NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Note 1 — Description of the Business and Basis of Presentation
References to “MoneyGram,” the “Company,” “we,” “us” and “our” are to MoneyGram International, Inc. and its subsidiaries.
Nature of Operations — MoneyGram offers products and services under its two reporting segments: Global Funds Transfer and Financial Paper Products. The Global Funds Transfer segment provides global money transfer services and bill payment services to consumers through two primary distribution channels: walk-in and digital. Through our walk-in channel, we offer services through third-party agents, including retail chains, independent retailers, post offices and other financial institutions. Additionally, we have limited Company-operated retail locations. We offer solutions such as moneygram.com, mobile solutions, digital partners, wallets and account deposit services as part of our digital channel. The Financial Paper Products segment provides official check outsourcing services and money orders through financial institutions and agent locations.
Basis of Presentation — The accompanying unaudited condensed consolidated financial statements of MoneyGram are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The Condensed Consolidated Balance Sheets are unclassified due to the timing uncertainty surrounding the payment of settlement obligations. The condensed consolidated financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.
Impact of Novel Coronavirus (“COVID-19”) On Our Financial Statements — 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, and governmental authorities around the world implemented numerous measures attempting to contain and mitigate the effects of the virus, including travel bans and restrictions, border closings, quarantines, shelter-in-place orders, shutdowns, limitations or closures of non-essential businesses, school closures and social distancing requirements. The global spread of COVID-19 and actions taken in response to the virus negatively affected our workforce, agents, customers, financial markets, employment rates, consumer spending and credit markets, caused significant economic and business disruption, volatility and financial uncertainty, and led to a significant economic downturn.
During the first quarter of 2020, we assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of COVID-19 using information that was reasonably available to us at the time. The accounting estimates and other matters we assessed included, but were not limited to, our goodwill and other long-lived assets, allowance for credit losses, pension and other postretirement benefits and valuation allowances for tax assets. Based on our assessment of these estimates, the Company recorded an increase in its deferred tax asset valuation allowance of $10.6 million, of which $10.1 million related to balances which existed at the beginning of the year. See Note 11 — Income Taxes for more information.
During the second quarter of 2020, governmental authorities began removing restrictions such as quarantines, shutdowns and some shelter-in-place orders. As the restrictions are eased, the ability to transact on a more normal basis will continue to return. Notwithstanding such positive trends, the impact of the COVID-19 pandemic has recently worsened in certain jurisdictions which as a result have increased or resumed their shelter-in-place and shutdown orders. During the second quarter of 2020, the Company recorded an additional $0.8 million increase to its deferred tax asset valuation allowance. See Note 11 - Income Taxes for more information.
There was no other material impact to our condensed consolidated financial statements as of and for the quarter ended June 30, 2020, based on the Company's assessment of its estimates. As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our consolidated financial statements in future reporting periods.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on historical experience, future expectations, impact of COVID-19 and other factors and assumptions the Company believes to be reasonable under the circumstances. These estimates and assumptions are reviewed on an ongoing basis and are revised when necessary. Changes in estimates are recorded in the period of change. Actual amounts may differ from these estimates.
Recent Accounting Pronouncements and Related Developments — In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new credit impairment standard changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for credit losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. To further assist with adoption and implementation of ASU 2016-13, the FASB issued the following ASUs:
•ASU 2018-19 (Issued November 2018) — Codification Improvements to Topic 326, Financial Instruments - Credit Losses
•ASU 2019-04 (Issued April 2019) — Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
•ASU 2019-05 (Issued May 2019) — Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
•ASU 2019-10 (Issued November 2019) — Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates
•ASU 2019-11 (Issued November 2019) — Codification Improvements to Topic 326, Financial Instruments - Credit Losses
•ASU 2020-02 (Issued February 2020) — Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) (SEC Update)
•ASU 2020-03 (Issued March 2020) — Codification Improvements to Financial Instruments
ASU 2019-10 changed the effective date of ASU 2016-13 for public business entities that meet the definition of a Securities and Exchange Commission ("SEC") filer but that are eligible to be a smaller reporting company to fiscal years beginning after December 15, 2022. MoneyGram is a smaller reporting company and, as such, will adopt the amendments in these standards in 2023. We are still evaluating these ASUs, but we do not believe the adoption will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefits Plans. The amendments in this standard require that entities now disclose the weighted-average interest credit ratings for cash balance plans and other plans with promised interest credit ratings and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period, as well as clarify and remove certain other disclosures. This standard is effective for fiscal years ending after December 15, 2020, and, as such, its disclosure requirements will be reflected in the 2020 Annual Report on Form 10-K. This standard does not impact our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide, if certain criteria are met, optional expedients and exceptions for applying the GAAP requirements for contract modifications, hedging relationships and sales or transfers of debt securities that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform through December 31, 2022. The adoption of this ASU is optional and the election can be made anytime during the effective period. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. MoneyGram is currently evaluating the impact of this standard and has not yet determined whether we will elect the optional expedients.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its condensed consolidated financial statements.
Note 2 — Reorganization Costs
In the fourth quarter of 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 second quarter of 2020, this number was revised to approximately 100 positions as the operational plan gets closer to completion. The workforce reduction was designed to streamline operations and structure the Company in a way that is 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 quarter of 2020 with $8.2 million of costs incurred consisting primarily of one-time termination benefits for employee severance and related costs, which are recorded in “Compensation and benefits” on the Condensed Consolidated Statements of Operations in the Global Funds Transfer reporting segment.
The following table is a roll-forward of the reorganization costs accrual as of June 30, 2020:
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|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2019 Organizational Realignment
|
|
Balance, December 31, 2019
|
|
$
|
4.6
|
|
|
Expenses
|
|
1.4
|
|
|
Cash payments
|
|
(5.7)
|
|
|
|
|
|
|
Balance, June 30, 2020
|
|
$
|
0.3
|
|
The following table is a summary of the cumulative reorganization costs incurred to date in operating expenses as of June 30, 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
2019 Organizational Realignment
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|
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|
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|
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|
|
Balance, December 31, 2019
|
|
$
|
6.8
|
|
|
|
|
|
|
|
|
First quarter 2020
|
|
0.7
|
|
|
|
|
|
|
|
|
Second quarter 2020
|
|
0.7
|
|
|
|
|
|
|
|
|
Total cumulative reorganization costs incurred to date
|
|
$
|
8.2
|
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|
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|
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|
Note 3 — Settlement Assets and Payment Service Obligations
The Company records payment service obligations relating to amounts payable under money transfers, money orders and consumer payment service arrangements. These obligations are recognized by the Company at the time the underlying transaction occurs. The Company records corresponding settlement assets, which represent funds received or to be received for unsettled money transfers, money orders and consumer payments.
The following table summarizes the amount of settlement assets and payment service obligations:
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|
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|
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(Amounts in millions)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Settlement assets:
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|
|
|
|
|
Settlement cash and cash equivalents
|
|
$
|
2,040.8
|
|
|
$
|
1,531.1
|
|
|
Receivables, net
|
|
742.5
|
|
|
715.5
|
|
|
Interest-bearing investments
|
|
714.3
|
|
|
985.9
|
|
|
Available-for-sale investments
|
|
3.9
|
|
|
4.5
|
|
|
Total settlement assets
|
|
$
|
3,501.5
|
|
|
$
|
3,237.0
|
|
|
Payment service obligations
|
|
$
|
(3,501.5)
|
|
|
$
|
(3,237.0)
|
|
|
|
|
|
|
|
Note 4 — Fair Value Measurement
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date.
The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis:
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|
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(Amounts in millions)
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|
|
Level 2
|
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Level 3
|
|
Total
|
|
June 30, 2020
|
|
|
|
|
|
|
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|
|
Financial assets:
|
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|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
|
$
|
3.3
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
Asset-backed and other securities
|
|
|
|
—
|
|
|
0.6
|
|
|
0.6
|
|
|
Forward contracts
|
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|
Total financial assets
|
|
|
|
$
|
4.6
|
|
|
$
|
0.6
|
|
|
$
|
5.2
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
|
$
|
3.6
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
Asset-backed and other securities
|
|
|
|
—
|
|
|
0.9
|
|
|
0.9
|
|
|
Forward contracts
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total financial assets
|
|
|
|
$
|
3.6
|
|
|
$
|
0.9
|
|
|
$
|
4.5
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
Assets and liabilities that are disclosed at fair value — Debt and interest-bearing investments are carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of the first lien credit facility is estimated using an observable market quotation (Level 2). As of June 30, 2020 and December 31, 2019, the fair value of the first lien credit facility was $584.3 million and $577.6 million, respectively, with a carrying value of $638.6 million and $641.8 million, respectively. The fair value of the second lien credit facility is estimated using unobservable market inputs (Level 3), including broker quotes for comparable traded securities and yield curves. As of June 30, 2020 and December 31, 2019, the fair value of the second lien credit facility was $235.2 million and $236.7 million, respectively, with a carrying value of $254.6 million and $251.4 million, respectively.
The carrying amounts for the Company's cash and cash equivalents, settlement cash and cash equivalents, receivables, interest-bearing investments and payment service obligations approximate fair value as of June 30, 2020 and December 31, 2019.
Note 5 — Investment Portfolio
The following table shows the components of the investment portfolio:
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|
|
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|
|
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|
|
|
(Amounts in millions)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Cash
|
|
$
|
2,168.9
|
|
|
$
|
1,675.4
|
|
|
Money market securities
|
|
2.5
|
|
|
2.5
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1)
|
|
2,171.4
|
|
|
1,677.9
|
|
|
Interest-bearing investments
|
|
714.3
|
|
|
985.9
|
|
|
Available-for-sale investments
|
|
3.9
|
|
|
4.5
|
|
|
Total investment portfolio
|
|
$
|
2,889.6
|
|
|
$
|
2,668.3
|
|
(1) For purposes of the disclosure of the investment portfolio as a whole, the cash and cash equivalents balance includes settlement cash and cash equivalents.
The following table is a summary of the amortized cost and fair value of available-for-sale investments:
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(Amounts in millions)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
2.9
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
|
Asset-backed and other securities
|
|
0.3
|
|
|
0.6
|
|
|
(0.3)
|
|
|
0.6
|
|
|
Total
|
|
$
|
3.2
|
|
|
$
|
1.0
|
|
|
$
|
(0.3)
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
3.3
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
Asset-backed and other securities
|
|
0.2
|
|
|
0.7
|
|
|
—
|
|
|
0.9
|
|
|
Total
|
|
$
|
3.5
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
4.5
|
|
As of June 30, 2020 and December 31, 2019, 85% and 80%, respectively, of the fair value of the available-for-sale portfolio were invested in residential mortgage-backed securities issued by U.S. government agencies. These securities have the implicit backing of the U.S. government and the Company expects to receive full par value upon maturity or pay-down, as well as all interest payments.
Contractual Maturities — Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, sometimes without call or prepayment penalties. Maturities of residential mortgage-backed and asset-backed and other securities depend on the repayment characteristics and experience of the underlying obligations.
Note 6 — Derivative Financial Instruments
The Company uses forward contracts to manage its non-U.S. dollar needs and non-U.S. dollar exchange risk arising from its assets and liabilities denominated in non-U.S. dollars. While these contracts may mitigate certain non-U.S. dollar risk, they are not designated as hedges for accounting purposes and will result in gains and losses. The Company also reports gains and losses from the spread differential between the rate set for its transactions and the actual cost of currency at the time the Company buys or sells in the open market.
The following net gains (losses) related to assets and liabilities denominated in non-U.S. dollar are included in "Transaction and operations support" in the Condensed Consolidated Statements of Operations and in the "Net cash provided by operating activities" line in the Condensed Consolidated Statements of Cash Flows:
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net realized non-U.S. dollar gain (loss)
|
|
$
|
7.0
|
|
|
$
|
0.4
|
|
|
$
|
3.2
|
|
|
$
|
(3.1)
|
|
|
Net (loss) gain from the related forward contracts
|
|
(4.6)
|
|
|
0.6
|
|
|
1.7
|
|
|
5.7
|
|
|
Net gain from non-U.S. dollar transactions and related forward contracts
|
|
$
|
2.4
|
|
|
$
|
1.0
|
|
|
$
|
4.9
|
|
|
$
|
2.6
|
|
As of June 30, 2020 and December 31, 2019, the Company had $426.6 million and $349.1 million, respectively, of outstanding notional amounts relating to its non-U.S. dollar forward contracts.
As of June 30, 2020 and December 31, 2019, the Company reflects the following fair values of derivative forward contract instruments in its Condensed Consolidated Balance Sheets:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount of Recognized Assets
|
|
|
|
Gross Amount of Offset
|
|
|
|
Net Amount of Assets Presented in the Consolidated Balance Sheets
|
|
|
|
(Amounts in millions)
|
|
Balance Sheet Location
|
|
June 30, 2020
|
|
December 31, 2019
|
|
June 30, 2020
|
|
December 31, 2019
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Forward contracts
|
|
"Other assets"
|
|
$
|
1.6
|
|
|
$
|
0.2
|
|
|
$
|
(0.3)
|
|
|
$
|
(0.2)
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount of Recognized Liabilities
|
|
|
|
Gross Amount of Offset
|
|
|
|
Net Amount of Liabilities Presented in the Consolidated Balance Sheets
|
|
|
|
(Amounts in millions)
|
|
Balance Sheet Location
|
|
June 30, 2020
|
|
December 31, 2019
|
|
June 30, 2020
|
|
December 31, 2019
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Forward contracts
|
|
"Accounts payable and other liabilities"
|
|
$
|
0.3
|
|
|
$
|
1.0
|
|
|
$
|
(0.3)
|
|
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
The Company's forward contracts are primarily executed with counterparties governed by International Swaps and Derivatives Association agreements that generally include standard netting arrangements. Asset and liability positions from forward contracts and all other non-U.S. dollar exchange transactions with the same counterparty are net settled upon maturity.
The Company is exposed to credit loss in the event of non-performance by counterparties to its derivative contracts. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits and by selecting major international banks and financial institutions as counterparties. Collateral generally is not required of the counterparties or of the Company. In the unlikely event the counterparty fails to meet the contractual terms of the derivative contract, the Company's risk is limited to the fair value of the instrument. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.
Note 7 — Debt
The following is a summary of the Company's outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions, except percentages)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
7.00% first lien credit facility due 2023
|
|
$
|
638.6
|
|
|
$
|
641.8
|
|
|
13.00% second lien credit facility due 2024
|
|
254.6
|
|
|
251.4
|
|
|
Senior secured credit facilities
|
|
893.2
|
|
|
893.2
|
|
|
Unamortized debt issuance costs and debt discounts
|
|
(37.6)
|
|
|
(42.9)
|
|
|
Total debt, net
|
|
$
|
855.6
|
|
|
$
|
850.3
|
|
First Lien Credit Agreement and Revolving Credit Facility — The First Lien Credit Agreement provides for (a) a senior secured three-year revolving credit facility that may be used for revolving credit loans, swingline loans and letters of credit up to an aggregate principal amount of $35.0 million, which matures September 30, 2022 (the "First Lien Revolving Credit Facility") and (b) a senior secured four-year term loan facility 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").
As of June 30, 2020, the Company had no borrowings and nominal outstanding letters of credit under the First Lien Revolving Credit Facility. 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 our First Lien Revolving Credit Facility, and 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.
Second Lien Credit Agreement — The Second Lien Credit Agreement provides for a second lien secured five-year term loan facility in an aggregate principal amount of $245.0 million (the "Second Lien Term Credit Facility" and together with the First Lien Credit Facility, the "Credit Facilities"). Subject to certain conditions and limitations, the Company may elect to pay interest under the Second Lien Term Credit Facility partially in cash and partially in kind. The outstanding principal balance for the Second Lien Credit Agreement is due on the maturity date.
The Credit Facilities are secured by substantially all of the Company's assets and its material domestic subsidiaries that guarantee the payment and performance of the Company's obligations under the Credit Facilities.
Debt Covenants and Other Restrictions — The Credit Facilities contain various limitations that restrict the Company's ability to: incur additional indebtedness; create or incur additional liens; effect mergers and consolidations; make certain acquisitions or investments; sell assets or subsidiary stock; pay dividends and make other restricted payments; and effect loans, advances and certain other transactions with affiliates. In addition, the First Lien Revolving Credit Facility requires the Company and its consolidated subsidiaries (w) to maintain a minimum interest coverage ratio, (x) to maintain a minimum asset coverage ratio, (y) to not exceed a maximum first lien leverage ratio, and (z) to not exceed a total leverage ratio. The Second Lien Credit Facility requires the Company to not exceed a maximum secured leverage ratio of 5.50:1.00 commencing September 30, 2019.
The asset coverage covenant contained in the First Lien Credit Agreement requires the aggregate amount of the Company's cash and cash equivalents and other settlement assets to exceed its aggregate payment service obligations. The Company's assets in excess of payment service obligations used for the asset coverage calculation were $130.6 million and $146.8 million as of June 30, 2020 and December 31, 2019, respectively. The table below summarizes the interest coverage, first lien and total leverage ratio covenants, which are calculated based on the four-fiscal quarter period ending on each quarter end beginning September 30, 2019 through the maturity of the First Lien Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Coverage Minimum Ratio
|
|
First Lien Leverage Ratio Not to Exceed
|
|
Total Leverage Ratio Not to Exceed
|
|
July 1, 2019 through June 30, 2020
|
|
2.50:1
|
|
3.750:1
|
|
5.125:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2020 through December 31, 2020
|
|
2.50:1
|
|
3.500:1
|
|
5.000:1
|
|
|
|
|
|
|
|
|
|
January 1, 2021 through maturity
|
|
2.50:1
|
|
3.000:1
|
|
4.500:1
|
As of June 30, 2020, the Company was in compliance with its financial covenants: our interest coverage ratio was 3.215 to 1.00, our first lien leverage ratio was 2.773 to 1.00 and our total leverage ratio was 3.878 to 1.00. We continuously monitor our compliance with our debt covenants.
Note 8 — Pension and Other Benefits
The following table is a summary of net periodic benefit expense for the Company's defined benefit pension plan and supplemental executive retirement plans, collectively referred to as "Pension":
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Settlement charge
|
|
$
|
—
|
|
|
$
|
31.3
|
|
|
$
|
—
|
|
|
$
|
31.3
|
|
|
Interest cost
|
|
0.7
|
|
|
1.7
|
|
|
$
|
1.5
|
|
|
$
|
3.4
|
|
|
Expected return on plan assets
|
|
(0.2)
|
|
|
(1.1)
|
|
|
(0.4)
|
|
|
(2.2)
|
|
|
Amortization of net actuarial loss
|
|
0.6
|
|
|
0.8
|
|
|
1.1
|
|
|
1.7
|
|
|
Net periodic benefit expense
|
|
$
|
1.1
|
|
|
$
|
32.7
|
|
|
$
|
2.2
|
|
|
$
|
34.2
|
|
The Company had $0.1 million and nominal net periodic benefit expense for the three months ended June 30, 2020 and 2019, respectively, and $0.1 million for the six months ended June 30, 2020 and 2019, for its postretirement medical benefit plan ("Postretirement Benefits"). Net periodic benefit expense for the Pension and Postretirement Benefits is recorded in "Other non-operating expense" in the Condensed Consolidated Statements of Operations.
Note 9 — Stockholders' Deficit
Common Stock — No dividends were paid during the three and six months ended June 30, 2020 or June 30, 2019.
Accumulated Other Comprehensive Loss — The following table is a summary of the significant amounts reclassified out of each component of "Accumulated other comprehensive loss":
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Statement of Operations Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and Postretirement Benefits adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss
|
|
$
|
0.7
|
|
|
$
|
0.9
|
|
|
$
|
1.2
|
|
|
$
|
1.8
|
|
|
"Other non-operating expense"
|
|
Settlement charge
|
|
—
|
|
|
31.3
|
|
|
—
|
|
|
31.3
|
|
|
"Other non-operating expense"
|
|
Total before tax
|
|
0.7
|
|
|
32.2
|
|
|
1.2
|
|
|
33.1
|
|
|
|
|
Tax benefit, net
|
|
(0.2)
|
|
|
(7.5)
|
|
|
(0.3)
|
|
|
(7.6)
|
|
|
|
|
Total reclassified for the period, net of tax
|
|
$
|
0.5
|
|
|
$
|
24.7
|
|
|
$
|
0.9
|
|
|
$
|
25.5
|
|
|
|
The following table is a summary of the changes to Accumulated other comprehensive loss by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Net Unrealized Gains on Securities Classified as Available-for-sale, Net of Tax
|
|
Cumulative non-U.S. dollar Translation Adjustments, Net of Tax
|
|
Pension and Postretirement Benefits Adjustment, Net of Tax
|
|
Total
|
|
January 1, 2020
|
|
$
|
1.6
|
|
|
$
|
(28.1)
|
|
|
$
|
(37.0)
|
|
|
$
|
(63.5)
|
|
|
Other comprehensive loss before reclassification
|
|
—
|
|
|
(7.2)
|
|
|
—
|
|
|
(7.2)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
|
Net current period other comprehensive (loss) income
|
|
—
|
|
|
(7.2)
|
|
|
0.4
|
|
|
(6.8)
|
|
|
March 31, 2020
|
|
1.6
|
|
|
(35.3)
|
|
|
(36.6)
|
|
|
(70.3)
|
|
|
Other comprehensive (loss) income before reclassification
|
|
(0.3)
|
|
|
2.1
|
|
|
—
|
|
|
1.8
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
0.5
|
|
|
Net current period other comprehensive (loss) income
|
|
(0.3)
|
|
|
2.1
|
|
|
0.5
|
|
|
2.3
|
|
|
June 30, 2020
|
|
$
|
1.3
|
|
|
$
|
(33.2)
|
|
|
$
|
(36.1)
|
|
|
$
|
(68.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions)
|
|
Net Unrealized Gains on Securities Classified as Available-for-sale, Net of Tax
|
|
Cumulative non-U.S. dollar Translation Adjustments, Net of Tax
|
|
Pension and Postretirement Benefits Adjustment, Net of Tax
|
|
Total
|
|
January 1, 2019
|
|
$
|
1.9
|
|
|
$
|
(24.2)
|
|
|
$
|
(45.2)
|
|
|
$
|
(67.5)
|
|
|
Adoption of ASU 2018-02
|
|
—
|
|
|
(3.7)
|
|
|
(11.4)
|
|
|
(15.1)
|
|
|
Other comprehensive income (loss) before reclassification
|
|
0.2
|
|
|
(3.1)
|
|
|
—
|
|
|
(2.9)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
Net current period other comprehensive income (loss)
|
|
0.2
|
|
|
(3.1)
|
|
|
0.8
|
|
|
(2.1)
|
|
|
March 31, 2019
|
|
2.1
|
|
|
(31.0)
|
|
|
(55.8)
|
|
|
(84.7)
|
|
|
Other comprehensive (loss) income before reclassification
|
|
(0.4)
|
|
|
4.7
|
|
|
(0.5)
|
|
|
3.8
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
—
|
|
|
—
|
|
|
24.7
|
|
|
24.7
|
|
|
Net current period other comprehensive (loss) income
|
|
(0.4)
|
|
|
4.7
|
|
|
24.2
|
|
|
28.5
|
|
|
June 30, 2019
|
|
$
|
1.7
|
|
|
$
|
(26.3)
|
|
|
$
|
(31.6)
|
|
|
$
|
(56.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 17 — Subsequent Events for information related to the Tax Benefits Preservation Plan adopted by the board of directors on July 28, 2020.
Note 10 — Stock-Based Compensation
The following table is a summary of the Company's stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
1.6
|
|
|
$
|
1.9
|
|
|
$
|
3.6
|
|
|
$
|
4.5
|
|
Stock Options — The following table is a summary of the Company's stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
($000,000)
|
|
Options outstanding at December 31, 2019
|
|
409,296
|
|
|
$
|
19.34
|
|
|
2.4 years
|
|
$
|
—
|
|
|
Forfeited/Expired
|
|
(83,846)
|
|
|
19.37
|
|
|
|
|
|
|
Options outstanding, vested or expected to vest, and exercisable at June 30, 2020
|
|
325,450
|
|
|
$
|
19.33
|
|
|
2.3 years
|
|
$
|
—
|
|
As of June 30, 2020, the Company had no unrecognized stock option expense related to outstanding options.
Restricted Stock Units — On March 4, 2020, the Company granted time-based restricted stock units, which vest in three equal installments on each anniversary of the grant date. As of such grant date, the Company had remaining authorization to issue grants of up to 1,919,406 shares under its 2005 Omnibus Incentive Plan ("2005 Plan"). At the 2020 Annual Meeting of Stockholders, the stockholders approved the amendment and restatement of the 2005 Plan, which included among other items, approval for increasing the number of shares that may be issued under the plan by 8,900,000 shares. The amendment and restatement was effective as of May 6, 2020.
The following table is a summary of the Company’s restricted stock unit activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares
|
|
Weighted-Average Grant-Date Fair Value
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value ($000,000)
|
|
Restricted stock units outstanding at December 31, 2019
|
|
2,731,758
|
|
|
$
|
5.02
|
|
|
0.9 years
|
|
$
|
5.7
|
|
|
Granted
|
|
3,695,986
|
|
|
2.04
|
|
|
|
|
|
|
Vested and converted to shares
|
|
(1,133,247)
|
|
|
6.35
|
|
|
|
|
|
|
Forfeited
|
|
(108,891)
|
|
|
3.67
|
|
|
|
|
|
|
Restricted stock units outstanding at June 30, 2020
|
|
5,185,606
|
|
|
$
|
2.63
|
|
|
1.4 years
|
|
$
|
16.6
|
|
|
Restricted stock units vested and deferred at June 30, 2020
|
|
290,324
|
|
|
$
|
3.27
|
|
|
|
|
$
|
0.9
|
|
The following table is a summary of the Company's restricted stock unit compensation information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted-average grant-date fair value of restricted stock units vested during the period
|
|
$
|
0.3
|
|
|
$
|
0.7
|
|
|
$
|
7.2
|
|
|
$
|
9.6
|
|
|
Total intrinsic value of vested and converted shares
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
2.7
|
|
|
$
|
2.8
|
|
As of June 30, 2020, the Company's outstanding restricted stock units had unrecognized compensation expense of $10.1 million with a remaining weighted-average vesting period of 2.2 years. The Company had $0.1 million and $0.2 million of expense related to liability classified restricted stock units for the three and six months ended June 30, 2020, respectively.
Note 11 — Income Taxes
For the three months ended June 30, 2020, the Company recognized an income tax expense of $2.7 million on a pre-tax loss of $1.9 million primarily due to non-deductible expenses, foreign taxes net of federal income tax benefits, an increase in the valuation allowance and U.S. taxation of foreign earnings, all of which were partially offset by U.S. tax credits.
For the six months ended June 30, 2020, the Company recognized an income tax expense of $12.4 million on a pre-tax loss of $13.7 million primarily due to an increase in the valuation allowance, foreign taxes net of federal income tax benefits, non-deductible expenses, U.S. taxation of foreign earnings and the reversal of tax benefits on share-based compensation, all of which were partially offset by U.S. tax credits. The change in the valuation allowance was triggered by a three-year cumulative pre-tax loss position inclusive of 2020 forecasted earnings. While the Company has a long history of profitable operations prior to recent declines, the expected cumulative loss position is significant negative evidence in assessing the recoverability of our deferred tax assets. Therefore, we recorded an additional valuation allowance of $11.4 million, of which $10.1 million related to balances which existed at the beginning of the year, against our deferred tax assets for which ultimate realization is dependent upon the generation of future taxable income during the periods in which they become deductible. The valuation allowance does not, however, impact our cash position, liquidity or tax returns.
For the three months ended June 30, 2019, the Company recognized an income tax benefit of $7.8 million on a pre-tax loss of $35.0 million. For the three months ended June 30, 2019, our income tax rate did not differ significantly from our statutory tax rate.
For the six months ended June 30, 2019, the Company recognized an income tax benefit of $1.2 million on a pre-tax loss of $41.9 million. Our income tax rate was lower than the statutory rate primarily due to non-deductible expenses, U.S. taxation of foreign earnings, the reversal of tax benefits on share-based compensation, partially offset by U.S. tax credits net of a valuation allowance. Additionally, as a result of the issuance of the final Section 965 regulations by the U.S. Treasury Department and the Internal Revenue Service (the "IRS") on January 15, 2019, the Company recorded a discrete tax expense of $0.7 million for an increase in its one-time transition tax.
Unrecognized tax benefits are recorded in "Accounts payable and other liabilities" in the Condensed Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, the liability for unrecognized tax benefits was $18.2 million for both periods, exclusive of interest and penalties. For the six months ended June 30, 2020 and 2019, the net amount of unrecognized tax benefits that if recognized could impact the effective tax rate was $18.2 million and $17.6 million, respectively. The Company accrues interest and penalties for unrecognized tax benefits through "Income tax (benefit) expense" in the Condensed Consolidated Statements of Operations. For the six months ended June 30, 2020 and 2019, the Company's accrual for interest and penalties increased by $0.6 million and $0.4 million, respectively. As of June 30, 2020 and December 31, 2019, the Company had a liability of $8.9 million and $8.3 million, respectively, accrued for interest and penalties within "Accounts payable and other liabilities." As a result of the Company's litigation related to its securities losses discussed in more detail in Note 12 — Commitments and Contingencies, it is possible that there could be a significant decrease to the total amount of unrecognized tax benefits over the next 12 months. However, as of June 30, 2020, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax positions over the next 12 months.
See Note 17 — Subsequent Events for information related to the Tax Benefits Preservation Plan adopted by the board of directors on July 28, 2020.
Note 12 — Commitments and Contingencies
Letters of Credit — At June 30, 2020, the Company had no borrowings and nominal outstanding letters of credit under the First Lien Revolving Credit Facility.
Legal Proceedings — The matters set forth below are subject to uncertainties and outcomes that are not predictable. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigation matters. In relation to various legal matters, including those described below, the Company had $57.5 million of liability recorded in "Accounts payable and other liabilities" in the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019. For the three and six months ended June 30, 2020 and 2019, a nominal charge was recorded for legal proceedings in "Transaction and operations support" in the Condensed Consolidated Statements of Operations.
Litigation Commenced Against the Company:
Class Action Securities Litigation — On November 14, 2018, a putative securities class action lawsuit was filed in the United States District Court for the Northern District of Illinois against MoneyGram and certain of its executive officers. The lawsuit asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and alleges that MoneyGram made material misrepresentations regarding its compliance with the stipulated order for permanent injunction and final judgment that MoneyGram entered into with the Federal Trade Commission ("FTC") in October 2009 and with the deferred prosecution agreement (the "DPA") that MoneyGram entered into with the U.S. Attorney’s Office for the Middle District of Pennsylvania and the U.S. Department of Justice in November 2012. The lawsuit seeks unspecified damages, equitable relief, interest, and costs and attorneys' fees. The Company believes the case is without merit and is vigorously defending this matter. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.
Shareholder Derivative Litigation — On February 19 and 20, 2019, two virtually identical shareholder derivative lawsuits were filed in the United States District Court for the Northern District of Texas. The suits, which were consolidated, purport to assert claims derivatively on behalf of MoneyGram against MoneyGram’s directors and certain of its executive officers for violations of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 and for common-law breach of fiduciary duty and unjust enrichment. The complaints asserted that the individual defendants caused MoneyGram to make material misstatements regarding MoneyGram's compliance with the stipulated order and DPA described in the preceding paragraph and breached their fiduciary duties in connection with MoneyGram's compliance programs. The lawsuit sought unspecified damages, equitable relief, interest, and costs and attorneys’ fees. On February 24, 2020, the United States District for the Northern District of Texas entered an agreed final judgment dismissing the consolidated case. On December 28, 2019, another MoneyGram shareholder filed a putative derivative action suit in the Court of Chancery of the State of Delaware, New Castle County, against certain of MoneyGram's officers and directors. The Delaware suit asserts claims for breach of fiduciary duty and other common law theories and seeks unspecified damages on behalf of MoneyGram based on allegations that the individual defendants failed to take appropriate actions to prevent or remedy noncompliance with the stipulated order and DPA described above. The Company believes the pending Delaware case is without merit and is vigorously defending the case. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to this matter.
Books and Records Requests — The Company has received multiple requests from various putative shareholders for inspection of books and records pursuant to Section 220 of the Delaware General Corporation Law relating to the subject matter of the putative class and derivative lawsuits described in the preceding paragraphs. On February 26, 2019, two of these shareholders filed a petition in the Delaware Court of Chancery to compel MoneyGram to produce books and records in accordance with their request but have since dismissed their action. We are unable to predict the outcome, or the possible loss or range of loss, if any, related to these matters.
It is possible that additional shareholder lawsuits could be filed relating to the subject matter of the class action, derivative actions and Section 220 requests.
Other Matters — The Company is involved in various other claims and litigation that arise from time to time in the ordinary course of the Company’s business. Management does not believe that after final disposition any of these matters is likely to have a material adverse impact on the Company's financial condition, results of operations or cash flows.
Government Investigations:
OFAC — In 2015, we initiated an internal investigation to identify any payments processed by the Company that were violations of the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") sanctions regulations. We notified OFAC of the internal investigation, which was conducted in conjunction with the Company's outside counsel. On March 28, 2017, we filed a Voluntary Self-Disclosure with OFAC regarding the findings of our internal investigation. OFAC is currently reviewing the results of the Company's investigation. At this time, it is not possible to determine the outcome of this matter, or the significance, if any, to our business, financial condition or operations, and we cannot predict when OFAC will conclude its review of our Voluntary Self-Disclosure.
Deferred Prosecution Agreement — In November 2012, we announced that a settlement was reached with the U.S. Attorney's Office for the Middle District of Pennsylvania (the "MDPA") and the U.S. Department of Justice, Criminal Division, Money Laundering and Asset Recovery Section (the "U.S. DOJ") relating to the previously disclosed investigation of transactions involving certain of our U.S. and Canadian agents, as well as fraud complaint data and the consumer anti-fraud program, during the period from 2003 to early 2009. In connection with this settlement, we entered into the DPA with the MDPA and U.S. DOJ (collectively, the "Government") dated November 9, 2012.
On November 1, 2017, the Company agreed to a stipulation with the Government that the five-year term of the Company's DPA be extended for 90 days to February 6, 2018. Between January 31, 2018 and September 14, 2018, the Company agreed to enter into various extensions of the DPA with the Government, with the last extension ending on November 6, 2018. Each extension of the DPA extended all terms of the DPA, including the term of the monitorship for an equivalent period. The purpose of the
extensions was to provide the Company and the Government additional time to discuss whether the Company was in compliance with the DPA.
On November 8, 2018, the Company announced that it entered into (1) an Amendment to and Extension of Deferred Prosecution Agreement (the "Amended DPA") with the Government and (2) a Stipulated Order for Compensatory Relief and Modified Order for Permanent Injunction (the "Consent Order") with the FTC. The motions underlying the Amended DPA and Consent Order focus primarily on the Company's anti-fraud and anti-money laundering programs, including whether the Company had adequate controls to prevent third parties from using its systems to commit fraud. The Amended DPA amended and extended the original DPA entered into on November 9, 2012 by and between the Company and the Government. The DPA, Amended DPA and Consent Order are collectively referred to herein as the "Agreements." On February 25, 2020, the Company entered into an Amendment to Amendment to and Extension of DPA 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 the Amendment to and Extension of the Deferred Prosecution Agreement which further extended the due date of the $55.0 million payment to May 9, 2021 and also changed the frequency of the reporting requirements of 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 retain an independent compliance monitor until May 10, 2021 to review and assess actions taken by the Company under the Agreements to further enhance its compliance program. No separate payment to the FTC is required under the Agreements. If the Company fails to comply with the Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards or regulatory consequences which could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows.
NYDFS — On June 22, 2018, the Company received a request for production of documents from the New York Department of Financial Services (the "NYDFS") related to the subject of the DPA and FTC matters described above. This request followed previous inquiries by the NYDFS regarding certain of our New York based agents. Following the June 22, 2018 request for production, the Company received and responded to several inquiries from the NYDFS related to this matter and has met with the NYDFS to discuss the matter. The NYDFS did not indicate what, if any, action it intended to take in connection with this matter, although it is possible that it could seek additional information, initiate civil litigation and/or seek to impose fines, damages or other regulatory consequences, any or all of which could have an adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company is unable to predict the outcome, or the possible loss or range of loss, if any, that could be associated with this matter.
CFPB — On February 12, 2020, the Company received a Report of Examination ("ROE") from the Consumer Financial Protection Bureau ("CFPB") stating that previous findings from a 2019 exam were not remediated, and the matter would be referred to its Enforcement Unit. On March 18, 2020, the Company received a Civil Investigative Demand ("CID") from the CFPB’s Enforcement Unit. On June 11, 2020, the Company provided a timely response to the ROE describing the remedial actions taken and that the findings have been substantially remediated. The Company has responded to many of the CID requests with the remaining production planned by August 1, 2020. 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 results of operations, and we cannot predict when the CFPB will conclude its review of the CID.
Other Matters — The Company is involved in various other government inquiries and other matters that arise from time to time. Management does not believe that after final disposition any of these other matters is likely to have a material adverse impact on the Company’s financial condition, results of operations or cash flows.
Actions Commenced by the Company:
Tax Litigation — The IRS completed its examination of the Company’s consolidated income tax returns through 2013 and issued Notices of Deficiency for 2005-2007 and 2009, and an Examination Report for 2008. The Notices of Deficiency and Examination Report disallow, among other items, approximately $900.0 million of ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012 and December 2012, the Company filed petitions in the U.S. Tax Court ("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 Tax Court granted the IRS’s motion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. The Company filed a notice of appeal with the Tax Court on July 27, 2015 for an appeal to the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit"). Oral arguments were held before the Fifth Circuit on June 7, 2016, and on November 15, 2016, the Fifth Circuit vacated the Tax Court’s decision and remanded the case to the Tax Court for further proceedings. The Company filed a motion for summary judgment in the Tax Court on May 31, 2017. On August 23, 2017, the IRS filed a motion for
summary judgment and its response to the Company’s motion for summary judgment. The Tax Court directed the parties to agree to a joint stipulation of facts, which the parties filed with the court. Each party filed updated memorandums in support of its motions for summary judgment 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. MoneyGram disagrees with many of the U.S. Tax Court's findings and filed a Notice of Appeal to the Fifth Circuit on February 21, 2020. The matter is currently pending before the Fifth Circuit and briefs are due later this year.
The January 2015 Tax Court decision was a change in facts which warranted reassessment of the Company's uncertain tax position. Although the Company believes that it has substantive tax law arguments in favor of its position and has appealed the ruling, the reassessment resulted in the Company determining that it is no longer more likely than not that its existing position will be sustained. Accordingly, the Company re-characterized certain deductions relating to securities losses to be capital in nature, rather than ordinary. The Company recorded a full valuation allowance against these losses in the quarter ended March 31, 2015. This change increased "Income tax expense" in the Consolidated Statements of Operations in the quarter ended March 31, 2015 by $63.7 million. During 2015, the Company made payments to the IRS of $61.0 million for federal tax payments and associated interest related to the matter. The November 2016 Fifth Circuit decision to remand the case back to the Tax Court did not change the Company’s assessment regarding the likelihood of whether these deductions would ultimately be sustained. Accordingly, no change in the valuation allowance was made as of June 30, 2020.
Pending the ultimate outcome of the Tax Court proceeding, the Company may be required to file amended state returns and make additional cash payments up to $20.7 million on amounts that have previously been accrued. The Company recently filed a Notice of Appeal to the Fifth Circuit on February 21, 2020, and therefore expects that any potential payment would not be due before 2021.
Note 13 — Earnings per Common Share
For all periods in which they are outstanding, the Series D Participating Convertible Preferred Stock (the "D Stock") and the second lien warrants are included in the weighted-average number of common shares outstanding utilized to calculate basic earnings per common share because the D Stock is deemed a common stock equivalent and the second lien warrants are considered outstanding common shares.
The following table summarizes the weighted-average share amounts used in calculating loss per common share:
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|
|
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|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
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|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Basic and diluted common shares outstanding
|
|
77.8
|
|
|
66.1
|
|
|
77.6
|
|
|
65.5
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares issuable to employees upon exercise or conversion of shares under the Company's stock-based compensation plans and upon exercise of the Ripple Warrants (as defined below) are excluded from the computation of diluted earnings per common share when the effect would be anti-dilutive. All potential common shares are anti-dilutive in periods of net loss available to common stockholders. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company’s common stock for the period, regardless of whether the Company is in a period of net loss available to common shareholders.
The following table summarizes the weighted-average potential common shares excluded from diluted loss per common share as their effect would be anti-dilutive:
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|
|
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|
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Three Months Ended June 30,
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|
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Six Months Ended June 30,
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(Amounts in millions)
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2020
|
|
2019
|
|
2020
|
|
2019
|
|
Shares related to stock options
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|
0.4
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|
|
1.1
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|
|
0.4
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|
|
1.2
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|
|
Shares related to restricted stock units
|
|
4.8
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|
|
3.0
|
|
|
4.0
|
|
|
2.7
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|
|
Shares related to warrants
|
|
6.0
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|
|
0.6
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|
|
6.0
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|
|
0.3
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|
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Shares excluded from the computation
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|
11.2
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4.7
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|
|
10.4
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|
4.2
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Note 14 — Segment Information
The Company's reporting segments are primarily organized based on the nature of products and services offered and the type of consumer served. The Company has two reporting segments: Global Funds Transfer and Financial Paper Products. See Note 1 — Description of the Business and Basis of Presentation for further discussion on our segments. Walmart Inc. ("Walmart") is our only agent, for both the Global Funds Transfer segment and the Financial Paper Products segment, that accounts for more than 10% of total revenue. For the three and six months ended June 30, 2020 and 2019, Walmart accounted for 14% and 16%, respectively, of total revenue.
The following table is a summary of the total revenue by segment:
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Three Months Ended June 30,
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Six Months Ended June 30,
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(Amounts in millions)
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2020
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|
2019
|
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2020
|
|
2019
|
|
Global Funds Transfer revenue
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|
|
|
|
|
|
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Money transfer revenue
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|
$
|
253.1
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|
|
$
|
282.2
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|
|
$
|
509.0
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|
|
$
|
555.5
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|
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Bill payment revenue
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|
10.8
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|
|
15.0
|
|
|
24.2
|
|
|
30.9
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|
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Total Global Funds Transfer revenue
|
|
263.9
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|
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297.2
|
|
|
533.2
|
|
|
586.4
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|
|
Financial Paper Products revenue
|
|
|
|
|
|
|
|
|
|
Money order revenue
|
|
10.8
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|
|
13.6
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|
|
22.9
|
|
|
27.5
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|
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Official check revenue
|
|
5.1
|
|
|
13.0
|
|
|
14.6
|
|
|
25.3
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|
|
Total Financial Paper Products revenue
|
|
15.9
|
|
|
26.6
|
|
|
37.5
|
|
|
52.8
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|
|
Total revenue
|
|
$
|
279.8
|
|
|
$
|
323.8
|
|
|
$
|
570.7
|
|
|
$
|
639.2
|
|
The following table is a summary of the operating income by segment and detail of the loss before income taxes:
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|
|
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|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
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|
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(Amounts in millions)
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2020
|
|
2019
|
|
2020
|
|
2019
|
|
Global Funds Transfer operating income
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$
|
16.5
|
|
|
$
|
5.6
|
|
|
$
|
23.2
|
|
|
$
|
6.7
|
|
|
Financial Paper Products operating income
|
6.2
|
|
|
10.0
|
|
|
13.2
|
|
|
18.2
|
|
|
Total segment operating income
|
22.7
|
|
|
15.6
|
|
|
36.4
|
|
|
24.9
|
|
|
Other operating loss
|
(0.7)
|
|
|
(1.3)
|
|
|
(1.3)
|
|
|
(2.0)
|
|
|
Total operating income
|
22.0
|
|
|
14.3
|
|
|
35.1
|
|
|
22.9
|
|
|
Interest expense
|
22.7
|
|
|
14.0
|
|
|
46.5
|
|
|
27.9
|
|
|
Other non-operating expense
|
1.2
|
|
|
35.3
|
|
|
2.3
|
|
|
36.9
|
|
|
Loss before income taxes
|
$
|
(1.9)
|
|
|
$
|
(35.0)
|
|
|
$
|
(13.7)
|
|
|
$
|
(41.9)
|
|
The following table sets forth assets by segment:
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|
|
|
|
|
|
|
|
|
|
|
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(Amounts in millions)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Global Funds Transfer
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|
$
|
1,338.5
|
|
|
$
|
1,318.3
|
|
|
Financial Paper Products
|
|
3,036.6
|
|
|
2,819.1
|
|
|
Other
|
|
42.7
|
|
|
47.6
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|
|
Total assets
|
|
$
|
4,417.8
|
|
|
$
|
4,185.0
|
|
Note 15 — Revenue Recognition
The following table is a summary of the Company's revenue streams disaggregated by services and products for each segment and timing of revenue recognition for such services and products excluding other revenue:
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|
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|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
(Amounts in millions)
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|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Global Funds Transfer revenue
|
|
|
|
|
|
|
|
|
|
Money transfer fee revenue
|
|
$
|
248.0
|
|
|
$
|
279.3
|
|
|
$
|
499.5
|
|
|
$
|
549.2
|
|
|
Bill payment services fee revenue
|
|
10.9
|
|
|
15.0
|
|
|
24.3
|
|
|
30.9
|
|
|
Other revenue
|
|
5.0
|
|
|
2.9
|
|
|
9.4
|
|
|
6.3
|
|
|
Total Global Funds Transfer fee and other revenue
|
|
263.9
|
|
|
297.2
|
|
|
533.2
|
|
|
586.4
|
|
|
Financial Paper Products revenue
|
|
|
|
|
|
|
|
|
|
Money order fee revenue
|
|
1.8
|
|
|
2.2
|
|
|
3.8
|
|
|
4.5
|
|
|
Official check outsourcing services fee revenue
|
|
1.7
|
|
|
2.2
|
|
|
3.7
|
|
|
4.3
|
|
|
Other revenue
|
|
8.1
|
|
|
7.7
|
|
|
15.6
|
|
|
15.1
|
|
|
Total Financial Paper Products fee and other revenue
|
|
11.6
|
|
|
12.1
|
|
|
23.1
|
|
|
23.9
|
|
|
Investment revenue
|
|
4.3
|
|
|
14.5
|
|
|
14.4
|
|
|
28.9
|
|
|
Total revenue
|
|
$
|
279.8
|
|
|
$
|
323.8
|
|
|
$
|
570.7
|
|
|
$
|
639.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
|
|
|
Services and products transferred at a point in time
|
|
$
|
260.7
|
|
|
$
|
296.5
|
|
|
$
|
527.6
|
|
|
$
|
584.6
|
|
|
Products transferred over time
|
|
1.7
|
|
|
2.2
|
|
|
3.7
|
|
|
4.3
|
|
|
Total revenue from services and products
|
|
262.4
|
|
|
298.7
|
|
|
531.3
|
|
|
588.9
|
|
|
Investment revenue
|
|
4.3
|
|
|
14.5
|
|
|
14.4
|
|
|
28.9
|
|
|
Other revenue
|
|
13.1
|
|
|
10.6
|
|
|
25.0
|
|
|
21.4
|
|
|
Total revenue
|
|
$
|
279.8
|
|
|
$
|
323.8
|
|
|
$
|
570.7
|
|
|
$
|
639.2
|
|
Due to the short-term nature of the Company's services and products, the amount of contract assets and liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, is negligible. Assets for unsettled money transfers, money orders and consumer payments are included in "Settlement assets" with a corresponding liability recorded in "Payment service obligations" on the Condensed Consolidated Balance Sheets. For more information on these assets and liabilities see Note 3 — Settlement Assets and Payment Service Obligations.
Note 16 — Related Parties
In June 2019, the Company entered into a multiple element arrangement with Ripple Labs Inc. ("Ripple") consisting of two contracts: a securities purchase agreement (the "SPA") and a commercial agreement. Pursuant to the SPA, the Company issued and sold to Ripple an aggregate of 6,237,523 shares of common stock and warrants to purchase 5,957,600 shares of common stock ("Ripple Warrants") pursuant to separate issuances of common stock and Ripple Warrants, one in June 2019 and another in November 2019. Through the commercial agreement, which is scheduled to expire on July 1, 2023, we utilize Ripple's On Demand Liquidity ("ODL") platform (formerly known as xRapid), as well as XRP, to facilitate cross-border non-U.S. dollar exchange settlements.
Related party transactions are not necessarily indicative of an arm's length transaction or comparable to a transaction that had been entered into with independent parties.
The "Transaction and operations support" line on the Condensed Consolidated Statements of Operations includes market development fees of $15.1 million and $31.7 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, the "Other assets" line in the Condensed Consolidated Balance Sheets included accounts receivable and a cryptocurrency indefinite-lived intangible asset of $0.4 million each.
Note 17 — Subsequent Events
On July 28, 2020, the Company's board of directors adopted a Tax Benefits Preservation Plan (the "Rights Agreement") designed to protect and preserve the Company's existing U.S. federal net operating loss carryforwards ("NOLs"), U.S. federal tax credit carryforwards and other tax attributes (collectively, "Tax Attributes"), which can potentially be utilized in certain circumstances to offset the Company's future U.S. federal income tax obligations. The board of directors adopted the Rights Agreement to protect the Tax Attributes from potentially decreasing in value upon certain ownership changes involving "5% shareholders" as defined by Section 382 of the Internal Revenue Code of 1986, as amended. As of December 31, 2019, the Company had estimated U.S federal NOLs of approximately $45.4 million and U.S federal tax credit carryforwards of approximately $12.9 million.
To implement the Rights Agreement, the board of directors declared a dividend of one right ("Right") for each of the Company's issued and outstanding shares of common stock, par value $0.01 per share. The dividend will be paid to the stockholders of record at the close of business on August 7, 2020. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of the Company's Series E Junior Participating Preferred Stock, par value $0.01 per share at the price of $15.00, subject to certain adjustments. The Rights will be exercisable if a person or group of persons acquires 4.95% or more of the Company's Stock (as defined in the Right Agreement to include outstanding Company common stock, the Series D Participating Convertible Preferred, the Second Lien Warrants and the Ripple Warrants). The Rights will also be exercisable if a person or group that already owns 4.95% or more of the Company's stock acquires additional shares. The Rights will trade with the Company's common stock and will expire at the close of business on July 28, 2023.