Cardtronics, plc.
Cardtronics plc (Form: 10-Q, Received: 07/28/2016 17:32:43)

Table of Contents

 

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, 2016  

 

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 or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer’’ and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer   

Smaller reporting company   

 

 

(Do not check if a smaller reporting company)

 

 

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

 

Number of Class A ordinary shares, nominal value $0.01 per share of Cardtronics plc outstanding on July 25, 2016: 45,231,925

 

 

 

 


 

Table of Contents

 

CARDTRONICS PLC

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION  

 

 

Item 1.  

Financial Statements

 

 

Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)  

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (Unaudited)  

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

40 

Item 2.  

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

 

41 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

 

63 

Item 4.  

Controls and Procedures

 

66 

 

 

 

 

PART II. OTHER INFORMATION  

 

 

Item 1.  

Legal Proceedings

 

67 

Item 1A.  

Risk Factors

 

67 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

 

68 

Item 3.  

Default Upon Senior Securities

 

68 

Item 4.  

Mine Safety Disclosures

 

68 

Item 5.  

Other Information

 

68 

Item 6.  

Exhibits

 

68 

 

Signatures

 

69 

 

 

When we refer to “us,” “we,” “our,” we are describing Cardtronics plc and/or our subsidiaries, depending on the context in which the statements are made.

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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, 2016

   

December 31, 2015

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,652

 

$

26,297

Accounts and notes receivable, net of allowance for doubtful accounts of $2,589 and $2,079 as of June 30, 2016 and December 31, 2015, respectively

 

 

72,089

 

 

72,009

Inventory, net

 

 

8,372

 

 

10,675

Restricted cash

 

 

29,157

 

 

31,565

Current portion of deferred tax asset, net

 

 

 —

 

 

16,300

Prepaid expenses, deferred costs, and other current assets

 

 

63,157

 

 

56,678

Total current assets

 

 

192,427

 

 

213,524

Property and equipment, net of accumulated depreciation of $386,483 and $360,722 as of June 30, 2016 and December 31, 2015, respectively

 

 

370,904

 

 

375,488

Intangible assets, net

 

 

133,170

 

 

150,780

Goodwill

 

 

540,055

 

 

548,936

Deferred tax asset, net

 

 

12,283

 

 

11,950

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

18,072

 

 

19,257

Total assets

 

$

1,266,911

 

$

1,319,935

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of other long-term liabilities

 

$

30,736

 

$

32,732

Accounts payable

 

 

35,170

 

 

25,850

Accrued liabilities

 

 

224,731

 

 

219,058

Total current liabilities

 

 

290,637

 

 

277,640

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

491,282

 

 

568,331

Asset retirement obligations

 

 

53,557

 

 

51,685

Deferred tax liability, net

 

 

4,169

 

 

21,829

Other long-term liabilities

 

 

57,018

 

 

30,657

Total liabilities

 

 

896,663

 

 

950,142

 

 

 

 

 

 

 

Commitments and contingencies (See Note 13 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.0001 par value; 125,000,000 shares authorized; 52,529,197 and 52,129,395 shares issued as of June 30, 2016 and December 31, 2015, respectively; 45,219,175 and 44,953,620 shares outstanding as of June 30, 2016 and December 31, 2015, respectively

 

 

5

 

 

5

Additional paid-in capital

 

 

383,488

 

 

374,564

Accumulated other comprehensive loss, net

 

 

(128,090)

 

 

(88,126)

Retained earnings

 

 

221,429

 

 

185,897

Treasury stock: 7,310,022 and 7,175,775 shares at cost as of June 30, 2016 and December 31, 2015, respectively

 

 

(106,525)

 

 

(102,566)

Total parent stockholders’ equity

 

 

370,307

 

 

369,774

Noncontrolling interests

 

 

(59)

 

 

19

Total stockholders’ equity

 

 

370,248

 

 

369,793

Total liabilities and stockholders’ equity

 

$

1,266,911

 

$

1,319,935

 

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

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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,

 

2016

   

2015

   

2016

   

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

311,331

 

$

285,436

 

$

603,419

 

$

545,459

ATM product sales and other revenues

 

12,630

 

 

18,310

 

 

23,789

 

 

40,188

Total revenues

 

323,961

 

 

303,746

 

 

627,208

 

 

585,647

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

198,843

 

 

183,533

 

 

384,783

 

 

352,041

Cost of ATM product sales and other revenues

 

11,487

 

 

17,009

 

 

21,420

 

 

36,301

Total cost of revenues

 

210,330

 

 

200,542

 

 

406,203

 

 

388,342

Gross profit

 

113,631

 

 

103,204

 

 

221,005

 

 

197,305

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

37,912

 

 

34,190

 

 

75,311

 

 

65,070

Redomicile-related expenses

 

5,214

 

 

 —

 

 

11,250

 

 

 —

Acquisition and divestiture-related expenses

 

674

 

 

5,560

 

 

2,258

 

 

7,918

Depreciation and accretion expense

 

23,100

 

 

21,903

 

 

45,777

 

 

42,015

Amortization of intangible assets

 

9,691

 

 

9,495

 

 

18,954

 

 

18,992

(Gain) loss on disposal of assets

 

(1,326)

 

 

247

 

 

(944)

 

 

(286)

Total operating expenses

 

75,265

 

 

71,395

 

 

152,606

 

 

133,709

Income from operations

 

38,366

 

 

31,809

 

 

68,399

 

 

63,596

Other expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4,466

 

 

4,753

 

 

8,958

 

 

9,463

Amortization of deferred financing costs and note discount

 

2,982

 

 

2,817

 

 

5,764

 

 

5,596

Other expense

 

943

 

 

755

 

 

388

 

 

1,815

Total other expense

 

8,391

 

 

8,325

 

 

15,110

 

 

16,874

Income before income taxes

 

29,975

 

 

23,484

 

 

53,289

 

 

46,722

Income tax expense

 

9,861

 

 

8,744

 

 

17,816

 

 

17,208

Net income

 

20,114

 

 

14,740

 

 

35,473

 

 

29,514

Net loss attributable to noncontrolling interests

 

(34)

 

 

(257)

 

 

(59)

 

 

(716)

Net income attributable to controlling interests and available to common stockholders

$

20,148

 

$

14,997

 

$

35,532

 

$

30,230

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

$

0.45

 

$

0.33

 

$

0.79

 

$

0.67

Net income per common share – diluted

$

0.44

 

$

0.33

 

$

0.78

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

45,199,450

 

 

44,807,829

 

 

45,136,553

 

 

44,737,413

Weighted average shares outstanding – diluted

 

45,748,570

 

 

45,319,363

 

 

45,704,474

 

 

45,280,588

 

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,

 

   

2016

   

2015

   

2016

   

2015

Net income

 

$

20,114

 

$

14,740

 

$

35,473

 

$

29,514

Unrealized (loss) gain on interest rate swap contracts, net of deferred income tax (benefit) expense of $(2,222) and $5,081 for the three months ended June 30, 2016 and 2015, respectively, and $(8,112) and $1,788 for the six months ended June 30, 2016 and 2015, respectively

 

 

(9,337)

 

 

7,998

 

 

(20,023)

 

 

2,844

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

 

 

(14,670)

 

 

21,673

 

 

(19,941)

 

 

10,757

Other comprehensive (loss) income

 

 

(24,007)

 

 

29,671

 

 

(39,964)

 

 

13,601

Total comprehensive (loss) income

 

 

(3,893)

 

 

44,411

 

 

(4,491)

 

 

43,115

Less: comprehensive loss attributable to noncontrolling interests

 

 

(196)

 

 

(211)

 

 

(101)

 

 

(607)

Comprehensive (loss) income attributable to controlling interests

 

$

(3,697)

 

$

44,622

 

$

(4,390)

 

$

43,722

 

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,

 

   

2016

   

2015

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

35,473

 

$

29,514

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

64,731

 

 

61,007

Amortization of deferred financing costs and note discount

 

 

5,764

 

 

5,596

Stock-based compensation expense

 

 

9,138

 

 

9,150

Deferred income taxes

 

 

7,435

 

 

2,085

Gain on disposal of assets

 

 

(944)

 

 

(286)

Other reserves and non-cash items

 

 

(42)

 

 

2,216

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and notes receivable, net

 

 

(2,215)

 

 

(3,057)

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

 

 

(7,716)

 

 

(7,644)

Decrease (increase) in inventory. net

 

 

2,522

 

 

(3,789)

Decrease in other assets

 

 

2,031

 

 

2,221

Increase in accounts payable

 

 

4,558

 

 

78

Increase (decrease) in accrued liabilities

 

 

11,204

 

 

(12,111)

(Decrease) increase in other liabilities

 

 

(7,352)

 

 

1,606

Net cash provided by operating activities

 

 

124,587

 

 

86,586

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(39,571)

 

 

(56,418)

Acquisitions, net of cash acquired

 

 

(14,544)

 

 

(23,956)

Proceeds from sale of assets and businesses

 

 

9,348

 

 

7,610

Net cash used in investing activities

 

 

(44,767)

 

 

(72,764)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

134,307

 

 

180,500

Repayments of borrowings under revolving credit facility

 

 

(216,000)

 

 

(199,584)

Proceeds from exercises of stock options

 

 

145

 

 

581

Additional tax (expense) benefit related to stock-based compensation

 

 

(343)

 

 

841

Repurchase of capital stock

 

 

(3,959)

 

 

(4,027)

Net cash used in financing activities

 

 

(85,850)

 

 

(21,689)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(615)

 

 

781

Net decrease in cash and cash equivalents

 

 

(6,645)

 

 

(7,086)

 

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

26,297

 

 

31,875

Cash and cash equivalents as of end of period

 

$

19,652

 

$

24,789

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

7,362

 

$

9,627

Cash paid for income taxes

 

$

8,374

 

$

18,214

 

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  

 

On July 1, 2016, the location of incorporation of the parent company of the Cardtronics group of companies was changed from Delaware to the United Kingdom (the “U.K.”), whereby 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”) pursuant to the Agreement and Plan of Merger, dated April 27, 2016, the adoption of which was approved by Cardtronics Delaware’s stockholders on June 28, 2016 (collectively, the “Redomicile Transaction”). For additional details, see (b) Company Redomicile below.

 

Cardtronics plc, along with its wholly and majority-owned subsidiaries (collectively, the “Company”), provides convenient automated consumer financial services through its network of automated teller machines (“ATMs”) and multi-function financial services kiosks. As of June 30, 2016, the Company provided services to approximately 200,000 devices across its portfolio, which included approximately 178,000 devices located in all 50 states of the United States (the “U.S.”) (including the U.S. territory of Puerto Rico), approximately 16,000 devices throughout the U.K. and Ireland, approximately 1,200 devices throughout Germany and Poland, approximately 3,500 devices throughout Canada, and approximately 1,300 devices throughout Mexico. In the U.S., certain of the Company’s devices are multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account balance inquiries, perform other consumer financial services, including bill payments, check cashing, remote deposit capture (which is deposit-taking at ATMs using electronic imaging), and money transfers. The total count of approximately 200,000 devices also includes devices 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 provides ATM management and equipment-related services (typically under multi-year contracts) to large retail merchants of varying sizes, as well as 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 devices placed at their facilities will be utilized.

 

In addition to its retail merchant relationships, the Company also partners with leading national financial institutions to brand selected ATMs and financial services kiosks within its network, including BBVA Compass Bancshares, Inc. (“BBVA”), Citibank, N.A. (“Citibank”), Citizens Financial Group, Inc. (“Citizens”), Cullen/Frost Bankers, Inc. (“Cullen/Frost”), JPMorgan Chase & Co (“Chase”), Santander Bank, N.A. (“Santander”), TD Bank, N.A. (“TD Bank”), and PNC Bank, N.A. (“PNC Bank”) in the U.S., The Bank of Nova Scotia (“Scotiabank”) and Santander in Puerto Rico, and Scotiabank, TD Bank, and Canadian Imperial Bank of Commerce (“CIBC”) in Canada. In Mexico, the Company operates Cardtronics Mexico, S.A. de C.V. (“Cardtronics Mexico”) and partners with Grupo Financiero Banorte, S.A. de C.V. (“Banorte”) and Scotiabank to place their brands on the Company’s ATMs in exchange for certain services provided by them. As of June 30, 2016, approximately 22,000 of the Company’s ATMs were under contract with approximately 500 fin ancial institutions to place their logos on the machines 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 within the U.S. (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 prepaid card providers. For participants, Allpoint provides scale and density of free ATMs. In exchange, Allpoint earns either a fixed monthly fee per cardholder or a set fee per transaction that is paid by participants . The Allpoint network includes a majority of the Company’s ATMs in the U.S. and a portion of the Company’s ATMs in the U.K., Canada, Puerto Rico, and Mexico. 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 cards. Under these programs, the issuing

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financial institutions pay Allpoint a fee per issued stored-value card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

 

Finally, the Company owns and operates an electronic funds transfer (“EFT”) transaction processing platform that provides transaction processing services to its network of ATMs and financial services kiosks as well as other ATMs under managed services arrangements. Additionally, through its acquisition of Columbus Data Services, L.L.C. (“CDS”) in 2015, the Company provides leading-edge ATM processing solutions to ATM sales and service organizations and financial institutions.

 

(b)  Company Redomicile

 

Pursuant to the Redomicile Transaction, each issued and outstanding share of Cardtronics Delaware common stock 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, “Ordinary Shares”). Upon completion of the Redomicile Transaction, the Ordinary Shares were listed and began trading on The NASDAQ Stock Market LLC under the symbol “CATM,” the same symbol under which shares of Cardtronics Delaware common stock were formerly listed and traded. Likewise, equity plans and/or awards granted thereunder were assumed by Cardtronics plc and amended to provide that those plans and/or awards will now provide for the award and issuance of Ordinary Shares. Shares of treasury stock of Cardtronics Delaware were cancelled in the Redomicile Transaction.

 

The Redomicile Transaction will be accounted for as an internal reorganization of entities under common control and, therefore, Cardtronics Delaware’s assets and liabilities will be accounted for at their historical cost basis and not revalued in the transaction.

 

Any references to “the Company” 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.

 

The Redomicile Transaction is discussed in more detail in Note 3. Stock-Based Compensation, Note 8. Long-Term Debt, Note 16. Supplemental Guarantor Financial Informatio n, and Note 19. Subsequent Event .

 

(c)  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 (“SEC”) 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 United States (“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, 2015 (as amended, the “2015 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

 

The financial statements as of June 30, 2016 and for the three and six months ended June 30, 2016 and 2015 are unaudited. The Consolidated Balance Sheet as of December 31, 2015 was derived from the audited balance sheet filed in the 2015 Form 10-K with certain retroactive adjustments. The Company has adopted the provisions of the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ ASU”) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) and ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (“ASU 2015-15”). These updates require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset and clarify the treatment of debt issuance costs related to a line-of-credit arrangement. As retrospective application is required by these standards updates, December 31, 2015 has been adjusted with no material impact. In addition, the Company has adopted early ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), applying its provisions prospectively to the interim reporting periods

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of 2016. ASU 2015-17 eliminates the requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet and requires organizations to classify all deferred tax assets and liabilities as noncurrent.

 

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, 2016 and 2015 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

 

The unaudited interim consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries. 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 accompanying consolidated financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.

 

The preparation of financial statements in conformity 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 the financial statements 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.

 

(d)  Restricted Cash

Restricted cash consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. The amounts include deposits held by the Company for transactions processed by its customers, as well as surcharge and interchange fees earned by the Company’s customers on transactions processed. These balances are classified as Restricted cash in the Current assets or Noncurrent assets line item on the Company’s Consolidated Balance Sheets based on when the Company expects this cash to be paid.   The Company held $29.2 million and $31.6 million of Restricted cash in the Current assets line item in the accompanying Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015, respectively .  

 

(e)   Inventory

 

Inventory consists principally of ATMs, ATM spare parts, and ATM supplies and is stated at the lower of cost or market. Cost is determined using the average cost method. The following table is a breakdown of the Company’s primary inventory components:

 

 

 

 

 

 

 

 

 

   

June 30, 2016

 

December 31, 2015

 

 

(In thousands)

ATMs

 

$

2,502

 

$

2,568

ATM parts and supplies

 

 

6,802

 

 

8,400

Total

 

 

9,304

 

 

10,968

Less: Inventory reserves

 

 

(932)

 

 

(293)

Inventory, net

 

$

8,372

 

$

10,675

 

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

 

The Company presents Cost of ATM operating revenues and Gross profit within its Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets. The following table sets forth the amounts excluded from Cost of ATM operating revenues and Gross profit for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

   

2016

   

2015

   

2016

   

2015

 

 

(In thousands)

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

 

$

18,234

 

$

16,214

 

$

36,357

 

$

31,596

Amortization of intangible assets

 

 

9,691

 

 

9,495

 

 

18,954

 

 

18,992

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

 

$

27,925

 

$

25,709

 

$

55,311

 

$

50,588

 

 

 

(2) Acquisitions and Divestitures  

 

On July 1, 2015, the Company completed the divestiture of its retail cash-in-transit operation in the U.K. This business was primarily engaged in the collection of cash from retail locations and was originally acquired through the Sunwin Services Group acquisition completed in November 2014. The Company recognized divestiture proceeds at their estimated fair value of approximately $39 million in 2015. Of this amount, approximately $31 million was collected during the year ended December 31, 2015, and the remainder was collected during the six months ended June 30, 2016. The net pre-tax gain recognized on this transaction in 2015 was $16.6 million. During the six months ended June 30, 2016, the Company reached resolution of certain contingent terms in the agreement and recorded an additional pre-tax gain of approximately $1.8 million.

 

On July 1, 2015, the Company completed the acquisition of CDS for a total purchase price of approximately $80.6 million. CDS is a leading independent transaction processor for ATM deployers and payment card issuers, providing leading-edge solutions to ATM sales and service organizations and financial institutions.

 

The total purchase consideration for CDS was allocated to the assets acquired and liabilities assumed, including identifiable tangible and intangible assets, based on their respective fair values estimated at the date of acquisition. The estimated fair values of the intangible assets included the acquired customer relationships valued at $16.5 million, technology valued at $7.8 million, and other intangible assets valued at $1.7 million. Intangible values were estimated utilizing primarily a discounted cash flow approach, with the assistance of an independent appraisal firm. The fair values of the tangible assets acquired included property, plant, and equipment and were valued at $4.6 million and estimated utilizing the market and cost approaches. The purchase price allocation resulted in goodwill of $52.7 million. This goodwill has been assigned to the Company’s North America reporting segment and is primarily attributable to expected synergies that will be realized by the North America segment. The Company completed the purchase accounting for CDS in January 2016 recognizing no additional adjustments to the preliminary opening balance sheet. All of the goodwill and intangible asset amounts are expected to be deductible for income tax purposes.

 

On April 13, 2016, the Company completed the acquisition of a 2,600 location ATM portfolio in the U.S. This acquisition was affected through multiple closings taking place primarily in April 2016. The total cash purchase price of approximately $13.8 million was paid in installments corresponding to each close. As of June 30, 2016, the Company had recognized property, plant, and equipment of $7.6 million, contract intangibles and prepaid merchant commissions of $7.9 million, and asset retirement obligations of $1.7 million. As of June 30, 2016, the accounting remains preliminary, pending completion of the related asset appraisals.

 

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(3) Stock-Based Compensation  

 

The Company accounts for its stock-based compensation by recognizing the grant date fair value of stock-based awards, net of estimated forfeitures, as compensation expense over the underlying requisite service periods of the related awards. The grant date fair value is based upon the Company’s stock price on the date of grant. The following table reflects the total stock-based compensation expense amounts included in the accompanying Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

   

2016

   

2015

   

2016

   

2015

 

 

(In thousands)

Cost of ATM operating revenues

 

$

270

 

$

204

 

$

387

 

$

538

Selling, general, and administrative expenses

 

 

5,700

 

 

4,745

 

 

8,751

 

 

8,612

Total stock-based compensation expense

 

$

5,970

 

$

4,949

 

$

9,138

 

$

9,150

 

The comparative increase in stock-based compensation expense for the three months ended June 30, 2016, was primarily attributable to the timing and amount of grants made during preceding periods and adjustments in forfeitures in the 2015 period. All grants during the periods above were made under the Second Amended and Restated 2007 Stock Incentive Plan. In conjunction with the Redomicile Transaction, on July 1, 2016, Cardtronics plc executed a deed of assumption pursuant to which Cardtronics plc adopted and assumed the Third Amended and Restated 2007 Stock Incentive Plan (as amended, the “2007 Plan”) and assumed all outstanding awards granted under the 2007 Plan (including awards granted under the 2007 Plan prior to the completion of the Redomicile Transaction) and the 2001 Stock Incentive Plan of Cardtronics Delaware, as amended.

 

Restricted Stock Awards . The number of the Company’s outstanding Restricted Stock Awards (“RSAs”) as of June 30, 2016, and changes during the six months ended June 30, 2016, are presented below:

 

 

 

 

 

 

 

 

   

Number of Shares

   

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2016

 

47,235

 

$

27.36

Vested

 

(28,985)

 

$

26.90

RSAs outstanding as of June 30, 2016

 

18,250

 

$

28.10

 

As of June 30, 2016, the unrecognized compensation expense associated with all outstanding RSAs was $0.3 million, which will be recognized on a straight-line basis over a remaining weighted average vesting period of approximately one year.

 

Restricted Stock Units. The Company grants restricted stock units (“RSUs”) under its Long-term Incentive Plan (“LTIP”), which is an annual equity award program under the 2007 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 stock after the passage of the vesting periods, which are 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 for those awards ultimately expected to vest 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.

 

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The number of the Company’s non-vested RSUs as of June 30, 2016, and changes during the six months ended June 30, 2016, are presented below:

 

 

 

 

 

 

 

 

   

Number of Shares

   

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2016

 

891,439

 

$

35.60

Granted

 

562,719

 

$

37.08

Vested

 

(385,942)

 

$

34.99

Forfeited

 

(15,061)

 

$

36.22

Non-vested RSUs as of June 30, 2016

 

1,053,155

 

$

36.61

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2016 but not yet earned are not included. The number of Performance-RSUs granted at target in 2016, net of forfeitures, was 356,021 units with a grant date fair value of $38.03 per unit. Time-RSUs are included as granted.

 

As of June 30, 2016, the unrecognized compensation expense associated with earned RSUs was $18.7 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 2.3 years .  

 

Options. The number of the Company’s outstanding stock options as of June 30, 2016, and changes during the six months ended June 30, 2016, are presented below:

 

 

 

 

 

 

 

 

   

Number of Shares

   

Weighted Average Exercise Price

Options outstanding as of January 1, 2016

 

77,901

 

$

10.11

Exercised

 

(13,860)

 

$

10.47

Options outstanding as of June 30, 2016

 

64,041

 

$

10.04

 

 

 

 

 

 

Options vested and exercisable as of June 30, 2016

 

64,041

 

$

10.04

 

As of June 30, 2016, the Company had no unrecognized compensation expense associated with outstanding options.

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(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 stockholders) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three and six months ended June 30, 2016 and 2015 included all outstanding stock options, RSAs, and RSUs, which were included in the calculation of diluted earnings per share for these periods, if dilutive. 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 stock. 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 shares of restricted stock 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 three and six months ended June 30, 2016 and 2015 among the Company’s outstanding shares of common stock 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, 2016

 

June 30, 2015

 

   

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 stockholders

 

$

20,148

 

 

 

 

 

 

$

14,997

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(10)

 

 

 

 

 

 

 

(23)

 

 

 

 

 

Net income available to common stockholders

 

$

20,138

 

45,199,450

 

 

0.45

 

$

14,974

 

44,807,829

 

$

0.33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

10

 

 

 

 

 

 

$

23

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

32,289

 

 

 

 

 

 

 

64,511

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

516,831

 

 

 

 

 

 

 

447,023

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(10)

 

 

 

 

 

 

 

(23)

 

 

 

 

 

Net income available to common stockholders and assumed conversions

 

$

20,138

 

45,748,570

 

 

0.44

 

$

14,974

 

45,319,363

 

$

0.33

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

Six Months Ended

 

 

June 30, 2016

 

June 30, 2015

 

 

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 stockholders

 

$

35,532

 

 

 

 

 

 

$

30,230

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(23)

 

 

 

 

 

 

 

(50)

 

 

 

 

 

Net income available to common stockholders

 

$

35,509

 

45,136,553

 

$

0.79

 

$

30,180

 

44,737,413

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

23

 

 

 

 

 

 

$

50

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

33,073

 

 

 

 

 

 

 

71,750

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

534,848

 

 

 

 

 

 

 

471,425

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(22)

 

 

 

 

 

 

 

(49)

 

 

 

 

 

Net income available to common stockholders and assumed conversions

 

$

35,510

 

45,704,474

 

$

0.78

 

$

30,181

 

45,280,588

 

$

0.67

 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock issued by the Company under RSAs of 11,456 and 14,828 shares for the three and six months ended June 30, 2016 , respectively, and 33,694 and 33,911 for the three and six months ended June 30, 2015, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

 

(5) Accumulated Other Comprehensive Loss, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5) Accumulated Other Comprehensive Loss, Net

 

Accumulated other comprehensive loss, net is displayed as a separate component of Stockholders’ equity 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, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

   

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, 2016

 

$

(51,157)

(1)

$

(52,926)

(2)

$

(104,083)

Other comprehensive loss before reclassification

 

 

(14,670)

(3)

 

(16,617)

(4)

 

(31,287)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

7,280

(4)

 

7,280

Net current period other comprehensive loss

 

 

(14,670)

 

 

(9,337)

 

 

(24,007)

Total accumulated other comprehensive loss, net as of June 30, 2016

 

$

(65,827)

(1)

$

(62,263)

(2)

$

(128,090)

 

(1)

Net of income tax (benefit) of $(3,556) and $(2,390) as of June 30, 2016 and April 1, 2016, respectively.

(2)

Net of deferred income tax (benefit) of $(11,071) and $(8,849) as of June 30, 2016 and April 1, 2016, respectively.

(3)

Net of deferred income tax (benefit) of $(1,166).

(4)

Net of deferred income tax (benefit) expense of $(3,954) and $1,732 for Other comprehensive loss before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11. Derivative Financial Instruments .  

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

   

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, 2016

 

$

(45,886)

(1)

$

(42,240)

(2)

$

(88,126)

Other comprehensive loss before reclassification

 

 

(19,941)

(3)

 

(34,631)

(4)

 

(54,572)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

14,608

(4)

 

14,608

Net current period other comprehensive loss

 

 

(19,941)

 

 

(20,023)

 

 

(39,964)

Total accumulated other comprehensive loss, net as of June 30, 2016

 

$

(65,827)

(1)

$

(62,263)

(2)

$

(128,090)

 

(1)

Net of income tax (benefit) of $(3,556) and $(1,565) as of June 30, 2016 and January 1, 2016, respectively.

(2)

Net of deferred income tax (benefit) of $(11,071) and $(2,959) as of June 30, 2016 and January 1, 2016, respectively.

(3)

Net of deferred income tax (benefit) of $(1,991).

(4)

Net of deferred income tax (benefit) expense of $(14,030) and $5,918 for Other comprehensive loss before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11. Derivative Financial Instruments .  

 

The Company records unrealized gains and losses related to its interest rate swaps 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 on 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 swaps in the Accumulated other comprehensive loss, net line item on 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 on the accompanying Consolidated Balance Sheets and into continuing operations as a tax expense when the Company ceases to hold any interest rate swaps. As of June 30, 2016, the disproportionate tax effect is approximately $14.4 million.

 

The Company currently believes that the unremitted earnings of its foreign subsidiaries under its U.S. holding 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.

 

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(6) Intangible Assets  

 

Intangible Assets with Indefinite Lives  

 

The following table presents the net carrying amount of the Company’s intangible assets with indefinite lives as well as the changes in the net carrying amounts for the six months ended June 30, 2016, by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

   

North America (1)

   

Europe (2)

   

Total

 

 

(In thousands)  

Balance as of January 1, 2016:

 

 

 

 

 

 

 

 

 

Gross balance

 

$

452,270

 

$

146,669

 

$

598,939

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

(50,003)

 

 

$

452,270

 

$

96,666

 

$

548,936

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

99

 

 

(8,980)

 

 

(8,881)

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2016:

 

 

 

 

 

 

 

 

 

Gross balance

 

$

452,369

 

$

137,689

 

$

590,058

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

(50,003)

 

 

$

452,369

 

$

87,686

 

$

540,055

 

(1)

The North America segment is comprised of the Company’s operations in the U.S., Canada, Mexico, and Puerto Rico.

(2)

The Europe segment is comprised of the Company’s operations in the U.K., Ireland, Germany, Poland, and its ATM advertising business.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: indefinite-lived

 

   

North America (1)

   

Europe (2)

   

Corporate & Other (3)

   

Total

 

 

(In thousands)

Balance as of January 1, 2016:

 

$

200

 

$

416

 

$

1,700

 

$

2,316

Reclassification to definite-lived trade name

 

 

 —

 

 

 —

 

 

(1,700)

 

 

(1,700)

Foreign currency translation adjustments

 

 

 —

 

 

39

 

 

 —

 

 

39

Balance as of June 30, 2016

 

$

200

 

$

455

 

$

 —

 

$

655

 

(1)

The North America segment is comprised of the Company’s operations in the U.S., Canada, Mexico, and Puerto Rico.

(2)

The Europe segment is comprised of the Company’s operations in the U.K., Ireland, Germany, Poland, and its ATM advertising business.

(3)

The Corporate & Other segment is comprised of the Company’s transaction processing activities and the Company’s corporate general and administrative functions.

 

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Intangible Assets with Definite Lives  

 

The following is a summary of the Company’s intangible assets that were subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2016

 

December 31, 2015

 

 

Gross

 

 

 

Net

 

Gross

 

 

 

Net

 

 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

 

   

Amount

   

Amortization

   

Amount

   

Amount

   

Amortization

   

Amount

 

 

(In thousands)

 

(In thousands)

Customer and branding contracts/relationships

 

$

349,873

 

$

(234,221)

 

$

115,652

 

$

350,211

 

$

(219,498)

 

$

130,713

Revolving credit facility deferred financing costs

 

 

3,071

 

 

(2,010)

 

 

1,061

 

 

2,896

 

 

(1,452)

 

 

1,444

Non-compete agreements

 

 

4,418

 

 

(4,043)

 

 

375

 

 

4,454

 

 

(3,935)

 

 

519

Technology

 

 

10,714

 

 

(4,370)

 

 

6,344

 

 

10,751

 

 

(3,750)

 

 

7,001

Trade name: definite-lived

 

 

12,411

 

 

(3,328)

 

 

9,083

 

 

11,646

 

 

(2,859)

 

 

8,787

Total