The following discussion should be read in conjunction with the consolidated
financial statements and the notes to those statements included in Part II, Item
8, Financial Statements and Supplementary Data in this Annual Report on Form
10K. This Annual Report on Form 10K contains certain statements that are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995. Certain statements contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operations are forward-looking
statements that involve risks and uncertainties. The forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates, assumptions, and projections about our industry, business, and future
financial results. Our actual results could differ materially from the results
contemplated by these forward-looking statements due to a number of factors,
including those discussed in other sections of this Annual Report on Form 10K.
See "Risk Factors" and "Forward-Looking Statements."
Overview
We are a leading provider of money movement and payment services, operating in
two business segments:
•
Consumer-to-Consumer - Our Consumer-to-Consumer operating segment facilitates
money transfers, which are primarily sent from our retail agent locations
worldwide or through websites and mobile devices. Our money transfer service is
provided through one interconnected global network. This service is available
for international cross-border transfers and, in certain countries,
intra-country transfers.
•
Business Solutions - Our Business Solutions operating segment facilitates
payment and foreign exchange solutions, primarily cross-border, cross-currency
transactions, for small and medium size enterprises and other organizations and
individuals. The majority of the segment's business relates to exchanges of
currency at spot rates, which enable customers to make cross-currency payments.
In addition, in limited countries, we write foreign currency forward and option
contracts for customers to facilitate future payments. On August 4, 2021, we
entered into an agreement to sell our Business Solutions business to Goldfinch
Partners LLC and The Baupost Group LLC, and this business is expected to be
fully divested in the second quarter of 2023 as discussed below.All businesses and other services that have not been classified in the above
segments are reported as Other, which primarily includes our bill payment
services which facilitate payments from consumers to businesses and other
organizations and our money order services. Certain of our corporate costs such
as costs related to strategic initiatives, including costs for the review and
closing of mergers, acquisitions, and divestitures, are also included in Other.
Additional information on our segments is provided in the Segment Discussion
below.44
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Table of ContentsResults of Operations
The following discussion of our consolidated results of operations and segment
results refers to the year ended December 31, 2022 compared to the same period
in 2021. For discussion of our consolidated results of operations and segment
results for the year ended December 31, 2021 compared to the same period in
2020, refer to Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K
for the year ended December 31, 2021, filed with the SEC on February 24, 2022.The results of operations should be read in conjunction with the discussion of
our segment results of operations, which provide more detailed discussions
concerning certain components of the Consolidated Statements of Income. All
significant intercompany accounts and transactions between our segments have
been eliminated. The below information has been prepared in conformity with
generally accepted accounting principles in the United States of America
("GAAP") unless otherwise noted. All amounts provided in this section are
rounded to the nearest tenth of a million, except as otherwise noted. As a
result, the percentage changes and margins disclosed herein may not recalculate
precisely using the rounded amounts provided.Our revenues and operating income for the year ended December 31, 2022 were
impacted by fluctuations in the United States dollar compared to foreign
currencies. Fluctuations in the United States dollar compared to foreign
currencies, net of the impact of foreign currency hedges, resulted in a decrease
to revenues of $185.5 million for the year ended December 31, 2022 relative to
the prior year. Fluctuations in the United States dollar compared to foreign
currencies negatively impacted operating income by $5.0 million for the year
ended December 31, 2022 relative to the prior year.On August 4, 2021, we entered into an agreement to sell our Business Solutions
business to Goldfinch Partners LLC and The Baupost Group LLC (collectively, the
"Buyer") for cash consideration of $910.0 million. The sale is expected to be
completed in three closings, with the entire cash consideration collected at the
first closing and allocated to the closings on a relative fair value basis. The
first closing occurred on March 1, 2022, excluded the operations in the European
Union and the United Kingdom, and resulted in a gain of $151.4 million. The
second closing, which occurred on December 31, 2022 and included the United
Kingdom operations, resulted in a gain of $96.9 million. The third closing,
which is currently expected to occur in the second quarter of 2023 pending
required regulatory approvals, includes the European Union operations. During
the periods between the first and third closings, we are required to pay the
Buyer a measure of profit of the European Union and United Kingdom operations,
while we owned them, adjusted for the provision for income taxes, occupancy
charges for employees of the Buyer using our facilities, and other items.Business Solutions revenues included in our Consolidated Statements of Income
were $196.9 million and $421.8 million, and direct operating expenses, excluding
corporate allocations, were $140.3 million and $317.7 million for the years
ended December 31, 2022 and 2021, respectively. Costs related to the review and
closing of this divestiture were $5.2 million and $14.4 million for the years
ended December 31, 2022 and 2021, respectively.In March 2022, we suspended our operations in Russia and Belarus, which are
included in our Consumer-to-Consumer segment, due to the Russia/Ukraine conflict
(the "Conflict"). Revenues associated with the Russia and Belarus operations,
including transactions sent from, into, and within these countries for the years
ended December 31, 2022 and 2021 were approximately $28 million and $145
million, respectively. The Conflict has had and is expected to continue to have
broader implications to our overall business, including reduced transaction
activity in Ukraine. We expect that our results of operations will continue to
be negatively impacted by this Conflict into 2023.45
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The following table sets forth our consolidated results of operations for the
years ended December 31, 2022 and 2021:
Year Ended December 31,
(in millions, except per share amounts) 2022 2021 % Change
Revenues $ 4,475.5 $ 5,070.8 (12 )%
Expenses:
Cost of services 2,626.4 2,896.4 (9 )%
Selling, general, and administrative 964.2 1,051.3 (8 )%
Total expenses 3,590.6 3,947.7 (9 )%
Operating income 884.9 1,123.1 (21 )%
Other income/(expense):
Gain on divestiture of business 248.3 - (a)
Gain on sale of noncontrolling interest in a
private company - 47.9 (a)
Pension settlement charges - (109.8 ) (a)
Interest income 13.9 1.4 (a)
Interest expense (101.0 ) (105.5 ) (4 )%
Other expense, net (37.5 ) (21.7 ) (a)
Total other income/(expense), net 123.7 (187.7 ) (a)
Income before income taxes 1,008.6 935.4 8 %
Provision for income taxes 98.0 129.6 (24 )%
Net income $ 910.6 $ 805.8 13 %
Earnings per share:
Basic $ 2.35 $ 1.98 19 %
Diluted $ 2.34 $ 1.97 19 %
Weighted-average shares outstanding:
Basic 387.2 406.8
Diluted 388.4 408.9(a)
Calculation not meaningful.Revenues Overview
Revenues are primarily derived from consideration paid by customers to transfer
money. These revenues vary by transaction based upon factors such as channel,
send and receive locations, the principal amount sent, whether the money
transfer involves different send and receive currencies, and the difference
between the exchange rate we set to the customer and a rate available in the
wholesale foreign exchange market, as applicable. We also offer several other
services, including foreign exchange and payment services and other bill payment
services, for which revenue is impacted by similar factors.Due to the significance of the effect that foreign exchange fluctuations against
the United States dollar can have on our reported revenues, constant currency
results have been provided in the table below for consolidated revenues.
Constant currency results assume foreign revenues are translated from foreign
currencies to the United States dollar, net of the effect of foreign currency
hedges, at rates consistent with those in the prior year. We have also disclosed
the impact of our Business Solutions divestiture on our revenues in the table
below. Constant currency measures and measures that exclude the impact of
divestitures are non-GAAP financial measures and are provided so that revenue
can be viewed without the effect of fluctuations in foreign currency exchange
rates and divestitures of our businesses, which is consistent with how
management evaluates our revenue results and trends. We believe that these
measures provide management and investors with information about revenue results
and trends that eliminates currency volatility and divestitures, thereby
providing greater clarity regarding, and increasing the comparability of, our
underlying results and trends. These disclosures are provided in addition to,
and not as a substitute for, the percentage change in revenue on a GAAP basis
for the year ended December 31, 2022 compared to the prior year. Other companies
may calculate and define similarly labeled items differently, which may limit
the usefulness of this measure for comparative purposes.46
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The following table sets forth our consolidated revenue results for the years
ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars in millions) 2022 2021 % Change
Revenues, as reported - (GAAP) $ 4,475.5 $ 5,070.8 (12 )%
Foreign currency impact(a) 4 %
Divestitures impact(b) 4 %
Revenue change, constant currency adjusted,
excluding Business Solutions - (Non-GAAP) (4 )%(a)
Fluctuations in the United States dollar compared to foreign currencies, net of
the impact of foreign currency hedges, resulted in a decrease to revenues of
$185.5 million for the year ended December 31, 2022 when compared to foreign
currency rates in the prior year.
(b)
Business Solutions revenues included in our results were $196.9 million and
$421.8 million for the years ended December 31, 2022 and 2021, respectively.
In addition to the decline in revenues associated with fluctuations in exchange
rates between the United States dollar and foreign currencies as well as our
Business Solutions divestiture, GAAP and non-GAAP revenues decreased due to a
transaction decline in our Consumer-to-Consumer segment, including as a result
of the suspension of our operations in Russia and Belarus for the year ended
December 31, 2022 when compared to the prior year.
Operating Expenses Overview
Operating expense redeployment program
On October 20, 2022, we announced an operating expense redeployment program
which aims to redeploy approximately $150 million in expenses in our cost base
over the next 5 years, accomplished through optimizations in vendor management,
our real estate footprint, marketing, and people costs. We believe these changes
will allow us to invest in strategic initiatives. The timing and pace of this
redeployment may vary, and we believe that we will continue to refine aspects of
the program into 2023. We incurred $2.7 million and $19.1 million of Cost of
services and Selling, general, and administrative expenses, respectively,
related to this program for the year ended December 31, 2022.
Cost of Services
Cost of services primarily consists of agent commissions, which represented
approximately 60% of total cost of services for the year ended December 31,
2022. Cost of services decreased for the year ended December 31, 2022 compared
to the prior year primarily due to a decrease in Consumer-to-Consumer money
transfer agent commissions, which generally vary with revenues, and a decrease
associated with the Business Solutions divestiture, as discussed above,
partially offset by increased investments in information technology.
Selling, General, and Administrative
Selling, general, and administrative expenses decreased for the year ended
December 31, 2022 compared to the prior year due to a decrease associated with
the Business Solutions divestiture, as discussed above, and a decrease in
employee-related expenses. The decrease was partially offset by an increase in
marketing costs, severance and other costs associated with the operating expense
redeployment initiatives, as discussed above, and exit costs associated with the
suspension of our Russian and Belarus operations and the Business Solutions
divestiture, as discussed below.47
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Total Other Income/(Expense), Net
Total other income/(expense), net for the year ended December 31, 2022 compared
to the prior year benefited from the gain on the first two closings of the
Business Solutions divestiture, pension settlement charges incurred in the prior
period and a reduction in net periodic pension costs due to the termination of
our U.S. defined benefit pension plan (the "Plan") in the fourth quarter of
2021, and debt extinguishment costs incurred in the prior period. This was
partially offset by a prior year gain of $47.9 million recorded from the sale of
a substantial majority of shares we held as a noncontrolling investor in a
private company and by the expense associated with payment obligations to the
Buyer of the Business Solutions business for a measure of the profits, as
contractually agreed, from the European Union and United Kingdom operations
subsequent to the first closing.
Income Taxes
Our effective tax rates on pre-tax income were 9.7% and 13.9% for the years
ended December 31, 2022 and 2021, respectively. The decrease in our effective
tax rate for the year ended December 31, 2022 compared to the prior year was
primarily due to the reversal of uncertain tax positions, including from statute
of limitations expirations and the completion of the examination of our federal
income tax returns for 2017 and 2018, as further discussed in Part II, Item 8,
Financial Statements and Supplementary Data, Note 11, Income Taxes, as well as
tax expense incurred in the prior period related to changes in our permanent
reinvestment assertions, partially offset by the sale of the Business Solutions
business and our decision to suspend operations in Russia and Belarus.We have established contingency reserves for a variety of material, known tax
exposures. As of December 31, 2022, the total amount of tax contingency reserves
was $237.2 million, including accrued interest and penalties, net of related
items. Our tax reserves reflect our judgment as to the resolution of the issues
involved if subject to judicial review or other settlement. While we believe
that our reserves are adequate to cover reasonably expected tax risks, there can
be no assurance that, in all instances, an issue raised by a tax authority will
be resolved at a financial cost that does not exceed our related reserve. With
respect to these reserves, our income tax expense would include: (i) any changes
in tax reserves arising from material changes in facts and circumstances (i.e.,
new information) surrounding a tax issue during the period, and (ii) any
difference from our tax position as recorded in the financial statements and the
final resolution of a tax issue during the period. Such resolution could
materially increase or decrease income tax expense in our consolidated financial
statements in future periods and could impact our operating cash flows.A significant proportion of our profits are foreign-derived. For the years ended
December 31, 2022 and 2021, 95% and 106%, respectively, of our pre-tax income
was derived from foreign sources. While the income tax imposed by any one
foreign country is not material to us, our overall effective tax rate could be
adversely affected by changes in foreign tax laws.
Earnings Per Share
During the years ended December 31, 2022 and 2021, basic earnings per share were
$2.35 and $1.98, respectively, and diluted earnings per share were $2.34 and
$1.97, respectively. Outstanding options to purchase Western Union stock and
unvested shares of restricted stock are excluded from basic shares outstanding.
Diluted earnings per share reflects the potential dilution that could occur if
outstanding stock options at the presented dates are exercised and shares of
restricted stock have vested. As of December 31, 2022 and 2021, there were 8.0
million and 2.3 million, respectively, of shares excluded from the diluted
earnings per share calculation under the treasury stock method, primarily due to
outstanding options to purchase shares of Western Union stock and restricted
stock units, as the assumed proceeds of the options and restricted stock per
unit were above our weighted-average share price during the periods and their
effect was anti-dilutive.Earnings per share for the year ended December 31, 2022 compared to the prior
year were impacted by the previously described factors impacting net income and
a lower number of shares outstanding. The lower number of shares outstanding for
the year ended December 31, 2022 compared to the prior year is due to stock
repurchases exceeding stock issuances under our stock compensation programs.48
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Segment Discussion
We manage our business around the consumers and businesses we serve and the
types of services we offer. Each of our segments addresses a different
combination of consumer groups, distribution networks, and services offered. Our
segments are Consumer-to-Consumer and Business Solutions. On August 4, 2021, we
entered into an agreement to sell our Business Solutions business, as discussed
above. The operations of the Business Solutions business to be sold in the third
closing will continue to be included in Revenues and Operating income after the
second closing. However, between the first and third closings, we are required
to pay the Buyer a measure of the profits from these operations, while we owned
them, adjusted for other charges, and this expense is recognized in Other
income/(expense), net in the Consolidated Statements of Income.During the year ended December 31, 2022, we incurred $10.0 million and $7.7
million of exit costs associated with the suspension of our Russia and Belarus
operations and the Business Solutions divestiture, respectively. These exit
costs are primarily related to severance and non-cash impairments of property
and equipment, an operating lease right-of-use asset, and other intangible
assets. During the year ended December 31, 2022, we also incurred $21.8 million
of costs associated with our operating expense redeployment program, as
described above, primarily related to severance and non-cash impairments of an
operating lease right-of-use asset and property and equipment. While certain of
the above expenses are identifiable to our segments, the expenses are not
included in the measurement of segment operating income provided to the Chief
Operating Decision Maker ("CODM") for purposes of performance assessment and
resource allocation. These expenses are therefore excluded from our segment
operating income results.
The business segment measurements provided to, and evaluated by, our CODM are
computed in accordance with the following principles:
•
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies.
•
Corporate costs, including overhead expenses, are allocated to the segments
primarily based on a percentage of the segments’ revenue compared to total
revenue.
•
All items not included in operating income are excluded from the segments.
The following table sets forth the components of segment revenues as a
percentage of the consolidated totals for the years ended December 31, 2022 and
2021:Year Ended December 31,
2022 2021
Consumer-to-Consumer 89 % 87 %
Business Solutions 5 % 8 %
Other 6 % 5 %
100 % 100 %Consumer-to-Consumer Segment
The following table sets forth our Consumer-to-Consumer segment results of
operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars and transactions in millions) 2022 2021 % Change
Revenues $ 3,993.5 $ 4,394.0 (9 )%
Operating income $ 765.1 $ 977.6 (22 )%
Operating income margin 19 % 22 %
Key indicator:
Consumer-to-Consumer transactions 274.1 305.9 (10 )%49
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Our Consumer-to-Consumer money transfer service facilitates money transfers sent
from our retail agent locations worldwide and our Branded Digital services. The
segment includes five geographic regions whose functions are primarily related
to generating, managing, and maintaining agent relationships and localized
marketing activities. We include Branded Digital transactions in our regions. By
means of common processes and systems, these regions, including Branded Digital,
create one interconnected global network for consumer transactions, thereby
constituting one Consumer-to-Consumer money transfer business and one operating
segment.Transaction volume is the primary generator of revenue in our
Consumer-to-Consumer segment. A Consumer-to-Consumer transaction constitutes the
transfer of funds to a designated recipient utilizing one of our consumer money
transfer services. The geographic split for transactions and revenue in the
table that follows is determined based upon the region where the money transfer
is initiated. Included in each region's transaction and revenue percentages in
the tables below are Branded Digital transactions for the years ended December
31, 2022 and 2021. Where reported separately in the discussion below, Branded
Digital consists of 100% of the transactions conducted and funded through that
channel.The table below sets forth revenue and transaction changes by geographic region
compared to the prior year. Additionally, due to the significance of our
Consumer-to-Consumer segment to our overall results, we have also provided
constant currency results for our Consumer-to-Consumer segment revenues.
Consumer-to-Consumer segment constant currency revenue growth/(decline) is a
non-GAAP financial measure, as further discussed in Revenues Overview above.Year Ended December 31, 2022
Constant
Revenue Currency
Growth / Foreign Revenue
(Decline) Exchange Growth(a) / Transaction
as Reported - Translation (Decline) - Growth/
(GAAP) Impact (Non-GAAP) (Decline)
Consumer-to-Consumer regional
growth/(decline):
North America (United States &
Canada) ("NA") (4 )% 0 % (4 )% (5 )%
Europe and Russia/CIS ("EU &
CIS") (20 )% (5 )% (15 )% (25 )%
Middle East, Africa, and South
Asia ("MEASA") (4 )% (2 )% (2 )% (1 )%
Latin America and the Caribbean
("LACA") 4 % (3 )% 7 % 5 %
East Asia and Oceania ("APAC") (13 )% (4 )% (9 )% (12 )%
Total Consumer-to-Consumer
growth: (9 )% (3 )% (6 )% (10 )%Branded Digital(b) (3 )% (2 )% (1 )% 0 %
(a)
Constant currency revenue growth/(decline) assumes that revenues denominated in
foreign currencies are translated to the United States dollar, net of the effect
of foreign currency hedges, at rates consistent with those in the prior year.
(b)
As noted above, Branded Digital revenues are included in the regions.
50
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The table below sets forth regional revenues as a percentage of our
Consumer-to-Consumer revenue for the years ended December 31, 2022 and 2021:Year Ended December 31,
2022 2021
Consumer-to-Consumer revenue as a percentage of
segment revenue:
NA 40 % 37 %
EU & CIS 28 % 32 %
MEASA 16 % 15 %
LACA 10 % 9 %
APAC 6 % 7 %
Branded Digital, which is included in the regional percentages above,
represented approximately 22% and 20% of our Consumer-to-Consumer revenues for
the years ended December 31, 2022 and 2021, respectively.
Our consumers transferred $93.6 billion and $104.1 billion in
Consumer-to-Consumer cross-border principal for the years ended December 31,
2022 and 2021, respectively. The decrease in cross-border principal transferred
during the year ended December 31, 2022 compared to the prior year is primarily
attributable to a decline in Consumer-to-Consumer transactions, including as a
result of the suspension of our operations in Russia and Belarus, as discussed
above, as well as fluctuations in exchange rates between the United States
dollar and foreign currencies. Consumer-to-Consumer cross-border principal is
the amount of consumer funds transferred to a designated recipient in a country
or territory that differs from the country or territory from which the
transaction was initiated. Consumer-to-Consumer cross-border principal is a
metric used by management to monitor and better understand the growth in our
underlying business relative to competitors, as well as changes in our market
share of global remittances.Revenues
Consumer-to-Consumer money transfer revenue decreased 9% and transactions
decreased 10% for the year ended December 31, 2022 compared to the prior year,
due in part to the suspension of our operations in Russia and Belarus, which
negatively impacted Consumer-to-Consumer revenues and transactions by 2% and 6%,
respectively. Fluctuations in the United States dollar compared to foreign
currencies, net of the impact of foreign currency hedges, negatively impacted
revenue by 3% for the year ended December 31, 2022 compared to the prior year.
Constant currency revenue decreased 6% for the year ended December 31, 2022.In our Consumer-to-Consumer regions, the decrease in NA revenue for the year
ended December 31, 2022 compared to the prior year was primarily due to
decreases in transactions sent from and within the United States. The EU & CIS
region experienced transaction volume and revenue declines in Russia and
Belarus, France, Germany, and the United Kingdom and was also impacted by
promotional pricing. As noted above, our EU & CIS revenues were negatively
impacted by our suspension of operations in Russia and Belarus in the year ended
December 31, 2022 and will continue to be negatively impacted into 2023.We have historically implemented price reductions or price increases throughout
many of our global corridors. We will likely continue to implement price changes
from time to time in response to competition and other factors. Price reductions
generally reduce margins and adversely affect financial results in the short
term and may also adversely affect financial results in the long term if
transaction volumes do not increase sufficiently. Price increases may adversely
affect transaction volumes, as consumers may not use our services if we fail to
price them appropriately. We believe that revenues could be adversely impacted
in connection with promotional pricing we recently implemented for Branded
Digital transactions, including those sent from the United States.
Operating Income
Consumer-to-Consumer operating income decreased 22% during the year ended
December 31, 2022 compared to the prior year primarily due to the decrease in
revenues, as discussed above, and increases in marketing costs and investments
in information technology, partially offset by decreases in agent commissions,
which generally vary with revenues, and decreased employee-related expenses.51
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Business Solutions
The following table sets forth our Business Solutions segment results of
operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars in millions) 2022 2021 % Change
Revenues $ 196.9 $ 421.8 (53 )%
Operating income $ 58.5 $ 95.5 (39 )%
Operating income margin 30 % 23 %Revenues
Business Solutions revenue decreased 53% for the year ended December 31, 2022
compared to the prior year, primarily due to the first closing of the sale of
our Business Solutions business, which occurred on March 1, 2022, as described
further above. Fluctuations in the exchange rates between the United States
dollar and foreign currencies negatively impacted revenue by 4% for the year
ended December 31, 2022 compared to the prior year.
Operating Income
For the year ended December 31, 2022, Business Solutions operating income and
operating income margin was impacted by the first closing of the sale of our
Business Solutions business, partially offset by a reduction in depreciation and
amortization expenses, including as a result of classifying our Business
Solutions business as held for sale in August 2021.
Effective January 1, 2022, we stopped allocating corporate costs to our Business
Solutions segment, given our agreement to sell this business.
Other
Other primarily consists of our cash-based bill payment businesses in Argentina
and the United States, in addition to our money order services.
The following table sets forth Other results for the years ended December 31,
2022 and 2021:Year Ended December 31,
(dollars in millions) 2022 2021 % Change
Revenues $ 285.1 $ 255.0 12 %
Operating income $ 100.8 $ 50.0 (a)
Operating income margin 35 % 20 %(a)
Calculation not meaningful.Revenues
Other revenues increased 12% for the year ended December 31, 2022 compared to
the prior year primarily due to transaction growth in our cash-based bill
payments services offered at retail locations in Argentina, as well as growth in
our business-to-consumer payments, partially offset by the strengthening of the
United States dollar against the Argentine peso.
Operating Income
Other operating income increased for the year ended December 31, 2022 compared
to the prior year primarily due to increased revenues, the reimbursement of
expenses associated with transition services provided after the first closing of
the sale of our Business Solutions business, and decreased costs associated with
strategic initiatives, including for the review of mergers, acquisitions, and
divestitures.52
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Capital Resources and Liquidity
Our primary source of liquidity has been cash generated from our operating
activities, primarily from net income and fluctuations in working capital. Our
working capital is affected by the timing of payments for employee and agent
incentives, interest payments on our outstanding borrowings, and timing of
income tax payments, among other items. Many of our annual employee incentive
compensation and agent incentive payments are made in the first quarter
following the year they were incurred. The majority of our interest payments are
due in the second and fourth quarters, which results in a decrease in the amount
of cash provided by operating activities in those quarters and a corresponding
increase to the first and third quarters. The annual payments resulting from the
United States tax reform legislation enacted in 2017 (the "Tax Act") include
amounts related to the United States taxation of certain previously
undistributed earnings of foreign subsidiaries. These payments are due in the
second quarter of each year through 2025.Our future cash flows could be impacted by a variety of factors, some of which
are out of our control. These factors include, but are not limited to, changes
in economic conditions, especially those impacting migrant populations, changes
in income tax laws or the status of income tax audits, including the resolution
of outstanding tax matters, and the settlement or resolution of legal
contingencies.Substantially all of our cash flows from operating activities have been
generated from subsidiaries. Most of these cash flows are generated from our
regulated subsidiaries. Our regulated subsidiaries may transfer all excess cash
to the parent company for general corporate use, except for assets subject to
legal or regulatory restrictions, including: (i) requirements to maintain cash
and other qualifying investment balances, free of any liens or other
encumbrances, related to the payment of certain of our money transfer and other
payment obligations, (ii) other legal or regulatory restrictions, including
statutory or formalized minimum net worth requirements, and (iii) restrictions
on transferring assets outside of the countries where these assets are located.We currently believe we have adequate liquidity to meet our business needs,
including payments under our debt and other obligations, through our existing
cash balances, our ability to generate cash flows through operations, and our
$1.5 billion revolving credit facility ("Revolving Credit Facility"), which
expires in January 2025 and supports our commercial paper program. Our
commercial paper program enables us to issue unsecured commercial paper notes in
an amount not to exceed $1.5 billion outstanding at any time, reduced to the
extent of any borrowings outstanding on our Revolving Credit Facility. As of
December 31, 2022, we had no outstanding borrowings on our Revolving Credit
Facility and $180.0 million of outstanding borrowings on the commercial paper
program.To help ensure availability of our worldwide cash where needed, we utilize a
variety of planning and financial strategies, including decisions related to the
amounts, timing, and manner by which cash is repatriated or otherwise made
available from our international subsidiaries. These decisions can influence our
overall tax rate and impact our total liquidity. We regularly evaluate our
United States cash requirements, taking tax consequences and other factors into
consideration and also the potential uses of cash internationally to determine
the appropriate level of dividend repatriations of our foreign source income.
Cash and Investment Securities
As of December 31, 2022 and 2021, we had Cash and cash equivalents of $1,291.1
million and $1,246.0 million, which includes $5.2 million and $37.7 million
related to Business Solutions, respectively. As described in Part II, Item 8,
Financial Statements and Supplementary Data, Note 5, Divestitures, Investment
Activities, and Goodwill, we collected the entire cash consideration related to
the sale of our Business Solutions business, subject to regulatory approval and
other closing conditions. We invested a portion of these proceeds temporarily in
reverse repurchase agreements, as discussed in Part II, Item 8, Financial
Statements and Supplementary Data, Note 9, Fair Value Measurements.In many cases, we receive funds from money transfers and certain other payment
services before we settle the payment of those transactions. These funds,
referred to as Settlement assets on our Consolidated Balance Sheets, are not
used to support our operations. However, we earn income from investing these
funds. We maintain a portion of these settlement assets in highly liquid
investments, classified as Cash and cash equivalents within Settlement assets,
to fund settlement obligations.53
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Investment securities, classified within Settlement assets on the Consolidated
Balance Sheets, were $1,333.4 million and $1,398.9 million as of December 31,
2022 and 2021, respectively, and consist primarily of highly-rated state and
municipal debt securities. These investment securities are held in order to
comply with state licensing requirements in the United States and are required
to have credit ratings of "A-" or better from a major credit rating agency.
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 8,
Settlement Assets and Obligations for more details regarding investment
securities.Investment securities are exposed to market risk due to changes in interest
rates and credit risk. We regularly monitor credit risk and attempt to mitigate
our exposure by investing in highly-rated securities and diversifying our
investment portfolio. Our investment securities are also actively managed with
respect to concentration. As of December 31, 2022, all investments with a single
issuer and each individual security represented less than 10% of our investment
securities portfolio.
Cash Flows from Operating Activities
Cash provided by operating activities for the year ended December 31, 2022
decreased to $581.6 million from $1,045.3 million for the year ended December
31, 2021. Excluding the gain on the sale of the Business Solutions business, as
the pre-tax proceeds from this divestiture are reflected in Cash provided by
investing activities, net income would have decreased for the year ended
December 31, 2022, which resulted in a decrease to cash provided by operating
activities. In addition, Cash provided by operating activities for the year
ended December 31, 2022 was negatively impacted by higher income taxes paid,
including those related to the gain on the sale of the Business Solutions
business. Cash provided by operating activities is also impacted by fluctuations
in our working capital balances, among other factors.
Financing Resources
As of December 31, 2022, we had the following outstanding borrowings (in
millions):Commercial paper $ 180.0
Notes:
4.250% notes due 2023(a) 300.0
2.850% notes due 2025(a) 500.0
1.350% notes due 2026(a) 600.0
2.750% notes due 2031(a) 300.0
6.200% notes due 2036(a) 500.0
6.200% notes due 2040(a) 250.0
Total borrowings at par value 2,630.0
Debt issuance costs and unamortized discount, net (13.2 )
Total borrowings at carrying value(b)
$ 2,616.8
(a)
The difference between the stated interest rate and the effective interest rate
is not significant.
(b)
As of December 31, 2022, our weighted-average effective rate on total borrowings
was approximately 3.9%.54
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Commercial Paper Program
Pursuant to our commercial paper program, we may issue unsecured commercial
paper notes in an amount not to exceed $1.5 billion outstanding at any time,
reduced to the extent of borrowings outstanding on our Revolving Credit
Facility. Our commercial paper borrowings may have maturities of up to 397 days
from date of issuance. Interest rates for borrowings are based on market rates
at the time of issuance. As of December 31, 2022 and 2021, we had $180.0 million
and $275.0 million in commercial paper borrowings outstanding, respectively. Our
commercial paper borrowings as of December 31, 2022 had a weighted-average
annual interest rate of approximately 4.6% and a weighted-average term of
approximately 3 days. During the years ended December 31, 2022 and 2021, the
average commercial paper balance outstanding was $192.9 million and $140.0
million, respectively, and the maximum balance outstanding was $725.0 million
and $575.0 million, respectively. Proceeds from our commercial paper borrowings
were used for general corporate purposes and working capital needs.
Revolving Credit Facility
On December 18, 2018, we entered into a credit agreement providing for unsecured
financing facilities in an aggregate amount of $1.5 billion, including a $250.0
million letter of credit sub-facility, with a final maturity date of January 8,
2025. On October 31, 2022, we amended our Revolving Credit Facility to
transition away from the London Interbank Offered Rate and allow us to draw
loans payable based upon the Secured Overnight Financing Rate, the Euro
Interbank Offered Rate, or the Sterling Overnight Index Average.Interest due under the Revolving Credit Facility is fixed for the term of each
borrowing and is payable according to the terms of that borrowing. Generally,
interest is calculated using a selected term benchmark rate plus an interest
rate margin of 110 basis points. A facility fee is also payable quarterly at an
annual rate of 15 basis points on the total facility, regardless of usage. Both
the interest rate margin and facility fee percentage are based on certain of our
credit ratings.The purpose of our Revolving Credit Facility, which is diversified through a
group of 19 participating institutions, is to provide general liquidity and to
support our commercial paper program, which we believe enhances our short-term
credit rating. The largest commitment from any single financial institution
within the total committed balance of $1.5 billion is approximately 11%. As of
December 31, 2022 and 2021, we had no outstanding borrowings under our Revolving
Credit Facility. If the amount available to borrow under the Revolving Credit
Facility decreased, or if the Revolving Credit Facility were eliminated, the
cost and availability of borrowing under the commercial paper program may be
impacted.Term Loan Facility
On December 18, 2018, we entered into an amended and restated term loan facility
providing for up to $950.0 million in borrowings and extending the final
maturity of the facility to January 2024 (the "Term Loan Facility"). In the
first quarter of 2021, we repaid $650.0 million of the Term Loan Facility. On
January 4, 2022, we repaid all remaining borrowings owed under the Term Loan
Facility for total consideration of $300.0 million, using proceeds from our
commercial paper and cash, including cash generated from operations. We are no
longer able to borrow money under this facility.
Notes
For a discussion regarding the terms and maturities of our notes, please refer
to Part II, Item 8, Financial Statements and Supplementary Data, Note 16,
Borrowings.
Credit Ratings and Debt Covenants
The credit ratings on our debt are an important consideration in our overall
business, managing our financing costs, and facilitating access to additional
capital on favorable terms. Factors that we believe are important in assessing
our credit ratings include earnings, cash flow generation, leverage, available
liquidity, and the overall business.Our Revolving Credit Facility contains interest rate margins which are
determined based on certain of our credit ratings and also contains a facility
fee that is based on our credit ratings. In addition, the interest rates payable
on our notes due in 2023, 2025, 2026, and 2031 can be impacted by our credit
ratings. We are also subject to certain provisions in many55
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of our notes and certain of our derivative contracts, which could require
settlement or collateral posting in the event of a change in control combined
with a downgrade below investment grade, as further described below. We do not
have any other terms within our debt agreements that are tied to changes in our
credit ratings.The Revolving Credit Facility contains covenants, subject to certain exceptions,
that, among other things, limit or restrict our ability to sell or transfer
assets or merge or consolidate with another company, grant certain types of
security interests, incur certain types of liens, impose restrictions on
subsidiary dividends, enter into sale and leaseback transactions, incur certain
subsidiary level indebtedness, or use proceeds in violation of anti-corruption
or anti-money laundering laws. Our notes are subject to similar covenants except
that only the notes due in 2036 contain covenants limiting or restricting
subsidiary indebtedness, and none of our notes are subject to a covenant that
limits our ability to impose restrictions on subsidiary dividends. Our Revolving
Credit Facility requires us to maintain a consolidated adjusted Earnings before
Interest, Taxes, Depreciation, and Amortization ("EBITDA") interest coverage
ratio of greater than 3:1 (ratio of consolidated adjusted EBITDA, defined as net
income/(loss) plus the sum of (i) interest expense, (ii) income tax expense,
(iii) depreciation expense, (iv) amortization expense, (v) any other non-cash
deductions, losses or charges made in determining net income/(loss) for such
period, and (vi) extraordinary, non-recurring, or unusual losses or charges
(including costs and expenses of litigation included in operating income), minus
extraordinary, non-recurring or unusual gains provided that the amount added
back to net income (or net loss) for such extraordinary, non-recurring or
unusual losses, expenses or charges may not exceed 10% of adjusted EBITDA, in
each case determined in accordance with United States generally accepted
accounting principles for such period, to interest expense) for each period
comprising the four most recent consecutive fiscal quarters. Our consolidated
interest coverage ratio was 11:1 for the year ended December 31, 2022.
For the year ended December 31, 2022, we were in compliance with our debt
covenants. A violation of our debt covenants could impair our ability to borrow,
and outstanding amounts borrowed could become due, thereby restricting our
ability to use our excess cash for other purposes.
Certain of our notes (including our notes due in 2023, 2025, 2026, 2031, and
2040) include a change of control triggering event provision, as defined in the
terms of the notes. If a change of control triggering event occurs, holders of
the notes may require us to repurchase some or all of their notes at a price
equal to 101% of the principal amount of their notes, plus any accrued and
unpaid interest. A change of control triggering event will occur when there is a
change of control involving us and, among other things, within a specified
period in relation to the change of control, the notes are downgraded from an
investment grade rating to below an investment grade rating by certain major
credit rating agencies.Cash Priorities
Liquidity
Our objective is to maintain strong liquidity and a capital structure consistent
with investment-grade credit ratings. We have existing cash balances, cash flows
from operating activities, access to the commercial paper markets, and our
Revolving Credit Facility available to support the needs of our business.Our ability to grow the business, make investments in our business, make
acquisitions, return capital to shareholders, including through dividends and
share repurchases, and service our debt and tax obligations will depend on our
ability to continue to generate excess operating cash through our operating
subsidiaries and to continue to receive dividends from those operating
subsidiaries, our ability to obtain adequate financing, and our ability to
identify acquisitions that align with our long-term strategy. For additional
information, please refer to Part II, Item 5, Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.56
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Capital Expenditures
The total aggregate amount paid for contract costs, purchases of property and
equipment, and purchased and developed software was $208.2 million and $214.6
million in 2022 and 2021, respectively. Amounts paid for new and renewed agent
contracts vary depending on the terms of existing contracts as well as the
timing of new and renewed contract signings. Other capital expenditures during
these periods included investments in our information technology infrastructure.
Share Repurchases and Dividends
During the years ended December 31, 2022 and 2021, 22.3 million and 19.5 million
shares, respectively, have been repurchased for $351.8 million and $400.0
million, respectively, excluding commissions, at an average cost of $15.81 and
$20.56, respectively, under the share repurchase authorizations approved by our
Board of Directors, including one which expired on December 31, 2021. On
February 10, 2022, our Board of Directors authorized $1.0 billion of common
stock repurchases through December 31, 2024. As of December 31, 2022, $648.2
million remained available under this share repurchase program.Our Board of Directors declared quarterly cash dividends of $0.235 per common
share in all four quarters of 2022 and 2021, representing $361.6 million and
$380.5 million in total dividends, respectively. These amounts were paid to
shareholders of record in the respective quarter the dividend was declared.
On February 7, 2023, the Board of Directors declared a quarterly cash dividend
of $0.235 per common share payable on March 31, 2023.
Material Cash Requirements
Debt Service Requirements
Notes with an aggregate principal amount of $300.0 million will mature in June
2023. We may repay this maturity through proceeds from commercial paper issuance
and cash, including cash generated from operations, or we may refinance this
maturity through the issuance of term debt.As of December 31, 2022, the total projected interest payments on outstanding
borrowings were $845.7 million, of which $83.5 million is expected to be paid in
the next 12 months. We have estimated our future interest payments based on the
assumption that no debt issuances or renewals will occur upon the maturity dates
of our notes. However, we may refinance all or a portion of our borrowings in
future periods.
2017 United States Federal Tax Liability
The Tax Act imposed a tax on certain of our previously undistributed foreign
earnings. This tax charge, combined with our other 2017 United States taxable
income and tax attributes, resulted in a 2017 United States federal tax
liability of approximately $800 million, of which approximately $478 million
remained as of December 31, 2022. We elected to pay this liability in periodic
installments through 2025. Under the terms of the law, we owe 15% of the
original liability in 2023, with 20% and 25% of the tax owed in 2024 and 2025,
respectively. During the years ended December 31, 2022 and 2021, we made
installment payments of $63.7 million and $63.4 million, respectively. These
payments have affected and will continue to adversely affect our cash flows and
liquidity and may adversely affect future share repurchases.
Operating Leases
We lease real properties for use as administrative and sales offices, in
addition to transportation, office, and other equipment. Refer to Part II, Item
8, Financial Statements and Supplementary Data, Note 13, Leases for details on
our leasing arrangements, including future maturities of our operating lease
liabilities.57
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Foreign Currency Derivative Contracts
We use derivatives to minimize our exposures related to changes in foreign
currency exchange rates, which fluctuate based on market conditions. Refer to
Part II, Item 8, Financial Statements and Supplementary Data, Note 15,
Derivatives. The substantial majority of these derivative contracts relate to
our Business Solutions segment, which facilitates cross-currency payments by
writing derivatives to customers, and a majority of these derivative contracts
have a duration at inception of less than one year.
Purchase Obligations
A purchase obligation is an agreement to purchase goods or services that is
enforceable, legally binding, and specifies all significant terms. As of
December 31, 2022, we had approximately $240 million of outstanding purchase
obligations, of which approximately $140 million is expected to be paid in the
next 12 months. Many of our contracts contain clauses that allow us to terminate
the contract with notice and with a termination penalty. Termination penalties
are generally an amount less than the original obligation. Obligations under
certain contracts are usage-based and are, therefore, estimated in the above
amounts. Historically, we have not had any significant defaults on our
contractual obligations or incurred significant penalties for termination of our
contractual obligations.We have no material off-balance sheet arrangements that have or are reasonably
likely to have a material current or future effect on our financial condition,
results of operations, liquidity, capital expenditures, or capital resources.
Pension Plan
On July 22, 2021, our Board of Directors approved a plan to terminate and settle
our frozen defined benefit pension plan (the "Plan"). Upon settlement in the
fourth quarter of 2021, we transferred Plan assets to an insurance company that
will provide for and pay the remaining benefits to participants. We incurred
approximately $109.8 million of charges associated with this settlement in the
prior year. The pre-tax balance in Accumulated other comprehensive loss
associated with the Plan, along with costs related to the settlement, were
recorded as a component of Total other income/(expense), net, with the related
income tax effects recorded in Provision for income taxes, in the Consolidated
Statements of Income.Other Commercial Commitments
We had approximately $390 million in outstanding letters of credit and bank
guarantees as of December 31, 2022 primarily held in connection with regulatory
requirements, lease arrangements, and certain agent agreements. We expect to
renew many of our letters of credit and bank guarantees prior to expiration.58
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Critical Accounting Policies and Estimates
Management's discussion and analysis of results of operations and financial
condition is based on our consolidated financial statements that have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires that management make estimates and assumptions
that affect the amounts reported for revenues, expenses, assets, liabilities,
and other related disclosures. Actual results may or may not differ from these
estimates. Our significant accounting policies are discussed in Part II, Item 8,
Financial Statements and Supplementary Data, Note 2, Summary of Significant
Accounting Policies.Our critical accounting policies and estimates, described below, are very
important to the portrayal of our financial condition and our results of
operations, and applying them requires our management to make difficult,
subjective, and complex judgments. We believe that the understanding of these
key accounting policies and estimates is essential in achieving more insight
into our operating results and financial condition.
Income Taxes
Income taxes, as reported in our consolidated financial statements, represent
the net amount of income taxes we expect to pay to various taxing jurisdictions
in connection with our operations. We provide for income taxes based on amounts
that we believe we will ultimately owe after applying the required analyses and
judgments.The determination of our worldwide provision for income taxes requires
significant judgment. We routinely receive, and may in the future receive,
questions from taxing authorities on various tax-related assertions. In many of
these instances, the ultimate tax determination is uncertain, given the
complexities in interpreting tax laws and applying our facts and circumstances
to these laws in many jurisdictions throughout the world.We recognize the tax benefit from an uncertain tax position only when it is more
likely than not, based on the technical merits of the position, that the tax
position will be sustained upon examination, including the resolution of any
related appeals or litigation. The tax benefits recognized in the consolidated
financial statements from such a position are measured as the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate
resolution.We have established contingency reserves for a variety of material, known tax
exposures. Our tax reserves reflect our judgment as to the resolution of the
issues involved if subject to judicial review or other settlement. While we
believe that our reserves are adequate to cover reasonably expected tax risks,
there can be no assurance that, in all instances, an issue raised by a tax
authority will be resolved at a financial cost that does not exceed our related
reserve. With respect to these reserves, our income tax expense would include:
(i) any changes in tax reserves arising from material changes in facts and
circumstances (i.e., new information) surrounding a tax issue during the period
and (ii) any difference from our tax position as recorded in the consolidated
financial statements and the final resolution of a tax issue during the period.Our tax contingency reserves for our uncertain tax positions as of December 31,
2022 were $237.2 million, including accrued interest and penalties, net of
related items. While we believe that our reserves are adequate to cover
reasonably expected tax risks, in the event that the ultimate resolution of our
uncertain tax positions differs from our estimates, we may be exposed to
material increases in income tax expense, which could materially impact our
financial condition, results of operations, and cash flows. Furthermore, the
timing of any related cash payments for these tax liabilities is inherently
uncertain and is affected by variable factors outside our control.
Derivative Financial Instruments
We have used derivatives to: (i) minimize our exposures related to changes in
foreign currency exchange rates and, periodically, interest rates and (ii)
facilitate cross-currency Business Solutions payments by writing derivatives to
customers. We recognize all derivatives in our Consolidated Balance Sheets at
their fair value. Certain of our derivative arrangements are designated as cash
flow hedges at the time of inception while those that do not qualify for cash
flow hedge accounting are not designated as accounting hedges.Cash flow hedges consist of foreign currency hedging of forecasted revenues, as
well as hedges of the forecasted issuance of fixed-rate debt. Derivative fair
value changes that are captured in Accumulated other comprehensive loss59
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("AOCL") are reclassified to earnings in the same period the hedged item affects
earnings when the instrument is effective in offsetting the change in cash flows
attributable to the risk being hedged.The accounting guidance related to derivative accounting is complex and contains
strict documentation requirements. The details of each designated hedging
relationship must be formally documented at the inception of the arrangement,
including the risk management objective, hedging strategy, hedged item, specific
risks being hedged, the derivative instrument, and how effectiveness is being
assessed. The derivative must be highly effective in offsetting the changes in
cash flows of the hedged item, and effectiveness is evaluated quarterly on a
retrospective and prospective basis. If the hedge is no longer deemed effective,
we discontinue applying hedge accounting to that relationship on a prospective
basis.We have foreign currency and interest rate accounting hedges that are designated
as cash flow hedges. If these hedges no longer qualify under hedge accounting,
the change in the fair value of these derivatives would be reflected into
earnings, which could have a significant impact on our reported results. As of
December 31, 2022, the cumulative pre-tax unrealized gain currently classified
within AOCL that would be reflected in earnings if these hedges were
disqualified from hedge accounting was $26.0 million.
Goodwill
Goodwill represents the excess of purchase price over the fair value of tangible
and other intangible assets acquired less liabilities assumed, arising from
business combinations. An impairment assessment of goodwill is conducted
annually during our fourth quarter at the reporting unit level. This assessment
of goodwill is performed more frequently if events or changes in circumstances
indicate that the carrying value of the goodwill may not be recoverable.
Reporting units are determined by the level at which management reviews segment
operating results. In some cases, that level is the operating segment, and in
others, it is one level below the operating segment.Our impairment assessment typically begins with a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying value. The initial qualitative assessment
includes comparing the overall financial performance of the reporting unit
against the planned results. Additionally, each reporting unit's fair value is
assessed under certain events and circumstances, including macroeconomic
conditions, industry and market considerations, cost factors, and other relevant
entity-specific events. Periodically, we perform a quantitative assessment, as
described below, for each of our reporting units, regardless of the results of
prior qualitative assessments.If we determine in the qualitative assessment that it is more likely than not
that the fair value of a reporting unit is less than its carrying value, then we
estimate the fair value of the reporting unit using discounted cash flows and
compare the estimated fair value to its carrying value. If the carrying value
exceeds the fair value of the reporting unit, then an impairment is recognized
for the difference. Refer to Part II, Item 8, Financial Statements and
Supplementary Data, Note 2, Summary of Significant Accounting Policies, for
further discussion regarding our accounting policies for goodwill and any
related impairments.The determination of the reporting units and which reporting units to include in
the qualitative assessment requires significant judgment. Also, all of the
assumptions used in the qualitative assessment require judgment. Additionally,
for the quantitative goodwill impairment test, we calculate the fair value of
reporting units through discounted cash flow analyses which require us to make
estimates and assumptions including, among other items, revenue growth rates,
operating margins, and capital expenditures based on our budgets and business
plans. Development of such estimates and assumptions and the resultant fair
value takes into consideration expected regulatory, marketplace, and other
economic factors as well as relevant discount rates and terminal values.We could be required to evaluate the recoverability of goodwill if we experience
disruptions to the business, unexpected significant declines in operating
results, a divestiture of a significant component of our business, or other
triggering events. In addition, as our business or the way we manage our
business changes, our reporting units may also change. If an event described
above occurs and causes us to recognize a goodwill impairment charge, it would
impact our reported earnings in the period such charge occurs.The carrying value of goodwill as of December 31, 2022 was $2,096.0 million,
which represented approximately 25% of our consolidated assets. As of December
31, 2022, goodwill of $1,980.7 million and $61.4 million resides in our
Consumer-to-Consumer and Business Solutions reporting units, respectively, while
the remaining $53.9 million resides in60
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Other. For the years ended December 31, 2022 and 2021, we did not record any
goodwill impairments. For the reporting units that comprise Consumer-to-Consumer
and Other, the fair values of the businesses significantly exceed their carrying
amounts. On August 4, 2021, we entered into an agreement to sell our Business
Solutions business to Goldfinch Partners LLC and The Baupost Group LLC, and this
business is expected to be fully divested in the second quarter of 2023, as
described in Part II, Item 8, Financial Statements and Supplementary Data, Note
5, Divestitures, Investment Activities, and Goodwill. As of December 31, 2022,
the goodwill related to the Business Solutions reporting unit is included in
Assets held for sale on the Consolidated Balance Sheets.
Other Intangible Assets
We capitalize acquired intangible assets as well as certain initial payments for
new and renewed agent contracts and software. We evaluate such intangible assets
for impairment on an annual basis or whenever events or changes in circumstances
indicate the carrying amount of such assets may not be recoverable. In such
reviews, estimated undiscounted cash flows associated with these assets or
operations are compared with their carrying amounts to determine if a write-down
to fair value (normally measured by the present value technique) is required.The capitalization of initial payments for new and renewed agent contracts is
subject to strict accounting policy criteria and requires management judgment as
to the amount to capitalize and the related period of benefit. Our accounting
policy is to limit the amount of capitalized costs for a given agent contract to
the lesser of the estimated future cash flows from the contract or the
termination fees we would receive in the event of early termination of the
contract. Additionally, the estimated undiscounted cash flows associated with
each asset requires us to make estimates and assumptions, including, among other
things, revenue growth rates and operating margins based on our budgets and
business plans.Disruptions to contractual relationships, significant declines in cash flows or
transaction volumes associated with contracts, or other issues significantly
impacting the future cash flows associated with the contract would cause us to
evaluate the recoverability of the asset and could result in an impairment
charge. The net carrying value of our other intangible assets as of December 31,
2022 was $459.3 million and includes $1.4 million of other intangibles related
to the Business Solutions business, which is classified as held for sale. During
the years ended December 31, 2022 and 2021, we recorded immaterial impairments
related to other intangible assets.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 2,
Summary of Significant Accounting Policies for further discussion.
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