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General and Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2018

This Quarterly Report on Form 10-Q (this “Form 10-Q”) has been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial information. As 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” or “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, 2017 (the “2017 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

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 nine months ended September 30, 2018 and 2017 are not necessarily indicative of results of operations that may be expected for any other interim period or for the full fiscal year.

Consolidation

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, S.A. de C.V., 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.

Use of Estimates in the Preparation of the Consolidated Financial Statements

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.

Cost of ATM Operating Revenues Presentation

The Company presents the Cost of ATM operating revenues 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 line in the accompanying Consolidated Statements of Operations for the periods presented:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
	(In thousands)
Depreciation and accretion expenses related to ATMs and ATM-related assets	$	22,462	$	22,180	$	68,874	$	66,488
Amortization of intangible assets		12,994		14,996		40,263		45,423
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues	$	35,456	$	37,176	$	109,137	$	111,911

Redomicile to the U.K.

(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.

Any references to “the Company” (as defined above) or any similar references relating to periods before the redomicile to the U.K. (“Redomicile Transaction”), 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, 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.

Restructuring Expenses

(e) Restructuring Expenses

During 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, contract terminations, and other cost reduction measures. The Company incurred $8.2 million and $10.4 million of pre-tax expenses related to its Restructuring Plan during the nine and twelve months ended September 30, 2017 and December 31, 2017, respectively. During the three and nine months ended September 30, 2018, the Company implemented additional workforce reductions in an effort to continue its cost reduction initiative and incurred $1.1 million and $5.5 million of pre-tax expenses, respectively. During the remainder of 2018, its Restructuring Plan activities may include additional workforce reductions and other cost reduction measures.

The following tables reflect the amounts recorded in the Restructuring expenses line in the accompanying Consolidated Statements of Operations for the periods presented:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
	2018		2017		2018		2017
	(In thousands)				(In thousands)
North America	$	942	$	—	$	3,072	$	3,668
Europe & Africa		116		—		1,292		831
Corporate		—		—		1,170		3,744
Total restructuring expenses		1,058		—		5,534		8,243

As of September 30, 2018, $2.6 million of unpaid employee severance and lease termination costs were presented within the Accrued liabilities and Other long-term liabilities lines in the accompanying Consolidated Balance Sheets.


	As of September 30, 2018
	North America		Europe & Africa		Corporate		Total
	(In thousands)
Accrued liabilities		—		806		1,663		2,469
Other long-term liabilities		—		124		—		124
Total restructuring liabilities	$	—	$	930	$	1,663	$	2,593

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


	(In thousands)
Restructuring liabilities as of December 31, 2017	$	5,383
Restructuring expenses		5,534
Payments		(8,324)
Restructuring liabilities as of September 30, 2018	$	2,593

Goodwill and Intangible Assets

(f) Goodwill and Intangible Assets

Included within the Company’s assets are goodwill balances that have been recognized in conjunction with its purchase accounting for completed business combinations. Under U.S. GAAP, goodwill is not amortized but is evaluated periodically for impairment. The Company performs this evaluation annually as of December 31 or more frequently if there are indicators that suggest the fair value of a reporting unit may be below its carrying value. The Company initially assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment analysis. The qualitative and quantitative evaluations are performed at a reporting unit level, which have been determined based on a number of factors, including: (i) whether or not the group has any recorded goodwill, (ii) the availability of discrete financial information, and (iii) how business unit performance is measured and reported. The Company has identified seven separate reporting units for its goodwill assessments: (i) the U.S. operations, (ii) the U.K. operations, (iii) the Australia & New Zealand operations, (iv) the Canada operations, (v) the South African operations, (vi) the German operations, and (vii) the Mexico operations. Based on a qualitative assessment, if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and uses the two-step approach to test goodwill for potential impairment. Step One of the quantitative approach compares the estimated fair value of a reporting unit to its carrying value. If the carrying value exceeds the estimated fair value, then a Step Two impairment calculation is performed. Step Two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit, as if the reporting unit was newly acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized. In connection with the determination of potential impairment triggering events, the long-lived assets held by the reporting units may, on the basis of a qualitative and quantitative analysis, be determined to have carrying values that are not recoverable and in excess of their associated fair values, in which case an impairment would also be recognized related to these intangible and fixed assets.

During the three and nine months ended September 30, 2017, the Company performed a qualitative and quantitative analysis on the Australia and New Zealand reporting unit in response to its impairment indicators and determined the goodwill intangible assets recognized were impaired by approximately $194.5 million. No impairment indicators were noted during the three and nine months ended September 30, 2018 based on the Company’s assessment of qualitative factors. For additional information on its Goodwill and intangible asset impairments recognized in 2017, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies in its 2017 Form 10-K.

Loss on Disposal and Impairment of Assets

(g) Loss on Disposal and Impairment of Assets

During the three and nine months ended September 30, 2018, the Company recognized losses of $0.5 million and $15.6 million, respectively, related to the disposal and impairment of assets. The losses on disposal and impairment of assets were largely recognized during the six months ended June 30, 2018 upon the decision of the Company to not redeploy certain ATM models. Although many ATMs in the Company’s U.S. operations that were impaired were deployable, a combination of many factors, including the size, functionality, estimated upgrade costs, and availability of suitable placements resulted in a change of plans relative to certain models such that the units not currently in service were deemed not likely to be deployed. These ATM assets, with a net book value of approximately $7 million, were written down to their estimated net realizable value during the three months ended June 30, 2018. The remaining losses during the nine months ended September 30, 2018 resulted from other ATM asset disposals in the ordinary course of business and disposals related to the exit from a leased facility in the U.K.

During the three and nine months ended September 30, 2017, the Company recognized losses of $22.3 million and $26.2 million, respectively, related to the disposal and impairment of assets. The Company recognized approximately $19 million of long-lived asset impairment losses during the three months ended September 30, 2017, responsive to the impairment indicators associated with its Australia & New Zealand reporting unit. The remaining losses were a result of other ATM asset disposals in the ordinary course of business. For additional information on the long-lived asset impairments recognized in 2017, see Note 1. Basis of Presentation and Summary of Significant Accounting Policies in its 2017 Form 10-K.

Cash, Cash equivalents, and Restricted Cash

(h) Cash, Cash Equivalents, and Restricted Cash

For purposes of reporting financial condition, cash and cash equivalents include cash in bank and short-term deposit sweep accounts. Additionally, the Company maintains cash on deposit with banks that is pledged for a particular use or restricted to support a liability. These balances are classified as Restricted cash in the Current assets or Noncurrent assets lines in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid. Current restricted cash largely consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. These assets are offset by corresponding liability balances in the Accrued liabilities line in the accompanying Consolidated Balance Sheets. For purpose of reporting cash flows, the following table provides a reconciliation of the ending cash, cash equivalents, and restricted cash balances as of September 30, 2018 and 2017.


	September 30,
		2018		2017
		(in thousands)
Cash and cash equivalents	$	40,428	$	61,498
Current and long-term restricted cash		73,985		43,763
Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows	$	114,413	$	105,261

Inventory, net

(i) Inventory, net

The Company’s inventory is determined using the average cost method. The Company periodically assesses its inventory, and as necessary, adjusts the carrying values to the lower of cost or net realizable value.

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


	September 30, 2018		December 31, 2017
	(In thousands)
ATMs	$	2,245	$	3,181
ATM spare parts and supplies		13,245		12,935
Total inventory		15,490		16,116
Less: Inventory reserves		(173)		(1,833)
Inventory, net	$	15,317	$	14,283