdictions. The loss of our intellectual property protection, the inability to secure or enforce intellectual property protection or to successfully defend against claims of intellectual property infringement could harm our business, prospects, financial condition and results of operation.
Failure to attract and retain key employees could have a material adverse impact on our business.
Our success depends to a large extent upon our ability to attract and retain key employees. Qualified individuals with experience in our industry are in high demand. In addition, legal or enforcement actions against compliance and other personnel in the money transfer industry may affect our ability to attract and retain key employees. The lack of management continuity or the loss of one or more members of our executive management team could harm our business and future development.
The operation of retail locations and acquisition or start-up of businesses create risks and may adversely affect our business, financial condition and results of operations.
We have Company-operated retail locations for the sale of our products and services. We may be subject to additional laws and regulations that are triggered by our ownership of retail locations and our employment of individuals who staff our retail locations. There are also certain risks inherent in operating any retail location, including theft, personal injury and property damage and long-term lease obligations.
We may, from time to time, acquire or start-up businesses both inside and outside of the U.S. The acquisition and integration of businesses involve a number of risks. Such risks include, among others:
risks in connection with acquisitions and start-ups and potential expenses that could be incurred in connection therewith;
risks related to the integration of new businesses, including integrating facilities, personnel, financial systems, accounting systems, distribution, operations and general operating procedures;
the diversion of capital and management’s attention from our core business;
the impact on our financial condition and results of operations due to the timing of the new business or the failure of the new business to meet operating expectations; and
the assumption of unknown liabilities relating to the new business.
Risks associated with acquiring or starting new businesses could result in increased costs and other operating inefficiencies, which could have an adverse effect on our business, financial condition and results of operations.
Any restructuring activities and cost reduction initiatives that we undertake may not deliver the expected results and these actions may adversely affect our business operations.
We have undertaken and may in the future undertake various restructuring activities and cost reduction initiatives in an effort to better align our organizational structure and costs with our strategy. These activities and initiatives can be substantial in scope and they can involve large expenditures. Such activities could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of our strategic objectives and the results of our operations. If we do not fully realize or maintain the anticipated benefits of any restructuring plan or cost reduction initiative, our business, financial condition and results of operations could be adversely affected.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business.
We are required to certify and report on our compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing the effectiveness of our internal control over financial reporting. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. In order to achieve effective internal controls, we may need to enhance our accounting
systems or processes, which could increase our cost of doing business. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business.
Risks Related to Ownership of Our Stock
THL owns a substantial percentageThe issuance of shares of our common stock upon exercise of outstanding warrants that were issued to our second lien lenders and its interests may differ fromRipple will dilute the interestsownership interest of our other common stockholders.
As of December 31, 2017, Thomas H. Lee Partners, L.P. (“THL”) held 43.8% of our outstanding common sharesexisting stockholders and 37.6% of our outstanding shares on a fully-converted basis (if all ofcould adversely affect the outstanding shares of the Series D Participating Convertible Preferred (the "D Stock") were converted to common shares), excluding treasury shares held by the Company. The combined ownership percentage of THL and affiliates of Goldman Sachs & Co. (“Goldman Sachs” and, collectively with THL, the “Investors”) on a fully-converted basis was 51.7% as of December 31, 2017. Additionally our charter provides that as long as the Investors have a right to designate directors to our Board of Directors pursuant to the Amended and Restated Purchase Agreement, dated as of March 17, 2008, among the Company and the several Investor parties named therein, THL has the right to designate two to four directors (such directors, the "THL Representatives"), who each have equal votes and who together have a total number of votes equal to the number of directors as is proportionate to the common stock ownership (on an as-converted basis) of the Investors (rounded to the nearest whole number), unlike the other members of our Board of Directors who have only one vote each. THL has appointed two of the nine members of our Board of Directors, each THL Representative currently has multiple votes, and the THL Representatives together currently hold a majority of the votes of our Board of Directors.
We cannot provide assurance that the interests of THL will coincide with the interests of other holders of our common stock and THL’s substantial control over us could result in harm to theprevailing market price of our common stock by delaying, deferring or preventing a change in controlstock.
In connection with the closing of our company; impeding a merger, consolidation, takeover or other business combination involving our company; or entrenching our management and Board of Directors.
We have a significant number of salable common shares and D Stock held by the Investors relativeSecond Lien Term Credit Facility, the Company issued warrants representing the right to our outstanding common shares.
As of December 31, 2017, there were 54.2 million outstanding common shares, excluding treasury shares (or 63.1 million common shares if the outstanding D Stock were converted into common shares). As of December 31, 2017, THL held approximately 23.7 millionpurchase 5,423,470 shares of our common stock and Goldman Sachs held(representing approximately 71,2828% of the then-outstanding fully diluted common stock of the Company) for $0.01 per share to the lenders under the Second Lien Term Credit Facility. In addition, pursuant to a Securities Purchase Agreement (the "SPA") with Ripple, dated June 17, 2019, the Company issued warrants to Ripple representing the right to purchase 5,957,600 shares of D Stock, which are convertible into approximately 8.9 millioncommon stock at a per share reference purchase price of $4.10 per share of common stock underlying the warrant, exercisable for $0.01 per underlying share of common stock.
On November 22, 2019, the Company issued and sold to Ripple (i) 626,600 shares of common stock at a purchase price of $4.10 per share and (ii) a warrant to purchase 4,251,449 shares of common stock at a per share reference price of $4.10 per share of common stock underlying the warrant, exercisable at $0.01 per underlying share of common stock, for an aggregate purchase price of $20.0 million. For more information related to the SPA, see Note 20 — Related Parties of the Notes to the Consolidated Financial Statements. The exercise of some or all of the warrants will dilute the ownership interests of existing stockholders. In addition, any sales in the public market of the common stock issuable upon such exercise or any anticipated sales upon exercise of the warrants could adversely affect prevailing market prices of our common stock. Sales of a substantial numberThese factors also could make it more difficult for us to raise funds through future offerings of common shares,stock and could adversely affect the terms under which we could obtain additional equity capital. Following the occurrence of an exercise trigger for the warrants, we have no control over whether or when the perception that significant sales could occur (particularly if sales are concentrated in time or amount), may depress the trading priceholders will exercise their warrants.
Our charter and Delaware law contain provisions that could delay or prevent an acquisition of the Company, which could inhibit your ability to receive a premium on your investment from a possible sale of the Company.
Our charter contains provisions that may discourage third parties from seeking to acquire the Company. These provisions and specific provisions of Delaware law relating to business combinations with interested stockholders may have the effect of delaying, deterring or preventing certain business combinations, including a merger or change in control of the Company. Some of these provisions may discourage a future acquisition of the Company even if stockholders would receive an attractive value for their shares or if a significant number of our stockholders believed such a proposed transaction to be in their best interests. As a result, stockholders who desire to participate in such a transaction may not have the opportunity to do so.
Our amended and restated bylaws designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our bylaws providesprovide that unless we consentthe Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will,shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) certain types of lawsuits, which could limit our stockholders’ ability to obtain their preferred judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:
•any derivative action or proceeding brought on our behalf (ii) of the Company;
•any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of our directors, officersthe Company to the Company or employees to us or our stockholders, (iii) the Company’s stockholders;
•any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) Law; and
•any action asserting a claim against us that is governed by the internal affairs doctrine. This choice
These exclusive-forum provisions do not apply to claims under the Securities Act, the Exchange Act or any other claims for which the federal courts have exclusive jurisdiction.
Any person or entity purchasing or otherwise acquiring any interest in any shares of our stock shall be deemed to have notice of and to have consented to the exclusive forum provisionprovisions in our amended and restated bylaws.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and such persons. Alternatively, if aour directors, officers, and other employees. If any other court of competent jurisdiction were to find these provisions of our exclusive-forum provision in our amended and restated bylaws to be inapplicable to, or unenforceable, in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such mattersthe dispute in other jurisdictions, which could adversely affectharm our business, financial condition or results of operations.
business.
Our Board of Directors has the power to issue series of preferred stock and to designate the rights and preferences of those series, which could adversely affect the voting power, dividend, liquidation and other rights of holders of our common stock.
Under our charter, our Board of Directors has the power to issue series of preferred stock and to designate the rights and preferences of those series. Therefore, our Board of Directors may designate a new series of preferred stock with the rights, preferences and privileges that our Board of Directors deems appropriate, including special dividend, liquidation and voting rights. The creation and designation of a new series of preferred stock could adversely affect the voting power, dividend, liquidation and other rights of holders of our common stock and, possibly, any other class or series of stock that is then in existence.
The market price of our common stock may be volatile.
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which may be beyond our control. These factors include the perceived prospects for or actual operating results of our business; changes in estimates of our operating results by analysts, investors or our management; our actual operating results relative to such estimates or expectations; actions or announcements by us, our agents, or our competitors; litigation and judicial decisions; legislative or regulatory actions; and changes in general economic or market conditions. In addition, the stock market in general has from time to time experienced extreme price and volume fluctuations. These market fluctuations could reduce the market price of our common stock for reasons unrelated to our operating performance.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our leased corporate offices are located in Dallas, TX. We have a number of offices leased in more thanmore than 30 countriescountries and territories around the world including, but not limited to: U.S., United Kingdom, Poland and United Arab Emirates. These offices provide operational, sales and marketing support and are used by both our Global Funds Transfer Segment and our Financial Paper Products Segment. We believe that our properties are sufficient to meet our current and projected needs. We periodically review our facility requirements and may acquire new facilities, or modify, consolidate, dispose of or sublet existing facilities, based on business needs.
Item 3. LEGAL PROCEEDINGS
The matters set forth below are subject to uncertainties and outcomes that are not predictable. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigation matters.Litigation Commenced Against the Company:
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:
OFAC — In 2015, we initiated an internal investigation to identify any payments processed by the Company that were violations of the U.S. Department of the Treasury's OFAC sanctions regulations. We notified OFAC of the ongoing internal investigation, which was conducted in conjunction with the Company's outside counsel. On March 28, 2017, we filed a Voluntary Self-Disclosure with OFAC regarding the findingsA description of our internal investigation. OFAClegal proceedings is currently reviewing the results of the Company’s investigation. At this time, it is not possibleincluded in and incorporated by reference to determine the outcome of this matter, or the significance, if any, to our business, financial condition or results of operations,Note 15 — Commitments and we cannot predict when OFAC will conclude their review of our Voluntary Self-Disclosure.Deferred Prosecution Agreement — In November 2012, we announced that a settlement was reached with the MDPA and the U.S. DOJ relating to the previously disclosed investigation of transactions involving certain of our U.S. and Canadian agents, as well as fraud complaint data and the consumer anti-fraud program, during the period from 2003 to early 2009. In connection with this settlement, we entered into the DPA with the MDPA and U.S. DOJ dated November 8, 2012.
On November 1, 2017, the Company agreed to a stipulation with the Government that the term of the Company’s DPA be extended for 90 days to February 6, 2018. On January 31, 2018, the Company agreed with the Government that the term of the DPA be
extended for an additional 45 days to March 23, 2018. The purpose of the extension is to provide the Company and the Government additional time to discuss whether the Company is in compliance with the DPA. There can be no assurance that the Company and the Government will continue to be able to negotiate a mutually satisfactory outcome during such 45 day period (or any further short-term extension of the DPA) or that such outcome will not include a further extension of the DPA, financial penalties or additional restrictions on the Company, including a monitorship period beyond the current monitorship that ends on April 30, 2018. Furthermore, there can be no assurance that the Government will not seek any other remedy, including criminal prosecution and financial penalties, in lieu of an extension of the DPA and monitorship.
As a result, in the fourth quarter of 2017, the Company recorded an $85.0 million accrual in connection with a possible resolution of this matter, based on the facts and circumstances known at the time. However, the Company is unable to reasonably estimate the ultimate loss and no assurance can be given that future costs and payments made in connection with this matter will not exceed the amount currently recorded or that the government will not also seek to impose non-monetary remedies or penalties.
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 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.
Actions Commenced by the Company:
Tax Litigation — The IRS completed its examination of the Company’s consolidated income tax returns through 2013 and issued Notices of Deficiency for 2005-2007 and 2009 and an Examination Report for 2008. The Notices of Deficiency and Examination Report disallow, among other items, approximately $900.0 million of ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012 and December 2012, the Company filed petitions in the U.S. Tax Court challenging the 2005-2007 and 2009 Notices of Deficiency, respectively. In 2013, the Company reached a partial settlement with the IRS allowing ordinary loss treatment on $186.9 million of deductions in dispute. In January 2015, the U.S. Tax Court granted the IRS's motion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. During 2015, the Company made payments to the IRS of $61.0 million for federal tax payments and associated interest related to the matter. The Company believes that it has substantive tax law arguments in favor of its position. The Company filed a notice of appeal with the U.S. Tax Court on July 27, 2015 for an appeal to the U.S. Court of Appeals for the Fifth Circuit. Oral arguments were held before the Fifth Circuit on June 7, 2016, and on November 15, 2016, the Fifth Circuit vacated the Tax Court’s decision and remanded the case to the Tax Court for further proceedings. The Company filed a motion for summary judgment in the Tax Court on May 31, 2017. On August 23, 2017, the IRS filed a motion for summary judgment and its response to the Company’s motion for summary judgment. Pending the outcome of the appeal, the Company may be required to file amended state returns and make additional cash payments of up to $18.7 million on amounts that have previously been accrued.
See Note 13 — Commitments and Contingenciesof the Notes to the Consolidated Financial Statements for additional disclosure.contained in Part II, Item 8 of this report.
Item 4. MINE SAFETY DISCLOSURES
None.
PART IIII.
Item 5. MARKET FOR THE REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Stock Market LLC under the symbol “MGI.”"MGI." As of March 8, 2018,February 18, 2021, there were 7,8677,133 stockholders of record of our common stock.
The high and low sales prices for our common stock for the periods presented were as follows for the respective periods: |
| | | | | | | | | | | | | | | |
| 2017 | | 2016 |
Fiscal Quarter | High | | Low | | High | | Low |
First | $ | 17.13 |
| | $ | 11.26 |
| | $ | 7.09 |
| | $ | 4.68 |
|
Second | $ | 17.92 |
| | $ | 15.88 |
| | $ | 7.37 |
| | $ | 5.81 |
|
Third | $ | 17.48 |
| | $ | 15.28 |
| | $ | 8.33 |
| | $ | 6.29 |
|
Fourth | $ | 16.27 |
| | $ | 12.40 |
| | $ | 12.72 |
| | $ | 5.83 |
|
Our Board of Directors has authorized the repurchase of a total of 12,000,000 common shares, as announced in our press releases issued on November 18, 2004, August 18, 2005 and May 9, 2007. The repurchase authorization is effective until such time as the Company has repurchased 12,000,000 common shares. The Company may consider repurchasing shares which would beis subject to limitations in our debt agreements. Common stock tendered toagreements on the Company in connection with the exerciseamount of stock options or vesting of restricted stock is not considered repurchased shares under the terms of the repurchase authorization. As of December 31, 2017, the Company had repurchased 9,842,509 common shares under the terms of the repurchase authorization and has remaining authorization to repurchase up to 2,157,491 shares.it may repurchase. During the three monthsfiscal year ended December 31, 2017,2020, the Company did not repurchase any common shares.
The terms of our debt agreements place significant limitations on the amount of restricted payments we may make, including dividends on our common stockshares and repurchases of our capital stock. Subject to certain customary conditions, we may (i) make restricted payments in an aggregate amounthas not to exceed $50.0 million (without regard to a pro forma leverage ratio calculation), (ii) make restricted payments up to a formulaic amount determined based on incremental build-up of our consolidated net income in future periods (subject to compliance with maximum pro forma leverage ratio calculation) and (iii) repurchase capital stock from THL and Goldman Sachs in a remaining aggregate amount up to $170.0 million. As a result, our ability to declare or pay dividends or distributions to the stockholders of the Company’s common stock is materially limited at this time. No dividends were paid on our common stock in 2017 orrepurchased any shares since 2016.
STOCKHOLDER RETURN PERFORMANCE
The Company's peer group consists of companies that are in the money remittance and payment industries, along with companies that effectively capture our competitive landscape given the products and services that we provide. The peer group is comprisedcomposed of the following companies: Euronet Worldwide Inc., Fiserv, Inc., MasterCard,Global Payments Inc., PaypalInternational Money Express, Inc., PayPal Holdings, Inc., Visa, Inc. and The Western Union Company.
Union.
The following graph compares the cumulative total return from December 31, 20122015 to December 31, 20172020 for our common stock, our new and old peer group indexgroups of payment services companies and the S&P 500 Index. The graph assumes the investment of $100 in each of our common stock, our new and old peer groupgroups and the S&P 500 Index on December 31, 2012,2015, and the reinvestment of all dividends as and when distributed. The graph is furnished and shall not be deemed “filed”"filed" with the SEC or subject to Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG MONEYGRAM INTERNATIONAL, INC.,
S&P 500 INDEX AND PEER GROUP INDEX
*$100 invested on 12/31/20122015 in stock or index, including reinvestment of dividends.
The following table is a summary of the cumulative total return for the fiscal years ending December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2015 | | 12/31/2016 | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 |
MoneyGram International, Inc. | | $ | 100.00 | | | $ | 188.36 | | | $ | 210.21 | | | $ | 31.90 | | | $ | 33.49 | | | $ | 87.16 | |
S&P 500 | | $ | 100.00 | | | $ | 111.96 | | | $ | 136.40 | | | $ | 130.42 | | | $ | 171.49 | | | $ | 203.04 | |
Peer Group | | $ | 100.00 | | | $ | 111.94 | | | $ | 171.59 | | | $ | 191.41 | | | $ | 270.62 | | | $ | 419.83 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| 12/31/2012 | | 12/31/2013 | | 12/31/2014 | | 12/31/2015 | | 12/31/2016 | | 12/31/2017 |
MoneyGram International, Inc. | 100.00 |
| | 156.36 |
| | 68.40 |
| | 47.18 |
| | 88.86 |
| | 99.17 |
|
S&P 500 | 100.00 |
| | 132.39 |
| | 150.51 |
| | 152.59 |
| | 170.84 |
| | 208.14 |
|
Peer Group | 100.00 |
| | 156.03 |
| | 175.00 |
| | 205.36 |
| | 217.05 |
| | 323.71 |
|
Item 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes thereto. The following table presents our selected consolidated financial data forCompany has early adopted the years ended December 31:
|
| | | | | | | | | | | | | | | | | | | |
(Amounts in millions, except per share and location data) | 2017 | | 2016 | | 2015 | | 2014(1) | | 2013 (1) |
Operating Results | | | | | | | | | |
Revenue | | | | | | | | | |
Global Funds Transfer segment | $ | 1,508.1 |
| | $ | 1,553.7 |
| | $ | 1,465.8 |
| | $ | 1,470.1 |
| | $ | 1,475.0 |
|
Financial Paper Products segment | 94.0 |
| | 75.6 |
| | 73.3 |
| | 80.3 |
| | 84.0 |
|
Other | — |
| | 1.1 |
| | — |
| | — |
| | 0.6 |
|
Total revenue | $ | 1,602.1 |
| | $ | 1,630.4 |
| | $ | 1,539.1 |
| | $ | 1,550.4 |
| | $ | 1,559.6 |
|
| | | | | | | | | |
Net (loss) income | $ | (29.8 | ) | | $ | 15.9 |
| | $ | (77.7 | ) | | $ | 71.6 |
| | $ | 52.0 |
|
| | | | | | | | | |
Net (loss) income per common share: | | | | | | | | | |
Basic | $ | (0.47 | ) | | $ | 0.26 |
| | $ | (1.25 | ) | | $ | 1.10 |
| | $ | 0.73 |
|
Diluted | $ | (0.47 | ) | | $ | 0.24 |
| | $ | (1.25 | ) | | $ | 1.09 |
| | $ | 0.72 |
|
Financial Position | | | | | | | | | |
Cash and cash equivalents | $ | 190.0 |
| | $ | 157.2 |
| | $ | 164.5 |
| | $ | 250.6 |
| | $ | 318.8 |
|
Total assets | $ | 4,772.5 |
| | $ | 4,597.4 |
| | $ | 4,505.2 |
| | $ | 4,628.3 |
| | $ | 4,775.8 |
|
Long-term debt | $ | 908.1 |
| | $ | 915.2 |
| | $ | 942.6 |
| | $ | 949.6 |
| | $ | 831.8 |
|
Stockholders’ deficit | $ | (245.3 | ) | | $ | (215.6 | ) | | $ | (229.5 | ) | | $ | (189.0 | ) | | $ | (82.8 | ) |
(1) Selected financial data for the years ended December 31, 2014 and 2013 has been corrected to reflect the adjustments related to the errors described in Note 15 — Immaterial Error Correction removal of the Notes to the Consolidated Financial Statements. The correction of the error decreased net incomedisclosure required by $0.5 million and $0.4 million and diluted net income per common sharethis item, as permitted by $0.01 for the years ended December 31, 2014 and 2013, respectively. Stockholders' deficit increased by $6.3 million and $5.8 million as of December 31, 2014 and 2013, respectively.SEC rule changes effective February 10, 2021.
ItemITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our Consolidated Financial Statements and related Notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated due to various factors discussed below under “Cautionary Statements Regarding Forward-Looking Statements” and under the caption “Risk Factors” in Part 1,I, Item 1A of this Annual Report on2020 Form 10-K.
The comparisons presented in this discussion refer to the same period in the prior year, unless otherwise noted. For a discussion on the comparison between fiscal year 2019 and fiscal year 2018 results, see Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations included in MoneyGram’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC. This discussion is organized in the following sections: •Overview
•Results of Operations
•Liquidity and Capital Resources
•Critical Accounting Policies and Estimates
•Cautionary Statements Regarding Forward-Looking Statements
OVERVIEW
MoneyGram is a global providerleader in cross-border P2P payments and money transfers. Our consumer-centric capabilities enable the quick and affordable transfer of innovative money transfer servicesto family and is recognized worldwide as a financial connection to friends around the world. Whether through online and family. Whether online, through a mobile device, atplatforms, integration with mobile wallets, a kiosk, or any one of the hundreds of thousands of agent locations in a local store, we connectover 200 countries and territories, with over 85 now digitally enabled, the innovative MoneyGram platform connects consumers in any way that isways designed to be convenient for them. WeIn the U.S. and in select countries and territories, we also provide bill payment services, issue money orders and process official checks in the U.S. and in select countries and territories.checks. We primarily offer our services and products through third-party agents includingand through our direct-to-consumer digital business. Third-party agents include retail chains, independent retailers, post offices and financial institutions. We also have Company-operated retail locations in the U.S. and Western Europe. Additionally, we offer Digital solutions which include moneygram.com, mobile solutions, virtual agents, account deposit and kiosk-based services. MoneyGram also has a limited number of Company-operated retail locations.
We manage our revenue and related commissions expense through two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfer services in approximately 350,000 agent locations in more than 200 countries and territories.410,000 agent locations. Our global money transfer services are our primary revenue driver, accounting for 89%91% of total revenue for the year ended December 31, 2017.2020. The Global Funds Transfer segment also provides bill payment services to consumers through substantially all of our money transfer agent and Company-operated locations in the U.S., Canada and Puerto Rico, at certain agent locations in select Caribbean and European countries and through our Digitaldigital solutions. The Financial Paper Products segment provides money order services to consumers through retail locations and financial institutions located in the U.S. and Puerto Rico and provides official check services to financial institutions in the U.S. Corporate expenses that are not related to our segments'segments’ performance are excluded from operating income for Global Funds Transfer and Financial Paper Products segments.
COVID-19 Update
General Economic Conditions and MoneyGram Impact
The global spread and unprecedented impact of COVID-19 is complex and ever-evolving. In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended extensive containment and mitigation measures worldwide. The outbreak reached all of the regions in which we do business. Since the outbreak, we have seen the profound effect it is having on human health, the global economy and society at large. Public and private sector policies aimed at reducing the transmission of COVID-19 have varied significantly in different regions of the world, but have resulted in shelter-in-place orders and the mandatory closing of various businesses across many of the countries in which we operate.
MoneyGram experienced a decline in transaction volume and related revenue in its Retail Channel in March and April of 2020 as the impact of mandatory closures and stay-at-home orders took effect. Many of our agents around the world were forced to suspend operations due to mandatory government closure orders. In addition, demand for walk-in money transfer services decreased as restrictions on mobility, lower levels of economic activity and unemployment impacted consumers.
Starting in the second quarter of 2020, some progress in the containment of COVID-19 was made globally, and some governmental authorities removed or began rolling back some restrictions such as quarantines, shutdowns and some shelter-in-place orders. In addition, government rules generally included remittances as an "essential service," which gave agents the ability to reopen physical locations even when other businesses were closed. As restrictions eased, after the initial impact of the COVID-19 pandemic, the ability to physically transact on a more normal basis was restored in many markets but has continued with interruptions for limited periods of time in certain regions of the world. As the spread of COVID-19 infections caused major countries to reinstitute lockdowns and restrictions on travel throughout the year, the result has been lower levels of economic activity, and has significantly reduced migration throughout most of the world.
It is impossible to predict the scope and duration of the impact of the COVID-19 pandemic as the situation is ever evolving and there are a number of uncertainties related to this pandemic. The impact of COVID-19 for the coming year and beyond will depend on the duration and severity of economic conditions resulting from the crisis, public policy actions, expansion and duration of returns to lockdowns and shelter-in-place orders by governments, new initiatives undertaken by the Company and changes in consumer behavior over the long term.
MoneyGram Response to COVID-19
The Company continues to address the COVID-19 pandemic and its impact globally with an internal COVID Task Force composed of a cross-functional group of employees working to mitigate the potential impacts to our people and business. Shortly after the onset of the pandemic, MoneyGram took the following steps to preserve liquidity and value and maintain continuity of operations in response to the pandemic:
•Implemented a global Business Continuity Plan;
•Established employee support initiatives including work from home arrangements for the Company's entire workforce;
•Reduced expenses and preserved cash by:
◦Suspending significant discretionary expenses;
◦Reducing salaries of non-hourly employees, including executive officers and board of director cash retainers, by 20% for a limited time period;
◦Negotiating reduced supplier rates for many products and services;
◦Deferring employer Social Security tax payments as allowed by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act; and
◦Borrowing $23.0 million in the first quarter of 2020 under our revolving credit facility to improve our cash position and preserve financial flexibility.
•Conducted proactive outreaches to governmental and regulatory bodies;
•Proactively continued to manage our fraud prevention programs to protect consumers from COVID-19-related financial scams; and
•Alerted and directed consumers to our website and app, and encouraged direct-to-account transfers.
As transaction volume and revenue began to improve during the second quarter of 2020, the Company reversed certain of these actions. Specifically, we repaid the entire $23.0 million that we borrowed under the revolving credit facility, and we returned salaries to their normal levels. We also repaid the 20% reduction in salary back to our employees, making them whole for 2020.
We continue to place a priority on business continuity and contingency planning, including for potential extended closures of any key agents or disruptions related to our contractual counterparties that might arise as a result of COVID-19. While we have not experienced material disruptions in our service offerings aside from mandatory agent location closures, it is possible that further disruptions could occur as the pandemic continues. We cannot reasonably estimate the potential impact or timing of those events, and we may not be able to mitigate such impact.
Business Environment and Recent Developments
Throughout 2017,In 2020, worldwide political conditions became more volatile, and economic conditions remained highly variable,weakened, as evidenced by boththe economic growth and challengespolitical consequences of the COVID-19 pandemic, continuing political unrest in keycertain markets, low currency reserves, currency controls in certainselect countries and a volatileconstricted immigration environment. Also, there is continued political unrest and economic weakness in parts of the Middle East and Africa that contributed to the volatility. Given the global reach and extent of the current economic conditions, the growth ofthese events, money transfer volumes, and the average face valueFace Value of money transfers continuedcontinue to be highly variable, by corridorand can deviate from norms based on Corridor and country. The World Bank has predicted a significant global contraction in the amount of funds transferred in 2021, as employment, migration patterns and economic conditions continue to feel the impact of declining consumer confidence and government efforts to mitigate infections during the pandemic.
The competitive environment continues to change as both established players and new, digital-only entrants work to innovate and deliver an affordable and convenient customer experience to win market share. Our competitors include a small number of large money transfer consumers on the basis of trust, convenience, price, technology and brand recognition. The market for money transfer services remains very competitive, consisting of a few large competitorsbill payment providers, financial institutions, banks and a large number of small niche competitors. money transfer service providers that serve select regions. We generally compete on the basis of customer experience, price, agent commissions, brand awareness, and convenience.
As of December 31, 2020, the Company has digital capabilities through which consumers can send and receive money in more than 85 countries around the world. Digital revenue for the year ended December 31, 2020 was $188.0 million, or 17% of money transfer revenue, compared to $114.6 million for the year ended December 31, 2019. Total digital money transfer transactions represented 25% and 14% of money transfer transactions for the years ended December 31, 2020 and 2019, respectively. In 2020, digital revenue and transaction volume represented the fastest growth market for the Company.
We continue to invest in innovative products and services, such as our leading mobile app and integrations with mobile wallets, and account deposit services, to position the Company to meet consumer needs. Furthermore, our partnership with Visa Direct provides consumers with additional choices on how to receive funds across a broader number of countries. We believe that combining our cash and digital capabilities enables us to differentiate against digital-only competitors who are not able to serve a significant portion of the remittance market that relies on cash.
In October 2020, the Company extended its agreement with Walmart, its largest agent, through March 2024. In 2018, the Company and Walmart announced the launch of Walmart2World, Powered by MoneyGram, a new white-label money transfer service that allows customers to send money from Walmart in the U.S. to any non-U.S. MoneyGram location. The lower foreign exchange margins of the white-label service negatively impacted our revenue and operating income in 2019 and 2020. On January 19, 2021, Walmart informed us of a new agreement that would enable Western Union money transfer, bill payment and money order services at U.S. Walmart locations. The MoneyGram "powered by" white-label Walmart2World product represented approximately 8% of total revenue. Currently, it is difficult to predict exactly how this new Walmart marketplace will impact current transaction volumes and profit margins. Any impact to financial results will depend on a variety of factors including the timing of the rollout of a new participant into Walmart Stores, how the products are placed at the point-of-sale and how aggressively each of the competitors chooses to price their foreign exchange.
In addition to the changes in the competitive environment, MoneyGram’s global compliance requirements are becoming increasingly morehave remained complex, which has been affectingaffected our top line growth.growth and profit margin. We continue to enhance and automate our compliance tools to comply with various government and other regulatory programs around the globe.world, as well as address Corridor specific risks associated with fraud or money laundering.
In 2019, we announced a commercial agreement with Ripple Labs, Inc., which is scheduled to expire on July 1, 2023. The commercial agreement allows MoneyGram to utilize Ripple's ODL platform, as well as XRP, its cryptocurrency, for foreign exchange trading. The Company has been compensated by Ripple for developing and bringing trading volume and liquidity to foreign exchange markets, facilitated by the ODL platform, and providing a reliable level of foreign exchange trading activity. On December 22, 2020, the SEC filed a lawsuit against Ripple alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset offering in violation of the registration provisions of the Securities Act of 1933. Subsequently, substantially all of the U.S.-based digital asset exchanges removed XRP from their platforms. MoneyGram ceased transacting with Ripple under the commercial agreement in early December 2020 and has not since resumed trading. It is possible that MoneyGram will not resume transacting with Ripple under the commercial agreement and will be unable to receive the related market development fees in 2021 and beyond. Per the terms of the commercial agreement, the Company does not pay fees to Ripple for its usage of the ODL platform or the related software and there are no clawback or refund provisions.
In 2019, the Company committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 120 positions across the company (the "2019 Organizational Realignment"). In the the first half of 2020, this number was revised to approximately 100 positions as the operational plan drew closer to completion. The workforce reduction was designed to streamline operations and structure the Company in a way that will be more agile and aligned around our plan to execute market-specific strategies tailored to different segments. The workforce reduction was substantially completed in the first half of 2020 with $8.5 million of costs incurred consisting primarily of one-time termination benefits for employee severance and related costs, all of which resulted in cash expenditures that were paid out during 2020. We also introduced self-imposed compliance measuresexpect the 2019 Organizational Realignment to further protect our customersreduce annualized operating expenses by approximately $18.0 million.
On January 11, 2021, MoneyGram committed to an operational plan to reduce overall operating expenses, including the elimination of approximately 90 positions across the Company and certain actions to reduce other ongoing operating expenses, including real estate-related expenses (the “2021 Organizational Realignment”). The actions are designed to streamline operations and structure the Company in a way that will be more agile and aligned around its plan to execute market-specific strategies. The total expected cost of the 2021 Organizational Realignment is approximately $9.7 million, which includes approximately $6.2 million in one-time cash severance expenditures and $3.5 million in real estate-related and other cash expenditures. The Company expects the 2021 Organizational Realignment to reduce operating expenses by approximately
$18.0 million on an annualized basis. The Company anticipates the workforce reduction portion of the 2021 Organizational Realignment to be substantially completed in the first quarter of 2021 and related cash expenditures to be substantially paid out in 2021.The Company’s estimates are based on a number of assumptions.Actual results may differ materially, and additional charges not currently expected may be incurred in connection with, or as a result of, the 2021 Organizational Realignment.
Capital Structure Update
On June 26, 2019, we entered into an amended First Lien Credit Agreement (the "First Lien Credit Agreement") and a new Second Lien Credit Agreement (the "Second Lien Credit Agreement"), each with Bank of America, N.A. acting as administrative agent. These agreements extended and/or repaid in full all outstanding indebtedness under the Company's existing credit facility. The amended First Lien Credit Agreement provides for a $35.0 million senior secured three-year revolving credit facility (the "First Lien Revolving Credit Facility") and a senior secured four-year term loan in an aggregate principal amount of $645.0 million (the "First Lien Term Credit Facility" and, together with the First Lien Revolving Credit Facility, the "First Lien Credit Facility"). The Second Lien Credit Agreement provides $245.0 million of a secured five-year term loan. In connection with the termination of the previous credit facility, we recognized debt extinguishment costs of $2.4 million in the second quarter of 2019. For more information on the credit agreements, see Note 10 — Debt of the Notes to the Consolidated Financial Statements and the integrityLiquidity and Capital Resources section below. In connection with the closing of the Second Lien Term Credit Facility, the Company issued warrants representing the right to purchase 5,423,470 shares of common stock (representing approximately 8% of the then-outstanding fully diluted common stock of the Company) for $0.01 per share to the lenders under the Second Lien Term Credit Facility.
In June 2019, the Company entered into the SPA with Ripple, pursuant to which Ripple agreed to purchase and the Company agreed to issue up to $50.0 million of common stock and ten-year warrants to purchase common stock at $0.01 per underlying share of common stock ("Ripple Warrants"). In connection with the execution of the SPA, Ripple purchased, and the Company issued, (i) 5,610,923 shares of common stock at a purchase price of $4.10 per share and (ii) a Ripple Warrant to purchase 1,706,151 shares of common stock at a per share reference purchase price of $4.10 per share of common stock underlying the Ripple Warrant, exercisable at $0.01 per underlying share of common stock, for an aggregate purchase price of $30.0 million. The Company incurred direct and incremental costs of $0.5 million related to this transaction.
On November 22, 2019, in connection with an additional closing under the SPA, the Company issued and sold to Ripple (i) 626,600 shares of common stock at a purchase price of $4.10 per share and (ii) a Ripple Warrant to purchase 4,251,449 shares of common stock at a per share reference price of $4.10 per share of common stock underlying the Ripple Warrant, exercisable at $0.01 per underlying share of common stock, for an aggregate purchase price of $20.0 million representing the remaining amount of common stock and warrants that Ripple agreed to purchase under the SPA. For more information related to the SPA, see Note 20 — Related Parties of the Notes to the Consolidated Financial Statements. On November 25, 2020, Ripple held 6,237,523 shares of our network.
We continuecommon stock and initiated the sale of 4,000,000 shares through a series of open market transactions that occurred from November 27, 2020 to make progress onDecember 14, 2020. As of December 31, 2020, Ripple held 2,237,523 shares of our journey toward becoming a digitally-enabled, customer-centric organization despite competition from new technologies that allow consumers to send and receive money in a variety of ways. We believe that our continued investment in innovative products and services, particularly Digital solutions, such as the global expansion of moneygram.com, mobile solutions and account deposit services, positions the Company to accelerate our digital transformation and diversify our product and service offerings to meet consumers' needs. Digital solutions revenue for 2017 was $211.6 million, or 14% of money transfer revenue and increased by 9% from $194.1 million in 2016. Moneygram.com, which represents 42% of Digital solutions revenue for 2017, grew by $17.7 million or 25% over 2016.
common stock.
Anticipated Trends
This discussion of trends expected to impact our business in 20182021 is based on information presently available and reflects certain assumptions, including assumptions regarding future economic conditions. Differences in actual economic conditions compared with our assumptions could have a material impact on our results. See “Cautionary Statements Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” of this Annual Report on2020 Form 10-K for additional factors that could cause results to differ materially from those contemplated by the following forward-looking statements.
WeIn 2020, MoneyGram focused on positioning the Company to better compete by building and expanding customer-direct capabilities, accelerating digital growth, expanding through partnerships, and modernizing operations.
Through 2021, we believe the industry will continue to see increased opportunitiesa number of trends: the growth of digital transactions, aggressive pricing strategies, the importance of customer experience, and continuing global economic weakness. To position the Company to capitalizerespond to these trends, we are continuing to focus on growthour strategy to deliver a differentiated customer experience, scale our digital properties,be the preferred partner for agents in cross-border transactions, capture new revenue by monetizing our capabilities and have continuous improvement in the cost structure and efficiency of the Company.
In the second quarter of 2020, we announced partnerships with E9Pay and Global Money Express, two significant Korean fintech providers, which expanded MoneyGram digital send footprint. Additionally, in January 2021, we announced the expansion both geographicallyof our Visa Direct relationship through Checkout.com. The new partnership provides our consumers with near real-time deposit capabilities to Visa debit card holders in 25 countries and 575 Corridors. In 2021, we will continue to broaden our global digital footprint through productinnovative digital partnerships while continuing to focus on enhancing our direct to account reach and service offerings. However, economicreal-time deposit capabilities.
We expect pricing pressure and political instability, which can result in currencycompetition to be continuous challenges through 2021. Currency volatility, liquidity pressure on central banks and pressure on labor markets in certainspecific countries may also continue to impact our businessbusiness. On December 22, 2020, the SEC filed a lawsuit against Ripple alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering in 2018. Additionally, pricing pressure continues to negatively impact our growthviolation of the registration provisions of the Securities Act of 1933. Subsequently, substantially all of the U.S.-based digital asset exchanges removed XRP from their platforms.MoneyGram ceased transacting with Ripple under the existing commercial agreement in early December 2020 and has not since resumed trading. It is possible that MoneyGram will not resume transacting with Ripple under the U.S. to U.S. channel, along with economic issuescommercial agreement and receive the related market development fees in the Middle East2021 and Africa, which have restricted our ability to transact in certain markets.
The June 23, 2016 referendum by British voters to exit the European Union (referred to as Brexit), which was followed by Britain providing official notice to leave the European Union in March of 2017, introduced additional uncertainty in global markets and currency exchange rates. We are currently unable to determine the long term impact that Brexit will have on us, as any impact will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations.beyond.
For our Financial Paper Products segment, we expect the decline in overall paper-based transactions to continue primarily due to continued migration by customers to other payment methods. Our investment revenue, which consists primarily of interest income generated through the investment of cash balances received from the sale of our Financial Paper Products, is dependent on the interest rate environment. The Company would see a positive impact on its investment revenue if interest rates continue to rise.
The TCJA, which was signed into law on December 22, 2017, makes significant changes to the taxation of U.S. business entities. These changes includerise, and conversely, a permanent reduction to the federal corporate income tax rate and changes in the deductibility ofnegative impact if interest on corporate debt obligations, among others. The Company continues to analyze the various components of the TCJA and its impact on our consolidated financial statements. As such, the provisional amounts recorded as of December 31, 2017 related to the estimated impact resulting from the re-measurement of our deferred tax assets and liabilities and the estimated charge for the one-time tax on our deferred foreign earnings could change. See "Income Taxes" section further below and Note 12 — Income Taxes of the Notes to the Consolidated Financial Statements for additional disclosure.
We continue to see a trend among state, federal and international regulators toward enhanced scrutiny of anti-money laundering compliance programs, as well as consumer fraud prevention and education. Compliance with laws and regulations is a highly complex and integral part of our day-to-day operations; thus we have continued to increase our compliance personnel headcount and make investments in our compliance-related technology and infrastructure.For the year ended December 31, 2017, the Company has invested $28.0 million in its compliance enhancement program, which includes $18.4 million of capital expenditures and $9.6 million of expenses incurred.
In the first quarter of 2013, a compliance monitor was selected pursuant to a requirement of our settlement with the MDPA and U.S. DOJ. We have received five annual reports from the compliance monitor and we continue to make investments in our compliance systems and operations as part of our compliance enhancement program. We incurred $16.0 million of expense directly related to the compliance monitor for the year ended December 31, 2017.rates decline.
Financial Measures and Key Metrics
This Annual Report on2020 Form 10-K includes financial information prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP")GAAP as well as certain non-GAAP financial measures that we use to assess our overall performance.
U.S. GAAP Measures—We utilize certain financial measures prepared in accordance with U.S. GAAP to assess the Company's overall performance. These measures include but are not limited to: fee and other revenue, fee and other commissions expense, fee and other revenue less commissions, operating income and operating margin. Due to our regulatory capital requirements, we deem certain assets as settlement assets. Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders and customer payments. Settlement assets include settlement cash and cash equivalents, receivables, net, interest-bearing investments and available-for-sale investments. See Note 2 — Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements for additional disclosure.
Non-GAAP Measures—Generally, a non-GAAP financial measure is a numerical measure of financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should be viewed as a supplement to, and not a substitute for, financial measures presented in accordance with U.S. GAAP. We strongly encourage investors and stockholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. While we believe that these metrics enhance investors' understanding of our business, these metrics are not necessarily
comparable with similarly named metrics of other companies. The following are non-GAAP financial measures we use to assess our overall performance:
EBITDA(Earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization).
Adjusted EBITDA(EBITDA adjusted for certain significant items) — Adjusted EBITDA does not reflect cash requirements necessary to service interest or principal payments on our indebtedness or tax payments that may result in a reduction in cash available.
Adjusted Free Cash Flow (Adjusted EBITDA less cash interest, cash taxes, cash payments for capital expenditures and cash payments for agent signing bonuses) — Adjusted Free Cash Flow does not reflect cash payments related to the adjustment of certain significant items in Adjusted EBITDA.
Constant Currency— Constant currency metrics assume that amounts denominated in foreign currenciesnon-U.S. dollars are translated to the U.S. dollar at rates consistent with those in the prior year.
The Company utilizes specific terms related to our business throughout this document, including the following:Corridor— With regard to a money transfer transaction, the originating "send" location and the designated "receive" location are referred to as a corridor.
Corridor mix— The relative impactFace value— The principal amount of each completed transaction, excluding any fees related to the transaction.
Foreign currency— The impact of foreign currency exchange rate fluctuations on our financial results is typically calculated as the difference between current period activity translated using the current period’s currency exchange rates and the comparable prior-year period’s currency exchange rates. We use this method to calculate the impact of changes in foreign currency exchange rates on revenues, commissions and other operating expenses for all countries where the functional currency is not the U.S. dollar.
RESULTS OF OPERATIONS
The following table is a summary of the results of operations for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | | 2020 | | 2019 | | | | 2020 vs 2019 | | | | 2020 vs 2019 | | |
Revenue | | | | | | | | | | | | | | |
Fee and other revenue | | $ | 1,197.2 | | | $ | 1,230.4 | | | | | $ | (33.2) | | | | | (3) | % | | |
Investment revenue | | 20.0 | | | 54.7 | | | | | (34.7) | | | | | (63) | % | | |
Total revenue | | 1,217.2 | | | 1,285.1 | | | | | (67.9) | | | | | (5) | % | | |
Expenses | | | | | | | | | | | | | | |
Fee and other commissions expense | | 603.6 | | | 613.4 | | | | | (9.8) | | | | | (2) | % | | |
Investment commissions expense | | 3.6 | | | 23.3 | | | | | (19.7) | | | | | (85) | % | | |
Direct transaction expense | | 45.8 | | | 25.5 | | | | | 20.3 | | | | | 80 | % | | |
Total commissions and direct transaction expenses | | 653.0 | | | 662.2 | | | | | (9.2) | | | | | (1) | % | | |
Compensation and benefits | | 223.8 | | | 228.4 | | | | | (4.6) | | | | | (2) | % | | |
Transaction and operations support | | 111.6 | | | 207.8 | | | | | (96.2) | | | | | (46) | % | | |
Occupancy, equipment and supplies | | 61.4 | | | 60.9 | | | | | 0.5 | | | | | 1 | % | | |
Depreciation and amortization | | 64.4 | | | 73.8 | | | | | (9.4) | | | | | (13) | % | | |
Total operating expenses | | 1,114.2 | | | 1,233.1 | | | | | (118.9) | | | | | (10) | % | | |
Operating income | | 103.0 | | | 52.0 | | | | | 51.0 | | | | | 98 | % | | |
Other expenses | | | | | | | | | | | | | | |
Interest expense | | 92.4 | | | 77.0 | | | | | 15.4 | | | | | 20 | % | | |
Other non-operating expense (income) | | 4.5 | | | 39.3 | | | | | (34.8) | | | | | (89) | % | | |
Total other expenses | | 96.9 | | | 116.3 | | | | | (19.4) | | | | | (17) | % | | |
Income (loss) before income taxes | | 6.1 | | | (64.3) | | | | | 70.4 | | | | | NM | | |
Income tax expense (benefit) | | 14.0 | | | (4.0) | | | | | 18.0 | | | | | NM | | |
Net loss | | $ | (7.9) | | | $ | (60.3) | | | | | $ | 52.4 | | | | | (87) | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | 2017 | | 2016 | | 2015 | | 2017 vs 2016 | | 2016 vs 2015 | | 2017 vs 2016 | | 2016 vs 2015 |
Revenue | | | | | | | | | | | | | |
Fee and other revenue | $ | 1,560.9 |
| | $ | 1,612.4 |
| | $ | 1,527.0 |
| | $ | (51.5 | ) | | $ | 85.4 |
| | (3 | )% | | 6 | % |
Investment revenue | 41.2 |
| | 18.0 |
| | 12.1 |
| | 23.2 |
| | 5.9 |
| | NM |
| | 49 | % |
Total revenue | 1,602.1 |
| | 1,630.4 |
| | 1,539.1 |
| | (28.3 | ) | | 91.3 |
| | (2 | )% | | 6 | % |
Expenses | | | | | | | | | | | | | |
Fee and other commissions expense | 763.5 |
| | 793.1 |
| | 759.8 |
| | (29.6 | ) | | 33.3 |
| | (4 | )% | | 4 | % |
Investment commissions expense | 8.7 |
| | 2.5 |
| | 0.8 |
| | 6.2 |
| | 1.7 |
| | NM |
| | NM |
|
Total commissions expense | 772.2 |
| | 795.6 |
| | 760.6 |
| | (23.4 | ) | | 35.0 |
| | (3 | )% | | 5 | % |
Compensation and benefits | 277.7 |
| | 295.7 |
| | 310.4 |
| | (18.0 | ) | | (14.7 | ) | | (6 | )% | | (5 | )% |
Transaction and operations support | 402.3 |
| | 309.5 |
| | 324.8 |
| | 92.8 |
| | (15.3 | ) | | 30 | % | | (5 | )% |
Occupancy, equipment and supplies | 66.1 |
| | 61.9 |
| | 62.3 |
| | 4.2 |
| | (0.4 | ) | | 7 | % | | (1 | )% |
Depreciation and amortization | 75.1 |
| | 79.9 |
| | 66.1 |
| | (4.8 | ) | | 13.8 |
| | (6 | )% | | 21 | % |
Total operating expenses | 1,593.4 |
| | 1,542.6 |
| | 1,524.2 |
| | 50.8 |
| | 18.4 |
| | 3 | % | | 1 | % |
Operating income | 8.7 |
| | 87.8 |
| | 14.9 |
| | (79.1 | ) | | 72.9 |
| | (90 | )% | | NM |
|
Other expenses | | | | | | | | | | | | |
|
|
Interest expense | 45.3 |
| | 45.0 |
| | 45.3 |
| | 0.3 |
| | (0.3 | ) | | 1 | % | | (1 | )% |
Debt extinguishment costs | — |
| | 0.3 |
| | — |
| | (0.3 | ) | | 0.3 |
| | NM |
| | NM |
|
Total other expenses (income), net | 45.3 |
| | 45.3 |
| | 45.3 |
| | — |
| | — |
| | — | % | | — | % |
(Loss) income before income taxes | (36.6 | ) | | 42.5 |
| | (30.4 | ) | | (79.1 | ) | | 72.9 |
| | NM |
| | NM |
|
Income tax (benefit) expense | (6.8 | ) | | 26.6 |
| | 47.3 |
| | (33.4 | ) | | (20.7 | ) | | NM |
| | (44 | )% |
Net (loss) income | $ | (29.8 | ) | | $ | 15.9 |
| | $ | (77.7 | ) | | $ | (45.7 | ) | | $ | 93.6 |
| | NM |
| | NM |
|
NM = Not meaningful
Global Funds Transfer Fee and Other Revenue
Fee and other revenue consists of transaction fees, foreign exchange revenue and other revenue. The Company earns money transfer revenues primarily from consumer transaction fees on its money transfer and bill payment services and the management of currency exchange spreads involving different "send" and "receive" countries. Other revenue in the Global Funds Transfer segment primarily consists of breakage revenue on money transfer transactions where the likelihood of payment is remote and there is no requirement for remitting balances to government agencies under unclaimed property laws.
The following discussion provides a summary of fee and other revenue for the Global Funds Transfer segment for the years ended December 31. Investment revenue is not included in the analysis below. For further detail, see "Investment Revenue Analysis" below.
|
| | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | 2017 | | 2016 | | 2015 | | 2017 vs 2016 | | 2016 vs 2015 |
Money transfer fee and other revenue | $ | 1,421.8 |
| | $ | 1,456.2 |
| | $ | 1,366.9 |
| | (2 | )% | | 7 | % |
Bill payment fee and other revenue | 86.3 |
| | 97.5 |
| | 98.7 |
| | (11 | )% | | (1 | )% |
Global Funds Transfer fee and other revenue | $ | 1,508.1 |
| | $ | 1,553.7 |
| | $ | 1,465.6 |
| | (3 | )% | | 6 | % |
Fee and other commissions expense | $ | 762.2 |
| | $ | 791.9 |
| | $ | 759.5 |
| | (4 | )% | | 4 | % |
Money Transfer Fee and Other RevenueRevenues
The following table detailsis a summary of the changes in money transfer fee and other revenue from the respective prior yearCompany's revenues for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | |
(Amounts in millions, except percentages) | | Dollars | | Percent of Total Revenue | | Dollars | | Percent of Total Revenue | | | | |
Global Funds Transfer fee and other revenue | | $ | 1,150.9 | | | 94 | % | | $ | 1,183.3 | | | 92 | % | | | | |
Financial Paper Product fee and other revenue | | 46.3 | | | 4 | % | | 47.1 | | | 4 | % | | | | |
Investment revenue | | 20.0 | | | 2 | % | | 54.7 | | | 4 | % | | | | |
Total revenue | | $ | 1,217.2 | | | 100 | % | | $ | 1,285.1 | | | 100 | % | | | | |
|
| | | | | | | |
(Amounts in millions) | 2017 | | 2016 |
Prior year ended | $ | 1,456.2 |
| | $ | 1,366.9 |
|
Change resulting from: | | | |
Corridor mix | (41.1 | ) | | 24.2 |
|
Money transfer volume | 17.2 |
| | 74.1 |
|
Average face value per transaction and pricing | (15.5 | ) | | 11.1 |
|
Impact from changes in exchange rates | 1.7 |
| | (16.2 | ) |
Other | 3.3 |
| | (3.9 | ) |
Current year ended | $ | 1,421.8 |
| | $ | 1,456.2 |
|
In 2017, the decrease in money transfer fee and other revenue was primarily driven by a negative change in corridor mix and a decrease in the average face value per transaction and pricing, partially offset by increased Non-U.S. and U.S. outbound money transfer volume discussed further below.
In 2016, the increase in money transfer fee and other revenue was primarily driven by increased Non-U.S. and U.S. outbound money transfer volume discussed further below and a positive change in corridor mix, partially offset by the stronger U.S. dollar compared to prior year.
The following table displays year-over-year money transfer fee and other revenue growth by geographic channel (the region originating the transaction) for the years ended December 31:
|
| | | |
| 2017 vs 2016 | | 2016 vs 2015 |
Total money transfer fee and other revenue | (2)% | | 7% |
U.S. Outbound | 1% | | 9% |
Non-U.S. | (2)% | | 8% |
U.S. to U.S. | (16)% | | (7)% |
Money Transfer Transactions
The following table displays the percentage distribution of2020, total money transfer transactions by geographic channel (the region originating the transaction) for the years ended December 31:
|
| | | | | | | | |
| 2017 | | 2016 | | 2015 |
U.S. Outbound | 44 | % | | 43 | % | | 43 | % |
Non-U.S. | 44 | % | | 43 | % | | 40 | % |
U.S. to U.S. | 12 | % | | 14 | % | | 17 | % |
The following table displays year over year money transfer transaction growth by geographic channel (the region originating the transaction) for the years ended December 31:
|
| | | |
| 2017 vs 2016 | | 2016 vs 2015 |
Total transactions | 1% | | 5% |
U.S. Outbound | 2% | | 8% |
Non-U.S. | 6% | | 11% |
U.S. to U.S. | (14)% | | (13)% |
During 2017, total money transfer fee and other revenue declined by
2% and total money transfer transactions grew$67.9 million. See the "Segments Results" section below for a detailed discussion of revenues by 1%. The U.S. Outbound channel generated 1% revenue growth for the year ended December segment.
31 2017 and 2% transaction growth for the same period. The revenue and transaction growth was primarily driven by sends to Latin America. The U.S. Outbound channel accounted for 44%
During 2017, money transfer fee for the Non-U.S. channel and other revenue declined by 2% and transactions grew by 6% for the same period. The transaction growth was primarily driven by sends from Latin America, Middle East and Europe partially offset by a decrease in revenue caused by geopolitical and economic challenges in parts of Africa. The Non-U.S. channel accounted for 44% of total money transfer transactions for the year ended December 31, 2017.
For the year ended December 31, 2017, the U.S. to U.S. channel money transfer fee and other revenue declined by 16% and transactions declined by 14% for the same period. The decline was primarily due to lower transaction volume. The U.S. to U.S. channel accounted for 12% of total money transfer transactions for 2017.
During 2016, total money transfer fee and other revenue grew by 7% and total money transfer transactions grew by 5%. The U.S. Outbound channel generated 9% revenue growth for the year ended December 31, 2016 and 8% transaction growth for the same period. The revenue and transaction growth was primarily driven by sends to Latin America, Africa and Asia Pacific and was partially offset by the discontinuation of our full-service kiosk offerings. The U.S. Outbound channel accounted for 43% of our total money transfer transactions for 2016.
During 2016, the Non-U.S. channel money transfer fee and other revenue grew by 8% and transactions grew by 11% for the same period. The revenue and transaction growth was primarily driven by sends from Europe, partially offset by lower transaction volume caused by geopolitical and economic challenges in parts of Africa. The Non-U.S. channel accounted for 43% of total money transfer transactions for the year ended December 31, 2016.
For the year ended December 31, 2016, the U.S. to U.S. channel money transfer fee and other revenue declined by 7% and transactions declined by 13% for the same period. The decline was primarily due to lower volume of transactions under $200. The U.S. to U.S. channel accounted for 14% of total money transfer transactions for 2016.
Bill Payment Fee and Other Revenue
In 2017 and 2016, bill payment fee and other revenue decreased by $11.2 million or 11% and $1.2 million or 1%, respectively, due to lower transactions resulting from shifts in industry mix. For the years ended December 31, 2017 and 2016, bill payment transactions decreased by 12% and 3%, respectively.
Global Funds Transfer Fee and Other Commissions Expense
The Company incurs fee commissions and foreign exchange commissions primarily on our Global Funds Transfer products. In a money transfer transaction, both the agent initiating the transaction and the receiving agent earn a fee commission that is generally a fixed fee or is based on a percentage of the fee charged to the consumer. The agent initiating the transaction and the receiving agent also earn foreign exchange commissions, which are generally based on a percentage of currency exchange spreads. In a bill payment transaction, the agent initiating the transaction receives a commission and, in limited circumstances, the biller will generally earn a commission that is based on a percentage of the fee charged to the consumer. Other commissions expense includes the amortization of capitalized agent signing bonus payments.
The following table details the changes in fee and other commissions for the Global Funds Transfer segment from the respective prior year for the years ended December 31:
|
| | | | | | | |
(Amounts in millions) | 2017 | | 2016 |
Prior year ended | $ | 791.9 |
| | $ | 759.5 |
|
Change resulting from: | | | |
Money transfer revenue | (17.4 | ) | | 50.9 |
|
Bill payment revenue and commission rates | (6.6 | ) | | (0.1 | ) |
Money transfer corridor and agent mix | (3.7 | ) | | (5.0 | ) |
Signing bonuses | (1.9 | ) | | (5.0 | ) |
Impact from changes in exchange rates | (0.1 | ) | | (8.4 | ) |
Current year ended | $ | 762.2 |
| | $ | 791.9 |
|
For the year ended December 31, 2017, fee and other commissions expense decreased $29.7 million or 4%. The decrease in commissions expense was primarily driven by decreases in money transfer revenue, bill payment revenue and commissions rates and money transfer corridor and agent mix. Commissions expense as a percentage of fee and other revenue was 51% in both 2017 and 2016.
For the year ended December 31, 2016, fee and other commissions expense increased $32.4 million or 4%. The increase in commissions expense was primarily driven by the increase in money transfer revenue, as a result of an increase in money transfer volume and an increase in average price per transaction, partially offset by changes in money transfer corridor and agent mix, the impact from a stronger U.S. dollar compared to prior year and a decrease in signing bonus amortization. Commissions expense as a percentage of fee and other revenue declined to 51% in 2016 from 52% in 2015.
Financial Paper Products Fee and Other Revenue and Fee and Other Commissions Expense
Fee and other revenue consists of transaction fees and other revenue. Transaction fees are earned on money order and official check transactions. Other revenue primarily consists of processing fees, service charges on aged outstanding money orders and money order dispenser fees. We generally do not pay commissions to agents on the sale of money orders, except, in certain limited circumstances, for large agents where we may pay a commission based on total money order transactions or outstanding balance.
The following discussion provides a summary of fee and other revenue and fee and other commissions expense for the Financial Paper Product segment for the years ended December 31. Investment revenue and investment commissions expense are not included in the analysis below. For further detail, see "Investment Revenue Analysis" below.
|
| | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | 2017 | | 2016 | | 2015 | | 2017 vs 2016 | | 2016 vs 2015 |
Money order fee and other revenue | $ | 42.5 |
| | $ | 45.4 |
| | $ | 47.6 |
| | (6 | )% | | (5 | )% |
Official check fee and other revenue | 10.4 |
| | 12.2 |
| | 13.8 |
| | (15 | )% | | (12 | )% |
Financial Paper Product fee and other revenue | $ | 52.9 |
| | $ | 57.6 |
| | $ | 61.4 |
| | (8 | )% | | (6 | )% |
Fee and other commissions expense | $ | 1.3 |
| | $ | 1.2 |
| | $ | 0.3 |
| | 8 | % | | NM |
|
Money order fee and other revenue decreased in 2017 and 2016 due to transaction declines of 6% and 7%, respectively, attributed primarily to the migration of consumers to other payment methods. Similarly, official check fee and other revenue decreased due to transaction declines of 3% and 8% in 2017 and 2016, respectively.
Investment Revenue Analysis
The following discussion provides a summary of the Company's investment revenue and investment commissions expense for the years ended December 31:
|
| | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | 2017 | | 2016 | | 2015 | | 2017 vs 2016 | | 2016 vs 2015 |
Investment revenue | $ | 41.2 |
| | $ | 18.0 |
| | $ | 12.1 |
| | NM | | 49 | % |
Investment commissions expense (1) | 8.7 |
| | 2.5 |
| | 0.8 |
| | NM | | NM |
|
(1)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.
Investment Revenue
Investment revenue consists primarily of interest income generated through the investment of cash balances received from the sale of official checks and money orders. These cash balances are available to us for investment until the payment instrument is cleared. Investment revenue varies depending on the level of investment balances and the yield on our investments.
Investment revenue in 2017 increased $23.2 million, when compared to 2016, due to the redemption of an asset-backed security as well as higher yields earned on investment balances. In 2017, investment commissions expense increased due to the change in interest rates. See Note 4 — Investment Portfolio of the Notes to the Consolidated Financial Statements for additional information on the redemption.
Investment revenue in 2016 increased $5.9 million, or 49%, when compared to 2015 primarily due to higher yields earned on investment balances. In 2016 investment commissions expense increased due to the change in interest rates.
Operating Expenses
The following table is a summary of the operating expenses excluding commissions expense, for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | |
(Amounts in millions, except percentages) | | Dollars | | Percent of Total Revenue | | Dollars | | Percent of Total Revenue | | | | |
Total commissions and direct transaction expenses | | $ | 653.0 | | | 55 | % | | $ | 662.2 | | | 51 | % | | | | |
Compensation and benefits | | 223.8 | | | 18 | % | | 228.4 | | | 18 | % | | | | |
Transaction and operations support | | 111.6 | | | 9 | % | | 207.8 | | | 16 | % | | | | |
Occupancy, equipment and supplies | | 61.4 | | | 5 | % | | 60.9 | | | 5 | % | | | | |
Depreciation and amortization | | 64.4 | | | 5 | % | | 73.8 | | | 6 | % | | | | |
Total operating expenses | | $ | 1,114.2 | | | 92 | % | | $ | 1,233.1 | | | 96 | % | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 | | 2015 |
(Amounts in millions, except percentages) | Dollars | | Percent of Total Revenue | | Dollars | | Percent of Total Revenue | | Dollars | | Percent of Total Revenue |
Compensation and benefits | $ | 277.7 |
| | 17 | % | | $ | 295.7 |
| | 18 | % | | $ | 310.4 |
| | 20 | % |
Transaction and operations support | 402.3 |
| | 25 | % | | 309.5 |
| | 19 | % | | 324.8 |
| | 21 | % |
Occupancy, equipment and supplies | 66.1 |
| | 4 | % | | 61.9 |
| | 4 | % | | 62.3 |
| | 4 | % |
Depreciation and amortization | 75.1 |
| | 5 | % | | 79.9 |
| | 5 | % | | 66.1 |
| | 4 | % |
Total operating expenses | $ | 821.2 |
| | 51 | % | | $ | 747.0 |
| | 46 | % | | $ | 763.6 |
| | 50 | % |
In 2017,2020, total operating expenses as a percentage of total revenue increased when compared to 2016, due to an $85.0declined by $118.9 million accrual related to the DPA.
In 2016, total operating expenses as a percentage of total revenue was 46% compared to 50% in 2015. The decrease was mainly due to an increase in total revenue, lower expense related to the 2014 Global Transformation Program and a decrease in pension expense, partially offset by an increase in outsourcing, independent contractor and consultant costs, depreciation and amortization and net salaries, related payroll taxes and cash incentive compensation, all of which
areis discussed in
more detail
in this section and the "Segments Results" section below.CompensationTotal Commissions and BenefitsDirect Transaction Expenses
CompensationIn 2020, total commissions and benefits include salaries and benefits, management incentive programs, related payroll taxes and other employee related costs. The following table is a summary of the change in compensation and benefits from the respective prior year for the years ended December 31:
|
| | | | | | | |
(Amounts in millions) | 2017 | | 2016 |
Prior year ended | $ | 295.7 |
| | $ | 310.4 |
|
Change resulting from: | | | |
| | | |
Net salaries, related payroll taxes and cash incentive compensation | (11.7 | ) | | 12.7 |
|
Severance and related costs | (6.0 | ) | | 7.0 |
|
Employee stock-based compensation | (3.4 | ) | | (1.7 | ) |
Impact from changes in exchange rates | 2.3 |
| | (2.1 | ) |
Pension | (1.3 | ) | | (19.7 | ) |
Reorganization and restructuring | — |
| | (10.3 | ) |
Other | 2.1 |
| | (0.6 | ) |
Current year ended | $ | 277.7 |
| | $ | 295.7 |
|
In 2017, compensation and benefitsdirect transaction expenses decreased by
$18.0$9.2 million
primarily due to the decrease in
net salaries, related payroll taxescommission rates. See the "Segments Results" section below for more information on commissions and cash incentive compensation primarily drivendirect transaction expense by lower headcount, a decrease in severancesegment.Compensation and related costs and lower employee stock-based compensation expense. These decreases were partially offset by the changes in exchange rates due to a weaker U.S. dollar.
Benefits
In 2016,2020, compensation and benefits decreased by $14.7 millionprimarily due to the decrease in pension expense primarilysalaries and related payroll taxes as a result of a pension settlement charge recordedlower headcount from the 2019 Organizational Realignment, and an increase in 2015 from a voluntary pension buyout, the conclusion of the 2014 Global Transformation Program reorganization and restructuring activities, impact from changes in exchange rates due to a stronger U.S. dollar and lower employee stock-based compensation expense. These decreases werecapitalized software development, partially offset by anthe increase in net salaries, related payroll taxes and cash incentive compensation primarily driven by higher headcount and also offset by an increase in severance and related costs.compensation.
Transaction and Operations Support
Transaction and operations support 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 costs, non-employee director stock-based compensation expense, bank charges, and the impact of foreignnon-U.S. dollar exchange rate movements on our monetary transactions and assets and liabilities denominated in a currency other than the U.S. dollar.dollar, and Ripple market development fees and related transaction and trading expenses.
The following table is a summary of the change in transaction and operations support from the respective prior year for the years ended December 31:2019 to 2020:
|
| | | | | | | |
(Amounts in millions) | 2017 | | 2016 |
Prior year ended | $ | 309.5 |
| | $ | 324.8 |
|
Change resulting from: | | | |
Legal expenses | 94.2 |
| | (2.2 | ) |
Net realized foreign exchange gains | 10.7 |
| | (6.8 | ) |
Outsourcing, independent contractor and consultant costs | (9.2 | ) | | 19.2 |
|
Marketing costs | (8.4 | ) | | 5.8 |
|
Direct monitor costs | 6.9 |
| | (2.4 | ) |
Provision for loss | (4.9 | ) | | (8.1 | ) |
Bank Charges | 4.2 |
| | 2.1 |
|
Compliance enhancement program | (2.1 | ) | | (13.0 | ) |
Impact from changes in exchange rates | 1.0 |
| | (1.0 | ) |
Reorganization and restructuring | — |
| | (7.8 | ) |
Other | 0.4 |
| | (1.1 | ) |
Current year ended | $ | 402.3 |
| | $ | 309.5 |
|
In 2017, transaction and operations support increased by $92.8 million primarily due to an increase in legal expenses driven by the $85.0 million accrual related to the DPA discussed in more detail in Note 13 — Commitments and Contingencies of the Notes to the Consolidated Financial Statements, and costs incurred in connection with the terminated merger with Ant Financial. Additional factors contributing to the increase include: the change in net realized foreign exchange gains, direct monitor costs and bank charges from fees on foreign exchange trades. The increase was partially offset by decreases in outsourcing, independent contractor and consultant costs and marketing costs and a reduction in our provision for loss. | | | | | | | | | | |
(Amounts in millions) | | 2020 | | |
Prior year end | | $ | 207.8 | | | |
Change resulting from: | | | | |
General operating expenses | | (92.5) | | | |
Non-income taxes | | 2.3 | | | |
Realized foreign exchange gains | | (10.9) | | | |
Provision for loss | | 7.8 | | | |
Direct monitor costs | | (2.9) | | | |
Bank charges | | — | | | |
Current year end | | $ | 111.6 | | | |
In 2016,2020, transaction and operations support decreased by $15.3 million primarily due to the declinehigher market development fees received from Ripple, and disciplined expense management in expenses relatedresponse to the compliance enhancement program and the completion of the 2014 Global Transformation Program reorganization and restructuring activities, a reduction in our provision for loss due to reduced moneygram.com fraud losses and decreased net realized foreign exchange gains related to the favorable execution of the purchase of certain currencies, which traded outside of their historical norms in the first half of 2016. The decrease was partially offset by an increase in costs for outsourcing, independent contractor and consultant costs as a result of continued investment in our compliance systems and call centers and an increase in marketing costs.COVID-19 pandemic.
Occupancy, Equipment and Supplies
Occupancy, equipment and supplies expense includeincludes facilities rent and maintenance costs, software and equipment maintenance costs, freight and delivery costs and supplies.
In 2017,2020, occupancy, equipment and supplies expense increased $4.2 million when compared to 2016 as a result of an increase in equipment maintenance costs.
In 2016, occupancy, equipment and supplies remained relatively flat when compared to 2015.flat.
Depreciation and Amortization
Depreciation and amortization includes depreciation on computer hardware and software, agent signage, point of sale equipment, capitalized software development costs, office furniture, equipment and leasehold improvements and amortization of intangible assets.
In 2017,2020, depreciation and amortization decreased $4.8by $9.4 million or 6%, when comparedprimarily due to 2016,a decrease in capital expenditures as a result of higher costs during the first half of 2016 from the accelerated depreciation expense on our non-core point of sale equipment that was early retired.
In 2016, depreciation and amortization increased $13.8 million, or 21%, when comparedmigration to 2015, primarily driven by accelerated depreciation expense on non-core assets and depreciation expense on computer hardware and software asset additions related to the compliance enhancement program.
Other Expenses, Net
Interest expense in 2017 remained relatively flat when compared to 2016.
Interest expense in 2016 remained relatively flat when compared to 2015. The Company incurred debt extinguishment costs of $0.3 million in 2016 in connection with additional debt principal paymentscloud computing and a debt repurchase made during the year.decrease in agent signage.
Income Taxes
Segments Results
Global Funds Transfer
The following table representssets forth our provision for income taxes and effective tax rateGlobal Funds Transfer segment results of operations for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in millions) | | 2020 | | 2019 | | | | 2020 vs 2019 | | |
Money transfer revenue | | $ | 1,104.7 | | | $ | 1,123.9 | | | | | $ | (19.2) | | | |
Bill payment revenue | | 46.2 | | | 59.4 | | | | | (13.2) | | | |
Total Global Funds Transfer revenue | | $ | 1,150.9 | | | $ | 1,183.3 | | | | | $ | (32.4) | | | |
| | | | | | | | | | |
Fee and other commissions and direct transaction expenses | | $ | 649.3 | | | $ | 637.9 | | | | | $ | 11.4 | | | |
|
| | | | | | | | | | | | |
(Amounts in millions, except percentages) | | 2017 | | 2016 | | 2015 |
Provision for income taxes | | $ | (6.8 | ) | | $ | 26.6 |
| | $ | 47.3 |
|
Effective tax rate | | 18.6 | % | | 62.6 | % | | (155.6 | )% |
Money Transfer RevenueIn 2017, the Company recognized a tax benefit of $6.82020, money transfer fee revenue decreased by $19.2 million on a pre-tax loss of $36.6 million. The most significant items impacting the effective tax rate were the tax impacts of TCJA, discussed below, and the tax impact of an accrual relatedprimarily due to the DPA as further discussedlower pricing per transaction in Note 13 — Commitments and Contingencies of the Notes to the Consolidated Financial Statements. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the TCJA, the Company revalued its ending net deferred tax liabilities as of December 31, 2017 and recognized a provisional $19.8 million tax benefit in the Company’s consolidated statement of income for the year ended December 31, 2017. Additionally, the Company recognized a provisional net $3.0 million tax benefit for the remeasurement of previously recorded deferred tax assets and liabilities primarily associated with historical earnings in its foreign subsidiaries. See Note 12 — Income Taxes of the Notes to the Consolidated Financial Statements for additional disclosure regarding potential impacts from the TCJA and the other items impacting the Company's effective tax rate.
Our provision for income taxes decreased from 2015 to 2016, primarilycertain markets as a result of an IRS tax court decision received in 2015pricing pressure from increased competition and reduced Walmart2World foreign exchange spreads, partially offset by a separate IRS settlement in 2016. The effective tax ratean increase in 2016 is not meaningful to compare to 2015money transfer transaction volume driven by the growth of our Digital Channel.
Bill Payment Revenue
In 2020, bill payment revenue decreased by $13.2 million, or 22%, primarily due to the operating loss in 2015. See Note 12 — Income Taxes and Note 13 — Commitments and Contingencies global economic impacts of the NotesCOVID-19 pandemic.
Fee and Other Commissions Expense
In 2020, fee and other commissions expense of $603.5 million decreased by $8.9 million from prior year, primarily due to the Consolidated decrease in money transfer revenue discussed above, partially offset by an increase in agent signing bonuses.
Direct Transaction Expense
In 2020, direct transaction expense of $45.8 million increased by $20.3 million from prior year, primarily due to higher volumes in transactions associated with our Digital Channel.
Financial StatementsPaper Products
The following table sets forth our Financial Paper Products segment results of operations for additional disclosure.the years ended December 31:
Our provision for income taxes is volatile and could be affected | | | | | | | | | | | | | | | | | | | | | | | | |
(Amounts in millions) | | 2020 | | 2019 | | | | 2020 vs 2019 | | |
Money order revenue | | $ | 43.4 | | | $ | 53.0 | | | | | $ | (9.6) | | | |
Official check revenue | | 22.9 | | | 48.8 | | | | | (25.9) | | | |
Total Financial Paper Products revenue | | $ | 66.3 | | | $ | 101.8 | | | | | $ | (35.5) | | | |
| | | | | | | | | | |
Commissions expense | | $ | 3.7 | | | $ | 24.3 | | | | | $ | (20.6) | | | |
In 2020, Financial Paper Products revenue decreased by changes$35.5 million, or 35%, primarily due to a decline in investment revenue as a result of substantially lower prevailing interest rates driven by a reduction in the valuationfederal funds rate in response to the COVID-19 pandemic. Commissions expense for Financial Paper Products decreased by $20.6 million due to the decline in investment commissions expense driven by lower interest rates.
We are regularly examined by tax authorities both domestically and internationally. We assess the likelihood of adverse outcomes and believe that adequate amounts have been reserved for adjustments that may result from these examinations. Given the inherent uncertainties in these examinations, the ultimate amount and timing of adjustments cannot be assured.
Operating Income and Operating Margin
The following table provides a summary overview of operating income and operating margin for the years ended December 31:
| | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | | 2020 | | 2019 | | |
Operating income: | | | | | | |
Global Funds Transfer | | $ | 84.4 | | | $ | 22.0 | | | |
Financial Paper Products | | 20.5 | | | 33.8 | | | |
Total segment operating income | | 104.9 | | | 55.8 | | | |
Other | | (1.9) | | | (3.8) | | | |
Total operating income | | $ | 103.0 | | | $ | 52.0 | | | |
| | | | | | |
Total operating margin | | 8.5 | % | | 4.0 | % | | |
Global Funds Transfer | | 7.3 | % | | 1.9 | % | | |
Financial Paper Products | | 30.9 | % | | 33.2 | % | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | |
(Amounts in millions, except percentages) | 2017 | | 2016 | | 2015 |
Operating income: | | | | | |
Global Funds Transfer | $ | 4.9 |
| | $ | 95.8 |
| | $ | 31.7 |
|
Financial Paper Products | 31.8 |
| | 18.5 |
| | 17.9 |
|
Total segment operating income | 36.7 |
| | 114.3 |
| | 49.6 |
|
Other | (28.0 | ) | | (26.5 | ) | | (34.7 | ) |
Total operating income | $ | 8.7 |
| | $ | 87.8 |
| | $ | 14.9 |
|
| | | | | |
Total operating margin | 0.5 | % | | 5.4 | % | | 1.0 | % |
Global Funds Transfer | 0.3 | % | | 6.2 | % | | 2.2 | % |
Financial Paper Products | 33.8 | % | | 24.5 | % | | 24.4 | % |
2017 Compared to 2016
In 2017,2020, operating income for the Global Funds Transfer segment operating income and operating marginFinancial Paper Products segments increased by $62.4 million and decreased due to the decline in money transfer fee and other revenue and an $85.0by $13.3 million, accrual related to the DPA discussed in more detail in Note 13 — Commitments and Contingencies of the Notes to the Consolidated Financial Statements, partially offset by the decrease in operating expensesrespectively, as a result of various cost saving initiatives throughout the year. The Financial Paper Products segmentfactors discussed in the "Segments Results" section above. Other operating income and operating margin increased when compared to 2016,loss decreased in 2020 due to higher segment revenues from the redemption of an asset-backed security describedongoing cost-savings initiatives.
Other Expenses
In 2020, total other expenses decreased by $19.4 million due to a non-cash settlement charge in Note 4 — Investment Portfolio of the Notes2019 related to the Consolidated Financial Statements. The increase in "Other" operating losses was primarily driven by costs incurred in connection with the terminated merger with Ant Financial in 2017,our Pension Plan, partially offset by lower severancehigher interest rates.
Income Taxes
The following table represents our provision for income taxes and related costs.effective tax rate for the years ended December 31:
2016 Compared to 2015 | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | | 2020 | | 2019 | | |
Provision for income taxes | | $ | 14.0 | | | $ | (4.0) | | | |
| | | | | | |
During 2016,In 2020, the Company experiencedrecognized an income tax expense of $14.0 million on a pre-tax income of $6.1 million. Our income tax rate was higher than the statutory rate primarily due to an increase in total operating income and operating margin when compared to 2015, primarily due tovaluation allowance, an increase in money transfer feeunrecognized tax benefits, non-deductible expenses, and other revenueinternational taxes, all of $89.3 million. Additionally, total operating expenses as a percent of total revenue decreased due to the lower expenses related to the 2014 Global Transformation Program and the reduction in pension expense,which were partially offset by an increaseU.S. general business credits and a change in outsourcing, independent contractor and consultant costs, depreciation and amortization and net salaries, related payroll taxes and cash incentive compensation,U.S. tax law as previously discussed.further discussed in Note 14 —Income Taxes ."Other" operating losses decreased from 2015 to 2016 primarily due to the decrease in pension expense as a result
EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow and Constant Currency
We believe that EBITDA (earnings before interest, taxes, depreciation and amortization, including agent signing bonus amortization), Adjusted EBITDA (EBITDA adjusted for certain significant items), Adjusted Free Cash Flow (Adjusted EBITDA less cash interest, cash taxes, cash payments for capital expenditures and cash payments for agent signing bonuses) and constant currency measures (which assume that amounts denominated in foreign currencies are translated to the U.S. dollar at rates consistent with those in the prior year) provide useful information to investors because they are indicators of the strength and performance of our ongoing business operations. These calculations are commonly used as a basis for investors, analysts and other interested parties 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. EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow and constant currency are financial and performance measures used by management in reviewing results of operations, forecasting, allocating resources and establishing employee incentive programs. We also present Adjusted EBITDA growth, constant currency adjusted, which provides information to investors regarding MoneyGram's performance without the effect of foreign currency exchange rate fluctuations year-over-year.
Although we believe that EBITDA, Adjusted EBITDA, Adjusted Free Cash Flow and constant currency measures enhance investors' understanding of our business and performance, these non-GAAP financial measures should not be considered in isolation or as substitutes for the accompanying GAAP financial measures. These metrics are not necessarily comparable with similarly named metrics of other companies.
The following table is a reconciliation of our non-GAAP financial measures to the related U.S. GAAP financial measures for the years ended December 31:measures:
| | | | | | | | | | | | | | | | |
(Amounts in millions) | | 2020 | | 2019 | | |
Income (loss) before income taxes | | $ | 6.1 | | | $ | (64.3) | | | |
Interest expense | | 92.4 | | | 77.0 | | | |
Depreciation and amortization | | 64.4 | | | 73.8 | | | |
Signing bonus amortization | | 54.5 | | | 46.4 | | | |
EBITDA | | 217.4 | | | 132.9 | | | |
Significant items impacting EBITDA: | | | | | | |
Direct monitor costs | | 11.0 | | | 13.9 | | | |
Stock-based, contingent and incentive compensation | | 6.6 | | | 7.9 | | | |
Compliance enhancement program | | 4.4 | | | 8.9 | | | |
Severance and related costs | | 0.3 | | | 0.7 | | | |
Non-cash pension settlement charge (1) | | — | | | 31.3 | | | |
Legal and contingent matters | | 0.6 | | | 4.5 | | | |
Debt extinguishment costs (2) | | — | | | 2.4 | | | |
Restructuring and reorganization costs | | 1.0 | | | 11.2 | | | |
| | | | | | |
Adjusted EBITDA | | $ | 241.3 | | | $ | 213.7 | | | |
| | | | | | |
Adjusted EBITDA change, as reported | | 13 | % | | | | |
Adjusted EBITDA change, constant currency adjusted | | 11 | % | | | | |
| | | | | | |
Adjusted EBITDA | | 241.3 | | | 213.7 | | | |
Cash payments for interest | | (77.5) | | | (63.3) | | | |
Cash payments for taxes, net of refunds | | 1.8 | | | (4.4) | | | |
Cash payments for capital expenditures | | (40.8) | | | (54.5) | | | |
Cash payments for agent signing bonuses | | (58.7) | | | (29.1) | | | |
Adjusted Free Cash Flow | | $ | 66.1 | | | $ | 62.4 | | | |
| | | | | | |
(1) 2019 includes a non-cash charge from the sale of pension liability. |
(2) 2019 includes debt extinguishment costs related to the amended and new debt agreements. |
|
|
| | | | | | | | | | | | |
(Amounts in millions) | | 2017 | | 2016 | | 2015 |
(Loss) income before income taxes | | $ | (36.6 | ) | | $ | 42.5 |
| | $ | (30.4 | ) |
Interest expense | | 45.3 |
| | 45.0 |
| | 45.3 |
|
Depreciation and amortization | | 75.1 |
| | 79.9 |
| | 66.1 |
|
Amortization of agent signing bonuses | | 51.9 |
| | 54.0 |
| | 60.4 |
|
EBITDA | | 135.7 |
| | 221.4 |
| | 141.4 |
|
Significant items impacting EBITDA: | | | | | | |
Legal and contingent matters(1) | | 85.9 |
| | 2.3 |
| | 1.7 |
|
Direct monitor costs | | 16.0 |
| | 9.1 |
| | 11.5 |
|
Stock-based, contingent and incentive compensation | | 14.5 |
| | 19.0 |
| | 26.9 |
|
Costs incurred in connection with the terminated merger with Ant Financial(2) | | 12.7 |
| | — |
| | — |
|
Compliance enhancement program | | 9.6 |
| | 10.3 |
| | 26.5 |
|
Severance and related costs
| | 1.5 |
| | 1.9 |
| | — |
|
Reorganization and restructuring costs
| | — |
| | — |
| | 20.0 |
|
Pension settlement charge | | — |
| | — |
| | 13.8 |
|
Adjusted EBITDA | | $ | 275.9 |
| | $ | 264.0 |
| | $ | 241.8 |
|
| | | | | | |
Adjusted EBITDA growth, as reported | 5 | % | | | | |
Adjusted EBITDA growth, constant currency adjusted | 5 | % | | | | |
| | | | | | |
Adjusted EBITDA | | $ | 275.9 |
| | $ | 264.0 |
| | $ | 241.8 |
|
Cash payments for interest | | (41.9 | ) | | (41.6 | ) | | (42.1 | ) |
Cash payments for taxes, net of refunds | | (5.0 | ) | | (9.5 | ) | | (64.4 | ) |
Payments related to IRS tax matter | | — |
| | — |
| | 61.0 |
|
Cash payments for capital expenditures | | (83.6 | ) | | (82.8 | ) | | (109.9 | ) |
Cash payments for agent signing bonuses | | (40.3 | ) | | (34.0 | ) | | (87.3 | ) |
Adjusted Free Cash Flow | | $ | 105.1 |
| | $ | 96.1 |
| | $ | (0.9 | ) |
(1) 2017 consists primarily of an $85.0 million accrual related to the DPA net of a one-time insurance settlement of $1.3 million. |
(2) Costs include, but are not limited to, legal, investment banking and consultant fees and other one-time integration planning costs.
|
2017 Compared to 2016
The Company generated EBITDA of $135.7 million and $221.4 million and Adjusted EBITDA of $275.9 million and $264.0 million for the years ended December 31, 2017 and 2016, respectively. Adjusted EBITDA increased when compared to the same period in 2016, primarily due to a decrease in total operating expenses driven by a decrease in net salaries, related payroll taxes and cash incentive compensation, outsourcing, independent contractor and consultant costs and marketing costs. EBITDA decreased primarily due to an $85.0 million accrual related to the DPA discussed in more detail in Note 13 — Commitments and Contingencies of the Notes to the Consolidated Financial Statements when compared to 2016.
For 2017, Adjusted Free Cash Flow increased by $9.0 million. The increase was a result of increase in Adjusted EBITDA, decreases in payments for net cash taxes, partially offset by increases in agent signing bonuses.
2016 Compared to 2015
For 2016, the Company generated EBITDA of $221.4 million and adjusted EBITDA of $264.0 million. When compared to 2015, Adjusted EBITDA increased $22.2 million. The increase in Adjusted EBITDA was primarily driven by an increase in money transfer fee and other revenue and a decrease in the pension expense. The increase in EBITDA was driven by the same factors that impacted Adjusted EBITDA and lower expense related to the 2014 Global Transformation Program.
For 2016, Adjusted Free Cash Flow increased by $97.0 million. The increase was a result of increase in Adjusted EBITDA, decreases in payments for capital expenditures and agent signing bonuses.
See "Results of Operations"Operations" and "Analysis of Cash Flows"Flows" sections for additional information regardingregarding these changes.
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, settlement cash and cash equivalents, interest-bearing investments and available-for-sale investments collectively as our “investment"investment portfolio.”" The companyCompany utilizes cash and cash equivalents in various liquidity and capital assessments.
Cash and Cash Equivalents, Settlement Assets and Payment Service Obligations
The following table shows the components of the Company's cash and cash equivalents and settlement assets as of December 31:
| | (Amounts in millions) | 2017 | | 2016 | (Amounts in millions) | | 2020 | | 2019 |
Cash and cash equivalents | $ | 190.0 |
| | $ | 157.2 |
| Cash and cash equivalents | | $ | 196.1 | | | $ | 146.8 | |
| | | | |
Settlement assets: | | | | Settlement assets: | |
Settlement cash and cash equivalents | 1,469.9 |
| | 1,365.0 |
| Settlement cash and cash equivalents | | 1,883.2 | | | $ | 1,531.1 | |
Receivables, net | 1,125.8 |
| | 999.4 |
| Receivables, net | | 825.0 | | | 715.5 | |
Interest-bearing investments | 1,154.2 |
| | 1,252.1 |
| Interest-bearing investments | | 991.2 | | | 985.9 | |
Available-for-sale investments | 7.0 |
| | 17.8 |
| Available-for-sale investments | | 3.5 | | | 4.5 | |
| 3,756.9 |
| | 3,634.3 |
| | $ | 3,702.9 | | | $ | 3,237.0 | |
Payment service obligations | $ | (3,756.9 | ) | | $ | (3,634.3 | ) | Payment service obligations | | $ | (3,702.9) | | | $ | (3,237.0) | |
Our primary sources of liquidity include cash flows generated by the sale of our payment instruments, our cash and cash equivalentequivalents and interest-bearing investment balances, and proceeds from our investment portfolio and credit capacity under our credit facilities.portfolio. Our primary operating liquidity needs are related to the settlement of payment service obligations to our agents and financial institution customers, general operating expenses and debt service.
To meet our payment service obligations at all times, we must have sufficient highly liquidhighly-liquid assets and be able to move funds globally on a timely basis. On average, we receive in and pay out a similar amount of funds on a daily basis to collect and settle the principal amount of our payment instruments sold and related fees and commissions with our end consumersend-consumers and agents. This pattern of cash flows allows us to settle our payment service obligations through existing cash balances and ongoing cash generation rather than liquidating investments or utilizing our revolving credit facility.First Lien Revolving Credit Facility. We have historically generated, and expect to continue generating, sufficient cash flows from daily operations to fund ongoing operational needs.
We seekpreposition cash in various countries and currencies to facilitate settlement of transactions. We also maintain funding capacity beyond our daily operating needs to provide a cushion through the normal fluctuations in our payment service obligations, as well as to provide working capital for the operational and growth requirements of our business. We believe we have sufficient liquid assets and funding capacity to operate and grow our business for the next 12 months. Should our liquidity needs exceed our operating cash flows, we believe that external financing sources, including availability under our credit facilities, will be sufficient to meet our anticipated funding requirements.
Cash and Cash Equivalents and Interest-bearing Investments
To ensure we maintain adequate liquidity to meet our operating needspayment service obligations at all times, we keep a significant portion of our investment portfolio in cash and cash equivalents and interest-bearing investments at financial institutions rated A- or better by two of the following three rating agencies: Moody’s Investor Service ("Moody's"), Standard & Poor's ("Moody's, S&P")&P and Fitch Ratings, Inc. ("Fitch");Fitch; and in AAA rated U.S. government money market funds. If the rating agencies have split ratings, the Company uses the lower of the highest two out of three ratings across the agencies for disclosure purposes. If the institution has only two ratings, the Company uses the lower of the two ratings for disclosure purposes. As of December 31, 2017,2020, cash and cash equivalents (including unrestricted and settlement cash and cash equivalents) and interest-bearing investments totaled $2.8$3.1 billion. Cash and cash equivalents consist of interest-bearing deposit accounts, non-interest bearingnon-interest-bearing transaction accounts and money market securities; interest-bearing investments consist of time deposits and certificates of deposit with maturities of up to 24 months.
Available-for-sale Investments
Our investment portfolio includes $7.0$3.5 million of available-for-sale investments as of December 31, 2017.2020. U.S. government agency residential mortgage-backed securities compose $5.6comprise $3.0 million of our available-for-sale investments, while asset-backed and other securities compose the remaining $1.4$0.5 million.
Clearing and Cash Management Banks
We collect and disburse money through a network of clearing and cash management banks. The relationships with these banks are a critical component of our ability to maintain our global active funding requirements on a timely basis. In U.S., We have agreements with sixfour active clearing banks that provide clearing and processing functions for official checks, money orders and other draft instruments. We have four active official check clearingbelieve that this network of banks which provideprovides sufficient capacity to handle the current and projected volumes of items for our official check business. We rely on three active banks to clear our retail money orders and believe that these banks provide sufficient capacity for that business.services. We also maintain relationships with a variety of domestic and international cash management banks for electronic funds transfer and wire transfer services used in the movement of consumer funds and agent settlements.
Credit Facilities
On March 28, 2013, we entered into the 2013 Credit Agreement with BOA, as administrative agent, the financial institutions party thereto as lenders and the other agents party thereto. The 2013 Credit Agreement provided for (i) a senior secured five-year Revolving Credit Facility up to an aggregate principal amount of $125.0 million and (ii) a senior secured seven-year term loan facility of $850.0 million (“Term Credit Facility”). The Revolving Credit Facility includes a sub-facility that permits the Company to request the issuance of letters of credit up to an aggregate amount of $50.0 million, with borrowings available for general corporate purposes and which would reduce the amount available under the Revolving Credit Facility.
On April 2, 2014, we entered into the Incremental Agreement with BOA, as administrative agent, and various lenders, which provided for (i) a tranche under the Term Credit Facility in an aggregate principal amount of $130.0 million, (ii) an increase in the aggregate revolving loan commitments under the 2013 Credit Agreement from $125.0 million to $150.0 million, and (iii) certain other amendments to the 2013 Credit Agreement.
On December 12, 2016, the Company entered into Amendment No. 2 to the 2013 Credit Agreement (the "2016 Amendment") with BOA and various lenders. The 2016 Amendment includes, but is not limited to, decreasing the aggregate revolving credit commitments from $150.0 million to $125.0 million from December 12, 2016 to March 27, 2018 (the remainder of the original Revolving Credit Facility term), and increasing the maximum secured leverage ratio, effective the first quarter of 2017. The 2016 Amendment also extends the maturity date of the revolving credit commitments of the extending lenders, which represent commitments of $85.8 million in the aggregate, from March 28, 2018 to September 28, 2019.
The following table is a summary of the Company's outstanding debt balance as of December 31:
| | | | | | | | | | | | | | |
(Amounts in millions, except percentages) | | 2020 | | 2019 |
| | | | |
7.00% first lien credit facility due 2023 | | $ | 635.3 | | | $ | 641.8 | |
13.00% second lien credit facility due 2024 | | 254.6 | | | 251.4 | |
Senior secured credit facilities | | 889.9 | | | 893.2 | |
Unamortized debt issuance costs and debt discounts | | (32.1) | | | (42.9) | |
Total debt, net | | $ | 857.8 | | | $ | 850.3 | |
|
| | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
(Amounts in millions, except percentages) | Effective Interest Rate | | | | Effective Interest Rate | | |
Senior secured credit facility due 2020 | 4.94 | % | | $ | 914.2 |
| | 4.25 | % | | $ | 924.0 |
|
Unamortized debt issuance costs and debt discount | | | (6.1 | ) | | | | (8.8 | ) |
Total debt, net | | | $ | 908.1 |
| | | | $ | 915.2 |
|
As of December 31, 2017,2020, the Company had no borrowings and nominal outstanding letters of credit or borrowingsunder its revolving credit facility and had $34.9 million of availability. The First Lien Credit Agreement provides that in the event the Company's cash balance exceeds $130.0 million at the end of any month, the Company would be required to use such excess cash to pay any outstanding obligations to the revolving lenders under the First Lien Revolving Credit Facility, leaving $125.0and that the Company may not draw on the First Lien Revolving Credit Facility to the extent that the Company would have a cash balance in excess of $130.0 million after giving effect to such borrowing. As of borrowing capacity thereunder.December 31, 2020, the Company had cash and cash equivalents of $196.1 million. The Company's effective interest rate on senior secured borrowings increasedthe First Lien Credit Facility decreased from 4.25%7.80% as of December 31, 20162019, to 4.94%7.00% as of December 31, 20172020, due to an increasea reduction in the Eurodollar rate.
The 2013 Credit Agreement contains various financial and non-financial covenants. We continuously monitor our compliance with our debt covenants. At December 31, 2017, the Company was in compliance with its financial covenants. LIBOR. See Note 810 — Debt of the Notes to the Consolidated Financial Statements for additional disclosuredisclosure related to the Company's credit facilities and financial covenants..Credit Ratings
As of December 31, 2017,2020, our credit ratings from Moody’sMoody's and S&P were B1B3 with a stablenegative outlook and B+B with a stablenegative outlook, respectively. OurThe Company does not have rating triggers associated with its credit facilities,agreements or its regulatory capital requirements and other obligations will not be impacted by a future change in our credit ratings.
requirements.
Regulatory Capital Requirements and Contractual Obligations
Regulatory Capital Requirements
We have capital requirements relating to government regulations in the U.S. and other countries where we operate. Such regulations typically require us to maintain certain assets in a defined ratio to our payment service obligations. Through our wholly-owned subsidiary and licensed entity, MPSI, we are regulated in the U.S. by various state agencies that generally require us to maintain a pool of liquid assets and investments in an amount generally equal to the regulatory payment service obligation measure, as defined by each state, for our regulated payment instruments, namely teller checks, agent checks, money orders and money transfers. The regulatory requirements do not require us to specify individual assets held to meet our payment service obligations, nor are we required to deposit specific assets into a trust, escrow or other special account. Rather, we must maintain a pool of liquid assets. Provided we maintain a total pool of liquid assets sufficient to meet the regulatory and contractual requirements, we are able to withdraw, deposit or sell our individual liquid assets at will, without prior notice, penalty or limitations. We were in compliance with all state capital requirements as of December 31, 2017.
We are also subject to regulatory capital requirements in various countries outside of the U.S., which typically result in a requirement to either prefund agent settlements or hold minimum required levels of cash or guarantees within the applicable country. The amounts can fluctuate based on our level of activity and is likely to increase over time as our business expands internationally. Assets used to meet these regulatory requirements support our payment service obligations and are not available to satisfy other liquidity needs. As of December 31, 2017, we had $83.5 million of prefunds and cash designated to meet regulatory capital requirements and such amounts are included in "Settlement assets" on the Consolidated Balance Sheet.
We were in compliance with all regulatory capital requirements as of December 31, 2017.2020. We believe that our liquidity and capital resources will remain sufficient to ensure ongoing compliance with all regulatory capital requirements.
Contractual Obligations
The following table includes aggregated information about the Company’sCompany'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 as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments due by period |
(Amounts in millions) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt, including interest payments (1) | | $ | 1,118.2 | | | $ | 84.9 | | | $ | 762.3 | | | $ | 271.0 | | | $ | — | |
Non-cancellable leases (2) | | 73.3 | | | 14.0 | | | 18.4 | | | 15.5 | | | 25.4 | |
DPA settlement (3) | | 55.0 | | | 55.0 | | | — | | | — | | | — | |
Signing bonuses (4) | | 93.5 | | | 45.0 | | | 44.4 | | | 2.9 | | | 0.2 | |
Marketing (5) | | 31.5 | | | 18.7 | | | 12.3 | | | 0.5 | | | — | |
Unrecognized tax benefits (6) | | 19.7 | | | — | | | — | | | — | | | — | |
Total contractual cash obligations | | $ | 1,391.2 | | | $ | 217.6 | | | $ | 837.4 | | | $ | 289.9 | | | $ | 25.6 | |
|
| | | | | | | | | | | | | | | | | | | |
| Payments due by period |
(Amounts in millions) | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt, including interest payments | $ | 1,025.4 |
| | $ | 57.5 |
| | $ | 967.9 |
| | $ | — |
| | $ | — |
|
Non-cancellable leases | 65.0 |
| | 16.3 |
| | 27.5 |
| | 16.5 |
| | 4.7 |
|
Signing bonuses | 34.0 |
| | 28.0 |
| | 6.0 |
| | — |
| | — |
|
Marketing | 59.1 |
| | 22.3 |
| | 25.2 |
| | 9.8 |
| | 1.8 |
|
Total contractual cash obligations | $ | 1,183.5 |
| | $ | 124.1 |
| | $ | 1,026.6 |
| | $ | 26.3 |
| | $ | 6.5 |
|
1.Our Consolidated Balance Sheet at December 31, 20172020 includes $914.2$857.8 million of debt, netted with unamortized debt issuance costs and debt discount of $6.1$32.1 million. The above table reflects the principal and interest that will be paid through the maturity of the debt using the rates in effect on December 31, 2017,2020, and assuming no capitalization of in-kind interest and no prepayments of principal. Non-cancellable
2.Noncancellable leases include operating leases for buildings, vehicles and equipment and other leases. For more detail see Note 19 — Leasesof the Notes to the Consolidated Financial Statements. 3.The Company has a remaining $55.0 million of payments related to the Amended DPA matter that must be paid by May 9, 2021. For more detail see Note 15 — Commitments and Contingenciesof the Notes to the Consolidated Financial Statements. 4.Signing bonuses are payments to certain agents and financial institution customers as an incentive to enter into long-term contracts. Signing bonuses include $1.0 million of transaction volume-related obligations for which it is not possible to reasonably estimate the timing of payments.
5.Marketing represents contractual marketing obligations with certain agents, billers and corporate sponsorships.
6.Timing of conclusion of the unrecognized tax benefits cannot be determined with certainty. As of December 31, 2020, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits.
We have other commitments as described further below that are not included in this table as the timing and/or amount of payments are difficult to estimate.
We have a funded, noncontributory defined benefit pension plan ("Pension Plan")Plan that is frozen to both future benefit accruals and new participants. It is our policy to fund at least the minimum required contribution each year plus additional discretionary amounts as available and necessary to minimize expenses of the plan. We made contributions of $8.0$4.0 million to the Pension Plan during 2017.2020. Although the Company has no minimum required contribution requirement for the Pension Plan in 2018,2021, we expect to contribute $8.0$4.0 million to the Pension Plan in 2018.2021. In 2019, the Company paid $1.2 million to a life insurance company for their assumption, without recourse, of a significant portion of its defined benefit Pension liability. The result of the sale was a reduction of Pension obligations by $74.3 million and the recognition of a non-cash charge of $31.3 million for the year ended December 31, 2019. The transfer of the Pension obligations was completed exclusively with the use of Pension assets and did not impact the Company's cash balance or liquidity position.
The Company has certain unfunded defined benefit plans: supplemental executive retirement plans (“SERPs”("SERPs"), which are unfunded non-qualified defined benefit pension plans providing postretirement income to their participants;participants, and a postretirement plan ("Postretirement Benefits") that provides medical and life insurance for its participants. These plans require payments over extended periods of time. The Company will continue to make contributions to the SERPs and the Postretirement Benefits to the extent benefits are paid. Aggregate benefits paid for the unfunded plans are expected to be $7.0$5.7 million in 2018.2021.
As discussed discussed in Note 1315 — Commitments and Contingenciesof the Notes to the Consolidated Financial Statements, the IRS completed its examination of the Company’sCompany's consolidated income tax returns through 2013 and issued Notices of Deficiency for 2005-2007 and 2009 and an Examination Report for 2008. The Notices of Deficiency and Examination Report disallow, among other items, approximately $900.0 million of ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012 and December 2012, the Company filed petitions in the U.S. Tax Court challenging the 2005-2007 and 2009 Notices of Deficiency, respectively. In 2013, the Company reached a partial settlement with the IRS allowing ordinary loss treatment on $186.9 million of deductions in dispute. In January 2015, the U.S. Tax Court granted the IRS's motion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. During 2015, the Company made payments to the IRS of $61.0$61.0 million for federal tax payments and associated interest related to the matter. The Company believes that it has substantive tax law arguments in favor of its position. The Company filed a notice of appeal with the U.S. Tax Court on July 27, 2015 for an appeal to the U.S. Court of Appeals for the Fifth Circuit. Oral arguments were held before the Fifth Circuit on June 7, 2016, and on November 15, 2016, the Fifth Circuit vacated the Tax Court’sCourt's decision and remanded the case to the Tax Court for further proceedings. The Company filed a motion for summary judgment in the Tax Court on May 31, 2017. On August 23, 2017, the IRS filed a motion for summary judgment and its response to the Company’sCompany's motions for summary judgment. The Tax Court directed the parties to agree to a joint stipulation of facts, which the parties have filed with the court. Each party has filed a revised memorandum in support of its motion for summary judgment. Pendingjudgment in the Tax Court. The Tax Court held oral arguments on this matter on September 9, 2019 and the Tax Court issued an opinion on December 3, 2019 denying the Company's motion for summary judgment and granting summary judgment to the IRS. If MoneyGram is successful in the litigation, it would be entitled to ordinary loss treatment on its federal tax returns for the amounts in question, which would entitle it to a refund of amounts already paid to the IRS related to this matter. Neither the Tax Court opinion nor the ultimate outcome of this action will require any additional tax payments to be made to the Internal Revenue Service by MoneyGram as the federal tax amounts at issue were paid in 2015. However, pending the outcome of the appeal, the Company may be required
to file amended state returns and make additional cash payments of up to $18.7$21.2 million on amounts that have previously been accrued.
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. As of December 31, 2017, the minimum commission guarantees had a maximum payment of $2.1 million over a weighted average remaining term of 0.6 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 December 31, 2017, the liability for minimum commission guarantees was $1.2 million. Minimum commission guarantees are not reflected in the table above.
The Company has agreements with certain co-investors to provide funds. Amounts related to investmentsthis matter have been fully accrued in limited partnership interests. As of December 31, 2017, the total amount of unfunded commitments related to these agreements was $0.3 million.previous periods.
Analysis of Cash Flows
| | (Amounts in millions) | 2017 | | 2016 | | 2015 | | 2017 vs 2016 | | 2016 vs 2015 | (Amounts in millions) | | 2020 | | 2019 | | | 2020 vs 2019 | |
Net cash provided by operating activities | $ | 132.5 |
| | $ | 120.9 |
| | $ | 34.1 |
| | $ | 11.6 |
| | $ | 86.8 |
| Net cash provided by operating activities | | $ | 97.3 | | | $ | 63.0 | | | | $ | 34.3 | | |
Net cash used in investing activities | (83.6 | ) | | (82.8 | ) | | (109.5 | ) | | (0.8 | ) | | 26.7 |
| Net cash used in investing activities | | (40.8) | | | (54.5) | | | | 13.7 | | |
Net cash used in financing activities | (16.1 | ) | | (45.4 | ) | | (10.7 | ) | | 29.3 |
| | (34.7 | ) | Net cash used in financing activities | | (7.2) | | | (7.2) | | | | — | | |
Net change in cash and cash equivalents | $ | 32.8 |
| | $ | (7.3 | ) | | $ | (86.1 | ) | | $ | 40.1 |
| | $ | 78.8 |
| Net change in cash and cash equivalents | | $ | 49.3 | | | $ | 1.3 | | | | $ | 48.0 | | |
Cash Flows from Operating Activities
During 2017,In 2020, cash provided by operating activities increased primarily due to a decreasethe realization of cost efficiencies from our 2019 Organizational Realignment, the benefit from Ripple market development fees and disciplined expense management in cash taxes, net and reduction in expenditures for working capital items. The increase was partially offset by an increase in signing bonus payments of $6.3 million driven by the timing of agent expansion and retention efforts.
During 2016, cash provided by operating activities increased due to an increase in net income and a decrease in signing bonus payments of $53.3 million driven by the timing of agent expansion and retention efforts. This increase was partially offset by increased payments for employee performance bonuses and a payment of $13.0 million relatedresponse to the State Civil Investigative Demands matter in March 2016.COVID-19 pandemic.
Cash Flows from Investing Activities
Items impacting netIn 2020, cash used in investing activities decreased primarily in 2017, 2016 and 2015 were primarily from capital expenditures of $83.6 million, $82.8 million and $109.9 million, respectively. Capital expenditures remained relatively flat when comparedresponse to 2016.the COVID-19 pandemic.
Cash Flows from Financing Activities
In 2017, items impacting2020, net cash used in financing activities were $9.8 million of principal payments on debt and payments to tax authorities for stock-based compensation of $8.0 million. In 2016, items impacting net cash used in financing activities were $30.3 million of principal payments on debt, which included additional principal payments totaling $20.0 million made on the Term Credit Facility in the fourth quarter of 2016, stock repurchases of $11.7 million and payments to tax authorities for stock-based compensation of $2.7 million. In 2015, items impacting net cash used in financing activities were $9.8 million principal payments on debt, payments to tax authorities for stock-based compensation of $0.5 million and $0.4 million of stock repurchases.remained flat.
Stockholders’Stockholders' Deficit
Stockholders’Stockholders' Deficit — The Company is authorized to repurchase up to 12,000,000 shares of our common stock. As of December 31, 2017, we had repurchased a total of 9,842,509 shares of our common stock under this authorization and have remaining authorization to purchase up to 2,157,491 shares.
Under the terms of our outstanding credit facilities, we are restricted in our ability to pay dividends on, and repurchase shares of, our common stock. No dividends were paid on our common stock in 2017,2020 and the Company did not repurchase any common stock, and we do not anticipate declaring any dividends on our common stock or repurchasing shares of common stock during 2018.2021.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and EstimatesCRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts and related disclosures in the consolidated financial statements.Consolidated Financial Statements. Actual results could differ from those estimates. On a regular basis, management reviews its accounting policies, assumptions and estimates to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. Our significant accounting policies are discussed in Note 2 — Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements. Critical accounting policies are those policies that management believes are very 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. Based on these criteria, management has identified and discussed with the Audit Committee the following critical accounting policies and estimates, including the methodology and disclosures related to those estimates.
Goodwill — We have two reporting units: Global Funds Transfer and Financial Paper Products. Our Global Funds Transfer reporting unit is the only reporting unit that carries goodwill. We evaluate goodwill for impairment annually as of October 1, or more frequently upon occurrence of certain events. When testing goodwill for impairment, we may elect to perform either a qualitative test or a quantitative test to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of any changes to the following factors: macroeconomic, industry and market factors, cost factors and changes in overall financial performance, as well as any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment does not conclude that it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, we perform a quantitative analysis. In a quantitative testing,test, the fair value of a reporting unit is determined based on a discounted cash flow analysis and further analyzed using other methods of valuation. A discounted cash flow analysis requires us to make various assumptions, including assumptions about future cash flows, growth rates and discount rates. The assumptions about future cash flows and growth rates are based on our long-term projections by reporting unit. In addition, an assumed terminal value is used to project future cash flows beyond base years. Assumptions used in our impairment testing are consistent with our internal forecasts and operating plans. Our discount rate is based on our debt and equity balances, adjusted for current market conditions and investor expectations of return on our equity. If the fair value of a reporting unit exceeds its carrying amount, there is no impairment. If
not, we compare the fair value of the reporting unit with its carrying amount. To the extent the carrying amount of the reporting unit exceeds its fair value, a write-down of the reporting unit’sunit's goodwill would be necessary.
We did not recognize a goodwill impairment loss for 2017, 20162020, 2019 or 2015.2018. The carrying value of goodwill assigned to the Global Funds Transfer reporting unit at December 31, 20172020 was $442.2 million. By analyzing the qualitative factors discussed above, we determined thatThe annual impairment test indicated a quantitative impairment analysis was not needed. As of October 1, 2017,fair value for the Global Funds Transfer reporting unit carrying value remained relatively unchanged when compared to the prior year. Additionally, as of the 2017 test date, the Company's market price more than doubled when compared to the prior year test date and there were no significant changes to the reporting unit's cash flows and growth rates. As such, we concluded that the Global Funds Transfer reporting unit's fair value was substantially in excess of the reporting unit's carrying value.
As In order to evaluate the sensitivity of December 31, 2017, there were no qualitative factors that indicated thatthe fair value calculations, we applied a hypothetical 10% decrease to the fair value of the Global Funds Transfer reporting unit is less thanunit. Had the estimated fair value been hypothetically lower by 10% as of December 31, 2020, the fair value of goodwill would still be substantially in excess of the reporting unit's carrying value.
Pension — Through the Company's Pension, Plan and SERPs, collectively referred to as our “Pension," we provide defined benefit pensionPension plan coverage to certain of our employees and certain employees of Viad Corporation, our former parent. Our pensionPension obligations under these plans are measured as of December 31, the measurement date. Pension benefit obligations and the related expense are based upon actuarial projections using assumptions regarding mortality, discount rates, expected long-term return on assets and other factors.
Our assumptions reflect our historical experience and management’smanagement's best judgment regarding future expectations. Certain of the assumptions, particularly the discount rate and expected return on plan assets, require significant judgment and could have a material impact on the measurement of our pensionPension obligation.
In order to estimate the interest cost components of net periodic benefit expense for its Pension and Postretirement Benefits, the Company utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows.
At each measurement date, the discount rate used to measure total benefit obligation for the Pension and Postretirement Benefits is based on the then current interest rate yield curves for long-term corporate debt securities with maturities rated AA comparable to our obligations.
Our Pension Plan assets are primarily invested in commingled trust funds. Our investments are periodically realigned in accordance with the investment guidelines. The expected return on Pension Plan assets is based on our historical market experience, our asset allocations and our expectations for long-term rates of return. We also consider peer data and historical returns to assess the reasonableness and appropriateness of our assumption. Our Pension Plan asset allocations are reviewed periodically and are based upon plan funded ratio, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments.
Lower discount rates increase the Pension and Postretirement Benefits obligation and subsequent year pensionPension expense, while higher discount rates decrease the Pension and Postretirement Benefits obligation and subsequent year pensionPension expense. Decreasing or increasing the discount rate by 50 basis points would have increasedhad an immaterial impact on the 20172020 Pension and Postretirement Benefits net periodic benefit expense by $0.3 million. If the discount rate increased by 50 basis points, the Pension and Postretirement Benefits net periodic benefit expense would have decreased by $0.2 million.expense. Decreasing the expected rate of return by 50 basis points would have increased the 20172020 Pension Plan net periodic benefit expense by $0.6$0.2 million and increasing the expected rate of return by 50 basis points would have decreased the 20172020 Pension Plan net periodic benefit expense by $0.6$0.2 million.
Income Taxes, Tax Contingencies — We are subject to income taxes in the U.S. and various foreign jurisdictions. In determining taxable income, income or loss before income taxes is adjusted for differences between local tax laws and U.S. GAAP.
We file tax returns in multipleall U.S. states within the U.S. and various countries. Generally, our tax filings are subject to audit by tax authorities for three to five years following submission of a return. With a few exceptions, the Company is no longer subject to foreign or U.S., state and local income tax examinations for years prior to 2012.2016. The U.S. federal income tax filings are subject to audit for fiscal years 20142017 through 2017.2019.
The benefits of tax positions are recorded in the income statement if we determine it is more-likely-than-not,more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including any related appeals or litigation. The one exception to the more-likely-than-not recognition threshold is the reliance on past administrative practices and precedents, where a taxing authority with full knowledge of all relevant facts will accept a position as filed. In these limited situations, the Company will recognize the associated tax benefit.
Changes in tax laws, regulations, agreements and treaties, foreign currencynon-U.S. dollar exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact on the amount of income taxes that we provide during any given year. The determination of taxable income in any jurisdiction requires the interpretation of the related tax laws and regulations and the use of estimates and assumptions regarding significant future events, such as the amount, timing and character of deductions and the sources and character of income and tax credits.
These assumptions and probabilities are periodically reviewed and revised based upon new information.
Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations. Actual tax amounts may be materially different from amounts accrued based upon the results of audits due to different interpretations by the tax authorities than those of the Company. While we believe that our reserves are adequate to cover reasonably expected tax risks, an unfavorable tax settlement generally requires the use of cash and an increase in the amount of income tax expense that we recognize. A favorable tax settlement generally requires a decrease in the amount of income taxes that we recognize.
Income Taxes, Valuation of Deferred Tax Assets — Deferred tax assets and liabilities are recorded based on the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of assets and liabilities and their respective tax basis, and operating loss and tax credit carry-forwards on a taxing jurisdiction basis. We measure deferred tax assets and liabilities using enacted statutory tax rates that will apply in the years in which we expect the temporary differences to be recovered or paid.
The carrying amount of deferred tax assets must be reduced through a valuation allowanceallowances if it is more-likely-than-notmore likely than not that the deferred tax asset will not be realized. In the period in which a valuation allowance is recorded, we would record tax expense, whereas a tax benefit would be recorded in the period a valuation allowance is released.
In assessing the need for a valuation allowance,allowances, we consider both positive and negative evidence related to the likelihood that the deferred tax assets will be realized. Our assessment of whether a valuation allowance is required or should be adjusted requires judgment and is completed on a taxing jurisdiction basis. We consider, among other matters: the nature, frequency and severity of any cumulative financial reporting losses; the ability to carry back losses to prior years; future reversals of existing taxable temporary differences; tax planning strategies and projections of future taxable income. We also consider our best estimate of the outcome of any on-going examinations based on the technical merits of the position, historical procedures and case law, among other items.
As of December 31, 2017,2020, we have recorded a valuation allowanceallowances of $75.9$81.2 million against deferred tax assets of $133.6$137.0 million. The valuation allowanceallowances primarily relatesrelate to basis differences in revalued investments, capital lossesloss carryover, U.S. tax credit carryovers, and certain state and foreign tax loss carryovers. While we believe that the basis for estimating our valuation allowanceallowances is appropriate, changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our financial condition and results of operations.
The Company has not completed its accounting for theTCJA includes global intangible low-taxed income tax effects("GILTI") provisions, which impose a U.S. income inclusion on foreign income in excess of the TCJA. Wherea deemed return on tangible assets of foreign corporations. In accordance with Accounting Standards Codification ("ASC") 235-10-50, the Company has been ableelected in the fourth quarter of 2018 to make reasonable estimates of the effects, the Company has recorded provisional amounts in accordance with SEC Staff Accounting Bulletin No. 118. Where the Company has not yet been able to make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately prior to the enactment of the TCJA.
The TCJA reduces the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. While the accounting is incomplete, the Company has made a reasonable estimate and recorded a provisional decrease to net U.S. deferred tax liabilities of $19.8 million with a corresponding increase to deferred tax benefit. Based on further analysis of the estimates and additional guidance on the application of the law, it is anticipated that revisions may occur throughout the allowable measurement period.
Transition Tax on unrepatriated foreign earnings: The Transition Tax on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company made a reasonable estimate of the Transition Tax and has recorded a provisional Transition Tax expense. After the utilization of foreign tax credits related to undistributed foreign subsidiary E&P and other existing foreign tax credits, the Company expects a net zero liability associated with the deemed mandatory repatriation. The Company is continuing to gather additional information to more precisely compute the amount of the Transition Tax to complete its calculation of E&P as well as the final determination of non-U.S. income taxes paid.
Due to the complexity of the new tax laws around global intangible low taxed income (“GILTI”), the Company is continuing to evaluate how the income tax provision will be accounted for under the U.S. generally accepted accounting principles wherein companies are allowed to make an accounting policy election of either (i) account fortreat GILTI inclusions as a component of taxcurrent period expense in the period in which the Company is subject to the rules (the “period cost method”), or (ii) account for GILTI in the Company’s measurement of deferred taxes (the “deferred method”). Currently, the Company has not elected a method and will only do so after its completion of the analysis of the GILTI provisions.when incurred under ASC Topic 740, Income Taxes.
Recent Accounting DevelopmentsRECENT ACCOUNTING PRONOUNCEMENTS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on2020 Form 10-K and the documents incorporated by reference herein may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), including statements with respect to, among other things, the financial condition, results of operations, plans, objectives, future performance and business of MoneyGram and its subsidiaries. Statements preceded by, followed by or that include words such as “believes,” “estimates,” “expects,” “projects,” “plans,” “anticipates,”"believes," "estimates," "expects," "projects," "plans," "anticipates," "intends," “continues,"continues," "will," "should," "could," "may," "might," "would," "goals," “predicts,” “will,“potential,” “should,“target,” “could,“forecast,” “may,“outlook,” “would,“currently,” "goals" and other 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 the Reform 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 this Annual Report. These forward-looking statements speak only as of the date they are made, and MoneyGram undertakes no obligation to publicly update 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’smanagement's current expectations, beliefs and assumptions as of the date of this report, are not historical facts or guarantees of future performance, and are subject to certain risks, uncertainties and changes in circumstances that are difficult to predict and many of which are outside of our control due to a number of factors. These factors include, but are not limited to:
•the impact of the COVID-19 pandemic or future pandemics on our business, including the potential work stoppages, lockdowns, shelter-in-place or restricted movement guidelines, service delays and lower consumer and commercial activity;
•our ability to compete effectively;
•our ability to maintain key agent or biller relationships, or a reduction in business or transaction volume from these relationships, including with our largest agent, Walmart, through its introduction of additional competing white labelwhite-label money transfer products or otherwise;
•a security or privacy breach in systems, networks or databases on which we rely;
•current and proposed regulations addressing consumer privacy and data use and security;
•our ability to manage fraud risks from consumers or agents;
•the ability of us and our agents to comply with U.S. and international laws and regulations;
•litigation and regulatory proceedings involving us or our agents and other commercial relationships, which could result in material settlements, fines or penalties, revocation of required licenses or registrations, termination of contracts, other administrative actions or lawsuits and negative publicity;
possible •uncertainties relating to compliance with the Amended DPA entered into with the Government and the impacteffect of the Amended DPA on our reputation and business and our ability to make payments required under the Amended DPA;
current and proposed regulations addressing consumer privacy•disruptions to our computer systems and data usecenters and security;our ability to effectively operate and adapt our technology;
•the ability of us and our agents to maintain adequate banking relationships;
•our ability to successfully develop and timely introduce new and enhanced products and services and our investments in new products, services or infrastructure changes;
•our high degree of leverage and substantial debt service obligations, significant debt covenant requirements and our ability to comply with such requirements;
•our below investment-grade credit rating rating;
•and our ability to maintain sufficient capital;
continued •weakness in economic conditions, in both the U.S. and global markets;
•the financial health of certain European countries or the secession of a country from the European Union;
•a significant change, material slow down or complete disruption of international migration patterns;
•our ability to manage risks associated with our international sales and operations;operations, including exchange rates among currencies;
•our offering of money transfer services through agents in regions that are politically volatile or, in a limited number of cases, that may be subject to certain OFAC restrictions;
•major bank failure or sustained financial market illiquidity, or illiquidity at our clearing, cash management and custodial financial institutions;
the ability of us and our agents to maintain adequate banking relationships;
a security or privacy breach in systems, networks or databases on which we rely;
disruptions to our computer systems and data centers and our ability to effectively operate and adapt our technology;
•changes in tax laws or unfavorable outcomes of tax positions we take, or a failure by us to establish adequate reserves for tax events;
a significant change, material slow down or complete disruption of international migration patterns;
•our ability to manage credit risks from our agents and official check financial institution customers;
•our ability to adequately protect our brand and intellectual property rights and to avoid infringing on the rights of others;
our ability to attract and retain key employees;
•our ability to manage risks related to the operation of retail locations and the acquisition or start-up of businesses;
•any restructuring actions and cost reduction initiatives that we undertake may not deliver the expected results and these actions may adversely affect our business;
our ability to maintain effective internal controls;
•our capital structurestructure; and the special voting rights provided to the THL Representatives on our Board of Directors; and
•the risks and uncertainties described in the “Risk Factors” and “Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations” sections of this Annual Report onour 2020 Form 10-K, as well as any additional risk factors that may be described in our other filings with the SEC from time to time.
ItemITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Enterprise Risk Management
Risk is an inherent part of any business. Our most prominent risk exposures are credit, interest rate and foreignnon-U.S. dollar currency exchange. See Part 1, Item 1A “Risk Factors” of this Annual Report on2020 Form 10-Kfor a description of the principal risks to our business. Appropriately managing risk is important to the success of our business, and the extent to which we effectively
manage each of the various types of risk is critical to our financial condition and profitability. Our risk management objective is to monitor and control risk exposures to produce steady earnings growth and long-term economic value.
Management implements policies approved by our Board of Directors that cover our investment, capital, credit and foreign currencynon-U.S. dollar practices and strategies. The Board of Directors receives periodic reports regarding each of these areas and approves significant changes to policy and strategy. The Asset/Liability Committee, composed of senior management, routinely reviews investment and risk management strategies and results. The Credit Committee, composed of senior management, routinely reviews credit exposure to consumers and our agents.
The following is a discussion of the risks we have deemeddeem most critical to our business and the strategies we use to manage and mitigate such risks. While containing forward-looking statements related to risks and uncertainties, this discussion and related analyses are not predictions of future events. Our actual results could differ materially from those anticipated due to various factors discussed under “Cautionary Statements Regarding Forward-Looking Statements” and under “Risk Factors” in Part 1, Item 1A of this Annual Report on2020 Form 10-K.
Credit Risk
Credit risk, or the potential risk that we may not collect amounts owed to us, affects our business primarily through receivables, investments and derivative financial instruments. In addition, the concentration of our cash, cash equivalents and investments at large financial institutions exposes us to credit risk.
Investment Portfolio — Credit risk from our investment portfolio relates to the risk that we may be unable to collect the interest or principal owed to us under the legal terms of the various securities. Our primary exposure to credit risk arises through the concentration of a large amount of our investment portfolio at a few large banks, also referred to as financial institution risk, as well as a concentration in securities issued by U.S. government agencies.
At December 31, 2017,2020, the Company’sCompany's investment portfolio of $2.8$3.1 billion was primarily comprisedcomposed of cash and cash equivalents, consisting of interest-bearing deposit accounts, non-interest bearingnon-interest-bearing transaction accounts and money market funds backed by U.S. government securities, and interest-bearing investments consisting of time deposits and certificates of deposit. Based on investment policy restrictions, investments are limited to those rated A- or better by two of the following three rating agencies: Moody's, S&P and Fitch. If the rating agencies have split ratings, the Company uses the lower of the highest two out of three ratings across the agencies for disclosure purposes. If the institution has only two ratings, the Company uses the lower of the two ratings for disclosure purposes. No maturity of interest-bearing investments exceeds 24 months from the date of purchase.
The financial institutions holding significant portions of our investment portfolio may act as custodians for our asset accounts, serve as counterparties to our foreign currencynon-U.S. dollar transactions and conduct cash transfers on our behalf for the purpose of clearing our payment instruments and related agent receivables and agent payables. Through certain check clearing agreements and other contracts, we are required to utilize several of these financial institutions.
The concentration in U.S. government agencies includes agencies placed under conservatorship by the U.S. government in 2008 and extended unlimited lines of credit from the U.S. Treasury. The implicit guarantee of the U.S. government and its actions to date support our belief that the U.S. government will honor the obligations of its agencies if the agencies are unable to do so themselves.
The following table is a detailed summary of our investment portfolio as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | |
(Amounts in millions, except percentages and financial institutions) | | Number of Financial Institutions (1) | | Amount | | Percent of Investment Portfolio |
Cash held on-hand at owned retail locations | | N/A | | $ | — | | | — | % |
Cash equivalents collateralized by securities issued by U.S. government agencies | | 1 | | | 2.5 | | | — | % |
Available-for-sale investments issued by U.S. government agencies | | N/A | | 3.0 | | | — | % |
Cash, cash equivalents and interest-bearing investments at institutions rated AAA (2) | | 1 | | | 68.1 | | | 2 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated AA | | 5 | | | 277.4 | | | 10 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated A | | 13 | | | 2,075.4 | | | 68 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated BBB | | 2 | | | 46.1 | | | 1 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated below BBB | | 3 | | | 35.4 | | | 1 | % |
Asset-backed and other securities | | N/A | | 0.5 | | | — | % |
Investment portfolio held within the U.S. | | 25 | | | $ | 2,508.4 | | | 82 | % |
Cash held on-hand at owned retail locations | | N/A | | 47.5 | | | 2 | % |
Cash, cash equivalents and interest-bearing investments held at institutions rated AA | | 7 | | | 262.6 | | | 8 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated A | | 14 | | | 125.6 | | | 4 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated below A | | 50 | | | 129.9 | | | 4 | % |
Investment portfolio held outside the U.S. | | 71 | | | 565.6 | | | 18 | % |
Total investment portfolio | | | | $ | 3,074.0 | | | 100 | % |
|
| | | | | | | | | |
(Amounts in millions, except percentages and financial institutions) | Number of Financial Institutions(1) | | Amount | | Percent of Investment Portfolio |
Cash held on-hand at owned retail locations | N/A |
| | $ | 0.4 |
| | — | % |
Cash equivalents collateralized by securities issued by U.S. government agencies | 3 |
| | 9.2 |
| | — | % |
Available-for-sale investments issued by U.S. government agencies | N/A |
| | 5.6 |
| | — | % |
Cash, cash equivalents and interest-bearing investments at institutions rated AAA(2) | 1 |
| | 30.2 |
| | 1 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated AA | 5 |
| | 696.7 |
| | 25 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated A | 12 |
| | 1,455.1 |
| | 52 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated BBB | 1 |
| | 1.7 |
| | — | % |
Cash, cash equivalents and interest-bearing investments at institutions rated below BBB | 3 |
| | 54.2 |
| | 2 | % |
Asset-backed and other securities | N/A |
| | 1.4 |
| | — | % |
Investment portfolio held within the U.S. | 25 |
| | 2,254.5 |
| | 80 | % |
Cash held on-hand at owned retail locations | N/A |
| | 24.6 |
| | 1 | % |
Cash, cash equivalents and interest-bearing investments held at institutions rated AA | 5 |
| | 60.1 |
| | 2 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated A | 17 |
| | 417.7 |
| | 15 | % |
Cash, cash equivalents and interest-bearing investments at institutions rated below A | 50 |
| | 64.2 |
| | 2 | % |
Investment portfolio held outside the U.S. | 72 |
| | 566.6 |
| | 20 | % |
Total investment portfolio | | | $ | 2,821.1 |
| | 100 | % |
(1) Financial institutions, located both in the U.S. and outside of the U.S., are included in each of their respective total number of financial institutions.
(2) Inclusive of deposits with FDIC-insured institutions and where such deposits are fully insured by the Federal Deposit Insurance Corporation.
At December 31, 2017,2020, all but $1.4but $0.5 million of the investment portfolio is invested in cash, cash equivalents, interest-bearing investments and investments issued or collateralized by U.S. government agencies. Approximately 99% of the portfolio is invested in cash, cash equivalents and interest-bearing investments, with 80%82% of our total investment portfolio is invested at financial institutions located within the U.S.
Receivables — We have credit exposure to receivables from our agents and partners through the money transfer, bill payment and money order settlement process. These receivables originate from independent agents who collect funds from consumers who are transferring money or buying money orders, and agents who receive proceeds from us in anticipation of payment to the recipients of money transfers. Agents typically have from one to three days to remit the funds, with longer remittance schedules granted to certain agents on a limited basis. The Company has a credit risk management function that conducts the underwriting of credit on new agents as well as conducting credit surveillance on all agents to monitor their financial health and the history of settlement activity with us. The Company’sCompany's credit risk management function also maintains daily contact with agents and performs a collection function. For the year ended December 31, 2017,2020, our annual credit losses from agents, as a percentage of total fee and other revenue, was 1%. As of December 31, 2017,2020, we had credit exposure to our agents of $549.0$345.8 million in the aggregate spread across 14,3445,466 agents, of which three agents, individually,one owed us in excess of $15.0 million.
In addition, we are exposed to consumer credit risk directly from consumer transactions particularly through our Digitaldigital solutions, where transactions are originated through means other than cash, and therefore are subject to credit card chargebacks, insufficientnon-insufficient funds or other collection impediments, such as fraud. As the Digitaldigital solutions become a greater proportion of our money transfer business, these losses may increase.
We also have credit exposure to receivables from our financial institution customers for business conducted by the Financial Paper Products segment. Financial institutions will collect proceeds for official checks and money orders and remit those proceeds to us. We actively monitor the credit risk associated with financial institutions such as banks and credit unions and have not incurred any losses associated with the failure or merger of any bank or non-bank financial institution customer. As of December 31, 2017,2020, we had a credit exposure to our official check and money order financial institution customers of $293.7$331.2 million in the aggregate spread across 923915 financial institutions, of which one owed us in excess of $15.0 million.
With respect to our credit union customers, our credit exposure is partially mitigated by National Credit Union Administration insurance and we have required certain credit union customers to provide us with larger balances on deposit and/or to issue cashier’scashier's checks only. While the value of these assets areis not at risk in a disruption or collapse of a counterparty financial institution, the delay in accessing our assets could adversely affect our liquidity and potentially our earnings depending upon the severity of the delay and corrective actions we may need to take.
While the extent of credit risk may vary by product, the process for mitigating risk is similar. We assess the creditworthiness of each potential agent before accepting them into our distribution network. This underwriting process includes not only a determination of whether to accept a new agent, but also the remittance schedule and volume of transactions that the agent will be allowed to perform in a given timeframe. We actively monitor the credit risk of our existing agents by conducting periodic financial reviews and cash flow analyses of our agents that average high volumes of transactions and monitoring the timeliness of payments and remittance patterns versus reported sales on a daily basis.
The timely remittance of funds by our agents and financial institution customers is an important component of our liquidity. If the timing of the remittance of funds were to deteriorate, it would alter our pattern of cash flows and could require us to liquidate investments or utilize our First Lien Revolving Credit Facility to settle payment service obligations. To manage this risk, we closely monitor the remittance patterns of our agents and financial institution customers and act quickly if we detect deterioration or alteration in remittance timing or patterns. If deemed appropriate, we have the ability to immediately deactivate an agent’sagent's equipment at any time, thereby preventing the initiation or issuance of further money transfers and money orders.
Credit risk management is complemented through functionality within our point-of-sale system, which can enforce credit limits on a real-time basis. The system also permits us to remotely disable an agent’s terminals and cause a cessation of transactions.
Derivative Financial Instruments — Credit risk related to our derivative financial instruments relates to the risk that we are unable to collect amounts owed to us by the counterparties to our derivative agreements. Our derivative financial instruments are used to manage exposures to fluctuations in foreign currencynon-U.S. dollar exchange rates. If the counterparties to any of our derivative financial instruments were to default on payments, it could result in a delay or interruption of payments to our agents. We manage credit risk related to derivative financial instruments by entering into agreements with only major banks and regularly monitoring the credit ratings of these banks. See Note 57 — Derivative Financial Instruments of the Notes to the Consolidated Financial Statements for additional disclosure. Interest Rate Risk
Interest rate risk represents the risk that our operating results are negatively impacted, and our investment portfolio declines in value, due to changes in interest rates. Given the short maturity profile of the investment portfolio and the low level of interest rates, we believe there is an extremely low risk that the value of these securities would decline such that we would have a material adverse change in our operating results. As of December 31, 2017,2020, the Company held $208.1$219.6 million, or 7%, of the investment portfolio in fixed rate investments.
Our operating results are impacted by interest rate risk through our net investment margin, which is investment revenue less investment commissions expense. As the money transfer business is not materially affected by investment revenue and pays commissions that are not tied to an interest rate index, interest rate risk has the most impact on our money order and official check businesses. We are invested primarily in interest-bearing deposit accounts, non-interest bearingnon-interest-bearing transaction accounts, money market funds backed by U.S. government securities, time deposits and certificates of deposit. These types of investments have minimal risk of declines in fair value from changes in interest rates. Our commissions paid to financial institution customers are determined using a variable rate based primarily on the federal funds effective rate and are reset daily. Accordingly, both our investment revenue and our investment commissions expense will decrease when rates decline and increase when rates rise.
Our results are impacted by interest rate risk through our interest expense for borrowings under the 2013amended First Lien Credit Agreement. The Company may elect an interestFirst Lien Revolving Credit Facility and the First Lien Term Credit Facility each permit both base rate borrowings and LIBOR borrowings, in each case plus a spread above the base rate or LIBOR rate, as applicable. With respect to the First Lien Revolving Credit Facility, the spread for its debt underbase rate borrowings will be either 5.00% per annum or 4.75% per annum depending upon the 2013Company's first lien leverage ratio (as defined in the First Lien Credit Agreement at each reset period basedAgreement), and the spread for LIBOR borrowings will be either 6.00% or 5.75% per annum depending on the BOA prime bank rate or the Eurodollar rate.Company's first lien leverage ratio. The interest rate election may be made individually for the Term Credit Facility and each drawspread applicable to loans under the Revolving Credit Facility. The interest rate will be either the “alternate base rate” (calculated in part based on the BOA prime rate) plus either 200 or 225 basis points (depending on the Company's secured leverage ratio or total leverage ratio, as applicable, at such time) or the Eurodollar rate plus either 300 or 325 basis points (depending on the Company's secured leverage ratio or total leverage ratio, as applicable, at such time). In connection with the initial funding under the 2013 Credit Agreement, the Company elected the Eurodollar rate as its primary interest basis. Under the terms of the 2013 Credit Agreement, the minimum interest rate applicable to Eurodollar borrowings under theFirst Lien Term Credit Facility is 100 basis points plus the applicable margins previously referred5.00% per annum for base rate loans and 6.00% per annum for LIBOR rate loans subject to in this paragraph.a LIBOR floor of 1%. Accordingly, any increases in interest rates will adversely affect interest expense and declines in LIBOR may not result in lower interest expense. As of December 31, 2020, the Company had no borrowings under the First Lien Revolving Credit Facility.
The tables below incorporate substantially all of our interest rate sensitive assets and assumptions that reflect changes in all interest rates pertaining to the balance sheet. The “ramp”"ramp" analysis assumes that interest rates change in even increments over the next 12 months. The “shock”"shock" analysis assumes interest rates change immediately and remain at the changed level for the next twelve months. Components of our pre-tax income (loss)loss that are interest rate sensitive include “Investment"Investment revenue,” “Investment" "Investment commissions expense”expense" and “Interest"Interest expense.” In" Many of the currentCompany's assets reset or can be repriced when interest rates change, generally in line with changes in the Company's floating rate environment where rates have been historically low,liabilities. Therefore, our risk associated with interest rates is not material. A moderately rising interest rate environment would be generally beneficial to the Company because variable rate assets exceed our variable rate liabilities, and certain
The following table summarizes the changes to affected components of the income statement under various ramp scenarios as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | Basis Point Change in Interest Rates |
| Basis Point Change in Interest Rates | | | Down | | Down | | Down | | Up | | Up | | Up |
| Down | | Down | | Down | | Up | | Up | | Up | |
(Amounts in millions) | 200 | | 100 | | 50 | | 50 | | 100 | | 200 | |
(Amounts in millions) | | (Amounts in millions) | | 200 | | 100 | | 50 | | 50 | | 100 | | 200 |
Investment revenue | $ | (20.5 | ) | | $ | (12.3 | ) | | $ | (6.2 | ) | | $ | 6.2 |
| | $ | 12.3 |
| | $ | 24.7 |
| Investment revenue | | $ | (2.8) | | | $ | (2.7) | | | $ | (2.6) | | | $ | 4.9 | | | $ | 10.7 | | | $ | 22.3 | |
Investment commissions expense | 10.0 |
| | 6.4 |
| | 3.4 |
| | (3.5 | ) | | (7.0 | ) | | (14.1 | ) | Investment commissions expense | | — | | | — | | | — | | | (2.8) | | | (5.7) | | | (11.9) | |
Interest expense | 4.5 |
| | 3.5 |
| | 1.9 |
| | (1.9 | ) | | (3.7 | ) | | (7.4 | ) | Interest expense | | — | | | — | | | — | | | — | | | (0.1) | | | (2.1) | |
Change in pretax income | $ | (6.0 | ) | | $ | (2.4 | ) | | $ | (0.9 | ) | | $ | 0.8 |
| | $ | 1.6 |
| | $ | 3.2 |
| Change in pretax income | | $ | (2.8) | | | $ | (2.7) | | | $ | (2.6) | | | $ | 2.1 | | | $ | 4.9 | | | $ | 8.3 | |
The following table summarizes the changes to affected components of the income statement under various shock scenarios as of December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Basis Point Change in Interest Rates |
| | Down | | Down | | Down | | Up | | Up | | Up |
(Amounts in millions) | | 200 | | 100 | | 50 | | 50 | | 100 | | 200 |
Investment revenue | | $ | (2.8) | | | $ | (2.8) | | | $ | (2.8) | | | $ | 9.8 | | | $ | 20.4 | | | $ | 41.8 | |
Investment commissions expense | | — | | | — | | | — | | | (5.2) | | | (10.7) | | | (20.6) | |
Interest expense | | — | | | — | | | — | | | (0.5) | | | (2.2) | | | (8.0) | |
Change in pretax income | | $ | (2.8) | | | $ | (2.8) | | | $ | (2.8) | | | $ | 4.1 | | | $ | 7.5 | | | $ | 13.2 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Basis Point Change in Interest Rates |
| Down | | Down | | Down | | Up | | Up | | Up |
(Amounts in millions) | 200 | | 100 | | 50 | | 50 | | 100 | | 200 |
Investment revenue | $ | (30.6 | ) | | $ | (22.8 | ) | | $ | (11.6 | ) | | $ | 11.6 |
| | $ | 23.1 |
| | $ | 46.3 |
|
Investment commissions expense | 12.8 |
| | 10.3 |
| | 5.7 |
| | (6.1 | ) | | (12.0 | ) | | (24.2 | ) |
Interest expense | 4.8 |
| | 4.8 |
| | 3.4 |
| | (3.4 | ) | | (6.9 | ) | | (13.7 | ) |
Change in pretax income | $ | (13.0 | ) | | $ | (7.7 | ) | | $ | (2.5 | ) | | $ | 2.1 |
| | $ | 4.2 |
| | $ | 8.4 |
|
Foreign CurrencyNon-U.S. Dollar Risk
We are exposed to foreign currencynon-U.S. dollar risk in the ordinary course of business as we offer our products and services through a network of agents and financial institutions with locations in more than 200 countries and territories. By policy, we do not speculate in foreign currencies;non-U.S. dollars; all currencynon-U.S. dollar trades relate to underlying transactional exposures.
Our primary source of foreignnon-U.S. dollar exchange risk is transactional risk. This risk is predominantly incurred in the money transfer business in which funds are frequently transferred cross-border and we settle with agents in multiple currencies. Although this risk is somewhat limited due to the fact that these transactions are short-term in nature, we currently manage some of this risk with forward contracts to protect against potential short-term market volatility. The primary currency pairs, based on volume, that are traded against the U.S. dollar in the spot and forward markets include the European euro, Mexican peso, British pound and Indian rupee. The tenor of forward contracts is typically lessfewer than 30 days.
Realized and unrealized gains or losses on transactional currency and any associated revaluation of balance sheet exposures are recorded in “Transactionwithin "Transaction and operations support”support" in the Consolidated Statements of Operations. The fair market value of any open forward contracts at period end are recorded in “Other assets”within "Other assets" or "Accounts payable and other liabilities" in the Consolidated Balance Sheets. The net effect of changes in foreignnon-U.S. dollar exchange rates and the related forward contracts for the year ended December 31, 20172020 was a gain of $7.5 million.$14.7 million.
Additional foreign currencynon-U.S. dollar risk is generated from fluctuations in the U.S. dollar value of future foreign currency-denominatednon-U.S. dollar-denominated earnings. In 2017,2020, fluctuations in the euro exchange rate (net of transactional hedging activities) resulted in a net increase to our operating incomeincome of $1.6$1.8 million.
In 2017,2020, the euro was our second largest currency position in the world following the U.S. dollar. Had the euro appreciated or depreciated relative to the U.S. dollar by 20% from actual exchange rates for 2017,2020, operating income would have increased/increased or decreased approximately $14.0approximately $18.9 million for the year.year, as applicable. There are inherent limitations in this sensitivity analysis, primarily due to the assumption that foreignnon-U.S. dollar exchange rate movements are linear and instantaneous, that the unhedged exposure is static and that we would not hedge any additional exposure. As a result, the analysis is unable tocannot reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect income.
Translation risk is generated from the accounting translation of the financial statements of foreign subsidiaries (from their functional currency) into U.S. dollars for consolidation and does not have a significant impact on companyour results. These translation adjustments are recorded inwithin "Accumulated other comprehensive loss" on the Consolidated Balance Sheets.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is found in a separate section of this Annual Report on2020 Form 10-K starting on pagespage F-1. See the “IndexIndex to Financial Statements”Statements on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’sCompany's reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms. Disclosure controls and procedures are designed, without limitation, to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Company’sCompany's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, the Company’sCompany's management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2017,2020, the Company’sCompany's disclosure controls and procedures were effective.
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 fiscal quarter ended December 31, 20172020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’sManagement's Report on Internal Control over Financial Reporting
Management’sManagement's annual report on internal control over financial reporting is provided on page F-2 of this Annual Report on2020 Form 10-K. The attestation report of the Company’sCompany's independent registered public accounting firm, KPMG LLP, regarding the Company’sCompany's internal control over financial reporting is provided on page F-3 of this Annual Report on2020 Form 10-K.
Item 9B. OTHER INFORMATION
None.
PART IIIIII.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information on executive officers called for by this Item is contained in Part I, Item 1 of this Annual Report on2020 Form 10-K under the caption “Executive Officers of the Registrant. The remaining information required by this Item 10 is incorporated herein by reference from the sections "Proposal 1: Election of Directors-Director Nominees-Qualifications and Background," "Board Structure and Composition," “Board Committees — Audit Committee” “Delinquent Section 16(a) Reports" (if any to disclose), “Director Nominee Criteria and Process,” and in our“Stockholder Proposals for the 2022 Annual Meeting” of the Company's definitive Proxy Statementproxy statement for our 2018the 2021 Annual Meeting of Stockholders and is incorporated herein by reference.to be filed with the SEC pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "2021 Proxy Statement").
All of our employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, also referred to as the Principal Officers, and our directors are subject to our Code of Conduct. Our directors are also subject to our Code of Conduct. These documents areConduct is posted on our website at corporate.moneygram.comir.moneygram.com in the Investor RelationsCorporate Governance section, and are available in print free of charge to any stockholder who requests them at the address set forth in Item 1 – Available Information of this Annual Report on Form 10-K. Wewe will disclose any amendments to, or waivers of, our Code of Conduct for directors or Principal Officers on oursuch website. The information on our website is not part of this Annual Report on2020 Form 10-K.
Item 11. EXECUTIVE COMPENSATION
The information called forrequired by this Item is contained in our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, and11 is incorporated herein by reference.reference from the sections "Proposal 1: Election of Directors — Director Compensation," "Executive Compensation," "Executive Compensation Tables," and "Compensation Committee Interlocks and Insider Participation" of the 2021 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER. MATTERS
The information called forregarding beneficial ownership required by this Item is contained in our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, and12 is incorporated herein by reference.reference from the section captioned "Beneficial Ownership of Common Stock" of the 2021 Proxy Statement. The information with respect to securities authorized for issuance under our equity compensation plans required by this Item 12 is incorporated herein by reference from the section captioned "Equity Compensation Plan Information” of the 2021 proxy statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called forrequired by this Item is contained in our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, and13 is incorporated herein by reference.reference from the sections captioned "Certain Relationships and Related Transactions," “Director Independence” and “Board Committees” of the 2021 Proxy Statement.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information called forrequired by this Item is contained in our definitive Proxy Statement for our 2018 Annual Meeting of Stockholders, and14 is incorporated herein by reference.reference from the section captioned "Proposal 2:Ratification of Appointment of Independent Registered Public Accounting Firm for 2021 — Independent Registered Public Accounting Firm Fees" and"Proposal 2:Ratification of Appointment of Independent Registered Public Accounting Firm for 2021 — Audit Committee Approval of Audit and Non-Audit Services" of the 2021 Proxy Statement.
PART IVIV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| | | | | |
(a) (1) | The financial statements listed in the “Index"Index to Financial Statements”Statements" are filed as part of this Annual Report on2020 Form 10-K. |
(2) | All financial statement schedules are omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or notes thereto listed in the “Index"Index to Financial Statements.”" |
(3) | Exhibits are filed with this Annual Report on2020 Form 10-K or incorporated herein by reference as listed in the accompanying Exhibit Index. |
(b) (1) | The following exhibits are filed or incorporated by reference herein in response to Item 601 of Regulation S-K. The Company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to the Securities Exchange Act of 1934 under Commission File No. 1-31950. |
|
| | | | | | | |
Exhibit Number | | Description |
2.13.1 | | |
2.2 | | |
2.3 | | |
2.4 | | |
2.5 | | |
2.6 | | |
3.1 | | |
3.2 | | |
3.3 | | |
3.4 | | |
3.5 | | |
3.6 | | |
3.7 | | |
4.13.6 | | |
3.7 | | |
3.8 | | |
4.1 | | |
4.2 | | |
4.3 | | |
4.4* | | |
4.5 | | |
10.1 | | |
10.2 | | |
†10.3 | | |
|
| | | | | | | |
†10.4Exhibit Number | | Description |
10.3† | | |
†10.510.4† | | |
†10.610.5† | | |
†10.710.6† | | |
†10.810.7† | | |
†10.9 | | |
†10.1010.8† | | |
†10.11 | | |
†10.12 | | |
10.13 | | |
10.14 | | |
†10.15 | | |
†10.16 | | |
†10.17 | | |
†10.18 | | |
†10.19 | | |
†10.20 | | |
†10.21 | | |
†10.22 | | |
†10.23 | | |
†10.24 | | |
|
10.9† | | |
†10.25 | | |
†10.26 | | |
†10.2710.10† | | |
†10.2810.11† | | |
†10.29 | | |
†10.30 | | |
†10.31 | | |
†10.32 | | |
†10.33 | | |
†10.34 | | |
†10.35 | | |
†10.36 | | |
†10.37 | | |
†10.3810.12† | | |
†10.3910.13† | | |
†10.40 | | |
†10.41 | | |
10.4210.14† | | |
†10.43 | | |
+10.44 | | |
10.45 | | Guaranty, dated as of May 18, 2011, among MoneyGram International, Inc., MoneyGram Payment Systems, Inc., MoneyGram of New York LLC, and Bank of America, N.A., as administrative agent (Incorporated by reference from Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed May 23, 2011). |
|
10.15† | | |
10.46 | | Pledge Agreement, dated as of May 18, 2011, among MoneyGram International, Inc., MoneyGram Payment Systems Worldwide, Inc., MoneyGram Payment Systems, Inc., MoneyGram of New York LLC, and Bank of America, N.A., as collateral agent (Incorporated by reference from Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed May 23, 2011). |
10.47 | | Security Agreement, dated as of May 18, 2011, among MoneyGram International, Inc., MoneyGram Payment Systems Worldwide, Inc., MoneyGram Payment Systems, Inc., MoneyGram of New York LLC, and Bank of America, N.A., as collateral agent (Incorporated by reference from Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed May 23, 2011). |
10.48 | | |
10.49 | | |
10.50 | | |
10.51 | | |
10.52 | | |
10.53 | | |
+10.54 | | First Incremental Amendment and Joinder Agreement, dated April 2, 2014, by and among MoneyGram International, Inc., as borrower, MoneyGram Payment Systems Worldwide, Inc., MoneyGram Payment Systems, Inc., and MoneyGram of New York LLC, Bank of America, N.A., as administrative agent, and the financial institutions party thereto as Lenders (Incorporated by reference from Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q filed May 2, 2014). |
10.55 | | |
10.56 | | |
10.57 | | |
10.58 | | |
10.59 | | |
†10.60 | | |
†10.6110.16† | | |
†10.6210.17† | | |
†10.63 | | |
|
10.18+ | | |
†10.64 | | |
*†10.65 | | |
10.66 | | 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 (Incorporated by reference from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed November 9, 2012). |
10.67 | | 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 (Incorporated by reference from Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed November 9, 2012). |
+10.68 | | |
+10.6910.19+ | | |
+10.7010.20+ | | |
10.7110.21 | | |
10.7210.22 | | |
| | | | | | | | |
10.73Exhibit Number | | Description |
10.23 | | |
10.7410.24 | | |
10.7510.25 | | |
10.26**10.76* | | |
10.77 | | Note Purchasethe Amended and Restated Master Trust Agreement dated as of March 27, 2013, by and amongbetween MoneyGram Payment Systems, Worldwide, Inc., GSMP V Onshore US, Ltd., GSMP V Offshore US, Ltd. and GSMP V Institutional US, Ltd.Walmart Inc. (Incorporated by reference from Exhibit 10.1 to Registrant's Current Report on Form 8-K filed March 28, 2013).Registrant |
10.78 | | |
†10.79 | | |
†10.8010.27*** | | |
10.28*† | | |
10.29† | | |
†10.81 | | |
†10.82 | | |
†10.83 | | |
|
10.30† | | |
†10.84 | | |
†10.85 | | |
†10.86 | | |
†10.87 | | |
†10.88 | | |
†10.8910.31† | | |
†10.90 | | |
†10.91 | | |
†10.92 | | |
†10.93 | | |
†10.94 | | |
†10.95 | | |
†10.96 | | |
†10.97 | | |
10.98 | | |
10.9910.32† | | |
10.10010.33† | | |
10.10110.34† | | |
10.102 | | |
10.103 | | |
10.104 | | |
|
10.35† | | |
10.105 | | |
10.10610.36† | | |
+10.10710.37 | | |
10.10810.38 | | |
*2110.39 | | |
10.40 | | |
10.41 | | |
| | | | | | | | |
Exhibit Number | | Description |
10.42 | | |
10.43 | | |
10.44 | | |
10.45 | | |
10.46 | | |
10.47 | | |
21* | | |
*23.123* | | |
*23.224* | | |
*24 | | |
*31.131.1* | | |
*31.231.2* | | |
32.1**32.1 | | |
32.2**32.2 | | |
*101101* | | The following financial statements,materials from MoneyGram's Annual Report on Form 10-K for the year ended December 31, 2020, formatted in ExtensibleiXBRL (Inline eXtensible Business Reporting Language (“XBRL”)Language): (i) Consolidated Balance Sheets, as of December 31, 2017 and December 31, 2016; (ii) Consolidated Statements of Operations, for the years ended December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive (Loss) Income, for the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of Stockholders' Deficit, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated Statements of Stockholders’ Deficit as of December 31, 2017, 2016 and 2015, and (vi) Notes to the Consolidated Financial Statements. |
104* | | Cover Page Interactive Data File (formatted in iXBRL (Inline eXtensible Business Reporting Language) and contained in Exhibit 101). |
| | |
* | | Filed herewith. |
|
| | |
†** | | Furnished herewith. |
| | |
*** | | Portions of this exhibit have been omitted because they are both not material and would be competitively harmful if publicly disclosed. |
| | |
† | | Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. |
arrangement. |
| | |
+ | | Confidential information has been omitted from this Exhibit and has been filed separately with the SEC pursuant to a confidential treatment request under Rule 24b-2. |
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | | | | |
| | | MoneyGram International, Inc. |
| | | (Registrant) |
| | | |
Date: | March 16, 2018February 22, 2021 | | By: | | /S/ W. ALEXANDER HOLMES |
| | | | | W. Alexander Holmes |
| | | | | Chairman and Chief Executive Officer (Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
/s/ W. Alexander Holmes | | Chairman and Chief Executive Officer (Principal Executive Officer) | | February 22, 2021 |
W. Alexander Holmes | | |
| | | | |
/s/ W. Alexander Holmes | | Chairman and Chief
Executive Officer
(Principal Executive Officer)
| | March 16, 2018 |
W. Alexander Holmes | | |
| | | | |
/s/ Lawrence Angelilli | | Chief Financial Officer
(Principal Financial Officer)
| | March 16, 2018 |
Lawrence Angelilli | | |
| | |
/s/ John D. Stoneham | | Corporate Controller
(Principal Accounting Officer) | | March 16, 2018 |
John D. Stoneham | | |
|
| | | | |
/s/ Lawrence Angelilli | Directors | Chief Financial Officer (Principal Financial Officer) | | February 22, 2021 |
Lawrence Angelilli | | | | |
| J. Coley Clark | | Seth W. Lawry | |
/s/ Christopher Russell | Victor W. Dahir | Chief Accounting Officer (Principal Accounting Officer) | Ganesh B. Rao | February 22, 2021 |
Christopher Russell | Antonio O. Garza | | W. Bruce Turner | |
| Peggy Vaughan | | Michael Rafferty | |
|
| | | | | | | | | | | | | |
By: | Directors | /s/ F. Aaron Henry | | | | March 16, 2018 |
| | F. Aaron Henry | | | | |
| J. Coley Clark | Attorney-in-fact | Peggy Vaughan | |
| Victor W. Dahir | | W. Bruce Turner | |
| Antonio O. Garza | | Michael P. Rafferty | |
| | | | | | | | | | | | | | | | | | | | |
By: | | /s/ Robert L. Villaseñor | | | | February 22, 2021 |
| | Robert L. Villaseñor | | | | |
| | Attorney-in-fact | | | | |
MoneyGram International, Inc.
Annual Report on Form 10-K
Items 8 and 15(a)15 (a)
Index to Financial Statements
Management's Responsibility Statement and Report on Internal Control over Financial Reporting
The management of MoneyGram International, Inc. is responsible for the integrity, objectivity and accuracy of the consolidated financial statements of the Company. The consolidated financial statements are prepared by the Company in accordance with accounting principles generally accepted in the United States of America using, where appropriate, management’smanagement's best estimates and judgments. The financial information presented throughout the Annual Report is consistent with that in the consolidated financial statements.
Management is also responsible for establishing and maintaining a system of internal controls and procedures over financial reporting designed to provide reasonable assurance that the books and records reflect the transactions of the Company and that assets are protected against loss from unauthorized use or disposition. Such a system is maintained through accounting policies and procedures administered by trained Company personnel and updated on a continuing basis to ensure their adequacy to meet the changing requirements of our business. The Company requires that all of its affairs, as reflected by the actions of its employees, be conducted according to the highest standards of personal and business conduct. This responsibility is reflected in our Code of Ethics.
To test compliance with the Company’sCompany's system of internal controls and procedures over financial reporting, the Company carries out an extensive audit program. This program includes a review for compliance with written policies and procedures and a comprehensive review of the adequacy and effectiveness of the internal control system. Although control procedures are designed and tested, it must be recognized that there are limits inherent in all systems of internal control and, therefore, errors and irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Projection of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Audit Committee of the Board of Directors, which is composed solely of outside independent directors, meets quarterly with management, internal audit and the independent registered public accounting firm to discuss internal accounting control, auditing and financial reporting matters, as well as to determine that the respective parties are properly discharging their responsibilities. Both our independent registered public accounting firm and internal auditors have had and continue to have unrestricted access to the Audit Committee without the presence of management.
Management assessed the effectiveness of the Company’sCompany's internal controls over financial reporting as of December 31, 2017.2020. In making this assessment, management used the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and those criteria, management believes that the Company designed and maintained effective internal control over financial reporting as of December 31, 2017.2020.
The Company’sCompany's independent registered public accounting firm, KPMG LLP, has been engaged to audit our financial statements included in this Annual Report on Form 10-K and the effectiveness of the Company’sCompany's system of internal control over financial reporting as of December 31, 2017.2020. Their attestation report regarding the Company’sCompany's internal control over financial reporting is included on page F-3 of this Annual Report on Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
MoneyGram International, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited MoneyGram International, Inc. and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income (loss),loss, cash flows, and stockholders’ deficit for each of the years in the three-year period ended December 31, 2017 and 2016,2020, and the related notes (collectively, the consolidated financial statements), and our report dated March 16, 2018February 22, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Responsibility Statement.Statement and Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Dallas, Texas
March 16, 2018February 22, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
MoneyGram International, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of MoneyGram International, Inc. and subsidiaries (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive income (loss),loss, cash flows, and stockholders’ deficit for each of the years in the three-year period ended December 31, 2017 and 2016,2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017 and 2016,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2018February 22, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019, due to the adoption of Financial Accounting Standards Board Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Money transfer and bill payment revenue
As discussed in Notes 2 and 18 to the consolidated financial statements, the Company derives approximately 93% of its revenue from providing money transfer and bill payment services. These services are provided through third-party agents, limited Company-operated retail locations, and digital solutions such as moneygram.com, mobile solutions, account deposit, and kiosk-based services.
We identified the evaluation of the sufficiency of audit evidence over money transfer and bill payment revenue obtained from the Company’s information technology (IT) systems to be a critical audit matter. The calculation and recording of money transfer and bill payment services is automated and relies on multiple internally developed tools and systems. Specifically, the highly automated nature of the money transfer and bill payment revenue process required extensive involvement of IT professionals to design and perform audit procedures related to the IT systems and evaluate the sufficiency of audit evidence obtained over money transfer and bill payment revenue.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed. We evaluated the design and tested the operating effectiveness of certain internal controls related to the money transfer and bill payment revenue process. We involved IT professionals with specialized skills and knowledge who assisted in:
•Identifying the relevant systems used to calculate and record money transfer and bill payment revenue transactions;
•Testing the general IT controls over certain systems, including testing of user access controls, change management controls, and IT operations controls; and
•Testing automated application controls including system interfaces and the calculation and recording of money transfer and bill payment revenue transactions to the Company’s general ledgers.
We tested a sample of money transfer and bill payment revenue transactions by comparing the amounts recognized to source documents and third-party bank statements. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.
/s/ KPMG LLP
We have served as the Company's auditor since 2016.
Dallas, Texas
March 16, 2018February 22, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of
MoneyGram International, Inc.
Dallas, Texas
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, such 2015 consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of MoneyGram International, Inc. and subsidiaries for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 2, 2016 (March 16, 2017 as to the effects of the 2016 immaterial error correction related to foreign exchange revenue disclosed in Note 15 to the consolidated financial statements; March 16, 2018 as to the effects of the 2017 immaterial error correction related to the pension plan disclosed in Note 15 to the consolidated financial statements and the adoption ofASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, discussed in Note 2 to the consolidated financial statements)
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| | AT DECEMBER 31, | 2017 | | 2016 | AT DECEMBER 31, | | 2020 | | 2019 |
(Amounts in millions, except share data) | | | | (Amounts in millions, except share data) | | | | |
ASSETS | | | | ASSETS | |
Cash and cash equivalents | $ | 190.0 |
| | $ | 157.2 |
| Cash and cash equivalents | | $ | 196.1 | | | $ | 146.8 | |
Settlement assets | 3,756.9 |
| | 3,634.3 |
| Settlement assets | | 3,702.9 | | | 3,237.0 | |
Property and equipment, net | 214.9 |
| | 201.0 |
| Property and equipment, net | | 148.1 | | | 176.1 | |
Goodwill | 442.2 |
| | 442.2 |
| Goodwill | | 442.2 | | | 442.2 | |
Right-of-use assets | | Right-of-use assets | | 55.1 | | | 50.0 | |
Other assets | 168.5 |
| | 162.7 |
| Other assets | | 129.7 | | | 132.9 | |
Total assets | $ | 4,772.5 |
| | $ | 4,597.4 |
| Total assets | | $ | 4,674.1 | | | $ | 4,185.0 | |
LIABILITIES | | | | LIABILITIES | | | | |
Payment service obligations | $ | 3,756.9 |
| | $ | 3,634.3 |
| Payment service obligations | | $ | 3,702.9 | | | $ | 3,237.0 | |
Debt, net | 908.1 |
| | 915.2 |
| Debt, net | | 857.8 | | | 850.3 | |
Pension and other postretirement benefits | 97.3 |
| | 99.0 |
| Pension and other postretirement benefits | | 74.5 | | | 77.5 | |
Lease liabilities | | Lease liabilities | | 59.1 | | | 54.2 | |
Accounts payable and other liabilities | 255.5 |
| | 164.5 |
| Accounts payable and other liabilities | | 216.8 | | | 206.4 | |
Total liabilities | 5,017.8 |
| | 4,813.0 |
| Total liabilities | | $ | 4,911.1 | | | $ | 4,425.4 | |
COMMITMENTS AND CONTINGENCIES (NOTE 13) |
|
| |
|
| |
STOCKHOLDERS’ DEFICIT | | | | |
Participating convertible preferred stock - series D, $0.01 par value, 200,000 shares authorized, 71,282 issued at December 31, 2017 and December 31, 2016 | 183.9 |
| | 183.9 |
| |
Common stock, $0.01 par value, 162,500,000 shares authorized, 58,823,567 shares issued at December 31, 2017 and December 31, 2016 | 0.6 |
| | 0.6 |
| |
COMMITMENTS AND CONTINGENCIES (NOTE 15) | | COMMITMENTS AND CONTINGENCIES (NOTE 15) | | 0 | | 0 |
STOCKHOLDERS' DEFICIT | | STOCKHOLDERS' DEFICIT | |
Participating convertible preferred stock - series D, $0.01 par value, 200,000 shares authorized, 0 shares issued and outstanding at December 31, 2020, 71,282 shares issued and outstanding at December 31, 2019 | | Participating convertible preferred stock - series D, $0.01 par value, 200,000 shares authorized, 0 shares issued and outstanding at December 31, 2020, 71,282 shares issued and outstanding at December 31, 2019 | | 0 | | | 183.9 | |
Common stock, $0.01 par value, 162,500,000 shares authorized, 72,530,770 and 65,061,090 shares issued, 72,517,539 and 62,731,184 shares outstanding at December 31, 2020 and December 31, 2019, respectively | | Common stock, $0.01 par value, 162,500,000 shares authorized, 72,530,770 and 65,061,090 shares issued, 72,517,539 and 62,731,184 shares outstanding at December 31, 2020 and December 31, 2019, respectively | | 0.7 | | | 0.7 | |
Additional paid-in capital | 1,034.8 |
| | 1,020.3 |
| Additional paid-in capital | | 1,296.0 | | | 1,116.9 | |
Retained loss | (1,336.1 | ) | | (1,252.6 | ) | Retained loss | | (1,475.3) | | | (1,460.1) | |
Accumulated other comprehensive loss | (63.0 | ) | | (56.1 | ) | Accumulated other comprehensive loss | | (58.4) | | | (63.5) | |
Treasury stock: 4,585,223 and 6,058,856 shares at December 31, 2017 and December 31, 2016, respectively | (65.5 | ) | | (111.7 | ) | |
Total stockholders’ deficit | (245.3 | ) | | (215.6 | ) | |
Total liabilities and stockholders’ deficit | $ | 4,772.5 |
| | $ | 4,597.4 |
| |
Treasury stock: 13,231 and 2,329,906 shares at December 31, 2020 and December 31, 2019, respectively | | Treasury stock: 13,231 and 2,329,906 shares at December 31, 2020 and December 31, 2019, respectively | | 0 | | | (18.3) | |
Total stockholders' deficit | | Total stockholders' deficit | | (237.0) | | | (240.4) | |
Total liabilities and stockholders' deficit | | Total liabilities and stockholders' deficit | | $ | 4,674.1 | | | $ | 4,185.0 | |
See Notes to the Consolidated Financial Statements
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | |
FOR THE YEAR ENDED DECEMBER 31, | | 2020 | | 2019 | | 2018 |
(Amounts in millions, except share data) | | | | | | |
REVENUE | | | | | | |
Fee and other revenue | | $ | 1,197.2 | | | $ | 1,230.4 | | | $ | 1,398.1 | |
Investment revenue | | 20.0 | | | 54.7 | | | 49.5 | |
Total revenue | | 1,217.2 | | | 1,285.1 | | | 1,447.6 | |
EXPENSES | | | | | | |
Fee and other commissions expense | | 603.6 | | | 613.4 | | | 688.6 | |
Investment commissions expense | | 3.6 | | | 23.3 | | | 19.3 | |
Direct transaction expense | | 45.8 | | | 25.5 | | | 24.3 | |
Total commissions and direct transaction expenses | | 653.0 | | | 662.2 | | | 732.2 | |
Compensation and benefits | | 223.8 | | | 228.4 | | | 259.8 | |
Transaction and operations support (1) | | 111.6 | | | 207.8 | | | 298.8 | |
Occupancy, equipment and supplies | | 61.4 | | | 60.9 | | | 62.0 | |
Depreciation and amortization | | 64.4 | | | 73.8 | | | 76.3 | |
Total operating expenses | | 1,114.2 | | | 1,233.1 | | | 1,429.1 | |
OPERATING INCOME | | 103.0 | | | 52.0 | | | 18.5 | |
Other expenses | | | | | | |
Interest expense | | 92.4 | | | 77.0 | | | 53.6 | |
Other non-operating expense (income) | | 4.5 | | | 39.3 | | | (24.2) | |
Total other expenses | | 96.9 | | | 116.3 | | | 29.4 | |
Income (loss) before income taxes | | 6.1 | | | (64.3) | | | (10.9) | |
Income tax expense (benefit) | | 14.0 | | | (4.0) | | | 13.1 | |
NET LOSS | | $ | (7.9) | | | $ | (60.3) | | | $ | (24.0) | |
| | | | | | |
LOSS PER COMMON SHARE | | | | | | |
Basic | | $ | (0.10) | | | $ | (0.85) | | | $ | (0.37) | |
Diluted | | $ | (0.10) | | | $ | (0.85) | | | $ | (0.37) | |
| | | | | | |
Weighted-average outstanding common shares and equivalents used in computing loss per share | | | | | | |
Basic | | 77.8 | | | 71.1 | | | 64.3 | |
Diluted | | 77.8 | | | 71.1 | | | 64.3 | |
| | | | | | |
|
| | | | | | |
|
| | | | | | | | | | | |
FOR THE YEAR ENDED DECEMBER 31, | 2017 | | 2016 | | 2015 |
(Amounts in millions, except per share data) | | | | | |
REVENUE | | | | | |
Fee and other revenue | $ | 1,560.9 |
| | $ | 1,612.4 |
| | $ | 1,527.0 |
|
Investment revenue | 41.2 |
| | 18.0 |
| | 12.1 |
|
Total revenue | 1,602.1 |
| | 1,630.4 |
| | 1,539.1 |
|
EXPENSES | | | | | |
Fee and other commissions expense | 763.5 |
| | 793.1 |
| | 759.8 |
|
Investment commissions expense | 8.7 |
| | 2.5 |
| | 0.8 |
|
Total commissions expense | 772.2 |
| | 795.6 |
| | 760.6 |
|
Compensation and benefits | 277.7 |
| | 295.7 |
| | 310.4 |
|
Transaction and operations support | 402.3 |
| | 309.5 |
| | 324.8 |
|
Occupancy, equipment and supplies | 66.1 |
| | 61.9 |
| | 62.3 |
|
Depreciation and amortization | 75.1 |
| | 79.9 |
| | 66.1 |
|
Total operating expenses | 1,593.4 |
| | 1,542.6 |
| | 1,524.2 |
|
OPERATING INCOME | 8.7 |
| | 87.8 |
| | 14.9 |
|
Other expenses | | | | | |
Interest expense | 45.3 |
| | 45.0 |
| | 45.3 |
|
Debt extinguishment costs | — |
| | 0.3 |
| | — |
|
Total other expenses, net | 45.3 |
| | 45.3 |
| | 45.3 |
|
(Loss) income before income taxes | (36.6 | ) | | 42.5 |
| | (30.4 | ) |
Income tax (benefit) expense | (6.8 | ) | | 26.6 |
| | 47.3 |
|
NET (LOSS) INCOME | $ | (29.8 | ) | | $ | 15.9 |
| | $ | (77.7 | ) |
| | | | | |
(LOSS) EARNINGS PER COMMON SHARE | | | | | |
Basic | $ | (0.47 | ) | | $ | 0.26 |
| | $ | (1.25 | ) |
Diluted | $ | (0.47 | ) | | $ | 0.24 |
| | $ | (1.25 | ) |
| | | | | |
Weighted-average outstanding common shares and equivalents used in computing (loss) earnings per share | | | | | |
Basic | 62.9 |
| | 62.3 |
| | 62.1 |
|
Diluted | 62.9 |
| | 65.9 |
| | 62.1 |
|
(1)2020 and 2019 includes $50.2 million and $11.3 million of related party market development fees, respectively. See Note 20 — Related Parties for further details.See Notes to the Consolidated Financial Statements
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMELOSS
|
| | | | | | | | | | | |
FOR THE YEAR ENDED DECEMBER 31, | 2017 | | 2016 | | 2015 |
(Amounts in millions) | | | | | |
NET (LOSS) INCOME | $ | (29.8 | ) | | $ | 15.9 |
| | $ | (77.7 | ) |
OTHER COMPREHENSIVE (LOSS) INCOME | | | | | |
Net change in unrealized holding gains on available-for-sale securities arising during the period, net of tax benefit of $0.0, $0.1 and $0.0 for the years ended December 31, 2017, 2016 and 2015, respectively | 3.6 |
| | (0.3 | ) | | (0.1 | ) |
Net reclassification adjustment for net realized gains included in net earnings, net of tax expense of $0.0 for the years ended December 31, 2017, 2016 and 2015, respectively | (12.2 | ) | | — |
| | — |
|
Net change in pension liability due to amortization of prior service credit and net actuarial loss, net of tax benefit of $1.6, $2.0 and $3.1 for the years ended December 31, 2017, 2016 and 2015, respectively | 2.8 |
| | 3.5 |
| | 5.2 |
|
Valuation adjustment for pension and postretirement benefits, net of tax (benefit) expense of ($4.5), ($1.2) and $7.1 for the years ended December 31, 2017, 2016 and 2015, respectively | (10.6 | ) | | (2.1 | ) | | 12.5 |
|
Pension settlement charge, net of tax benefit of $0.0, $0.0 and $5.4 for the years ended December 31, 2017, 2016 and 2015, respectively | — |
| | — |
| | 9.3 |
|
Unrealized foreign currency translation adjustments, net of tax (expense) benefit of ($8.0), $1.3 and $4.6 for the years ended December 31, 2017, 2016 and 2015, respectively | 9.5 |
| | (6.4 | ) | | (8.1 | ) |
Other comprehensive (loss) income | (6.9 | ) | | (5.3 | ) | | 18.8 |
|
COMPREHENSIVE (LOSS) INCOME | $ | (36.7 | ) | | $ | 10.6 |
| | $ | (58.9 | ) |
| | | | | | | | | | | | | | | | | | | | |
FOR THE YEAR ENDED DECEMBER 31, | | | | | | |
(Amounts in millions) | | 2020 | | 2019 | | 2018 |
NET LOSS | | $ | (7.9) | | | $ | (60.3) | | | $ | (24.0) | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | |
Net change in unrealized holding loss on available-for-sale securities arising during the period, net of tax benefit of $0.1, $0.0 and $0.0 for the years ended December 31, 2020, 2019 and 2018, respectively | | (0.4) | | | (0.3) | | | (0.3) | |
Net change in pension liability due to amortization of prior service credit and net actuarial loss, net of tax benefit of $0.5, $0.7 and $1.0 for the years ended December 31, 2020, 2019 and 2018, respectively | | 1.7 | | | 2.1 | | | 3.5 | |
Pension settlement charge, net of tax benefit of $7.2 for the year ended December 31, 2019 | | 0 | | | 24.1 | | | 0 | |
Valuation adjustment for pension and postretirement benefits, net of tax (benefit) expense of $(1.0), $(2.0) and $1.8 for the years ended December 31, 2020, 2019 and 2018, respectively | | (3.4) | | | (6.6) | | | 6.1 | |
Unrealized non-U.S. dollar translation adjustments, net of tax expense (benefit) of $0.2, $(0.3) and $0.0 for the years ended December 31, 2020, 2019 and 2018, respectively | | 7.2 | | | (0.2) | | | (13.8) | |
Other comprehensive income (loss) | | 5.1 | | | 19.1 | | | (4.5) | |
COMPREHENSIVE LOSS | | $ | (2.8) | | | $ | (41.2) | | | $ | (28.5) | |
See Notes to the Consolidated Financial Statements
MONEYGRAM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | FOR THE YEAR ENDED DECEMBER 31, | | 2017 | | 2016 | | 2015 | FOR THE YEAR ENDED DECEMBER 31, | |
(Amounts in millions) | | | | | | | (Amounts in millions) | | 2020 | | 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | |
Net (loss) income | | $ | (29.8 | ) | | $ | 15.9 |
| | $ | (77.7 | ) | |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | | | | | |
Net loss | | Net loss | | $ | (7.9) | | | $ | (60.3) | | | $ | (24.0) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | Adjustments to reconcile net loss to net cash provided by operating activities: | |
Depreciation and amortization | | 75.1 |
| | 79.9 |
| | 66.1 |
| Depreciation and amortization | | 64.4 | | | 73.8 | | | 76.3 | |
Signing bonus amortization | | 51.9 |
| | 54.0 |
| | 60.4 |
| Signing bonus amortization | | 54.5 | | | 46.4 | | | 53.9 | |
Deferred income tax (benefit) expense | | (4.9 | ) | | 7.3 |
| | 25.1 |
| |
Gain on redemption of asset-backed security | | (12.2 | ) | | — |
| | — |
| |
Change in right-of-use assets | | Change in right-of-use assets | | 9.9 | | | 15.5 | | | 0 | |
Deferred income tax expense (benefit) | | Deferred income tax expense (benefit) | | 9.1 | | | (13.5) | | | 9.5 | |
Amortization of debt discount and debt issuance costs | | 3.2 |
| | 3.7 |
| | 2.8 |
| Amortization of debt discount and debt issuance costs | | 11.7 | | | 7.3 | | | 3.1 | |
Debt extinguishment costs | | Debt extinguishment costs | | 0 | | | 2.4 | | | 0 | |
Non-cash compensation and pension expense | | 20.4 |
| | 25.1 |
| | 46.6 |
| Non-cash compensation and pension expense | | 11.1 | | | 44.7 | | | 18.2 | |
| Signing bonus payments | | (40.3 | ) | | (34.0 | ) | | (87.3 | ) | Signing bonus payments | | (58.7) | | | (29.1) | | | (31.6) | |
Change in other assets | | (4.6 | ) | | 1.0 |
| | 27.2 |
| Change in other assets | | (10.9) | | | (20.6) | | | (3.9) | |
Change in lease liabilities | | Change in lease liabilities | | (15.3) | | | (15.8) | | | 0 | |
Change in accounts payable and other liabilities | | 70.3 |
| | (31.8 | ) | | (28.6 | ) | Change in accounts payable and other liabilities | | 29.3 | | | 8.3 | | | (73.7) | |
Other non-cash items, net | | 3.4 |
| | (0.2 | ) | | (0.5 | ) | Other non-cash items, net | | 0.1 | | | 3.9 | | | 1.5 | |
Net cash provided by operating activities | | 132.5 |
| | 120.9 |
| | 34.1 |
| Net cash provided by operating activities | | 97.3 | | | 63.0 | | | 29.3 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | |
Purchases of property and equipment | | (83.6 | ) | | (82.8 | ) | | (109.9 | ) | |
Proceeds from disposal of assets | | — |
| | — |
| | 0.4 |
| |
Payments for capital expenditures | | Payments for capital expenditures | | (40.8) | | | (54.5) | | | (57.8) | |
Net cash used in investing activities | | (83.6 | ) | | (82.8 | ) | | (109.5 | ) | Net cash used in investing activities | | (40.8) | | | (54.5) | | | (57.8) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | |
Transaction costs for issuance and amendment of debt | | Transaction costs for issuance and amendment of debt | | 0 | | | (24.3) | | | 0 | |
Principal payments on debt | | (9.8 | ) | | (30.3 | ) | | (9.8 | ) | Principal payments on debt | | (6.5) | | | (31.6) | | | (9.8) | |
Stock repurchases | | — |
| | (11.7 | ) | | (0.4 | ) | |
Contingent consideration payment | | — |
| | (0.7 | ) | | — |
| |
Proceeds from revolving credit facility | | Proceeds from revolving credit facility | | 23.0 | | | 0 | | | 0 | |
Payments on revolving credit facility | | Payments on revolving credit facility | | (23.0) | | | 0 | | | 0 | |
| Net proceeds from issuing equity instruments | | Net proceeds from issuing equity instruments | | 0 | | | 49.5 | | | 0 | |
Payments to tax authorities for stock-based compensation | | (8.0 | ) | | (2.7 | ) | | (0.5 | ) | Payments to tax authorities for stock-based compensation | | (0.7) | | | (0.8) | | | (6.2) | |
Proceeds from exercise of stock options and other | | 1.7 |
| | — |
| | — |
| |
Net cash used in financing activities | | (16.1 | ) | | (45.4 | ) | | (10.7 | ) | Net cash used in financing activities | | (7.2) | | | (7.2) | | | (16.0) | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | | 32.8 |
| | (7.3 | ) | | (86.1 | ) | NET CHANGE IN CASH AND CASH EQUIVALENTS | | 49.3 | | | 1.3 | | | (44.5) | |
CASH AND CASH EQUIVALENTS—Beginning of year | | 157.2 |
| | 164.5 |
| | 250.6 |
| CASH AND CASH EQUIVALENTS—Beginning of year | | 146.8 | | | 145.5 | | | 190.0 | |
CASH AND CASH EQUIVALENTS—End of year | | $ | 190.0 |
| | $ | 157.2 |
| | $ | 164.5 |
| CASH AND CASH EQUIVALENTS—End of year | | $ | 196.1 | | | $ | 146.8 | | | $ | 145.5 | |
Supplemental cash flow information: | | | | | | | Supplemental cash flow information: | | | | |
Cash payments for interest | | $ | 41.9 |
| | $ | 41.6 |
| | $ | 42.1 |
| Cash payments for interest | | $ | 77.5 | | | $ | 63.3 | | | $ | 50.7 | |
Cash payments for taxes, net of refunds | | $ | 5.0 |
| | $ | 9.5 |
| | $ | 64.4 |
| Cash payments for taxes, net of refunds | | $ | (1.8) | | | $ | 4.4 | | | $ | 4.8 | |