10-Q 1 catm-20170630x10q.htm 10-Q catm_Current folio_10Q

 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

 

FORM 10-Q 

 

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2017

 

 

or

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from    to

 

Commission File Number: 001-37820 

 


 

Cardtronics plc 

(Exact name of registrant as specified in its charter)

 

 

 

England and Wales 

98-1304627

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

3250 Briarpark Drive, Suite 400

77042

Houston, Texas 

(Zip Code)

(Address of principal executive offices)

 

 

Registrant’s telephone number, including area code: (832) 308-4000

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐ 

 

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

 

 

 

 

Large accelerated filer            

 

Accelerated filer                    

Non-accelerated filer              

(Do not check if a smaller reporting company)

Smaller reporting company   

Emerging growth company    

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ 

 

Shares outstanding as of July 31, 2017: 45,653,921 Ordinary shares, nominal value $0.01 per share.

 

 

 

 


 

 

CARDTRONICS PLC

 

TABLE OF CONTENTS

 

31

 

 

 

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

Item 1. 

Financial Statements

 

3

 

Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016

 

3

 

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016

 

4

 

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and 2016

 

5

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

Cautionary Statement Regarding Forward-Looking Statements

 

45

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

47

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

72

Item 4. 

Controls and Procedures

 

75

 

 

 

 

PART II. OTHER INFORMATION 

 

 

Item 1. 

Legal Proceedings

 

76

Item 1A. 

Risk Factors

 

76

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

76

Item 3. 

Default Upon Senior Securities

 

76

Item 4. 

Mine Safety Disclosures

 

76

Item 5. 

Other Information

 

76

Item 6. 

Exhibits

 

76

 

Signatures

 

77

 

 

When we refer to “us,” “we,” “our,” “ours,” “the Company,” or “Cardtronics” we are describing Cardtronics plc and/or our subsidiaries, unless the context indicates otherwise.

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CARDTRONICS PLC
CONSOLIDATED BALANCE SHEETS
(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

   

June 30, 2017

   

December 31, 2016

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,177

 

$

73,534

Accounts and notes receivable, net of allowance for doubtful accounts of $2,095 and $1,931 as of June 30, 2017 and December 31, 2016, respectively

 

 

98,751

 

 

84,156

Inventory, net

 

 

14,232

 

 

12,527

Restricted cash

 

 

46,909

 

 

32,213

Prepaid expenses, deferred costs, and other current assets

 

 

86,329

 

 

67,107

Total current assets

 

 

299,398

 

 

269,537

Property and equipment, net of accumulated depreciation of $421,340 and $397,972 as of June 30, 2017 and December 31, 2016, respectively

 

 

505,454

 

 

392,735

Intangible assets, net

 

 

278,471

 

 

121,230

Goodwill

 

 

903,101

 

 

533,075

Deferred tax asset, net

 

 

9,727

 

 

13,004

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

38,881

 

 

35,115

Total assets

 

$

2,035,032

 

$

1,364,696

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of other long-term liabilities

 

$

32,793

 

$

28,237

Accounts payable

 

 

44,960

 

 

44,965

Accrued liabilities

 

 

300,435

 

 

240,618

Total current liabilities

 

 

378,188

 

 

313,820

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

973,339

 

 

502,539

Asset retirement obligations

 

 

57,096

 

 

45,086

Deferred tax liability, net

 

 

49,915

 

 

27,625

Other long-term liabilities

 

 

68,421

 

 

18,691

Total liabilities

 

 

1,526,959

 

 

907,761

 

 

 

 

 

 

 

Commitments and contingencies (See Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Ordinary shares, $0.01 nominal value; 45,650,302 and 45,326,430 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively

 

 

457

 

 

453

Additional paid-in capital

 

 

309,052

 

 

311,041

Accumulated other comprehensive loss, net

 

 

(68,275)

 

 

(107,135)

Retained earnings

 

 

266,913

 

 

252,656

Total parent shareholders’ equity

 

 

508,147

 

 

457,015

Noncontrolling interests

 

 

(74)

 

 

(80)

Total shareholders’ equity

 

 

508,073

 

 

456,935

Total liabilities and shareholders’ equity

 

$

2,035,032

 

$

1,364,696

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

   

2016

   

2017

   

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

373,260

 

$

311,331

 

$

715,048

 

$

603,419

ATM product sales and other revenues

 

 

11,852

 

 

12,630

 

 

27,636

 

 

23,789

Total revenues

 

 

385,112

 

 

323,961

 

 

742,684

 

 

627,208

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below. See Note 1(c))

 

 

246,484

 

 

198,843

 

 

478,411

 

 

384,783

Cost of ATM product sales and other revenues

 

 

11,116

 

 

11,487

 

 

25,751

 

 

21,420

Total cost of revenues

 

 

257,600

 

 

210,330

 

 

504,162

 

 

406,203

Gross profit

 

 

127,512

 

 

113,631

 

 

238,522

 

 

221,005

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

43,470

 

 

37,912

 

 

85,419

 

 

75,311

Redomicile-related expenses

 

 

 —

 

 

5,214

 

 

760

 

 

11,250

Restructuring expenses

 

 

 —

 

 

 —

 

 

8,243

 

 

 —

Acquisition and divestiture-related expenses

 

 

3,993

 

 

674

 

 

12,449

 

 

2,258

Depreciation and accretion expense

 

 

29,755

 

 

23,100

 

 

58,876

 

 

45,777

Amortization of intangible assets

 

 

15,247

 

 

9,691

 

 

30,427

 

 

18,954

Loss (gain) on disposal and impairment of assets

 

 

669

 

 

(1,326)

 

 

3,863

 

 

(944)

Total operating expenses

 

 

93,134

 

 

75,265

 

 

200,037

 

 

152,606

Income from operations

 

 

34,378

 

 

38,366

 

 

38,485

 

 

68,399

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,460

 

 

4,466

 

 

16,017

 

 

8,958

Amortization of deferred financing costs and note discount

 

 

3,146

 

 

2,982

 

 

6,122

 

 

5,764

Other expense

 

 

1,945

 

 

943

 

 

365

 

 

388

Total other expense

 

 

14,551

 

 

8,391

 

 

22,504

 

 

15,110

Income before income taxes

 

 

19,827

 

 

29,975

 

 

15,981

 

 

53,289

Income tax expense

 

 

4,670

 

 

9,861

 

 

1,718

 

 

17,816

Net income

 

 

15,157

 

 

20,114

 

 

14,263

 

 

35,473

Net (loss) income attributable to noncontrolling interests

 

 

(1)

 

 

(34)

 

 

 6

 

 

(59)

Net income attributable to controlling interests and available to common shareholders

 

$

15,158

 

$

20,148

 

$

14,257

 

$

35,532

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.33

 

$

0.45

 

$

0.31

 

$

0.79

Net income per common share – diluted

 

$

0.33

 

$

0.44

 

$

0.31

 

$

0.78

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

45,637,778

 

 

45,199,450

 

 

45,564,527

 

 

45,136,553

Weighted average shares outstanding – diluted

 

 

46,222,112

 

 

45,748,570

 

 

46,272,191

 

 

45,704,474

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

 

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

Net income

 

$

15,157

 

$

20,114

 

$

14,263

 

$

35,473

Unrealized gain (loss) on interest rate swap contracts, net of deferred income tax expense (benefit) of $535 and $(2,222) for the three months ended June 30, 2017 and 2016, respectively, and $1,895 and $(8,112) for the six months ended June 30, 2017 and 2016, respectively.

 

 

4,184

 

 

(9,337)

 

 

5,589

 

 

(20,023)

Foreign currency translation adjustments, net of deferred income tax expense (benefit) of $72 and $(1,166) for the three months ended June 30, 2017 and 2016, respectively, and $(1,311) and $(1,991) for the six months ended June 30, 2017 and 2016, respectively.

 

 

26,025

 

 

(14,670)

 

 

33,271

 

 

(19,941)

Other comprehensive income (loss)

 

 

30,209

 

 

(24,007)

 

 

38,860

 

 

(39,964)

Total comprehensive income (loss)

 

 

45,366

 

 

(3,893)

 

 

53,123

 

 

(4,491)

Less: comprehensive (loss) income attributable to noncontrolling interests

 

 

(1)

 

 

(196)

 

 

 5

 

 

(101)

Comprehensive income (loss) attributable to controlling interests

 

$

45,367

 

$

(3,697)

 

$

53,118

 

$

(4,390)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


 

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

   

    

2017

    

2016

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

14,263

 

$

35,473

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

89,303

 

 

64,731

Amortization of deferred financing costs and note discount

 

 

6,122

 

 

5,764

Share-based compensation expense

 

 

5,820

 

 

9,138

Deferred income taxes

 

 

(66)

 

 

7,435

Loss (gain) on disposal and impairment of assets

 

 

3,863

 

 

(944)

Other reserves and non-cash items

 

 

1,133

 

 

(42)

Changes in assets and liabilities:

 

 

 

 

 

 

Decrease (increase) in accounts and notes receivable, net

 

 

2,479

 

 

(2,215)

Increase in prepaid expenses, deferred costs, and other current assets

 

 

(11,814)

 

 

(7,716)

(Increase) decrease in inventory, net

 

 

(1,222)

 

 

2,522

(Increase) decrease in other assets

 

 

(13,222)

 

 

2,031

(Decrease) increase in accounts payable

 

 

(25,435)

 

 

4,558

Increase in accrued liabilities

 

 

21,894

 

 

11,204

Decrease in other liabilities

 

 

(8,539)

 

 

(7,352)

Net cash provided by operating activities

 

 

84,579

 

 

124,587

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(69,868)

 

 

(39,571)

Acquisitions, net of cash acquired

 

 

(487,077)

 

 

(14,544)

Proceeds from sale of assets and businesses

 

 

 —

 

 

9,348

Net cash used in investing activities

 

 

(556,945)

 

 

(44,767)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

835,505

 

 

134,307

Repayments of borrowings under revolving credit facility

 

 

(666,256)

 

 

(216,000)

Proceeds from borrowings of long-term debt

 

 

300,000

 

 

 —

Debt issuance costs

 

 

(5,197)

 

 

 —

Tax payments related to share-based compensation

 

 

(7,820)

 

 

 —

Proceeds from exercises of stock options

 

 

105

 

 

145

Additional tax (expense) related to share-based compensation

 

 

 —

 

 

(343)

Repurchase of common shares

 

 

 —

 

 

(3,959)

Net cash provided by (used in) financing activities

 

 

456,337

 

 

(85,850)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(4,328)

 

 

(615)

Net decrease in cash and cash equivalents

 

 

(20,357)

 

 

(6,645)

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

73,534

 

 

26,297

Cash and cash equivalents as of end of period

 

$

53,177

 

$

19,652

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

11,460

 

$

7,362

Cash paid for income taxes

 

$

3,570

 

$

8,374

 

The accompanying notes are an integral part of these consolidated financial statements.

6


 

CARDTRONICS PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(1) General and Basis of Presentation 

 

(a) General 

 

Cardtronics plc, together with its wholly and majority-owned subsidiaries (collectively, the “Company”), provides convenient automated consumer financial services through its network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of June 30, 2017, the Company provided services to approximately 237,000 ATMs across its portfolio, which included approximately 186,200 ATMs located in all 50 states of the United States (the “U.S.”) (including the U.S. territory of Puerto Rico), approximately 22,400 ATMs throughout the United Kingdom (“U.K.”) and Ireland, approximately 12,500 ATMs throughout Canada, approximately 11,000 ATMs throughout Australia and New Zealand, approximately 2,400 ATMs in South Africa, approximately 1,600 ATMs throughout Germany, Poland, and Spain, and approximately 900 ATMs throughout Mexico. In the U.S., in addition to providing traditional ATM functions such as cash dispensing and bank account balance inquiries, certain of the Company’s ATMs perform other automated consumer financial services, including remote deposit capture (which is deposit-taking at ATMs using electronic imaging). The total count of approximately 237,000 ATMs also includes ATMs for which the Company provides processing only services and various forms of managed services solutions, which may include transaction processing, monitoring, maintenance, cash management, communications, and customer service.

 

Through its network, the Company delivers consumer financial services to cardholders and provides ATM management or ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, and operators of facilities such as shopping malls, airports, and train stations. In doing so, the Company provides its retail partners with a compelling automated financial services solution that helps attract and retain customers, and in turn, increases the likelihood that the ATMs placed at their facilities will be utilized.

 

In addition to its retail merchant relationships, the Company also partners with leading financial institutions to brand selected ATMs within its network, including BBVA Compass Bancshares, Inc. (“BBVA”), Citibank, N.A. (“Citibank”), Citizens Financial Group, Inc. (“Citizens”), Cullen/Frost Bankers, Inc. (“Cullen/Frost”), Discover Bank (“Discover”), PNC Bank, N.A. (“PNC Bank”), Santander Bank, N.A. (“Santander”), and TD Bank, N.A. (“TD Bank”) in the U.S.;  the Bank of Nova Scotia (“Scotiabank”) and Santander in Puerto Rico; Scotiabank, TD Bank, Canadian Imperial Bank Commerce (“CIBC”), and DirectCash Bank in Canada; and Bank of Queensland Limited (“BOQ”) and HSBC Holdings plc (“HSBC”) in Australia. In Mexico, the Company operates Cardtronics Mexico, S.A. de C.V. (“Cardtronics Mexico”) and partners with Scotiabank to place their brands on its ATMs in exchange for certain services provided by them. As of June 30, 2017,  over 20,000 of the Company’s ATMs were under contract with approximately 500 financial institutions to place their logos on the ATMs, and to provide convenient surcharge-free access for their banking customers. 

 

The Company owns and operates the Allpoint network (“Allpoint”), the largest surcharge-free ATM network (based on the number of participating ATMs). Allpoint, which has approximately 55,000 participating ATMs, provides surcharge-free ATM access to over 1,300 participating banks, credit unions, and stored-value debit card issuers. For participants, Allpoint provides scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. Allpoint earns either a fixed monthly fee per cardholder or a fixed fee per transaction that is paid by the participants. The Allpoint network includes a majority of the Company’s ATMs in the U.S. and certain ATMs in the U.K., Canada, Mexico, Puerto Rico, and Australia. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general purpose, payroll, and electronic benefits transfer (“EBT”) cards. Under these programs, the issuing financial institutions pay Allpoint a fee per issued stored-value debit card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

 

In Canada, through the Company’s acquisition of DirectCash Payments Inc. (“DCPayments”), the Company also provides processing services for issuers of debit cards. Also, the Company owns and operates electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to its network of ATMs, as well as other ATMs under managed services arrangements. Additionally, through the acquisition of Columbus Data Services,

7


 

L.L.C. in 2015, the Company provides leading-edge ATM processing solutions to ATM sales and service organizations and financial institutions.

 

(b) Basis of Presentation

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the U.S. (“U.S. GAAP”), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

 

The consolidated financial statements as of June 30, 2017 and for the three and six months ended June 30, 2017 and 2016 are unaudited. The Consolidated Balance Sheet as of December 31, 2016 was derived from the audited balance sheet filed in the 2016 Form 10-K. The Company has adopted the provisions of the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-09, Improvements to Employee Stock-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The Company has utilized the prospective transition method in adopting this new standard and beginning January 1, 2017, the Company recognized all excess tax charges or benefits as income tax expense or benefit in the accompanying Consolidated Statements of Operations and in the accompanying Consolidated Statements of Cash Flows as operating activities. The Company also adopted ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), for additional information, see (f) Inventory, net below.

 

In management’s opinion, all normal recurring adjustments necessary for a fair presentation of the Company’s interim and prior period results have been made. The results of operations for the three and six months ended June 30, 2017 and 2016 are not necessarily indicative of results of operations that may be expected for any other interim period or for the full fiscal year.

 

The unaudited interim financial statements include the accounts of the Company. All material intercompany accounts and transactions have been eliminated in consolidation. The Company owns a majority (95.7%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, thus this entity is reflected as a consolidated subsidiary in the financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.

 

The preparation of the unaudited interim financial statements to conform with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this Form 10-Q and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could be material to the financial statements.

 

8


 

(c) Cost of ATM Operating Revenues and Gross Profit Presentation 

 

The Company presents the Cost of ATM operating revenues and Gross profit in the accompanying Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets.

 

The following table reflects the amounts excluded from the Cost of ATM operating revenues and Gross profit line items for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

Depreciation and accretion expenses related to ATMs and ATM-related assets

 

$

22,324

 

$

18,234

 

$

44,308

 

$

36,357

Amortization of intangible assets

 

 

15,247

 

 

9,691

 

 

30,427

 

 

18,954

Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues and Gross profit

 

$

37,571

 

$

27,925

 

$

74,735

 

$

55,311

 

(d) Redomicile to the U.K. 

 

On July 1, 2016, the Cardtronics group of companies changed the location of incorporation of the parent company from Delaware to the U.K. Cardtronics plc, a public limited company organized under English law (“Cardtronics plc”), became the new publicly traded corporate parent of the Cardtronics group of companies following the completion of the merger between Cardtronics, Inc., a Delaware corporation (“Cardtronics Delaware”), and one of its subsidiaries (the “Merger”). The Merger was completed pursuant to the Agreement and Plan of Merger, dated April 27, 2016, the adoption of which was approved by Cardtronics Delaware’s Shareholders on June 28, 2016 (collectively, the “Redomicile Transaction”). Pursuant to the Redomicile Transaction, each issued and outstanding common share of Cardtronics Delaware held immediately prior to the Merger was effectively converted into one Class A Ordinary Share, nominal value $0.01 per share, of Cardtronics plc (collectively “common shares”). Upon completion, the common shares were listed and began trading on The NASDAQ Stock Market LLC under the symbol “CATM,” the same symbol under which common shares of Cardtronics Delaware were formerly listed and traded.

 

Any references to “the Company” (as defined above) or any similar references relating to periods before the Redomicile Transaction shall be construed as references to Cardtronics Delaware being the previous parent company of the Cardtronics group of companies, and/or its subsidiaries depending on the context. The Redomicile Transaction was accounted for as an internal reorganization of entities under common control and, therefore, the Cardtronics Delaware assets and liabilities have been accounted for at their historical cost basis and not revalued in the transaction.

 

(e) Restructuring Expenses

 

During the three months ended March 31, 2017, the Company initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve its cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, and other cost reduction measures.

 

9


 

During the three months ended March 31, 2017, the Company incurred $8.2 million of pre-tax expenses related to the Restructuring Plan, reflected in the Restructuring expenses line item in the accompanying Consolidated Statements of Operations. These expenses included employee severance costs of $8.0 million and lease termination costs of $0.2 million. The Company did not incur any additional restructuring expenses during the three months ended June 30, 2017.

 

The following table reflects the amounts by segment (for additional information related to the Company’s segments, see Note 15. Segment Information) recorded in the Restructuring expenses line item in the accompanying Consolidated Statements of Operations for the six months ended June 30, 2017:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

   

North America

   

Europe & Africa

   

Corporate

   

Total

 

 

(In thousands)

Restructuring expenses

 

$

3,668

 

$

831

 

$

3,744

 

$

8,243

 

During the three months ended March 31, 2017, the Company also identified certain assets that will likely be abandoned or are no longer capable of recovering their carrying values. As a result, the Company recognized $3.2 million in asset impairment charges included in the Loss (gain) on disposal and impairment of assets line item in the accompanying Consolidated Statements of Operations. The Company did not recognize any additional asset impairment charges during the three months ended June 30, 2017.

 

As of June 30, 2017,  $6.0 million of the employee severance costs and lease termination costs recognized during the three months ended March 31, 2017, were unpaid and are presented within the Current portion of other long-term liabilities, Accrued liabilities, and Other long-term liabilities line items in the accompanying Consolidated Balance Sheets. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2017

 

   

North America

   

Europe & Africa

   

Corporate

   

Total

 

 

(In thousands)

Current portion of other long-term liabilities

 

$

21

 

$

 —

 

$

49

 

$

70

Accrued liabilities

 

 

 —

 

 

495

 

 

3,987

 

 

4,482

Other long-term liabilities

 

 

 —

 

 

 —

 

 

1,417

 

 

1,417

Total restructuring liabilities

 

$

21

 

$

495

 

$

5,453

 

$

5,969

 

The changes in the Company’s restructuring liabilities consisted of the following:

 

 

 

 

 

 

 

(In thousands)

Restructuring liabilities as of January 1, 2017

   

$

 —

Restructuring expenses

 

 

8,243

Payments

 

 

2,274

Restructuring liabilities as of June 30, 2017

 

$

5,969

 

10


 

(f) Inventory, net

 

The Company has adopted the provisions of ASU 2015-11, which requires entities to measure their inventory at the lower of cost and net realizable value. The adoption of ASU 2015-11 did not have an impact on the Company’s consolidated financial statements. The Company’s inventory is determined using the average cost method.

 

The following table reflects the Company’s primary inventory components:

 

 

 

 

 

 

 

 

 

   

June 30, 2017

 

December 31, 2016

 

 

(In thousands)

ATMs

 

$

3,774

 

$

1,915

ATM spare parts and supplies

 

 

13,047

 

 

12,556

Total inventory

 

 

16,821

 

 

14,471

Less: Inventory reserves

 

 

(2,589)

 

 

(1,944)

Inventory, net

 

$

14,232

 

$

12,527

 

(g) Restricted Cash

Restricted cash consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchants or third-party service providers. The amounts include deposits held by the Company for transactions processed, as well as surcharge and interchange fees earned by the Company’s  merchants on transactions. These balances are classified as Restricted cash in the Current assets or Noncurrent assets line item in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid. The Company held $46.9 million and $32.2 million of Restricted cash in the Current assets line item in the accompanying Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, respectively. These assets are offset by accrued liability balances in the Current liability line item in the accompanying Consolidated Balance Sheets.

 

 

 

 

(2) Acquisitions

 

DirectCash Payments Inc. Acquisition

 

On January 6, 2017, the Company completed the acquisition of DCPayments, whereby DCPayments became a wholly-owned indirect subsidiary of the Company. In connection with the closing of the acquisition, each DCPayments common share was acquired for Canadian Dollars $19.00 in cash per common share, and the Company also repaid the outstanding third-party indebtedness of DCPayments, the combined aggregate of which represented a total transaction value of approximately $658 million Canadian Dollars (approximately $495 million U.S. dollars). The total amount paid for the acquisition at closing was financed with cash on hand and borrowings under the Company’s revolving credit facility. The purchase price has been preliminarily allocated as disclosed further below.

 

As a result of the DCPayments acquisition, the Company significantly increased the size of its Canadian, Mexico, and U.K. operations and entered into the Australian and New Zealand markets. With this acquisition, the Company added approximately 25,000 ATMs to its global ATM count. 

 

The DCPayments operations acquired in the U.K. are currently subject to a review by the U.K. Competition and Markets Authority (the “CMA”) and DC Payments U.K. Limited continues to operate as a separate business with the DCPayments pre-acquisition management running the business independently from the Company’s management while the CMA review is completed.

 

The results of DCPayments operations have been included in the accompanying Consolidated Statements of Operations subsequent to the January 6, 2017 acquisition date. DCPayments contributed $1.3 million and $1.0 million, respectively, to the Company’s  income from operations during the three and six months ended June 30, 2017,  inclusive of $1.8 million and $3.0 million, respectively, in acquisition-related expenses. 

 

11


 

The DCPayments acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with Cardtronics as the acquirer of DCPayments. In accordance with ASC 805, all assets acquired and liabilities assumed have been recorded at their estimated fair value as of the acquisition date and any excess of the purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed has been recognized as goodwill. This preliminary fair value purchase allocation process resulted in a preliminary goodwill allocation of approximately $297.5 million, of which $103.3 million, $42.6 million, and $151.6 million has been assigned to the Company’s North America, Europe & Africa, and Australia & New Zealand reporting segments,  respectively. The recognized goodwill is primarily attributable to expected revenue and cost synergies from the acquisition. None of the goodwill or intangible asset amounts are expected to be deductible for income tax purposes; however, the Company acquired certain tax assets in the form of accumulated net operating loss carryforwards and capital allowances, which the Company currently expects to utilize. The Company made various revisions to its preliminary purchase price allocation during the three months ended June 30, 2017 and several components of the preliminary purchase price allocation are presently under review, including the tangible and intangible asset valuations and the attribution of the purchase price to the Company’s  reporting segments. The Company expects to finalize its purchase accounting for this acquisition later in 2017.

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:

 

 

 

 

 

 

 

(In thousands)

Cash and cash equivalents

 

$

28,227

Accounts and notes receivable

 

 

14,841

Inventory

 

 

977

Restricted cash

 

 

2,475

Prepaid expenses, deferred costs, and other current assets

 

 

3,157

Property and equipment

 

 

70,624

Intangible assets

 

 

175,675

Goodwill

 

 

297,535

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

674

Total assets acquired

 

$

594,185

 

 

 

 

Current portion of other long-term liabilities

 

$

9,171

Accounts payable and other current liabilities

 

 

49,117

Asset retirement obligations

 

 

6,973

Deferred tax liability

 

 

23,259

Other long-term liabilities

 

 

10,186

Total liabilities assumed

 

$

98,706

 

 

 

 

Net assets acquired

 

$

495,479

 

The fair values of intangible assets acquired have been estimated utilizing an income approach, with the assistance of an independent appraisal firm. The acquired intangible assets are being amortized on a straight-line basis, over the estimated lives. At the date of the acquisition the estimated fair values consisted of the following:

 

 

 

 

 

 

 

 

 

   

Fair Values

   

Estimated Useful Lives

 

 

(In thousands)

 

 

 

Merchant contracts/relationships

 

$

164,907

 

 

8 years

Trade names: definite-lived

 

 

10,768

 

 

3 years

Total intangible assets acquired

 

$

175,675

 

 

 

12


 

Pro Forma Results of Operations

 

The following table presents certain unaudited pro forma combined results of operations of the Company and the acquired DCPayments operations for the three and six months ended June 30, 2016, after giving effect to certain pro forma and conforming accounting adjustments including: (i) amortization of acquired intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property and equipment, (iii) an interest expense adjustment for the net impact of the removal of the interest expense on the historical long-term debt of DCPayments that was repaid and the new interest expense on additional borrowings incurred by the Company to fund the acquisition, and (iv) a conforming adjustment to recognize certain DCPayments surcharge revenues on a gross basis (not reduced by merchant commission payments), consistent with the Company policy and practice, and other less significant conforming accounting adjustments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2016

 

June 30, 2016

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues

 

$

323,961

 

$

386,301

 

$

627,208

 

$

747,125

Net income attributable to controlling interests and available to common shareholders

 

 

20,148

 

 

21,871

 

 

35,532

 

 

38,461

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.45

 

$

0.48

 

$

0.79

 

$

0.85

Net income per common share – diluted

 

$

0.44

 

$

0.48

 

$

0.78

 

$

0.84

 

The unaudited pro forma combined results of operations for the three and six months ended June 30, 2016, reflected in the table above, do not include the impact of other acquisitions completed since June 30, 2016, as these transactions did not have a material impact on the overall consolidated financial statements. These unaudited pro forma combined results of operations do not reflect the impact of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma combined results of operations are not necessarily indicative of the future results to be expected for the Company’s consolidated results of operations.

 

Other Acquisitions

 

On January 31, 2017, the Company completed the acquisition of Spark ATM Systems Pty Ltd. (“Spark”), an independent ATM deployer in South Africa, with a growing network of approximately 2,300 ATMs. The initial purchase consideration of 260.7 million South African Rand (“Rand”) (approximately $19.5 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate), was paid in cash and included approximately 64.0 million Rand to pay off third-party debt of Spark. The total purchase consideration also includes potential additional contingent consideration of up to approximately 805 million Rand (approximately $59.6 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate).  The contingent consideration will vary based upon Spark achieving certain agreed upon earnings targets in 2019 and 2020 and would be payable to the previous investors in the Spark business. During the three months ended June 30, 2017, the preliminary estimated acquisition date fair value of the contingent consideration was revised to approximately 544 million Rand (approximately $40.2 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate), as determined with the assistance of an independent appraisal firm using forecasted future financial projections and other Level 3 inputs (for additional information related to the Company’s fair value estimates see Note 12. Fair Value Measurements). During the three months ended June 30, 2017, the Company recorded an expense of $1.6 million in the Other expense line item in the accompanying Consolidated Statements of Operations related to the contingent consideration arrangement. In future periods, the Company may record additional expense or may reduce its expense to account for revisions to the amount expected to be paid related to the contingent payment element, which will vary based on actual and expected performance. In conjunction with the transaction, the Company preliminarily recognized property and equipment of approximately $5.3 million, intangible assets of $2.8 million, Asset Retirement Obligations (“ARO”) of approximately $0.4 million, other net liabilities of approximately $1.5 million, and goodwill of approximately $53.5 million. The purchase accounting for this transaction remains preliminary, pending finalization of the related asset appraisals.

 

13


 

On April 13, 2016, the Company completed the acquisition of a 2,600 location ATM portfolio in the U.S. from a major financial institution. This acquisition was affected through multiple closings taking place primarily in April 2016. The total purchase consideration of approximately $13.8 million was paid in installments corresponding to each close. In conjunction with the transaction, the Company recognized property and equipment of $8.3 million, contract intangibles and prepaid merchant commissions of $7.1 million, and ARO of $1.6 million. The Company completed the purchase accounting during the fourth quarter of 2016.

 

(3) Share-based Compensation 

 

The Company accounts for its share-based compensation by recognizing the grant date fair value of share-based awards, net of estimated forfeitures, as share-based compensation expense over the underlying requisite service periods of the related awards. The grant date fair value is based upon the Company’s share price on the date of grant.

 

The following table reflects the total share-based compensation expense amounts reported in the accompanying Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

Cost of ATM operating revenues

 

$

183

 

$

270

 

$

140

 

$

387

Selling, general, and administrative expenses

 

 

3,440

 

 

5,700

 

 

5,680

 

 

8,751

Total share-based compensation expense

 

$

3,623

 

$

5,970

 

$

5,820

 

$

9,138

 

The decreases in total share-based compensation expense for the three and six months ended June 30, 2017, are primarily attributable to a higher level of forfeitures during the period as a result of the Company’s Restructuring Plan and the associated employee terminations. The employee terminations resulted in the net reversal of $1.5 million in share-based compensation expense during the three months ended March 31, 2017. Additionally, the amount of share-based compensation expense recorded was lower during the three months ended June 30, 2017 compared to same period of 2016 as expected payouts under the annual Long-term Incentive Plan (“LTIP”) (discussed further below) were lower than the prior year.

 

Restricted Stock Units. The Company grants restricted stock units (“RSUs”) under its LTIP, which is an annual equity award program under the Third Amended and Restated 2007 Stock Incentive Plan. The ultimate number of RSUs that are determined to be earned under the LTIP are approved by the Compensation Committee of the Company’s Board of Directors on an annual basis, based on the Company’s achievement of certain performance levels during the calendar year of its grant. The majority of these grants have both a performance-based and a service-based vesting schedule (“Performance-RSUs”), and the Company recognizes the related compensation expense based on the estimated performance levels that management believes will ultimately be met. A portion of the awards have only a service-based vesting schedule (“Time-RSUs”), for which the associated expense is recognized ratably over four years. Performance-RSUs and Time-RSUs are convertible into the Company’s common shares after the passage of the vesting periods, which are generally 24,  36, and 48 months from January 31 of the grant year, at the rate of 50%,  25%, and 25%, respectively. Performance-RSUs will be earned only if the Company achieves certain performance levels. Although the Performance-RSUs are not considered to be earned and outstanding until at least the minimum performance metrics are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting methodology. RSUs are also granted outside of LTIPs, with or without performance-based vesting requirements.

 

14


 

The number of the Company’s non-vested RSUs as of June 30, 2017, and changes during the six months ended June 30, 2017, are presented below:

 

 

 

 

 

 

 

 

   

Number of Shares

   

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2017

 

971,751

 

$

37.08

Granted

 

674,411

 

$

39.11

Vested

 

(458,868)

 

$

36.45

Forfeited

 

(148,525)

 

$

37.02

Non-vested RSUs as of June 30, 2017

 

1,038,769

 

$

38.69

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2017 but not yet earned are not included. The number of Performance-RSUs granted at target in 2017, net of estimated forfeitures, was 218,816 units with a grant date fair value of $40.50 per unit. Time-RSUs are included as granted.

 

As of June 30, 2017, the unrecognized compensation expense associated with earned RSUs was $16.6 million, which will be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for Time-RSUs, over a remaining weighted average vesting period of approximately 2.5 years. 

 

Restricted Stock Awards. As of June 30, 2017, there were 500 outstanding Restricted Stock Awards (“RSAs”) with a weighted average grant date fair value of $29.10. The Company has not granted any RSAs since 2013. As of June 30, 2017, the Company had less than $0.1 million of unrecognized compensation expense associated with all outstanding RSAs.

 

Options. As of June 30, 2017, there were 1,250 outstanding and exercisable options with a weighted average grant date fair value of $9.69. The Company has not granted any options since 2010. As of June 30, 2017, the Company had no unrecognized compensation expense associated with outstanding options as all the remaining outstanding options became fully vested during 2014.

15


 

 

(4) Earnings per Share 

 

The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common shareholders) when their impact on net income available to common shareholders is anti-dilutive. Potentially dilutive securities for the three and six months ended June 30, 2017 and 2016 included all outstanding stock options, RSAs, and RSUs, which were included in the calculation of diluted earnings per share for these periods.  The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Company’s  $287.5 million of 1.00% Convertible Senior Notes due 2020 (the “Convertible Notes”) were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company’s common shares. The effect of the note hedge the Company purchased to offset the underlying conversion option embedded in the Convertible Notes was also excluded, as the effect is anti-dilutive. Additionally, the restricted shares issued by the Company under RSAs have a non-forfeitable right to cash dividends, if and when declared by the Company. Accordingly, restricted shares issued under RSAs are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the six months ended June 30, 2017 and 2016 among the Company’s outstanding common shares and issued but unvested restricted shares, as follows: 

 

Earnings per Share (in thousands, excluding share and per share amounts) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

June 30, 2017

 

June 30, 2016

 

   

Income

   

Weighted Average Shares Outstanding

   

Earnings per Share

   

Income

   

Weighted Average Shares Outstanding

   

Earnings per Share 

Basic:

 

 

 

   

 

   

 

 

   

 

 

   

 

   

 

 

Net income attributable to controlling interests and available to common shareholders

 

$

15,158

 

 

 

 

 

 

$

20,148

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(2)

 

 

 

 

 

 

 

(10)

 

 

 

 

 

Net income available to common shareholders

 

$

15,156

 

45,637,778

 

$

0.33

 

$

20,138

 

45,199,450

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

 2

 

 

 

 

 

 

$

10

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

5,662

 

 

 

 

 

 

 

32,289

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

578,672

 

 

 

 

 

 

 

516,831

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(1)

 

 

 

 

 

 

 

(10)

 

 

 

 

 

Net income available to common shareholders and assumed conversions

 

$

15,157

 

46,222,112

 

$

0.33

 

$

20,138

 

45,748,570

 

$

0.44

 

16


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

Six Months Ended

 

 

June 30, 2017

 

June 30, 2016

 

 

Income

    

Weighted Average Shares Outstanding

    

Earnings per Share

    

Income

    

Weighted Average Shares Outstanding

    

Earnings per Share 

Basic:

    

  

    

    

 

    

 

 

    

 

 

    

 

    

 

 

Net income attributable to controlling interests and available to common shareholders

 

$

14,257

 

 

 

 

 

 

$

35,532

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(2)

 

 

 

 

 

 

 

(23)

 

 

 

 

 

Net income available to common shareholders

 

$

14,255

 

45,564,527

 

$

0.31

 

$

35,509

 

45,136,553

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

 2

 

 

 

 

 

 

$

23

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

8,290

 

 

 

 

 

 

 

33,073

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

699,374

 

 

 

 

 

 

 

534,848

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(2)

 

 

 

 

 

 

 

(22)

 

 

 

 

 

Net income available to common shareholders and assumed conversions

 

$

14,255

 

46,272,191

 

$

0.31

 

$

35,510

 

45,704,474

 

$

0.78

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted shares issued by the Company under RSAs of 4,185 and 5,644 shares for the three and six months ended June 30, 2017, respectively, and 11,456 and 14,828 shares for the three and six months ended June 30, 2016, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

 

17


 

(5) Accumulated Other Comprehensive Loss, Net

 

Accumulated other comprehensive loss, net is a separate component of the Shareholders’ equity section in the accompanying Consolidated Balance Sheets. The following tables present the changes in the balances of each component of Accumulated other comprehensive loss, net for the three and six months ended June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

    

Foreign Currency Translation Adjustments

    

Unrealized (Losses) Gains on Interest Rate Swap Contracts

    

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of April 1, 2017

 

$

(74,356)

(1)

$

(24,128)

(2)

$

(98,484)

Other comprehensive income (loss) before reclassification

 

 

26,025

(3)

 

(699)

(4)

 

25,326

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

4,883

(4)

 

4,883

Net current period other comprehensive income

 

 

26,025

 

 

4,184

 

 

30,209

Total accumulated other comprehensive loss, net as of June 30, 2017

 

$

(48,331)

(1)

$

(19,944)

(2)

$

(68,275)

 

(1)

Net of deferred income tax (benefit) of $(5,424) and $(5,496) as of June 30, 2017 and April 1, 2017, respectively.

(2)

Net of deferred income tax expense of $11,164 and $10,629 as of June 30, 2017 and April 1, 2017, respectively.

(3)

Net of deferred income tax expense of $72 for the three months ended June 30, 2017.

(4)

Net of deferred income tax (benefit) expense of $(89) and $624 for Other comprehensive income (loss) before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the three months ended June 30, 2017. See Note 11. Derivative Financial Instruments.

 

 

 

 

 

 

 

 

 

 

 

 

   

Foreign Currency Translation Adjustments

   

Unrealized (Losses) Gains on Interest Rate Swap Contracts

   

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of January 1, 2017

 

$

(81,602)

(1)

$

(25,533)

(2)

$

(107,135)

Other comprehensive income (loss) before reclassification

 

 

33,271

(3)

 

(4,554)

(4)

 

28,717

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

10,143

(4)

 

10,143

Net current period other comprehensive income

 

 

33,271

 

 

5,589

 

 

38,860

Total accumulated other comprehensive loss, net as of June 30, 2017

 

$

(48,331)

(1)

$

(19,944)

(2)

$

(68,275)

 

(1)

Net of deferred income tax (benefit) of $(5,424) and $(4,113) as of June 30, 2017 and January 1, 2017, respectively.

(2)

Net of deferred income tax expense of $11,164 and $9,269 as of June 30, 2017 and January 1, 2017, respectively.

(3)

Net of deferred income tax (benefit) of $(1,311) for the six months ended June 30, 2017.

(4)

Net of deferred income tax (benefit) expense of $(1,544) and $3,439 for Other comprehensive income (loss) before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the six months ended June 30, 2017. See Note 11. Derivative Financial Instruments.

 

The Company records unrealized gains and losses related to its interest rate swap contracts net of estimated taxes in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets since it is more likely than not that the Company will be able to realize the benefits associated with its net deferred tax asset positions in the future. The amounts reclassified from Accumulated other comprehensive loss, net are recognized in the Cost of ATM operating revenues line item in the accompanying Consolidated Statements of Operations.

 

The Company has elected the portfolio approach for the deferred tax asset of the unrealized gains and losses related to the interest rate swap contracts in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. Under the portfolio approach, the disproportionate tax effect created when the valuation allowance was appropriately released as a tax benefit into continuing operations in 2010, will reverse out of the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets and into continuing operations as a tax expense when the Company ceases to hold any interest rate swap contracts. As of June 30, 2017, the disproportionate tax effect is $14.7 million.

 

18


 

The Company currently believes that the unremitted earnings of its foreign subsidiaries under its former U.S. parent company will be reinvested for an indefinite period of time. Accordingly, no deferred taxes have been provided for the differences between the Company’s book basis and underlying tax basis in these subsidiaries or on the foreign currency translation adjustment amounts.

 

(6) Intangible Assets 

 

Intangible Assets with Indefinite Lives 

 

The following tables present the net carrying amounts of the Company’s intangible assets with indefinite lives as of January 1, 2017 and June 30, 2017, as well as the changes in the net carrying amounts for the six months ended June 30, 2017 by segment (for additional information related to the Company’s segments, see Note 15. Segment Information).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

   

North America

   

Europe & Africa

   

Australia & New Zealand

   

Total

 

 

(In thousands) 

Balance as of January 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance

 

$

452,232

 

$

130,846

 

$

 —

 

$

583,078

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

 —

 

 

(50,003)

 

 

$

452,232

 

$

80,843

 

$

 —

 

$

533,075

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

103,265

 

 

96,062

 

 

151,638

 

 

350,965

Foreign currency translation adjustments

 

 

2,522

 

 

8,536

 

 

8,003

 

 

19,061

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance

 

$

558,019

 

$

235,444

 

$

159,641

 

$

953,104

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

 —

 

 

(50,003)

 

 

$

558,019

 

$

185,441

 

$

159,641

 

$

903,101

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Names: indefinite-lived

 

   

North America

   

Europe & Africa

   

Total

 

 

(In thousands)

Balance as of January 1, 2017

 

$

200

 

$

419

 

$

619

Foreign currency translation adjustments

 

 

 —

 

 

23

 

 

23

Balance as of June 30, 2017

 

$

200

 

$

442

 

$

642

 

19


 

Intangible Assets with Definite Lives 

 

The following table presents the Company’s intangible assets that were subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

 

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

 

(In thousands)

Merchant and bank-branding contracts/relationships

 

$

535,623

 

$

(281,552)

 

$

254,071

 

$

353,334

 

$

(248,428)

 

$

104,906

Trade names: definite-lived

 

 

21,425

 

 

(4,437)

 

 

16,988

 

 

11,618

 

 

(3,674)

 

 

7,944

Technology

 

 

10,875

 

 

(5,585)

 

 

5,290

 

 

10,718

 

 

(4,781)

 

 

5,937

Non-compete agreements

 

 

4,406

 

 

(4,197)

 

 

209

 

 

4,351

 

 

(4,057)

 

 

294

Revolving credit facility deferred financing costs

 

 

2,258

 

 

(987)

 

 

1,271

 

 

3,770

 

 

(2,240)

 

 

1,530

Total intangible assets with definite lives

 

$

574,587

 

$

(296,758)

 

$

277,829

 

$

383,791

 

$

(263,180)

 

$

120,611

 

 

 

 

(7) Accrued Liabilities 

 

The Company’s accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

   

June 30, 2017

   

December 31, 2016

 

 

(In thousands)

Accrued merchant settlement

 

$

94,695

 

$

77,142

Accrued merchant fees

 

 

52,836

 

 

40,369

Accrued taxes

 

 

44,669

 

 

32,982

Accrued compensation

 

 

14,556

 

 

19,150

Accrued cash management fees

 

 

10,783

 

 

9,894

Accrued maintenance

 

 

9,870

 

 

8,473

Accrued interest

 

 

9,532

 

 

6,174

Accrued processing costs

 

 

8,664

 

 

5,918

Accrued armored

 

 

7,723

 

 

6,354

Accrued purchases

 

 

7,134

 

 

6,249

Accrued telecommunications costs

 

 

2,006

 

 

1,841

Accrued interest on interest rate swap contracts

 

 

1,443

 

 

2,152

Other accrued expenses

 

 

36,524

 

 

23,920

Total accrued liabilities

 

$

300,435

 

$

240,618

 

As of June 30, 2017, the Accrued compensation line item included $4.5 million of employee severance costs associated with the Company’s Restructuring Plan. The increase in the Other accrued expenses line item is primarily attributed to additional liabilities assumed with the DCPayments acquisition.

 

 

 

 

 

20


 

(8) Long-Term Debt 

 

The Company’s carrying value of long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

   

June 30, 2017

   

December 31, 2016

 

 

(In thousands)

Revolving credit facility, including swingline credit facility (weighted average combined interest rate of 2.9% and 4.0% as of June 30, 2017 and December 31, 2016, respectively)

 

$

184,234

 

$

14,100

1.00% Convertible Senior Notes due 2020, net of unamortized discount and capitalized debt issuance costs

 

 

246,444

 

 

241,068

5.125% Senior Notes due 2022, net of capitalized debt issuance costs

 

 

247,701

 

 

247,371

5.50% Senior Notes due 2025, net of capitalized debt issuance costs

 

 

294,960

 

 

 —

Total long-term debt

 

$

973,339

 

$

502,539

 

The Convertible Notes with a face value of $287.5 million are presented net of unamortized discount and capitalized debt issuance costs of $41.1 million and $46.4 million as of June 30, 2017 and December 31, 2016, respectively. The 5.125% Senior Notes due 2022 (the “2022 Notes”) with a face value of $250.0 million are presented net of capitalized debt issuance costs of $2.3 million and $2.6 million as of June 30, 2017 and December 31, 2016, respectively. The 5.50% Senior Notes due 2025 (the “2025 Notes”) with a face value of $300.0 million are presented net of capitalized debt issuance costs of  $5.0 million as of June 30, 2017.

 

Revolving Credit Facility 

 

As of June 30, 2017, the Company had a $400.0 million revolving credit facility that was led by a syndicate of banks with JPMorgan Chase, N.A. serving as the administrative agent. The revolving credit facility provided the Company with $400.0 million in available borrowings and letters of credit (subject to the covenants contained within the amended and restated credit agreement (the “Credit Agreement”) governing the revolving credit facility) and could be increased to $500.0 million under certain conditions.  

 

On April 4, 2017, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement. Pursuant to the Fifth Amendment, the total commitments of the lenders under the revolving credit facility were decreased from $600.0 million to $400.0 million (the total commitments as amended by the Fifth Amendment, the “Commitment”). In conjunction with the decrease in the amount of the total commitments, as described above, an accordion provision under the Credit Agreement to increase the lenders’ commitments to up to $500.0 million, under certain conditions, was added. Under the Fifth Amendment, certain subsidiaries of the Company were added as borrowers and guarantors, and the Canadian Imperial Bank of Commerce was added as a lender. The representations, warranties and covenants, and the interest rates applicable to the borrowings did not change. Prior to entering into the Fifth Amendment, the net proceeds received from the completion of the offering of the $300.0 million 2025 Notes were used to repay $295.0 million of the outstanding borrowings under the Credit Agreement.

 

The maturity date of the Credit Agreement is July 1, 2021. The Commitment can be borrowed in U.S. dollars, alternative currencies, or a combination thereof. The Credit Agreement provides for sub-limits under the commitment of $50.0 million for swingline loans and $30.0 million for letters of credit. Borrowings (not including swingline loans and alternative currency loans) accrue interest at the Company’s option at either the Alternate Base Rate (as defined in the Credit Agreement) or the Adjusted LIBO Rate (as defined in the Credit Agreement) plus a margin depending on the Company’s most recent Total Net Leverage Ratio (as defined in the Credit Agreement). The margin for Alternative Base Rate loans varies between 0% and 1.25% and the margin for Adjusted LIBO Rate loans varies between 1.00% and 2.25%. Swingline loans denominated in U.S. dollars bear interest at the Alternate Base Rate plus a margin as described above and swingline loans denominated in alternative currencies bear interest at the Overnight LIBO Rate (as defined in the Credit Agreement) plus the applicable margin for the Adjusted LIBO Rate. Substantially all of the Company’s U.S. assets, including the stock of certain of its subsidiaries are pledged as collateral to secure borrowings made under the revolving credit facility. Furthermore, each of the Credit Facility Guarantors (as defined in the Credit Agreement) has guaranteed the full and punctual payment of the obligations under the revolving credit facility. The obligations of the CFC Borrowers

21


 

(as defined in the Credit Agreement) are secured by the assets of the CFC Guarantors (as defined in the Credit Agreement), which do not guarantee the obligations of the Credit Facility Guarantors. There are currently no restrictions on the ability of the Company’s subsidiaries to declare and pay dividends to it.

 

The Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to: (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, and (iv) notification of certain events. Financial covenants in the Credit Agreement require the Company to maintain: (i) as of the last day of any fiscal quarter, a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no more than 2.25 to 1.00, (ii) as of the last day of any fiscal quarter, a Total Net Leverage Ratio of no more than 4.00 to 1.00, and (iii) as of the last day of any fiscal quarter, a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of no less than 1.50 to 1.00. Additionally, the Company is limited on the amount of restricted payments, including dividends, which it can make pursuant to the terms of the Credit Agreement; however, the Company may generally make restricted payments so long as no event of default exists at the time of such payment and the Total Net Leverage Ratio is less than 3.00 to 1.00 at the time such restricted payment is made.

 

As of June 30, 2017, the Company had $184.2 million of outstanding borrowings under its $400.0 million revolving credit facility and was in compliance with all applicable covenants and ratios under the Credit Agreement. As of June 30, 2017 and December 31, 2016, the weighted average interest rates on the Company’s  outstanding borrowings under its revolving credit facility were 2.9% and 4.0%, respectively.

 

$287.5 Million 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments

 

On November 19, 2013, Cardtronics Delaware issued the Convertible Notes at par value. Cardtronics Delaware received $254.2 million in net proceeds from the offering after deducting underwriting fees paid to the initial purchasers and a repurchase of 665,994 of its outstanding common shares concurrent with the offering. Cardtronics Delaware used a portion of the net proceeds from the offering to fund the net cost of the convertible note hedge transaction, as described below. The convertible note hedge and warrant transactions were entered into concurrent with the pricing of the Convertible Notes. Interest on the Convertible Notes is payable semi-annually in cash in arrears on June 1st and December 1st of each year. Under U.S. GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was $215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date. The Company recognizes effective interest expense on the debt component and that interest expense effectively accretes the debt component to the total principal amount due at maturity of $287.5 million. The effective rate of interest to accrete the debt balance is approximately 5.26%, which corresponded to the Company’s estimated conventional debt instrument borrowing rate at the date of issuance.

 

On July 1, 2016, Cardtronics plc, Cardtronics Delaware, and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture (the “Convertible Notes Supplemental Indenture”) with respect to the Convertible Notes. The Convertible Notes Supplemental Indenture provides for the unconditional and irrevocable guarantee by Cardtronics plc of the prompt payment, when due, of any amount owed to the holders of the Convertible Notes. The Convertible Notes Supplemental Indenture also provides that, from and after the effective date of the Redomicile Transaction, the Convertible Notes will be convertible into shares of Cardtronics plc in lieu of common share of Cardtronics Delaware.

 

The Convertible Notes currently have a conversion price of $52.35 per share, which equals a conversion rate of 19.1022 shares per $1,000 principal amount of Convertible Notes, for a total of approximately 5.5 million shares underlying the debt. The conversion rate, however, is subject to adjustment under certain circumstances. Conversion can occur: (i) any time on or after September 1, 2020, (ii) after March 31, 2014, during any calendar quarter that follows a calendar quarter in which the price of the shares exceeds 135% of the conversion price for at least 20 days during the 30 consecutive trading-day period ending on the last trading day of the quarter, (iii) during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading price of the Convertible Notes is less than 98% of the closing price of the shares multiplied by the applicable conversion rate on each such trading day, (iv) upon specified distributions to Cardtronics plc’s shareholders upon recapitalizations, reclassifications, or changes in shares, and

22


 

(v) upon a make-whole fundamental change. A fundamental change is defined as any one of the following: (i) any person or group that acquires 50.0% or more of the total voting power of all classes of common equity that is entitled to vote generally in the election of Cardtronics plc’s directors, (ii) Cardtronics plc engages in any recapitalization, reclassification, or changes of common shares as a result of which the shares would be converted into or exchanged for, shares, other securities, or other assets or property, (iii) Cardtronics plc engages in any share exchange, consolidation, or merger where the shares converted into cash, securities, or other property, (iv) the Company engages in certain sales, leases, or other transfers of all or substantially all of the consolidated assets, or (v) Cardtronics plc’s shares are not listed for trading on any U.S. national securities exchange.

 

None of the Convertible Notes were convertible as of June 30, 2017 and, therefore, remain classified in the Long-term debt line item in the accompanying Consolidated Balance Sheets at June 30, 2017. In future financial reporting periods, the classification of the Convertible Notes may change depending on whether any of the above contingent criteria have been subsequently satisfied.

 

Upon conversion, holders of the Convertible Notes are entitled to receive cash, shares, or a combination of cash and shares, at the Company’s election. In the event of a change in control, as defined in the indenture under which the Convertible Notes have been issued, holders can require Cardtronics Delaware to purchase all or a portion of their Convertible Notes for 100% of the notes’ par value plus any accrued and unpaid interest.

 

The Company’s interest expense related to the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

Cash interest per contractual coupon rate

 

$

719

 

$

719

 

$

1,438

 

$

1,438

Amortization of note discount

 

 

2,536

 

 

2,406

 

 

5,039

 

 

4,780

Amortization of debt issuance costs

 

 

171

 

 

154

 

 

337

 

 

304

Total interest expense related to Convertible Notes

 

$

3,426

 

$

3,279

 

$

6,814

 

$

6,522

 

 

The Company’s carrying value of the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

   

June 30, 2017

   

December 31, 2016

 

 

(In thousands)

Principal balance

 

$

287,500

 

$

287,500

Unamortized discount and capitalized debt issuance costs

 

 

(41,056)

 

 

(46,432)

Net carrying amount of Convertible Notes

 

$

246,444

 

$

241,068

 

In connection with the issuance of the Convertible Notes, Cardtronics Delaware entered into separate convertible note hedge and warrant transactions to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The net effect of these transactions effectively raised the price at which dilution would occur from the $52.35 initial conversion price of the Convertible Notes to $73.29. Pursuant to the convertible note hedge, Cardtronics Delaware purchased call options granting Cardtronics Delaware the right to acquire up to approximately 5.5 million common shares with an initial strike price of $52.35. The call options automatically become exercisable upon conversion of the Convertible Notes, and will terminate on the second scheduled trading day immediately preceding December 1, 2020. Cardtronics Delaware also sold to the initial purchasers warrants to acquire up to approximately 5.5 million common shares with a strike price of $73.29. The warrants will expire incrementally on a series of expiration dates subsequent to the maturity date of the Convertible Notes through August 30, 2021. If the conversion price of the Convertible Notes remains between the strike prices of the call options and warrants, Cardtronics plc’s shareholders will not experience any dilution in connection with the conversion of the Convertible Notes; however, to the extent that the price of the shares exceeds the strike price of the warrants on any or all of the series of related expiration dates of the warrants, Cardtronics plc would be required to issue additional shares to the warrant holders. The amounts allocated to both the note hedge and warrants were recorded in the Shareholders’ equity section in the accompanying Consolidated Balance Sheets.

 

23


 

$250.0 Million 5.125% Senior Notes Due 2022

 

On July 28, 2014, in a private placement offering, Cardtronics Delaware issued $250.0 million in aggregate principal amount of the 2022 Notes pursuant to an indenture dated July 28, 2014 (the “2022 Notes Indenture”) among Cardtronics Delaware, certain subsidiary guarantors (each, a “2022 Notes Guarantor”), and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes is payable semi-annually in cash in arrears on February 1st and August 1st of each year.

 

On July 1, 2016, Cardtronics plc, Cardtronics Delaware, certain 2022 Notes Guarantors, and Wells Fargo Bank, National Association, as trustee, entered into a supplemental indenture (the “2022 Notes Supplemental Indenture”) with respect to the 2022 Notes. The 2022 Notes Supplemental Indenture provides for the unconditional and irrevocable guarantee by Cardtronics plc of the prompt payment, when due, of any amount owed to the holders of the 2022 Notes. Furthermore, certain additional subsidiary guarantors were also added as 2022 Notes Guarantors to the 2022 Notes. On April 28, 2017, additional subsidiaries of Cardtronics plc were added as 2022 Notes Guarantors pursuant to a second supplemental indenture to the 2022 Notes Indenture (the “2022 Notes Second Supplemental Indenture”).

 

The 2022 Notes and the related guarantees (the “2022 Notes Guarantees”) rank: (i) equally in right of payment with all of Cardtronics Delaware’s and the 2022 Notes Guarantors (including Cardtronics plc) existing and future senior indebtedness, (ii) effectively junior to secured debt to the extent of the collateral securing such debt, including borrowings under the Company’s revolving credit facility, and (iii) structurally junior to existing and future indebtedness of Cardtronics plc’s non-guarantor subsidiaries. The 2022 Notes and 2022 Notes Guarantees rank senior in right of payment to any of Cardtronics Delaware’s and the 2022 Notes Guarantors’ (including Cardtronics plc) existing and future subordinated indebtedness.

 

The 2022 Notes contain covenants that, among other things, limit Cardtronics plc’s ability and the ability of certain of its restricted subsidiaries (including Cardtronics Delaware) to incur or guarantee additional indebtedness, make certain investments, or pay dividends or distributions on Cardtronics plc’s common shares or repurchase common shares or make certain other restricted payments, consolidate or merge with or into other companies, conduct asset sales, restrict dividends or other payments by restricted subsidiaries, engage in transactions with affiliates or related persons, and create liens.

 

Obligations under its 2022 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and CFC Guarantors (as defined in the Credit Agreement). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics Delaware or the other 2022 Notes Guarantors by dividend or loan. None of the 2022 Notes Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X. The 2022 Notes include registration rights, and as required under the terms of the 2022 Notes, Cardtronics Delaware completed an exchange offer for these 2022 Notes in June 2015 whereby participating holders received registered notes.

 

The 2022 Notes are subject to certain automatic customary releases with respect to the 2022 Notes Guarantors (other than Cardtronics plc), including the sale, disposition, or transfer of the common shares or substantially all of the assets of such 2022 Notes Guarantor, designation of such 2022 Notes Guarantor as unrestricted in accordance with the 2022 Notes Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation, or dissolution of such 2022 Notes Guarantor and, in the case of a 2022 Notes Guarantor that is not wholly-owned by Cardtronics plc, such 2022 Notes Guarantor ceasing to guarantee other indebtedness of Cardtronics plc, Cardtronics Delaware, or another 2022 Notes Guarantor. The 2022 Notes Guarantors, including Cardtronics plc, may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the 2022 Notes Indenture and certain other specified requirements under the 2022 Notes Indenture are not satisfied.

 

$300.0 Million 5.50% Senior Notes Due 2025

 

On April 4, 2017, in a private placement offering, Cardtronics Delaware and Cardtronics USA, Inc. (the “2025 Notes Issuers”) issued $300.0 million in aggregate principal amount of the 2025 Notes pursuant to an indenture dated April 4, 2017 (the “2025 Notes Indenture”) among the 2025 Notes Issuers, Cardtronics plc, and certain of its subsidiaries, as guarantors (each, a “2025 Notes Guarantor”), and Wells Fargo Bank, National Association, as trustee.

24


 

 

Interest on the 2025 Notes accrues from April 4, 2017, the date of issuance, at the rate of 5.50% per annum. Interest on the 2025 Notes is payable semi-annually in cash in arrears on May 1st and November 1st of each year, commencing on November 1, 2017. 

 

The 2025 Notes and the related guarantees (the “2025 Guarantees”) are the general unsecured senior obligations of each of the 2025 Notes Issuers and the 2025 Notes Guarantors, respectively, and rank: (i) equally in right of payment with all of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ existing and future senior indebtedness and (ii) senior in right of payment to all of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ future subordinated indebtedness. The 2025 Notes and the 2025 Guarantees are effectively subordinated to any of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ existing and future secured debt to the extent of the collateral securing such debt, including all borrowings under the Company’s revolving credit facility. The 2025 Notes are structurally subordinated to all liabilities of any of Cardtronics plc’s subsidiaries (excluding the 2025 Notes Issuers) that do not guarantee the 2025 Notes.

 

The 2025 Notes contain covenants that, among other things, limit the 2025 Notes Issuers’ ability and the ability of Cardtronics plc and certain of its restricted subsidiaries to incur or guarantee additional indebtedness, make certain investments, or pay dividends or distributions on Cardtronics plc’s common shares or repurchase common shares or make certain other restricted payments, consolidate or merge with or into other companies, conduct asset sales, restrict dividends or other payments by restricted subsidiaries, engage in transactions with affiliates or related persons, and create liens.

 

Obligations under the 2025 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and CFC Guarantors (as defined in the Credit Agreement). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics Delaware, Cardtronics USA, Inc., or the other 2025 Notes Guarantors by dividend or loan. None of the 2025 Notes Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X.

 

The 2025 Notes are subject to certain automatic customary releases with respect to the 2025 Notes Guarantors (other than Cardtronics plc, Cardtronics Holdings Limited, and CATM Holdings LLC), including the sale, disposition, or transfer of the common shares or substantially all of the assets of such 2025 Notes Guarantor, designation of such 2025 Notes Guarantor as unrestricted in accordance with the 2025 Notes Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation, or dissolution of such 2025 Notes Guarantor. The 2025 Notes Guarantors, including Cardtronics plc, may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the 2025 Notes Indenture and certain other specified requirements under the 2025 Notes Indenture are not satisfied.

 

25


 

(9) Asset Retirement Obligations 

 

Asset retirement obligations (“ARO”) consist primarily of costs to deinstall the Company’s ATMs and restore the ATM sites to their original condition, which are estimated based on current market rates. In most cases, the Company is contractually required to perform this deinstallation of its owned ATMs and in some cases, site restoration work. For each group of similar ATM type, the Company has recognized the estimated fair value of the ARO as a liability in the accompanying Consolidated Balance Sheets and capitalized that cost as part of the cost basis of the related asset. The related assets are depreciated on a straight-line basis over five years, which is the estimated average time period that an ATM is installed in a location before being deinstalled, and the related liabilities are accreted to their full value over the same period of time. 

 

The changes in the Company’s ARO liability consisted of the following: 

 

 

 

 

 

 

 

(In thousands)

Asset retirement obligations as of January 1, 2017

    

$

54,907

Additional obligations

 

 

6,630

Estimated obligations assumed in acquisitions

 

 

7,409

Accretion expense

 

 

872

Change in estimates

 

 

(108)

Payments

 

 

(3,304)

Foreign currency translation adjustments

 

 

1,519

Asset retirement obligations as of June 30, 2017

 

 

67,925

Less: current portion of asset retirement obligations

 

 

10,829

Asset retirement obligations, excluding current portion, as of June 30, 2017

 

$

57,096

 

For additional information related to the Company’s ARO with respect to its fair value measurements, see Note 12. Fair Value Measurements.

 

(10) Other Liabilities 

 

The Company’s other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

   

June 30, 2017

   

December 31, 2016

 

 

(In thousands)

Current portion of other long-term liabilities

 

 

 

 

 

 

Interest rate swap contracts

 

$

11,724

 

$

16,533

Asset retirement obligations

 

 

10,829

 

 

9,821

Deferred revenue

 

 

276

 

 

249

Other

 

 

9,964

 

 

1,634

Total current portion of other long-term liabilities

 

$

32,793

 

$

28,237

 

 

 

 

 

 

 

Other long-term liabilities

 

 

 

 

 

 

Acquisition-related contingent consideration

 

$

43,175

 

$

 —

Interest rate swap contracts

 

 

12,510

 

 

14,456

Deferred revenue

 

 

1,877

 

 

1,698

Other

 

 

10,859

 

 

2,537

Total other long-term liabilities

 

$

68,421

 

$

18,691

 

 

As of June 30, 2017, the Acquisition-related contingent consideration line item consisted of the preliminary estimated fair value of the contingent consideration associated with the Spark acquisition. For additional information related to the Spark acquisition contingent consideration, see Note 2. Acquisitions.

 

 

 

 

26


 

(11) Derivative Financial Instruments 

 

Risk Management Objectives of Using Derivatives

 

The Company is exposed to certain risks related to its ongoing business operations, including interest rate risk associated with its vault cash rental obligations and, to a lesser extent, borrowings under its revolving credit facility. The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company does not currently utilize derivative instruments to hedge its foreign currency exchange rate risk or to manage the interest rate risk associated with its borrowings. However, the Company utilizes varying notional amount interest rate swap contracts to manage the interest rate risk associated with its vault cash rental obligations in the U.S., the U.K., and Australia.

 

These interest rate swap contracts serve to mitigate interest rate risk exposure by converting a portion of the Company’s monthly floating-rate vault cash rental payments to monthly fixed-rate vault cash rental payments. Typically, the Company receives monthly floating-rate payments from its interest rate swap contract counterparties that correspond to, in all material respects, the monthly floating-rate payments required by the Company to its vault cash rental providers for the portion of the average outstanding vault cash balances that have been hedged. In return, the Company pays its counterparties a monthly fixed-rate amount based on the same notional amounts outstanding. By converting the vault cash rental obligation interest rate from a floating-rate to a fixed-rate, the impact of favorable and unfavorable changes in future interest rates on the monthly vault cash rental payments, and therefore, the Vault cash rental expense line item in the accompanying Consolidated Statement of Operations, has been reduced.

 

There is never an exchange of the underlying principal or notional amounts associated with the interest rate swap contracts described above. Additionally, none of the Company’s existing interest rate swap contracts contain credit-risk-related contingent features. 

 

Accounting Policy 

 

The interest rate swap contracts discussed above are derivative instruments used by the Company to hedge exposure to variability in expected future cash flows attributable to a particular risk; therefore, they are designated and qualify as cash flow hedging instruments. The Company does not currently hold any derivative instruments not designated as hedging instruments, fair value hedges, or hedges of a net investment in a foreign operation.

 

The Company reports the effective portion of a gain or loss related to the cash flow hedging instrument as a component of the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets and reclassifies the gain or loss into earnings in the Vault cash rental expense line item in the accompanying Consolidated Statement of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings.

 

Gains and losses related to the cash flow hedging instrument that represent either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in the Other expense line item in the accompanying Consolidated Statement of Operations. As discussed above, the Company generally utilizes fixed-for-floating interest rate swap contracts in which the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the vault cash rental obligations to the Company’s vault cash providers. Therefore, the amount of ineffectiveness associated with the interest rate swap contracts has historically been immaterial. If the Company concludes that it is no longer probable the expected vault cash obligations that have been hedged will occur, or if changes are made to the underlying contract terms of the vault cash rental agreements, the interest rate swap contract would be deemed ineffective. The Company does not currently anticipate terminating or modifying terms of its existing derivative instruments prior to their expiration dates.

 

Accordingly, the Company recognizes all of its interest rate swap contracts derivative instruments as assets or liabilities in the accompanying Consolidated Balance Sheets at fair value and any changes in the fair values of the related interest rate swap contracts have been reported in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. The Company believes that it is more likely than not that it will be able to realize the benefits associated with its net deferred tax asset positions in the future, therefore, the unrealized gains and

27


 

losses to the fair value related to the interest rate swap contracts have been reported net of estimated taxes in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap contracts with respect to its fair value measurements, see Note 12. Fair Value Measurements.

 

Cash Flow Hedges of Interest Rate Risk

 

The Company is party to varying notional amount interest rate swap contracts in the U.S. and the U.K. The notional amounts, weighted average fixed rates, and terms associated with the Company’s interest rate swap contracts accounted for as cash flow hedges that are currently in place for the U.S. and U.K. (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average

Fixed Rate

 

Notional Amounts

   

Weighted Average

Fixed Rate

 

 

U.S. $

 

U.S.

 

U.K. £

 

U.K.

 

Term 

(In millions)

 

 

 

 

(In millions)

 

 

 

 

 

$

1,000

 

2.53

%  

 

£

550

 

0.82

%  

 

July 1, 2017 – December 31, 2017

$

1,150

 

2.17

%  

 

£

550

 

0.82

%  

 

January 1, 2018 – December 31, 2018

$

1,000

 

2.06

%  

 

£

550

 

0.90

%  

 

January 1, 2019 – December 31, 2019

$

1,000

 

2.06

%  

 

£

500

 

0.94

%  

 

January 1, 2020 – December 31, 2020

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2021 – December 31, 2021

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2022 – December 31, 2022

 

In addition, in conjunction with the DCPayments acquisition, completed on January 6, 2017, the Company became party to a $50.0 million Australian dollar notional amount, 2.75% fixed rate interest rate swap contract, which terminates on February 27, 2018, a $50.0 million Australian dollar notional amount, 3.2% fixed rate interest rate swap contract, which terminates on September 28, 2018, and a $35.0 million Australian dollar notional amount, 2.98% fixed rate interest rate swap contract, which terminates on February 28, 2019. Effective January 6, 2017, these interest rate swap contracts were designated as cash flow hedging instruments. The notional amounts, weighted average fixed rates, and terms associated with the Company’s interest rate swap contracts accounted for as cash flow hedges that are currently in place for Australia (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

Notional Amounts
AUS $

 

Weighted Average
Fixed Rate

 

Term 

(In millions)

 

 

 

 

 

$

135

 

2.98

%  

 

July 1, 2017 – February 27, 2018

$

85

 

3.11

%  

 

February 28, 2018 – September 28, 2018

$

35

 

2.98

%  

 

September 29, 2018 – February 28, 2019

28


 

 

The following tables depict the effects of the use of the Company’s derivative interest rate swap contracts in the accompanying Consolidated Balance Sheets and Consolidated Statements of Operations.

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

December 31, 2016

Asset (Liability) Derivative Instruments

    

Balance Sheet Location

  

Fair Value

  

Balance Sheet Location

  

Fair Value

 

 

 

 

(In thousands) 

 

 

 

(In thousands) 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

$

12,919

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

$

14,137

Interest rate swap contracts

 

Current portion of other long-term liabilities

 

 

(11,724)

 

Current portion of other long-term liabilities

 

 

(16,533)

Interest rate swap contracts

 

Other long-term liabilities

 

 

(12,510)

 

Other long-term liabilities

 

 

(14,456)

Total derivative instruments, net

 

 

 

$

(11,315)

 

 

 

$

(16,852)

 

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Derivatives in Cash Flow Hedging Relationship

 

Amount of Loss Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

 

   

2017

   

2016

   

 

   

2017

   

2016

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Interest rate swap contracts

 

$

(699)

 

$

(16,617)

 

Cost of ATM operating revenues

 

$

(4,883)

 

$

(7,280)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

Derivatives in Cash Flow Hedging Relationship

 

Amount of Loss Recognized in Accumulated Other Comprehensive Loss on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

Amount of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)

 

 

2017

 

2016

 

 

 

2017

 

2016

 

 

(In thousands)

 

 

 

(In thousands)

Interest rate swap contracts

 

$

(4,554)

 

$

(34,631)

 

Cost of ATM operating revenues

 

$

(10,143)

 

$

(14,608)

 

As of June 30, 2017, the Company expects to reclassify $11.7 million of net derivative-related losses contained within the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.

 

29


 

(12) Fair Value Measurements 

 

The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2017 and December 31, 2016 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at June 30, 2017

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Assets associated with interest rate swap contracts

 

$

12,919

 

$

 —

 

$

12,919

 

$

 —

Liabilities 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swap contracts

 

$

(24,234)

 

$

 —

 

$

(24,234)

 

$

 —

Liabilities associated with acquisition-related contingent consideration

 

$

(43,175)

 

$

 —

 

$

 —

 

$

(43,175)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2016

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Assets associated with interest rate swap contracts

 

$

14,137

 

$

 —

 

$

14,137

 

$

 —

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swap contracts

 

$

(30,989)

 

$

 —

 

$

(30,989)

 

$

 —

 

 

Below are descriptions of the Company’s valuation methodologies for assets and liabilities measured at fair value. The methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

Cash and cash equivalents, accounts and notes receivable, net of allowance for doubtful accounts, prepaid expenses, deferred costs, and other current assets, accounts payable, accrued liabilities, and other current liabilities. These financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.

 

Acquisition-related intangible assets. The estimated fair values of acquisition-related intangible assets are valued based on a discounted cash flows analysis using significant non-observable (Level 3) inputs. Intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An assessment of non-amortized intangible assets is performed on an annual basis, or more frequently based on the occurrence of events that might indicate a potential impairment.

 

Acquisition-related contingent consideration. Liabilities from acquisition-related contingent consideration are estimated by using a Monte Carlo simulation and market observable, as well as internal projections, and other significant non-observable (Level 3) inputs based on the Company’s best estimate of future operational results upon which the payment of these obligations are contingent. As of June 30, 2017, the preliminary estimated fair value of the Company’s acquisition-related contingent consideration liability was approximately $43.2 million. For additional information related to the Spark acquisition contingent consideration, see Note 2. Acquisitions.

 

Long-term debt. The carrying amount of the long-term debt balance related to borrowings under the Company’s revolving credit facility approximates fair value due to the fact that any outstanding borrowings are subject to short-term

30


 

floating interest rates. As of June 30, 2017, the fair value of the Convertible Notes, the 2022 Notes, and the 2025 Notes (see Note 8. Long-Term Debt) totaled $275.3 million, $256.3 million, and $309.3 million, respectively, based on the quoted prices in markets that are not active (Level 2) inputs for these notes as of that date.

 

Additions to asset retirement obligations liability. The Company estimates the fair value of additions to its ARO liability using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Liabilities added to the ARO are measured at fair value at the time of the asset installations using significant non-observable (Level 3) inputs. These liabilities are evaluated periodically based on estimated current fair value. Amounts added to the ARO liability during the six months ended June 30, 2017 and 2016 totaled  $6.6 million and $4.8 million, respectively. 

 

Interest rate swap contracts. As of June 30, 2017, the fair value of the Company’s interest rate swap contracts was an asset of $12.9 million and a liability of $24.2 million. These financial instruments are carried at fair value and calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These derivatives are valued using pricing models based on significant other observable (Level 2) inputs, while taking into account the creditworthiness of the party that is in the liability position with respect to each trade. For additional information related to the valuation process of this asset or liability, see Note 11. Derivative Financial Instruments.

 

(13) Commitments and Contingencies

 

Legal Matters 

 

The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided reserves where necessary for all claims and the Company’s management does not expect the outcome in any legal proceedings, individually or collectively, to have a material adverse financial or operational impact on the Company. Additionally, the Company currently expenses all legal costs as they are incurred.

 

Other Commitments and Contingencies

 

Asset retirement obligations. The Company’s  ARO consist primarily of deinstallation costs of the Company’s ATMs and costs to restore the ATM sites to their original condition. In most cases, the Company is legally required to perform this deinstallation, and in some cases, the site restoration work. As of June 30, 2017, the Company had  $67.9 million accrued for these liabilities. For additional information, see Note 9. Asset Retirement Obligations.

 

Acquisition-related contingent consideration. As a result of the Spark acquisition, the Company has recorded an acquisition-related contingent consideration liability of $43.2 million as of June 30, 2017. For additional information related to the Spark acquisition contingent consideration, see Note 2. Acquisitions.

 

(14) Income Taxes 

 

The Company’s  income tax expense based on income before income taxes for the periods presented was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

 

2016

 

2017

 

2016

 

 

(In thousands, excluding percentages)

Income tax expense

 

$

4,670

 

 

$

9,861

 

 

$

1,718

 

 

$

17,816

 

Effective tax rate

 

 

23.6

%

 

 

32.9

%

 

 

10.8

%

 

 

33.4

%

 

The Company’s  income tax expense for the three months ended June 30, 2017 totaled $4.7 million, or an effective tax rate of 23.6%, compared to $9.9 million, or an effective tax rate of 32.9%, for the same period of 2016. The Company’s income tax expense for the six months ended June 30, 2017 totaled $1.7 million, or an effective tax rate of 10.8%, compared to $17.8 million, or an effective tax rate of 33.4%, for the same period of 2016. The decreases in income tax expense compared to the same periods of 2016 were attributable to the benefits associated with the Company’s redomicile to the U.K., mix of earnings across jurisdictions, and the excess tax benefits realized in the first quarter of 2017 related to

31


 

share-based compensation in accordance with ASU 2016-09. For additional information, see Note 1. General and Basis of Presentation – (b) Basic of Presentation.

 

The Company assesses the need for any deferred tax asset valuation allowances at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. Based on the assessment at June 30, 2017, and the weight of all available evidence, the Company concluded that maintaining the deferred tax asset valuation allowance for certain entities was appropriate, as the Company currently believes that it is more likely than not that the related deferred tax assets will not be realized.

 

The deferred tax expenses and benefits associated with the Company’s net unrealized gains and losses on derivative instruments and foreign currency translation adjustments have been recorded in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets.

 

(15) Segment Information

 

As of June 30, 2017, the Company’s operations consisted of its North America, Europe & Africa, and Australia & New Zealand segments. As the integration of DCPayments (acquired in January 2017) progressed throughout the second quarter of 2017, the Company separated its previously reported DCPayments segment into geographical components, including them within the Company’s geographical segments and creating a new Australia & New Zealand segment, which includes the DCPayments operations in Australia and New Zealand. The Company’s ATM operations in the U.S., Canada, Mexico, and Puerto Rico are included in its North America segment. The North America segment now also includes the Company’s  transaction processing operations, which service its internal ATM operations, along with external customers. The transaction processing operations were previously reported in the Company’s Corporate & Other segment. The Corporate segment now includes solely the Company’s corporate general and administrative expenses. The Company’s operations in the U.K., Ireland, Germany, Poland, Spain, and South Africa are included in its Europe & Africa segment, along with i-design (the Company’s ATM advertising business based in the U.K.). While each of the reporting segments provides similar kiosk-based and/or ATM-related services, each segment is managed separately and requires different marketing and business strategies. Segment information presented for prior periods have been revised to reflect the changes in the Company’s segments.

 

Management uses Adjusted EBITDA and Adjusted EBITA, together with U.S. GAAP measures, to manage and measure the performance of its segments. Management believes Adjusted EBITDA and Adjusted EBITA are useful measures because they allow management to more effectively evaluate the performance of the business and compare its results of operations from period to period without regard to financing methods,  capital structure or non-recurring costs, as defined by the Company.  Adjusted EBITDA and Adjusted EBITA exclude amortization of intangible assets, share-based compensation expense, acquisition and divestiture-related expenses, certain non-operating expenses, (if applicable in a particular period) certain costs not anticipated to occur in future periods, gains or losses on disposal and impairment of assets, the Company’s obligations for the payment of income taxes, interest expense, and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Additionally, Adjusted EBITDA excludes depreciation and accretion expense. Depreciation and accretion expense and amortization of intangible assets are excluded as these amounts can vary substantially from company to company within the Company’s industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired.

 

Adjusted EBITDA and Adjusted EBITA, as defined by the Company, are non-GAAP financial measures provided as a complement to financial results prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures reported by other companies. In evaluating the Company’s performance as measured by Adjusted EBITDA and Adjusted EBITA, management recognizes and considers the limitations of these measurements. Accordingly, Adjusted EBITDA and Adjusted EBITA are only two of the measurements that management utilizes. Therefore, Adjusted EBITDA and Adjusted EBITA should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating, investing, or financing activities, or other income or cash flow measures prepared in accordance with U.S. GAAP.

 

32


 

Below is a reconciliation of Net income attributable to controlling interests and available to common shareholders to EBITDA, Adjusted EBITDA, and Adjusted EBITA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

   

2016

   

2017

   

2016

 

 

(In thousands) 

Net income attributable to controlling interests and available to common shareholders

 

$

15,158

 

$

20,148

 

$

14,257

 

$

35,532

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,460

 

 

4,466

 

 

16,017

 

 

8,958

Amortization of deferred financing costs and note discount

 

 

3,146

 

 

2,982

 

 

6,122

 

 

5,764

Income tax expense

 

 

4,670

 

 

9,861

 

 

1,718

 

 

17,816

Depreciation and accretion expense

 

 

29,755

 

 

23,100

 

 

58,876

 

 

45,777

Amortization of intangible assets

 

 

15,247

 

 

9,691

 

 

30,427

 

 

18,954

EBITDA 

 

$

77,436

 

$

70,248

 

$

127,417

 

$

132,801

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

Loss (gain) on disposal and impairment of assets

 

 

669

 

 

(1,326)

 

 

3,863

 

 

(944)

Other expense (1)

 

 

1,945

 

 

943

 

 

365

 

 

388

Noncontrolling interests (2)

 

 

(6)

 

 

(17)

 

 

(10)

 

 

(35)

Share-based compensation expense

 

 

3,623

 

 

5,970

 

 

5,820

 

 

9,138

Acquisition and divestiture-related expenses (3)

 

 

3,993

 

 

674

 

 

12,449

 

 

2,258

Redomicile-related expenses (4)

 

 

 —

 

 

5,214

 

 

760

 

 

11,250

Restructuring expenses (5)

 

 

 —

 

 

 —

 

 

8,243

 

 

 —

Adjusted EBITDA

 

$

87,660

 

$

81,706

 

$

158,907

 

$

154,856

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (6)

 

 

29,754

 

 

23,093

 

 

58,872

 

 

45,762

Adjusted EBITA

 

$

57,906

 

$

58,613

 

$

100,035

 

$

109,094

 

(1)

Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition-related contingent consideration payable, and other non-operating costs.

(2)

Noncontrolling interests adjustment made such that Adjusted EBITDA includes only the Company’s ownership interest in the Adjusted EBITDA of one of its Mexican subsidiaries.

(3)

Acquisition and divestiture-related expenses include costs incurred for professional and legal fees and certain other transition and integration-related costs.

(4)

Expenses associated with the Company’s redomicile of its parent company to the U.K., which was completed on July 1, 2016.

(5)

Expenses primarily related to employee severance costs associated with the Company’s Restructuring Plan implemented in the first quarter of 2017.  

(6)

Amounts exclude a portion of the expenses incurred by one of the Company’s Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders.

 

 

33


 

The following tables reflect certain financial information for each of the Company’s reporting segments for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

   

North America

   

Europe & Africa (1)

   

Australia & New Zealand (2)

   

Corporate

   

Eliminations

   

Total

 

 

(In thousands)

Revenue from external customers

 

$

249,477

 

$

102,670

 

$

32,965

 

$

 —

 

$

 —

 

$

385,112

Intersegment revenues

 

 

2,379

 

 

484

 

 

 —

 

 

 —

 

 

(2,863)

 

 

 —

Cost of revenues

 

 

170,144

 

 

65,062

 

 

24,115

 

 

183

 

 

(1,904)

 

 

257,600

Selling, general, and administrative expenses

 

 

17,774

 

 

10,084

 

 

2,501

 

 

13,111

 

 

 —

 

 

43,470

Acquisition and divestiture-related expenses

 

 

578

 

 

1,518

 

 

692

 

 

1,205

 

 

 —

 

 

3,993

Loss (gain) on disposal and impairment of assets

 

 

624

 

 

194

 

 

(149)

 

 

 —

 

 

 —

 

 

669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

63,914

 

 

28,010

 

 

6,341

 

 

(9,646)

 

 

(959)

 

 

87,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

17,404

 

 

10,782

 

 

1,569

 

 

 —

 

 

 —

 

 

29,755

Adjusted EBITA

 

 

46,511

 

 

17,228

 

 

4,772

 

 

(9,646)

 

 

(959)

 

 

57,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (3)

 

$

13,822

 

$

15,495

 

$

1,990

 

$

 —

 

$

 —

 

$

31,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

   

North America

   

Europe & Africa (1)

   

Corporate

   

Eliminations

   

Total

 

 

(In thousands)

Revenue from external customers

 

$

227,177

 

$

96,784

 

$

 —

 

$

 —

 

$

323,961

Intersegment revenues

 

 

2,500

 

 

331

 

 

 —

 

 

(2,831)

 

 

 —

Cost of revenues

 

 

151,107

 

 

61,784

 

 

270

 

 

(2,831)

 

 

210,330

Selling, general, and administrative expenses

 

 

15,954

 

 

8,961

 

 

12,997

 

 

 —

 

 

37,912

Redomicile-related expenses

 

 

 —

 

 

 —

 

 

5,214

 

 

 —

 

 

5,214

Acquisition and divestiture-related expenses

 

 

319

 

 

355

 

 

 —

 

 

 —

 

 

674

Loss (gain) on disposal and impairment of assets

 

 

412

 

 

(1,738)

 

 

 —

 

 

 —

 

 

(1,326)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

62,599

 

 

26,370

 

 

(7,298)

 

 

35

 

 

81,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

13,739

 

 

9,361

 

 

 —

 

 

 —

 

 

23,100

Adjusted EBITA

 

 

48,867

 

 

17,009

 

 

(7,298)

 

 

35

 

 

58,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (3)

 

$

12,371

 

$

10,749

 

$

 —

 

$

 —

 

$

23,120

34


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

   

North America

   

Europe & Africa (1)

   

Australia & New Zealand (2)

   

Corporate

   

Eliminations

   

Total

 

 

(In thousands)

Revenue from external customers

 

$

488,543

 

$

189,598

 

$

64,543

 

$

 —

 

$

 —

 

$

742,684

Intersegment revenues

 

 

4,370

 

 

803

 

 

 —

 

 

 —

 

 

(5,173)

 

 

 —

Cost of revenues

 

 

336,007

 

 

123,700

 

 

47,493

 

 

140

 

 

(3,178)

 

 

504,162

Selling, general, and administrative expenses

 

 

36,026

 

 

19,717

 

 

4,351

 

 

25,325

 

 

 —

 

 

85,419

Redomicile-related expenses

 

 

 —

 

 

23

 

 

 —

 

 

737

 

 

 —

 

 

760

Restructuring expenses

 

 

3,668

 

 

831

 

 

 —

 

 

3,744

 

 

 —

 

 

8,243

Acquisition and divestiture-related expenses

 

 

2,148

 

 

1,993

 

 

1,711

 

 

6,597

 

 

 —

 

 

12,449

Loss (gain) on disposal and impairment of assets

 

 

3,796

 

 

209

 

 

(190)

 

 

48

 

 

 —

 

 

3,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

120,876

 

 

46,985

 

 

12,687

 

 

(19,646)

 

 

(1,995)

 

 

158,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

34,559

 

 

20,617

 

 

3,700

 

 

 —

 

 

 —

 

 

58,876

Adjusted EBITA

 

 

86,321

 

 

26,368

 

 

8,987

 

 

(19,646)

 

 

(1,995)

 

 

100,035

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (3)

 

$

39,503

 

$

26,210

 

$

4,155

 

$

 —

 

$

 —

 

$

69,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

   

North America

   

Europe & Africa (1)

   

Corporate

   

Eliminations

   

Total

 

 

(In thousands)

Revenue from external customers

 

$

442,777

 

$

184,431

 

$

 —

 

$

 —

 

$

627,208

Intersegment revenues

 

 

4,669

 

 

664

 

 

 —

 

 

(5,333)

 

 

 —

Cost of revenues

 

 

291,500

 

 

119,649

 

 

387

 

 

(5,333)

 

 

406,203

Selling, general, and administrative expenses

 

 

32,483

 

 

18,105

 

 

24,723

 

 

 —

 

 

75,311

Redomicile-related expenses

 

 

 —

 

 

12

 

 

11,238

 

 

 —

 

 

11,250

Acquisition and divestiture-related expenses

 

 

1,307

 

 

921

 

 

30

 

 

 —

 

 

2,258

Loss (gain) on disposal and impairment of assets

 

 

756

 

 

(1,700)

 

 

 —

 

 

 —

 

 

(944)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

123,426

 

 

47,347

 

 

(15,972)

 

 

55

 

 

154,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

27,320

 

 

18,457

 

 

 —

 

 

 —

 

 

45,777

Adjusted EBITA

 

 

96,122

 

 

28,889

 

 

(15,972)

 

 

55

 

 

109,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (3)

 

$

20,137

 

$

19,434

 

$

 —

 

$

 —

 

$

39,571

 

 

 

(1)

The Europe & Africa segment includes operations in South Africa, which were acquired on January 31, 2017 with the Spark acquisition.

(2)

The Australia & New Zealand segment includes operations in Australia and New Zealand, which were acquired on January 6, 2017 with the DCPayments acquisition.

(3)

Capital expenditure amounts include payments made for exclusive license agreements, site acquisition costs, and other intangible assets. Additionally, capital expenditure amounts for one of the Company’s Mexican subsidiaries, included in the North America segment, are reflected gross of any noncontrolling interest amounts.

 

35


 

Identifiable Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

June 30, 2017

    

December 31, 2016

 

 

(In thousands) 

North America

 

$

1,181,446

 

$

956,807

Europe & Africa

 

 

535,520

 

 

363,857

Australia & New Zealand

 

 

300,255

 

 

 —

Corporate

 

 

17,811

 

 

44,032

Total

 

$

2,035,032

 

$

1,364,696

 

 

 

(16) Supplemental Guarantor Financial Information

 

Prior to the Redomicile Transaction, the 2022 Notes were fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by certain wholly-owned subsidiaries of Cardtronics Delaware. On July 1, 2016, Cardtronics plc and certain of its subsidiaries became 2022 Notes Guarantors pursuant to the 2022 Notes Supplemental Indenture entered into in conjunction with the Redomicile Transaction. As of June 30, 2017, the 2022 Notes were fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by Cardtronics plc and these subsidiaries (including the original Cardtronics Delaware subsidiary 2022 Notes Guarantors). Cardtronics Delaware, the subsidiary issuer of the 2022 Notes is 100% owned by Cardtronics plc, the parent 2022 Notes Guarantor. In addition, on April 28, 2017, additional subsidiaries of Cardtronics plc were added as 2022 Notes Guarantors pursuant to the 2022 Notes Second Supplemental Indenture.

 

The guarantees of the 2022 Notes by any 2022 Notes Guarantor (other than Cardtronics plc) are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the 2022 Notes Guarantor, (ii) the disposition of sufficient common shares of the 2022 Notes Guarantor so that it no longer qualifies under the 2022 Notes Indenture as a restricted subsidiary of Cardtronics plc, (iii) the designation of the 2022 Notes Guarantor as unrestricted in accordance with the 2022 Notes Indenture, (iv) the legal or covenant defeasance of the 2022 Notes or the satisfaction and discharge of the 2022 Notes Indenture, (v) the liquidation or dissolution of the 2022 Notes Guarantor, or (vi) provided the 2022 Notes Guarantor is not wholly-owned by Cardtronics plc, its ceasing to guarantee other indebtedness the Cardtronics plc, Cardtronics Delaware, or another 2022 Notes Guarantor. A 2022 Notes Guarantor (other than Cardtronics plc) may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than Cardtronics plc, Cardtronics Delaware, or another 2022 Notes Guarantor), unless no default under the 2022 Notes Indenture exists and either the successor to the 2022 Notes Guarantor assumes its guarantee of the 2022 Notes or the disposition, consolidation, or merger complies with the “Asset Sales” covenant in the 2022 Notes Indenture. In addition, Cardtronics plc may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than Cardtronics Delaware or another 2022 Notes Guarantor), unless, among other things, no default under the 2022 Notes Indenture exists, the successor to Cardtronics plc is a domestic entity and assumes Cardtronics plc’s guarantee of the 2022 Notes and transaction (on a pro forma basis) satisfies certain criteria related to the Fixed Charge Coverage Ratio (as defined in the 2022 Notes Indenture).

 

The following information reflects the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016, the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016, and the Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 for: (i) Cardtronics plc, the parent 2022 Notes Guarantor (“Parent”), (ii) Cardtronics Delaware (“Issuer”), (iii) the 2022 Notes Guarantors (including those 2022 Notes Guarantors added pursuant to the 2022 Notes Second Supplemental Indenture) (the “Guarantors”), and (iv) the 2022 Notes Non-Guarantors. The statements for the 2016 periods have been revised to present the financial results of these entities in a manner that is consistent with the Company’s organizational structure as of June 30, 2017.

 

 

36


 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

269,435

 

$

118,839

 

$

(3,162)

 

$

385,112

Operating costs and expenses

 

 

6,797

 

 

2,733

 

 

230,975

 

 

112,434

 

 

(2,205)

 

 

350,734

(Loss) income from operations

 

 

(6,797)

 

 

(2,733)

 

 

38,460

 

 

6,405

 

 

(957)

 

 

34,378

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

6,319

 

 

10,660

 

 

(4,373)

 

 

 —

 

 

12,606

Equity in (earnings) of subsidiaries

 

 

(21,932)

 

 

(17,952)

 

 

(5,728)

 

 

 —

 

 

45,612

 

 

 —

Other (income) expense

 

 

(296)

 

 

(125)

 

 

5,562

 

 

576

 

 

(3,772)

 

 

1,945

Income before income taxes

 

 

15,431

 

 

9,025

 

 

27,966

 

 

10,202

 

 

(42,797)

 

 

19,827

Income tax expense (benefit)

 

 

274

 

 

(3,482)

 

 

8,849

 

 

(971)

 

 

 —

 

 

4,670

Net income

 

 

15,157

 

 

12,507

 

 

19,117

 

 

11,173

 

 

(42,797)

 

 

15,157

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

Net income attributable to controlling interests and available to common stockholders

 

 

15,157

 

 

12,507

 

 

19,117

 

 

11,173

 

 

(42,796)

 

 

15,158

Comprehensive income attributable to controlling interests

 

$

45,368

 

$

12,506

 

$

20,625

 

$

39,883

 

$

(73,015)

 

$

45,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2016

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

229,963

 

$

97,036

 

$

(3,038)

 

$

323,961

Operating costs and expenses

 

 

 —

 

 

6,556

 

 

197,765

 

 

84,312

 

 

(3,038)

 

 

285,595

(Loss) income from operations

 

 

 —

 

 

(6,556)

 

 

32,198

 

 

12,724

 

 

 —

 

 

38,366

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

6,479

 

 

196

 

 

773

 

 

 —

 

 

7,448

Equity in (earnings) losses of subsidiaries

 

 

(20,114)

 

 

(22,079)

 

 

482

 

 

 —

 

 

41,711

 

 

 —

Other expense (income)

 

 

 —

 

 

271

 

 

(965)

 

 

1,653

 

 

(16)

 

 

943

Income before income taxes

 

 

20,114

 

 

8,773

 

 

32,485

 

 

10,298

 

 

(41,695)

 

 

29,975

Income tax (benefit) expense

 

 

 —

 

 

(5,190)

 

 

12,388

 

 

2,663

 

 

 —

 

 

9,861

Net income

 

 

20,114

 

 

13,963

 

 

20,097

 

 

7,635

 

 

(41,695)

 

 

20,114

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(34)

 

 

(34)

Net income attributable to controlling interests and available to common stockholders

 

 

20,114

 

 

13,963

 

 

20,097

 

 

7,635

 

 

(41,661)

 

 

20,148

Comprehensive (loss) income attributable to controlling interests

 

$

(3,731)

 

$

10,649

 

$

19,263

 

$

(12,227)

 

$

(17,651)

 

$

(3,697)

 

 

 

37


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

526,604

 

$

221,726

 

$

(5,646)

 

$

742,684

Operating expenses

 

 

12,696

 

 

12,451

 

 

467,046

 

 

215,626

 

 

(3,620)

 

 

704,199

(Loss) income from operations

 

 

(12,696)

 

 

(12,451)

 

 

59,558

 

 

6,100

 

 

(2,026)

 

 

38,485

Interest expense (income), net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

12,410

 

 

18,562

 

 

(8,833)

 

 

 —

 

 

22,139

Equity in (earnings) of subsidiaries

 

 

(26,676)

 

 

(25,328)

 

 

(5,566)

 

 

 —

 

 

57,570

 

 

 —

Other (income) expense

 

 

(232)

 

 

(179)

 

 

21,259

 

 

(5,092)

 

 

(15,391)

 

 

365

Income before income taxes

 

 

14,212

 

 

646

 

 

25,303

 

 

20,025

 

 

(44,205)

 

 

15,981

Income tax (benefit) expense

 

 

(51)

 

 

(9,625)

 

 

12,028

 

 

(634)

 

 

 —

 

 

1,718

Net income

 

 

14,263

 

 

10,271

 

 

13,275

 

 

20,659

 

 

(44,205)

 

 

14,263

Net income attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 6

 

 

 6

Net income attributable to controlling interests and available to common shareholders

 

 

14,263

 

 

10,271

 

 

13,275

 

 

20,659

 

 

(44,211)

 

 

14,257

Comprehensive income attributable to controlling interests

 

$

53,124

 

$

11,716

 

$

25,808

 

$

45,544

 

$

(83,074)

 

$

53,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

 

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

Revenues

 

$

 —

 

$

 —

 

$

447,669

 

$

185,286

 

$

(5,747)

 

$

627,208

Operating expenses

 

 

 —

 

 

14,058

 

 

386,885

 

 

163,609

 

 

(5,743)

 

 

558,809

(Loss) income from operations

 

 

 —

 

 

(14,058)

 

 

60,784

 

 

21,677

 

 

(4)

 

 

68,399

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

 —

 

 

12,848

 

 

319

 

 

1,555

 

 

 —

 

 

14,722

Equity in (earnings) losses of subsidiaries

 

 

(35,473)

 

 

(44,302)

 

 

2,977

 

 

 —

 

 

76,798

 

 

 —

Other (income) expense

 

 

 —

 

 

(74)

 

 

(2,074)

 

 

2,552

 

 

(16)

 

 

388

Income before income taxes

 

 

35,473

 

 

17,470

 

 

59,562

 

 

17,570

 

 

(76,786)

 

 

53,289

Income tax (benefit) expense

 

 

 —

 

 

(10,464)

 

 

24,101

 

 

4,179

 

 

 —

 

 

17,816

Net income

 

 

35,473

 

 

27,934

 

 

35,461

 

 

13,391

 

 

(76,786)

 

 

35,473

Net loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(59)

 

 

(59)

Net income attributable to controlling interests and available to common shareholders

 

 

35,473

 

 

27,934

 

 

35,461

 

 

13,391

 

 

(76,727)

 

 

35,532

Comprehensive (loss) income attributable to controlling interests

 

$

(4,449)

 

$

23,335

 

$

25,939

 

$

(12,452)

 

$

(36,763)

 

$

(4,390)

 

38


 

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2017

 

    

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

403

 

$

229

 

$

12,048

 

$

40,497

 

$

 —

 

$

53,177

Accounts and notes receivable, net

 

 

 —

 

 

 —

 

 

55,377

 

 

43,374

 

 

 —

 

 

98,751

Other current assets

 

 

98

 

 

558

 

 

70,968

 

 

75,846

 

 

 —

 

 

147,470

Total current assets

 

 

501

 

 

787

 

 

138,393

 

 

159,717

 

 

 —

 

 

299,398

Property and equipment, net

 

 

 —

 

 

 —

 

 

340,654

 

 

164,800

 

 

 —

 

 

505,454

Intangible assets, net

 

 

 —

 

 

 —

 

 

225,813

 

 

52,658

 

 

 —

 

 

278,471

Goodwill

 

 

 —

 

 

 —

 

 

711,507

 

 

191,594

 

 

 —

 

 

903,101

Investments in and advances to subsidiaries

 

 

511,544

 

 

397,017

 

 

474,276

 

 

 —

 

 

(1,382,837)

 

 

 —

Intercompany receivable

 

 

8,414

 

 

197,147

 

 

712,021

 

 

891,374

 

 

(1,808,956)

 

 

 —

Deferred tax asset, net

 

 

585

 

 

 —

 

 

1,491

 

 

7,651

 

 

 —

 

 

9,727

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

 —

 

 

296

 

 

23,165

 

 

15,420

 

 

 —

 

 

38,881

Total assets

 

$

521,044

 

$

595,247

 

$

2,627,320

 

$

1,483,214

 

$

(3,191,793)

 

$

2,035,032

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of other long-term liabilities

 

 

 —

 

 

49

 

 

27,060

 

 

5,696

 

 

(12)

 

 

32,793

Accounts payable and accrued liabilities

 

 

580

 

 

10,402

 

 

209,424

 

 

124,989

 

 

 —

 

 

345,395

Total current liabilities

 

 

580

 

 

10,451

 

 

236,484

 

 

130,685

 

 

(12)

 

 

378,188

Long-term debt

 

 

 —

 

 

494,145

 

 

465,152

 

 

14,042

 

 

 —

 

 

973,339

Intercompany payable

 

 

12,391

 

 

4,589

 

 

1,153,416

 

 

638,560

 

 

(1,808,956)

 

 

 —

Asset retirement obligations

 

 

 —

 

 

 —

 

 

27,989

 

 

29,107

 

 

 —

 

 

57,096

Deferred tax liability, net

 

 

 —

 

 

 —

 

 

47,211

 

 

2,704

 

 

 —

 

 

49,915

Other long-term liabilities

 

 

 —

 

 

1,713

 

 

21,673

 

 

45,035

 

 

 —

 

 

68,421

Total liabilities

 

 

12,971

 

 

510,898

 

 

1,951,925

 

 

860,133

 

 

(1,808,968)

 

 

1,526,959

Shareholders' equity

 

 

508,073

 

 

84,349

 

 

675,395

 

 

623,081

 

 

(1,382,825)

 

 

508,073

Total liabilities and shareholders' equity

 

$

521,044

 

$

595,247

 

$

2,627,320

 

$

1,483,214

 

$

(3,191,793)

 

$

2,035,032

 

 

39


 

\

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

    

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101

 

$

 7

 

$

6,995

 

$

66,431

 

$

 —

 

$

73,534

Accounts and notes receivable, net

 

 

 —

 

 

 —

 

 

59,375

 

 

24,781

 

 

 —

 

 

84,156

Other current assets

 

 

 —

 

 

1,468

 

 

52,087

 

 

58,292

 

 

 —

 

 

111,847

Total current assets

 

 

101

 

 

1,475

 

 

118,457

 

 

149,504

 

 

 —

 

 

269,537

Property and equipment, net

 

 

 —

 

 

 —

 

 

271,142

 

 

121,593

 

 

 —

 

 

392,735

Intangible assets, net

 

 

 —

 

 

 —

 

 

89,028

 

 

32,202

 

 

 —

 

 

121,230

Goodwill

 

 

 —

 

 

 —

 

 

450,229

 

 

82,846

 

 

 —

 

 

533,075

Investments in and advances to subsidiaries

 

 

452,014

 

 

748,278

 

 

872,795

 

 

 —

 

 

(2,073,087)

 

 

 —

Intercompany receivable

 

 

12,962

 

 

297,790

 

 

251,754

 

 

1,615,808

 

 

(2,178,314)

 

 

 —

Deferred tax asset, net

 

 

537

 

 

 —

 

 

1,462

 

 

11,005

 

 

 —

 

 

13,004

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

 —

 

 

504

 

 

22,098

 

 

12,513

 

 

 —

 

 

35,115

Total assets

 

$

465,614

 

$

1,048,047

 

$

2,076,965

 

$

2,025,471

 

$

(4,251,401)

 

$

1,364,696

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of other long-term liabilities

 

 

 —

 

 

 —

 

 

22,662

 

 

5,591

 

 

(16)

 

 

28,237

Accounts payable and accrued liabilities

 

 

(15)

 

 

17,152

 

 

179,489

 

 

89,024

 

 

(67)

 

 

285,583

Total current liabilities

 

 

(15)

 

 

17,152

 

 

202,151

 

 

94,615

 

 

(83)

 

 

313,820

Long-term debt

 

 

 —

 

 

502,539

 

 

 —

 

 

 —

 

 

 —

 

 

502,539

Intercompany payable

 

 

8,694

 

 

82,660

 

 

1,248,493

 

 

838,467

 

 

(2,178,314)

 

 

 —

Asset retirement obligations

 

 

 —

 

 

 —

 

 

21,746

 

 

23,340

 

 

 —

 

 

45,086

Deferred tax liability, net

 

 

 —

 

 

 —

 

 

24,953

 

 

2,672

 

 

 —

 

 

27,625

Other long-term liabilities

 

 

 —

 

 

504

 

 

14,305

 

 

3,882

 

 

 —

 

 

18,691

Total liabilities

 

 

8,679

 

 

602,855

 

 

1,511,648

 

 

962,976

 

 

(2,178,397)

 

 

907,761

Shareholders' equity

 

 

456,935

 

 

445,192

 

 

565,317

 

 

1,062,495

 

 

(2,073,004)

 

 

456,935

Total liabilities and shareholders' equity

 

$

465,614

 

$

1,048,047

 

$

2,076,965

 

$

2,025,471

 

$

(4,251,401)

 

$

1,364,696

 

40


 

Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2017

 

    

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Net cash provided by operating activities

 

$

8,017

 

$

14,322

 

$

57,477

 

$

4,763

 

$

 —

 

$

84,579

Additions to property and equipment

 

 

 —

 

 

 —

 

 

(43,613)

 

 

(26,255)

 

 

 —

 

 

(69,868)

Acquisitions, net of cash acquired

 

 

 —

 

 

 —

 

 

(467,598)

 

 

(19,479)

 

 

 —

 

 

(487,077)

Net cash used in investing activities

 

 

 —

 

 

 —

 

 

(511,211)

 

 

(45,734)

 

 

 —

 

 

(556,945)

Proceeds from borrowings under revolving credit facility

 

 

 —

 

 

218,000

 

 

586,778

 

 

30,727

 

 

 —

 

 

835,505

Repayments of borrowings under revolving credit facility

 

 

 —

 

 

(232,100)

 

 

(417,279)

 

 

(16,877)

 

 

 —

 

 

(666,256)

Proceeds from borrowings of long-term debt

 

 

 —

 

 

 —

 

 

300,000

 

 

 —

 

 

 —

 

 

300,000

Debt issuance costs

 

 

 —

 

 

 —

 

 

(5,197)

 

 

 —

 

 

 —

 

 

(5,197)

Intercompany financing

 

 

 —

 

 

 —

 

 

(3,217)

 

 

3,217

 

 

 —

 

 

 —

Tax payments related to share-based compensation

 

 

(7,820)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7,820)

Proceeds from exercises of stock options

 

 

105

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

105

Net cash (used in) provided by financing activities

 

 

(7,715)

 

 

(14,100)

 

 

461,085

 

 

17,067

 

 

 —

 

 

456,337

Effect of exchange rate changes on cash

 

 

 —

 

 

 —

 

 

(2,298)

 

 

(2,030)

 

 

 —

 

 

(4,328)

Net increase (decrease) in cash and cash equivalents

 

 

302

 

 

222

 

 

5,053

 

 

(25,934)

 

 

 —

 

 

(20,357)

Cash and cash equivalents as of beginning of period

 

 

101

 

 

 7

 

 

6,995

 

 

66,431

 

 

 —

 

 

73,534

Cash and cash equivalents as of end of period

 

$

403

 

$

229

 

$

12,048

 

$

40,497

 

$

 —

 

$

53,177

 

 

 

41


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2016

 

    

Parent

    

Issuer

    

Guarantors

    

Non-Guarantors

    

Eliminations

    

Total

 

 

(In thousands)

Net cash provided by operating activities

 

$

 —

 

$

48,940

 

$

28,784

 

$

46,863

 

$

 —

 

$

124,587

Additions to property and equipment

 

 

 —

 

 

 —

 

 

(17,520)

 

 

(22,051)

 

 

 —

 

 

(39,571)

Acquisitions, net of cash acquired

 

 

 —

 

 

 —

 

 

(14,544)

 

 

 —

 

 

 —

 

 

(14,544)

Proceeds from sale of assets and businesses

 

 

 —

 

 

 —

 

 

 —

 

 

9,348

 

 

 —

 

 

9,348

Net cash used in investing activities

 

 

 —

 

 

 —

 

 

(32,064)

 

 

(12,703)

 

 

 —

 

 

(44,767)

Proceeds from borrowings under revolving credit facility

 

 

 —

 

 

120,100

 

 

 —

 

 

14,207

 

 

 —

 

 

134,307

Repayments of borrowings under revolving credit facility

 

 

 —

 

 

(182,700)

 

 

 —

 

 

(33,300)

 

 

 —

 

 

(216,000)

Intercompany financing

 

 

 —

 

 

17,911

 

 

 —

 

 

(17,911)

 

 

 —

 

 

 —

Proceeds from exercises of stock options

 

 

 —

 

 

145

 

 

 —

 

 

 —

 

 

 —

 

 

145

Additional tax (expense) related to share-based compensation

 

 

 —

 

 

(343)

 

 

 —

 

 

 —

 

 

 —

 

 

(343)

Repurchase of common shares

 

 

 —

 

 

(3,959)

 

 

 —

 

 

 —

 

 

 —

 

 

(3,959)

Net cash used in financing activities

 

 

 —

 

 

(48,846)

 

 

 —

 

 

(37,004)

 

 

 —

 

 

(85,850)

Effect of exchange rate changes on cash

 

 

 —

 

 

 —

 

 

(861)

 

 

246

 

 

 —

 

 

(615)

Net increase (decrease) in cash and cash equivalents

 

 

 —

 

 

94

 

 

(4,141)

 

 

(2,598)

 

 

 —

 

 

(6,645)

Cash and cash equivalents as of beginning of period

 

 

 —

 

 

782

 

 

6,200

 

 

19,315

 

 

 —

 

 

26,297

Cash and cash equivalents as of end of period

 

$

 —

 

$

876

 

$

2,059

 

$

16,717

 

$

 —

 

$

19,652

 

 

 

 

(17) Concentration Risk

 

Significant merchants.  7-Eleven, Inc. (“7-Eleven”) in the U.S. is currently the largest merchant in the Company’s portfolio, representing approximately 18% of the Company’s total revenues for the year ended December 31, 2016. 7-Eleven did not renew its ATM placement agreement with the Company, which expired in July 2017, but has instead entered into a new ATM placement agreement with a related entity of 7-Eleven’s parent company. The Company is currently in the process of coordinating the transition of ATM operations at 7-Eleven locations in the U.S. to the new service provider, which will occur over the latter part of 2017, with a small percentage of ATMs expected to be removed during the first quarter of 2018. As a result, the Company expects that its revenues and operating profits derived from this relationship will begin to decline during the third quarter of 2017. The Company expects that the loss of 7-Eleven will likely have a higher negative impact (in percentage terms) on its income from operations relative to the revenue impact, particularly as the Company transitions to the new service provider and the infrastructure required to support the relationship adjusts during the transition period. As a result, the Company expects that the loss of 7-Eleven will have a significant negative impact on its income from operations and cash flows in 2017 and 2018.

 

The deinstallation of the 7-Eleven ATMs in the U.S., which the Company commenced during the third quarter of 2017, will have a significant impact on many elements of the Company’s business operations. Due to the anticipated loss of revenues and profits associated with this relationship, the Company has taken measures to manage the business to partially offset the loss of profits associated with this relationship. For additional information, see Note 1. General and Basis of Presentation - (e) Restructuring Expenses.  

 

 

(18) New Accounting Pronouncements

 

For information related to the ASUs adopted during the six months ended June 30, 2017, see Note 1. General and Basis of Presentation - (b) Basis of Presentation. The new ASUs relevant to the Company are as follows:

 

42


 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 was later amended by ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2014-09, as amended, (the “Revenue Standard”) supersedes most industry specific guidance and intends to enhance comparability of revenue recognition practices across entities and industries by providing a principle-based, comprehensive framework for addressing revenue recognition issues. The Revenue Standard is effective for fiscal years beginning after December 15, 2017, and interim reporting periods within those years, although early adoption is permitted.  

 

The Company will adopt the Revenue Standard in the first quarter of fiscal 2018. The Company has completed an analysis of its most significant revenue streams including those most likely to be impacted by the Revenue Standard and anticipates that the adoption of the Revenue Standard will result in relatively minor impacts to the recognition of revenues to be reported in its consolidated financial statements. However, the Company’s  implementation project is still underway. The Company believes that the most significant impact will be from the deferral of contract acquisition costs. These costs primarily consist of commissions and other consideration provided to the Company’s sales force that have not been deferred historically. It has been the Company’s practice to recognize sales commissions when paid and now they will be deferred and recognized over time. The Company plans to use the modified retrospective method to adopt the Revenue Standard.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)  (the “Lease Standard”) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. The Lease Standard requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. The Lease Standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, using a modified retrospective approach and early adoption is permitted. The Company is required to adopt the Lease Standard during the first quarter of fiscal 2019. The Company is currently reviewing its operating leases and ATM placement agreements to assess the impact the Lease Standard will have on its consolidated financial statements. The Company currently anticipates that its adoption of the Lease Standard will result in the recognition of significant right-to-use assets and lease liabilities related to its operating leases as well as certain of its ATM placement agreements that contain fixed payments and are deemed to contain a lease under the Lease Standard.

 

In August and November 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”) and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). ASU 2016-15 and ASU 2016-18 update the following specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon or insignificant rate debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; separately identifiable cash flows and application of the predominance principle, and classification of restricted cash. ASU 2016-15 and ASU 2016-18 are effective for fiscal years beginning after December 15, 2017, and interim periods within those years, and early adoption is permitted. The Company is required to adopt this guidance during the first quarter of fiscal 2018 and plans to adopt both ASU 2016-15 and ASU 2016-18 at that time. Responsive to this guidance, the Company will include the balance of restricted cash together with cash and cash equivalents when presenting the Consolidated Statements of Cash Flows, commencing with its first quarter reporting in 2018. The Company will also recognize contingent consideration payments up to the amount of the liability recognized at the acquisition date in financing activities and any excess in operating activities. The Company does not anticipate that this classification will result in a change to the operating, financing, or investing cash flows that would otherwise be reported.

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory (“ASU 2016-16”). ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the exception for an intra-entity transfer of an asset other than inventory. ASU 2016-16 is effective for fiscal years beginning after

43


 

December 15, 2018, and interim periods within those years, and early adoption is permitted. The Company is currently evaluating the impact the standard will have on its consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business when determining an acquisition, divestiture, disposal, goodwill, or consolidation. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, and early adoption is permitted. Additionally, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 from the goodwill impairment test and the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, and early adoption is permitted. In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies what constitutes a modification of a share-based payments award. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, and early adoption is permitted. The Company is currently evaluating the impact these standards will have on its consolidated financial statements.

 

 

 

 

44


 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to be covered by the safe harbor provisions thereof. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effect on the Company and there can be no assurance that future developments affecting the Company will be those that are anticipated.  All comments concerning the Company’s expectations for future revenues and operating results are based on its estimates for its existing operations and do not include the potential impact of any future acquisitions. The Company’s forward-looking statements involve significant risks and uncertainties (some of which are beyond its control) and assumptions that could cause actual results to differ materially from its historical experience and present expectations or projections. Known material factors that could cause actual results to differ materially from those in the forward-looking statements include:

 

·

the Company’s financial outlook and the financial outlook of the automated teller machines and multi-function financial services kiosks (collectively, “ATMs”) industry and the continued usage of cash by consumers at rates near historical patterns;

·

the Company’s ability to respond to recent and future network and regulatory changes, including requirements surrounding Europay, MasterCard, and Visa (“EMV”) security standards;

·

the Company’s ability to renew its existing merchant relationships on comparable economic terms and add new merchants;  

·

the Company’s ability to pursue, complete, and successfully integrate acquisitions, including the integration of DirectCash Payments Inc.;

·

changes in interest rates and foreign currency rates;

·

the Company’s ability to successfully manage its existing international operations and to continue to expand internationally;

·

the Company’s ability to manage concentration risks with key customers, merchants, vendors, and service providers;

·

the Company’s ability to prevent thefts of cash;

·

the Company’s ability to manage cybersecurity risks and prevent data breaches;

·

the Company’s ability to respond to potential reductions in the amount of net interchange fees that it receives from global and regional debit networks for transactions conducted on its ATMs due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks;

·

the Company’s ability to provide new ATM solutions to retailers and financial institutions including placing additional banks’ brands on ATMs currently deployed;

·

the Company’s ATM vault cash rental needs, including potential liquidity issues with its vault cash providers and its ability to continue to secure vault cash rental agreements in the future;

·

the Company’s ability to manage the risks associated with its third-party service providers failing to perform their contractual obligations; 

·

the Company’s ability to renew its existing third party service provider relationships on comparable economic terms;

·

the Company’s ability to successfully implement and evolve its corporate strategy;

·

the Company’s ability to compete successfully with new and existing competitors;

·

the Company’s ability to meet the service levels required by its service level agreements with its merchants;

·

the additional risks the Company is exposed to in its United Kingdom (“U.K.”) armored transport business;

·

the impact of changes in laws, including tax laws, that could adversely affect the Company’s business and/or reduce or eliminate the benefits expected to be achieved from the Company’s recent change of its parent company from the United States to the U.K.;

·

the impact of, or uncertainty related to, the U.K.’s planned exit from the European Union, including any material adverse effect on the tax, tax treaty, currency, operational, legal, and regulatory regime and macro-economic environment to which it will be subject to as a U.K. company; and

·

the Company’s ability to retain its key employees and maintain good relations with its employees.

 

45


 

For additional information regarding known material factors that could cause the Company’s actual results to differ from its projected results, see: (i) Part II. Other Information, Item 1A. Risk Factors in the Company’s Form 10-Q for the quarterly period ended March 31, 2017 and (ii) Part I. Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Readers are cautioned not to place undue reliance on forward-looking statements contained in this document, which speak only as of the date of this Form 10-Q. The Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.

46


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Cardtronics plc provides convenient automated consumer financial services through its network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of June 30, 2017, we were the world’s largest ATM owner/operator, providing services to approximately 237,000 ATMs throughout the United States (the “U.S.”) (including the U.S. territory of Puerto Rico), the United Kingdom (the “U.K.”), Ireland, Canada, Australia, New Zealand, South Africa, Germany, Poland, Spain, and Mexico. In the U.S., certain of our ATMs are multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account balance inquiries, perform other automated consumer financial services, such as remote deposit capture (which is deposit-taking at ATMs using electronic imaging). Included in the number of ATMs in our network as of June 30, 2017 there are approximately 134,000 ATMs to which we provided processing only services or various forms of managed services solutions. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on us to handle some or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee, fee per transaction, or fee per service provided.

 

Through our network, we deliver consumer financial services to cardholders and provide ATM management and ATM equipment-related services (typically under multi-year contracts) to large retail merchants, smaller retailers, and operators of facilities such as shopping malls, airports, and train stations. In doing so, we provide our retail partners with a compelling automated financial services solution that helps attract and retain customers, and in turn, increases the likelihood that our ATMs will be utilized. We also own and operate electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to our network of ATMs, as well as to other ATMs under managed services arrangements. Additionally, in Canada, through our acquisition of DirectCash Payments Inc. (“DCPayments”), we also provide processing services for issuers of debit cards.

 

We also own and operate the Allpoint network (“Allpoint”), the largest surcharge-free ATM network (based on the number of participating ATMs). Allpoint, with approximately 55,000 participating ATMs, provides surcharge-free ATM access to over 1,300 participating banks, credit unions, and stored-value debit card issuers. For participants, Allpoint provides scale, density, and convenience of surcharge-free ATMs that surpasses the largest banks in the U.S. Allpoint earns either a fixed monthly fee per cardholder or a fixed fee per transaction that is paid by the participants. The Allpoint network includes a majority of our Company-owned ATMs in the U.S. and a portion of our Company-owned ATMs in the U.K., Canada, Mexico, Puerto Rico, and Australia. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general purpose, payroll, and electronic benefits transfer (“EBT”) cards. Under these programs, the issuing financial institutions pay Allpoint a fee per issued stored-value debit card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

 

For additional information related to our operations and the manner in which we derive revenues, see our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”).

 

Strategic Outlook

 

Over the last several years, we have expanded our operations and the capabilities and service offerings of our ATMs through strategic acquisitions and investments, continued to deploy ATMs in high-traffic locations under contracts with well-known retailers, and expanded our relationships with leading financial institutions through the growth of our Allpoint surcharge-free ATM network and our bank-branding programs. We intend to further expand our ATM capabilities and service offerings to financial institutions, as we are seeing increasing interest from financial institutions for outsourcing of ATM-related services due to our cost efficiency advantages and higher service levels, as well as the role that our ATMs can play in maintaining the financial institutions physical presence for their customers as they reduce their physical branches.

 

We have completed several acquisitions in the last six years, including, but not limited to: (i) eight domestic ATM operators, expanding our ATMs in both multi-unit regional retail chains and individual merchant ATM locations in the

47


 

U.S., (ii) two Canadian ATM operators which allowed us to enter into and expand our presence in Canada, (iii) Cardpoint Limited in August 2013, which further expanded our U.K. ATM operations and allowed us to enter into the German market, (iv) Sunwin Services Group in November 2014, which further expanded our cash-in-transit and maintenance servicing capabilities in the U.K. and allowed us to acquire and operate ATMs located at the Co-operative Food stores, (v) DCPayments in January 2017, a leading ATM operator with operations in Australia, New Zealand, Canada, the U.K., and Mexico, (vi) Spark ATM Systems Pty Ltd. (“Spark”) in January 2017, an independent ATM deployer operating in South Africa, and (vii) other less significant ATM asset and contract acquisitions. In addition to these ATM acquisitions, we have also made strategic acquisitions including: (i) LocatorSearch in August 2011, a U.S. leading provider of location search technology deployed by financial institutions to help customers and members find the nearest, most appropriate, and convenient ATM location based on the service they seek, (ii) i-design group limited (“i-design”) in March 2013, a Scotland-based provider and developer of marketing and advertising software and services for ATM operators, and (iii) Columbus Data Services, L.L.C. in July 2015, a leading independent transaction processor for ATM deployers and payment card issuers in the U.S., providing solutions to ATM sales and service organizations and financial institutions.

 

While we will continue to explore potential acquisition opportunities in the future as a way to grow our business, we also expect to continue expanding our ATM footprint organically, and launch new products and services that will allow us to further leverage our existing ATM network. We see opportunities to expand our operations through the following efforts:

 

·

increasing the number of deployed ATMs with existing and new merchant relationships;

·

expanding our relationships with leading financial institutions;

·

working with non-traditional financial institutions and card issuers to further leverage our extensive ATM network;

·

increasing transaction levels at our existing locations;

·

developing and providing additional services at our existing ATMs;

·

pursuing additional managed services opportunities; and

·

pursuing international growth opportunities.

 

For additional information related to each of the strategic points above, see Part I. Item1. Business - Our Strategy in our 2016 Form 10-K.  

 

Recent Events and Trends

 

Over the last several years, we have grown our business through a combination of organic growth and acquisitions. During the six months ended June 30, 2017, total revenues, on a constant-currency basis, increased 22.0%  from the same period of 2016, driven primarily by the acquisition of DCPayments, which we completed in January 2017.

 

Withdrawal transaction and revenue trends - U.S. Many financial institutions are reducing the number of branches they own and operate in order to reduce their operating costs, increasing demand for automated banking solutions, such as ATMs. Bank-branding of our ATMs and participation in our surcharge-free ATM network allows financial institutions to rapidly increase and maintain surcharge-free ATM access for their customers at a substantially lower cost than owning and operating an ATM network. We believe there is an opportunity for a large non-bank ATM owner/operator, such as ourselves, with lower costs and an established operating history, to contract with financial institutions and retailers to manage their ATM networks. Such an arrangement could reduce a financial institution’s operating costs while extending its customer service. Furthermore, we believe there are opportunities to provide selected services on an outsourced basis, such as transaction processing services, to other independent owners and operators of ATMs. These factors have led to an increase in bank-branding, increased participation in Allpoint, our surcharge-free network, and managed services arrangements, and we believe that there will be continued growth in such arrangements.

 

Total U.S. same-store cash withdrawal transactions during the three months ended June 30, 2017 decreased approximately 3% from the same period of 2016. The same-store cash withdrawal transaction decline was somewhat greater than we have experienced over the past 12-24 months. While difficult to precisely quantify, we believe our same-store cash withdrawal transaction growth rate was somewhat adversely impacted by our ongoing effort to upgrade our U.S. ATMs to the Europay, MasterCard, Visa (“EMV”) security standard, which resulted in a portion of our ATMs being out

48


 

of service during the upgrade period. Our U.S. same-store revenues during the three months ended June 30, 2017 also decreased approximately 3% from the same period of 2016, in line with the same-store cash withdrawal transaction decline.

 

7-Eleven Inc. (“7-Eleven”) in the U.S. accounted for approximately 18% of our consolidated revenues for the year ended 2016. We estimate that the incremental gross margin associated with these revenues was approximately 45% in 2016. The 7-Eleven ATM placement agreement in the U.S. expired in July 2017, and we have started transitioning the ATM operations at 7-Eleven locations in the U.S. to the new service provider. We expect the transition will occur over the latter part of 2017, with a small percentage of ATMs expected to be removed during the first quarter of 2018. As a result, we expect that our revenues and operating profits associated with this relationship will begin to decline during the third quarter of 2017. We expect that the loss of 7-Eleven will likely have a higher negative impact (in percentage terms) on our income from operations relative to the revenue impact, particularly as we transition to the new service provider and the infrastructure required to support the relationship adjusts during the transition period. As a result, we expect that the loss of 7-Eleven will have a significant negative impact on our income from operations and cash flows in 2017 and 2018.

 

The deinstallation of the 7-Eleven ATMs in the U.S. will have a significant impact on many elements of our operations. The deinstallation process will result in estimated removal costs of the ATMs of approximately $5.0 million, most of which will be incurred during the latter part of 2017 and has been provided for in our asset retirement obligations liability. To the extent that the actual costs to remove the ATMs differs from this estimate, it will result in either an increase or decrease to our income from operations. Due to the anticipated loss of revenues and profits associated with this relationship, we expect other impacts as we manage our business to offset the loss of profits associated with this relationship. For additional information, see Item 1. Financial Statements, Note 1. General and Basis of Presentation - (e) Restructuring Expenses

 

While approximately half of the Company-owned ATMs that are currently located at U.S. 7-Eleven locations are fully depreciated and not expected to be redeployed, we anticipate being able to reuse the majority of the other half.

 

Withdrawal transaction and revenue trends - U.K. In recent periods, we have installed more free-to-use ATMs as compared to surcharging pay-to-use ATMs in the U.K., which is our largest operation in Europe. This is due in part to adding major corporate retailers who tend to operate primarily in high traffic locations where free-to-use ATMs are more prevalent. Although we earn less revenue per cash withdrawal transaction on a free-to-use machine, the significantly higher volume of transactions conducted on free-to-use ATMs have generally translated into higher overall revenues. Our same-store cash withdrawal transactions in the U.K. for the three months ended June 30, 2017 decreased approximately 3% from the same period of 2016. Partially offsetting the same-store cash withdrawal transaction decline was a higher transacting ATM count, driven by several ATM placement agreements with new and existing merchants, which resulted in net revenue growth for the three months ended June 30, 2017.

 

Withdrawal transaction and revenue trends - Australia. We face indirect competition from alternative payment mechanisms, including card-based and mobile phone-based contactless payment technology in all of our markets. Australia, and to a lesser extent, the U.K., has reported an increasing rate of contactless payment use. Prior to our acquisition of DCPayments and since our ownership of the Australian component of the business, we have observed declines in transactions at Australian ATMs, as cash-based payments have declined as a percentage of total payments in recent years, with growth in contactless payments appearing to be the primary driver of the decline.

 

Europay, MasterCard, Visa (“EMV”) security standard and software upgrades in the U.S. The EMV security standard provides for the security and processing of information contained on microchips embedded in certain debit and credit cards, known as “chip cards.” In October 2016, MasterCard commenced a liability shift for U.S. ATM transactions on EMV-issued cards used at non-EMV compliant ATMs in the U.S. We have upgraded nearly all of our U.S. Company-owned ATMs to deploy additional software to enable additional functionality, enhance security features, and enable the EMV security standard. Due to the significant operational challenges of enabling EMV and other hardware and software enhancements across the majority of our U.S. ATMs, which comprises many types and models of ATMs, together with potential compatibility issues with various processing platforms, we have recently and may continue to experience increased downtime at our U.S. ATMs. As a result of this downtime, we have suffered lost revenues and incurred penalties with certain of our contracts. We have also incurred and may continue to incur increased charges from networks associated with actual or potentially fraudulent transactions, as we are liable for fraudulent transactions on the MasterCard network and other networks that have adopted the EMV security standard if our ATM was not EMV compliant at the time of the

49


 

transaction, and any fraudulent transactions were processed. As a result of this standard, we may also experience a higher rate of unit count or transaction attrition for our merchant-owned ATMs and ATMs for which we process transactions as we may elect to disable certain ATMs that are not EMV compliant. Additionally, we have and may continue to elect to disable or deny certain transaction types to mitigate our exposure to fraudulent transactions. We continue to invest in technology and processes to prevent and detect fraudulent transactions across our ATM network. However, no system or process can eliminate the risk of fraud and still maintain transaction volumes comparable to recent levels. Visa has also announced plans for a liability shift to occur starting in October 2017 for all transaction types on all EMV-issued cards in the U.S. We continue to upgrade our ATMs and as of the date of this filing, nearly all of our ATMs that we intend to upgrade and continue to operate were EMV compliant.

 

Capital investments. We have recently experienced and anticipate an elevated level of capital investment through 2017 to support the EMV requirements discussed above and other factors discussed in greater detail below. The higher levels of capital spending in 2017 are attributable to the EMV requirements, coupled with other factors including: (i) our strategic initiatives to enhance the consumer experience at our ATMs and drive transaction growth, (ii) a significant number of recent long-term renewals of existing merchant contracts, (iii) certain software and hardware enhancements required to facilitate our strategic initiatives, enhance security, and to continue running supported versions, (iv) other compliance related matters, and (v) growth opportunities across our enterprise.

 

U.K. planned exit from the European Union (“Brexit”). On March 29, 2017, the U.K. government officially triggered Article 50 of the Treaty on the European Union, which commenced the process for the U.K. to exit the European Union. The ultimate impact of Brexit on our business is unknown; however, one noticeable recent impact has been a substantial devaluation of the British pound relative to the U.S. dollar. As a result, our reported financial results were adversely impacted during the three and six months ended June 30, 2017 compared to the same periods of 2016.  

 

Redomicile to the U.K. On July 1, 2016, the Cardtronics group of companies changed the location of incorporation of the parent company from Delaware to the U.K. Cardtronics plc, a public limited company organized under English law (“Cardtronics plc”), became the new publicly traded corporate parent of the Cardtronics group of companies following the completion of the merger between Cardtronics, Inc., a Delaware corporation (“Cardtronics Delaware”) and one of its subsidiaries (the “Merger”). The Merger was completed pursuant to the Agreement and Plan of Merger, dated April 27, 2016, the adoption of which was approved by Cardtronics Delaware’s shareholders on June 28, 2016 (collectively, the “Redomicile Transaction”).

 

U.K. regulatory approval of the DCPayments acquisition. We are pursuing regulatory approval of the DCPayments acquisition with the U.K. Competition and Markets Authority (the “CMA”). Our ability to integrate the combined U.K. business is delayed until such approval is obtained. The CMA has oversight over the U.K. portion of the acquisition, which accounted for less than 2% of our consolidated revenues during the six months ended June 30, 2017. On May 3, 2017, we were notified by the CMA that the proposed merger of the DCPayments U.K. business with our existing U.K. operations has been referred for an in-depth phase 2 investigation by an independent group of CMA panel members (the “Phase 2 Investigation”).  The Phase 2 Investigation is currently underway with the earliest date a decision could be rendered by the CMA being October 27, 2017 (assuming no extension of the Phase 2 Investigation by the CMA). The ultimate impact of the CMA review on our DCPayments U.K. business is uncertain at this time. 

 

Restructuring expenses.  During the three months ended March 31, 2017, we initiated a global corporate reorganization and cost reduction initiative (the “Restructuring Plan”), intended to improve our cost structure and operating efficiency. The Restructuring Plan included workforce reductions, facilities closures, and other cost reduction measures. During the three months ended March  31, 2017, we incurred $8.2 million of pre-tax expenses related to the Restructuring Plan, reflected in the Restructuring expenses line item in the accompanying Consolidated Statements of Operations. These expenses included employee severance costs of $8.0 million and lease termination costs of $0.2 million. We did not incur any additional restructuring expenses during the three months ended June 30, 2017.  

 

During the three months ended March 31, 2017, we also identified certain assets that will likely be abandoned or are no longer capable of recovering their carrying values. As a result, we recognized $3.2 million in asset impairment charges included in the Loss (gain) on disposal and impairment of assets line item in the accompanying Consolidated Statements of Operations. We did not recognize any additional asset impairment charges during the three months ended June 30, 2017.

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New currency designs in the U.K. Polymer notes were introduced by the Bank of England in 2016 and will be further circulated through 2020. The introduction of these new currency designs has required upgrades to software and physical ATM components on our ATMs in the U.K., which may result in some limited downtime for the affected ATMs. These upgrades will continue during 2017. We have not experienced and do not anticipate any material adverse financial or operational impact as a result of the new requirements to handle these new notes.

 

Acquisitions. On April 13, 2016, we completed the acquisition of a 2,600 location ATM portfolio in the U.S., from a major financial institution, whereby we acquired ATMs and operating contracts with merchants at various retail locations. This acquisition was affected through multiple closings taking place primarily in April 2016. The total purchase consideration of approximately $13.8 million was paid in installments corresponding to each close.

 

On January 6, 2017, we completed the acquisition of DCPayments, a leading operator of approximately 25,000 ATMs with operations in Australia, New Zealand, Canada, the U.K., and Mexico. In connection with the closing of the acquisition, each DCPayments common share was acquired for Canadian Dollars $19.00 in cash per common share, and we also repaid the outstanding third-party indebtedness of DCPayments, the combined aggregate of which represented a total transaction value of approximately $658 million Canadian Dollars (approximately $495 million U.S. dollars).  

 

On January 31, 2017, we completed the acquisition of Spark, an independent ATM deployer in South Africa, with a growing network of approximately 2,300 ATMs. The agreed purchase consideration included initial cash consideration, paid at closing, and potential additional contingent consideration. The additional potential purchase consideration is contingent upon Spark achieving certain agreed upon earnings targets in 2019 and 2020.

 

For additional information related to the acquisitions above, see Item 1. Financial Statements, Note 2. Acquisitions.

 

Factors Impacting Comparability Between Periods

 

·

Foreign currency exchange rates. Our reported financial results are subject to fluctuations in foreign currency exchange rates. We estimate that the year-over-year strengthening in the U.S. dollar relative to the currencies in the markets in which we operate caused our reported total revenues to be lower by approximately $22.7 million, or 3.6%, for the six months ended June 30, 2017.  

 

·

Acquisitions and divestitures. The results of operations for any acquired entities during a particular year have been included in our consolidated financial statements for that year since the respective dates of the acquisition. Similarly, the results of operations for any divested operations have been excluded from our consolidated financial statements since the dates of divestiture.

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Results of Operations

 

The following table reflects line items from the accompanying Consolidated Statements of Operations as a percentage of total revenues for the periods indicated. Percentages may not add due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

96.9

%

 

96.1

%

 

96.3

%

 

96.2

%

ATM product sales and other revenues

 

3.1

 

 

3.9

 

 

3.7

 

 

3.8

 

Total revenues

 

100.0

 

 

100.0

 

 

100.0

 

 

100.0

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets reported separately below) (1)

 

64.0

 

 

61.4

 

 

64.4

 

 

61.3

 

Cost of ATM product sales and other revenues

 

2.9

 

 

3.5

 

 

3.5

 

 

3.4

 

Total cost of revenues

 

66.9

 

 

64.9

 

 

67.9

 

 

64.8

 

Gross profit

 

33.1

 

 

35.1

 

 

32.1

 

 

35.2

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses (2)

 

11.3

 

 

11.7

 

 

11.5

 

 

12.0

 

Redomicile-related expenses

 

 —

 

 

1.6

 

 

0.1

 

 

1.8

 

Restructuring expenses

 

 —

 

 

 —

 

 

1.1

 

 

 —

 

Acquisition and divestiture-related expenses

 

1.0

 

 

0.2

 

 

1.7

 

 

0.4

 

Depreciation and accretion expense

 

7.7

 

 

7.1

 

 

7.9

 

 

7.3

 

Amortization of intangible assets

 

4.0

 

 

3.0

 

 

4.1

 

 

3.0

 

Loss (gain) on disposal and impairment of assets

 

0.2

 

 

(0.4)

 

 

0.5

 

 

(0.2)

 

Total operating expenses

 

24.2

 

 

23.2

 

 

26.9

 

 

24.3

 

Income from operations

 

8.9

 

 

11.8

 

 

5.2

 

 

10.9

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

2.5

 

 

1.4

 

 

2.2

 

 

1.4

 

Amortization of deferred financing costs and note discount

 

0.8

 

 

0.9

 

 

0.8

 

 

0.9

 

Other expense

 

0.5

 

 

0.3

 

 

 —

 

 

0.1

 

Total other expense

 

3.8

 

 

2.6

 

 

3.0

 

 

2.4

 

Income before income taxes

 

5.1

 

 

9.3

 

 

2.2

 

 

8.5

 

Income tax expense

 

1.2

 

 

3.0

 

 

0.2

 

 

2.8

 

Net income

 

3.9

 

 

6.2

 

 

1.9

 

 

5.7

 

Net (loss) income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net income attributable to controlling interests and available to common shareholders

 

3.9

%

 

6.2

%

 

1.9

%

 

5.7

%

 

(1)

Excludes effects of depreciation, accretion, and amortization of intangible assets of $37.6 million and $27.9 million for the three months ended June 30, 2017 and 2016, respectively, and $74.7 million and $55.3 million for the six months ended June 30, 2017 and 2016, respectively. See Item 1. Financial Statements, Note 1. General and Basis of Presentation – (c) Cost of ATM Operating Revenues and Gross Profit Presentation. The inclusion of this depreciation, accretion, and amortization of intangible assets in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 9.8% and 8.6% for the three months ended June 30, 2017 and 2016, respectively, and 10.1% and 8.9% for the six months ended June 30, 2017 and 2016, respectively.

(2)

Includes share-based compensation expense of $3.4 million and $5.7 million for the three months ended June 30, 2017 and 2016, respectively, and $5.7 million and $8.8 million for the six months ended June 30, 2017 and 2016, respectively.

52


 

Key Operating Metrics

 

The following table reflects certain key measures that gauge our operating performance for the periods indicated, including the effect of the acquisitions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

 

% Change

 

2016

 

2017

 

% Change

 

2016

Average number of transacting ATMs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

45,207

 

 

9.1%

 

 

41,450

 

 

 

45,196

 

 

11.8%

 

 

40,413

 

United Kingdom and Ireland

 

 

21,574

 

 

34.3

 

 

16,063

 

 

 

21,416

 

 

34.4

 

 

15,936

 

Australia and New Zealand

 

 

8,816

 

 

n/m

 

 

 —

 

 

 

8,913

 

 

n/m

 

 

 —

 

Canada

 

 

6,053

 

 

225.3

 

 

1,861

 

 

 

6,126

 

 

230.1

 

 

1,856

 

South Africa

 

 

2,368

 

 

n/m

 

 

 —

 

 

 

2,352

 

 

n/m

 

 

 —

 

Germany, Poland, and Spain

 

 

1,535

 

 

32.9

 

 

1,155

 

 

 

1,478

 

 

29.4

 

 

1,142

 

Mexico

 

 

957

 

 

(30.7)

 

 

1,381

 

 

 

1,117

 

 

(19.5)

 

 

1,387

 

Total Company-owned

 

 

86,510

 

 

39.7

 

 

61,910

 

 

 

86,598

 

 

42.6

 

 

60,734

 

United States (1)

 

 

12,363

 

 

(25.6)

 

 

16,613

 

 

 

12,499

 

 

(26.7)

 

 

17,063

 

Canada

 

 

2,974

 

 

n/m

 

 

 —

 

 

 

2,919

 

 

n/m

 

 

 —

 

United Kingdom and Ireland

 

 

635

 

 

n/m

 

 

 —

 

 

 

616

 

 

n/m

 

 

 —

 

Australia and New Zealand

 

 

103

 

 

n/m

 

 

 —

 

 

 

103

 

 

n/m

 

 

 —

 

Total Merchant-owned

 

 

16,075

 

 

(3.2)

 

 

16,613

 

 

 

16,137

 

 

(5.4)

 

 

17,063

 

Average number of transacting ATMs – ATM operations

 

 

102,585

 

 

30.6

 

 

78,523

 

 

 

102,735

 

 

32.1

 

 

77,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Managed Services and Processing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

127,435

 

 

8.3

 

 

117,696

 

 

 

125,493

 

 

8.8

 

 

115,327

 

Canada

 

 

3,411

 

 

99.8

 

 

1,707

 

 

 

3,385

 

 

110.1

 

 

1,611

 

Australia and New Zealand

 

 

1,857

 

 

n/m

 

 

 —

 

 

 

1,776

 

 

n/m

 

 

 —

 

Average number of transacting ATMs – Managed services and processing

 

 

132,703

 

 

11.1

 

 

119,403

 

 

 

130,654

 

 

11.7

 

 

116,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total average number of transacting ATMs

 

 

235,288

 

 

18.9

 

 

197,926

 

 

 

233,389

 

 

19.8

 

 

194,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

390,094

 

 

14.1

 

 

341,941

 

 

 

752,408

 

 

14.9

 

 

655,072

 

Managed services and processing, net

 

 

261,293

 

 

47.6

 

 

176,998

 

 

 

507,874

 

 

46.0

 

 

347,877

 

Total transactions

 

 

651,387

 

 

25.5

 

 

518,939

 

 

 

1,260,282

 

 

25.7

 

 

1,002,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash withdrawal transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

248,166

 

 

14.8

 

 

216,197

 

 

 

482,411

 

 

18.2

 

 

408,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per ATM per month amounts (excludes managed services and processing):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions

 

 

806

 

 

(12.2)

 

 

918

 

 

 

783

 

 

(10.5)

 

 

875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues (2)

 

$

1,136

 

 

(9.1)

 

$

1,250

 

 

$

1,084

 

 

(11.1)

 

$

1,220

 

Cost of ATM operating revenues (2)(3) 

 

 

767

 

 

(4.5)

 

 

803

 

 

 

737

 

 

(6.0)

 

 

784

 

ATM operating gross profit (2) (3) 

 

$

369

 

 

(17.4%)

 

$

447

 

 

$

347

 

 

(20.4%)

 

$

436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating gross profit margin (2) (3) 

 

 

32.5

%

 

 

 

 

35.8

%

 

 

32.0

%

 

 

 

 

35.7

%

 

(1)

Certain ATMs previously reported in this category are now included in the United States: Managed services and processing and United States: Company-owned categories.

(2)

ATM operating revenues and Cost of ATM operating revenues relating to managed services, processing, ATM equipment sales, and other ATM-related services are not included in this calculation.

(3)

Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is reported separately in the accompanying Consolidated Statements of Operations. See Item 1. Financial Statements, Note 1. General and Basis of Presentation - (c) Cost of ATM Operating Revenues and Gross Profit Presentation. 

53


 

The following table reflects certain key measures that gauge our operating performance for the periods indicated,  excluding the effect of the acquisitions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

 

% Change

 

2016

    

2017

 

% Change

 

2016

Average number of transacting ATMs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

45,207

 

 

9.1%

 

 

41,450

 

 

 

42,816

 

 

5.9%

 

 

40,413

 

United Kingdom and Ireland

 

 

16,567

 

 

3.1

 

 

16,063

 

 

 

16,451

 

 

3.2

 

 

15,936

 

Canada

 

 

1,835

 

 

(1.4)

 

 

1,861

 

 

 

1,813

 

 

(2.3)

 

 

1,856

 

Germany, Poland, and Spain

 

 

1,535

 

 

32.9

 

 

1,155

 

 

 

1,478

 

 

29.4

 

 

1,142

 

Mexico

 

 

523

 

 

(62.1)

 

 

1,381

 

 

 

699

 

 

(49.6)

 

 

1,387

 

Total Company-owned

 

 

65,667

 

 

6.1

 

 

61,910

 

 

 

63,257

 

 

4.2

 

 

60,734

 

United States (1)

 

 

12,363

 

 

(25.6)

 

 

16,613

 

 

 

12,499

 

 

(26.7)

 

 

17,063

 

Total Merchant-owned

 

 

12,363

 

 

(25.6)

 

 

16,613

 

 

 

12,499

 

 

(26.7)

 

 

17,063

 

Average number of transacting ATMs – ATM operations

 

 

78,030

 

 

(0.6)

 

 

78,523

 

 

 

75,756

 

 

(2.6)

 

 

77,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Managed Services and Processing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

127,435

 

 

8.3

 

 

117,696

 

 

 

125,493

 

 

8.8

 

 

115,327

 

Canada

 

 

2,033

 

 

19.1

 

 

1,707

 

 

 

2,009

 

 

24.7

 

 

1,611

 

Average number of transacting ATMs – Managed services and processing

 

 

129,468

 

 

8.4

 

 

119,403

 

 

 

127,502

 

 

9.0

 

 

116,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total average number of transacting ATMs

 

 

207,498

 

 

4.8

 

 

197,926

 

 

 

203,258

 

 

4.4

 

 

194,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

345,912

 

 

1.2

 

 

341,941

 

 

 

658,416

 

 

0.5

 

 

655,072

 

Managed services and processing, net

 

 

166,643

 

 

(5.9)

 

 

176,998

 

 

 

330,086

 

 

(5.1)

 

 

347,877

 

Total transactions

 

 

512,555

 

 

(1.2)

 

 

518,939

 

 

 

988,502

 

 

(1.4)

 

 

1,002,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash withdrawal transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

212,919

 

 

(1.5)

 

 

216,197

 

 

 

408,207

 

 

 —

 

 

408,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per ATM per month amounts (excludes managed services and processing):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions

 

 

910

 

 

(0.9)

 

 

918

 

 

 

898

 

 

2.6

 

 

875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues (2)

 

$

1,192

 

 

(4.6)

 

$

1,250

 

 

$

1,181

 

 

(3.2)

 

$

1,220

 

Cost of ATM operating revenues (2)(3) 

 

 

791

 

 

(1.5)

 

 

803

 

 

 

784

 

 

 —

 

 

784

 

ATM operating gross profit (2) (3) 

 

$

401

 

 

(10.3%)

 

$

447

 

 

$

397

 

 

(8.9%)

 

$

436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating gross profit margin (2) (3) 

 

 

33.6

%

 

 

 

 

35.8

%

 

 

33.6

%

 

 

 

 

35.7

%

 

(1)

Certain ATMs previously reported in this category are now included in the United States: Managed services and processing and United States: Company-owned categories.

(2)

ATM operating revenues and Cost of ATM operating revenues relating to managed services, processing, ATM equipment sales, and other ATM-related services are not included in this calculation.

(3)

Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is reported separately in the accompanying Consolidated Statements of Operations. See Item 1. Financial Statements, Note 1. General and Basis of Presentation - (c) Cost of ATM Operating Revenues and Gross Profit Presentation.  

54


 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

  

2016

 

% Change

   

2017

 

2016

 

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

242,189

 

$

218,449

 

10.9

%

 

$

469,377

 

$

426,454

 

10.1

%

ATM product sales and other revenues

 

 

9,667

 

 

11,228

 

(13.9)

 

 

 

23,536

 

 

20,992

 

12.1

 

North America total revenues

 

 

251,856

 

 

229,677

 

9.7

 

 

 

492,913

 

 

447,446

 

10.2

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

 

100,946

 

 

95,713

 

5.5

 

 

 

186,330

 

 

182,298

 

2.2

 

ATM product sales and other revenues

 

 

2,208

 

 

1,402

 

57.5

 

 

 

4,071

 

 

2,797

 

45.5

 

Europe & Africa total revenues

 

 

103,154

 

 

97,115

 

6.2

 

 

 

190,401

 

 

185,095

 

2.9

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

 

32,891

 

 

 —

 

n/m

 

 

 

64,384

 

 

 —

 

n/m

 

ATM product sales and other revenues

 

 

74

 

 

 —

 

n/m

 

 

 

159

 

 

 —

 

n/m

 

Australia & New Zealand total revenues

 

 

32,965

 

 

 —

 

n/m

 

 

 

64,543

 

 

 —

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

 

(2,863)

 

 

(2,831)

 

1.1

 

 

 

(5,173)

 

 

(5,333)

 

(3.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ATM operating revenues

 

 

373,260

 

 

311,331

 

19.9

 

 

 

715,048

 

 

603,419

 

18.5

 

Total ATM product sales and other revenues

 

 

11,852

 

 

12,630

 

(6.2)

 

 

 

27,636

 

 

23,789

 

16.2

 

Total revenues

 

$

385,112

 

$

323,961

 

18.9

%

 

$

742,684

 

$

627,208

 

18.4

%

 

55


 

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

 

ATM operating revenues. ATM operating revenues during the three months ended June 30, 2017 increased $61.9 million, or 19.9%, from the three months ended June 30, 2016. The increase in ATM operating revenues is attributable to the DCPayments and Spark acquisitions.

 

The following table details, by segment, the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 

 

   

2017

   

2016

   

Change

   

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

114,359

 

$

98,796

 

$

15,563

 

 

15.8

%

Interchange revenues

 

 

53,226

 

 

51,821

 

 

1,405

 

 

2.7

 

Bank-branding and surcharge-free network revenues

 

 

47,910

 

 

45,934

 

 

1,976

 

 

4.3

 

Managed services revenues

 

 

11,995

 

 

8,885

 

 

3,110

 

 

35.0

 

Other revenues

 

 

14,699

 

 

13,013

 

 

1,686

 

 

13.0

 

Total ATM operating revenues

 

 

242,189

 

 

218,449

 

 

23,740

 

 

10.9

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

28,310

 

 

27,521

 

 

789

 

 

2.9

 

Interchange revenues

 

 

69,874

 

 

66,096

 

 

3,778

 

 

5.7

 

Other revenues

 

 

2,762

 

 

2,096

 

 

666

 

 

31.8

 

Total ATM operating revenues

 

 

100,946

 

 

95,713

 

 

5,233

 

 

5.5

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

27,125

 

 

 —

 

 

27,125

 

 

n/m

 

Interchange revenues

 

 

148

 

 

 —

 

 

148

 

 

n/m

 

Bank-branding and surcharge-free network revenues

 

 

23

 

 

 —

 

 

23

 

 

n/m

 

Managed services revenues

 

 

3,439

 

 

 —

 

 

3,439

 

 

n/m

 

Other revenues

 

 

2,156

 

 

 —

 

 

2,156

 

 

n/m

 

Total ATM operating revenues

 

 

32,891

 

 

 —

 

 

32,891

 

 

n/m

 

Eliminations

 

 

(2,766)

 

 

(2,831)

 

 

65

 

 

(2.3)

 

Total ATM operating revenues

 

$

373,260

 

$

311,331

 

$

61,929

 

 

19.9

%

 

North America. Our North America segment includes our operations in the U.S., Canada, Mexico, and Puerto Rico. For the three months ended June 30, 2017,  our ATM operating revenues in our North America segment increased $23.7 million, or 10.9%, compared to the same period of 2016. The increase was primarily attributable to increased revenue in Canada and Mexico resulting from the DCPayments acquisition,  partially offset slightly lower revenues in the U.S., which were impacted by lower same-store cash withdrawal transactions at our ATMs. In addition, during the second quarter of 2017, we experienced software-related issues in conjunction with our ATM upgrades and EMV compliance effort, which caused some downtime at a significant number of our ATMs.

 

Europe & AfricaOur Europe & Africa segment includes our operations in the U.K., Ireland, Germany, Poland, Spain, South Africa, and i-design. For the three months ended June 30, 2017,  our ATM operating revenues in our Europe & Africa segment increased $5.2 million, or 5.5%, compared to the same period of 2016.  Our ATM operating revenues would have been higher by approximately $10.5 million, or an additional 10.9%, absent adverse foreign currency exchange rate movements. Excluding the foreign currency exchange rate movements, the increase is attributable to the Spark (South Africa) and DCPayments (the U.K. component of the business) acquisitions, as well as, organic ATM operating revenue growth, driven by an increase in the number of transacting ATMs related to recent ATM placement agreements with new merchants. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.

 

Australia & New Zealand.  Our Australia & New Zealand segment includes our acquired DCPayments’ operations in Australia and New Zealand. For the three months ended June 30, 2017, our ATM operating revenues in our Australia &  

56


 

New Zealand segment were $32.9 million, all of which was attributable to the DCPayments acquisition, as we did not previously have operations in Australia or New Zealand.  

 

ATM product sales and other revenues. For the three months ended June 30, 2017, our ATM product sales and other revenues decreased $0.8 million compared to the same period of 2016. The decrease was primarily related to fewer equipment sales in our North America segment and additional equipment sales in our Europe & Africa segment driven by the DCPayments acquisition.

 

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

 

ATM operating revenues. ATM operating revenues during the six months ended June 30, 2017 increased $111.6 million, or 18.5%, from the six months ended June 30, 2016.  The increase in ATM operating revenues is attributable to the DCPayments and Spark acquisitions.

 

The following table details, by segment, the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

   

2017

   

2016

   

Change

   

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

220,207

 

$

191,732

 

$

28,475

 

 

14.9

%

Interchange revenues

 

 

104,403

 

 

98,537

 

 

5,866

 

 

6.0

 

Bank-branding and surcharge-free network revenues

 

 

94,259

 

 

92,897

 

 

1,362

 

 

1.5

 

Managed services revenues

 

 

24,319

 

 

17,724

 

 

6,595

 

 

37.2

 

Other revenues

 

 

26,189

 

 

25,564

 

 

625

 

 

2.4

 

Total ATM operating revenues

 

 

469,377

 

 

426,454

 

 

42,923

 

 

10.1

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

50,633

 

 

51,422

 

 

(789)

 

 

(1.5)

 

Interchange revenues

 

 

130,320

 

 

126,422

 

 

3,898

 

 

3.1

 

Other revenues

 

 

5,377

 

 

4,454

 

 

923

 

 

20.7

 

Total ATM operating revenues

 

 

186,330

 

 

182,298

 

 

4,032

 

 

2.2

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

 

53,209

 

 

 —

 

 

53,209

 

 

n/m

 

Interchange revenues

 

 

2,176

 

 

 —

 

 

2,176

 

 

n/m

 

Bank-branding and surcharge-free network revenues

 

 

81

 

 

 —

 

 

81

 

 

n/m

 

Managed services revenues

 

 

6,731

 

 

 —

 

 

6,731

 

 

n/m

 

Other revenues

 

 

2,187

 

 

 —

 

 

2,187

 

 

n/m

 

Total ATM operating revenues

 

 

64,384

 

 

 —

 

 

64,384

 

 

n/m

 

Eliminations

 

 

(5,043)

 

 

(5,333)

 

 

290

 

 

(5.4)

 

Total ATM operating revenues

 

$

715,048

 

$

603,419

 

$

111,629

 

 

18.5

%

 

57


 

North America. For  the six months ended June 30, 2017,  our ATM operating revenues in our North America segment increased $42.9 million, or 10.1%, compared to the same period of 2016. The increase was primarily attributable to higher revenue in Canada and Mexico resulting from the DCPayments acquisition,  partially offset by lower same-store cash withdrawal transactions at our U.S. ATMs. The lower same-store cash withdrawal transactions in the U.S. during the six months ended June 30, 2017 were adversely impacted by an abnormally strong comparable period during 2016. The first quarter of 2016 was positively impacted by an elevated level of transactions at convenience store locations resulting from the record Powerball lottery jackpots in the U.S. In addition,  during the first half of 2017, we experienced software-related issues in conjunction with our ATM upgrades and EMV compliance effort, as well as  a service disruption at a number of ATMs caused by a third-party software issue, which caused some downtime at a significant number of our ATMs.

 

Europe & Africa. For the six months ended June 30, 2017,  our ATM operating revenues in our Europe & Africa segment increased $4.0 million, or 2.2%, compared to the same period of 2016.  Our ATM operating revenues would have been higher by approximately $21.9 million, or an additional 12.0%, absent adverse foreign currency exchange rate movements. Excluding the foreign currency exchange rate movements, the increase was attributable primarily to the Spark (South Africa) and DCPayments (the U.K. component of the business) acquisitions, as well as organic ATM operating revenue growth, driven by an increase in the number of transacting ATMs related to recent ATM placement agreements with new merchants. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.

 

Australia & New Zealand. For the six months ended June 30, 2017, our ATM operating revenues in our Australia & New Zealand segment were $64.4 million, all of which was attributable to the DCPayments acquisition, as we did not previously have operations in Australia or New Zealand.  The DCPayments acquisition was completed on January 6, 2017, and our results for the six months ended June 30, 2017 reflect the ATM operating revenues from this date.

 

ATM product sales and other revenues. For the six months ended June 30, 2017, our ATM product sales and other revenues increased $3.8 million compared to the same period of 2016. The increase was primarily related to additional equipment sales in our North America and Europe & Africa segments driven by the DCPayments acquisition.

 

58


 

Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

   

2016

   

% Change

   

2017

   

2016

   

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (1)

 

$

160,326

 

$

140,058

 

14.5

%

 

$

314,987

 

$

271,159

 

16.2

%

Cost of ATM product sales and other revenues

 

 

9,818

 

 

11,049

 

(11.1)

 

 

 

21,020

 

 

20,341

 

3.3

 

North America total cost of revenue (1)

 

 

170,144

 

 

151,107

 

12.6

 

 

 

336,007

 

 

291,500

 

15.3

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (1)

 

 

64,102

 

 

61,346

 

4.5

 

 

 

120,100

 

 

118,570

 

1.3

 

Cost of ATM product sales and other revenues

 

 

960

 

 

438

 

119.2

 

 

 

3,600

 

 

1,079

 

233.6

 

Europe & Africa total cost of revenues (1)

 

 

65,062

 

 

61,784

 

5.3

 

 

 

123,700

 

 

119,649

 

3.4

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (1)

 

 

23,687

 

 

 —

 

n/m

 

 

 

46,240

 

 

 —

 

n/m

 

Cost of ATM product sales and other revenues

 

 

428

 

 

 —

 

n/m

 

 

 

1,253

 

 

 —

 

n/m

 

Australia & New Zealand total cost of revenues (1)

 

 

24,115

 

 

 —

 

n/m

 

 

 

47,493

 

 

 —

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

183

 

 

270

 

(32.2)

 

 

 

140

 

 

387

 

(63.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

 

(1,904)

 

 

(2,831)

 

(32.7)

 

 

 

(3,178)

 

 

(5,333)

 

(40.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of ATM operating revenues (1)

 

 

246,484

 

 

198,843

 

24.0

 

 

 

478,411

 

 

384,783

 

24.3

 

Cost of ATM product sales and other revenues

 

 

11,116

 

 

11,487

 

(3.2)

 

 

 

25,751

 

 

21,420

 

20.2

 

Total cost of revenues (1)

 

$

257,600

 

$

210,330

 

22.5

%

 

$

504,162

 

$

406,203

 

24.1

%

 

(1)

Exclusive of depreciation, accretion, and amortization of intangible assets.

59


 

Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016

 

Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) during the three months ended June 30, 2017 increased $47.6 million, or 24.0%, from the three months ended June 30, 2016. The majority of the increase in the Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) is attributable to the DCPayments acquisition.

 

The following table details, by segment, the changes in the various components of Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 

 

    

2017

    

2016

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

$

82,019

 

$

69,177

 

$

12,842

 

 

18.6

%

Vault cash rental

 

 

13,802

 

 

15,674

 

 

(1,872)

 

 

(11.9)

 

Other costs of cash

 

 

18,835

 

 

15,132

 

 

3,703

 

 

24.5

 

Repairs and maintenance

 

 

16,720

 

 

14,910

 

 

1,810

 

 

12.1

 

Communications

 

 

5,760

 

 

5,152

 

 

608

 

 

11.8

 

Transaction processing

 

 

2,284

 

 

1,867

 

 

417

 

 

22.3

 

Employee costs

 

 

8,638

 

 

7,467

 

 

1,171

 

 

15.7

 

Other expenses

 

 

12,268

 

 

10,679

 

 

1,589

 

 

14.9

 

Total cost of ATM operating revenues

 

 

160,326

 

 

140,058

 

 

20,268

 

 

14.5

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

27,812

 

 

25,380

 

 

2,432

 

 

9.6

 

Vault cash rental

 

 

3,280

 

 

2,913

 

 

367

 

 

12.6

 

Other costs of cash

 

 

5,947

 

 

5,499

 

 

448

 

 

8.1

 

Repairs and maintenance

 

 

3,499

 

 

4,038

 

 

(539)

 

 

(13.3)

 

Communications

 

 

2,952

 

 

2,847

 

 

105

 

 

3.7

 

Transaction processing

 

 

4,337

 

 

4,636

 

 

(299)

 

 

(6.4)

 

Employee costs

 

 

9,754

 

 

9,472

 

 

282

 

 

3.0

 

Other expenses

 

 

6,521

 

 

6,561

 

 

(40)

 

 

(0.6)

 

Total cost of ATM operating revenues

 

 

64,102

 

 

61,346

 

 

2,756

 

 

4.5

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

13,640

 

 

 —

 

 

13,640

 

 

n/m

 

Vault cash rental

 

 

1,344

 

 

 —

 

 

1,344

 

 

n/m

 

Other costs of cash

 

 

2,169

 

 

 —

 

 

2,169

 

 

n/m

 

Repairs and maintenance

 

 

1,877

 

 

 —

 

 

1,877

 

 

n/m

 

Communications

 

 

969

 

 

 —

 

 

969

 

 

n/m

 

Transaction processing

 

 

501

 

 

 —

 

 

501

 

 

n/m

 

Employee costs

 

 

1,466

 

 

 —

 

 

1,466

 

 

n/m

 

Other expenses

 

 

1,721

 

 

 —

 

 

1,721

 

 

n/m

 

Total cost of ATM operating revenues

 

 

23,687

 

 

 —

 

 

23,687

 

 

n/m

 

Corporate

 

 

183

 

 

270

 

 

(87)

 

 

(32.2)

 

Eliminations

 

 

(1,814)

 

 

(2,831)

 

 

1,017

 

 

(35.9)

 

Total cost of ATM operating revenues

 

$

246,484

 

$

198,843

 

$

47,641

 

 

24.0

%

 

North America.  For the three months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in our North America segment increased $20.3 million, or 14.5%, compared to the same period of 2016.  The increase was attributable to the following: (i) incremental costs in Canada and Mexico resulting from the DCPayments acquisition, (ii) higher other cost of cash in the U.S. driven by cash losses and recent charges from networks associated with suspected fraudulent transactions following the EMV liability

60


 

shift on the MasterCard network, (iii) higher maintenance costs in the U.S. related primarily to recent software upgrades at certain Company-owned ATMs, and (iv) higher merchant commission expense associated with our recent contract renewals. The increase was partially offset with a decrease in vault cash rental expense in the U.S. as a result of vault cash interest savings due to changes in interest rates and our interest rate swap contracts. For additional information on EMV, see Europay, MasterCard, Visa (“EMV”) standard and software upgrades in the U.S. above.

 

Europe & Africa. For the three months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Europe & Africa segment increased $2.8 million, or 4.5%, compared to the same period of 2016.  Excluding foreign currency exchange rate movements,  our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) increased $9.3 million, or 15.2%.  The increase is consistent with the increase in ATM operating revenues (also on a constant-currency basis) during the period. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.

 

Australia & New Zealand. For the three months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Australia & New Zealand segment were $23.7 million, all of which was attributable to the DCPayments acquisition, as we did not previously have operations in Australia or New Zealand. 

 

Cost of ATM product sales and other revenues. For the three months ended June 30, 2017, our cost of ATM product sales and other revenues decreased $0.4 million compared to the same period of 2016. The decrease is consistent with the decrease in related revenues as discussed above.

 

61


 

Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016

 

Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) during the six months ended June 30, 2017 increased $93.6 million, or 24.3%, from the six months ended June 30, 2016. The majority of the increase in the Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) is attributable to the DCPayments acquisition.

 

The following table details, by segment, the changes in the various components of Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2017

    

2016

    

Change

    

% Change

 

 

(In thousands, excluding percentages)

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

$

158,579

 

$

133,629

 

$

24,950

 

 

18.7

%

Vault cash rental

 

 

27,041

 

 

29,875

 

 

(2,834)

 

 

(9.5)

 

Other costs of cash

 

 

39,324

 

 

30,384

 

 

8,940

 

 

29.4

 

Repairs and maintenance

 

 

32,593

 

 

27,905

 

 

4,688

 

 

16.8

 

Communications

 

 

10,900

 

 

10,337

 

 

563

 

 

5.4

 

Transaction processing

 

 

4,820

 

 

3,328

 

 

1,492

 

 

44.8

 

Employee costs

 

 

16,675

 

 

14,771

 

 

1,904

 

 

12.9

 

Other expenses

 

 

25,055

 

 

20,930

 

 

4,125

 

 

19.7

 

Total cost of ATM operating revenues

 

 

314,987

 

 

271,159

 

 

43,828

 

 

16.2

 

Europe & Africa

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

52,141

 

 

49,323

 

 

2,818

 

 

5.7

 

Vault cash rental

 

 

6,525

 

 

5,985

 

 

540

 

 

9.0

 

Other costs of cash

 

 

10,948

 

 

10,516

 

 

432

 

 

4.1

 

Repairs and maintenance

 

 

6,968

 

 

8,346

 

 

(1,378)

 

 

(16.5)

 

Communications

 

 

5,658

 

 

5,274

 

 

384

 

 

7.3

 

Transaction processing

 

 

8,008

 

 

8,950

 

 

(942)

 

 

(10.5)

 

Employee costs

 

 

19,282

 

 

19,370

 

 

(88)

 

 

(0.5)

 

Other expenses

 

 

10,570

 

 

10,806

 

 

(236)

 

 

(2.2)

 

Total cost of ATM operating revenues

 

 

120,100

 

 

118,570

 

 

1,530

 

 

1.3

 

Australia & New Zealand

 

 

 

 

 

 

 

 

 

 

 

 

 

Merchant commissions

 

 

26,858

 

 

 —

 

 

26,858

 

 

n/m

 

Vault cash rental

 

 

3,512

 

 

 —

 

 

3,512

 

 

n/m

 

Other costs of cash

 

 

5,250

 

 

 —

 

 

5,250

 

 

n/m

 

Repairs and maintenance

 

 

3,844

 

 

 —

 

 

3,844

 

 

n/m

 

Communications

 

 

2,267

 

 

 —

 

 

2,267

 

 

n/m

 

Transaction processing

 

 

1,097

 

 

 —

 

 

1,097

 

 

n/m

 

Employee costs

 

 

2,848

 

 

 —

 

 

2,848

 

 

n/m

 

Other expenses

 

 

564

 

 

 —

 

 

564

 

 

n/m

 

Total cost of ATM operating revenues

 

 

46,240

 

 

 —

 

 

46,240

 

 

n/m

 

Corporate

 

 

140

 

 

387

 

 

(247)

 

 

(63.8)

 

Eliminations

 

 

(3,056)

 

 

(5,333)

 

 

2,277

 

 

(42.7)

 

Total cost of ATM operating revenues

 

$

478,411

 

$

384,783

 

$

93,628

 

 

24.3

%

 

North America. For  the six months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) in our North America segment increased $43.8 million, or 16.2%, compared to the same period of 2016.  The increase was attributable to the following: (i) incremental costs in Canada and Mexico resulting from the DCPayments acquisition, (ii) higher other cost of cash in the U.S. driven by cash losses and recent charges from networks associated with suspected fraudulent transactions following the EMV liability

62


 

shift on the MasterCard network, (iii) higher maintenance costs in the U.S. related primarily to recent software upgrades at certain Company-owned ATMs, and (iv) higher merchant commission expense associated with our recent contract renewals. The increase was partially offset with a decrease in vault cash rental expense in the U.S. as a result of vault cash interest savings due to changes in interest rates and our interest rate swap contracts. For additional information on EMV, see Europay, MasterCard, Visa (“EMV”) standard and software upgrades in the U.S. above.

 

Europe & Africa. For the six months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Europe & Africa segment increased $1.5 million, or 1.3%, compared to the same period of 2016.  Excluding foreign currency exchange rate movements,  our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) increased $15.6 million, or 13.1%.  The increase is consistent with the increase in ATM operating revenues (also on a constant-currency basis) during the period. For additional information related to our constant-currency calculations, see Non-GAAP Financial Measures below.

 

Australia & New Zealand. For the six months ended June 30, 2017, our cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) in our Australia & New Zealand segment were $46.2 million, all of which was attributable to the DCPayments acquisition, as we did not previously have operations in Australia or New Zealand. The DCPayments acquisition was completed on January 6, 2017, and our results for the six months ended June 30, 2017 reflect the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) from this date.

 

Cost of ATM product sales and other revenues. For the six months ended June 30, 2017, our cost of ATM product sales and other revenues increased $4.3 million compared to the same period of 2016. The increase is consistent with the increase in related revenues as discussed above.

 

Gross Profit Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

 

2016

   

2017

 

2016

ATM operating gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

Exclusive of depreciation, accretion, and amortization of intangible assets

 

34.0

%

 

36.1

%

 

33.1

%

 

36.2

%

Inclusive of depreciation, accretion, and amortization of intangible assets

 

23.9

%

 

27.2

%

 

22.6

%

 

27.1

%

ATM product sales and other revenues gross profit margin

 

6.2

%

 

9.0

%

 

6.8

%

 

10.0

%

Total gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

Exclusive of depreciation, accretion, and amortization of intangible assets.

 

33.1

%

 

35.1

%

 

32.1

%

 

35.2

%

Inclusive of depreciation, accretion, and amortization of intangible assets

 

23.3

%

 

26.5

%

 

22.0

%

 

26.4

%

 

ATM operating gross profit margin. For the three and six months ended June 30, 2017, ATM operating gross profit margin (exclusive of depreciation, accretion, and amortization of intangible assets) decreased compared to the same periods of 2016. These decreases were mostly attributable to higher operating costs related to our U.S. EMV ATM upgrades, EMV losses, and software-related issues which caused some downtime at certain of our ATMs during the first half of 2017. Additionally, we experienced a same-store cash withdrawal transaction decline in the U.S. during the first half of 2017, which adversely impacted our gross profit margin. Finally, the DCPayments operations had a lower gross profit margin than we reported for the first half of 2016. This also reduced our overall gross profit margin compared to the same periods of 2016.

 

ATM product sales and other revenues gross profit margin. For the three and six months ended June 30, 2017, our gross profit margin on ATM product sales and other revenues decreased compared to the same periods of 2016 primarily related to the mix of products sold.

63


 

 

Selling, General, and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Selling, general, and administrative expenses

 

$

40,030

 

$

32,212

 

24.3

%

    

$

79,739

   

$

66,560

 

19.8

%

Share-based compensation expense

 

 

3,440

 

 

5,700

 

(39.6)

 

 

 

5,680

 

 

8,751

 

(35.1)

 

Total selling, general, and administrative expenses

 

$

43,470

 

$

37,912

 

14.7

%

 

$

85,419

 

$

75,311

 

13.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

10.4

%

 

9.9

%

 

 

 

 

10.7

%

 

10.6

%

 

 

Share-based compensation expense

 

 

0.9

%

 

1.8

%

 

 

 

 

0.8

%

 

1.4

%

 

 

Total selling, general, and administrative expenses

 

 

11.3

%

 

11.7

%

 

 

 

 

11.5

%

 

12.0

%

 

 

 

Selling, general, and administrative expenses (“SG&A expenses”), excluding share-based compensation expense. For the three and six months ended June 30, 2017, SG&A expenses, excluding share-based compensation expense, increased  $7.8 million, or 24.3%, and $13.2 million, or 19.8%, respectively, compared to the same periods of 2016. These increases were primarily driven by additional SG&A expenses associated with the DCPayments and Spark acquisitions completed during January 2017.

 

Share-based compensation expense. For the three and six months ended June 30, 2017, share-based compensation expense decreased  $2.3 million, or 39.6%, and $3.1 million, or 35.1%, respectively, compared to the same periods of 2016. These decreases were partially attributable to a higher level of forfeitures during the period as a result of our Restructuring Plan and the associated employee terminations. The employee terminations resulted in the net reversal of $1.5 million in share-based compensation expense during the three months ended March 31, 2017. Additionally, the performance-based component of our annual equity awards is lower in the three and six months ended June 30, 2017 compared to the same periods of 2016. For additional information related to share-based compensation expense, see Item 1. Financial Statements, Note 3. Share-based Compensation.  

 

Redomicile-related Expenses

 

Redomicile-related expenses. For the six months ended June 30, 2017 and 2016, redomicile-related expenses were $0.8 million and $11.3 million, respectively. These costs consist of professional services costs associated with the Redomicile Transaction. For additional information, see in Item 1. Financial Statements, Note 1. General and Basis of Presentation - (d) Redomicile to the U.K.  

 

Restructuring Expenses

 

Restructuring expenses. During the three months ended March, 31, 2017, we implemented our Restructuring Plan, which was intended to improve our cost structure and operating efficiency and included workforce reductions, facilities closures, and other cost reduction measures. For the three months ended March 31, 2017, these expenses included employee severance costs of $8.0 million and lease termination costs of $0.2 million. We did not incur any additional restructuring expenses during the three months ended June 30, 2017. For additional information, see Item 1. Financial Statements, Note 1. General and Basis of Presentation - (e) Restructuring Expenses.

 

64


 

Acquisition and Divestiture-related Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Acquisition and divestiture-related expenses

 

$

3,993

 

$

674

 

492.4

%

 

$

12,449

 

$

2,258

 

451.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

1.0

%

 

0.2

%

 

 

 

 

1.7

%

 

0.4

%

 

 

 

Acquisition and divestiture-related expenses. For the three and six months ended June 30, 2017, acquisition and divestiture-related expenses increased  $3.3 million and $10.2 million, respectively, compared to the same periods of 2016. These increases were driven by the professional services and other costs associated with the completion and integration of the DCPayments and Spark acquisitions, completed during January 2017.

 

Depreciation and Accretion Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Depreciation and accretion expense

 

$

29,755

 

$

23,100

 

28.8

%

 

$

58,876

 

$

45,777

 

28.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

7.7

%

 

7.1

%

 

 

 

 

7.9

%

 

7.3

%

 

 

 

Depreciation and accretion expense. For the three and six months ended June 30, 2017,  depreciation and accretion expense increased  $6.7 million, or 28.8%, and $13.1 million, or 28.6%,  respectively, compared to the same periods of 2016. These increases were primarily driven by the assets we acquired in the DCPayments and Spark acquisitions completed during January 2017, and to a lesser extent, incremental depreciation expense associated with our U.S. ATM upgrades and replacements.

 

Amortization of Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Amortization of intangible assets

 

$

15,247

 

$

9,691

 

57.3

%

 

$

30,427

 

$

18,954

 

60.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

4.0

%

 

3.0

%

 

 

 

 

4.1

%

 

3.0

%

 

 

 

Amortization of intangible assets. For the three and six months ended June 30, 2017, amortization of intangible assets increased by $5.6 million and $11.5 million, respectively, compared to the same periods of 2016. These increases were driven by the additional intangible assets that we recognized in connection with the DCPayments and Spark acquisitions, completed during January 2017.

 

65


 

Loss (Gain) on Disposal and Impairment of Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Loss (gain) on disposal and impairment of assets

 

$

669

 

$

(1,326)

 

n/m

 

 

$

3,863

 

$

(944)

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

0.2

%

 

(0.4)

%

 

 

 

 

0.5

%

 

(0.2)

%

 

 

 

Loss (gain) on disposal and impairment of assets. For the three and six months ended June 30, 2017,  loss (gain) on disposal and impairment of assets increased by $2.0 million and $4.8 million, respectively, compared to the same periods of 2016. During the three months ended March, 2017, we identified certain assets that will likely be abandoned or are no longer capable of recovering their carrying values and recognized $3.2 million in asset impairment charges. 

 

Interest Expense, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Interest expense, net

 

$

9,460

 

$

4,466

 

111.8

%

 

$

16,017

 

$

8,958

 

78.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

2.5

%

 

1.4

%

 

 

 

 

2.2

%

 

1.4

%

 

 

 

Interest expense, net. For the three and six months ended June 30, 2017, interest expense, net, increased  $5.0 million  and $7.1 million, respectively, compared to the same periods of 2016. These increases were attributable to the incremental outstanding borrowings to fund the DCPayments and Spark acquisitions completed during January 2017.  For additional information related to our outstanding borrowings, see Item 1. Financial Statements, Note 8. Long-Term Debt.

 

Income Tax Expense 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

2017

    

2016

    

% Change

    

2017

    

2016

    

% Change

 

 

(In thousands, excluding percentages)

Income tax expense

 

$

4,670

 

$

9,861

 

(52.6)

%

 

$

1,718

 

$

17,816

 

(90.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

23.6

%

 

32.9

%

 

 

 

 

10.8

%

 

33.4

%

 

 

 

Income tax expense. The decreases in income tax expense compared to the same periods of 2016 were attributable to the benefits associated with our redomicile to the U.K., mix of earnings across jurisdictions, and the excess tax benefits realized in the first quarter of 2017 related to share-based compensation in accordance with Financial Accounting Standards Board issued Accounting Standard Update No. 2016-09, Improvements to Employee Stock-Based Payment Accounting (“ASU 2016-09”). For additional information related to ASU 2016-09, see Item 1. Financial Statements, Note 1. General and Basis of Presentation - (b) Basis of Presentation.

 

66


 

Non-GAAP Financial Measures

 

EBITDA, Adjusted EBITDA, Adjusted EBITA, Adjusted Net Income, Adjusted Net Income per diluted share, Free Cash Flow, and certain results prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”), as well as non-GAAP measures on a constant-currency basis represent non-GAAP financial measures provided as a complement to financial results prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures reported by other companies. We use these non-GAAP financial measures in managing and measuring the performance of our business, including setting and measuring incentive based compensation for management. We believe that the presentation of these measures and the identification of notable, non-cash, and/or (if applicable in a particular period) certain costs not anticipated to occur in future periods enhance an investor’s understanding of the underlying trends in our business and provide for better comparability between periods in different years. Adjusted EBITDA and Adjusted EBITA exclude amortization of intangible assets, share-based compensation expense, acquisition and divestiture-related expenses, certain non-operating expenses, (if applicable in a particular period) certain costs not anticipated to occur in future periods, gains or losses on disposal and impairment of assets, our obligation for the payment of income taxes, interest expense, and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Additionally, Adjusted EBITDA excludes depreciation and accretion expense. Depreciation and accretion expense and amortization of intangible assets are excluded as these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired. Adjusted Net Income represents net income computed in accordance with U.S. GAAP, before amortization of intangible assets, gains or losses on disposal and impairment of assets, share-based compensation expense, certain other expense amounts, acquisition and divestiture-related expenses, certain non-operating expenses, and (if applicable in a particular period) certain costs not anticipated to occur in future periods (together, the “Adjustments”). Prior to and for the three and six months ended June 30, 2016, Adjusted Net Income was calculated using an estimated long-term, cross-jurisdictional effective cash tax rate of 32.0%. Subsequent to the redomicile of our parent company to the U.K., we revised the process for determining our non-GAAP tax rate and now utilizes a non-GAAP tax rate derived from the U.S. GAAP tax rate adjusted for the net tax effects of the Adjustments, based on the nature and geography of the Adjustments. For the three and six months ended June 30, 2017, the non-GAAP tax rate used to calculate Adjusted Net Income was approximately 27.7% and 27.9%, respectively. Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by weighted average diluted shares outstanding. Free Cash Flow is defined as cash provided by operating activities less payments for capital expenditures, including those financed through direct debt, but excluding acquisitions. The Free Cash Flow measure does not take into consideration certain other non-discretionary cash requirements such as mandatory principal payments on portions of our long-term debt. Management calculates certain U.S. GAAP as well as non-GAAP measures on a constant-currency basis using the average foreign currency exchange rates applicable in the corresponding period of the previous year and applying these rates to the measures in the current reporting period. Management uses U.S. GAAP as well as non-GAAP measures on a constant-currency basis to assess performance and eliminate the effect foreign currency exchange rates have on comparability between periods.

 

The non-GAAP financial measures presented herein should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating, investing, or financing activities, or other income or cash flow measures prepared in accordance with U.S. GAAP. Reconciliations of the non-GAAP financial measures used herein to the most directly comparable U.S. GAAP financial measures are presented as follows:

 

 

 

67


 

Reconciliation of Net Income Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, Adjusted EBITA, and Adjusted Net Income (in thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

Net income attributable to controlling interests and available to common shareholders

 

$

15,158

 

$

20,148

 

$

14,257

 

$

35,532

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,460

 

 

4,466

 

 

16,017

 

 

8,958

Amortization of deferred financing costs and note discount

 

 

3,146

 

 

2,982

 

 

6,122

 

 

5,764

Income tax expense

 

 

4,670

 

 

9,861

 

 

1,718

 

 

17,816

Depreciation and accretion expense

 

 

29,755

 

 

23,100

 

 

58,876

 

 

45,777

Amortization of intangible assets

 

 

15,247

 

 

9,691

 

 

30,427

 

 

18,954

EBITDA 

 

$

77,436

 

$

70,248

 

$

127,417

 

$

132,801

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

Loss (gain) on disposal and impairment of assets

 

 

669

 

 

(1,326)

 

 

3,863

 

 

(944)

Other expense (1)

 

 

1,945

 

 

943

 

 

365

 

 

388

Noncontrolling interests (2)

 

 

(6)

 

 

(17)

 

 

(10)

 

 

(35)

Share-based compensation expense

 

 

3,623

 

 

5,970

 

 

5,820

 

 

9,138

Acquisition and divestiture-related expenses (3)

 

 

3,993

 

 

674

 

 

12,449

 

 

2,258

Redomicile-related expenses (4)

 

 

 —

 

 

5,214

 

 

760

 

 

11,250

Restructuring expenses (5)

 

 

 —

 

 

 —

 

 

8,243

 

 

 —

Adjusted EBITDA

 

$

87,660

 

$

81,706

 

$

158,907

 

$

154,856

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (6)

 

 

29,754

 

 

23,093

 

 

58,872

 

 

45,762

Adjusted EBITA

 

$

57,906

 

$

58,613

 

$

100,035

 

$

109,094

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,460

 

 

4,466

 

 

16,017

 

 

8,958

 Adjusted pre-tax income

 

 

48,446

 

 

54,147

 

 

84,018

 

 

100,136

Income tax expense (7)

 

 

13,418

 

 

17,327

 

 

23,449

 

 

32,043

Adjusted Net Income

 

$

35,028

 

$

36,820

 

$

60,569

 

$

68,093

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per basic share

 

$

0.77

 

$

0.81

 

$

1.33

 

$

1.51

Adjusted Net Income per diluted share

 

$

0.76

 

$

0.80

 

$

1.31

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

45,637,778

 

 

45,199,450

 

 

45,564,527

 

 

45,136,553

Weighted average shares outstanding – diluted

 

 

46,222,112

 

 

45,748,570

 

 

46,272,191

 

 

45,704,474

 

(1)

Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition-related contingent consideration payable, and other non-operating costs.

(2)

Noncontrolling interest adjustment made such that Adjusted EBITDA includes only our ownership interest in the Adjusted EBITDA of one of our Mexican subsidiaries.

(3)

Acquisition and divestiture-related expenses include costs incurred for professional and legal fees and certain other transition and integration-related costs.

(4)

Expenses associated with the redomicile of our parent company to the U.K., which was completed on July 1, 2016.

(5)

Expenses primarily related to employee severance costs associated with our Restructuring Plan implemented in the first quarter of 2017.

(6)

Amounts exclude a portion of the expenses incurred by one of our Mexican subsidiaries to account for the amounts allocable to the noncontrolling interest shareholders.

(7)

For the three and six months ended June 30, 2017, calculated using an effective tax rate of approximately 27.7% and 27.9%,  respectively, which represents our U.S. GAAP tax rate as adjusted for the net tax effects related to the items excluded from Adjusted Net Income. For the three and six months ended June 30, 2016, we used our previous estimated long-term cross-jurisdictional tax rate of 32.0%. See Non-GAAP Financial Measures above.

 

68


 

Reconciliation of U.S. GAAP Revenue to Constant-Currency Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe & Africa revenue

 

Three Months Ended

 

 

June 30, 

 

    

2017

    

2016

 

% Change

 

 

U.S.

GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.

GAAP

 

U.S.

GAAP

 

Constant - Currency

 

 

(In thousands)

 

 

 

 

 

 

ATM operating revenues

 

$

100,946

 

$

10,474

 

$

111,420

 

$

95,713

 

5.5

%

 

16.4

%

ATM product sales and other revenues

 

 

2,208

 

 

195

 

 

2,403

 

 

1,402

 

57.5

 

 

71.4

 

Total revenues

 

$

103,154

 

$

10,669

 

$

113,823

 

$

97,115

 

6.2

%

 

17.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2017

    

2016

 

% Change

 

 

U.S.

GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.

GAAP

 

U.S.

GAAP

 

Constant - Currency

 

 

(In thousands)

 

 

 

 

 

 

ATM operating revenues

 

$

186,330

 

$

21,909

 

$

208,239

 

$

182,298

 

2.2

%

 

14.2

%

ATM product sales and other revenues

 

 

4,071

 

 

394

 

 

4,465

 

 

2,797

 

45.5

 

 

59.6

 

Total revenues

 

$

190,401

 

$

22,303

 

$

212,704

 

$

185,095

 

2.9

%

 

14.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated revenue

 

Three Months Ended

 

 

June 30, 

 

    

2017

    

2016

 

% Change

 

 

U.S.

GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.

GAAP

 

U.S.

GAAP

 

Constant - Currency

 

 

(In thousands)

 

 

 

 

 

 

ATM operating revenues

 

$

373,260

 

$

10,849

 

$

384,109

 

$

311,331

 

19.9

%

 

23.4

%

ATM product sales and other revenues

 

 

11,852

 

 

195

 

 

12,047

 

 

12,630

 

(6.2)

 

 

(4.6)

 

Total revenues

 

$

385,112

 

$

11,044

 

$

396,156

 

$

323,961

 

18.9

%

 

22.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2017

    

2016

 

% Change

 

 

U.S.

GAAP

 

Foreign Currency Impact

 

Constant - Currency

 

U.S.

GAAP

 

U.S.

GAAP

 

Constant - Currency

 

 

(In thousands)

 

 

 

 

 

 

ATM operating revenues

 

$

715,048

 

$

22,300

 

$

737,348

 

$

603,419

 

18.5

%

 

22.2

%

ATM product sales and other revenues

 

 

27,636

 

 

375

 

 

28,011

 

 

23,789

 

16.2

 

 

17.7

 

Total revenues

 

$

742,684

 

$

22,675

 

$

765,359

 

$

627,208

 

18.4

%

 

22.0

%

 

 

69


 

Reconciliation of Adjusted EBITDA, Adjusted Net Income, and Adjusted Net Income per diluted share on a Non-GAAP basis to Constant-Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 

 

    

2017

    

2016

    

% Change

 

 

Non -
GAAP
(1)

 

Foreign Currency Impact

 

Constant - Currency

  

Non -
GAAP
(1)

 

Non -
GAAP
(1)

 

Constant - Currency

 

  

(In thousands)

 

 

 

 

 

 

Adjusted EBITDA

 

$

87,660

 

$

3,214

 

$

90,874

 

$

81,706

 

7.3

%

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

35,028

 

$

1,495

 

$

36,523

 

$

36,820

 

(4.9)

%

 

(0.8)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per diluted share (2)

 

$

0.76

 

$

0.03

 

$

0.79

 

$

0.80

 

(5.0)

%

 

(1.3)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2017

    

2016

    

% Change

 

 

Non -
GAAP
(1)

 

Foreign Currency Impact

 

Constant - Currency

  

Non -
GAAP
(1)

 

Non -
GAAP
(1)

 

Constant - Currency

 

  

(In thousands)

 

 

 

 

 

 

Adjusted EBITDA

 

$

158,907

 

$

5,941

 

$

164,848

 

$

154,856

 

2.6

%

 

6.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income

 

$

60,569

 

$

2,527

 

$

63,096

 

$

68,093

 

(11.0)

%

 

(7.3)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per diluted share (2)

 

$

1.31

 

$

0.05

 

$

1.36

 

$

1.49

 

(12.1)

%

 

(8.7)

%

 

(1)

As reported on the Reconciliation of Net Income Attributable to Controlling Interests and Available to Common Shareholders to EBITDA, Adjusted EBITDA, Adjusted EBITA, and Adjusted Net Income above.

(2)

Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by the weighted average diluted shares outstanding of 46,222,112 and 45,748,570 for the three months ended June 30, 2017 and 2016, respectively, and 46,272,191 and 45,704,474 for the six months ended June 30, 2017 and 2016, respectively.

 

Reconciliation of Free Cash Flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

   

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

Cash provided by operating activities

 

$

74,130

 

$

79,932

 

$

84,579

 

$

124,587

Payments for capital expenditures (1):

 

 

 

 

 

 

 

 

 

 

 

 

Cash used in investing activities, excluding acquisitions and divestitures

 

 

(31,307)

 

 

(23,120)

 

 

(69,868)

 

 

(39,571)

Free cash flow

 

$

42,823

 

$

56,812

 

$

14,711

 

$

85,016

 

(1)

Capital expenditure amounts include payments made for exclusive license agreements, site acquisition costs, and other intangible assets. Additionally, capital expenditure amounts for one of our Mexican subsidiaries are reflected gross of any noncontrolling interest amounts.

 

 

 

 

70


 

Liquidity and Capital Resources

 

Overview

 

As of  June 30, 2017, we had $53.2 million in cash and cash equivalents and $973.3 million in outstanding long-term debt.

 

We have historically funded our operations primarily through cash flows from operations, borrowings under our revolving credit facility, and the issuance of debt and equity securities and used a portion of our cash flows to invest in additional ATMs, either through acquisitions or through organic growth. We have also used cash to pay interest and principal amounts outstanding under our borrowings. Because we collect a sizable portion of our cash from sales on a daily basis but generally pay our vendors on 30 day terms and are not required to pay certain of our merchants until 20 days after the end of each calendar month, we are able to utilize the excess available cash flow to reduce borrowings made under our revolving credit facility and to fund capital expenditures. Accordingly, it is not uncommon for us to reflect a working capital deficit position in the accompanying Consolidated Balance Sheets.

 

We believe that our cash on hand and our current revolving credit facility will be sufficient to meet our working capital requirements and contractual commitments for the next twelve months. We expect to fund our working capital needs from cash flows from our operations and borrowings under our revolving credit facility, to the extent needed.

 

Operating Activities

 

Net cash provided by operating activities totaled $84.6 million during the six months ended June 30, 2017, compared to $124.6 million during the same period of 2016. The decrease in net cash provided by operating activities is primarily attributable to our changes in working capital and the payment of a significant amount of payables.

 

Investing Activities

 

Net cash used in investing activities totaled $556.9 million during the six months ended June 30, 2017, compared to $44.8 million during the same period of 2016. The increase in net cash used in investing activities is primarily attributable to the DCPayments and Spark acquisitions completed during January 2017.

 

Acquisitions. We continually evaluate acquisition opportunities that complement our existing business. We believe that expansion opportunities exist in all of our current markets, as well as in other geographic markets, and we will continue to pursue those opportunities as they arise. Such acquisition opportunities, individually or in the aggregate, could be material and may be funded by additional borrowings under our revolving credit facility or other financial sources that may be available to us.

 

On January 6, 2017, we completed the acquisition of DCPayments, for a total transaction value of approximately $658 million Canadian Dollars (approximately $495 million U.S. dollars).  On January 31, 2017, we completed the acquisition of Spark with initial cash consideration, paid at closing, and potential additional contingent consideration subject to certain performance conditions being met in future periods. Both of these transactions were financed with cash on hand and borrowings under our revolving credit facility. For additional information, see Recent Events and Trends - Acquisitions above.

 

Anticipated future capital expenditures. We currently anticipate that the majority of our capital expenditures for the foreseeable future will be attributable to organic growth projects, including the purchase of ATMs for both new and existing ATM management agreements and various compliance requirements as discussed in Recent Events and Trends - Capital investments above. Through the six months ended June 30, 2017, our capital expenditures were $69.9 million. We expect that our capital expenditures for the remainder of 2017 will total approximately $60 million to $70 million, the majority of which is expected to be utilized to support new business growth. We expect such capital expenditures to be funded primarily through our cash flows from operations and we anticipate being able to fund all capital expenditures internally. 

 

71


 

Financing Activities and Facilities

 

Net cash provided by (used in) financing activities totaled $456.3 million during the six months ended June 30, 2017, compared to $(85.9) million during the same period of 2016. The cash provided by financing activities is primarily attributable to the issuance of our 5.50% Senior Notes due 2025 (the “2025 Notes”) which reduced the outstanding borrowings under our revolving credit facility that was used to fund the DCPayments and Spark acquisitions.

 

For information related to our financing facilities, see Item 1. Financial Statements, Note 8. Long-term Debt.

 

New Accounting Standards

 

For information related to recent accounting pronouncements not yet adopted during 2017, see Item 1. Financial Statements, Note 18. New Accounting Pronouncements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our 2016 Form 10-K.  

 

We are exposed to certain risks related to our ongoing business operations, including interest rate risk associated with our vault cash rental obligations and, to a lesser extent, borrowings under our revolving credit facility. The following quantitative and qualitative information is provided about financial instruments to which we were a party at June 30, 2017, and from which we may incur future gains or losses from changes in market interest rates or foreign currency exchange rates. We do not enter into derivative or other financial instruments for speculative or trading purposes.

 

Hypothetical changes in interest rates and foreign currency exchange rates chosen for the following estimated sensitivity analysis are considered to be reasonably possible near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates and foreign currency exchange rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.

 

Interest Rate Risk

 

Vault cash rental expense. Because our ATM vault cash rental expense is based on market rates of interest, it is sensitive to changes in the general level of interest rates in the respective countries in which we operate. We pay a monthly fee on the average outstanding vault cash balances in our ATMs under floating rate formulas based on a spread above various interbank offered rates in the U.S., the U.K., Germany, Poland, and Spain. In Australia, the formula is based on the Bank Bill Swap Rates (“BBSY”), in South Africa, the rate is based on the South African Prime Lending rate, in Canada, the rate is based on the Bank of Canada’s Bankers Acceptance Rate and the Canadian Prime Rate, and in Mexico, the rate is based on the Interbank Equilibrium Interest Rate (commonly referred to as the “TIIE”).

 

As a result of the significant sensitivity surrounding our vault cash rental expense, we have entered into a number of interest rate swap contracts with varying notional amounts and fixed interest rates in the U.S. and the U.K. to effectively fix the rate we pay on the amounts of our current and anticipated outstanding vault cash balances.

 

72


 

The notional amounts, weighted average fixed rates, and terms associated with our interest rate swap contracts that are currently in place in the U.S. and the U.K. (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average

Fixed Rate

 

Notional Amounts

   

Weighted Average

Fixed Rate

 

 

U.S. $

 

U.S.

 

U.K. £

 

U.K.

 

Term 

(In millions)

 

 

 

 

(In millions)

 

 

 

 

 

$

1,000

 

2.53

%  

 

£

550

 

0.82

%  

 

July 1, 2017 – December 31, 2017

$

1,150

 

2.17

%  

 

£

550

 

0.82

%  

 

January 1, 2018 – December 31, 2018

$

1,000

 

2.06

%  

 

£

550

 

0.90

%  

 

January 1, 2019 – December 31, 2019

$

1,000

 

2.06

%  

 

£

500

 

0.94

%  

 

January 1, 2020 – December 31, 2020

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2021 – December 31, 2021

$

400

 

1.46

%  

 

£

500

 

0.94

%  

 

January 1, 2022 – December 31, 2022

 

In conjunction with the DCPayments acquisition, completed on January 6, 2017, we became party to a $50.0 million Australian dollar notional amount, 2.75% fixed rate interest rate swap contract, which terminates on February 27, 2018, a $50.0 million Australian dollar notional amount, 3.2% fixed rate interest rate swap contract, which terminates on September 28, 2018, and a $35.0 million Australian dollar notional amount, 2.98% fixed rate interest rate swap contract, which terminates on February 28, 2019. Effective January 6, 2017, these interest rate swap contracts were designated as cash flow hedging instruments.

 

The notional amounts, weighted average fixed rates, and terms associated with our interest rate swap contracts that are currently in place in Australia (as of the date of the issuance of this Form 10-Q) are as follows:

 

 

 

 

 

 

 

 

Notional Amounts
AUS $

 

Weighted Average
Fixed Rate

 

Term 

(In millions)

 

 

 

 

 

$

135

 

2.98

%  

 

July 1, 2017 – February 27, 2018

$

85

 

3.11

%  

 

February 28, 2018 – September 28, 2018

$

35

 

2.98

%  

 

September 29, 2018 – February 28, 2019

 

Summary of Interest Rate Exposure on Average Outstanding Vault Cash Balances

 

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in North America based on our average outstanding vault cash balance for the quarter ended June 30, 2017 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

 

Average outstanding vault cash balance

    

$

2,584

Interest rate swap contracts fixed notional amount

 

 

(1,000)

Residual unhedged outstanding vault cash balance

 

$

1,584

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

15.84

 

We also have terms in certain of our North America contracts with merchants and financial institution partners where we can decrease fees paid to merchants or effectively increase the fees paid to us by financial institutions if vault cash rental costs increase. Such protection will serve to reduce but not eliminate the exposure calculated above. Furthermore, we have the ability in North America to partially mitigate our interest rate exposure through our operations. We believe we can reduce the average outstanding vault cash balances as interest rates rise by visiting ATMs more frequently with lower cash amounts. This ability to reduce the average outstanding vault cash balances is partially constrained by the incremental cost of more frequent ATM visits. Our contractual protections with merchants and financial institution partners and our ability to reduce the average outstanding vault cash balances will serve to reduce but not eliminate interest rate exposure.

 

73


 

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in Europe & Africa based on our average outstanding vault cash balance for the quarter ended June 30, 2017 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

 

Average outstanding vault cash balance

   

$

1,155

Interest rate swap contracts fixed notional amount

 

 

(715)

Residual unhedged outstanding vault cash balance

 

$

440

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

4.40

 

Our sensitivity to changes in interest rates in Europe & Africa is partially mitigated by the interchange rate setting methodology that impacts our U.K. interchange revenue. Under this methodology, expected interest rate costs are utilized to determine the interchange rate that is set on an annual basis. As a result of this structure, should interest rates rise in the U.K., causing our operating expenses to rise, we would expect to see a rise in interchange rates (and our revenues), albeit with some time lag.

 

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in our Australia operations based on our average outstanding vault cash balance for the quarter ended June 30, 2017 and assuming a 100 basis point increase in interest rates (in millions):

 

 

 

 

 

Average outstanding vault cash balance

   

$

226

Interest rate swap contracts fixed notional amount

 

 

(104)

Residual unhedged outstanding vault cash balance

 

$

122

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

1.22

 

As of June 30, 2017, we had an asset of $12.9 million and a liability of $24.2 million recorded in the accompanying Consolidated Balance Sheets related to our interest rate swap contracts, which represented the fair value asset or liability of the interest rate swap contracts, as derivative instruments are required to be carried at fair value. The fair value estimate was calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These interest rate swap contracts are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy prescribed by U.S. GAAP), the effective portion of the gain or loss on the derivative instrument is reported as a component of the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets and reclassified into earnings in the Vault cash rental expense line item in the accompanying Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects earnings and has been forecasted into earnings.

 

Interest expense. Our interest expense is also sensitive to changes in interest rates as borrowings under our revolving credit facility accrue interest at floating rates. In connection with the acquisition of DCPayments, we increased our borrowings under our revolving credit facility. Subsequently, in April 2017, we issued the 2025 Notes at a fixed interest rate of 5.50% and used the net proceeds to repay $295.0 million of the outstanding borrowings under our revolving credit facility. As a result, our outstanding borrowings and exposure to floating interest rates under our revolving credit facility were significantly lowered in April 2017. As of June 30, 2017, our outstanding borrowings under our revolving credit facility were $184.2 million, which carries a floating interest rate. In the future, we may consider derivative instruments to effectively fix the interest rate on a portion of the outstanding borrowings under our revolving credit facility.

 

Outlook. Although we currently hedge a substantial portion of our vault cash interest rate risk in the U.S., the U.K., and Australia, we may not be able to enter into similar arrangements for similar amounts in the future, and any significant increase in interest rates in the future could have an adverse impact on our business, financial condition, and results of operations by increasing our operating expenses. However, we expect that the impact on our consolidated financial statements from a significant increase in interest rates would be partially mitigated by the interest rate swap contracts that we currently have in place associated with our vault cash balances in the U.S., the U.K., and Australia and other protective measures we have put in place to mitigate such risk.  

 

74


 

Foreign Currency Exchange Rate Risk

 

As a result of our operations in the U.K., Ireland, Germany, Poland, Spain, Mexico, Canada, Australia, New Zealand, and South Africa, we are exposed to market risk from changes in foreign currency exchange rates. The functional currencies of our international subsidiaries are their respective local currencies. The results of operations of our international subsidiaries are translated into U.S. dollars using average foreign currency exchange rates in effect during the periods in which those results are recorded and the assets and liabilities are translated using the foreign currency exchange rate in effect as of each balance sheet reporting date. These resulting translation adjustments to assets and liabilities have been reported in the Accumulated other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. As of June 30, 2017, this accumulated translation loss totaled $48.3 million compared to $81.6 million as of December 31, 2016.

 

Our consolidated financial results were significantly impacted by changes in foreign currency exchange rates during the three and six months ended June 30, 2017 compared to the same periods of 2016. Our total revenues during the three and six months ended June 30, 2017 would have been higher by approximately $11.0 million and $22.7 million, respectively, had the foreign currency exchange rates from the same periods of 2016, remained unchanged. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10.0% against the British pound, Euro, Polish zloty, Mexican peso, Australian dollar, South African Rand, or Canadian dollar the effect upon our operating income would have been approximately $1.5 million and $2.2 million, respectively, for the three and six months ended June 30, 2017. While we have not typically entered into forward currency swaps, we may enter such transactions in the future to mitigate exposure to changes in foreign currency exchange rates related to cash flows generated in currencies other than the U.S. dollar.

 

Certain intercompany balances are designated as short-term in nature. The changes in these balances related to foreign currency exchange rates have been recorded in the accompanying Consolidated Statements of Operations and we are exposed to foreign currency exchange rate risk as it relates to these intercompany balances.

 

We do not currently hold derivative commodity instruments, and all of our cash and cash equivalents are held in money market and checking funds.

 

Item 4. Controls and Procedures

 

Management’s Quarterly Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company has evaluated, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to its management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that its disclosure controls and procedures were effective as of June 30, 2017 at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

In conjunction with the evaluation described above, there have been no changes in the Company’s system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

75


 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For additional information related to our material pending legal and regulatory proceedings and settlements, see Part I. Financial Information, Item 1. Financial Statements, Note 13. Commitments and Contingencies.

 

Item 1A. Risk Factors

 

You should carefully consider the risks discussed in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), the risk factor described in Part II. Other Information, Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (“First Quarter Form 10-Q”),  and other information included and incorporated by reference in this report. These risks could materially affect our business, financial condition, or future results. There have been no material changes in our assessment of our risk factors from those set forth in our 2016 Form 10-K or our First Quarter Form 10-Q.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

Item 6. Exhibits

 

The exhibits required to be filed or furnished pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Index to Exhibits accompanying this Quarterly Report on Form 10-Q, and such Index to Exhibits is incorporated herein by reference.

 

 

76


 

SIGNATURES

 

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

 

 

 

CARDTRONICS PLC

 

 

 

August 2, 2017

 

/s/ Edward H. West

 

 

Edward H. West

 

 

Chief Financial Officer and Chief Operations Officer

 

 

(Duly Authorized Officer and

 

 

Principal Financial Officer)

 

 

 

August 2, 2017

 

/s/ E. Brad Conrad

 

 

E. Brad Conrad

 

 

Chief Accounting Officer

 

 

(Duly Authorized Officer and

 

 

Principal Accounting Officer)

 

 

77


 

INDEX TO EXHIBITS

 

Each exhibit identified below is part of this Form 10-Q.

 

 

 

 

Exhibit
Number

 

Description

 

 

 

4.1

 

Indenture, dated as of April 4, 2017, by and among Cardtronics, Inc., Cardtronics USA, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, relating to Cardtronics, Inc.’s and Cardtronics USA, Inc.’s 5.50% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by Cardtronics plc on April 5, 2017, File No. 001-37820).

4.2

 

First Supplemental Indenture, dated as of April 28, 2017, by and among Cardtronics, Inc., Cardtronics USA, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as trustee, related to Cardtronics, Inc.’s 5.50% Senior Notes due 2025 (incorporated by reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q filed by Cardtronics plc on May 3, 2017, File No. 001-37820).

4.3

 

Form of 5.50% Senior Note due 2025 (incorporated by reference to Exhibit 4.2 (included in Exhibit 4.1) of the Current Report on Form 8-K filed by Cardtronics plc on April 5, 2017, File No. 001-37820).

4.4

 

Second Supplemental Indenture, dated as of April 28, 2017, by and among Cardtronics, Inc., Cardtronics plc, the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as trustee, related to Cardtronics, Inc.’s 5.125% Senior Notes due 2022 (incorporated by reference to Exhibit 4.4 of the Quarterly Report on Form 10-Q filed by Cardtronics plc on May 3, 2017, File No. 001-37820).

10.1†

 

Settlement Agreement by and between Cardtronics UK Limited and Jonathan Simpson-Dent, dated effective as of April 4, 2017 (incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed by Cardtronics plc on May 3, 2017, File No. 001-37820).

10.2

 

Fifth Amendment to Amended and Restated Credit Agreement, dated April 4, 2017, by and among Cardtronics plc, the other Obligors party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 4.3 of the Current Report on Form 8-K filed by Cardtronics plc on April 5, 2017, File No. 001-37820).

31.1*

 

Certification of the Chief Executive Officer of Cardtronics plc pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of the Chief Financial Officer and Chief Operations Officer of Cardtronics plc pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**

 

Certification of the Chief Executive Officer and Chief Financial Officer and Chief Operations Officer of Cardtronics plc pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

 

XBRL Instance Document

101.SCH*

 

XBRL Taxonomy Extension Schema Document

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

* Filed herewith. 

** Furnished herewith. 

Management contract or compensatory plan or arrangement.

 

78