catm_Current folio_10Q

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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, 2018

 

 

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, 2018: 46,089,529 Ordinary shares, nominal value $0.01 per share.

 

 

 

 


 

Table of Contents

 

CARDTRONICS PLC

 

TABLE OF CONTENTS

 

31

 

 

 

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

Item 1. 

Financial Statements

 

3

 

Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

 

3

 

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2018 and 2017

 

4

 

Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017

 

5

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

Cautionary Statement Regarding Forward-Looking Statements

 

46

Item 2. 

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

 

48

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

76

Item 4. 

Controls and Procedures

 

79

 

 

 

 

PART II. OTHER INFORMATION 

 

 

Item 1. 

Legal Proceedings

 

81

Item 1A. 

Risk Factors

 

81

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

81

Item 3. 

Defaults Upon Senior Securities

 

81

Item 4. 

Mine Safety Disclosures

 

81

Item 5. 

Other Information

 

81

Item 6. 

Exhibits

 

82

 

Signatures

 

83

 

 

 

 

 

 

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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 

 

 

 

 

 

 

 

 

    

June 30, 2018

    

December 31, 2017

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,252

 

$

51,370

Accounts and notes receivable, net of allowance for doubtful accounts of $3,227 and $2,001 as of June 30, 2018 and December 31, 2017, respectively

 

 

88,355

 

 

105,245

Inventory, net

 

 

14,516

 

 

14,283

Restricted cash

 

 

72,997

 

 

48,328

Prepaid expenses, deferred costs, and other current assets

 

 

106,484

 

 

96,106

Total current assets

 

 

322,604

 

 

315,332

Property and equipment, net of accumulated depreciation of $381,519 and $404,141 as of June 30, 2018 and December 31, 2017, respectively

 

 

461,210

 

 

497,902

Intangible assets, net

 

 

177,553

 

 

209,862

Goodwill

 

 

760,780

 

 

774,939

Deferred tax asset, net

 

 

6,708

 

 

6,925

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

71,481

 

 

57,756

Total assets

 

$

1,800,336

 

$

1,862,716

   

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of other long-term liabilities

 

$

22,039

 

$

31,370

Accounts payable

 

 

43,515

 

 

44,235

Accrued liabilities

 

 

295,943

 

 

306,945

Total current liabilities

 

 

361,497

 

 

382,550

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

878,423

 

 

917,721

Asset retirement obligations

 

 

56,715

 

 

59,920

Deferred tax liability, net

 

 

42,250

 

 

37,130

Other long-term liabilities

 

 

64,480

 

 

75,002

Total liabilities

 

 

1,403,365

 

 

1,472,323

   

 

 

 

 

 

 

Commitments and contingencies (See Note 15)

 

 

 

 

 

 

   

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Ordinary shares, $0.01 nominal value; 45,935,415 and 45,696,338 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

459

 

 

457

Additional paid-in capital

 

 

320,383

 

 

316,940

Accumulated other comprehensive loss, net

 

 

(37,384)

 

 

(33,595)

Retained earnings

 

 

113,602

 

 

106,670

Total parent shareholders' equity

 

 

397,060

 

 

390,472

Noncontrolling interests

 

 

(89)

 

 

(79)

Total shareholders’ equity

 

 

396,971

 

 

390,393

Total liabilities and shareholders’ equity

 

$

1,800,336

 

$

1,862,716

 

 

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

Th

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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, 

 

 

2018

    

2017

    

2018

    

2017

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

329,221

 

$

373,260

 

$

648,952

 

$

715,048

ATM product sales and other revenues

 

 

11,766

 

 

11,852

 

 

28,219

 

 

27,636

Total revenues

 

 

340,987

 

 

385,112

 

 

677,171

 

 

742,684

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

215,353

 

 

246,484

 

 

430,843

 

 

478,411

Cost of ATM product sales and other revenues

 

 

10,086

 

 

11,116

 

 

22,848

 

 

25,751

Total cost of revenues

 

 

225,439

 

 

257,600

 

 

453,691

 

 

504,162

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

40,928

 

 

43,470

 

 

82,668

 

 

85,419

Redomicile-related expenses

 

 

 —

 

 

 —

 

 

 —

 

 

760

Restructuring expenses

 

 

2,063

 

 

 —

 

 

4,476

 

 

8,243

Acquisition and divestiture-related expenses

 

 

913

 

 

3,993

 

 

2,633

 

 

12,449

Depreciation and accretion expense

 

 

31,764

 

 

29,755

 

 

62,806

 

 

58,876

Amortization of intangible assets

 

 

13,498

 

 

15,247

 

 

27,269

 

 

30,427

Loss on disposal and impairment of assets

 

 

9,697

 

 

669

 

 

15,117

 

 

3,863

Total operating expenses

 

 

98,863

 

 

93,134

 

 

194,969

 

 

200,037

Income from operations

 

 

16,685

 

 

34,378

 

 

28,511

 

 

38,485

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,159

 

 

9,460

 

 

18,333

 

 

16,017

Amortization of deferred financing costs and note discount

 

 

3,355

 

 

3,146

 

 

6,663

 

 

6,122

Other (income) expense

 

 

(2,187)

 

 

1,945

 

 

(27)

 

 

365

Total other expense

 

 

10,327

 

 

14,551

 

 

24,969

 

 

22,504

Income before income taxes

 

 

6,358

 

 

19,827

 

 

3,542

 

 

15,981

Income tax expense

 

 

2,586

 

 

4,670

 

 

2,555

 

 

1,718

Net income

 

 

3,772

 

 

15,157

 

 

987

 

 

14,263

Net income (loss) attributable to noncontrolling interests

 

 

 5

 

 

(1)

 

 

(12)

 

 

 6

Net income attributable to controlling interests and available to common shareholders

 

$

3,767

 

$

15,158

 

$

999

 

$

14,257

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.08

 

$

0.33

 

$

0.02

 

$

0.31

Net income per common share – diluted

 

$

0.08

 

$

0.33

 

$

0.02

 

$

0.31

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

45,927,732

 

 

45,637,778

 

 

45,880,661

 

 

45,564,527

Weighted average shares outstanding – diluted

 

 

46,378,813

 

 

46,222,112

 

 

46,357,776

 

 

46,272,191

 

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

 

 

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CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

    

2018

    

2017

    

Net income

 

$

3,772

 

$

15,157

 

$

987

 

$

14,263

 

Unrealized gain on interest rate swap contracts, net of deferred income tax expense of $833 and $535 for the three months ended June 30, 2018 and 2017, respectively, and $5,976 and $1,895 for the six months ended June 30, 2018 and 2017, respectively.

 

 

2,030

 

 

4,184

 

 

19,391

 

 

5,589

 

Foreign currency translation adjustments, net of deferred income tax expense (benefit) of $225 and $72 for the three months ended June 30, 2018 and 2017, respectively, and $249 and $(1,311) for the six months ended June 30, 2018 and 2017, respectively.

 

 

(30,804)

 

 

26,025

 

 

(23,180)

 

 

33,271

 

Other comprehensive (loss) income

 

 

(28,774)

 

 

 30,209

 

 

(3,789)

 

 

38,860

 

Total comprehensive (loss) income

 

 

(25,002)

 

 

45,366

 

 

(2,802)

 

 

53,123

 

Less: Comprehensive income (loss) attributable to noncontrolling interests

 

 

10

 

 

(1)

 

 

(9)

 

 

 5

 

Comprehensive (loss) income attributable to controlling interests

 

$

(25,012)

 

$

45,367

 

$

(2,793)

 

$

53,118

 

 

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

 

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CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

   

    

2018

    

2017

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

987

 

$

14,263

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

90,075

 

 

89,303

Amortization of deferred financing costs and note discount

 

 

6,663

 

 

6,122

Share-based compensation expense

 

 

5,958

 

 

5,820

Deferred income tax (benefit)

 

 

(2,344)

 

 

(66)

Loss on disposal and impairment of assets

 

 

15,117

 

 

3,863

Other reserves and non-cash items

 

 

413

 

 

1,133

Changes in assets and liabilities:

 

 

 

 

 

 

Decrease in accounts and notes receivable, net

 

 

16,398

 

 

2,479

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

 

 

(6,219)

 

 

(11,814)

Increase in inventory, net

 

 

(2,055)

 

 

(1,222)

Decrease (increase) in other assets

 

 

2,704

 

 

(1,472)

Increase (decrease) in accounts payable

 

 

1,888

 

 

(25,435)

(Decrease) increase in accrued liabilities

 

 

(9,310)

 

 

21,894

Decrease in other liabilities

 

 

(10,500)

 

 

(8,539)

Net cash provided by operating activities

 

 

109,775

 

 

96,329

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(46,682)

 

 

(69,868)

Acquisitions, net of cash acquired

 

 

 —

 

 

(484,602)

Net cash used in investing activities

 

 

(46,682)

 

 

(554,470)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

345,510

 

 

835,505

Repayments of borrowings under revolving credit facility

 

 

(390,990)

 

 

(666,256)

Proceeds from borrowings of long-term debt

 

 

 —

 

 

300,000

Debt issuance costs

 

 

 —

 

 

(5,197)

Tax payments related to share-based compensation

 

 

(2,506)

 

 

(7,820)

Proceeds from exercises of stock options

 

 

 —

 

 

105

Net cash (used in) provided by financing activities

 

 

(47,986)

 

 

456,337

   

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(1,558)

 

 

(3,743)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

13,549

 

 

(5,547)

   

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash as of beginning of period

 

 

99,817

 

 

105,747

Cash, cash equivalents, and restricted cash as of end of period

 

$

113,366

 

$

100,200

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

18,523

 

$

11,460

Cash (refund) paid for income taxes

 

$

(3,941)

 

$

3,570

 

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

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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 financial related services to consumers through its network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). As of June 30, 2018, the Company was the world’s largest ATM owner/operator, providing services to approximately 230,000 ATMs.

 

During the three months ended June 30, 2018, 60% of the Company’s revenues were derived from operations in North America (including its ATM operations in the U.S., Canada, and Mexico), 31% of the Company’s revenues were derived from operations in Europe and Africa (including its ATM operations in the U.K., Ireland, Germany, Spain, and South Africa), and 9% of the Company’s revenues were derived from the Company’s operations in Australia and New Zealand. As of June 30, 2018, the Company provided processing only services or various forms of managed services solutions to approximately 138,000 ATMs. Under a managed services arrangement, retailers, financial institutions, and ATM distributors rely on Cardtronics 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 its network, the Company delivers financial related services to cardholders and provides 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, the Company provides its retail partners with a compelling automated solution that helps attract and retain customers, and in turn, increases the likelihood that the ATMs placed at their facilities will be utilized. The Company also owns and operates electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to its network of ATMs, as well as to other ATMs under managed services arrangements. Additionally, the Company provides processing services for issuers of debit cards.

 

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.; BMO Bank of Montreal (“BMO”), the Bank of Nova Scotia (“Scotiabank”), Canadian Imperial Bank Commerce (“CIBC”), DirectCash Bank and TD Bank in Canada; and the Bank of Queensland Limited (“BOQ”) and HSBC Holdings plc (“HSBC”) in Australia. In Mexico, the Company partners with Scotiabank and Banco Multiva. As of June 30, 2018, approximately 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 1,000 participating credit unions, banks, 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 provides services to organizations 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 organizations 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.

 

The Company’s revenues are generally recurring in nature, and historically have been derived largely from convenience transaction fees, which are paid by cardholders, as well as other transaction-based fees, including interchange fees, which

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are paid by the cardholder’s financial institution for the use of the ATMs serving their customers and connectivity to the applicable EFT network that transmits data between the ATM and the cardholder’s financial institution. Other revenue sources include: (i) fees from financial institutions that participate in the Allpoint surcharge-free network, (ii) fees for branding ATMs with the logos of financial institutions and providing financial institution cardholders with surcharge free access, (iii) revenues earned by providing managed services (including transaction processing services) solutions to retailers and financial institutions, (iv) fees earned from foreign currency exchange transactions at the ATM, known as dynamic currency conversion, and (v) revenues from the sale of ATMs and ATM-related equipment and other ancillary services.

 

(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 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 six months ended June 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.

 

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.

 

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.

 

(c) 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 item in the accompanying Consolidated Statements of Operations for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

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

 

$

23,037

 

$

22,324

 

$

46,412

 

$

44,308

Amortization of intangible assets

 

 

13,498

 

 

15,247

 

 

27,269

 

 

30,427

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

 

$

36,535

 

$

37,571

 

$

73,681

 

$

74,735

 

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(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.

 

(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 six and twelve months ended June 30, 2017 and December 31, 2017, respectively. During 2018, the Company implemented additional workforce reductions in an effort to continue its cost reduction initiative. During the three and six months ended June 30, 2018, the Company incurred $2.1 million and $4.5 million of pre-tax expenses, largely consisting of employee severance. During the remainder of 2018, its Restructuring Plan activities may include additional workforce reductions, certain facilities closures, and other cost reduction measures.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

 

(In thousands)

North America

 

$

1,073

 

$

 —

 

$

2,130

 

$

3,668

Europe & Africa

 

 

495

 

 

 —

 

 

1,176

 

 

831

Corporate

 

 

495

 

 

 —

 

 

1,170

 

 

3,744

Total Restructuring expenses

 

 

2,063

 

 

 —

 

 

4,476

 

 

8,243

 

 

As of June 30, 2018, $3.3 million of unpaid employee severance and lease termination costs were 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, 2018

 

    

North America

    

Europe & Africa

    

Corporate

    

Total

 

 

(In thousands)

Current portion of other long-term liabilities

 

$

 —

 

$

 9

 

$

 —

 

$

 9

Accrued liabilities

 

 

 —

 

 

823

 

 

2,309

 

 

3,132

Other long-term liabilities

 

 

 —

 

 

204

 

 

 —

 

 

204

Total restructuring liabilities

 

$

 —

 

$

1,036

 

$

2,309

 

$

3,345

 

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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

 

 

4,476

Payments

 

 

(6,514)

Restructuring liabilities as of June 30, 2018

 

$

3,345

 

(f) Loss on Disposal and Impairment of Assets

 

During the three and six months ended June 30, 2018, the Company recognized losses of $9.7 million and $15.1 million, respectively, related to the disposal and impairment of assets. The loss on disposal and impairment of assets were due to the decision of the Company to not redeploy certain ATM models. Although many ATMs in the Company’s U.S. operations that were impaired remain 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. The remaining loss was a result of other ATM asset disposals in the ordinary course of business, and in the three months ended March 31, 2018, disposals related to the exit from a leased facility in the U.K.

 

(g) 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 potential liability. These balances are classified as Restricted cash in the Current assets or Noncurrent assets line items 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 item 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 June 30, 2018 and 2017.

 

 

 

 

 

 

 

 

 

 

 

June 30, 2018

 

 

June 30, 2017

 

 

 

(in thousands)

Cash and cash equivalents

 

$

40,252

 

$

53,177

Current and long-term restricted cash

 

 

73,114

 

 

47,023

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows

 

$

113,366

 

$

100,200

 

(h) 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:

 

 

 

 

 

 

 

 

 

   

June 30, 2018

 

December 31, 2017

 

 

(In thousands)

ATMs

 

$

2,349

 

$

3,181

ATM spare parts and supplies

 

 

12,221

 

 

12,935

Total inventory

 

 

14,570

 

 

16,116

Less: Inventory reserves

 

 

(54)

 

 

(1,833)

Inventory, net

 

$

14,516

 

$

14,283

 

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.

 

 

 

(2) New Accounting Pronouncements

 

Adoption of New Accounting Pronouncements

Revenue from Contracts with Customers. On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, using the modified retrospective adoption method, for contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening retained earnings. The comparative information in prior periods has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of the new revenue standard to be immaterial to net income on an ongoing basis.

 

On January 1, 2018, the Company recorded a net credit to opening retained earnings of approximately $5.9 million, representing the cumulative impact of adopting the new revenue standard. This adjustment was entirely related to the deferral of contract acquisition costs, consisting of sales commissions and other directly related costs totaling approximately $7.5 million, net of the related tax impact of approximately $1.6 million. During the three and six months ended June 30, 2018, the Company recognized sales commission expense and other directly related costs as a result of amortizing the amounts deferred. The incremental expenses recognized during the periods were not material.

 

The cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet for the adoption were as follows:

 

 

 

 

 

 

 

 

 

 

December 31, 2017 as Reported

 

Adjustments Due to Topic 606

 

January 1, 2018 Upon Adoption

 

 

(In thousands)

Assets

 

 

 

 

 

 

Prepaid expenses, deferred costs, and other current assets

$

96,106

$

2,919

$

99,025

Prepaid expenses, deferred costs, and other noncurrent assets

 

57,756

 

4,593

 

62,349

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deferred tax liability, net

$

37,130

$

1,579

$

38,709

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Retained earnings

$

106,670

$

5,933

$

112,603

 

Statement of Cash Flows. On January 1, 2018, the Company adopted the guidance in ASU No. 2016-18, Statement of Cash Flows pertaining to the presentation of restricted cash (Topic 230) and the classification of certain cash receipts and cash payments (the “classification guidance”).  In accordance with this guidance, the Company now presents restricted cash together with cash and cash equivalents when presenting the Consolidated Statements of Cash Flows and has applied the changes retrospectively. Also related to the classification guidance, when they occur, the Company will recognize contingent consideration payments up to the amount of the acquisition date liability in financing activities and any excess payments in operating activities.

 

Other Guidance Adopted in 2018. Effective January 1, 2018, the Company adopted the guidance in ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This guidance clarifies what constitutes a modification of a share-based payments award. Upon adoption, this guidance had no impact on the Company’s consolidated financial statements.

 

Effective January 1, 2018, the Company adopted the guidance in ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This guidance clarifies the definition of a business applicable to the recognition and reporting of an acquisition, divestiture, or disposal. It also clarifies the definition of a business applicable when assessing goodwill for impairment and when assessing if certain entities should be consolidated. Upon adoption, this guidance had no impact on the Company’s consolidated financial statements.

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In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which was intended to eliminate the stranded tax effects within Accumulated Other Comprehensive Income (“AOCI”) resulting from the Tax Cuts and Jobs Act (“TCJA”) that was enacted on December 22, 2017. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. Cardtronics elected to early adopt this guidance effective January 1, 2018. The impact of adoption was not material.

 

In March 2018, the FASB issued ASU No. 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, to add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, to ASC 740 “Income Taxes”. This guidance was issued by the SEC in December 2018 to provide immediate guidance for accounting implications of U.S. tax reform under the “Tax Cuts and Jobs Act” (the “Tax Act”) enacted on December 22, 2017. The Company has applied this guidance to its consolidated financial statements and related disclosures for the period ended June 30, 2018.

 

Accounting Pronouncements Issued But Not Yet Adopted

 

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 FASB is currently considering an option where entities may elect to not restate their comparative periods in transition. This option would allow an entity to recognize the effects of applying the standard as a cumulative-effect adjustment to retained earnings as of the adoption date. We anticipate that this option will be finalized in the third quarter of 2018 and, if available, we may elect to use this option when we adopt the Lease Standard during the first quarter of 2019. The Company is working to evaluate the transition practical expedients available under the Lease Standard and calculate the impact that this guidance will ultimately 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. The Company does not believe the adoption will have any material impact on its currently outstanding indebtedness or its ability to continue borrowing under its revolving credit facility.

 

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. This guidance 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. This guidance is effective for fiscal years beginning after 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. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This guidance 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. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, and early adoption is permitted. The Company is currently evaluating the standard and has not yet concluded on whether it will early adopt in 2018.

 

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This guidance provides targeted improvements to the accounting for hedging

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activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. This guidance is effective for fiscal years beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the standard and anticipates adopting the standard beginning January 1, 2019.  

 

(3)  Revenue Recognition

 

Disaggregated Revenues

 

The following tables present the revenue of the Company’s reportable segments disaggregated by financial statement line item and component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2018

 

 

(In thousands)

 

 

North America

 

Europe & Africa

 

Australia & New Zealand

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

90,687

 

$

30,888

 

$

22,679

 

$

 

$

144,254

Interchange revenues

 

 

35,819

 

 

72,412

 

 

1,064

 

 

 

 

109,295

Bank-branding and surcharge-free network revenues

 

 

43,990

 

 

 

 

 

 

 

 

43,990

Managed services revenues

 

 

13,540

 

 

 

 

4,031

 

 

 

 

17,571

Other revenues

 

 

13,253

 

 

2,509

 

 

1,250

 

 

(2,901)

 

 

14,111

Total ATM operating revenues

 

$

197,289

 

$

105,809

 

$

29,024

 

$

(2,901)

 

$

329,221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM product sales

 

$

3,726

 

$

20

 

$

23

 

$

 

$

3,769

Other revenues

 

 

5,902

 

 

2,021

 

 

74

 

 

 

 

7,997

ATM product sales and other revenues

 

 

 9,628

 

 

2,041

 

 

97

 

 

 

 

11,766

Total revenues

 

$

206,917

 

$

107,850

 

$

29,121

 

$

(2,901)

 

$

340,987

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

(In thousands)

 

 

 

North America

 

Europe & Africa

 

Australia & New Zealand

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surcharge revenues

 

$

179,801

 

$

57,057

 

$

46,749

 

$

 

$

283,607

Interchange revenues

 

 

71,638

 

 

139,870

 

 

2,189

 

 

 

 

213,697

Bank-branding and surcharge-free network revenues

 

 

88,437

 

 

 

 

 

 

 

 

88,437

Managed services revenues

 

 

26,092

 

 

 

 

8,210

 

 

 

 

34,302

Other revenues

 

 

26,950

 

 

5,063

 

 

2,513

 

 

(5,617)

 

 

28,909

Total ATM operating revenues

 

$

392,918

 

$

201,990

 

$

59,661

 

$

(5,617)

 

$

648,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM product sales

 

$

7,171

 

$

26

 

$

40

 

$

 

$

7,237

Other revenues

 

 

16,589

 

 

4,278

 

 

115

 

 

 

 

20,982

ATM product sales and other revenues

 

 

 23,760

 

 

4,304

 

 

155

 

 

 

 

28,219

Total revenues

 

$

416,678

 

$

206,294

 

$

59,816

 

$

(5,617)

 

$

677,171

 

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. The Company currently classifies revenues under two financial statement line items: (i) ATM operating revenues and (ii) ATM product sales and other revenues.

 

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ATM operating revenues are recognized daily as the associated transactions are processed or monthly on a per ATM or per cardholder basis. For customer contracts that provide for up-front fees that do not pertain to a distinct performance obligation, such fees are recognized over the term of the underlying agreement on a straight-line basis. ATM product sales and other revenues are recognized when the related performance obligations are fulfilled largely via a transfer of goods or services to the customer. 

   

ATM operating revenues. The Company presents revenues from automated consumer financial services, bank-branding and surcharge-free network offerings, managed services and other services in the ATM operating revenues line item in the accompanying Consolidated Statements of Operations. The Company’s ATM operating revenues consist of the following:

   

·

Surcharge revenue. Surcharge revenues are received in the form of a fee paid by a cardholder who has made a cash withdrawal from an ATM. Surcharge fees can vary widely based on the location of the ATM and the nature of the contracts negotiated with our merchants. In the U.S. and Canada, the Company does not receive surcharge fees from cardholders whose financial institutions participate in a surcharge-free network or have branded a location; instead, the Company receives interchange and bank-branding or surcharge-free network-branding revenues, which are discussed below. For certain ATMs, primarily those owned and operated by merchants, the Company does not receive any portion of the surcharge but rather the entire surcharge fee is earned by the merchant. In the U.K., ATM deployers operate their ATMs on either a free-to-use (surcharge-free) or a pay-to-use (surcharging) basis. On free-to-use ATMs in the U.K., the Company earns interchange revenue on withdrawal and certain other transactions. These fees are paid by the cardholder’s financial institution. On pay-to-use ATMs in the U.K., the Company only earns a surcharge fee paid by the cardholder on withdrawal transactions, and interchange is only paid by the cardholder’s financial institution on other non-withdrawal transaction types. In Germany, Australia, and Mexico the Company collects surcharge fees on withdrawal transactions but generally does not receive interchange revenue. In South Africa, the Company generally earns interchange revenues only, the amount of which varies by transaction type and customer arrangement. Surcharge revenues, as described above, are recognized daily as the associated transactions are processed.

   

·

Interchange revenue. An interchange fee is a fee paid by the cardholder’s financial institution for its customer’s use of an ATM that is owned by another operator and for the fee the EFT network charges to transmit data between the ATM and the cardholder’s financial institution. The Company typically receives a majority of the interchange fee paid by the cardholder’s financial institution, net of the amount retained by the EFT network and the Company recognizes the net amount received from the network as revenue. In some markets in which the Company operates, interchange fees are earned not only on cash withdrawal transactions but also on other ATM transactions, including balance inquiries and balance transfers. Interchange revenues are subject to variable terms and are recognized daily as the associated transactions are processed.

   

·

Bank-branding and surcharge-free network revenues. Under a bank-branding arrangement, ATMs that are Company-owned and operated are branded with the logo of the branding financial institution. In exchange for a monthly per ATM fee, the financial institution’s customers gain access to use these bank-branded ATMs without paying a surcharge. Under the Company’s surcharge-free network arrangements, financial institutions that participate pay either a fixed monthly fee per cardholder or a fixed fee per transaction so that cardholders gain surcharge-free access to our large network of ATMs. Bank-branding and surcharge-free network revenues are generally recognized monthly on a per ATM or per cardholder basis, except for transaction-based fee arrangements which are recognized daily as they occur. Any up-front fees associated with these arrangements are recognized ratably over the life of the arrangement.

 

·

Managed services revenue. Under a managed service arrangement, the Company offers ATM-related services depending on the needs of our customers, including monitoring, maintenance, cash management, cash delivery, customer service, transaction processing, and other services. Under a managed services arrangement, all of the surcharge and interchange fees are generally earned by the customer, whereas the Company typically receives a fixed management fee per ATM and/or a fixed fee per transaction in return for providing the agreed-upon operating services. The managed services fees are recognized as the related services are provided.  

   

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·

Other revenue. Other revenues include ATM operating revenues from transaction processing for third party ATM operators. The Company also earns ATM operating revenues, in exchange for advertising and other services. The Company typically recognizes these revenues as the related services are provided.

 

ATM product sales and services. The Company presents revenues from other product sales and services in the ATM product sales and services line item in the accompanying Consolidated Statements of Operations. 

 

The Company earns revenues from the sale of ATMs and ATM-related equipment as well as the delivery of other non-transaction-based services. Revenues related to these activities are recognized when the equipment is delivered to the customer and the Company has completed all required installation and set-up procedures. With respect to the sale of ATMs to Value-Added-Resellers (“VARs”), the Company recognizes revenues related to such sales when the equipment is delivered to the VAR.

 

Contract Balances

 

As of June 30, 2018, the Company has recognized no significant contract assets apart from Accounts Receivables that relate to completed performance obligations. Contract liabilities totaled $5.6 million and $5.7 million at June 30, 2018 and December 31, 2017, respectively. These amounts represent deferred revenues for advance consideration received largely in relation to bank-branding and surcharge-free network arrangements. The revenue recognized during the three and six months ended June 30, 2018 on previously recognized deferred revenues was not material.  The Company expects to recognize the revenue associated with its contract liabilities ratably over various periods extending over the next 12 to 36 months.

 

Contract Cost

 

The Company expects that the incremental commissions paid to sales personnel, together with other associated costs, are recoverable, and therefore, the Company capitalizes these amounts as deferred contract acquisition costs. Upon adoption of the new revenue standard on January 1, 2018, the Company recognized deferred sales commissions of $7.5 million, and as of June 30, 2018, the deferred sales commissions totaled $7.3 million. Sales commissions capitalized are generally amortized over a 4 - 5 year period corresponding with the related placement agreements. Similarly, and consistent with past practice, the costs incurred to fulfill a contract, largely consisting of prepaid merchant commissions and other consideration paid or provided to merchant partners, are capitalized and recognized over the duration of the related contract.

 

Practical Expedients and Other Disclosures 

 

In order to adopt and subsequently apply the new revenue standard, the Company utilized various practical expedients. The Company elected not to re-examine contracts modified prior to its adoption using the modified retrospective adoption method and elected to utilize a portfolio approach to assess and apply the impact of the new revenue standard.  Furthermore, the Company has elected not to disclose information about remaining performance obligations that have original expected durations of one year or less. Similarly, the Company does not defer the costs of obtaining a contract if the associated contract is one year or less.

 

The Company’s bank-branding, surcharge-free network, and managed services arrangements result in the Company providing a series of distinct services that have the same pattern of transfer to the customer. As a result, these arrangements create singular performance obligations that are satisfied over-time (generally 3 - 5 years) for which the Company has a right to consideration that corresponds directly with the value of the entity’s performance completed to date. In conjunction with these arrangements the Company recognizes revenue in the amount it has a right to receive. Variable consideration may exist in these arrangements and is recognized only to the extent a significant reversal is not probable.

 

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(4) Acquisitions

 

DirectCash Payments Inc. Acquisition

 

On January 6, 2017, the Company completed the acquisition of DirectCash Payments Inc. (“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.

 

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

 

The DCPayments acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of ASC Topic 805, Business Combinations. In accordance with this guidance, 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. In conjunction with the transaction, the Company recognized current and other noncurrent assets of $50.4 million, property and equipment of $68.8 million, goodwill of $300.3 million, intangible assets of $182.1 million, current and other long-term liabilities of $74.0 million, Asset Retirement Obligations (“ARO”) of $8.9 million, and a deferred tax liability of $23.2 million.

 

Spark ATM Systems Pty Ltd Acquisition

 

On January 31, 2017, the Company completed the acquisition of Spark ATM Systems Pty Ltd. (“Spark”), an independent ATM operator in South Africa, with a network of approximately 2,300 ATMs. The initial purchase consideration of approximately $19.5 million was paid in cash. In addition to the initial consideration, the total purchase price also includes potential additional contingent consideration of up to approximately $58.5 million at the June 30, 2018 foreign currency exchange rate. The contingent consideration will vary based upon performance relative to certain agreed upon earnings targets in 2019 and 2020 and would be payable to the previous investors in the business. The estimated acquisition date fair value of the contingent consideration was approximately $34.8 million, 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 14. Fair Value Measurements).  In conjunction with the transaction, the Company recognized property and equipment of $5.3 million, goodwill of $48.2 million, intangible assets of $2.8 million, ARO of $0.4 million, and other net liabilities of $1.5 million.

 

(5) 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.

 

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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, 

 

    

2018

    

2017

    

2018

    

2017

 

 

(In thousands)

 

(In thousands)

Cost of ATM operating revenues

 

$

90

 

$

183

 

$

174

 

$

140

Selling, general, and administrative expenses

 

 

3,423

 

 

3,440

 

 

5,784

 

 

5,680

Total share-based compensation expense

 

$

3,513

 

$

3,623

 

$