Cardtronics, plc.
Cardtronics plc (Form: 10-Q, Received: 11/02/2017 16:24:20)

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 September 30, 2017

 

 

or

 

 

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

 

 

 

For the transition period from    to

 

Commission File Number: 001-37820  

 


 

Cardtronics plc  

(Exact name of registrant as specified in its charter)

 

 

 

England and Wales  

98-1304627

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

3250 Briarpark Drive, Suite 400

77042

Houston, Texas  

(Zip Code)

(Address of principal executive offices)

 

 

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

 

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

 

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

 

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

 

 

 

 

Large accelerated filer            

 

Accelerated filer                    

Non-accelerated filer              

(Do not check if a smaller reporting company)

Smaller reporting company   

Emerging growth company    

 

 

 

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

 

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

 

Shares outstanding as of October 31, 2017: 45,681,451 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 September 30, 2017 (unaudited) and December 31, 2016

 

3

 

Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016

 

4

 

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

 

5

 

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016  

 

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

Cautionary Statement Regarding Forward-Looking Statements

 

47

Item 2.  

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

 

49

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

 

75

Item 4.  

Controls and Procedures

 

78

 

 

 

 

PART II. OTHER INFORMATION  

 

 

Item 1.  

Legal Proceedings

 

79

Item 1A.  

Risk Factors

 

79

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

 

82

Item 3.  

Defaults Upon Senior Securities

 

82

Item 4.  

Mine Safety Disclosures

 

82

Item 5.  

Other Information

 

82

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.

2


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

 

 

 

 

 

 

 

 

 

   

September 30, 2017

   

December 31, 2016

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,498

 

$

73,534

Accounts and notes receivable, net of allowance for doubtful accounts of $2,384 and $1,931 as of September 30, 2017 and December 31, 2016, respectively

 

 

112,392

 

 

84,156

Inventory, net

 

 

16,387

 

 

12,527

Restricted cash

 

 

43,646

 

 

32,213

Prepaid expenses, deferred costs, and other current assets

 

 

100,450

 

 

67,107

Total current assets

 

 

334,373

 

 

269,537

Property and equipment, net of accumulated depreciation of $410,775 and $397,972 as of September 30, 2017 and December 31, 2016, respectively

 

 

504,395

 

 

392,735

Intangible assets, net

 

 

220,233

 

 

121,230

Goodwill

 

 

771,152

 

 

533,075

Deferred tax asset, net

 

 

7,260

 

 

13,004

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

51,868

 

 

35,115

Total assets

 

$

1,889,281

 

$

1,364,696

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of other long-term liabilities

 

$

31,540

 

$

28,237

Accounts payable

 

 

49,926

 

 

44,965

Accrued liabilities

 

 

325,394

 

 

240,618

Total current liabilities

 

 

406,860

 

 

313,820

Long-term liabilities:

 

 

 

 

 

 

Long-term debt

 

 

949,775

 

 

502,539

Asset retirement obligations

 

 

58,425

 

 

45,086

Deferred tax liability, net

 

 

43,287

 

 

27,625

Other long-term liabilities

 

 

71,761

 

 

18,691

Total liabilities

 

 

1,530,108

 

 

907,761

 

 

 

 

 

 

 

Commitments and contingencies (See Note 13 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Ordinary shares, $0.01 nominal value; 45,680,321 and 45,326,430 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

 

457

 

 

453

Additional paid-in capital

 

 

312,661

 

 

311,041

Accumulated other comprehensive loss, net

 

 

(45,214)

 

 

(107,135)

Retained earnings

 

 

91,352

 

 

252,656

Total parent shareholders' equity

 

 

359,256

 

 

457,015

Noncontrolling interests

 

 

(83)

 

 

(80)

Total shareholders’ equity

 

 

359,173

 

 

456,935

Total liabilities and shareholders’ equity

 

$

1,889,281

 

$

1,364,696

 

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

3


 

Table of Contents

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF OPERATIONS  

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2017

    

2016

    

2017

    

2016

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

390,143

 

$

314,788

 

$

1,105,191

 

$

918,207

ATM product sales and other revenues

 

 

11,807

 

 

13,546

 

 

39,443

 

 

37,335

Total revenues

 

 

401,950

 

 

328,334

 

 

1,144,634

 

 

955,542

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

251,136

 

 

195,737

 

 

729,547

 

 

580,520

Cost of ATM product sales and other revenues

 

 

8,920

 

 

12,453

 

 

34,671

 

 

33,873

Total cost of revenues

 

 

260,056

 

 

208,190

 

 

764,218

 

 

614,393

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

46,132

 

 

40,194

 

 

131,551

 

 

115,505

Redomicile-related expenses

 

 

22

 

 

951

 

 

782

 

 

12,201

Restructuring expenses

 

 

 —

 

 

 —

 

 

8,243

 

 

 —

Acquisition and divestiture-related expenses

 

 

2,889

 

 

2,680

 

 

15,338

 

 

4,938

Goodwill and intangible asset impairment

 

 

194,521

 

 

 —

 

 

194,521

 

 

 —

Depreciation and accretion expense

 

 

29,807

 

 

23,308

 

 

88,683

 

 

69,085

Amortization of intangible assets

 

 

14,996

 

 

9,175

 

 

45,423

 

 

28,129

Loss (gain) on disposal and impairment of assets

 

 

22,307

 

 

469

 

 

26,170

 

 

(475)

Total operating expenses

 

 

310,674

 

 

76,777

 

 

510,711

 

 

229,383

(Loss) income from operations

 

 

(168,780)

 

 

43,367

 

 

(130,295)

 

 

111,766

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

9,743

 

 

4,269

 

 

25,760

 

 

13,227

Amortization of deferred financing costs and note discount

 

 

3,195

 

 

2,872

 

 

9,317

 

 

8,636

Other (income) expense

 

 

(2,095)

 

 

360

 

 

(1,730)

 

 

748

Total other expense

 

 

10,843

 

 

7,501

 

 

33,347

 

 

22,611

(Loss) income before income taxes

 

 

(179,623)

 

 

35,866

 

 

(163,642)

 

 

89,155

Income tax (benefit) expense

 

 

(4,053)

 

 

8,388

 

 

(2,335)

 

 

26,204

Net (loss) income

 

 

(175,570)

 

 

27,478

 

 

(161,307)

 

 

62,951

Net (loss) income attributable to noncontrolling interests

 

 

(9)

 

 

(12)

 

 

(3)

 

 

(71)

Net (loss) income  attributable to controlling interests and available to common shareholders

 

$

(175,561)

 

$

27,490

 

$

(161,304)

 

$

63,022

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share – basic

 

$

(3.84)

 

$

0.61

 

$

(3.54)

 

$

1.39

Net (loss) income per common share – diluted

 

$

(3.84)

 

$

0.60

 

$

(3.54)

 

$

1.38

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

45,662,543

 

 

45,252,869

 

 

45,597,558

 

 

45,175,604

Weighted average shares outstanding – diluted

 

 

45,662,543

 

 

45,850,061

 

 

45,597,558

 

 

45,765,235

 

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

4


 

Table of Contents

 

 

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME  

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

   

2017

   

2016

   

2017

   

2016

Net (loss) income

 

$

(175,570)

 

$

27,478

 

$

(161,307)

 

$

62,951

Unrealized gain (loss) on interest rate swap contracts, net of deferred income tax expense (benefit) of $1,744 and $4,590 for the three months ended September 30, 2017 and 2016, respectively, and $3,639 and $(3,522) for the nine months ended September 30, 2017 and 2016, respectively.

 

 

5,190

 

 

8,452

 

 

10,779

 

 

(11,571)

Foreign currency translation adjustments, net of deferred income tax expense (benefit) of $55 and $(564) for the three months ended September 30, 2017 and 2016, respectively, and $1,256 and $(2,555) for the nine months ended September 30, 2017 and 2016, respectively.

 

 

17,871

 

 

(6,745)

 

 

51,142

 

 

(26,686)

Other comprehensive income (loss)

 

 

23,061

 

 

1,707

 

 

61,921

 

 

(38,257)

Total comprehensive (loss) income

 

 

(152,509)

 

 

29,185

 

 

(99,386)

 

 

24,694

Less: comprehensive (loss) income attributable to noncontrolling interests

 

 

(9)

 

 

198

 

 

(4)

 

 

97

Comprehensive (loss) income attributable to controlling interests

 

$

(152,500)

 

$

28,987

 

$

(99,382)

 

$

24,597

 

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

 

5


 

Table of Contents

CARDTRONICS PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS  

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

   

    

2017

    

2016

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(161,307)

 

$

62,951

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

134,106

 

 

97,214

Amortization of deferred financing costs and note discount

 

 

9,317

 

 

8,636

Share-based compensation expense

 

 

9,971

 

 

15,780

Deferred income tax (benefit) expense

 

 

(6,198)

 

 

15,731

Loss (gain) on disposal and impairment of assets

 

 

26,170

 

 

(475)

Other reserves and non-cash items

 

 

(1,182)

 

 

686

Goodwill and intangible asset impairment

 

 

194,521

 

 

 —

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and notes receivable, net

 

 

(122)

 

 

(4,122)

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

 

 

(23,567)

 

 

(7,142)

Increase in inventory, net

 

 

(3,619)

 

 

(360)

Increase in other assets

 

 

(12,488)

 

 

(6,585)

(Decrease) increase in accounts payable

 

 

(20,951)

 

 

5,126

Increase in accrued liabilities

 

 

21,364

 

 

24,151

(Decrease) increase in other liabilities

 

 

(1,731)

 

 

2,340

Net cash provided by operating activities

 

 

164,284

 

 

213,931

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(111,424)

 

 

(76,050)

Acquisitions, net of cash acquired

 

 

(487,077)

 

 

(19,701)

Proceeds from sale of assets and businesses

 

 

 —

 

 

9,348

Net cash used in investing activities

 

 

(598,501)

 

 

(86,403)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

968,365

 

 

221,268

Repayments of borrowings under revolving credit facility

 

 

(827,351)

 

 

(311,361)

Proceeds from borrowings of long-term debt

 

 

300,000

 

 

 —

Debt issuance costs

 

 

(5,476)

 

 

 —

Tax payments related to share-based compensation

 

 

(8,359)

 

 

 —

Proceeds from exercises of stock options

 

 

105

 

 

579

Additional tax benefit related to share-based compensation

 

 

 —

 

 

338

Repurchase of common shares

 

 

 —

 

 

(3,959)

Net cash provided by (used in) financing activities

 

 

427,284

 

 

(93,135)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(5,103)

 

 

(1,169)

Net (decrease) increase in cash and cash equivalents

 

 

(12,036)

 

 

33,224

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

73,534

 

 

26,297

Cash and cash equivalents as of end of period

 

$

61,498

 

$

59,521

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

19,284

 

$

13,832

Cash paid for income taxes

 

$

3,567

 

$

9,499

 

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

6


 

Table of Contents

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 September 30, 2017, the Company provided services to approximately 238,000 ATMs across its portfolio, which included approximately 187,000 ATMs located in all 50 states of the United States (the “U.S.”) (including the U.S. territory of Puerto Rico), approximately 22,400 ATMs throughout the United Kingdom (“U.K.”) and Ireland, approximately 12,500 ATMs throughout Canada, approximately 10,700 ATMs throughout Australia and New Zealand, approximately 2,800 ATMs in South Africa, approximately 1,600 ATMs throughout Germany, Poland, and Spain, and approximately 1,000 ATMs throughout Mexico. In the U.S., in addition to providing traditional ATM functions such as cash dispensing and bank account balance inquiries, certain of the Company’s ATMs perform other automated consumer financial services, including remote deposit capture (which is deposit-taking at ATMs using electronic imaging). The total count of approximately 238,000 ATMs also includes ATMs for which the Company provides processing only services and various forms of managed services solutions, which may include transaction processing, monitoring, maintenance, cash management, communications, and customer service.

 

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

 

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

 

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

 

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

7


 

Table of Contents

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

 

(b) Basis of Presentation

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) has been prepared pursuant to the rules and regulations of the U.S. 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 U.S. (“U.S. GAAP”), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.

 

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

 

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

 

The unaudited interim financial statements include the accounts of the Company. All material intercompany accounts and transactions have been eliminated in consolidation. The Company owns a majority (95.7%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, 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.

 

8


 

Table of Contents

(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 Statement of Operations for the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

   

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

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

 

$

22,180

 

$

17,933

 

$

66,488

 

$

54,290

Amortization of intangible assets

 

 

14,996

 

 

9,175

 

 

45,423

 

 

28,129

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

 

$

37,176

 

$

27,108

 

$

111,911

 

$

82,419

 

The Company previously reported a Gross profit subtotal line item in its Consolidated Statements of Operations.  Starting with this Form 10-Q, and pursuant to interpretations of SEC guidance, regarding the calculation and display of this and similarly titled measures, the Company has removed this subtotal line item from its Consolidated Statements of Operations.

 

(d) Redomicile to the U.K.  

 

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

 

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

 

(e) Restructuring Expenses

 

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

 

9


 

Table of Contents

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

   

North America

   

Europe & Africa

   

Corporate

   

Total

 

 

(In thousands)

Restructuring expenses

 

$

3,668

 

$

831

 

$

3,744

 

$

8,243

 

During the three months ended March 31, 2017, the Company also identified certain assets that will likely be abandoned or are no longer capable of recovering their carrying values. As a result, the Company recognized $3.2 million in asset impairment charges included in the Loss (gain) on disposal and impairment of assets line item in the accompanying Consolidated Statements of Operations.

 

As of September 30, 2017, $4.3 million of the employee severance costs and lease termination costs recognized during the three months ended March 31, 2017, were unpaid and are presented within the Current portion of other long-term liabilities, Accrued liabilities, and Other long-term liabilities line items in the accompanying Consolidated Balance Sheets. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

   

North America

   

Europe & Africa

   

Corporate

   

Total

 

 

(In thousands)

Current portion of other long-term liabilities

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Accrued liabilities

 

 

 —

 

 

510

 

 

2,431

 

 

2,941

Other long-term liabilities

 

 

 —

 

 

 —

 

 

1,364

 

 

1,364

Total restructuring liabilities

 

$

 —

 

$

510

 

$

3,795

 

$

4,305

 

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

 

 

 

 

 

 

 

(In thousands)

Restructuring liabilities as of January 1, 2017

   

$

 —

Restructuring expenses

 

 

8,243

Payments

 

 

(3,938)

Restructuring liabilities as of September 30, 2017

 

$

4,305

 

(f) Goodwill and Intangible Assets

 

Included within the Company’s assets are goodwill balances that have been recognized in conjunction with its purchase accounting for completed business combinations. Under U.S. GAAP, goodwill is not amortized but is evaluated periodically for impairment. The Company performs this evaluation annually as of December 31 or more frequently if there are indicators that suggest the fair value of a reporting unit may be below its carrying value. The Company initially assesses qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment analysis. The qualitative and quantitative evaluations are performed at a reporting unit level, which have been determined based on a number of factors, including: (i) whether or not the group has any recorded goodwill, (ii) the availability of discrete financial information, and (iii) how business unit performance is measured and reported. The Company has identified seven separate reporting units for its goodwill assessments: (i) the U.S. operations, (ii) the U.K. operations, (iii) the Australia & New Zealand operations, (iv) the Canada operations, (v) the South African operations, (vi) the German

10


 

Table of Contents

operations, and (vii) the Mexico operations. Based on a qualitative assessment, if it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and uses the two-step approach to test goodwill for potential impairment. Step One of the quantitative approach compares the estimated fair value of a reporting unit to its carrying value. If the carrying value exceeds the estimated fair value, then a Step Two impairment calculation is performed. Step Two compares the carrying value of the reporting unit to the fair value of all of the assets and liabilities of the reporting unit, as if the reporting unit was newly acquired in a business combination. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized. In connection with the determination of potential impairment triggering events, the long-lived assets held by the reporting units may, on the basis of a qualitative and quantitative analysis, be determined to have carrying values that are not recoverable and in excess of their associated fair values, in which case an impairment would also be recognized related to these intangible and fixed assets.

 

In late September 2017, Australia’s four largest banks, the Commonwealth Bank of Australia (“CBA”), Australia and New Zealand Banking Group Limited (“ANZ”), Westpac Banking Corporation (“Westpac”), and National Australia Bank Limited (“NAB”), each independently announced decisions to remove all direct charges to users on domestic transactions completed at their respective ATM networks. Collectively, these four banks account for approximately one third of the total ATMs in Australia. This unexpected market shift appears to have been instigated by a decision and announcement by CBA, the largest Australian bank, to immediately remove direct charges to all users of its ATMs, regardless of whether or not the ATM user is a customer of the bank .  During the first part of October 2017, ANZ, Westpac, and NAB followed by removing direct charges on their ATM networks. Australia has historically been a direct charge ATM market, where cardholders pay a fee (or “direct charge”) to the operator of an ATM for each transaction, unless the ATM where the transaction was completed is part of the cardholder’s issuing bank ATM network. There currently is no broad interchange arrangement in Australia between card issuers and ATM operators to compensate the ATM operator for its service to a financial institution’s cardholder. During the nine months ended September 30, 2017, more than 80% of the Company’s revenues in Australia were sourced from direct charges paid by cardholders. As a result of this introduction of free-to-use ATMs in Australia and the resulting significant increase in availability of free-to-use ATMs to users, the Company determined that its future surcharge revenues in Australia have likely been materially adversely impacted. These developments were identified as an indicator of impairment, and the Company determined that in the presence of this indicator that it was more-likely-than-not that the fair value of the Australia & New Zealand reporting unit had fallen below its carrying value.

   

As a result of the qualitative assessment, the Company performed a quantitative Step One analysis to assess the fair value of its reporting units. In the quantitative analysis, the fair value of all of the Company’s reporting units was determined using a combination of the income approach and the market approach. The income approach estimates the fair value of the reporting units based on estimates of the present value of future cash flows. The Company uses significant estimates in developing its forecasts used in the income approach, including growth rates in revenues and costs, capital expenditure requirements, and operating margins and tax rates.  The income approach also involves many additional significant estimates and judgments, including valuation multiples assigned to projected earnings before interest expense, income taxes, depreciation and amortization expense (“EBITDA”) to estimate the terminal values of reporting units. The financial forecasts take into consideration many factors, including historical results and operating performance, related industry trends, pricing strategies, customer analysis, operational issues, competitor analysis, and marketplace data, among others. The assumptions used in the discounted cash flow analysis are inherently uncertain and require significant judgment on the part of management.

 

The discount rates used in the Step One income approach are determined using a weighted average cost of capital that reflects the risks and uncertainties in each reporting unit’s cash flow estimates. The weighted average cost of capital includes an estimated cost of debt and equity. The cost of equity is estimated using the capital asset pricing model, which includes inputs for a long-term risk-free rate, equity risk premium, country risk premium, and a beta volatility factor estimate. The discount rates utilized in Step One ranged from 9.3% to 16.9% across our seven reporting units.   The market approach provides an estimated fair value based on the Company’s market capitalization that is computed using the market price of its common stock and the number of shares outstanding as of the impairment test date. The sum of the estimated fair values for each reporting unit, as computed using the income approach, was then compared to the fair value of the Company as a whole, as determined based on the market approach plus an estimated control premium. All of the

11


 

Table of Contents

assumptions utilized in estimating the fair value of the Company’s reporting units and performing the goodwill impairment test are inherently uncertain and require significant judgment on the part of management.

 

Our Step One analysis indicated that the fair value of our Australia & New Zealand reporting unit was significantly below its carrying value.  Therefore, the Company engaged a third party valuation expert and proceeded with its Step Two analysis utilizing an income approach consistent with the approach taken to perform the purchase accounting for its recent business combinations. With respect to the Company’s forecasted future financial projections for its Australia & New Zealand reporting unit, management made certain assumptions regarding the potential impact this triggering event may have on the Company’s future revenues based on inherently uncertain information as a result of the recent market shift. With only very preliminary information available regarding the impact of the recent changes implemented by Australia’s four largest banks, the Company evaluated a range of possible impacts and ultimately determined that there would likely be a significant and prolonged adverse impact on the Company’s ATMs as a result of the banks’ actions described above, and the Company incorporated assumptions related to these potential impacts in its financial forecasts. Management has prepared these forecasts based on the best information currently available, including assumptions related to future transaction volumes and consumer habits. While management has attempted to make reasonable and conservative assessments of future activities, those assumptions, and future impairment assessments, are subject to change in the future as actual patterns and transaction volumes develop.

 

Upon completion of the goodwill impairment analysis, the Company determined that the implied fair value of its goodwill associated with its Australia & New Zealand reporting unit was below its carrying value. Accordingly, the Company recorded a goodwill impairment charge of $140.0 million to reduce the goodwill balance of its Australia & New Zealand reporting unit to its implied fair value. The Company also recognized a $54.5 million impairment of the customer relationships and trade name intangible assets in the Australia & New Zealand reporting unit. The carrying value of these assets were not deemed recoverable via their undiscounted cash flows; therefore, the fair values of these assets were re-evaluated using the income approach as of September 30, 2017, consistent with the approach used to value these assets in conjunction with the acquisition of DCPayments that was completed on January 6, 2017. The goodwill and intangible asset impairment charges are recognized within the Goodwill and intangible asset impairment line item in the accompanying Consolidated Statement of Operations. In addition, the Company recognized an impairment charge of $19.0 million related to the other long-lived assets in the Australia & New Zealand reporting unit, and a charge of $2.5 million to adjust the Australia & New Zealand reporting unit inventory to its estimated net realizable value. The other long-lived assets and inventory charges are recognized within the Loss (gain) on disposal and impairment of assets line item in the accompanying Consolidated Statement of Operations. The Company also recognized a non-cash income tax benefit of $22.5 million, to remove the deferred tax balances associated with the intangible and fixed assets that were impaired. 

 

The majority of the Company’s other reporting units were determined to be significantly in excess of their carrying value as of September 30, 2017. The fair value of the Company’s Canada reporting unit was not significantly in excess of its carrying value as of September 30, 2017, due to the recent acquisition of the Canada operations of DCPayments in January 2017 at fair value. While it would be expected that the fair value and carrying value would be relatively close in the periods immediately following the acquisition, management will continue to monitor the transaction volumes, operating performance, and future projections for this reporting unit to determine if there are any impairment indicators in future periods. The estimated combined fair value of all reporting units as of September 30, 2017 resulted in an implied control premium for the enterprise comparable to recent transactions. Subsequent to the recorded impairments, the fair value of the Australia & New Zealand reporting unit approximates its carrying value.

12


 

Table of Contents

 

(g) Inventory, net

 

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

 

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

 

 

 

 

 

 

 

 

 

   

September 30, 2017

 

December 31, 2016

 

 

(In thousands)

ATMs

 

$

3,605

 

$

1,915

ATM spare parts and supplies

 

 

15,272

 

 

12,556

Total inventory

 

 

18,877

 

 

14,471

Less: Inventory reserves

 

 

(2,490)

 

 

(1,944)

Inventory, net

 

$

16,387

 

$

12,527

 

(h) Restricted Cash

Restricted cash consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchants or third-party service providers. The amounts include deposits held by the Company for transactions processed, as well as surcharge and interchange fees earned by the Company’s merchants on transactions. These balances are classified as Restricted cash in the Current assets or Noncurrent assets line item in the accompanying Consolidated Balance Sheets based on when the Company expects this cash to be paid.   The Company held $43.6 million and $32.2 million of Restricted cash in the Current assets line item in the accompanying Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, respectively . These assets are offset by accrued liability balances in the Current liability line item in the accompanying Consolidated Balance Sheets.

 

 

 

 

(2) Acquisitions

 

DirectCash Payments Inc. Acquisition

 

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

 

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.

 

On September 22, 2017, the U.K. Competition and Markets Authority (the “CMA”) completed its regulatory review and approved the merger of the DCPayments U.K. business with the Company’s existing U.K. operations. Prior to the CMA approval, the DCPayments U.K. business operated separately from the Company’s existing U.K. operations with the DCPayments pre-acquisition management running the business independently from the Company’s management. The Company has begun the process of integrating its existing U.K. operations with the DCPayments U.K. operations.

 

The results of DCPayments operations have been included in the accompanying Consolidated Statements of Operations subsequent to the January 6, 2017 acquisition date. DCPayments contributed $72.0 million and $201.9 million

13


 

Table of Contents

to revenues and $3.3 million and $4.1 million to income from operations during the three and nine months ended September 30, 2017, respectively. The income from operations includes an immaterial amount of acquisition-related expenses in the three month period ended September 30, 2017 and approximately $2.8 million of acquisition-related expenses in the nine month period ended September 30, 2017. These amounts exclude the impairment-related charges discussed in Note 1. General and Basis of Presentation – (f) Goodwill and Intangible Assets above.

 

The DCPayments acquisition was accounted for as a business combination using the purchase method of accounting under the provisions of Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with Cardtronics as the acquirer of DCPayments. In accordance with ASC 805, all assets acquired and liabilities assumed have been recorded at their estimated fair value as of the acquisition date and any excess of the purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed has been recognized as goodwill. This preliminary fair value purchase allocation process resulted in a preliminary goodwill allocation of approximately $296.6 million, of which $109.0 million, $45.5 million, and $142.1 million has been assigned to the Company’s North America, Europe & Africa, and Australia & New Zealand reporting segments, respectively. The recognized goodwill is primarily attributable to expected revenue and cost synergies from the acquisition. None of the goodwill or intangible asset amounts are expected to be deductible for income tax purposes; however, the Company acquired certain tax assets in the form of accumulated net operating loss carryforwards and capital allowances, which at the date of acquisition the Company expected to utilize. The Company made various revisions to its preliminary purchase price allocation during the three months ended September 30, 2017 and several components of the preliminary purchase price allocation are presently under review, including the tangible and intangible asset valuations and the attribution of the purchase price to the Company’s reporting segments. The Company expects to finalize its purchase accounting for this acquisition in the fourth quarter of 2017.

 

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

 

 

 

 

 

 

 

(In thousands)

Cash and cash equivalents

 

$

28,227

Accounts and notes receivable

 

 

14,841

Inventory

 

 

977

Restricted cash

 

 

2,475

Prepaid expenses, deferred costs, and other current assets

 

 

3,157

Property and equipment

 

 

69,458

Intangible assets

 

 

180,042

Goodwill

 

 

296,616

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

674

Total assets acquired

 

$

596,467

 

 

 

 

Current portion of other long-term liabilities

 

$

10,852

Accounts payable and other current liabilities

 

 

49,405

Asset retirement obligations

 

 

6,973

Deferred tax liability

 

 

22,307

Other long-term liabilities

 

 

11,451

Total liabilities assumed

 

$

100,988

 

 

 

 

Net assets acquired

 

$

495,479

 

14


 

Table of Contents

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

 

 

 

 

 

 

 

 

 

   

Fair Values

   

Estimated Useful Lives

 

 

(In thousands)

 

 

 

Merchant contracts/relationships

 

$

171,133

 

 

8 years

Trade names: definite-lived

 

 

8,909

 

 

3 years

Total intangible assets acquired

 

$

180,042

 

 

 

 

Pro Forma Results of Operations

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2016

 

September 30, 2016

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues

 

$

328,334

 

$

393,146

 

$

955,542

 

$

1,140,271

Net income attributable to controlling interests and available to common shareholders

 

 

27,490

 

 

26,235

 

 

63,022

 

 

64,795

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.61

 

$

0.58

 

$

1.39

 

$

1.43

Net income per common share – diluted

 

$

0.60

 

$

0.57

 

$

1.38

 

$

1.42

 

The unaudited pro forma combined results of operations for the three and nine months ended September 30, 2016, reflected in the table above, do not include the impact of other acquisitions completed since September 30, 2016, as these transactions did not have a material impact on the overall consolidated financial statements. These unaudited pro forma combined results of operations do not reflect the impact of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma combined results of operations are not necessarily indicative of the future results to be expected for the Company’s consolidated results of operations. As discussed in Note 1. General and Basis of Presentation —  (f) Goodwill and Intangible Assets above, the Company recognized significant impairment charges related to the acquired Australia operations during the three months ended September 30, 2017.

 

Other Acquisitions

 

On January 31, 2017, the Company completed the acquisition of Spark ATM Systems Pty Ltd. (“Spark”), an independent ATM deployer in South Africa, with a growing network of approximately 2,300 ATMs. The initial purchase consideration of 260.7 million South African Rand (“Rand”) (approximately $19. 5 million U.S. dollars , at the January 31, 2017 foreign currency exchange rate), was paid in cash and included approximately 64.0 million Rand to pay off third-party debt of Spark. The total purchase consideration also includes potential additional contingent consideration of up to approximately 805 million Rand (approximately $59.6 million U.S. dollars, at the January 31, 2017 foreign currency exchange rate).  The contingent consideration will vary based upon Spark achieving certain agreed upon earnings targets in 2019 and 2020 and would be payable to the previous investors in the Spark business. The preliminary estimated acquisition date fair value of the contingent consideration is approximately 544 million Rand (approximately $40.2 million

15


 

Table of Contents

U.S. dollars , at the January 31, 2017 foreign currency exchange rate), as determined with the assistance of an independent appraisal firm using forecasted future financial projections and other Level 3 inputs ( for additional information related to the Company’s fair value estimates see Note 12. Fair Value Measurements ) .  During the three and nine months ended September 30, 2017, the Company recorded expenses of $0.9 million and $2.5 million, respectively, in the Other expense line item in the accompanying Consolidated Statements of Operations related to changes in the estimated fair value of the contingent consideration arrangement. In future periods, the Company may record additional expense or may reduce its expense to account for revisions to the amount expected to be paid related to the contingent payment element, which will vary based on actual and expected performance.  In conjunction with the transaction, the Company preliminarily recognized property and equipment of approximately $5.3 million, intangible assets of $2.8  million, Asset Retirement Obligations (“ARO”) of approximately $0.4 million, other net liabilities of approximately $1.3 million, and goodwill of approximately $53.4 million. The purchase accounting for this transaction remains preliminary, pending finalization of the related asset appraisals.

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

 

(3) Share-based Compensation  

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

   

2017

   

2016

   

2017

   

2016

 

 

(In thousands)

Cost of ATM operating revenues

 

$

196

 

$

249

 

$

336

 

$

636

Selling, general, and administrative expenses

 

 

3,955

 

 

6,393

 

 

9,635

 

 

15,144

Total share-based compensation expense

 

$

4,151

 

$

6,642

 

$

9,971

 

$

15,780

 

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

 

Restricted Stock Units. The Company grants restricted stock units (“RSUs”) under its LTIP, which is an annual equity award program under the Third Amended and Restated 2007 Stock Incentive Plan. The ultimate number of RSUs that are determined to be earned under the LTIP are approved by the Compensation Committee of the Company’s Board of Directors on an annual basis, based on the Company’s achievement of certain performance levels during the calendar year of its grant. The majority of these grants have both a performance-based and a service-based vesting schedule (“Performance-RSUs”), and the Company recognizes the related compensation expense based on the estimated performance levels that management believes will ultimately be met. A portion of the awards have only a service-based vesting schedule (“Time-RSUs”), for which the associated expense is recognized ratably over four years. Performance-

16


 

Table of Contents

RSUs and Time-RSUs are convertible into the Company’s common shares after the passage of the vesting periods, which are generally 24,  36, and 48 months from January 31 of the grant year, at the rate of 50%,  25%, and 25%, respectively. Performance-RSUs will be earned only if the Company achieves certain performance levels. Although the Performance-RSUs are not considered to be earned and outstanding until at least the minimum performance metrics are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting methodology. RSUs are also granted outside of LTIPs, with or without performance-based vesting requirements.

 

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

 

 

 

 

 

 

 

 

   

Number of Shares

   

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2017

 

971,751

 

$

37.08

Granted

 

685,808

 

$

38.94

Vested

 

(508,997)

 

$

36.60

Forfeited

 

(155,164)

 

$

36.99

Non-vested RSUs as of September 30, 2017

 

993,398

 

$

38.63

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2017 but not yet earned are not included. The number of Performance-RSUs granted at target in 2017, net of estimated forfeitures, was 216,799 units with a grant date fair value of $40.57 per unit. Time-RSUs are included as granted.

 

As of September 30, 2017, the unrecognized compensation expense associated with earned RSUs was $13.8 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 2.4 years.  

 

Restricted Stock Awards . As of September 30, 2017, all Restricted Stock Awards (“RSAs”) have fully vested and the Company has no unrecognized compensation expense.  The Company ceased granting RSAs in 2013.

 

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

 

17


 

Table of Contents

(4) (Loss) Earnings per Share 

 

The Company reports its (loss) earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common shareholders) when their impact on net income available to common shareholders is anti-dilutive. During the three and nine months ended September 30, 2017, the Company incurred a net loss, and accordingly, excluded all potentially dilutive securities from the calculation of diluted (loss) earnings per share as their impact on the net loss available to common shareholders was anti-dilutive.

 

Potentially dilutive securities for the three and nine months ended September 30, 2017 included all outstanding stock options, RSAs, and RSUs, which were included in the calculation of diluted earnings per share for these periods. The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Company’s $287.5 million of 1.00% Convertible Senior Notes due 2020 (the “Convertible Notes”) were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company’s common shares. The effect of the note hedge the Company purchased to offset the underlying conversion option embedded in the Convertible Notes was also excluded, as the effect is anti-dilutive. Additionally, the restricted shares issued by the Company under RSAs have a non-forfeitable right to cash dividends, if and when declared by the Company. Accordingly, restricted shares issued under RSAs are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the nine months ended September 30, 2016. The undistributed losses for the three and nine months ended September 30, 2017 have not been allocated to the unvested restricted shares as they do not carry an obligation to share in losses.  The allocated details are as follows:

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

September 30, 2017

 

September 30, 2016

 

   

Loss

   

Weighted Average Shares Outstanding

   

Earnings per Share

   

Income

   

Weighted Average Shares Outstanding

   

Earnings per Share  

Basic:

 

 

 

   

 

   

 

 

   

 

 

   

 

   

 

 

Net (loss) income  attributable to controlling interests and available to common shareholders

 

$

(175,561)

 

 

 

 

 

 

$

27,490

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

 —

 

 

 

 

 

 

 

(9)

 

 

 

 

 

Net (loss) income available to common shareholders

 

$

(175,561)

 

45,662,543

 

$

(3.84)

 

$

27,481

 

45,252,869

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$

 —

 

 

 

 

 

 

$

 9

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

 —

 

 

 

 

 

 

 

20,557

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

 —

 

 

 

 

 

 

 

576,635

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

 —

 

 

 

 

 

 

 

(9)

 

 

 

 

 

Net (loss) income available to common shareholders and assumed conversions

 

$

(175,561)

 

45,662,543

 

$

(3.84)

 

$

27,481

 

45,850,061

 

$

0.60

 

18


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

September 30, 2017

 

September 30, 2016

 

 

Loss

    

Weighted Average Shares Outstanding

    

Earnings per Share

    

Income

    

Weighted Average Shares Outstanding

    

Earnings per Share  

Basic:

    

  

    

    

 

    

 

 

    

 

 

    

 

    

 

 

Net (loss) income  attributable to controlling interests and available to common shareholders

 

$

(161,304)

 

 

 

 

 

 

$

63,022

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

 —

 

 

 

 

 

 

 

(34)

 

 

 

 

 

Net (loss) income available to common shareholders

 

$

(161,304)

 

45,597,558

 

$

(3.54)

 

$

62,988

 

45,175,604

 

$

1.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted: