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” or “Cardtronics”), provides convenient automated financial related services to consumers through its global network of automated teller machines and multi-function financial services kiosks (collectively referred to as “ATMs”). The Company is the world’s largest ATM owner/operator, providing services in North America, Europe and Africa, and Australia and New Zealand. The Company evaluates, oversees and manages the financial performance of the business through these three operating segments, further described in Note 17. Segment Information.
The Company’s revenues are generally recurring in nature and historically have been derived primarily from convenience transaction fees (or "surcharge"), which are paid by cardholders, as well as other transaction-based fees, including interchange fees, which are paid by the cardholder’s financial institution for the use of the ATMs serving their customers and connectivity to the applicable electronic funds transfer ("EFT") network that transmits data between the ATM and the cardholder’s financial institution. Other revenue sources include: (i) fees from financial institutions that participate in the Company's Allpoint network ("Allpoint"), the largest retail based surcharge-free ATM network (based on the number of participating ATMs), (ii) fees for bank-branding ATMs and providing financial institution cardholders with surcharge-free access, (iii) revenues earned by providing managed services solutions and transaction processing services to retailers and financial institutions, (iv) fees earned from foreign currency exchange transactions at the ATM, known as dynamic currency conversion ("DCC"), and (v) revenues from the sale of ATMs, ATM-related equipment and other ancillary services.
(b) Basis of Presentation
This Quarterly Report on Form 10-Q (this “Form 10-Q”) has been prepared pursuant to the rules and regulations of the United States ("U.S.") Securities and Exchange Commission (“SEC”) applicable to interim financial information. As this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the U.S. (“U.S. GAAP” or “GAAP”), although the Company believes that the disclosures are adequate to make the information not misleading. This Form 10-Q should be read along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), which includes a summary of the Company’s significant accounting policies and other disclosures.
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, 2020 and 2019 are not necessarily indicative of results of operations that may be expected for any other interim period or for the full fiscal year.
The unaudited interim financial statements include the accounts of the Company. All material intercompany accounts and transactions have been eliminated in consolidation. The Company owns a majority (95.7%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, S.A. de C.V.; thus this entity is reflected as a consolidated subsidiary in the financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.
The preparation of the unaudited interim financial statements to conform with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of this Form 10-Q and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and these differences could be material to the financial statements.
(c) Cost of ATM Operating Revenues Presentation
The Company presents the Cost of ATM operating revenues in the Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets.
The following table reconciles the amounts excluded from the Cost of ATM operating revenues line in the Consolidated Statements of Operations to total depreciation, accretion, and amortization of intangible assets included in the Consolidated Statement of Operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Depreciation and accretion expenses related to ATMs and ATM-related assets
|
$
|
25,626
|
|
|
$
|
24,899
|
|
|
$
|
72,406
|
|
|
$
|
74,890
|
|
|
Amortization of intangible assets
|
7,900
|
|
|
12,404
|
|
|
25,162
|
|
|
37,407
|
|
|
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues
|
33,526
|
|
|
37,303
|
|
|
97,568
|
|
|
112,297
|
|
|
Depreciation and accretion expense included in Selling, general, and administrative expenses
|
7,437
|
|
|
8,567
|
|
|
24,940
|
|
|
24,754
|
|
|
Total depreciation, accretion and amortization of intangible assets
|
$
|
40,963
|
|
|
$
|
45,870
|
|
|
$
|
122,508
|
|
|
$
|
137,051
|
|
(d) Restructuring Expenses
During the three and nine months ended September 30, 2020, the Company continued certain corporate reorganization and cost reduction initiatives that began in 2019. In addition, the Company implemented additional cost reduction measures during the nine months ended September 30, 2020, partly in response to the impacts of the COVID-19 pandemic (the "Pandemic"). In the three and nine months ended September 30, 2020, the Company incurred $2.0 million and $6.6 million, respectively, of pre-tax expenses related to these activities that primarily included facility closures, workforce reductions and other related charges.
The following table reflects the amounts recorded in the Restructuring expenses line in the Consolidated Statements of Operations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Europe & Africa
|
$
|
1,894
|
|
|
$
|
2,335
|
|
|
$
|
4,971
|
|
|
$
|
2,735
|
|
|
North America
|
—
|
|
|
799
|
|
|
1,205
|
|
|
1,012
|
|
|
Australia & New Zealand
|
114
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
Corporate
|
—
|
|
|
449
|
|
|
267
|
|
|
3,299
|
|
|
Total
|
$
|
2,008
|
|
|
$
|
3,583
|
|
|
$
|
6,557
|
|
|
$
|
7,046
|
|
The costs incurred in Europe & Africa for the three and nine months ended September 30, 2020 and 2019 included facility related costs consisting of non-cash asset write-offs and accelerated lease expenses as well as amounts pertaining to workforce reductions. The costs incurred in North America for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 primarily related to workforce reductions. The costs incurred in Australia & New Zealand for the three months ended September 30, 2020 primarily related to workforce reductions. The costs incurred in Corporate for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 primarily consisted of professional fees. The restructuring liability balances as of September 30, 2020 and 2019 were $1.0 million and $0.7 million, respectively. The restructuring liability balance as of December 31, 2019 was $1.0 million.
(e) Cash, Cash Equivalents, and Restricted Cash
For purposes of reporting financial condition, cash and cash equivalents include cash in bank and short-term deposit accounts. Additionally, the Company maintains cash on deposit with banks that is pledged for a particular use or restricted to support a liability. Current restricted cash primarily consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. Restricted cash in current assets is offset by a corresponding liability balance in the Accrued liabilities line in the Consolidated Balance Sheets. The changes in the settlement liabilities corresponding to the changes in the balance of restricted cash during the nine months ended September 30, 2020 and 2019 are presented in the Statements of Cash Flows within the Increase in restricted cash liabilities line.
The following table provides a reconciliation of the ending cash, cash equivalents, and restricted cash balances as of September 30, 2020 and 2019, corresponding with the balances in the Consolidated Statements of Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
$
|
263,490
|
|
|
$
|
26,534
|
|
|
Restricted cash
|
96,740
|
|
|
178,748
|
|
|
Total cash, cash equivalents, and restricted cash in the Consolidated Statements of Cash Flows
|
$
|
360,230
|
|
|
$
|
205,282
|
|
(f) Accounts and Notes Receivable-Credit Losses
Accounts and notes receivable are comprised of amounts due from the Company’s clearing and settlement banks for transaction revenues earned on transactions processed during the month ending on the balance sheet date, as well as receivables from bank-branding and network-branding customers, and for ATMs and ATM-related equipment sales and service. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The allowance for credit losses represents the Company’s best estimate of the future expected credit losses on the Company's existing accounts and notes receivable. The Company assessed the likelihood of collection of its receivables utilizing historical loss rates and current market conditions that included the estimated impact of the global COVID-19 pandemic. Refer to Note 2. New Accounting Pronouncements for additional information on the development of the Company's estimate of expected credit losses.
The Company recorded a (benefit) provision for estimated credit losses of $(0.5) million and $0.4 million during the three months ending September 30, 2020 and 2019, respectively, and a provision of $0.8 million and $1.0 million during the nine months ending September 30, 2020 and 2019, respectively. As of September 30, 2020, approximately 79% of the Accounts and Notes Receivable balance was current and not yet due.
(g) Inventory
The Company’s inventory is determined using the average cost method. The Company periodically assesses its inventory, and as necessary, adjusts the carrying values to the lower of cost or net realizable value.
The following table reflects the Company’s primary inventory components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
ATMs
|
$
|
2,180
|
|
|
$
|
3,330
|
|
|
ATM spare parts and supplies
|
5,360
|
|
|
7,673
|
|
|
Total inventory
|
7,540
|
|
|
11,003
|
|
|
Less: Inventory reserves
|
(1,090)
|
|
|
(385)
|
|
|
Inventory, net
|
$
|
6,450
|
|
|
$
|
10,618
|
|
(2) New Accounting Pronouncements
Adoption of New Accounting Pronouncements
Current Expected Credit Losses. On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related amendments (collectively, "Topic 326"), via a cumulative-effect adjustment to opening retained earnings. Topic 326 replaced the incurred loss impairment model under which credit losses were recognized when probable. The new guidance requires recognition of credit losses when expected based on a broad range of information, including historical experience and current economic conditions. To implement the standard, the Company applied an aging based methodology using historic loss experience and aging categories. Where necessary, the Company segregated receivables into pools with common characteristics. In addition, where appropriate and where the available information indicated that losses would be minimal, an estimated loss rate was applied. In all cases, losses are recognized when expected. The Company holds no material financing receivables and no other financial instruments measured at amortized cost. The Company's adoption of Topic 326 had the following impact on the Company’s consolidated statement of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
ASC 326 Adoption
|
|
|
January 1, 2020
|
|
|
|
As Reported
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable
|
$
|
101,046
|
|
|
|
|
$
|
—
|
|
|
|
$
|
101,046
|
|
|
|
Allowance for credit losses
|
(5,251)
|
|
|
|
|
(2,337)
|
|
|
|
(7,588)
|
|
|
|
Accounts and notes receivable, net
|
$
|
95,795
|
|
|
|
|
$
|
(2,337)
|
|
|
|
$
|
93,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset, net
|
$
|
13,159
|
|
|
|
|
$
|
466
|
|
|
|
$
|
13,625
|
|
|
|
Retained earnings
|
$
|
125,763
|
|
|
|
|
$
|
(1,871)
|
|
|
|
$
|
123,892
|
|
|
Fair Value Measurement. In January 2020, the Company adopted ASU 2018-13, Disclosure Framework (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. This guidance modified the disclosure requirements for fair value measurements. The Company's adoption of these disclosure requirements had no impact on the Company's consolidated financial statements.
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to the current guidance on contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR"). The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of this guidance has had no impact on the consolidated financial statements as the Company has not yet modified any of the existing contracts in response to the reference rate reform. The impact of this ASU will ultimately depend on the terms of any future contract modification related to a change in reference rate, including potential future modifications to the Company's debt facilities, vault cash agreements and cash flow hedges.
Accounting Pronouncements Issued But Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 740-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating this guidance and has not yet concluded whether it will early adopt in 2021. At this time, this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes,
performing intra-period allocations and calculating income taxes in interim periods. The ASU also adds guidance intended to reduce complexity in certain areas, including recognizing deferred taxes for certain changes in the tax basis of goodwill and allocating taxes to members of a consolidated group. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the new guidance on the Company's consolidated financial statements.
(3) Revenue Recognition
Disaggregated Revenues
The following tables detail the revenues of the Company’s reportable segments disaggregated by financial statement line and component of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
(In thousands)
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Eliminations
|
|
Consolidated
|
|
Surcharge revenues
|
$
|
69,120
|
|
|
$
|
27,188
|
|
|
$
|
14,720
|
|
|
$
|
—
|
|
|
$
|
111,028
|
|
|
Interchange revenues
|
30,903
|
|
|
39,151
|
|
|
832
|
|
|
—
|
|
|
70,886
|
|
|
Bank-branding and surcharge-free network revenues
|
56,272
|
|
|
397
|
|
|
—
|
|
|
—
|
|
|
56,669
|
|
|
Managed services and processing revenues
|
25,035
|
|
|
1,557
|
|
|
3,599
|
|
|
(1,454)
|
|
|
28,737
|
|
|
Total ATM operating revenues
|
181,330
|
|
|
68,293
|
|
|
19,151
|
|
|
(1,454)
|
|
|
267,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM product sales and other revenues
|
10,395
|
|
|
1,613
|
|
|
70
|
|
|
—
|
|
|
12,078
|
|
|
Total revenues
|
$
|
191,725
|
|
|
$
|
69,906
|
|
|
$
|
19,221
|
|
|
$
|
(1,454)
|
|
|
$
|
279,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
(In thousands)
|
|
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Eliminations
|
|
Consolidated
|
|
|
|
Surcharge revenues
|
$
|
90,148
|
|
|
$
|
48,652
|
|
|
$
|
19,603
|
|
|
$
|
—
|
|
|
$
|
158,403
|
|
|
|
|
Interchange revenues
|
35,289
|
|
|
51,631
|
|
|
1,056
|
|
|
—
|
|
|
87,976
|
|
|
|
|
Bank-branding and surcharge-free network revenues
|
52,112
|
|
|
238
|
|
|
—
|
|
|
—
|
|
|
52,350
|
|
|
|
|
Managed services and processing revenues
|
31,046
|
|
|
2,280
|
|
|
3,730
|
|
|
(2,401)
|
|
|
34,655
|
|
|
|
|
Total ATM operating revenues
|
208,595
|
|
|
102,801
|
|
|
24,389
|
|
|
(2,401)
|
|
|
333,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM product sales and other revenues
|
16,113
|
|
|
1,907
|
|
|
103
|
|
|
—
|
|
|
18,123
|
|
|
|
|
Total revenues
|
$
|
224,708
|
|
|
$
|
104,708
|
|
|
$
|
24,492
|
|
|
$
|
(2,401)
|
|
|
$
|
351,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
(In thousands)
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Eliminations
|
|
Consolidated
|
|
Surcharge revenues
|
$
|
212,359
|
|
|
$
|
77,256
|
|
|
$
|
39,008
|
|
|
$
|
—
|
|
|
$
|
328,623
|
|
|
Interchange revenues
|
90,298
|
|
|
112,514
|
|
|
2,299
|
|
|
—
|
|
|
205,111
|
|
|
Bank-branding and surcharge-free network revenues
|
162,514
|
|
|
1,102
|
|
|
—
|
|
|
—
|
|
|
163,616
|
|
|
Managed services and processing revenues
|
74,457
|
|
|
4,467
|
|
|
10,244
|
|
|
(4,520)
|
|
|
84,648
|
|
|
Total ATM operating revenues
|
539,628
|
|
|
195,339
|
|
|
51,551
|
|
|
(4,520)
|
|
|
781,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM product sales and other revenues
|
32,133
|
|
|
4,859
|
|
|
202
|
|
|
—
|
|
|
37,194
|
|
|
Total revenues
|
$
|
571,761
|
|
|
$
|
200,198
|
|
|
$
|
51,753
|
|
|
$
|
(4,520)
|
|
|
$
|
819,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
(In thousands)
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Eliminations
|
|
Consolidated
|
|
Surcharge revenues
|
$
|
263,492
|
|
|
$
|
124,124
|
|
|
$
|
60,047
|
|
|
$
|
—
|
|
|
$
|
447,663
|
|
|
Interchange revenues
|
103,954
|
|
|
161,362
|
|
|
3,557
|
|
|
—
|
|
|
268,873
|
|
|
Bank-branding and surcharge-free network revenues
|
146,523
|
|
|
721
|
|
|
—
|
|
|
—
|
|
|
147,244
|
|
|
Managed services and processing revenues
|
85,208
|
|
|
6,773
|
|
|
11,302
|
|
|
(7,996)
|
|
|
95,287
|
|
|
Total ATM operating revenues
|
599,177
|
|
|
292,980
|
|
|
74,906
|
|
|
(7,996)
|
|
|
959,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM product sales and other revenues
|
44,994
|
|
|
6,123
|
|
|
414
|
|
|
—
|
|
|
51,531
|
|
|
Total revenues
|
$
|
644,171
|
|
|
$
|
299,103
|
|
|
$
|
75,320
|
|
|
$
|
(7,996)
|
|
|
$
|
1,010,598
|
|
Revenue is recognized when obligations under the terms of a contract with a customer are satisfied. Revenue is recorded in the ATM operating revenues and ATM product sales and other revenues line items in the Consolidated Statements of Operations.
The Company presents revenues from automated consumer financial services, bank-branding and surcharge-free network offerings, managed services and other services in the ATM operating revenues line in the Consolidated Statements of Operations. ATM operating revenues are recognized as the associated transactions are processed or monthly on a per ATM or per cardholder basis. When customer contracts provide for up-front fees that do not pertain to a distinct performance obligation, the fees are recognized over the term of the underlying agreement on a straight-line basis. ATM product sales and other revenues are recognized when the related performance obligations are fulfilled upon transfer of control of goods or services to the customer.
The Company’s bank-branding, surcharge-free network and managed services arrangements result in the Company providing a series of distinct services that have similar patterns of transfer to the customer. As a result, these arrangements create performance obligations that are satisfied over-time (generally 3-5 years) for which the Company has a right to consideration that corresponds directly with the value of the Company’s performance completed to date. In conjunction with these arrangements, the Company recognizes revenue in the amount that it has a right to receive. Variable consideration may exist in these arrangements and is recognized only to the extent a significant reversal is not probable.
The Company presents revenues from other product sales and services in the ATM product sales and other revenues line in the Consolidated Statements of Operations. The Company earns revenues from the sale of ATMs and ATM-related equipment as well as the delivery of other non-transaction-based services. Revenues related to these activities are recognized when ownership of the equipment is transferred to the customer and the Company has completed all required installation and set-up procedures. With respect to the sale of ATMs to Value-Added-Resellers (“VARs”), the Company recognizes revenues related to such sales when ownership of the equipment is transferred to the VARs.
Due to the transactional nature of the Company’s revenue, there are no significant judgments that affect the determination of the amount and timing of its revenues. See the 2019 Form 10-K for further information on the components of the Company's revenues.
Contract Balances
As of September 30, 2020, the Company has recognized no significant contract assets. Contract liabilities totaled $8.7 million and $9.0 million at September 30, 2020 and December 31, 2019, respectively. These amounts represent deferred revenues for advance consideration received primarily in relation to bank-branding and surcharge-free network arrangements. The revenue recognized during the three and nine months ended September 30, 2020 and 2019 on previously deferred revenues was not significant. The Company expects to recognize the revenue associated with its contract liabilities ratably over various periods generally extending over the next 36 months.
Contract Acquisition Costs
The Company expects that the incremental commissions paid to sales personnel, together with other associated costs, are recoverable, and therefore, the Company capitalizes these amounts as deferred contract acquisition costs. Deferred contract acquisition costs totaled $6.5 million and $7.5 million at September 30, 2020 and December 31, 2019, respectively. Sales commissions capitalized are generally amortized over a 4-5 year period corresponding with the related agreements. Similarly, the costs incurred to fulfill a contract, primarily consisting of prepaid merchant commissions and other consideration paid or provided to merchant partners, are capitalized and recognized over the duration of the related contract. The Company does not capitalize the costs of obtaining a contract if the associated contract is one year or less.
(4) 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 the grant.
The following table reflects the total share-based compensation expense amounts reported in the Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Cost of ATM operating revenues
|
$
|
391
|
|
|
$
|
367
|
|
|
$
|
1,161
|
|
|
$
|
994
|
|
|
Selling, general, and administrative expenses
|
5,530
|
|
|
5,266
|
|
|
14,982
|
|
|
14,373
|
|
|
Total share-based compensation expense
|
$
|
5,921
|
|
|
$
|
5,633
|
|
|
$
|
16,143
|
|
|
$
|
15,367
|
|
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 Fourth 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, based on the Company’s achievement of previously specified performance levels at the end of the associated performance period. RSU grants are service-based (“Time-RSUs”), performance-based (“Performance-RSUs”), or market-based (“Market-Based-RSUs”). Each is recognized ratably over the associated service period. For Time-RSUs and Market-Based-RSUs, the Company recognizes the related compensation expense based on the grant date fair value. The grant date fair value of the Time-Based RSUs is the Company's closing stock price on the date of grant while the grant date fair value of the Market-Based-RSUs is derived from a Monte Carlo simulation. For Performance-RSUs, the Company recognizes the related compensation expense based on the estimated performance levels that management believes will ultimately be met.
Time-RSUs are convertible into the Company’s common shares upon passage of the annual graded vesting periods, which begin 1-2 years after the grant date and extend 3-4 years. Performance-RSUs and Market-Based-RSUs will be earned to the extent the Company achieves the associated performance-based or market-based vesting conditions and these awards are convertible into the Company’s common shares after the passage of the vesting periods which extend 3-4 years from the grant date. Although Performance-RSUs and Market-Based-RSUs are not considered to be earned and outstanding until the vesting conditions are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier). RSUs may also be granted outside of LTIPs, with or without performance-based vesting requirements.
The number of the Company’s earned non-vested RSUs as of September 30, 2020, and changes during the nine months ended September 30, 2020, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Non-vested RSUs as of December 31, 2019
|
742,352
|
|
|
$
|
29.44
|
|
|
Granted
|
919,605
|
|
|
23.58
|
|
|
Vested
|
(428,767)
|
|
|
29.55
|
|
|
Forfeited
|
(58,948)
|
|
|
28.08
|
|
|
Non-vested RSUs as of September 30, 2020
|
1,174,242
|
|
|
$
|
24.88
|
|
The above table only includes earned RSUs. Performance-RSUs and Market-Based-RSUs that are not yet earned are not included. The number of unearned Market-Based-RSUs granted in 2018, net of forfeitures, was 134,989 units with a weighted average grant date fair value of $24.13. The number of unearned Performance-RSUs granted at target in 2019, net of forfeitures, was 110,023 units with a weighted average grant date fair value of $33.70 per unit. The number of unearned Performance-RSUs granted at target in 2020, net of forfeitures, was 206,587 units with a weighted average grant date fair value of $21.76 per unit. The number of unearned Market-Based-RSUs granted in 2019, net of forfeitures, was 109,946 units with a weighted average grant date fair value of $49.12 per unit. The number of unearned Market-Based-RSUs granted in 2020, net of forfeitures, was 190,020 units with a weighted average grant date fair value of $30.54. Time-RSUs are included in the listing of earned and outstanding RSUs when granted.
As of September 30, 2020, the unrecognized compensation expense associated with earned RSUs was $11.1 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 1.93 years.
Options. The number of the Company’s outstanding stock options as of September 30, 2020, and changes during the nine months ended September 30, 2020, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
|
|
Options outstanding as of December 31, 2019
|
380,180
|
|
|
$
|
26.01
|
|
|
|
|
|
Granted
|
233,888
|
|
|
20.92
|
|
|
|
|
|
Exercised
|
(13,020)
|
|
|
22.31
|
|
|
|
|
|
Forfeited
|
(9,626)
|
|
|
31.99
|
|
|
|
|
|
Options outstanding as of September 30, 2020
|
591,422
|
|
|
$
|
23.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable as of September 30, 2020
|
196,185
|
|
|
$
|
24.61
|
|
|
|
|
As of September 30, 2020, the unrecognized compensation expense associated with outstanding options was approximately $2.7 million, which will be recognized over the remaining weighted average vesting period of approximately 1.86 years. The weighted average contractual term associated with outstanding options was 8.42 years as of September 30, 2020.
(5) Earnings Per Share
The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common shareholders) when their impact on net income available to common shareholders is anti-dilutive.
Potentially dilutive securities for the three and nine months ended September 30, 2020 include outstanding stock options, RSUs, and the potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Company’s 1.00% Convertible Senior Notes due 2020. The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Convertible Notes were excluded from diluted shares outstanding as the exercise price exceeded the average market price of the Company’s common shares. The effect of the note hedge as described in Note 9. Current and Long-Term Debt, was also excluded as the effect is anti-dilutive.
The details of the Company's Earnings per Share calculation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(in thousands, excluding share and per share amounts)
|
|
Net income available to common shareholders
|
$
|
5,732
|
|
|
$
|
20,864
|
|
|
$
|
9,565
|
|
|
$
|
35,654
|
|
|
Weighted average common basic shares outstanding (for basic calculation)
|
44,506,874
|
|
|
45,058,226
|
|
|
44,557,103
|
|
|
46,040,027
|
|
|
Dilutive effect of outstanding common stock options and RSUs
|
702,822
|
|
|
445,939
|
|
|
825,584
|
|
|
435,326
|
|
|
Weighted average common dilutive shares outstanding (for diluted calculation)
|
45,209,696
|
|
|
45,504,165
|
|
|
45,382,687
|
|
|
46,475,353
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share - basic
|
$
|
0.13
|
|
|
$
|
0.46
|
|
|
$
|
0.21
|
|
|
$
|
0.77
|
|
|
Net income per common share - diluted
|
$
|
0.13
|
|
|
$
|
0.46
|
|
|
$
|
0.21
|
|
|
$
|
0.77
|
|
The computations of diluted earnings per share for the three and nine months ended September 30, 2020 exclude approximately 900,000 and 390,000 potentially dilutive common shares, respectively, due to the effect of including these shares in the computation would have been antidilutive. In addition, the computations of diluted earnings per share for the three and nine months ended September 30, 2020 exclude approximately 175,000 and 40,000 weighted average dilutive shares, respectively, that are contingently issuable, consisting of market-based and performance based awards for which all necessary conditions had not been satisfied.
(6) Shareholders' Equity
Share Repurchases. On March 26, 2019, the Company announced that its Board of Directors ("Board") had authorized a share repurchase program, enabling the repurchase of up to $50 million of its Class A ordinary shares through August 31, 2020. The Company exhausted this authorization in September 2019. Subsequently, on November 21, 2019, the Company announced that its Board had authorized the repurchase of an additional $50 million of its Class A ordinary shares through December 31, 2020. Share repurchases under the authorized plans could be effected on behalf of the Company through open market transactions, privately negotiated transactions, or otherwise, pursuant to SEC trading rules.
During the three months ended March 31, 2020, the Company repurchased and canceled 505,699 of its outstanding Class A ordinary shares for an aggregate purchase price of $16.9 million, inclusive of stamp taxes of $0.1 million. On April 1, 2020, the Company announced the suspension of its buyback program as part of its Pandemic related business update. The buyback program remains suspended as of September 30, 2020.
Additional Paid-In Capital. Included in the balance of Additional paid-in capital are the net amounts paid to settle the convertible note hedges and the associated warrants that the Company entered into in conjunction with the issuance of its Convertible Notes in 2013. These instruments were partially settled upon the partial repurchase of the Convertible Notes in June 2020, in proportionate amounts. During the nine months ended September 30, 2020, the Company received $0.4 million upon settlement of convertible note hedges that were canceled and paid $1.4 million to settle the warrants that were canceled. These figures are reported together with the associated fees in the Company's Consolidated Statements of Shareholders' Equity. See Note 9. Current and Long-Term Debt for additional information on the Convertible Notes and the related equity instruments.
Accumulated Other Comprehensive Loss, net. Accumulated other comprehensive loss, net, is a separate component of Shareholders’ equity in the 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 nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Unrealized Losses on Interest Rate Derivative Contracts
|
|
|
|
Total
|
|
|
(In thousands)
|
|
Total accumulated other comprehensive loss, net as of June 30, 2020
|
$
|
(77,001)
|
|
|
(1)
|
|
$
|
(61,826)
|
|
|
(2)
|
|
$
|
(138,827)
|
|
|
Other comprehensive income (loss) before reclassification
|
11,068
|
|
|
(3)
|
|
(5,072)
|
|
|
(4)
|
|
5,996
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net
|
—
|
|
|
|
|
8,620
|
|
|
(4)
|
|
8,620
|
|
|
Net current period other comprehensive income
|
11,068
|
|
|
|
|
3,548
|
|
|
|
|
14,616
|
|
|
Total accumulated other comprehensive loss, net as of September 30, 2020
|
$
|
(65,933)
|
|
|
(1)
|
|
$
|
(58,278)
|
|
|
(2)
|
|
$
|
(124,211)
|
|
(1)Net of deferred income tax benefit of $4,654 and $5,597 as of September 30, 2020 and June 30, 2020, respectively.
(2)Net of deferred income tax expense of $1,981 and $1,246 as of September 30, 2020 and June 30, 2020, respectively.
(3)Net of deferred income tax expense of $943.
(4)Net of deferred income tax expense of $272 and $463 for Other comprehensive income (loss) before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the three months ended September 30, 2020. For additional information, see Note 13. Derivative Financial Instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
Unrealized Losses on Interest Rate Derivative Contracts
|
|
|
|
Total
|
|
|
(In thousands)
|
|
Total accumulated other comprehensive loss, net as of December 31, 2019
|
$
|
(59,143)
|
|
|
(1)
|
|
$
|
(18,744)
|
|
|
(2)
|
|
$
|
(77,887)
|
|
|
Other comprehensive loss before reclassification
|
(6,790)
|
|
|
(3)
|
|
(58,139)
|
|
|
(4)
|
|
(64,929)
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net
|
—
|
|
|
|
|
18,605
|
|
|
(4)
|
|
18,605
|
|
|
Net current period other comprehensive loss
|
(6,790)
|
|
|
|
|
(39,534)
|
|
|
|
|
(46,324)
|
|
|
Total accumulated other comprehensive loss, net as of September 30, 2020
|
$
|
(65,933)
|
|
|
(1)
|
|
$
|
(58,278)
|
|
|
(2)
|
|
$
|
(124,211)
|
|
(1)Net of deferred income tax benefit of $4,654 and $5,474 as of September 30, 2020 and December 31, 2019, respectively.
(2)Net of deferred income tax expense of $1,981 and $14,273 as of September 30, 2020 and December 31, 2019, respectively.
(3)Net of deferred income tax expense of $820.
(4)Net of deferred income tax benefit of $9,312 and $2,980 for Other comprehensive income before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the nine months ended September 30, 2020. For additional information, see Note 13. Derivative Financial Instruments.
The Company records unrealized gains and losses related to its interest rate derivative contracts, net of taxes, in the Accumulated other comprehensive loss, net line within the Consolidated Balance Sheets. The amounts reclassified from Accumulated other comprehensive loss, net are recognized in the Cost of ATM operating revenues, Interest expense, net, or Other income lines in the Consolidated Statements of Operations.
The Company has elected the portfolio approach for the deferred tax asset of the unrealized gains and losses related to the interest rate swap contracts in Accumulated other comprehensive loss, net within the 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 within the Consolidated Balance Sheets and into continuing operations as a tax expense when the Company ceases to hold any interest rate swap contracts. As of September 30, 2020, the disproportionate tax effect is $14.7 million.
(7) Intangible Assets
Goodwill
The Company tests goodwill for impairment annually as of its fiscal year end, or more frequently if events or circumstances indicate goodwill could be impaired. During the three months ended March 31, 2020, in response to the global economic impact of the COVID-19 pandemic, the Company performed a qualitative assessment and determined that it was not more likely than not that the carrying value of its U.S., United Kingdom ("U.K."), Australia & New Zealand, South Africa, Germany and Mexico reporting units exceeded their fair value. As such, the Company determined that a quantitative assessment was not necessary for these reporting units. For the Canada reporting unit, which was partially impaired as of December 31, 2019, the Company bypassed the optional qualitative assessment and performed a quantitative assessment as of March 31, 2020. For this quantitative assessment, the Company prepared a revised cash flow forecast that incorporated the estimated Pandemic impact, assumptions on operating efficiencies and resulting cash flows over time at a discount rate of 9.7%. Based on this quantitative test, the fair value of the Canada reporting unit marginally exceeded its carrying value and no additional goodwill impairment was recognized.
The Company did not identify any impairment indicators associated with its reporting units during the three months ended September 30, 2020. The Canada reporting unit's goodwill was approximately $101 million at September 30, 2020. To the extent that the Company is unable to meet its forecasts in the future or there are changes in the discount rate, further impairment charges are possible.
The following table presents the net carrying amounts of the Company’s goodwill as of September 30, 2020 and December 31, 2019, as well as the changes in the net carrying amounts for the nine months ended September 30, 2020, by segment. As of September 30, 2020, the Company held no significant indefinite-lived assets. For additional information related to the Company’s segments, see Note 17. Segment Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New
Zealand
|
|
Total
|
|
|
(In thousands)
|
|
Goodwill, gross as of December 31, 2019
|
$
|
561,513
|
|
|
$
|
236,992
|
|
|
$
|
151,431
|
|
|
$
|
949,936
|
|
|
Accumulated impairment loss
|
(7,303)
|
|
|
(50,003)
|
|
|
(140,038)
|
|
|
(197,344)
|
|
|
Goodwill, net as of December 31, 2019
|
$
|
554,210
|
|
|
$
|
186,989
|
|
|
$
|
11,393
|
|
|
$
|
752,592
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
(2,778)
|
|
|
(10,842)
|
|
|
207
|
|
|
(13,413)
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, gross as of September 30, 2020
|
558,735
|
|
|
226,150
|
|
|
151,638
|
|
|
936,523
|
|
|
Accumulated impairment loss
|
(7,303)
|
|
|
(50,003)
|
|
|
(140,038)
|
|
|
(197,344)
|
|
|
Goodwill, net as of September 30, 2020
|
$
|
551,432
|
|
|
$
|
176,147
|
|
|
$
|
11,600
|
|
|
$
|
739,179
|
|
Intangible Assets with Definite Lives
The following table presents the Company’s intangible assets that were subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(In thousands)
|
|
Merchant and bank-branding contracts/relationships
|
$
|
488,725
|
|
|
$
|
(410,685)
|
|
|
$
|
78,040
|
|
|
$
|
489,363
|
|
|
$
|
(388,598)
|
|
|
$
|
100,765
|
|
|
Trade names
|
16,315
|
|
|
(13,190)
|
|
|
3,125
|
|
|
18,391
|
|
|
(12,792)
|
|
|
5,599
|
|
|
Technology
|
11,895
|
|
|
(8,615)
|
|
|
3,280
|
|
|
12,389
|
|
|
(7,952)
|
|
|
4,437
|
|
|
Non-compete agreements
|
4,335
|
|
|
(4,335)
|
|
|
—
|
|
|
4,408
|
|
|
(4,408)
|
|
|
—
|
|
|
Revolving credit facility deferred financing costs
|
5,820
|
|
|
(2,229)
|
|
|
3,591
|
|
|
5,256
|
|
|
(2,132)
|
|
|
3,124
|
|
|
Total intangible assets with definite lives
|
$
|
527,090
|
|
|
$
|
(439,054)
|
|
|
$
|
88,036
|
|
|
$
|
529,807
|
|
|
$
|
(415,882)
|
|
|
$
|
113,925
|
|
During the nine months ended September 30, 2020, the Company expensed approximately $0.8 million of deferred financing costs associated with its revolving credit facility upon entering into a third amendment to the revolving credit facility agreement, which reduced the borrowing capacity of the facility. This expense was recognized in the Amortization of deferred financing costs and note discount line of the Consolidated Statements of Operations. See Note 9. Current and Long-Term Debt.
(8) Accrued Liabilities
The Company’s accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Accrued merchant settlement
|
$
|
168,017
|
|
|
$
|
154,181
|
|
|
Accrued merchant fees
|
26,565
|
|
|
33,037
|
|
|
Accrued taxes
|
21,684
|
|
|
36,067
|
|
|
Accrued purchases
|
14,585
|
|
|
7,138
|
|
|
Accrued processing costs
|
11,831
|
|
|
12,159
|
|
|
Accrued compensation
|
10,926
|
|
|
23,676
|
|
|
Accrued armored
|
10,713
|
|
|
8,307
|
|
|
Accrued maintenance
|
9,061
|
|
|
6,463
|
|
|
Accrued interest
|
7,497
|
|
|
3,775
|
|
|
Accrued cash management fees
|
5,595
|
|
|
9,291
|
|
|
Accrued telecommunications costs
|
1,477
|
|
|
1,664
|
|
|
|
|
|
|
|
Other accrued expenses
|
38,265
|
|
|
39,004
|
|
|
Total accrued liabilities
|
$
|
326,216
|
|
|
$
|
334,762
|
|
(9) Current and Long-Term Debt
The Company’s carrying value of current and long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Revolving credit facility due September 2024, including swingline credit facility
|
$
|
—
|
|
|
$
|
167,227
|
|
|
Term loan facility due June 2027, net of unamortized discount and capitalized debt issuance costs
|
481,827
|
|
|
—
|
|
|
5.50% Senior notes due May 2025, net of unamortized capitalized debt issuance costs
|
297,030
|
|
|
296,545
|
|
|
1.00% Convertible senior notes due December 2020, net of unamortized discount and capitalized debt issuance costs
|
114,694
|
|
|
275,703
|
|
|
Total Debt
|
893,551
|
|
|
739,475
|
|
|
Less: Current portion
|
(119,694)
|
|
|
—
|
|
|
Total Long-Term Debt
|
$
|
773,857
|
|
|
$
|
739,475
|
|
The Term Loan Facility (or "Term Loan") due June 2027 with a face value of $498.7 million is presented net of unamortized discount and capitalized debt issuance costs of $16.9 million as of September 30, 2020. Mandatory quarterly installments of principal repayments under the Term Loan, totaling $5.0 million in the next twelve months, are presented in the Current portion of long-term debt line of the Company's Consolidated Balance Sheet as of September 30, 2020. The 5.50% Senior Notes due 2025 (the “2025 Notes”) with a face value of $300.0 million are presented net of unamortized capitalized debt issuance costs of $3.0 million and $3.5 million as of September 30, 2020 and December 31, 2019, respectively. The 1.00% Convertible senior notes due December 2020 (the "Convertible Notes") with a face value of $115.6 million and $287.5 million as of September 30, 2020 and December 31, 2019, respectively, are presented net of unamortized discounts and capitalized debt issuance costs of $0.9 million and $11.8 million as of September 30, 2020 and December 31, 2019, respectively. The Convertible Notes are presented in the Current portion of long-term debt line of the Company's Consolidated Balance Sheet as of September 30, 2020.
Revolving Credit Facility
On May 29, 2020, the Company entered into a second amendment to its second amended and restated credit agreement (the "Second Amendment"). Given the unprecedented conditions across all of the markets in which the Company operates, due to the impact of the Pandemic and as a precautionary measure, the Company sought this amendment to provide financial covenant relief should transactions and corresponding revenues not recover or further weaken from more recent results. With this amendment, the covenant levels for the Total Net Leverage Ratio (as defined in the Second Amendment) were revised to provide for a Restricted Period, which will end on (a) October 1, 2021; or (b) the date on which (i) the Company terminates the Restricted Period at its election and (ii) as modified by the third amendment, the Total Net Leverage ratio does not exceed 4.50 to 1.0 (the "Restricted Period"). Under the Second Amendment, in consideration for the financial covenant relief, the interest rates for borrowings and the issuance of letters of credit and fees payable on any unused amounts of the revolving credit facility are subject to certain upward adjustments, including new applicable margins above base rates and commitment fee rates when the Total Net Leverage Ratio exceeds 4.00 to 1.0 and amended base rate floors during the Restricted Period. The Second Amendment provides that the Company is subject to some additional limitations under certain covenant baskets while financial covenant relief remains in effect.
On June 29, 2020, the Company entered into a third amendment to its second amended and restated credit agreement (as amended, the "Amended Credit Agreement"), in conjunction with the Term Loan issuance. The third amendment decreased the Company's available borrowing capacity under the revolving credit agreement from $750 million to $600 million and modified various terms, conditions and covenants. As modified by the Second Amendment, most changes during the period of financial covenant relief remain in place. The Amended Credit Agreement matures on September 19, 2024.
Due to the reduction in capacity under the Amended Credit Agreement, the Company expensed approximately $1.2 million of the deferred financing costs and amendment fees, presented within Amortization of deferred financing costs and note discount line in the Consolidated Statement of Operations. The deferred financing costs associated with the Amended Credit Agreement are classified within Intangible assets, net and presented within Note 7. Intangible Assets.
Each of the Guarantors, as defined in the Amended Credit Agreement, has guaranteed the full and punctual payment of the obligations under the revolving credit facility and the obligations under the revolving credit facility are secured by substantially all of the assets of the credit facility Guarantors.
Financial covenants under the Amended Credit Agreement are determined as of the last day of each fiscal quarter. The Company is required to maintain an Interest Coverage Ratio, as defined in the Amended Credit Agreement, of no less than 3.00 to 1.00. During the Restricted Period, the Amended Credit Agreement provides for adjustments to the Total Net Leverage Ratio covenant as follows: (i) for the fiscal quarter ending September 30, 2020, the Total Net Leverage Ratio shall not exceed 4.25 to 1.0; (ii) for the fiscal quarter ending December 31, 2020, the Total Net Leverage Ratio shall not exceed 5.25 to 1.0; (iii) for the fiscal quarter ending March 31, 2021, the Total Net Leverage Ratio shall not exceed 5.50 to 1.0; (iv) for the fiscal quarter ending June 30, 2021, the Total Net Leverage Ratio shall not exceed 5.25 to 1.0; and (v) for the fiscal quarter ending September 30, 2021, the Total Net Leverage Ratio shall not exceed 5.00 to 1.0. For each fiscal quarter ending on or after the end of the Restricted Period, the Company shall not permit the Total Net Leverage ratio to exceed 4.50 to 1.0.
Additionally, the Company is limited in its ability to make certain payments. Such restricted payments are generally not permitted in the Restricted Period; however, outside of the Restricted Period the Company may generally make such restricted payments so long as no event of default exists at the time of such payment and would not result therefrom and the Total Net Leverage Ratio is less than 3.75 to 1.00 at the time such restricted payment is made. As of September 30, 2020, the Company was in compliance with all applicable covenants and ratios under the Amended Credit Agreement.
The Amended Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to: (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, (iv) notification of certain events, and (v) certain covenants relating to, among other things, the sale or transfer of assets, fundamental changes, incurrence or guarantee of indebtedness, liens, investments, hedging transactions, transactions with affiliates and sale and leaseback transactions.
As of September 30, 2020, the Company had no outstanding borrowings under its $600 million revolving credit facility. The Company had $8.7 million outstanding in letters of credit as of September 30, 2020.
Term Loan Facility
On June 29, 2020, the Company entered into the Term Loan, by and among the Company, certain of its subsidiaries (including Cardtronics USA, Inc. as the “Borrower”), the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. Pursuant to the Term Loan, the Company borrowed $500 million of aggregate principal. Upon closing, the Company used the net proceeds to repay outstanding borrowings under its revolving credit facility. The Term Loan was issued with an original issue discount of 175 basis points and interest accrues from June 29, 2020, at the rate of LIBOR plus 400 basis points, with a 1.00% LIBOR floor. Interest is payable quarterly, or in shorter intervals for LIBOR borrowings with a duration of less than three months.
The Term Loan matures on June 29, 2027 and requires installment principal repayments equal to 1% of the initial aggregate principal per annum, paid quarterly, with the outstanding balance due on the maturity date. Certain other mandatory prepayments, including mandatory prepayments based on Excess Cash Flow (as defined in the Term Loan Credit Agreement) on an annual basis, are required commencing following the end of the fiscal year ending December 31, 2021. Outstanding balances are fully prepayable on a voluntary basis at par, subject to premiums for certain repricing or refinancing transactions, but may not be borrowed again once prepaid.
The guarantors of the Term Loan (as defined in the Term Loan Credit Agreement) have guaranteed the full and punctual payment of the obligations under the Term Loan and the obligations under the Term Loan are secured by substantially all of the assets of such guarantors.
The Term Loan contains covenants that are customary for similar credit arrangements, including, among other things, covenants relating to: (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, (iv) notification of certain events, and (v) certain covenants relating to, among other things, the sale or transfer of assets, fundamental changes, incurrence or guarantee of indebtedness, liens, investments, hedging transactions, transactions with affiliates, sale and leaseback transactions and payment capacity. The Term Loan does not have any financial covenants.
$300.0 million 5.50% Senior Notes Due 2025
On April 4, 2017, in a private placement offering, Cardtronics Inc. and Cardtronics USA, Inc. (the “2025 Notes Issuers”) issued $300.0 million in aggregate principal amount of the 2025 Notes pursuant to an indenture dated April 4, 2017 (the “2025 Notes Indenture”) among the 2025 Notes Issuers, Cardtronics plc, and certain of its subsidiaries, as guarantors (each, a “2025 Notes Guarantor”), and Wells Fargo Bank, National Association, as trustee.
Interest on the 2025 Notes accrues at the rate of 5.50% per annum and is payable semi-annually in cash in arrears on May 1st and November 1st of each year.
The 2025 Notes and the related guarantees (the “2025 Guarantees”) are the general unsecured senior obligations of each of the 2025 Notes Issuers and the 2025 Notes Guarantors, respectively, and rank: (i) equally in right of payment with all of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ existing and future senior indebtedness and (ii) senior in right of payment to all of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ future subordinated indebtedness. The 2025 Notes and the 2025 Guarantees are effectively subordinated to any of the 2025 Notes Issuers’ and the 2025 Notes Guarantors’ existing and future secured debt to the extent of the collateral securing such debt, including all borrowings under the Company’s revolving credit facility and Term Loan. The 2025 Notes are structurally subordinated to all third-party liabilities of any of Cardtronics plc’s subsidiaries (excluding the 2025 Notes Issuers) that do not guarantee the 2025 Notes.
Obligations under the 2025 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and CFC Guarantors (as defined in the indenture to the 2025 Notes). There are no significant restrictions on the ability of Cardtronics plc to obtain funds from Cardtronics Inc., Cardtronics USA, Inc., or the other 2025 Notes Guarantors by dividend or loan. None of the 2025 Notes Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X.
The 2025 Notes are subject to certain automatic customary releases with respect to the 2025 Notes Guarantors (other than Cardtronics plc, Cardtronics Holdings Limited, and CATM Holdings LLC), including the sale, disposition, or transfer of the common shares or substantially all of the assets of such 2025 Notes Guarantor, designation of such 2025 Notes Guarantor as unrestricted in accordance with the 2025 Notes Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation, or dissolution of such 2025 Notes Guarantor. The 2025 Notes Guarantors, including Cardtronics plc, may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the 2025 Notes Indenture and certain other specified requirements under the 2025 Notes Indenture are not satisfied.
The 2025 Notes contain various covenants restricting the Company's investments, indebtedness, and payments.
1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments
On November 19, 2013, Cardtronics, Inc. issued the Convertible Notes at par value of $287.5 million. After bifurcating the embedded conversion option and classifying it within equity, the Company recorded the notes at a discount, determining that the fair value of the debt component to be $215.8 million. Taking into account the discount resulting from the bifurcation, the effective interest rate recognized on the Convertible Notes is approximately 5.26%. Interest on the Convertible Notes accrues at the rate of 1.00% per annum and is payable semi-annually in cash in arrears on June 1 and December 1 of each year.
In June 2020, the Company repurchased and cancelled an aggregate principal amount of Convertible Notes equal to $171.9 million. The Company recognized a loss on extinguishment of $3.0 million in conjunction with the repurchase and cancellation of these notes.
The Convertible Notes that remain outstanding have a conversion price of $52.35 per share, which equals a conversion rate of 19.1022 shares per $1,000 principal amount of the Convertible Notes. The principal amount outstanding at September 30, 2020, of $115.6 million, is convertible into approximately 2.2 million shares. The conversion rate, however, is subject to adjustment under certain circumstances. The remaining Convertible Notes became convertible on September 1, 2020.
Upon conversion, holders of the Convertible Notes are entitled to receive a combination of cash and shares, subject to the trading price per share and calculations outlined in the indenture under which the Convertible Notes have been issued. In the event of a change in control, as defined in the indenture under which the Convertible Notes have been issued, holders can require Cardtronics to purchase all or a portion of their Convertible Notes for 100% of the notes’ par value plus any accrued and unpaid interest.
The Company’s interest expense related to the Convertible Notes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
|
Cash interest per contractual coupon rate
|
$
|
288
|
|
|
$
|
719
|
|
|
$
|
1,693
|
|
|
$
|
2,157
|
|
|
Amortization of note discount
|
1,214
|
|
|
2,854
|
|
|
7,112
|
|
|
8,450
|
|
|
Amortization of debt issuance costs
|
97
|
|
|
216
|
|
|
558
|
|
|
633
|
|
|
Total interest expense related to Convertible Notes
|
$
|
1,599
|
|
|
$
|
3,789
|
|
|
$
|
9,363
|
|
|
$
|
11,240
|
|
The Company’s carrying value of the Convertible Notes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Principal balance
|
$
|
115,568
|
|
|
$
|
287,500
|
|
|
Unamortized discount and capitalized debt issuance costs
|
(874)
|
|
|
(11,797)
|
|
|
Net carrying amount of Convertible Notes
|
$
|
114,694
|
|
|
$
|
275,703
|
|
Concurrent with the issuance of the Convertible Notes, Cardtronics, Inc. entered into separate convertible note hedge and warrant transactions to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The net effect of these transactions effectively raised the price at which dilution would occur from the $52.35 initial conversion price of the Convertible Notes to $73.29. Consistent with the potential conversion of the original $287.5 million principal amount, Cardtronics, Inc. entered into convertible note hedge purchasing call options granting Cardtronics Inc. the right to acquire up to approximately 5.5 million common shares with an initial strike price of $52.35. Cardtronics Inc. also sold warrants related to approximately 5.5 million common shares with a strike price of $73.29. The amounts allocated to both the note hedge and warrants were recorded in the Shareholders' equity section in the Consolidated Balance Sheets.
On June 30, 2020, the Company entered into agreements with the counterparties of the convertible note hedges and warrants to terminate a proportionate amount of the instruments, corresponding to the portion of the Convertible Notes cancelled in June 2020, (“Partial Unwind”), for net consideration to the counterparties of $1.0 million. Following the Partial Unwind, the Company retained the right to acquire up to approximately 2.2 million common shares with a strike price of $52.35.
The call options under the note hedge automatically become exercisable upon conversion of the Convertible Notes and terminate on the second scheduled trading day immediately preceding December 1, 2020. The remaining 2.2 million warrants outstanding have a strike price of $73.29 and expire incrementally on a series of expiration dates from June 2021 through August 30, 2021.
If the share price of the Company's stock remains between the strike prices of the call options and warrants, Cardtronics plc’s shareholders will not experience any dilution in connection with the conversion of the Convertible Notes; however, to the extent that the price of the shares exceeds the strike price of the warrants on any or all of the series of related expiration dates of the warrants, Cardtronics plc would be required to, at the Company’s election, (i) issue additional shares to the warrant holders or (ii) settle the difference between the price of the shares and the strike price of the warrants in cash to the warrant holders.
(10) Asset Retirement Obligations
Asset retirement obligations (“ARO”) consist of costs to deinstall the Company’s ATMs and restore the ATM sites to their original condition. These costs to deinstall ATMs are estimated based on current market rates. In most cases, the Company is contractually required to perform the deinstallation of company-owned ATMs and, in some cases, site restoration work. For each group of similar ATM placements, the Company estimates the fair value of the future ARO based on the discounted estimated future cash flows and recognizes the amount as a liability in the Consolidated Balance Sheets. The Company capitalizes the initial estimated fair value of the future ARO as part of the cost basis of the related assets and depreciates the ARO assets on a straight-line basis over their estimated useful lives, which are based on the average time period that an ATM is
installed in a location before being deinstalled. The ARO liabilities, which are recognized at discounted amounts, are accreted to their estimated future value over the same period of time.
The changes in the Company’s ARO liability consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations at December 31, 2019
|
$
|
61,194
|
|
|
|
|
Additional obligations
|
2,825
|
|
|
|
|
Accretion expense
|
1,204
|
|
|
|
|
|
|
|
|
|
Payments
|
(4,196)
|
|
|
|
|
Foreign currency translation adjustments
|
(755)
|
|
|
|
|
Asset retirement obligations at September 30, 2020
|
60,272
|
|
|
|
|
Less: current portion of asset retirement obligations (see Note 12. Other Liabilities)
|
(5,665)
|
|
|
|
|
Asset retirement obligations, excluding current portion, at September 30, 2020
|
$
|
54,607
|
|
|
|
For additional information related to the Company’s ARO with respect to its fair value measurements, see Note 14. Fair Value Measurements.
(11) Leases
The Company leases facilities consisting of office and warehouse space as well as vehicles and office equipment. The Company's facility leases have various remaining terms extending over 10 years, some of which may include one or more options to extend the associated lease term by up to 5-10 years, and some may include options for the Company or the lessor to terminate the leases prior to the end of the lease term. The exercise of lease renewal options is at the Company's discretion. From time to time, the Company may sublease office or warehouse space. This sublease activity is currently not significant. The Company's vehicle and office equipment leases currently have remaining lease terms extending up to 3 years and these leases typically have original terms of approximately 4-6 years. The Company has not historically extended its vehicle and office equipment leases beyond their original term. Similarly, the Company has not historically subleased these assets.
In addition, certain ATM placement agreements are deemed to contain an operating lease of merchant space under Accounting Standards Codification ("ASC") 842, Leases. These ATM placement agreements have remaining terms extending from less than 1 year to more than 5 years. These arrangements consist of semi-permanent or through-the-wall placements of company-owned ATMs at merchant or financial institution locations. These arrangements are deemed to contain a lease as the counterparty lacks the practical ability to substitute alternative space. The renewal provisions under ATM placement agreements vary.
The Company's through-the-wall ATM placement agreements that require fixed payments are deemed to contain an operating lease. These placement agreements may also require variable merchant commissions based on the type and volume of transactions conducted at the ATMs at their respective location. To the extent the merchant commissions are variable, the commission payments to the merchants are not deemed part of the lease payment that gives rise to the operating lease asset and operating lease liability recognized on the Company's Consolidated Balance Sheets. In addition, the merchant commissions may also change, in accordance with the terms of these agreements, in response to changes in interchange fees or interest rates. Certain Company facility leases require variable payments based on an index or external market rates. The Company's vehicle and office equipment leases do not generally include variable payments.
The Company recognizes the accounting impact of lease extension options when reasonably certain that a right to extend a lease will be exercised. The Company does not provide residual value guarantees within or in conjunction with any of its leases. As of September 30, 2020, all material leases of facilities, vehicles, office equipment, and merchant space had commenced.
The Company is not currently party to any significant finance leases. As a result, the net assets recorded under finance leases and the associated liabilities are not material.
Balance sheet information related to operating leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Assets
|
|
|
|
(In thousands)
|
|
Operating lease assets
|
|
Operating lease assets
|
|
$
|
62,418
|
|
|
$
|
76,548
|
|
|
Total operating lease assets
|
|
|
|
$
|
62,418
|
|
|
$
|
76,548
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Current portion of other long-term liabilities
|
|
$
|
18,374
|
|
|
$
|
20,345
|
|
|
Noncurrent
|
|
|
|
|
|
|
|
Noncurrent operating lease liabilities
|
|
Noncurrent operating lease liabilities
|
|
58,782
|
|
|
69,531
|
|
|
Total operating lease liabilities
|
|
|
|
$
|
77,156
|
|
|
$
|
89,876
|
|
Operating lease costs during the three and nine months ended September 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
Classification
|
|
|
|
September 30, 2020
|
|
September 30, 2020
|
|
|
|
|
|
|
(In thousands)
|
|
Operating lease costs
|
|
Cost of ATM operating revenues (1)
|
|
|
|
$
|
6,247
|
|
|
$
|
17,353
|
|
|
Operating lease costs
|
|
Selling, general, and administrative expenses (2)
|
|
|
|
1,228
|
|
|
3,775
|
|
|
Total operating lease cost
|
|
|
|
|
|
$
|
7,475
|
|
|
$
|
21,128
|
|
(1)Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed direct operating lease costs. The variable lease cost associated with these leases was not significant. In addition, includes the fixed and variable cost associated with ATM placement agreements that are deemed to contain a lease. The variable cost associated with these placements were approximately $0.6 million and $1.8 million in the three and nine months ended September 30, 2020, respectively.
(2)Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed general and administrative operating lease costs. The variable lease cost associated with these leases was not significant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
Classification
|
|
|
|
September 30, 2019
|
|
September 30, 2019
|
|
|
|
|
|
|
(In thousands)
|
|
Operating lease costs
|
|
Cost of ATM operating revenues (1)
|
|
|
|
$
|
7,197
|
|
|
$
|
21,473
|
|
|
Operating lease costs
|
|
Selling, general, and administrative expenses (2)
|
|
|
|
1,361
|
|
|
4,275
|
|
|
Total operating lease cost
|
|
|
|
|
|
$
|
8,558
|
|
|
$
|
25,748
|
|
(1)Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed direct operating lease costs. The variable lease cost associated with these leases was not significant. In addition, includes the fixed and variable cost associated with ATM placement agreements that are deemed to contain a lease. The variable cost associated with these placements were approximately $0.7 million and $2.9 million in the three and nine months ended September 30, 2019, respectively.
(2)Includes the fixed and variable cost of facilities, vehicles, and equipment that are deemed general and administrative operating lease costs. The variable lease cost associated with these leases was not significant.
The following table presents the weighted-average remaining term and weighted-average discount rate associated with the Company's operating leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
|
Operating leases
|
|
7.3
|
|
6.9
|
|
Weighted-average discount rate
|
|
|
|
|
|
Operating leases
|
|
3.70%
|
|
3.47%
|
Additional lease information is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
Nine Months Ended September 30, 2019
|
|
|
|
(In thousands)
|
|
Operating cash outflows resulting from payments of operating lease liabilities
|
|
$
|
14,344
|
|
$
|
15,237
|
|
|
New operating lease assets recognized during the period
|
|
7,520
|
|
12,929
|
|
The following table presents the undiscounted cash flows associated with the Company's recognized operating lease liabilities in the next five years and thereafter as of September 30, 2020.
|
|
|
|
|
|
|
|
|
|
Maturity of Recognized Operating Lease Liabilities
|
|
Operating
Lease Payments(1)
|
|
|
|
(In thousands)
|
|
Remainder of 2020
|
|
$
|
7,507
|
|
|
2021
|
|
19,825
|
|
|
2022
|
|
12,687
|
|
|
2023
|
|
9,911
|
|
|
2024
|
|
8,156
|
|
|
After 2024
|
|
32,599
|
|
|
Total lease payments
|
|
90,685
|
|
|
Less: Interest (2)
|
|
(13,529)
|
|
|
Present value of operating lease liabilities (3)
|
|
$
|
77,156
|
|
(1)Operating lease payments reflect the Company's current fixed obligations under the operating lease agreements. The Company has identified no extensions that are reasonably certain of being exercised and there are no significant lease agreements that have been signed and not yet commenced.
(2)Calculated using the estimated incremental borrowing rate for each lease.
(3)Includes current operating lease liabilities of $18.4 million and noncurrent operating lease liabilities of $58.8 million.
(12) Other Liabilities
The Company’s other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
Current portion of other long-term liabilities
|
|
|
|
|
Interest rate swap and cap contracts
|
$
|
24,737
|
|
|
$
|
15,565
|
|
|
Operating lease liabilities
|
18,374
|
|
|
20,345
|
|
|
|
|
|
|
|
Acquisition related contingent consideration
|
6,818
|
|
|
4,963
|
|
|
Asset retirement obligations (see Note 10. Asset Retirement Obligations)
|
5,665
|
|
|
5,701
|
|
|
Deferred revenue
|
5,061
|
|
|
3,386
|
|
|
Other
|
2,965
|
|
|
3,184
|
|
|
Total current portion of other long-term liabilities
|
$
|
63,620
|
|
|
$
|
53,144
|
|
|
|
|
|
|
|
Noncurrent portion of other long-term liabilities
|
|
|
|
|
Interest rate swap and cap contracts
|
$
|
33,973
|
|
|
$
|
9,723
|
|
|
Deferred revenue
|
3,605
|
|
|
5,589
|
|
|
Acquisition related contingent consideration
|
—
|
|
|
11,888
|
|
|
Other
|
8,686
|
|
|
10,670
|
|
|
Total noncurrent portion of other long-term liabilities
|
$
|
46,264
|
|
|
$
|
37,870
|
|
As of September 30, 2020 and December 31, 2019, the Acquisition related contingent consideration lines consisted of the estimated fair value of the contingent consideration associated with the Spark ATM Systems Pty Ltd. (“Spark”) acquisition that occurred in 2017.
(13) Derivative Financial Instruments
Risk Management Objectives of Using Derivatives - Interest rate risk
The Company is exposed to interest rate risk associated with its vault cash rental obligations and its variable rate debt. The Company uses varying notional amount interest rate swap contracts and interest rate cap agreements (“Interest Rate Derivatives”) to manage the interest rate risk associated with its vault cash rental obligations in the U.S., Canada, the U.K., and Australia. Intermittently, the Company has also used interest rate swap or cap contracts to mitigate its exposure to floating interest rates on its variable rate debt.
The majority of the Company’s Interest Rate Derivatives serve to mitigate interest rate risk exposure by converting a portion of the Company’s monthly floating-rate vault cash rental payments to either monthly fixed-rate vault cash rental payments or to vault cash rental payments with a capped rate. Typically, the Company receives monthly floating-rate payments from its Interest Rate Derivative counterparties that correspond to, in all material respects, the monthly floating-rate payments that are paid by the Company to its vault cash rental providers for the portion of the average outstanding vault cash balances that have been hedged. The floating-rate payments may or may not be capped or limited. In return, the Company pays its counterparties a monthly fixed-rate amount based on the same notional amounts outstanding. By converting the vault cash rental and from time to time the interest on certain debt from floating-rate to a fixed or a capped rate, the impact of favorable and unfavorable changes in future interest rates on the monthly vault cash rental payments recognized in the Cost of ATM operating revenues line in the Consolidated Statement of Operations has been reduced.
Risk Management Objectives of Using Derivatives - Foreign Currency Exchange Rate Risk
The Company is also exposed to foreign currency exchange rate risk with respect to its operations outside the U.S. The Company has at times used foreign currency forward contracts to mitigate its foreign exchange rate risk associated with certain anticipated transactions. The Company regularly designates its foreign currency derivatives as cash flow hedges, however, the Company is not presently party to any foreign currency derivatives designated as cash flow hedges.
Derivative Accounting Policy
The Interest Rate Derivatives discussed above are used by the Company to hedge its exposure to variability in expected future cash flows attributable to a particular risk and therefore typically qualify as and are designated as cash flow hedging instruments.
As discussed above, the Company generally utilizes fixed-for-floating Interest Rate Derivatives where the underlying pricing terms of the cash flow hedging instrument agree, in all material respects, with the pricing terms of the anticipated vault cash rental obligations, anticipated Credit Agreement borrowings or other variable rate debt borrowings. Therefore, the amount of ineffectiveness associated with the Interest Rate Derivatives has historically been immaterial. If the Company concludes 1) that the obligations that have been hedged are no longer probable or 2) that the underlying terms of the agreements have changed such that they do not sufficiently agree to the pricing terms of the Interest Rate Derivatives, the Interest Rate Derivative contracts would be deemed ineffective. The Company does not currently anticipate terminating or modifying terms of its existing Interest Rate Derivative instruments prior to their expiration dates.
The Company recognizes its Interest Rate Derivative contracts as assets or liabilities at fair value and the accumulated changes in the fair values of the related Interest Rate Derivative contracts are reported net of taxes in Accumulated other comprehensive loss, net within the Consolidated Balance Sheets. For additional information related to the Company’s interest rate swap and cap contracts and the associated fair value measurements, see Note 14. Fair Value Measurements.
In accordance with U.S. GAAP, the Company reports the gain or loss related to each highly effective cash flow hedging instrument, including any ineffectiveness, as a component of Accumulated other comprehensive loss, net within the Consolidated Balance Sheets and reclassifies the gain or loss into earnings within the Cost of ATM operating revenues, Interest expense, net, or Other income lines of the Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects and has been forecasted in earnings. The classification of the gain or loss is determined based on the associated hedge designation.
None of the Company’s existing derivative contracts contain credit-risk-related contingent features.
Summary of Outstanding Interest Rate Derivatives
The notional amounts, weighted average fixed rates, and remaining terms associated with the interest rate swap contracts and cap agreements that are currently in place in the U.S., Canada, the U.K, and Australia as of September 30, 2020 are as follows:
Outstanding Interest Rate Derivatives Associated with Vault Cash Rental Obligations
North America – Interest Rate Swap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
U.S. $
|
|
Weighted Average Fixed Rate
|
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
|
$
|
1,500
|
|
|
1.69%
|
|
|
October 1, 2020 – December 31, 2020
|
|
$
|
1,200
|
|
|
1.46%
|
|
|
January 1, 2021 – December 31, 2021
|
|
$
|
1,000
|
|
|
1.17%
|
|
|
January 1, 2022 – December 31, 2022
|
|
$
|
600
|
|
|
0.98%
|
|
|
January 1, 2023 – December 31, 2024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts CAD $
|
|
Weighted Average Fixed Rate
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
$
|
125
|
|
|
2.46%
|
|
October 1, 2020 – December 31, 2021
|
North America – Interest Rate Cap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
U.S. $
|
|
Cap Rate (1)
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
$
|
200
|
|
|
3.25%
|
|
January 1, 2021 – December 31, 2023
|
(1) Maximum amount of interest to be paid each year as per terms of the cap. The cost of the cap will be amortized through vault cash rental expense over term of the cap.
Europe & Africa – Interest Rate Swap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
|
Weighted Average
|
|
|
|
U.K. £
|
|
Fixed Rate
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
£
|
550
|
|
|
0.94%
|
|
October 1, 2020 – December 31, 2020
|
|
£
|
500
|
|
|
0.94%
|
|
January 1, 2021 – December 31, 2022
|
Australia & New Zealand – Interest Rate Swap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
AUS $
|
|
Weighted Average
Fixed Rate
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
$
|
140
|
|
|
1.59%
|
|
October 1, 2020 – December 31, 2020
|
|
$
|
40
|
|
|
0.71%
|
|
January 1, 2021 – December 31, 2021
|
Interest Rate Derivatives Associated with Variable Rate Debt
North America – Interest Rate Cap Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
U.S. $
|
|
Cap Rate (1)
|
|
Term
|
|
(In millions)
|
|
|
|
|
|
$
|
250
|
|
|
1.00%
|
|
October 1, 2020 – December 31, 2025
|
(1) Maximum amount of interest to be paid each year as per terms of the cap. The cost of the cap will be amortized through interest expense over term of the cap.
On July 30, 2020, the Company executed $250.0 million aggregate notional amount interest rate cap contracts that began August 1, 2020 and terminate December 31, 2025. These interest rate cap contracts have a cap rate of 1% and have been designated as cash flow hedges of the floating rate interest associated with the Company’s Term Loan. See Note 9. Current and Long-Term Debt.
Effects of Interest Rate Derivatives on the Consolidated Balance Sheets and Consolidated Statements of Operations
The following tables depict the effects of the use of the Company’s Interest Rate Derivatives on the Consolidated Balance Sheets and Consolidated Statements of Operations:
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability) Derivative Instruments
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
(In thousands)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Interest rate swap and cap contracts
|
|
Prepaid expenses, deferred costs, and other current assets
|
|
$
|
—
|
|
|
$
|
1,872
|
|
|
Interest rate swap and cap contracts
|
|
Prepaid expenses, deferred costs, and other noncurrent assets
|
|
—
|
|
|
8,766
|
|
|
Interest rate swap and cap contracts
|
|
Current portion of other long-term liabilities
|
|
(24,737)
|
|
|
(7,697)
|
|
|
Interest rate swap and cap contracts
|
|
Other long-term liabilities
|
|
(33,973)
|
|
|
(9,723)
|
|
|
Total derivatives designated as hedging instruments, net
|
|
|
|
$
|
(58,710)
|
|
|
$
|
(6,782)
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Current portion of other long-term liabilities
|
|
—
|
|
|
(7,868)
|
|
|
Total derivative instruments, net
|
|
|
|
$
|
(58,710)
|
|
|
$
|
(14,650)
|
|
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Amount of Loss Recognized in
Accumulated Other Comprehensive Loss on
Derivative Instruments
|
|
Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
|
|
Amount of Loss Reclassified from
Accumulated Other Comprehensive Loss
into Income
|
|
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
Interest rate swap and cap contracts
|
|
$
|
(5,072)
|
|
|
$
|
(3,406)
|
|
|
Cost of ATM operating revenues
|
|
$
|
(8,620)
|
|
|
$
|
(668)
|
|
|
Interest rate swap and cap contracts
|
|
—
|
|
|
(119)
|
|
|
Interest expense, net
|
|
—
|
|
|
(59)
|
|
|
Total
|
|
$
|
(5,072)
|
|
|
$
|
(3,525)
|
|
|
|
|
$
|
(8,620)
|
|
|
$
|
(727)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30
|
|
Derivatives in Cash Flow Hedging Relationship
|
|
Amount of Loss Recognized in
Accumulated Other Comprehensive Loss on
Derivative Instruments
|
|
Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income
|
|
Amount of Loss Reclassified from
Accumulated Other Comprehensive Loss
into Income
|
|
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
Interest rate swap and cap contracts
|
|
$
|
(57,929)
|
|
|
$
|
(28,989)
|
|
|
Cost of ATM operating revenues
|
|
$
|
(18,562)
|
|
|
$
|
(210)
|
|
|
Interest rate swap and cap contracts
|
|
(210)
|
|
|
(500)
|
|
|
Interest expense, net
|
|
(43)
|
|
|
(172)
|
|
|
Total
|
|
$
|
(58,139)
|
|
|
$
|
(29,489)
|
|
|
|
|
$
|
(18,605)
|
|
|
$
|
(382)
|
|
As of September 30, 2020, the Company expects to reclassify $24.7 million of net derivative-related losses contained in the Accumulated comprehensive loss, net line within its Consolidated Balance Sheets into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense and Term Loan interest expense amounts.
The following tables show the impact of the Company's cash flow hedge accounting relationships on the Consolidated Statement of Operations for the three and nine months ended September 30, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Loss Recognized in Income on Cash Flow Hedging Relationships in the Three Months Ended
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
|
|
(In thousands)
|
|
|
|
Cost of ATM Operating Revenues
|
|
Interest Expense, net
|
|
Cost of ATM Operating Revenues
|
|
Interest Expense, net
|
|
Total amount of expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
|
|
$
|
165,265
|
|
|
$
|
11,132
|
|
|
$
|
208,860
|
|
|
$
|
6,751
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from Accumulated other comprehensive loss into expense
|
|
$
|
8,620
|
|
|
$
|
—
|
|
|
668
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Loss Recognized in Income on Cash Flow Hedging Relationships in the Nine Months Ended
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
|
|
(In thousands)
|
|
|
|
Cost of ATM Operating Revenues
|
|
Interest Expense, net
|
|
Cost of ATM Operating Revenues
|
|
Interest Expense, net
|
|
Total amount of expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
|
|
$
|
510,014
|
|
$
|
26,362
|
|
$
|
623,099
|
|
$
|
20,265
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from Accumulated other comprehensive loss into expense
|
|
$
|
18,562
|
|
|
43
|
|
|
210
|
|
|
172
|
|
(14) Fair Value Measurements
The following tables provide the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2020 and December 31, 2019 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 refers to fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at September 30, 2020
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Liabilities associated with interest rate swap and cap contracts
|
$
|
(58,710)
|
|
|
$
|
—
|
|
|
$
|
(58,710)
|
|
|
$
|
—
|
|
|
Liabilities associated with acquisition related contingent consideration
|
$
|
(6,818)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6,818)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
Assets associated with interest rate swap and cap contracts
|
$
|
10,638
|
|
|
$
|
—
|
|
|
$
|
10,638
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Liabilities associated with interest rate swap and cap contracts
|
$
|
(17,420)
|
|
|
$
|
—
|
|
|
$
|
(17,420)
|
|
|
$
|
—
|
|
|
Liabilities associated with acquisition related contingent consideration
|
$
|
(16,851)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(16,851)
|
|
|
Liabilities associated with foreign currency forward contracts
|
$
|
(7,868)
|
|
|
$
|
—
|
|
|
$
|
(7,868)
|
|
|
$
|
—
|
|
Below are descriptions of the Company’s valuation methodologies for assets and liabilities measured at fair value. The methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Cash and cash equivalents, accounts and notes receivable, net of allowance for doubtful accounts, prepaid expenses, deferred costs, and other current assets, accounts payable, accrued liabilities, and other current liabilities. These financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.
Acquisition related intangible assets. The estimated fair values of acquisition related intangible assets are valued based on a discounted cash flows analysis using significant non-observable (Level 3) inputs. Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. An assessment of non-amortized intangible assets is performed on an annual basis or more frequently based on the occurrence of events that might indicate a potential impairment.
Acquisition related contingent consideration. Liabilities from acquisition-related contingent consideration are estimated using market observable inputs and other significant non-observable inputs, as well as projections based on the Company’s best estimate of future operational results upon which the payment of these obligations are contingent. The contingent consideration payment amounts are estimated based upon a formula and projected performance relative to certain agreed-upon earnings targets. Subsequent to the Spark acquisition, the Company utilized a Monte Carlo simulation to estimate the fair value and account for the interdependency between the 2019 and 2020 performance periods. However, effective December 31, 2019, at the end of the first measurement period, the Company revised its methodology and used a Black-Scholes based model to estimate the fair value of the payments.
During the nine months ended September 30, 2020, the Company paid $5.2 million to satisfy the 2019 portion of its obligation under the Spark acquisition contingent consideration arrangement. During the nine months ended September 30, 2020, the Company recognized mark-to-market gains of $2.1 million, to revise the estimated fair value of the contingent consideration liability. The Company also recognized a net foreign exchange gains of $2.8 million during the nine months ended September 30, 2020, to remeasure the South African Rand denominated liability. During the three months ended September 30, 2020 the mark-to-market and foreign exchange impacts were immaterial. Both the revision to the estimated fair values and the net foreign exchange gains and losses are included in the Other income line in the Consolidated Statements of Operations. As of September 30, 2020, the estimated fair value of the Company’s acquisition related contingent consideration liability was $6.8 million, payable in the first quarter of 2021.
Future changes to the estimated contingent liability either higher or lower may occur as the estimated internal projections and other significant non-observable inputs for the calculation become available and are updated as deemed necessary. These future changes could result in a material change in the estimated contingent liability. The estimates and significant non-observable inputs may differ from actual results.
Long-term debt. The carrying amounts of the long-term debt balances related to borrowings under the Company’s Revolving credit facility and Term Loan approximate fair value due to the fact that any outstanding borrowings are subject to short-term floating interest rates. As of September 30, 2020, the fair values of the 2020 Convertible Notes and 2025 Notes were approximately $115.4 million and $301.8 million, respectively, based on the quoted prices in markets that are not active (Level 2). For additional information related to long-term debt, see Note 9. Current and Long-Term Debt.
Additions to asset retirement obligations liability. The Company estimates the fair value of additions to its ARO liability using expected discounted future cash flow at the Company’s credit-adjusted risk-free interest rate. Liabilities added to the ARO are measured at fair value at the time of the asset installations using significant non-observable (Level 3) inputs. These liabilities are evaluated periodically based on estimated current fair value. Amounts added to the ARO liability during the three months ended September 30, 2020 and 2019 totaled $2.8 million and $1.1 million, respectively.
Interest rate derivatives. As of September 30, 2020, the recognized fair value of the Company’s Interest Rate Derivatives resulted in current and long-term liabilities totaling $58.7 million. These financial instruments are carried at fair value and are valued using pricing models based on significant other observable inputs (Level 2), while taking into account the creditworthiness of the party that is in the liability position with respect to each trade. For additional information related to the valuation process of this asset or liability, see Note 13. Derivative Financial Instruments.
(15) Commitments and Contingencies
Legal Matters
The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided accruals where necessary for contingent liabilities, based on ASC 450, Contingencies, when it has determined that a liability is probable and reasonably estimable. The Company’s management does not expect the outcome in any legal proceedings or claims, individually or collectively, to have a material adverse financial or operational impact on the Company. Additionally, the Company currently expenses all legal costs as they are incurred.
On March 1, 2019, the Company was named as a defendant in a purported class action lawsuit stylized as Kristen Schertzer, et al. v. Bank of America, N.A., et al., Case No. 3:19-cv-00264, in the United States District Court for the Southern District of California, which makes allegations of harm related to balance inquiry transactions. On September 28, 2020, the district court issued a denial of the Company’s motion to dismiss and the matter is proceeding to the discovery phase. Due to the early stages of this matter, including uncertainty related to class certification and potential amount claimed by the class, the Company is unable to determine if liability will arise from this matter or estimate the range of any potential liability. The Company will vigorously defend this matter.
Gain Contingency
In 2014, the Valuation Office Agency (or “VOA”), an executive agency of HM Revenue & Customs in England and Wales, took action to amend its business ratings list going back to 2010, to create separate entries on these lists for the sites of thousands of ATMs. Similar steps were taken by the equivalent agencies to the VOA in Scotland and Northern Ireland in their respective jurisdictions. Before 2014, the ATM sites in each location had not been distinguished from the host store. Therefore, the ATMs located in host stores such as supermarkets and convenience stores were not subject to business rates, a tax on commercial property. The effect of each of the amendments was to include the ATM sites in the business ratings lists as separate hereditaments with their own ratable value, subjecting the sites to business rates taxation. The Company and its merchant partners paid the business rates, as required.
In 2018, various appellants, including a number of large supermarkets and the Company (together, the “Appellants”), appealed the matter to the England and Wales Court of Appeal (the “Court of Appeal”) after having lost appeals to the Valuation Tribunal for England (“VTE”) and Upper Tribunal (Lands Chamber) in 2016 and 2017, respectively. In late 2018, the Court of Appeal ruled in favor of the Appellants and found that the amendments to the ratings list for a large number of ATM location types should not have been affected by the VOA, or sustained by the VTE and Upper Tribunal. The VOA appealed to the U.K. Supreme Court, and on May 20, 2020, the Supreme Court dismissed the VOA appeal and upheld the decision of the Court of Appeal.
Following the Supreme Court ruling, the VOA is in process of amending the business rating lists for England and Wales and the Company has recovered some of the amounts paid to the tax authorities in respect of the ATMs subject to the amended lists in numerous local tax jurisdictions for the periods spanning from 2010 to October 2020. The Company estimates that approximately 31 million U.K. pounds sterling remains recoverable from the various tax authorities, net of amounts that have already been recovered or are estimated to be due to merchant partners of the Company, some of which had paid indirectly these business rates. During the three and nine months ended September 30, 2020, the Company recorded net cash recoveries of approximately $11.8 million, which is reflected as a reduction to the Cost of ATM operating revenues line in the Consolidated Statements of Operations. The Company seeks to ensure that all necessary amendments to the ratings list are made and that all recoverable amounts paid to the tax authorities are collected. The Company's estimate of the total recoverable amount is subject to change as the Company continues its analysis of the business rates paid during the 10 year period. Due to the complexity in administering and uncertainty of these collections, the Company will recognize the business rates recoveries only when received.
The Supreme Court ruling does not apply to Scotland or Northern Ireland and business rates in those jurisdictions are still subject to valuation tribunal appeals and assessments. Accordingly, the Company continues to recognize business rate taxes in Scotland and Northern Ireland, net of any amounts recorded as receivables that are deemed recoverable under contracts with merchants.
Other Commitments
Asset retirement obligations. The Company’s ARO consist primarily of costs to remove the Company’s ATMs and to restore the ATM sites to their original condition. In most cases, the Company is contractually required to perform this deinstallation of its owned ATMs, and in some cases, site restoration work. As of September 30, 2020, the Company had $60.3 million accrued for these liabilities. For additional information, see Note 10. Asset Retirement Obligations.
Acquisition related contingent consideration. During the nine months ended September 30, 2020, the Company paid $5.2 million to satisfy the 2019 portion of its obligation under the Spark acquisition contingent consideration arrangement. As of September 30, 2020, the Company had $6.8 million accrued for its 2020 obligation. For additional information related to the Spark acquisition related contingent consideration, see Note 14. Fair Value Measurements.
(16) Income Taxes
The Company’s income tax (benefit) expense for the periods presented was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30
|
|
Nine Months Ended
September 30
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
(In thousands, excluding percentages)
|
|
Income tax expense (benefit)
|
$10,049
|
|
$4,086
|
|
$(4,375)
|
|
$10,780
|
|
Effective tax rate
|
63.7%
|
|
16.4%
|
|
(84.5)%
|
|
23.2%
|
The Company’s income tax expense for the three months ended September 30, 2020 totaled $10.0 million resulting in an effective tax rate of 63.7%, compared to an expense of $4.1 million, and an effective tax rate of 16.4%, for the same period of 2019. The Company’s income tax benefit for the nine months ended September 30, 2020 totaled $4.4 million resulting in an effective tax rate of (84.5)%, compared to an expense of $10.8 million, and an effective tax rate of 23.2%, for the same period of 2019.
The increase in tax expense for the three months ended September 30, 2020, compared to the same period of 2019, was primarily attributable to the mix of earnings across our jurisdictions including increased losses incurred in countries where the Company realizes no tax benefit. The decrease in the tax expense for the nine months ended September 30, 2020, compared to the same period of 2019, was attributable to lower pre-tax income during the nine months ended September 30, 2020 and to a non-recurring benefit from the carryback of net operating losses to prior tax years at the higher 35% U.S. tax rate, compared to the current tax rate of 21%, as a result of recent changes in U.S. tax law. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in the U.S., which provided for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017 and before January 1, 2021. As a result of this change in law and since the Company incurred net operating losses in 2018, the Company carried back these 2018 losses to prior periods to receive refunds of taxes paid at higher rates in earlier periods.
The Company assesses the need for any deferred tax asset valuation allowances at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. The Company’s assessment concluded that maintaining valuation allowances on deferred tax assets in Australia, Canada, Mexico, and Spain was appropriate, as the Company currently believes that it is more likely than not that the related deferred tax assets will not be realized.
The deferred tax expenses and benefits associated with the Company’s net unrealized gains and losses on derivative instruments and foreign currency translation adjustments have been recorded in the Accumulated other comprehensive loss, net line in the Company's Consolidated Balance Sheets.
The Company currently believes that the unremitted earnings of certain of its subsidiaries 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.
(17) Segment Information
As of September 30, 2020, the Company’s operations consisted of North America, Europe & Africa, and Australia & New Zealand segments. The Company’s ATM operations in the U.S., Canada, Mexico, and Puerto Rico are included in its North America segment. The North America segment also includes the Company’s transaction processing operations, which service its internal ATM operations, along with external customers. The Company’s ATM operations in the U.K., Ireland,
Germany, Spain and South Africa are included in its Europe & Africa segment, along with i-design (the Company’s ATM advertising business based in the U.K.). The Company’s Australia & New Zealand segment consists of its ATM operations in these two countries. Corporate primarily includes the Company’s corporate general and administrative expenses. While each of the reporting segments provides similar kiosk-based and/or ATM-related services, each segment is managed separately and requires different marketing and business strategies.
Management uses Adjusted EBITDA, together with U.S. GAAP measures, to manage and measure the performance of its segments. Management believes Adjusted EBITDA is a useful measure to more effectively evaluate the performance of the business and compare its results of operations from period to period without regard to financing methods, capital structure, or non-recurring costs as defined by the Company. Adjusted EBITDA excludes depreciation and accretion, amortization of deferred financing costs and note discounts, amortization of intangible assets, share-based compensation expense, certain other income and expense amounts, acquisition related expenses, gains or losses on disposal and impairment of assets, certain non-operating expenses (if applicable in a particular period), and includes an adjustment for noncontrolling interests. Depreciation and accretion expense and amortization of intangible assets are excluded from Adjusted EBITDA as these amounts can vary substantially from company to company within the Company's industry depending upon accounting methods and book values of assets, capital structures, and the methods by which the assets were acquired.
Adjusted EBITDA, as defined by the Company, is a non-GAAP financial measure provided as a complement to the financial results prepared in accordance with U.S. GAAP. It may not be defined in the same manner by all companies and therefore may not be comparable to other similarly titled measures of other companies. In evaluating the Company’s performance as measured by Adjusted EBITDA, management recognizes and considers the limitations of this measurement. Therefore, Adjusted EBITDA should not be considered in isolation or as a substitute for operating loss, net loss, cash flows from operating, investing, or financing activities, or other income or cash flow measures contained within the consolidated financial statements.
The following table is a reconciliation of Net income attributable to controlling interests and available to common shareholders to EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
|
2019
|
|
|
(In thousands)
|
|
Net income attributable to controlling interests and available to common shareholders
|
$
|
5,732
|
|
|
$
|
20,864
|
|
|
$
|
9,565
|
|
|
|
$
|
35,654
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
11,132
|
|
|
6,751
|
|
|
26,362
|
|
|
|
20,265
|
|
|
Amortization of deferred financing costs and note discount
|
2,341
|
|
|
3,377
|
|
|
10,226
|
|
|
|
9,999
|
|
|
Loss on extinguishment of convertible notes
|
—
|
|
|
—
|
|
|
3,018
|
|
|
|
—
|
|
|
Income tax expense (benefit)
|
10,049
|
|
|
4,086
|
|
|
(4,375)
|
|
|
|
10,780
|
|
|
Depreciation and accretion expense
|
33,063
|
|
|
33,466
|
|
|
97,346
|
|
|
|
99,644
|
|
|
Amortization of intangible assets
|
7,900
|
|
|
12,404
|
|
|
25,162
|
|
|
|
37,407
|
|
|
EBITDA
|
70,217
|
|
|
80,948
|
|
|
167,304
|
|
|
|
213,749
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
Loss on disposal and impairment of assets
|
814
|
|
|
637
|
|
|
1,847
|
|
|
|
3,101
|
|
|
Other income (1)
|
(7,116)
|
|
|
(3,703)
|
|
|
(9,651)
|
|
|
|
(9,454)
|
|
|
Noncontrolling interests (2)
|
14
|
|
|
15
|
|
|
42
|
|
|
|
46
|
|
|
Share-based compensation expense
|
5,921
|
|
|
5,633
|
|
|
16,143
|
|
|
|
15,367
|
|
|
Restructuring expenses (3)
|
2,008
|
|
|
3,583
|
|
|
6,557
|
|
|
|
7,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
71,858
|
|
|
$
|
87,113
|
|
|
$
|
182,242
|
|
|
|
$
|
229,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Includes foreign currency translation gains/losses, the revaluation of the estimated acquisition related contingent consideration, and other non-operating costs.
(2)Noncontrolling interest adjustment made such that Adjusted EBITDA includes only the Company’s ownership interest in the Adjusted EBITDA of one of the Company's Mexican subsidiaries.
(3)For the three and nine months ended September 30, 2020, restructuring expenses included costs incurred in conjunction with facility closures, workforce reductions and other related charges. For the three and nine months ended September 30, 2019, restructuring expenses included professional fees and costs incurred in conjunction with facility closures and workforce reductions.
The following tables reflect certain financial information for each of the Company’s reporting segments for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
|
Revenue from external customers
|
$
|
190,271
|
|
|
$
|
69,906
|
|
|
$
|
19,221
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
279,398
|
|
|
|
|
Intersegment revenues
|
1,454
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,454)
|
|
|
—
|
|
|
|
|
Cost of revenues
|
127,405
|
|
|
32,815
|
|
|
13,951
|
|
|
390
|
|
|
(1,454)
|
|
|
173,107
|
|
|
|
|
Selling, general, and administrative expenses
|
14,293
|
|
|
8,986
|
|
|
2,036
|
|
|
15,057
|
|
|
1
|
|
|
40,373
|
|
|
|
|
Restructuring expenses
|
—
|
|
|
1,894
|
|
|
114
|
|
|
—
|
|
|
—
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal and impairment of assets
|
379
|
|
|
436
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
50,077
|
|
|
27,994
|
|
|
3,235
|
|
|
(9,467)
|
|
|
19
|
|
|
71,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
$
|
22,028
|
|
|
$
|
8,706
|
|
|
$
|
556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
31,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Revenue from external customers
|
$
|
222,329
|
|
|
$
|
104,686
|
|
|
$
|
24,492
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
351,507
|
|
|
Intersegment revenues
|
2,379
|
|
|
22
|
|
|
—
|
|
|
—
|
|
|
(2,401)
|
|
|
—
|
|
|
Cost of revenues
|
148,215
|
|
|
60,477
|
|
|
17,264
|
|
|
368
|
|
|
(2,542)
|
|
|
223,782
|
|
|
Selling, general, and administrative expenses
|
17,517
|
|
|
10,292
|
|
|
2,286
|
|
|
16,162
|
|
|
—
|
|
|
46,257
|
|
|
Restructuring expenses
|
799
|
|
|
2,335
|
|
|
—
|
|
|
449
|
|
|
—
|
|
|
3,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal and impairment of assets
|
225
|
|
|
457
|
|
|
(45)
|
|
|
—
|
|
|
—
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
58,977
|
|
|
33,939
|
|
|
4,941
|
|
|
(10,896)
|
|
|
152
|
|
|
87,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
$
|
18,723
|
|
|
$
|
12,638
|
|
|
$
|
672
|
|
|
$
|
3,233
|
|
|
$
|
—
|
|
|
$
|
35,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Revenue from external customers
|
$
|
567,277
|
|
|
$
|
200,162
|
|
|
$
|
51,753
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
819,192
|
|
|
Intersegment revenues
|
4,484
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
(4,520)
|
|
|
—
|
|
|
Cost of revenues
|
386,472
|
|
|
117,261
|
|
|
37,169
|
|
|
1,154
|
|
|
(4,520)
|
|
|
537,536
|
|
|
Selling, general, and administrative expenses
|
43,877
|
|
|
24,965
|
|
|
5,541
|
|
|
41,452
|
|
|
(226)
|
|
|
115,609
|
|
|
Restructuring expenses
|
1,205
|
|
|
4,971
|
|
|
114
|
|
|
267
|
|
|
—
|
|
|
6,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal and impairment of assets
|
956
|
|
|
912
|
|
|
(21)
|
|
|
—
|
|
|
—
|
|
|
1,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
141,417
|
|
|
57,908
|
|
|
9,042
|
|
|
(26,176)
|
|
|
51
|
|
|
182,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
$
|
41,689
|
|
|
$
|
18,302
|
|
|
$
|
1,103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
North America
|
|
Europe & Africa
|
|
Australia & New Zealand
|
|
Corporate
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Revenue from external customers
|
$
|
636,663
|
|
|
$
|
298,615
|
|
|
$
|
75,320
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,010,598
|
|
|
Intersegment revenues
|
7,508
|
|
|
488
|
|
|
—
|
|
|
—
|
|
|
(7,996)
|
|
|
—
|
|
|
Cost of revenues
|
429,287
|
|
|
187,429
|
|
|
54,540
|
|
|
995
|
|
|
(8,004)
|
|
|
664,247
|
|
|
Selling, general, and administrative expenses
|
50,981
|
|
|
31,745
|
|
|
6,800
|
|
|
42,386
|
|
|
—
|
|
|
131,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
1,012
|
|
|
2,735
|
|
|
—
|
|
|
3,299
|
|
|
—
|
|
|
7,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on disposal and impairment of assets
|
1,327
|
|
|
1,874
|
|
|
(100)
|
|
|
—
|
|
|
—
|
|
|
3,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
163,904
|
|
|
79,930
|
|
|
13,979
|
|
|
(28,014)
|
|
|
56
|
|
|
229,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
$
|
41,873
|
|
|
$
|
32,538
|
|
|
$
|
3,535
|
|
|
$
|
12,373
|
|
|
$
|
—
|
|
|
$
|
90,319
|
|
(1)Capital expenditures include payments made for property and equipment, exclusive license agreements, and site acquisition costs. Additionally, capital expenditure amounts for one of the Company’s Mexican subsidiaries, included in the North America segment, are reflected gross of any noncontrolling interest amounts.
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
|
(In thousands)
|
|
North America
|
$
|
1,285,430
|
|
|
$
|
1,141,084
|
|
|
Europe & Africa
|
490,867
|
|
|
511,037
|
|
|
Australia & New Zealand
|
55,811
|
|
|
60,416
|
|
|
Corporate
|
34,770
|
|
|
51,421
|
|
|
Total
|
$
|
1,866,878
|
|
|
$
|
1,763,958
|
|
(18) Supplemental Guarantor Financial Information
The 2025 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Cardtronics plc and certain of its subsidiaries and certain of its future subsidiaries, with the exception of Cardtronics plc’s immaterial subsidiaries and its CFC Subsidiaries (as defined in the 2025 Notes Indenture). The guarantees of the 2025 Notes by any 2025 Notes Guarantor are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the 2025 Notes Guarantor, (ii) the disposition of sufficient capital stock of the 2025 Notes Guarantor so that it no longer qualifies under the 2025 Notes Indenture as a restricted subsidiary of the Company, (iii) the designation of the 2025 Notes Guarantor as an unrestricted subsidiary in accordance with the 2025 Notes Indenture, (iv) the legal or covenant defeasance of the notes or the satisfaction and discharge of the 2025 Notes Indenture, (v) the liquidation or dissolution of the 2025 Notes Guarantor, or (vi) provided the 2025 Notes Guarantor is not wholly-owned by the Company, its ceasing to guarantee other debt of the Company or another 2025 Notes Guarantor. A 2025 Notes Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge into another company (other than the Company or another 2025 Notes Guarantor) unless no default under the 2025 Notes Indenture exists and either the successor to the 2025 Notes Guarantor assumes its guarantee of the 2025 Notes or the disposition, consolidation, or merger complies with the “Asset Sales” covenant in the 2025 Notes Indenture.
On March 2, 2020, the SEC made significant changes to its disclosure requirements relating to registered securities that are guaranteed. The disclosure requirements, as amended, are generally effective for filings on or after January 4, 2021, with early adoption permitted. The new rules, adopted by the Company in conjunction with its Form 10-Q for the period ended March 31, 2020, changed the form and content of the disclosures, requiring summarized financial information only as of and for the most recently completed fiscal year and subsequent year-to-date interim period, if certain conditions are met. The following information reflects the Condensed Consolidating Statements of Comprehensive (Loss) Income for the nine months ended September 30, 2020, the Condensed Consolidated Balance Sheets as of September 30, 2020, and the Summary Financial Information as of and for the year ended December 31, 2019 for: (i) Cardtronics plc, the parent Guarantor of the 2025 Notes (“Parent”), (ii) Cardtronics Inc. and Cardtronics USA, Inc. (“Issuers”), (iii) the 2025 Notes Guarantors (the “Guarantors”), and (iv) the 2025 Notes Non-Guarantors.
Condensed Consolidated Statements of Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020
|
|
|
Parent
|
|
Issuers
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Revenues
|
$
|
—
|
|
|
$
|
460,657
|
|
|
$
|
207,657
|
|
|
$
|
203,710
|
|
|
$
|
(52,832)
|
|
|
$
|
819,192
|
|
|
Operating costs and expenses
|
17,883
|
|
|
449,802
|
|
|
161,231
|
|
|
206,932
|
|
|
(53,638)
|
|
|
782,210
|
|
|
Loss on disposal and impairment of assets
|
—
|
|
|
919
|
|
|
227
|
|
|
701
|
|
|
—
|
|
|
1,847
|
|
|
(Loss) income from operations
|
(17,883)
|
|
|
9,936
|
|
|
46,199
|
|
|
(3,923)
|
|
|
806
|
|
|
35,135
|
|
|
Interest expense (income), net, including amortization of deferred financing costs and note discount
|
—
|
|
|
32,601
|
|
|
5,254
|
|
|
(1,438)
|
|
|
171
|
|
|
36,588
|
|
|
Loss on extinguishment of convertible notes
|
—
|
|
|
3,018
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,018
|
|
|
Equity in earnings of subsidiaries
|
(25,929)
|
|
|
(47,044)
|
|
|
30,432
|
|
|
282
|
|
|
42,259
|
|
|
—
|
|
|
Other expenses (income)
|
2,332
|
|
|
9,418
|
|
|
5,915
|
|
|
(8,673)
|
|
|
(18,643)
|
|
|
(9,651)
|
|
|
Income before income taxes
|
5,714
|
|
|
11,943
|
|
|
4,598
|
|
|
5,906
|
|
|
(22,981)
|
|
|
5,180
|
|
|
Income tax (benefit) expense
|
(3,841)
|
|
|
(4,332)
|
|
|
6,259
|
|
|
(2,461)
|
|
|
—
|
|
|
(4,375)
|
|
|
Net income (loss)
|
9,555
|
|
|
16,275
|
|
|
(1,661)
|
|
|
8,367
|
|
|
(22,981)
|
|
|
9,555
|
|
|
Net loss attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
(10)
|
|
|
Net income (loss) attributable to controlling interests and available to common shareholders
|
9,555
|
|
|
16,275
|
|
|
(1,661)
|
|
|
8,367
|
|
|
(22,971)
|
|
|
9,565
|
|
|
Other comprehensive loss attributable to controlling interest
|
(46,380)
|
|
|
(37,161)
|
|
|
(2,169)
|
|
|
(4,632)
|
|
|
43,962
|
|
|
(46,380)
|
|
|
Comprehensive (loss) income attributable to controlling interests
|
$
|
(36,825)
|
|
|
$
|
(20,886)
|
|
|
$
|
(3,830)
|
|
|
$
|
3,735
|
|
|
$
|
20,991
|
|
|
$
|
(36,815)
|
|
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2020
|
|
|
Parent
|
|
Issuers
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
98
|
|
|
$
|
186,507
|
|
|
$
|
61,756
|
|
|
$
|
15,129
|
|
|
$
|
—
|
|
|
$
|
263,490
|
|
|
Restricted cash
|
—
|
|
|
68,909
|
|
|
2,551
|
|
|
25,280
|
|
|
—
|
|
|
96,740
|
|
|
Accounts and notes receivable, net
|
—
|
|
|
41,057
|
|
|
17,921
|
|
|
17,309
|
|
|
—
|
|
|
76,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
—
|
|
|
40,105
|
|
|
2,198
|
|
|
37,016
|
|
|
—
|
|
|
79,319
|
|
|
Total current assets
|
98
|
|
|
336,578
|
|
|
84,426
|
|
|
94,734
|
|
|
—
|
|
|
515,836
|
|
|
Property and equipment, net
|
—
|
|
|
254,809
|
|
|
50,773
|
|
|
117,996
|
|
|
—
|
|
|
423,578
|
|
|
Intangible assets, net
|
—
|
|
|
26,661
|
|
|
41,048
|
|
|
20,327
|
|
|
—
|
|
|
88,036
|
|
|
Goodwill
|
—
|
|
|
445,046
|
|
|
141,262
|
|
|
152,871
|
|
|
—
|
|
|
739,179
|
|
|
Operating lease assets
|
—
|
|
|
34,239
|
|
|
2,120
|
|
|
26,059
|
|
|
—
|
|
|
62,418
|
|
|
Investments in and advances to subsidiaries
|
390,948
|
|
|
295,349
|
|
|
188,237
|
|
|
45,214
|
|
|
(919,748)
|
|
|
—
|
|
|
Intercompany receivable
|
36,422
|
|
|
510,388
|
|
|
254,500
|
|
|
274,982
|
|
|
(1,076,292)
|
|
|
—
|
|
|
Deferred tax assets, net
|
698
|
|
|
—
|
|
|
(1,013)
|
|
|
17,735
|
|
|
—
|
|
|
17,420
|
|
|
Prepaid expenses, deferred costs, and other noncurrent assets
|
—
|
|
|
12,047
|
|
|
1,438
|
|
|
6,926
|
|
|
—
|
|
|
20,411
|
|
|
Total assets
|
$
|
428,166
|
|
|
$
|
1,915,117
|
|
|
$
|
762,791
|
|
|
$
|
756,844
|
|
|
$
|
(1,996,040)
|
|
|
$
|
1,866,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term liabilities
|
$
|
—
|
|
|
$
|
147,977
|
|
|
$
|
5,869
|
|
|
$
|
29,468
|
|
|
$
|
—
|
|
|
$
|
183,314
|
|
|
Accounts payable and accrued liabilities
|
390
|
|
|
240,871
|
|
|
62,267
|
|
|
84,464
|
|
|
(20,909)
|
|
|
367,083
|
|
|
Total current liabilities
|
390
|
|
|
388,848
|
|
|
68,136
|
|
|
113,932
|
|
|
(20,909)
|
|
|
550,397
|
|
|
Long-term debt
|
—
|
|
|
773,857
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
773,857
|
|
|
Intercompany payable
|
93,441
|
|
|
310,126
|
|
|
303,654
|
|
|
369,065
|
|
|
(1,076,286)
|
|
|
—
|
|
|
Asset retirement obligations
|
—
|
|
|
22,524
|
|
|
1,961
|
|
|
30,122
|
|
|
—
|
|
|
54,607
|
|
|
Operating lease liabilities
|
—
|
|
|
40,617
|
|
|
1,449
|
|
|
16,716
|
|
|
—
|
|
|
58,782
|
|
|
Deferred tax liabilities, net
|
—
|
|
|
46,238
|
|
|
1,660
|
|
|
738
|
|
|
—
|
|
|
48,636
|
|
|
Other long-term liabilities
|
—
|
|
|
37,310
|
|
|
2,147
|
|
|
6,807
|
|
|
—
|
|
|
46,264
|
|
|
Total liabilities
|
93,831
|
|
|
1,619,520
|
|
|
379,007
|
|
|
537,380
|
|
|
(1,097,195)
|
|
|
1,532,543
|
|
|
Shareholders' equity
|
334,335
|
|
|
295,597
|
|
|
383,784
|
|
|
219,464
|
|
|
(898,845)
|
|
|
334,335
|
|
|
Total liabilities and shareholders' equity
|
$
|
428,166
|
|
|
$
|
1,915,117
|
|
|
$
|
762,791
|
|
|
$
|
756,844
|
|
|
$
|
(1,996,040)
|
|
|
$
|
1,866,878
|
|
Summary Prior Year Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31, 2019
|
|
|
Parent
|
|
Issuers
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Total
|
|
|
(In thousands)
|
|
Revenues
|
$
|
—
|
|
|
$
|
668,527
|
|
|
$
|
351,330
|
|
|
$
|
402,079
|
|
|
$
|
(72,531)
|
|
|
$
|
1,349,405
|
|
|
(Loss) income from operations
|
(35,637)
|
|
|
40,733
|
|
|
70,835
|
|
|
10,203
|
|
|
300
|
|
|
86,434
|
|
|
Net income
|
48,265
|
|
|
20,546
|
|
|
63,952
|
|
|
27,036
|
|
|
(111,534)
|
|
|
48,265
|
|
|
Net income attributable to controlling interests and available to common shareholders
|
48,265
|
|
|
20,546
|
|
|
63,952
|
|
|
27,036
|
|
|
(111,525)
|
|
|
48,274
|
|
|
Total current assets
|
46
|
|
|
146,768
|
|
|
41,788
|
|
|
119,919
|
|
|
—
|
|
|
308,521
|
|
|
Total noncurrent assets
|
452,342
|
|
|
1,225,786
|
|
|
1,488,531
|
|
|
196,625
|
|
|
(1,907,847)
|
|
|
1,455,437
|
|
|
Total current liabilities
|
814
|
|
|
242,735
|
|
|
66,766
|
|
|
124,069
|
|
|
—
|
|
|
434,384
|
|
|
Total noncurrent liabilities
|
71,248
|
|
|
805,812
|
|
|
984,556
|
|
|
(24,244)
|
|
|
(888,125)
|
|
|
949,247
|
|
(19) Concentration Risk
Significant merchant customers. During the trailing twelve months ended September 30, 2020, the Company derived approximately 23% of its total revenues from ATMs placed at the locations of its top five merchant customers. The Company’s top five merchant customers, none accounting for more than 6% of total revenue for the trailing twelve months ended September 30, 2020, were Alimentation Couche-Tard Inc., Co-operative Food, CVS Caremark Corporation, Speedway LLC, and Walgreens Boots Alliance, Inc. Accordingly, a significant percentage of the Company’s future revenues and operating income will be dependent upon the successful continuation of its relationships with these merchants. As of September 30, 2020, the contracts the Company has with its five largest merchant customers have a weighted average remaining life of approximately 3 years.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provisions thereof. Forward-looking statements can be identified by words such as “project,” “believe,” “estimate,” “expect,” “future,” “anticipate,” “intend,” “contemplate,” “foresee,” “would,” “could,” “plan,” and similar expressions that are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on management’s current expectations and beliefs concerning future developments and their potential effect on the Company. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting the Company will be those that are anticipated. All comments concerning the Company’s expectations for future revenues and operating results are based on its estimates for its existing operations and do not include the potential impact of any future acquisitions. The Company’s forward-looking statements involve significant risks and uncertainties (some of which are beyond its control) and assumptions that could cause actual results to differ materially from its historical experience and present expectations or projections. Known material factors that could cause actual results to differ materially from those in the forward-looking statements include:
•the Company's ability to respond to business cycles, seasonality, and other outside factors such as extreme weather, natural disasters, civil unrest or health emergencies, such as the COVID-19 outbreak, that may negatively affect our business;
•the Company’s financial outlook and the financial outlook of the automated teller machines and multi-function financial services kiosks (collectively, “ATMs”) industry and the continued usage of cash by consumers at rates near historical patterns;
•the impact of macroeconomic conditions, including the future impacts of the COVID-19 outbreak on global economic conditions, which is highly uncertain and difficult to predict;
•the Company’s ability to respond to recent and future network and regulatory changes;
•the Company’s ability to manage cybersecurity risks and protect against cyber-attacks and manage and prevent cyber incidents, data breaches or losses, or other business disruptions;
•the Company’s ability to respond to changes implemented by networks and how they determine interchange, scheduled and potential reductions in the amount of net interchange that it receives from global and regional debit networks due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks;
•the Company’s ability to renew its existing merchant relationships on comparable or improved economic terms and add new merchants;
•changes in interest rates and foreign currency rates;
•the Company’s ability to successfully manage its existing international operations and to continue to expand internationally;
•the Company’s ability to manage concentration risks with and changes in the mix of key customers, merchants, vendors, and service providers;
•the Company's ability to maintain appropriate liquidity;
•the Company’s ability to prevent thefts of cash and maintain adequate insurance;
•the Company’s ability to provide new ATM solutions to retailers and financial institutions including the demand for any such new ATM solutions as well as its ability to place additional banks’ brands on ATMs currently deployed;
•the Company’s ATM vault cash rental needs, including potential liquidity issues with its vault cash providers and its ability to continue to secure vault cash rental agreements in the future and once secured, on reasonable economic terms;
•the Company’s ability to manage the risks associated with its third-party service providers failing to perform their contractual obligations;
•the Company’s ability to renew its existing third-party service provider relationships on comparable or improved economic terms;
•the Company’s ability to successfully implement and evolve its corporate strategy;
•the Company’s ability to compete successfully with new and existing competitors;
•the Company’s ability to meet the service levels required by its service level agreements with its customers;
•the additional risks the Company is exposed to in its United Kingdom (“U.K.”) armored transport business;
•the Company’s ability to pursue, complete, and successfully integrate acquisitions, strategic alliances, or joint ventures;
•the impact of changes in laws, including tax laws that could adversely affect the Company’s business and profitability;
•the impact of, or uncertainty related to, the U.K.’s exit from the European Union, including any material adverse effect on the tax, tax treaty, currency, operational, legal, human, and regulatory regime and macro-economic environment to which it will be subject to as a U.K. company;
•the Company’s ability to adequately maintain and upgrade its ATM fleet to address changes in industry standards, regulations and consumer behavior patterns;
•the Company’s ability to retain its key employees and maintain good relations with its employees; and
•the Company’s ability to manage the fluctuation of its operating results, including as a result of the foregoing and other risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
For additional information regarding known material factors that could cause the Company’s actual results to differ from its projected results, see: Part I. Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as updated by Part II, Item 1A. Risk Factors of this Form 10-Q. Readers are cautioned not to place undue reliance on forward-looking statements contained in this document, which speak only as of the date of this Form 10-Q. Except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.