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1. Business
CPI Card Group Inc., formerly known as CPI Holdings I, Inc. (which, together with its subsidiary companies, is referred to herein as “CPI” or the “Company”) is engaged in the design, production, data personalization, packaging and fulfillment of Financial Payment Cards which the Company defines as credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands (Visa, MasterCard, American Express, Discover and Interac (in Canada)) in the United States, Europe and Canada. The Company also is engaged in the design, production, data personalization, packaging and fulfillment of retail gift and loyalty cards (primarily in Europe and Canada).
As a producer and provider of services for Financial Payment Cards, each of the Company’s secure facilities must be certified by one or more of the Payment Card Brands and is therefore subject to specific requirements and conditions. Noncompliance with these requirements would prohibit the individual facilities of the Company from producing Financial Payment Cards for these entities’ payment card issuers.
The Company’s business consists of the following reportable segments: U.S. Debit and Credit, U.S. Prepaid Debit and U.K. Limited.
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U.S. Debit and Credit Segment. The U.S. Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services to card-issuing banks in the United States. Products manufactured by this segment primarily include EMV and non-EMV credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands, Private Label Credit Cards, defined as credit cards that an individual merchant issues for exclusive use in its own stores, and that are not issued on the networks of the Payment Cards Brands, and instant issuance systems. This segment also provides a variety of integrated card services, including card personalization and fulfillment services and instant issuance services. The U.S. Debit and Credit segment includes the Company’s operations in Colorado, Indiana and Tennessee, which are each certified by multiple global Payment Card Brands, and where required by the Company’s customers, certified to be in compliance with the standards of the PCI Security Standards Council. |
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U.S. Prepaid Debit Segment. The U.S. Prepaid Debit segment primarily provides integrated card services to prepaid debit card issuers in the United States. Services provided include tamper-evident security packaging services and card personalization and fulfillment services. This segment also produces Financial Payment Cards issued on the networks of the Payment Card Brands that are included in the tamper-evident security packages mentioned above. The U.S. Prepaid Debit segment includes the Company’s operation in Minnesota which is certified by multiple global Payment Card Brands, and is certified to be in compliance with the standards of the PCI Security Standards Council. |
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U.K. Limited Segment. The U.K. Limited segment primarily produces retail cards, such as gift and loyalty cards for customers in the United Kingdom and continental Europe. This segment also provides card personalization, packaging and fulfillment services. The U.K. Limited segment includes the Company’s operations in Colchester, United Kingdom and Liverpool, United Kingdom. Neither of the Company’s operations in this segment is certified by any of the Payment Card Brands or to be in compliance with the standards of the PCI Security Standards Council. |
The Company also has an operation in Ontario, Canada that provides EMV and Prepaid Debit Cards and card services in Canada, which is reflected in “Other”. See Note 19 “Segment Reporting”.
The Company applied acquisition accounting for the acquisition of EFT Source, Inc. (the “EFT Acquisition”) in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. As such, the acquired assets and assumed liabilities were recorded at fair value as of the acquisition date. See Note 3 “EFT Source Acquisition”.
The Company sold its non-secure operation located in Nevada on January 12, 2015 (the “Nevada Sale”) under an asset purchase agreement for $5,000 in cash. The Nevada operation primarily produced retail gift cards that are not issued on the networks of the Payment Card Brands. Accordingly, the Company’s Consolidated Balance Sheets and Statements of Operations and Comprehensive Income have been reclassified to present the Nevada operation as a discontinued operation for the years ended December 31, 2015, 2014 and 2013. See Note 4 “Discontinued Operation and Disposition”.
In August 2015, the Company completed the shut down and closure of its operation in Petersfield, United Kingdom. Petersfield primarily produced retail gift cards that are not issued on networks of the Payment Card Brands. In connection with the shut down and closure of the Petersfield, United Kingdom operation, the Company accrued facility contract termination costs of $681 during the year ended December 31, 2015.
On August 17, 2015, the Company entered into a first lien credit agreement ("First Lien Credit Facility") with a syndicate of lenders providing for a $435,000 first lien term loan facility ("First Lien Term Loan") and a $40,000 revolving credit facility ("Revolving Credit Facility"). The Company used proceeds from the First Lien Credit Facility to pay off the outstanding balance on our previous credit facility of $158,420, and to redeem 62,140 shares of Series A Preferred Stock for an aggregate price of $276,688. See Note 10 “Long-Term Debt and Credit Facility” and Note 12 “Series A Preferred Stock”.
On October 15, 2015, the Company completed its initial public offering (“IPO”) issuing 15,000,000 shares of common stock at a price of $10.00 per share. The net proceeds from the IPO, after issuance costs, were utilized to (i) redeem all of our remaining Series A Preferred Stock for a total redemption price of $11,877, (ii) repay $112,500 of the amount outstanding under the First Lien Term Loan (as defined herein), and (iii) terminate and settle all outstanding obligations due under the Phantom Stock Plan (as defined herein) of $13,268. The proceeds of the IPO were net of deferred offering expenses of $7,196 and are reflected in “Capital deficiency” in the Company’s Consolidated Balance Sheet and Consolidated Statement of Stockholders’ Deficit.
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2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements include the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Subsequent to the issuance of the Company’s Consolidated Financial Statements as of and for the year ended December 31, 2014, the Company identified an immaterial error in the classification of Cost of Sales between services and products. To align the Company’s presentation of Cost of Sales from services and products with the associated Net Sales from services and products, the classification has been corrected in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2014 to decrease Cost of Sales for services by $7,819 and increase Cost of Sales for products by $7,819.
Certain other prior year amounts were reclassified to conform to the current year presentation.
Revenue Recognition
Generally, the Company recognizes revenue related to sales of its products upon shipment, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectability is reasonably assured.
In certain cases, at the customer’s request, the Company enters into bill-and-hold transactions whereby title transfers to the customer, but the product does not ship until a specified later date. The Company recognizes revenue associated with bill-and-hold arrangements when the product is complete and ready to ship, hold criteria have been met, the amount due from the customer is fixed and collectability of the related receivable is reasonably assured.
Freight revenue totaling $3,882, $4,249, $4,278 is included in net sales during the years ended December 31, 2015, 2014, and 2013, respectively. The related freight costs are included in cost of sales.
Multiple-Element Arrangements
The Company enters into warehouse, fulfillment and distribution service agreements where customers engage the Company to store and handle completed cards and packages on their behalf. For the sales arrangements that contain multiple deliverables, the arrangement is split into separate units of accounting, and individually delivered elements have value to the customer on a standalone basis. When separate units of accounting exist, revenue is allocated to each element based on the Company’s best estimate of competitive market prices. At the point in which completed cards and packages are shipped to the Company’s warehouse, the product is billed and the revenue is recognized in accordance with the Company’s revenue recognition policy. Warehousing services revenue is recognized monthly based on volume and handling requirements; fulfillment services revenue is recognized when the product is handled in the manner specified by the customer for a unit or handling fee.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents and they are stated at cost, which approximates fair value.
Trade Accounts Receivable and Concentration of Credit Risk
Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for potentially uncollectible accounts receivable based upon its assessment of the collectability of accounts receivable. Accounts are written off against the allowance when it becomes probable collection will not occur. The allowance for bad debt and credit activity for the years ended December 31, 2015 and 2014 is summarized as follows:
Balance as of December 31, 2013 |
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$ |
1,365 |
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Bad debt expense |
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(100) |
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Write-off of uncollectible accounts |
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(986) |
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Currency translation adjustments |
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(7) |
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Balance as of December 31, 2014 |
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$ |
272 |
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Bad debt expense |
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28 |
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Write-off of uncollectible accounts |
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(81) |
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Currency translation adjustments |
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(7) |
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Balance as of December 31, 2015 |
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$ |
212 |
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For the year ended December 31, 2015, the Company did not have sales to a single customer that exceeded 10% of consolidated net sales. For the year ended December 31, 2014, the Company had sales to a single customer of $29,523 (11.3% of consolidated net sales), and the Company had sales to a different customer for the year ended December 31, 2013 of $31,924 (16.3% of consolidated net sales).
Inventories
Inventories consist of raw materials, work-in-process and finished goods and are valued at the lower-of-cost (determined on the first-in, first-out or specific identification basis) or market.
Plant, Equipment and Leasehold Improvements
Plant, equipment and leasehold improvements are recorded at cost. Accumulated depreciation is computed using the straight-line method over the lesser of the estimated useful life of the related assets (generally 3 to 10 years for equipment, furniture and leasehold improvements) or, when applicable, the lease term. Maintenance and repairs that do not extend the useful life of the respective assets are charged to expense as incurred. For the Company’s continuing operations, amounts charged to expense for the depreciation of plant, equipment and leasehold improvements were $11,389, $10,359, and $9,560 for the years ended December 31, 2015, 2014 and 2013, respectively.
Long-lived assets with finite lives are reviewed for impairment whenever events indicate that the carrying amount of the asset or the carrying amounts of the asset group containing the asset may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets or asset groups are compared with their carrying value to determine if a write-down to fair value is required. Based upon the Company’s analysis, it concluded that there was no impairment of its long-lived assets for the years ended December 31, 2015, 2014, and 2013.
Goodwill and Intangible Assets
Goodwill and other indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually on October 1. Testing is done in accordance with ASC 350, Intangibles—Goodwill and Other and ASC 820, Fair Value Measurements and Disclosures. For impairment evaluations, the Company or a third-party firm first makes a qualitative assessment with respect to both goodwill and other indefinite-lived intangibles. In the case of goodwill, if it is more likely than not that a reporting unit’s fair value is less than its carrying value, the fair value of the reporting unit is compared to its respective carrying amount. If the carrying value of a reporting unit were to exceed its fair value, any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. With respect to indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, any excess of the carrying value over the fair value of the indefinite-lived intangible asset is also charged to operations as an impairment loss.
For the years ended December 31, 2015, 2014 and 2013 the Company determined goodwill and other indefinite-lived intangibles were not impaired. As of December 31, 2015 and 2014, $6,352 and $24,377 of goodwill was tax-deductible, respectively.
Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Acquired indefinite-lived intangible assets related to trademarks are capitalized and subject to impairment.
Income Taxes
The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, then these deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of provision for income taxes.
Stock-Based Compensation
The Company accounts for stock-based compensation pursuant to ASC 718, Share-Based Payments. All stock-based compensation to employees is required to be measured at fair value and expensed, net of forfeitures, over the requisite service period. The Company recognizes compensation expense on awards on a straight-line basis over the vesting period for each tranche of an award. Refer to Note 17 “Stock Option Plans” for additional discussion regarding details of the Company's stock-based compensation plans.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs during the years ended December 31, 2015, 2014 and 2013 were $764, $392, and $144, respectively.
Use of Estimates
Management uses estimates and assumptions relating to the reporting of assets and liabilities in its preparation of the Consolidated Financial Statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, inventories, deferred taxes, and valuation of stock-based awards. Actual results could differ from those estimates.
Foreign Currency Translation
Financial statements of foreign subsidiaries that use local currencies as their functional currency are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted-average exchange rate for each reporting period for revenues, expenses, gains and losses. Translation adjustments are recorded as a component of Other Comprehensive Income in the accompanying financial statements.
Foreign currency transaction gains and losses resulting from the process of re-measurement are recorded in “Foreign currency gain (loss)” in the accompanying Consolidated Statements of Operations and Comprehensive Income. For the years ended December 31, 2015, 2014 and 2013 there were $59, $(124), and $(142) of such foreign currency gains (losses), respectively.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, in May 2014. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, and interim reporting periods within those periods. The Company plans to implement the provisions of ASU 2014-09 as of January 1, 2018. The Company is in the process of determining the method of adoption and assessing the impact of ASU 2014-09 on its results of operations, financial position and consolidated financial statements.
The FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, in April 2015. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The new standard is effective for public entities annual reporting periods beginning after December 15, 2015. Early adoption of the amendments in ASU 2015-03 is permitted for financial statements that have not been previously issued. The Company adopted this standard in 2015. Accordingly, the Company recorded a reduction of $8,041 to “Long-term debt” in the Company’s Consolidated Balance Sheet as of December 31, 2015, and reclassified $614 from “Capitalized loan fees” to “Long-term debt” in the Company’s Consolidated Balance Sheet as of December 31, 2014.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The new standard is effective for public entities’ annual reporting periods beginning after December 15, 2016, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. The Company has elected to early adopt this standard in 2015 prospectively. The impact to the Company’s Consolidated Balance Sheet was immaterial.
The FASB issued ASU 2015-11, Inventory—Simplifying the Measurement of Inventory, in July 2015. ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard is effective for public entities’ annual reporting periods beginning after December 15, 2016. The Company plans to implement the provisions of ASU 2015-11 as of January 1, 2017. The Company is in the process of assessing the impact of ASU 2015-11 on its results of operations, financial position and consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted. The new standard is required to be adopted using a modified retrospective approach. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and consolidated financial statements.
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3. EFT Source Acquisition
On September 2, 2014, CPI Card Group Inc., through its wholly-owned subsidiary, CPI Acquisition, Inc., purchased EFT Source, Inc. (“EFT Source”) headquartered in Nashville, Tennessee. EFT Source is a provider of Financial Payment Card services such as data personalization and fulfillment in the U.S. market. The primary reasons for the acquisition were to extend the Company’s existing product lines, expand its markets and increase revenue.
Purchase Price
Total consideration for the EFT Acquisition of $68,859 was paid in cash of $54,859, a note payable to the previous owners of EFT Source, payable on September 2, 2016 (“Sellers Note”) of $9,000 and the issuance of $5,000 of CPI Card Group Inc. preferred and common stock.
Allocation of Purchase Price
The EFT Acquisition was accounted for in accordance with ASC 805, Business Combinations. As such, the acquired assets and assumed liabilities have been recorded at their estimated acquisition date fair values.
The allocation of purchase price to the assets acquired and liabilities assumed at the EFT Acquisition date is presented below:
Cash and cash equivalents |
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$ |
381 |
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Accounts receivable |
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5,837 |
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Inventory |
|
|
1,724 |
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Prepaid expenses |
|
|
1,426 |
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Other current assets |
|
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645 |
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Property, equipment and leasehold improvements |
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6,460 |
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Goodwill |
|
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33,619 |
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Intangible assets subject to amortization(a) |
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31,100 |
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Trademarks (indefinite-lived) |
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4,400 |
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Other assets |
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13 |
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Deferred tax liability |
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(14,751) |
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Other current liabilities |
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(1,995) |
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Total purchase price |
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$ |
68,859 |
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(a) |
Amounts primarily include intangible assets related to customer relationships. At September 2, 2014, the weighted average useful life of EFT Source customer relationships was 15 years. |
The fair value of the intangible assets acquired was primarily determined based upon the present value of expected future cash flows, utilizing a risk-adjusted discount rate. The customer relationships were valued based on a “multi-period excess earnings approach.” The “multi-period excess earnings approach” measures an asset’s value as the present value of cash flows generated by the asset adjusted for contributory charges for other assets which contribute to the cash flows. The non-compete agreements were valued based on a “with and without” approach. The “with and without” method measures an asset value by estimating the difference in cash flows generated by the business with the asset in-use versus without the asset. The difference in cash flows is attributable to incremental earnings or cost savings associated with the asset. The trademark and trade names were valued based on a “relief from royalty” approach. The “relief from royalty” method is based on the premise that a third party would be willing to pay a royalty to use the trade name or trademark asset owned by the subject company. The projected royalties are converted into their present value equivalents through the application of a risk adjusted discount rate.
The Company recorded the excess of the aggregate purchase price over the estimated fair values of the identifiable assets acquired as goodwill, which is not deductible for tax purposes. The goodwill of $33,619 related to the EFT Acquisition, is attributable to current and future market share and assembled workforce,
The assets and liabilities assumed in the acquisition and the results of EFT Source operations were included in the Company’s Consolidated Financial Statements as of September 2, 2014.
Pro Forma Information
The following unaudited pro forma consolidated operating results give effect to the EFT Acquisition as if it had been completed on January 1, 2013. These pro forma amounts are not necessarily indicative of the operating results that would have occurred if these transactions had occurred on such date. The pro forma adjustments are based on certain assumptions that the Company considers to be reasonable.
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December 31, |
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2014 |
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2013 |
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Revenue—Continuing Operations |
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$ |
291,302 |
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$ |
233,360 |
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Net Income—Continuing Operations |
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16,916 |
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10,186 |
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Basic and Diluted Loss Per Share from Continuing Operations |
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$ |
(0.67) |
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$ |
(0.60) |
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The Company’s Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2014 includes revenue and net income from operations of $21,999 and $4,446 respectively, attributable to EFT Source.
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4. Discontinued Operation and Disposition
On January 12, 2015, the Company sold its Nevada non-secure operation under an asset purchase agreement for $5,000 in cash. The Nevada operation was primarily engaged in the design, production, data personalization, packaging and daily fulfillment of retail gift and loyalty cards for customers in the United States and was not certified by any of the Payment Card Brands. The net carrying values of the assets classified as a discontinued operation include inventory and plant, equipment and leasehold improvements of $3,129 and $2,910 respectively. The Company recognized a gain on the sale of discontinued operations of $208, which is included in “Gain on sale of a discontinued operation”, net of an income tax benefit of $1,247 in the Company’s Consolidated Statement of Operations and Comprehensive Income.
During the years ended December 31, 2015, 2014 and 2013, the Nevada operation recognized losses of $606, $2,670 and $2,612, respectively, included in “Loss from a discontinued operation”, net of income tax benefits of $404, $1,421 and $1,398 in the Company’s Consolidated Statements of Operations and Comprehensive Income.
After the Nevada Sale, CPI retained no continuing involvement in the Nevada operations other than a 180 day transition of services agreement, which expired on July 11, 2015. As a result of the Nevada Sale, the Company expects to take a tax deduction of $32,128 related to the tax deductible goodwill and intangible assets of the Nevada operations, of which $4,190 of the tax deductible goodwill resulted in the recognition of an income tax benefit of $1,510 during the year ended December 31, 2015.
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5. Inventories
Inventories are summarized below:
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December 31, |
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2015 |
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2014 |
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Raw materials |
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$ |
10,549 |
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$ |
10,217 |
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Work-in-process |
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11,460 |
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8,222 |
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Finished goods |
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3,631 |
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3,166 |
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|
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$ |
25,640 |
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$ |
21,605 |
|
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6. Plant, Equipment and Leasehold Improvements
Plant, equipment and leasehold improvements consist of the following:
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December 31, |
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||||
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|
2015 |
|
2014 |
|
||
Buildings |
|
$ |
2,565 |
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$ |
2,486 |
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Machinery and equipment |
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57,482 |
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47,792 |
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Furniture and fixtures |
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4,440 |
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4,203 |
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Leasehold improvements |
|
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15,856 |
|
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12,593 |
|
Construction in progress |
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2,373 |
|
|
3,448 |
|
|
|
|
82,716 |
|
|
70,522 |
|
Less accumulated depreciation and amortization |
|
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(30,603) |
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(25,750) |
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|
|
$ |
52,113 |
|
$ |
44,772 |
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7. Goodwill and Other Intangible Assets
The Company’s goodwill at December 31, 2015 and 2014 relates to the U.S. Debit and Credit and U.K. Limited reporting segments.
Goodwill activity is summarized as follows:
Balance as of January 1, 2014 |
|
$ |
40,818 |
|
EFT Acquisition |
|
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33,619 |
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Currency translation |
|
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(636) |
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Balance as of December 31, 2014 |
|
$ |
73,801 |
|
Currency translation |
|
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(678) |
|
Balance as of December 31, 2015 |
|
$ |
73,123 |
|
The Company completed its evaluation of the carrying value of goodwill as of October 1, 2015 and 2014 and determined there was no impairment to the recorded value of goodwill. In order to identify potential impairments, CPI compared the fair value of its reporting units with their carrying amounts, including goodwill. As the fair value of the reporting units exceeded their carrying amounts, the Company was not required to complete the second step of the process which would measure the amount of any impairment.
CPI’s intangible assets consist of customer relationships, technology and software, non-compete agreements, favorable leases and trademarks. Total intangible assets are being amortized over a weighted-average useful life of 16 years. Intangible amortization expense totaled $4,577, $2,893 and $2,035, for the years ended December 31, 2015, 2014 and 2013, respectively.
Intangible assets consist of the following:
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December 31, 2015 |
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December 31, 2014 |
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Average |
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Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
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||||||
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Life (Years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
|
||||||
Customer relationships |
|
12 to 20 |
|
$ |
59,612 |
|
$ |
(17,747) |
|
$ |
41,865 |
|
$ |
59,871 |
|
$ |
(14,304) |
|
$ |
45,567 |
|
Technology and software |
|
7 to 10 |
|
|
7,101 |
|
|
(1,238) |
|
|
5,863 |
|
|
7,101 |
|
|
(310) |
|
|
6,791 |
|
Noncompete agreements |
|
5 to 8 |
|
|
491 |
|
|
(270) |
|
|
221 |
|
|
491 |
|
|
(198) |
|
|
293 |
|
Favorable leases |
|
9.5 |
|
|
111 |
|
|
(101) |
|
|
10 |
|
|
111 |
|
|
(88) |
|
|
23 |
|
Intangible assets subject to amortization |
|
|
|
|
67,315 |
|
|
(19,356) |
|
|
47,959 |
|
|
67,574 |
|
|
(14,900) |
|
|
52,674 |
|
Trademarks (indefinite-lived) |
|
|
|
|
6,029 |
|
|
— |
|
|
6,029 |
|
|
6,029 |
|
|
— |
|
|
6,029 |
|
|
|
|
|
$ |
73,344 |
|
$ |
(19,356) |
|
$ |
53,988 |
|
$ |
73,603 |
|
$ |
(14,900) |
|
$ |
58,703 |
|
The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of December 31, 2015 is as follows:
2016 |
|
$ |
4,572 |
2017 |
|
|
4,561 |
2018 |
|
|
4,548 |
2019 |
|
|
4,548 |
2020 |
|
|
4,548 |
Thereafter |
|
|
25,182 |
|
|
$ |
47,959 |
|
8. Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). In determining fair value, the Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
· |
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. |
· |
Level 2—Inputs, other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
· |
Level 3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
The Company’s financial assets and liabilities subject to fair value measurements and the necessary disclosures are as follows:
|
|
|
|
Fair Value Measurement at |
|
||||||||
|
|
Fair Value as of |
|
December 31, 2015 |
|
||||||||
|
|
December 31, |
|
(Using Fair Value Hierarchy) |
|
||||||||
|
|
2015 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Term Loan |
|
$ |
309,375 |
|
$ |
— |
|
$ |
309,375 |
|
$ |
— |
|
Sellers Note |
|
$ |
9,000 |
|
$ |
— |
|
$ |
— |
|
$ |
9,000 |
|
|
|
|
|
Fair Value Measurement at |
|
||||||||
|
|
Fair Value as of |
|
December 31, 2014 |
|
||||||||
|
|
December 31, |
|
(Using Fair Value Hierarchy) |
|
||||||||
|
|
2014 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan dated September 2, 2014 |
|
$ |
170,866 |
|
$ |
— |
|
$ |
170,866 |
|
$ |
— |
|
Sellers Note |
|
$ |
9,000 |
|
$ |
— |
|
$ |
— |
|
$ |
9,000 |
|
The fair value measurements associated with the EFT Acquisition are based on significant unobservable Level 3 inputs, which require significant management judgment and estimation (see Note 3 “EFT Source Acquisition” for additional information). A discount rate of 11.9% was utilized in determining the fair value of acquired customer relationship intangible assets related to the EFT Acquisition.
The carrying amounts for cash and cash equivalents approximate fair value due to their short maturities. The aggregate fair value of the Company's First Lien Term Loan was based on bank quotes. The fair value of the Sellers’ Note approximates its carrying value as market interest rates have not changed significantly from its date of issuance.
The carrying value of the Senior Term Loan dated September 2, 2014 on December 31, 2014, approximates the fair value based on the Company’s floating rate note which did not change significantly from the amended and restated Credit Agreement of September 2, 2014.
|
9. Related-Party Transactions
The Company leases its operating facility in Indiana from an entity that is owned by a stockholder, who was a member of the Company’s Board of Directors until August 7, 2015. The lease expires in January 2018 and requires the Company to pay property taxes, insurance and normal maintenance costs. The Company paid rent of $108 from January 1, 2015 through August 7, 2015, the date on which the former member of the Company’s Board of Directors resigned, and was therefore no longer considered a related party. During each of the years ended December 31, 2014 and 2013, the Company paid rent of $175.
In conjunction with certain officer and non-officer Company employees acquiring Series A Preferred and Common Stock during 2013 and 2012, the Company obtained notes receivable from the employees that were paid in full on August 17, 2015 and are no longer outstanding as of December 31, 2015. See Note 13 “Stockholders’ Equity” for further discussion.
|
10. Long-Term Debt and Credit Facility
Long-term debt consists of the following:
|
|
|
|
|||||||
|
|
Interest |
|
December 31, |
|
December 31, |
|
|||
|
|
Rate |
|
2015 |
|
2014 |
|
|||
First Lien Term Loan (a) |
|
|
5.50% |
|
$ |
312,500 |
|
$ |
— |
|
Senior term loan dated September 2, 2014 (b) |
|
|
3.91% |
|
|
— |
|
|
170,866 |
|
Sellers Note (a) |
|
|
5.00% |
|
|
9,000 |
|
|
9,000 |
|
Unamortized discount |
|
|
|
|
|
(4,459) |
|
|
(442) |
|
Unamortized deferred financing costs |
|
|
|
|
|
(8,041) |
|
|
(614) |
|
Total long-term debt |
|
|
|
|
|
309,000 |
|
|
178,810 |
|
Less current maturities |
|
|
|
|
|
(9,000) |
|
|
(6,326) |
|
Long-term debt, net of current maturities |
|
|
|
|
$ |
300,000 |
|
$ |
172,484 |
|
(a) |
Interest rate on December 31, 2015 |
(b) |
Interest rate on December 31, 2014 |
First Lien Credit Facility
On August 17, 2015, the Company entered into the First Lien Credit Facility with a syndicate of lenders providing for the $435,000 First Lien Term Loan and the $40,000 Revolving Credit Facility. The First Lien Term Loan and the Revolving Credit Facility have maturity dates of August 17, 2022 and August 17, 2020, respectively.
The First Lien Credit Facility is secured by a first-priority security interest in substantially all of the Company's assets constituting equipment, inventory, receivables, cash and other tangible and intangible property.
Interest rates under the First Lien Credit Facility are based, at the Company's election, on a Eurodollar rate, subject to an interest rate floor of 1.0%, plus a margin of 4.50% or a base rate plus a margin of 3.50%. Letters of credit are subject to a 0.125% fronting fee payable to the issuing bank and a fee payable to the revolving lenders equal to the margin applicable to Eurodollar revolving loans. In addition, the Company is required to pay an unused commitment fee ranging from 0.375% per annum to 0.50% per annum of the average unused portion of the revolving commitments. The unused commitment fee is determined on the basis of a grid that results in a lower unused commitment fee as the Company's total net leverage ratio declines.
The First Lien Credit Facility contains customary nonfinancial covenants, including among other things, restrictions on indebtedness, issuance of liens, investments, dividends, redemptions and other distributions to equity holders, asset sales, certain mergers or consolidations, sales, transfers, leases or dispositions of substantially all of the Company's assets and affiliate transactions. The First Lien Credit Facility also requires prepayment in advance of the maturity date upon the occurrence of certain customary events, including the completion of a qualified initial public offering, and based on an annual Excess Cash Flow calculation, pursuant to the terms of the agreement, beginning as of the year ended December 31, 2016, with any payments due after the issuance of the Company’s annual financial statements in 2017. The First Lien Credit Facility also contains a requirement that, as of the last day of any fiscal quarter, if the amount the Company has drawn under the Revolving Credit Facility is greater than 50% of the aggregate principal amount of all commitments of the lenders thereunder, the Company maintain a first lien net leverage not in excess of 7.0 times.
In accordance with the terms of the First Lien Credit Facility, the Company repaid $112,500 of the First Lien Term Loan on October 15, 2015 in conjunction with the completion of its initial public offering ("IPO"), and an additional $10,000 during the fourth quarter of 2015. See Note 1 “Business”. The Company recognized additional interest expense of $4,687 during the year ended December 31, 2015 related to accelerated amortization of deferred financing costs and discount in connection with these repayments.
As of December 31, 2015, the Company did not have any outstanding amounts under the Revolving Credit Facility.
Senior Term Loan dated September 2, 2014
At December 31, 2015, there were no amounts outstanding on the Senior Term Loan dated November 8, 2012, and amended September 2, 2014, and the related revolver with a maturity of September 30, 2016. The outstanding balance of $158,420 on the Senior Term Loan was repaid in full on August 17, 2015 using a portion of the proceeds from the new $435,000 First Lien Term Loan. In conjunction with the repayment of the Senior Term Loan, the Company recognized a $703 loss on early extinguishment related to the unamortized deferred financing costs and discount on the Senior Term Loan in “Loss on debt modification and early extinguishment” in the Consolidated Statement of Operations and Comprehensive Income. The Company accounted for the debt refinancing in accordance with ASC 470-50-40-6, Modifications and Exchanges.
In conjunction with the Company’s initial refinancing of Senior Term Loan on September 2, 2014, the Company recognized a $476 loss on extinguishment reflected in “Loss on debt modification and early extinguishment” in the Consolidated Statement of Operations and Comprehensive Income. The primary purpose of this refinancing was to finance the cash portion of the acquisition consideration of EFT Source. Refer to Note 3 “EFT Source Acquisition” for additional information.
Sellers Note
The Company entered into a subordinated, unsecured promissory note for $9,000 with certain sellers of EFT Source as part of the EFT Source acquisition. Interest on the Sellers Note accrues at 5.0% per annum and is paid quarterly. The Sellers Note principal and unpaid interest is due at the earlier of September 2, 2016 or with the occurrence of certain specific events as outlined in the Sellers Note. The Sellers Note is included in “Current maturities of long-term debt” at December 31, 2015, as the maturity date of the loan is within twelve months from December 31, 2015.
Letters of Credit
As of December 31, 2015, the Company has two outstanding letters of credit for the security deposits on two real property lease agreements. These letters of credit are for a total of $100, reducing the borrowing capacity under the Revolving Credit Facility to $39,900. The Company pays a fee on the outstanding letters of credit at the applicable margin, which was 4.50% as of December 31, 2015, in addition to a fronting fee of 0.125% per annum.
Deferred Financing Costs
Certain costs incurred with borrowings or the establishment or modification of credit facilities are reflected as a reduction to the long-term debt balance. These costs are amortized as an adjustment to interest expense over the life of the borrowing using the effective-interest rate method.
Maturities of long-term debt as of December 31, 2015 consist of the following:
Year ending December 31: |
|
|
|
2016 |
|
$ |
9,000 |
2017 |
|
|
— |
2018 |
|
|
— |
2019 |
|
|
— |
2020 |
|
|
— |
Thereafter |
|
|
312,500 |
|
|
$ |
321,500 |
|
11. Income Taxes
Income tax expense from continuing operations and effective income tax rates consist of the following:
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Current taxes: |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
16,036 |
|
$ |
8,424 |
|
$ |
4,982 |
|
Foreign |
|
|
254 |
|
|
— |
|
|
6 |
|
|
|
|
16,290 |
|
|
8,424 |
|
|
4,988 |
|
Deferred taxes: |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
1,656 |
|
|
2,238 |
|
|
2,347 |
|
Foreign |
|
|
(100) |
|
|
(371) |
|
|
(347) |
|
|
|
|
1,556 |
|
|
1,867 |
|
|
2,000 |
|
Provision for income taxes |
|
$ |
17,846 |
|
$ |
10,291 |
|
$ |
6,988 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
50,692 |
|
$ |
27,984 |
|
$ |
19,954 |
|
Foreign |
|
|
(1,585) |
|
|
(1,721) |
|
|
(1,767) |
|
Total |
|
$ |
49,107 |
|
$ |
26,263 |
|
$ |
18,187 |
|
Effective income tax rate |
|
|
36.3 |
% |
|
39.1 |
% |
|
38.4 |
% |
The effective income tax rate differs from the U.S. federal statutory income tax rate as follows:
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Tax at federal statutory rate |
|
35.0 |
% |
35.0 |
% |
34.0 |
% |
Permanent differences |
|
(1.6) |
|
(2.9) |
|
(1.7) |
|
State income taxes |
|
2.0 |
|
3.1 |
|
4.8 |
|
Foreign taxes |
|
0.3 |
|
2.5 |
|
(1.6) |
|
Other |
|
0.6 |
|
1.4 |
|
2.9 |
|
Effective income tax rate |
|
36.3 |
% |
39.1 |
% |
38.4 |
% |
The components of the deferred tax assets and liabilities are as follows:
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
28 |
|
$ |
65 |
|
Inventory valuation |
|
|
279 |
|
|
607 |
|
Accrued expense |
|
|
927 |
|
|
372 |
|
Unrealized foreign exchange loss |
|
|
652 |
|
|
634 |
|
Net operating loss carryforward |
|
|
1,999 |
|
|
2,148 |
|
Goodwill |
|
|
— |
|
|
2,159 |
|
Deferred financing costs |
|
|
1,564 |
|
|
— |
|
Asset retirement obligation |
|
|
179 |
|
|
292 |
|
Stock compensation |
|
|
322 |
|
|
1,853 |
|
Total gross deferred tax assets |
|
|
5,950 |
|
|
8,130 |
|
Valuation allowance |
|
|
(3,717) |
|
|
(4,120) |
|
Net deferred tax assets |
|
|
2,233 |
|
|
4,010 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Plant, property and leasehold improvements |
|
|
(5,881) |
|
|
(4,238) |
|
Intangibles |
|
|
(18,962) |
|
|
(11,903) |
|
Prepaid expense |
|
|
(1,463) |
|
|
(1,045) |
|
Total gross deferred tax liabilities |
|
|
(26,306) |
|
|
(17,186) |
|
Net deferred tax liabilities |
|
$ |
(24,073) |
|
$ |
(13,176) |
|
The net deferred tax assets and liabilities are reflected in the consolidated balance sheets as follows:
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Current deferred tax assets |
$ |
— |
$ |
634 | |||
Long-term deferred tax liabilities |
|
|
(24,073) |
|
|
(13,810) |
|
Net deferred tax (liabilities) |
|
$ |
(24,073) |
|
$ |
(13,176) |
|
The net change in the valuation allowance was a decrease of $403 and an increase $678 for the years ended December 31, 2015 and 2014, respectively. The change in the year ended December 31, 2015 related to foreign currency exchange rate fluctuations, partially offset by a change in net operating losses of foreign locations,. The change in the year ended December 31, 2014 related to net operating losses of a foreign location.
The Company has potential tax benefits associated with $1,999 of foreign operating loss carryforwards, which expire at various dates from 2024 through 2033. Due to the uncertainty of being able to recognize these loss carryforwards, the Company has provided a valuation allowance of 100% of the tax benefit.
At December 31, 2015, no provision has been made for U.S. federal and state taxes on cumulative foreign earnings from CPI Card Group-Europe Limited operations of approximately $2,707, which are expected to be indefinitely reinvested outside of the U.S. The U.S. deferred tax liability associated with indefinitely reinvested earnings and profits is not material.
The Company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions, and based upon its review, determined there are no uncertain tax positions as of December 31, 2015 and 2014.
The Company is generally subject to potential federal and state examinations for the tax years after December 31, 2010 for federal purposes and December 31, 2009 for state purposes.
|
12. Series A Preferred Stock
Series A Preferred Stock has a par value of $0.001 per share. The original Series A Preferred Stock has an initial liquidation preference equal to $1,000 per outstanding share. In addition, the Series A Preferred Stock liquidation preference earns a dividend of 20% per share per annum, payable when declared by the Board of Directors. Such dividends accrue on each share from the date of original issuance and accrue on a daily basis, whether or not declared. Such dividends are cumulative so that if such dividend in respect of any previous or current annual dividend period, at the annual 20% rate, has not been paid, the deficiency shall first be fully paid before any dividend or other distribution shall be paid or declared and set apart for the Common Stock. In the event of any liquidation, dissolution, or winding up of the Company, the Series A Preferred Stock holders shall be entitled to receive, prior and in preference to any distributions of any of the Company’s assets to the Common Stock holders, the value of the liquidation preference. If the distribution of such assets is insufficient to permit the payment to such holders, the distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the amount of such stock owned by each holder. The Series A Preferred Stock had no voting rights.
During the year ended December 31, 2015, the Company redeemed a total of 64,809 shares of Series A Preferred Stock at prices ranging between $3,950.33 and $4,610.68 per share, including the redemption of 62,140 shares of the Series A Preferred Stock for $276,688, or $4,446.70 per share, on August 17, 2015 with proceeds from the Company’s First Lien Credit Facility (see Note 10 “Long-Term Debt and Credit Facility”), and the redemption of 2,576 shares of the Series A Preferred Stock for $11,877, or $4,610.68 per share, using proceeds from the Company’s IPO (see Note 1 “Business”). Of the $288,565 redemption amount during the year ended December 31, 2015, $58,250 was treated as a return of capital and $230,315 was treated as a dividend. There were no outstanding shares of Series A Preferred Stock as of December 31, 2015.
During the year ended December 31, 2014, the Company issued 549 shares of Series A Preferred Stock at an estimated value of $3,733.88 per share as part of the payment consideration for the EFT Acquisition. The Company did not redeem any shares of Series A Preferred Stock during the year ended December 31, 2014.
|
13. Stockholders’ Equity
Common Stock
Common Stock has a par value of $0.001 per share. Holders of common stock are entitled to receive dividends and distributions subject to the participation rights of holders of all classes of stock at the time outstanding, as such holders have prior rights as to dividends pursuant to the rights of any series of Preferred Stock. Upon any liquidation, dissolution, or winding up of the Company, after required payments are made to holders of any series of Preferred Stock, any remaining assets of the Company will be distributed ratably to the holders of Common Stock. Holders of Common Stock are entitled to one vote per share.
On September 3, 2015, the Company's Board of Directors approved a 22-for-1 stock split of our common stock and increased the number of authorized shares of common stock to 100,000,000. Upon the effective date of the stock split, each outstanding share of common stock and restricted common stock was divided into 22 shares of common stock or restricted common stock, as applicable. Shares of common stock available for issuance under the 2007 Stock Option Plan were increased accordingly. All of the share numbers, share prices and exercise prices have been retroactively adjusted to reflect the stock split in the Consolidated Financial Statements and these notes.
On October 15, 2015, the Company completed its IPO issuing 15,000,000 shares of common stock at a price of $10.00 per share. The net proceeds from the IPO, after issuance costs, were utilized to (i) redeem all of our remaining Series A Preferred Stock for a total redemption price of $11,877 (see Note 12 “Series A Preferred Stock”), (ii) repay $112,500 of the amount outstanding under the First Lien Term Loan (see Note 10 “Long-Term Debt”), and (iii) terminate and settle all outstanding obligations due under the Phantom Stock Plan of $13,268 (see Note 18 “Phantom Stock Plan”). The proceeds of the IPO were net of deferred offering expenses of $7,196 and are reflected in “Capital deficiency” in the Company’s Consolidated Balance Sheets.
Employee Notes Receivable
Included in “Stockholders’ Deficit” in the Consolidated Balance Sheets are promissory notes received in connection with equity issuances of Series A Preferred Stock and Common Stock to certain employees made during 2011 and earlier years. The notes receivable accrued interest at 5% per annum and were paid in bimonthly installments. The principal balances of the notes were due upon the employee’s termination, the sale of the Company, upon any distributions, or at such time that the employee failed to own the underlying shares.
During the years ended December 31, 2015, 2014 and 2013, the Company did not issue any new Employee notes, and $108, $19 and $10 of employee notes were repaid, respectively. As of December 31, 2015 there were no outstanding employee notes receivable, as they were all repaid during the year. As of December 31, 2014, $108 of employee notes receivable were outstanding.
|
15. Commitments and Contingencies
Commitments
The Company leases real property for its facilities under noncancelable operating lease agreements. Land and facility leases expire at various dates between 2016 and 2023 and contain various provisions for rental adjustments and renewals. All of these leases require the Company to pay property taxes, insurance and normal maintenance costs.
During the normal course of business, the Company also enters into non-cancellable agreements to purchase goods and services, including production equipment and information technology systems.
Future cash payments with respect to operating leases and purchase obligations as of December 31, 2015 are as follows:
|
|
Operating |
|
Purchase |
|
||
|
|
Leases |
|
Obligations |
|
||
2016 |
|
$ |
4,309 |
|
$ |
3,047 |
|
2017 |
|
|
3,745 |
|
|
— |
|
2018 |
|
|
2,426 |
|
|
— |
|
2019 |
|
|
1,327 |
|
|
— |
|
2020 |
|
|
948 |
|
|
— |
|
Thereafter |
|
|
1,021 |
|
|
— |
|
Total |
|
$ |
13,776 |
|
$ |
3,047 |
|
The Company incurred rent expense under non-cancellable operating leases during the years ended December 31, 2015, 2014 and 2013, totaling $3,518, $3,320 and $3,096, respectively.
Asset retirement obligations relate to legal obligations associated with the removal of all leasehold improvements at the end of the lease term. The Company records all asset retirement obligations, which primarily relate to “make-good” clauses in operating leases, for its leased property containing leasehold improvements. The liability, reported within other long-term liabilities, is accreted through charges to operating expenses. If the asset retirement obligation is settled for an amount other than the carrying amount of the liability, the Company recognizes a gain or loss on settlement. The Company incurred accretion expense during the years ended December 31, 2015, 2014 and 2013 totaling $29, $53 and $55, respectively. As of December 31, 2015 and 2014, the Company’s asset retirement obligations included in “Other long-term liabilities” in the Consolidated Balance Sheets were $613 and $911, respectively.
Contingencies
In October 2015, Gemalto S.A. filed a suit alleging that the Company infringes on a Gemalto patent by incorporating microchips into the Company’s products. Gemalto’s patent will expire in 2017. Discovery and motion practice is ongoing. The Company believes Gemalto’s claims are without merit and it has strong legal and equitable defenses, plus meritorious counterclaims and indemnity rights. The Company intends to defend the suit vigorously. Due to the current stage of the matter, the Company has concluded the risk of loss is not reasonably possible or estimable and no accrual has been recognized as of December 31, 2015.
In addition to the matter described above, the Company is subject to routine legal proceedings in the ordinary course of business. The Company believes that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations.
|
16. Employee Benefit Plan
The Company maintains a qualified defined-contribution plan under the provisions of the Internal Revenue Code Section 401(k), which covers substantially all employees in the United States who meet certain eligibility requirements. Under the plan, participants may defer their salary subject to statutory limitations and may direct the contributions among various investment accounts. The Company matches 100% of the participant’s first 3% of deferrals and 50% of the next 2% deferral percentage. The Company’s portion is 100% vested at the time of the match.
The aggregate amounts charged to expense in connection with the plan were $1,049, $824 and $908 for the years ended December 31, 2015, 2014 and 2013, respectively.
|
17. Stock Option Plans
CPI Card Group Inc. Omnibus Plan
In conjunction with the completion of the IPO, the Company adopted the Omnibus Plan pursuant to which cash and equity based incentives may be granted to participating employees, advisors and directors. The Company has reserved 4,000,000 shares of common stock for issuance under the Omnibus Plan. During the year ended December 31, 2015, the Company granted awards of stock options for 795,450 shares of common stock at an exercise price of $10 per share, including 770,450 options granted in connection with the IPO. The options will generally vest 33.4%, 33.3%, and 33.3% on the second, third and fourth anniversary dates following the grant date.
Outstanding and exercisable stock options under the Omnibus Plan are as follows:
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
Contractual Term |
|
|
|
|
Options |
|
Price |
|
(in Years) |
|
|
Outstanding as of December 31, 2014 |
|
— |
|
$ |
— |
|
— |
|
Granted |
|
795,450 |
|
|
10.00 |
|
10.00 |
|
Forfeited |
|
— |
|
|
— |
|
— |
|
Outstanding as of December 31, 2015 |
|
795,450 |
|
$ |
10.00 |
|
9.80 |
|
Unvested options as of December 31, 2015, vest as follows:
2016 |
|
— |
|
2017 |
|
265,150 |
|
2018 |
|
265,150 |
|
2019 |
|
265,150 |
|
Total unvested options as of December 31, 2015 |
|
795,450 |
|
Compensation expense for the Omnibus Plan for the year ended December 31, 2015 was $239. As of December 31, 2015, the total unrecognized compensation expense related to unvested options was $2,470, which the Company expects to recognize over an estimated weighted average period of 2.8 years. The aggregate intrinsic value of stock option awards outstanding under the Omnibus Plan as of December 31, 2015 was $525.
The fair value of the stock options granted under the Omnibus Plan was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:
|
|
Year |
|
|
|
ended |
|
|
|
December |
|
|
|
31, 2015 |
|
Expected term in years |
|
6.5 |
|
Volatility |
|
36.7 |
% |
Risk-free interest rate |
|
1.8 |
% |
Dividend yield |
|
1.3 |
% |
Expected term – The Company estimated the expected term based on the average of the weighted-average vesting period and the contractual term of the stock option awards by utilizing the “simplified method”, as the Company does not have sufficient available historical data to estimate the expected term of these stock option awards.
Volatility – The expected volatility percentage of 36.7% was based on a peer group average historical volatility over the expected option term. The peer group was based on financial technology companies that completed an initial public offering of common stock from 2007 through 2014.
Risk-free interest rate – The risk-free interest rate of 1.8% was determined by using the United States Treasury rate for the period that coincided with the expected option term described above.
Dividend yield – The Company’s expected annual dividend yield in the current year was determined based on an estimated annual dividend divided by the expected share price for the Company’s common stock on the initial public offering date.
CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan
In 2007, the Company’s Board of Directors adopted the CPI Holdings I, Inc. Amended and Restated 2007 Stock Option Plan (the “Option Plan”). Under the provisions of the Option Plan, stock options and restricted stock awards may be granted to employees, directors, and consultants at an exercise price greater than or equal to the fair market value of a share on the date the option is granted.
As a result of the Company’s adoption of its Omnibus Plan in conjunction with its IPO, as further described above, no further awards will be made under the Option Plan. The outstanding stock options have a 10-year life and vest, as noted, in each respective grant letter. All stock options are nonqualified.
Outstanding and exercisable stock options under the Option Plan are as follows:
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
Contractual Term |
|
|
|
|
Options |
|
Price |
|
(in Years) |
|
|
Outstanding as of January 1, 2013 |
|
528,000 |
|
$ |
0.0004 |
|
7.48 |
|
Granted |
|
165,000 |
|
|
0.0005 |
|
|
|
Forfeited |
|
(44,000) |
|
|
0.0005 |
|
|
|
Outstanding as of December 31, 2013 |
|
649,000 |
|
$ |
0.0004 |
|
7.35 |
|
Forfeited |
|
(22,000) |
|
|
0.0001 |
|
|
|
Outstanding as of December 31, 2014 |
|
627,000 |
|
$ |
0.0004 |
|
6.44 |
|
Exercised |
|
(66,000) |
|
|
0.0005 |
|
|
|
Forfeited |
|
(99,000) |
|
|
0.0003 |
|
|
|
Outstanding as of December 31, 2015 |
|
462,000 |
|
$ |
0.0003 |
|
5.57 |
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2015 |
|
421,667 |
|
$ |
0.0004 |
|
5.48 |
|
Unvested options as of December 31, 2015 vest as follows:
2016 |
|
40,333 |
|
Total |
|
40,333 |
|
Compensation expense and unrecorded compensation expense related to options previously granted under the Option Plan, for the years ended December 31, 2015, 2014 and 2013, were de minimis. The aggregate intrinsic value of stock option awards outstanding and exercisable under the Option Plan as of December 31, 2015 was $4,925 and $4,495, respectively.
During the year ended December 31, 2015, the Company issued 191,664 restricted shares of common stock to executives of the Company. The awards contain conditions associated with continued employment or service. The terms of the non-vested restricted shares of common stock provide voting and regular dividend rights to the holders of the restricted shares of common stock, and accordingly are included in weighted-average shares outstanding in the Company’s basic earnings per share calculation. See Note 14 “Earnings per Share”. Upon vesting, the restrictions lapse and the shares are considered issued and outstanding. The restricted shares vest over one to three year periods.
The following table summarizes the changes in the number of outstanding restricted shares of common stock for the year ended December 31, 2015:
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant Date |
|
|
|
|
Shares |
|
Fair Value |
|
|
Outstanding as of December 31, 2014 |
|
— |
|
$ |
— |
|
Granted |
|
191,664 |
|
|
9.48 |
|
Vested |
|
— |
|
|
— |
|
Forfeited |
|
— |
|
|
— |
|
Outstanding as of December 31, 2015 |
|
191,664 |
|
$ |
9.48 |
|
Total compensation expense related to the unvested restricted shares of common stock awards was $646 for the year ended December 31, 2015. As of December 31, 2015, there was $1,171 of total remaining unrecognized compensation expense related to non-vested restricted shares of common stock that will be recognized over a weighted average period of 1.24 years.
|
18. Phantom Stock Plan
Effective January 1, 2012, the Company’s Board of Directors adopted the CPI Acquisition, Inc. Phantom Stock Plan (“Phantom Stock Plan”) to provide incentive compensation to certain key employees. In conjunction with the Company’s IPO, the Phantom Stock Plan was terminated and all outstanding liabilities were settled under the plan. . During the year ended December 31, 2015, payments of $13,892 were made under the plan, and no liability existed as of December 31, 2015. As of December 31, 2014, the liability reported in “Other long-term liabilities” in the Consolidated Balance Sheet was $5,144.
Under the terms of the Phantom Stock Plan, holders of an award were entitled to a cash payment equal to the difference between the fair market value of the award, as defined in the agreement, at the time of exercise and the award’s exercise price. The Company measured the liability at intrinsic value, with changes in the intrinsic value of the liability recognized as expense each year in the Consolidated Statements of Operations and Comprehensive Income.
During the years ended December 31, 2015, 2014 and 2013, the Company recognized compensation expense of $8,748, $4,534 and $610, respectively, related to this plan.
|
19. Segment Reporting
The Company has identified reportable segments as those consolidated subsidiaries that represent 10% or more of its revenue, EBITDA (as defined below), or total assets or subsidiaries which the Company believes information about the segment would be useful to the readers of the financial statements from a qualitative perspective. The Company’s chief operating decision maker is its Chief Executive Officer who is charged with management of the Company and is responsible for the evaluation of operating performance and decision making about the allocation of resources to operating segments based on measures such as revenue and EBITDA.
EBITDA is the primary measure used by the Company’s chief operating decision maker to evaluate segment operating performance. As the Company uses the term, EBITDA is defined as income from continuing operations before interest expense, income taxes, depreciation and amortization. The Company’s chief operating decision maker believes EBITDA is a meaningful measure and is superior to available U.S. GAAP measures as it represents a transparent view of the Company’s operating performance that is unaffected by fluctuations in property, equipment and leasehold improvement additions. The Company’s chief operating decision maker uses EBITDA to perform periodic reviews and comparison of operating trends and identify strategies to improve the allocation of resources amongst segments.
As of December 31, 2015, the Company’s reportable segments are as follows:
· |
U.S. Debit and Credit |
· |
U.S. Prepaid Debit |
· |
U.K. Limited |
The U.S. Debit and Credit segment primarily produces Financial Payment Cards and provides integrated card services to card-issuing banks in the United States. Products manufactured by this segment primarily include EMV and non-EMV credit cards, debit cards and prepaid debit cards issued on the networks of the Payment Card Brands, private label credit cards that are not issued on the networks of the Payment Cards Brands (including general purpose reloadable, gift, payroll and employee benefit, government disbursement, incentive, and transit cards), and instant issuance systems. This segment also provides a variety of integrated card services, including card personalization and fulfillment services and instant issuance services. The U.S. Debit and Credit segment includes the Company’s operations in Colorado, Indiana and Tennessee, which are each certified by multiple global Payment Card Brands and, where required by the Company’s customers, certified to be in compliance with the standards of the PCI Security Standards Council. These operating segments have been aggregated into a single reportable segment due to similarities in the nature of the products and services sold by these subsidiaries, a common customer base, the substantial degree of integration and redundancy across the segments, and utilization of centrally shared sales, marketing, quality and planning departments. Separate information about these segments would not be useful to the readers of the financial statements.
The U.S. Prepaid Debit segment primarily provides integrated card services to prepaid debit card issuers in the United States. Services provided include tamper-evident security packaging services and card personalization and fulfillment services. This segment also produces financial payment cards issued on the networks of the Payment Card Brands that are included in the tamper-evident security packages mentioned above. The U.S. Prepaid Debit segment includes the Company’s operation in Minnesota which is certified by multiple global Payment Card Brands, and is certified to be in compliance with the standards of the PCI Security Standards Council.
The U.K. Limited segment primarily produces retail cards, such as gift and loyalty cards for customers in the United Kingdom and continental Europe. This segment also provides card personalization, packaging and fulfillment services. The U.K. Limited segment includes the Company’s operations in Colchester, United Kingdom and Liverpool, United Kingdom. Neither of the Company’s operations in this segment is certified by any of the Payment Card Brands, nor are they PCI certified.
The “Other” category includes the Company’s corporate headquarters and less significant operating segments that derive their revenue from the production of Financial Payment Cards and retail gift cards in Canada (CPI—Canada) and the U.K. (CPI—Petersfield). For additional information regarding the Company’s decision to shut down the CPI—Petersfield facility during the third quarter of 2015, see Note 1 “Business”.
Performance Measures of Reportable Segments
Revenue and EBITDA of the Company’s reportable segments for the years ended December 31, 2015, 2014 and 2013 were as follows:
|
|
Revenue |
|
EBITDA |
|
||||||||||||||
|
|
December 31, |
|
December 31, |
|
||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
||||||
U.S. Debit and Credit(a) |
|
$ |
263,668 |
|
$ |
153,015 |
|
$ |
91,626 |
|
$ |
78,981 |
|
$ |
37,547 |
|
$ |
18,871 |
|
U.S. Prepaid Debit |
|
|
65,878 |
|
|
59,271 |
|
|
65,895 |
|
|
22,993 |
|
|
18,654 |
|
|
20,438 |
|
U.K Limited |
|
|
34,361 |
|
|
35,163 |
|
|
33,242 |
|
|
3,572 |
|
|
2,943 |
|
|
2,801 |
|
Other |
|
|
17,420 |
|
|
23,908 |
|
|
24,678 |
|
|
(22,145) |
|
|
(12,121) |
|
|
(4,491) |
|
Intersegment eliminations(b) |
|
|
(7,217) |
|
|
(10,351) |
|
|
(19,071) |
|
|
— |
|
|
— |
|
|
— |
|
Total: |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
$ |
83,401 |
|
$ |
47,023 |
|
$ |
37,620 |
|
(a) |
Amounts for 2014 include the post-acquisition revenue and EBITDA of EFT Source from September 2, 2014 through December 31, 2014. |
(b) |
Amounts include the revenue from sales between the U.S. Debit and Credit segment, U.K. Limited segment, and “Other” category and are eliminated upon consolidation. |
The following table provides a reconciliation of total segment EBITDA to “Net income from continuing operations” for the years ended December 31, 2015, 2014 and 2013:
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Total segment EBITDA from continuing operations |
|
$ |
83,401 |
|
$ |
47,023 |
|
$ |
37,620 |
|
Interest, net |
|
|
(18,328) |
|
|
(7,508) |
|
|
(7,838) |
|
Provision for income taxes |
|
|
(17,846) |
|
|
(10,291) |
|
|
(6,988) |
|
Depreciation and amortization |
|
|
(15,966) |
|
|
(13,252) |
|
|
(11,595) |
|
Net Income from continuing operations |
|
$ |
31,261 |
|
$ |
15,972 |
|
$ |
11,199 |
|
Balance Sheet Data of Reportable Segments
Total assets of the Company’s reportable segments as of December 31, 2013 and 2014 were as follows:
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
U.S. Debit and Credit |
|
$ |
221,274 |
|
$ |
199,968 |
|
U.S. Prepaid Debit |
|
|
20,960 |
|
|
19,395 |
|
U.K. Limited |
|
|
25,897 |
|
|
29,167 |
|
Other |
|
|
12,222 |
|
|
11,618 |
|
Total continuing operations: |
|
|
280,353 |
|
|
260,148 |
|
Discontinued operation(a): |
|
|
— |
|
|
5,862 |
|
Total assets: |
|
$ |
280,353 |
|
$ |
266,010 |
|
(a) |
As of December 31, 2014, certain assets of the Nevada operation sold on January 12, 2015, see Note 4 “Discontinued Operation and Disposition”, are presented in “Current assets of a discontinued operation” in the Company’s Consolidated Balance Sheet. |
Plant, Equipment and Leasehold Improvement Additions of Geographic Locations
Plant, equipment and leasehold improvement additions of the Company’s geographical locations for the years ended December 31, 2015, 2014 and 2013 were as follows:
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S. |
|
$ |
19,129 |
|
$ |
15,082 |
|
$ |
9,679 |
|
Canada |
|
|
275 |
|
|
32 |
|
|
125 |
|
Total North America |
|
|
19,404 |
|
|
15,114 |
|
|
9,804 |
|
U.K. |
|
|
659 |
|
|
454 |
|
|
824 |
|
Total plant, equipment and leasehold improvement additions |
|
$ |
20,063 |
|
$ |
15,568 |
|
$ |
10,628 |
|
Net Sales of Geographic Locations
Net sales of the Company’s geographic locations for the years ended December 31, 2015, 2014 and 2013 were as follows:
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S.(a) |
|
$ |
316,111 |
|
$ |
196,418 |
|
$ |
135,525 |
|
Canada |
|
|
12,541 |
|
|
16,133 |
|
|
17,661 |
|
Total North America |
|
|
328,652 |
|
|
212,551 |
|
|
153,186 |
|
U.K. |
|
|
36,954 |
|
|
36,682 |
|
|
32,448 |
|
Other(b) |
|
|
8,504 |
|
|
11,773 |
|
|
10,736 |
|
Total revenue |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
(a) |
Amounts for 2014 include the post-acquisition net sales of EFT Source from September 2, 2014 through December 31, 2014. |
(b) |
Amounts in other include sales to various countries that individually are not material. |
Long-Lived Assets of Geographic Segments
Long-lived assets of the Company’s geographic segments as of December 31, 2015 and 2014 were as follows:
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
U.S. |
|
$ |
164,377 |
|
$ |
160,144 |
|
Canada |
|
|
2,254 |
|
|
2,525 |
|
Total North America: |
|
|
166,631 |
|
|
162,669 |
|
U.K. |
|
|
12,593 |
|
|
14,607 |
|
Total long-lived assets |
|
$ |
179,224 |
|
$ |
177,276 |
|
Net Sales by Product and Services
Net sales from products and services sold by the Company for the years ended December 31, 2015, 2014 and 2013 were as follows:
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Product net sales(a) |
|
$ |
241,609 |
|
$ |
159,220 |
|
$ |
101,360 |
|
Services net sales(b) |
|
|
132,501 |
|
|
101,786 |
|
|
95,010 |
|
Total net sales: |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
(a) |
Product net sales include the design and production of Financial Payment Cards, in contact EMV, dual-interface EMV, contactless and magnetic stripe formats. The Company also generates product revenue from the sale of Card@Once® instant issuance systems, Private Label Credit Cards, and retail gift cards. |
(b) |
Services net sales include revenue from the personalization and fulfillment of Financial Payment Cards, the provision of tamper-evident security packaging, providing fulfillment services to Prepaid Debit Card program managers and software as a service personalization of instant issuance debit cards. The Company also generates service revenue from personalizing retail gift cards (primarily in Canada and the United Kingdom) and from click-fees generated from the Company’s patented card design software, known as MYCA, which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images. |
|
20. Quarterly Financial Information (Unaudited)
Summarized quarterly results for the years ended December 31, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||
2015 by Quarter: |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
2015 |
|
|||||
Net sales |
|
$ |
77,310 |
|
$ |
95,536 |
|
$ |
107,697 |
|
$ |
93,567 |
|
$ |
374,110 |
|
Gross profit |
|
|
25,508 |
|
|
35,835 |
|
|
43,049 |
|
|
31,429 |
|
|
135,821 |
|
Income (loss) from continuing operations |
|
|
5,960 |
|
|
12,155 |
|
|
14,760 |
|
|
(1,615) |
|
|
31,261 |
|
Income (loss) from discontinued operation, net of taxes |
|
|
281 |
|
|
- |
|
|
- |
|
|
(679) |
|
|
(398) |
|
Net income (loss) |
|
|
6,242 |
|
|
12,155 |
|
|
14,760 |
|
|
(2,294) |
|
|
30,863 |
|
Preferred stock dividends |
|
|
(12,611) |
|
|
(12,747) |
|
|
(7,096) |
|
|
(94) |
|
|
(32,548) |
|
Net (loss) income attributable to common shareholders |
|
$ |
(6,369) |
|
$ |
(592) |
|
$ |
7,664 |
|
$ |
(2,388) |
|
$ |
(1,685) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.16) |
|
$ |
(0.02) |
|
$ |
0.19 |
|
$ |
(0.03) |
|
$ |
(0.03) |
|
Discontinued operation |
|
|
0.01 |
|
|
- |
|
|
- |
|
|
(0.01) |
|
|
(0.01) |
|
|
|
$ |
(0.15) |
|
$ |
(0.02) |
|
$ |
0.19 |
|
$ |
(0.04) |
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||
2014 by Quarter: |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
2014 |
|
|||||
Net sales |
|
$ |
42,531 |
|
$ |
53,236 |
|
$ |
77,374 |
|
$ |
87,865 |
|
$ |
261,006 |
|
Gross profit |
|
|
10,244 |
|
|
15,554 |
|
|
26,663 |
|
|
29,266 |
|
|
81,727 |
|
Income from continuing operations |
|
|
496 |
|
|
3,070 |
|
|
6,768 |
|
|
5,638 |
|
|
15,972 |
|
(Loss) income from discontinued operation, net of taxes |
|
|
(1,596) |
|
|
(1,167) |
|
|
699 |
|
|
(606) |
|
|
(2,670) |
|
Net (loss) income |
|
|
(1,100) |
|
|
1,903 |
|
|
7,467 |
|
|
5,032 |
|
|
13,302 |
|
Preferred stock dividends |
|
|
(10,432) |
|
|
(10,548) |
|
|
(10,692) |
|
|
(12,805) |
|
|
(44,477) |
|
Net loss attributable to common shareholders |
|
$ |
(11,532) |
|
$ |
(8,645) |
|
$ |
(3,225) |
|
$ |
(7,773) |
|
$ |
(31,175) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.24) |
|
$ |
(0.18) |
|
$ |
(0.10) |
|
$ |
(0.17) |
|
$ |
(0.69) |
|
Discontinued operation |
|
|
(0.04) |
|
|
(0.03) |
|
|
0.02 |
|
|
(0.01) |
|
|
(0.07) |
|
|
|
$ |
(0.28) |
|
$ |
(0.21) |
|
$ |
(0.08) |
|
$ |
(0.18) |
|
$ |
(0.76) |
|
The immaterial errors further described in Note 2 “Summary of Significant Accounting Policies” resulted in an increase (decrease) to our previously reported Cost of Sales from products and an associated (increase) decrease to our previously reported Cost of Sales from services of $4,349, $(1,146), and $(508) for the quarter-to-date periods ended September 30, June 30, and March 31, respectively, and $2,695, $(1,654), and $(508) for the year-to-date periods ended September 30, June 30, and March 31, 2015, respectively, and an increase (decrease) to our previously reported Cost of Sales from products and an associated (increase) decrease to our previously reported Cost of Sales from services of $1,124, ($806), ($1,400) for the quarter-to-date periods ended September 30, June 30, and March 31, 2014, respectively, and ($1,082), ($2,206), and ($1,400) for the year-to-date periods ended September 30, June 30, and March 31, 2014, respectively.
|
21. Subsequent Events
On February 24, 2016, the Board of Directors approved a dividend of $0.045 per share. This dividend is payable on April 7, 2016, to stockholders of record as of the close of business on March 17, 2016.
On March 2, 2016, the Company granted awards of stock options and restricted stock units under the Omnibus Plan for 400,000 and 232,912 shares of common stock, respectively. The stock option awards have an exercise price of $10 per share and vest 33.4% on October 9, 2017, 33.3% on October 9, 2018 and 33.3% on October 9, 2019. The restricted stock unit awards contain conditions associated with continued employment or service. The restrictions lapse on the vesting date, at which time shares of common stock will be issued to the award recipients. The restricted stock unit awards have a grant date fair value of $7.91 per share and vest on March 2, 2017.
|
Basis of Presentation
The accompanying Consolidated Financial Statements include the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Subsequent to the issuance of the Company’s Consolidated Financial Statements as of and for the year ended December 31, 2014, the Company identified an immaterial error in the classification of Cost of Sales between services and products. To align the Company’s presentation of Cost of Sales from services and products with the associated Net Sales from services and products, the classification has been corrected in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2014 to decrease Cost of Sales for services by $7,819 and increase Cost of Sales for products by $7,819.
Certain other prior year amounts were reclassified to conform to the current year presentation.
Revenue Recognition
Generally, the Company recognizes revenue related to sales of its products upon shipment, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectability is reasonably assured.
In certain cases, at the customer’s request, the Company enters into bill-and-hold transactions whereby title transfers to the customer, but the product does not ship until a specified later date. The Company recognizes revenue associated with bill-and-hold arrangements when the product is complete and ready to ship, hold criteria have been met, the amount due from the customer is fixed and collectability of the related receivable is reasonably assured.
Freight revenue totaling $3,882, $4,249, $4,278 is included in net sales during the years ended December 31, 2015, 2014, and 2013, respectively. The related freight costs are included in cost of sales.
Multiple-Element Arrangements
The Company enters into warehouse, fulfillment and distribution service agreements where customers engage the Company to store and handle completed cards and packages on their behalf. For the sales arrangements that contain multiple deliverables, the arrangement is split into separate units of accounting, and individually delivered elements have value to the customer on a standalone basis. When separate units of accounting exist, revenue is allocated to each element based on the Company’s best estimate of competitive market prices. At the point in which completed cards and packages are shipped to the Company’s warehouse, the product is billed and the revenue is recognized in accordance with the Company’s revenue recognition policy. Warehousing services revenue is recognized monthly based on volume and handling requirements; fulfillment services revenue is recognized when the product is handled in the manner specified by the customer for a unit or handling fee.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents and they are stated at cost, which approximates fair value.
Trade Accounts Receivable and Concentration of Credit Risk
Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Company performs ongoing credit evaluations of its customers and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for potentially uncollectible accounts receivable based upon its assessment of the collectability of accounts receivable. Accounts are written off against the allowance when it becomes probable collection will not occur. The allowance for bad debt and credit activity for the years ended December 31, 2015 and 2014 is summarized as follows:
Balance as of December 31, 2013 |
|
$ |
1,365 |
|
Bad debt expense |
|
|
(100) |
|
Write-off of uncollectible accounts |
|
|
(986) |
|
Currency translation adjustments |
|
|
(7) |
|
Balance as of December 31, 2014 |
|
$ |
272 |
|
Bad debt expense |
|
|
28 |
|
Write-off of uncollectible accounts |
|
|
(81) |
|
Currency translation adjustments |
|
|
(7) |
|
Balance as of December 31, 2015 |
|
$ |
212 |
|
For the year ended December 31, 2015, the Company did not have sales to a single customer that exceeded 10% of consolidated net sales. For the year ended December 31, 2014, the Company had sales to a single customer of $29,523 (11.3% of consolidated net sales), and the Company had sales to a different customer for the year ended December 31, 2013 of $31,924 (16.3% of consolidated net sales).
Inventories
Inventories consist of raw materials, work-in-process and finished goods and are valued at the lower-of-cost (determined on the first-in, first-out or specific identification basis) or market.
Plant, Equipment and Leasehold Improvements
Plant, equipment and leasehold improvements are recorded at cost. Accumulated depreciation is computed using the straight-line method over the lesser of the estimated useful life of the related assets (generally 3 to 10 years for equipment, furniture and leasehold improvements) or, when applicable, the lease term. Maintenance and repairs that do not extend the useful life of the respective assets are charged to expense as incurred. For the Company’s continuing operations, amounts charged to expense for the depreciation of plant, equipment and leasehold improvements were $11,389, $10,359, and $9,560 for the years ended December 31, 2015, 2014 and 2013, respectively.
Long-lived assets with finite lives are reviewed for impairment whenever events indicate that the carrying amount of the asset or the carrying amounts of the asset group containing the asset may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets or asset groups are compared with their carrying value to determine if a write-down to fair value is required. Based upon the Company’s analysis, it concluded that there was no impairment of its long-lived assets for the years ended December 31, 2015, 2014, and 2013.
Goodwill and Intangible Assets
Goodwill and other indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually on October 1. Testing is done in accordance with ASC 350, Intangibles—Goodwill and Other and ASC 820, Fair Value Measurements and Disclosures. For impairment evaluations, the Company or a third-party firm first makes a qualitative assessment with respect to both goodwill and other indefinite-lived intangibles. In the case of goodwill, if it is more likely than not that a reporting unit’s fair value is less than its carrying value, the fair value of the reporting unit is compared to its respective carrying amount. If the carrying value of a reporting unit were to exceed its fair value, any excess of the carrying amount over the fair value would be charged to operations as an impairment loss. With respect to indefinite-lived intangible assets, if it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying value, any excess of the carrying value over the fair value of the indefinite-lived intangible asset is also charged to operations as an impairment loss.
For the years ended December 31, 2015, 2014 and 2013 the Company determined goodwill and other indefinite-lived intangibles were not impaired. As of December 31, 2015 and 2014, $6,352 and $24,377 of goodwill was tax-deductible, respectively.
Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. Acquired indefinite-lived intangible assets related to trademarks are capitalized and subject to impairment.
Income Taxes
The Company accounts for income taxes using an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, then these deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of provision for income taxes.
Stock-Based Compensation
The Company accounts for stock-based compensation pursuant to ASC 718, Share-Based Payments. All stock-based compensation to employees is required to be measured at fair value and expensed, net of forfeitures, over the requisite service period. The Company recognizes compensation expense on awards on a straight-line basis over the vesting period for each tranche of an award. Refer to Note 17 “Stock Option Plans” for additional discussion regarding details of the Company's stock-based compensation plans.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs during the years ended December 31, 2015, 2014 and 2013 were $764, $392, and $144, respectively.
Use of Estimates
Management uses estimates and assumptions relating to the reporting of assets and liabilities in its preparation of the Consolidated Financial Statements. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill and intangible assets, inventories, deferred taxes, and valuation of stock-based awards. Actual results could differ from those estimates.
Foreign Currency Translation
Financial statements of foreign subsidiaries that use local currencies as their functional currency are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted-average exchange rate for each reporting period for revenues, expenses, gains and losses. Translation adjustments are recorded as a component of Other Comprehensive Income in the accompanying financial statements.
Foreign currency transaction gains and losses resulting from the process of re-measurement are recorded in “Foreign currency gain (loss)” in the accompanying Consolidated Statements of Operations and Comprehensive Income. For the years ended December 31, 2015, 2014 and 2013 there were $59, $(124), and $(142) of such foreign currency gains (losses), respectively.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, in May 2014. ASU 2014-09 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, and interim reporting periods within those periods. The Company plans to implement the provisions of ASU 2014-09 as of January 1, 2018. The Company is in the process of determining the method of adoption and assessing the impact of ASU 2014-09 on its results of operations, financial position and consolidated financial statements.
The FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, in April 2015. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The new standard is effective for public entities annual reporting periods beginning after December 15, 2015. Early adoption of the amendments in ASU 2015-03 is permitted for financial statements that have not been previously issued. The Company adopted this standard in 2015. Accordingly, the Company recorded a reduction of $8,041 to “Long-term debt” in the Company’s Consolidated Balance Sheet as of December 31, 2015, and reclassified $614 from “Capitalized loan fees” to “Long-term debt” in the Company’s Consolidated Balance Sheet as of December 31, 2014.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The new standard is effective for public entities’ annual reporting periods beginning after December 15, 2016, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. The Company has elected to early adopt this standard in 2015 prospectively. The impact to the Company’s Consolidated Balance Sheet was immaterial.
The FASB issued ASU 2015-11, Inventory—Simplifying the Measurement of Inventory, in July 2015. ASU 2015-11 requires that inventory be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard is effective for public entities’ annual reporting periods beginning after December 15, 2016. The Company plans to implement the provisions of ASU 2015-11 as of January 1, 2017. The Company is in the process of assessing the impact of ASU 2015-11 on its results of operations, financial position and consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which provides guidance for accounting for leases. The new guidance requires companies to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted. The new standard is required to be adopted using a modified retrospective approach. The Company is in the process of assessing the impact of ASU 2016-02 on its results of operations, financial position and consolidated financial statements.
|
Balance as of December 31, 2013 |
|
$ |
1,365 |
|
Bad debt expense |
|
|
(100) |
|
Write-off of uncollectible accounts |
|
|
(986) |
|
Currency translation adjustments |
|
|
(7) |
|
Balance as of December 31, 2014 |
|
$ |
272 |
|
Bad debt expense |
|
|
28 |
|
Write-off of uncollectible accounts |
|
|
(81) |
|
Currency translation adjustments |
|
|
(7) |
|
Balance as of December 31, 2015 |
|
$ |
212 |
|
|
Cash and cash equivalents |
|
$ |
381 |
|
Accounts receivable |
|
|
5,837 |
|
Inventory |
|
|
1,724 |
|
Prepaid expenses |
|
|
1,426 |
|
Other current assets |
|
|
645 |
|
Property, equipment and leasehold improvements |
|
|
6,460 |
|
Goodwill |
|
|
33,619 |
|
Intangible assets subject to amortization(a) |
|
|
31,100 |
|
Trademarks (indefinite-lived) |
|
|
4,400 |
|
Other assets |
|
|
13 |
|
Deferred tax liability |
|
|
(14,751) |
|
Other current liabilities |
|
|
(1,995) |
|
Total purchase price |
|
$ |
68,859 |
|
(a) |
Amounts primarily include intangible assets related to customer relationships. At September 2, 2014, the weighted average useful life of EFT Source customer relationships was 15 years. |
|
|
December 31, |
|
||||
|
|
2014 |
|
2013 |
|
||
Revenue—Continuing Operations |
|
$ |
291,302 |
|
$ |
233,360 |
|
Net Income—Continuing Operations |
|
|
16,916 |
|
|
10,186 |
|
Basic and Diluted Loss Per Share from Continuing Operations |
|
$ |
(0.67) |
|
$ |
(0.60) |
|
|
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Raw materials |
|
$ |
10,549 |
|
$ |
10,217 |
|
Work-in-process |
|
|
11,460 |
|
|
8,222 |
|
Finished goods |
|
|
3,631 |
|
|
3,166 |
|
|
|
$ |
25,640 |
|
$ |
21,605 |
|
|
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Buildings |
|
$ |
2,565 |
|
$ |
2,486 |
|
Machinery and equipment |
|
|
57,482 |
|
|
47,792 |
|
Furniture and fixtures |
|
|
4,440 |
|
|
4,203 |
|
Leasehold improvements |
|
|
15,856 |
|
|
12,593 |
|
Construction in progress |
|
|
2,373 |
|
|
3,448 |
|
|
|
|
82,716 |
|
|
70,522 |
|
Less accumulated depreciation and amortization |
|
|
(30,603) |
|
|
(25,750) |
|
|
|
$ |
52,113 |
|
$ |
44,772 |
|
|
Balance as of January 1, 2014 |
|
$ |
40,818 |
|
EFT Acquisition |
|
|
33,619 |
|
Currency translation |
|
|
(636) |
|
Balance as of December 31, 2014 |
|
$ |
73,801 |
|
Currency translation |
|
|
(678) |
|
Balance as of December 31, 2015 |
|
$ |
73,123 |
|
|
|
|
|
December 31, 2015 |
|
December 31, 2014 |
|
||||||||||||||
|
|
Average |
|
|
|
Accumulated |
|
Net Book |
|
|
|
Accumulated |
|
Net Book |
|
||||||
|
|
Life (Years) |
|
Cost |
|
Amortization |
|
Value |
|
Cost |
|
Amortization |
|
Value |
|
||||||
Customer relationships |
|
12 to 20 |
|
$ |
59,612 |
|
$ |
(17,747) |
|
$ |
41,865 |
|
$ |
59,871 |
|
$ |
(14,304) |
|
$ |
45,567 |
|
Technology and software |
|
7 to 10 |
|
|
7,101 |
|
|
(1,238) |
|
|
5,863 |
|
|
7,101 |
|
|
(310) |
|
|
6,791 |
|
Noncompete agreements |
|
5 to 8 |
|
|
491 |
|
|
(270) |
|
|
221 |
|
|
491 |
|
|
(198) |
|
|
293 |
|
Favorable leases |
|
9.5 |
|
|
111 |
|
|
(101) |
|
|
10 |
|
|
111 |
|
|
(88) |
|
|
23 |
|
Intangible assets subject to amortization |
|
|
|
|
67,315 |
|
|
(19,356) |
|
|
47,959 |
|
|
67,574 |
|
|
(14,900) |
|
|
52,674 |
|
Trademarks (indefinite-lived) |
|
|
|
|
6,029 |
|
|
— |
|
|
6,029 |
|
|
6,029 |
|
|
— |
|
|
6,029 |
|
|
|
|
|
$ |
73,344 |
|
$ |
(19,356) |
|
$ |
53,988 |
|
$ |
73,603 |
|
$ |
(14,900) |
|
$ |
58,703 |
|
2016 |
|
$ |
4,572 |
2017 |
|
|
4,561 |
2018 |
|
|
4,548 |
2019 |
|
|
4,548 |
2020 |
|
|
4,548 |
Thereafter |
|
|
25,182 |
|
|
$ |
47,959 |
|
|
|
|
|
Fair Value Measurement at |
|
||||||||
|
|
Fair Value as of |
|
December 31, 2015 |
|
||||||||
|
|
December 31, |
|
(Using Fair Value Hierarchy) |
|
||||||||
|
|
2015 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Term Loan |
|
$ |
309,375 |
|
$ |
— |
|
$ |
309,375 |
|
$ |
— |
|
Sellers Note |
|
$ |
9,000 |
|
$ |
— |
|
$ |
— |
|
$ |
9,000 |
|
|
|
|
|
Fair Value Measurement at |
|
||||||||
|
|
Fair Value as of |
|
December 31, 2014 |
|
||||||||
|
|
December 31, |
|
(Using Fair Value Hierarchy) |
|
||||||||
|
|
2014 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Term Loan dated September 2, 2014 |
|
$ |
170,866 |
|
$ |
— |
|
$ |
170,866 |
|
$ |
— |
|
Sellers Note |
|
$ |
9,000 |
|
$ |
— |
|
$ |
— |
|
$ |
9,000 |
|
|
|
|
|
|
|||||||
|
|
Interest |
|
December 31, |
|
December 31, |
|
|||
|
|
Rate |
|
2015 |
|
2014 |
|
|||
First Lien Term Loan (a) |
|
|
5.50% |
|
$ |
312,500 |
|
$ |
— |
|
Senior term loan dated September 2, 2014 (b) |
|
|
3.91% |
|
|
— |
|
|
170,866 |
|
Sellers Note (a) |
|
|
5.00% |
|
|
9,000 |
|
|
9,000 |
|
Unamortized discount |
|
|
|
|
|
(4,459) |
|
|
(442) |
|
Unamortized deferred financing costs |
|
|
|
|
|
(8,041) |
|
|
(614) |
|
Total long-term debt |
|
|
|
|
|
309,000 |
|
|
178,810 |
|
Less current maturities |
|
|
|
|
|
(9,000) |
|
|
(6,326) |
|
Long-term debt, net of current maturities |
|
|
|
|
$ |
300,000 |
|
$ |
172,484 |
|
(a) |
Interest rate on December 31, 2015 |
(b) |
Interest rate on December 31, 2014 |
Year ending December 31: |
|
|
|
2016 |
|
$ |
9,000 |
2017 |
|
|
— |
2018 |
|
|
— |
2019 |
|
|
— |
2020 |
|
|
— |
Thereafter |
|
|
312,500 |
|
|
$ |
321,500 |
|
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Current taxes: |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
16,036 |
|
$ |
8,424 |
|
$ |
4,982 |
|
Foreign |
|
|
254 |
|
|
— |
|
|
6 |
|
|
|
|
16,290 |
|
|
8,424 |
|
|
4,988 |
|
Deferred taxes: |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
1,656 |
|
|
2,238 |
|
|
2,347 |
|
Foreign |
|
|
(100) |
|
|
(371) |
|
|
(347) |
|
|
|
|
1,556 |
|
|
1,867 |
|
|
2,000 |
|
Provision for income taxes |
|
$ |
17,846 |
|
$ |
10,291 |
|
$ |
6,988 |
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
50,692 |
|
$ |
27,984 |
|
$ |
19,954 |
|
Foreign |
|
|
(1,585) |
|
|
(1,721) |
|
|
(1,767) |
|
Total |
|
$ |
49,107 |
|
$ |
26,263 |
|
$ |
18,187 |
|
Effective income tax rate |
|
|
36.3 |
% |
|
39.1 |
% |
|
38.4 |
% |
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
2013 |
|
Tax at federal statutory rate |
|
35.0 |
% |
35.0 |
% |
34.0 |
% |
Permanent differences |
|
(1.6) |
|
(2.9) |
|
(1.7) |
|
State income taxes |
|
2.0 |
|
3.1 |
|
4.8 |
|
Foreign taxes |
|
0.3 |
|
2.5 |
|
(1.6) |
|
Other |
|
0.6 |
|
1.4 |
|
2.9 |
|
Effective income tax rate |
|
36.3 |
% |
39.1 |
% |
38.4 |
% |
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
28 |
|
$ |
65 |
|
Inventory valuation |
|
|
279 |
|
|
607 |
|
Accrued expense |
|
|
927 |
|
|
372 |
|
Unrealized foreign exchange loss |
|
|
652 |
|
|
634 |
|
Net operating loss carryforward |
|
|
1,999 |
|
|
2,148 |
|
Goodwill |
|
|
— |
|
|
2,159 |
|
Deferred financing costs |
|
|
1,564 |
|
|
— |
|
Asset retirement obligation |
|
|
179 |
|
|
292 |
|
Stock compensation |
|
|
322 |
|
|
1,853 |
|
Total gross deferred tax assets |
|
|
5,950 |
|
|
8,130 |
|
Valuation allowance |
|
|
(3,717) |
|
|
(4,120) |
|
Net deferred tax assets |
|
|
2,233 |
|
|
4,010 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Plant, property and leasehold improvements |
|
|
(5,881) |
|
|
(4,238) |
|
Intangibles |
|
|
(18,962) |
|
|
(11,903) |
|
Prepaid expense |
|
|
(1,463) |
|
|
(1,045) |
|
Total gross deferred tax liabilities |
|
|
(26,306) |
|
|
(17,186) |
|
Net deferred tax liabilities |
|
$ |
(24,073) |
|
$ |
(13,176) |
|
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
Current deferred tax assets |
$ |
— |
$ |
634 | |||
Long-term deferred tax liabilities |
|
|
(24,073) |
|
|
(13,810) |
|
Net deferred tax (liabilities) |
|
$ |
(24,073) |
|
$ |
(13,176) |
|
|
|
|
Operating |
|
Purchase |
|
||
|
|
Leases |
|
Obligations |
|
||
2016 |
|
$ |
4,309 |
|
$ |
3,047 |
|
2017 |
|
|
3,745 |
|
|
— |
|
2018 |
|
|
2,426 |
|
|
— |
|
2019 |
|
|
1,327 |
|
|
— |
|
2020 |
|
|
948 |
|
|
— |
|
Thereafter |
|
|
1,021 |
|
|
— |
|
Total |
|
$ |
13,776 |
|
$ |
3,047 |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant Date |
|
|
|
|
Shares |
|
Fair Value |
|
|
Outstanding as of December 31, 2014 |
|
— |
|
$ |
— |
|
Granted |
|
191,664 |
|
|
9.48 |
|
Vested |
|
— |
|
|
— |
|
Forfeited |
|
— |
|
|
— |
|
Outstanding as of December 31, 2015 |
|
191,664 |
|
$ |
9.48 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
Contractual Term |
|
|
|
|
Options |
|
Price |
|
(in Years) |
|
|
Outstanding as of December 31, 2014 |
|
— |
|
$ |
— |
|
— |
|
Granted |
|
795,450 |
|
|
10.00 |
|
10.00 |
|
Forfeited |
|
— |
|
|
— |
|
— |
|
Outstanding as of December 31, 2015 |
|
795,450 |
|
$ |
10.00 |
|
9.80 |
|
2016 |
|
— |
|
2017 |
|
265,150 |
|
2018 |
|
265,150 |
|
2019 |
|
265,150 |
|
Total unvested options as of December 31, 2015 |
|
795,450 |
|
|
|
Year |
|
|
|
ended |
|
|
|
December |
|
|
|
31, 2015 |
|
Expected term in years |
|
6.5 |
|
Volatility |
|
36.7 |
% |
Risk-free interest rate |
|
1.8 |
% |
Dividend yield |
|
1.3 |
% |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Average |
|
|
|
|
|
|
Average |
|
Remaining |
|
|
|
|
|
|
Exercise |
|
Contractual Term |
|
|
|
|
Options |
|
Price |
|
(in Years) |
|
|
Outstanding as of January 1, 2013 |
|
528,000 |
|
$ |
0.0004 |
|
7.48 |
|
Granted |
|
165,000 |
|
|
0.0005 |
|
|
|
Forfeited |
|
(44,000) |
|
|
0.0005 |
|
|
|
Outstanding as of December 31, 2013 |
|
649,000 |
|
$ |
0.0004 |
|
7.35 |
|
Forfeited |
|
(22,000) |
|
|
0.0001 |
|
|
|
Outstanding as of December 31, 2014 |
|
627,000 |
|
$ |
0.0004 |
|
6.44 |
|
Exercised |
|
(66,000) |
|
|
0.0005 |
|
|
|
Forfeited |
|
(99,000) |
|
|
0.0003 |
|
|
|
Outstanding as of December 31, 2015 |
|
462,000 |
|
$ |
0.0003 |
|
5.57 |
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2015 |
|
421,667 |
|
$ |
0.0004 |
|
5.48 |
|
2016 |
|
40,333 |
|
Total |
|
40,333 |
|
|
|
|
Revenue |
|
EBITDA |
|
||||||||||||||
|
|
December 31, |
|
December 31, |
|
||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
||||||
U.S. Debit and Credit(a) |
|
$ |
263,668 |
|
$ |
153,015 |
|
$ |
91,626 |
|
$ |
78,981 |
|
$ |
37,547 |
|
$ |
18,871 |
|
U.S. Prepaid Debit |
|
|
65,878 |
|
|
59,271 |
|
|
65,895 |
|
|
22,993 |
|
|
18,654 |
|
|
20,438 |
|
U.K Limited |
|
|
34,361 |
|
|
35,163 |
|
|
33,242 |
|
|
3,572 |
|
|
2,943 |
|
|
2,801 |
|
Other |
|
|
17,420 |
|
|
23,908 |
|
|
24,678 |
|
|
(22,145) |
|
|
(12,121) |
|
|
(4,491) |
|
Intersegment eliminations(b) |
|
|
(7,217) |
|
|
(10,351) |
|
|
(19,071) |
|
|
— |
|
|
— |
|
|
— |
|
Total: |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
$ |
83,401 |
|
$ |
47,023 |
|
$ |
37,620 |
|
(a) |
Amounts for 2014 include the post-acquisition revenue and EBITDA of EFT Source from September 2, 2014 through December 31, 2014. |
(b) |
Amounts include the revenue from sales between the U.S. Debit and Credit segment, U.K. Limited segment, and “Other” category and are eliminated upon consolidation. |
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Total segment EBITDA from continuing operations |
|
$ |
83,401 |
|
$ |
47,023 |
|
$ |
37,620 |
|
Interest, net |
|
|
(18,328) |
|
|
(7,508) |
|
|
(7,838) |
|
Provision for income taxes |
|
|
(17,846) |
|
|
(10,291) |
|
|
(6,988) |
|
Depreciation and amortization |
|
|
(15,966) |
|
|
(13,252) |
|
|
(11,595) |
|
Net Income from continuing operations |
|
$ |
31,261 |
|
$ |
15,972 |
|
$ |
11,199 |
|
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
U.S. Debit and Credit |
|
$ |
221,274 |
|
$ |
199,968 |
|
U.S. Prepaid Debit |
|
|
20,960 |
|
|
19,395 |
|
U.K. Limited |
|
|
25,897 |
|
|
29,167 |
|
Other |
|
|
12,222 |
|
|
11,618 |
|
Total continuing operations: |
|
|
280,353 |
|
|
260,148 |
|
Discontinued operation(a): |
|
|
— |
|
|
5,862 |
|
Total assets: |
|
$ |
280,353 |
|
$ |
266,010 |
|
(a) |
As of December 31, 2014, certain assets of the Nevada operation sold on January 12, 2015, see Note 4 “Discontinued Operation and Disposition”, are presented in “Current assets of a discontinued operation” in the Company’s Consolidated Balance Sheet. |
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S. |
|
$ |
19,129 |
|
$ |
15,082 |
|
$ |
9,679 |
|
Canada |
|
|
275 |
|
|
32 |
|
|
125 |
|
Total North America |
|
|
19,404 |
|
|
15,114 |
|
|
9,804 |
|
U.K. |
|
|
659 |
|
|
454 |
|
|
824 |
|
Total plant, equipment and leasehold improvement additions |
|
$ |
20,063 |
|
$ |
15,568 |
|
$ |
10,628 |
|
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S.(a) |
|
$ |
316,111 |
|
$ |
196,418 |
|
$ |
135,525 |
|
Canada |
|
|
12,541 |
|
|
16,133 |
|
|
17,661 |
|
Total North America |
|
|
328,652 |
|
|
212,551 |
|
|
153,186 |
|
U.K. |
|
|
36,954 |
|
|
36,682 |
|
|
32,448 |
|
Other(b) |
|
|
8,504 |
|
|
11,773 |
|
|
10,736 |
|
Total revenue |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
(a) |
Amounts for 2014 include the post-acquisition net sales of EFT Source from September 2, 2014 through December 31, 2014. |
(b) |
Amounts in other include sales to various countries that individually are not material. |
|
|
December 31, |
|
||||
|
|
2015 |
|
2014 |
|
||
U.S. |
|
$ |
164,377 |
|
$ |
160,144 |
|
Canada |
|
|
2,254 |
|
|
2,525 |
|
Total North America: |
|
|
166,631 |
|
|
162,669 |
|
U.K. |
|
|
12,593 |
|
|
14,607 |
|
Total long-lived assets |
|
$ |
179,224 |
|
$ |
177,276 |
|
|
|
December 31, |
|
|||||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Product net sales(a) |
|
$ |
241,609 |
|
$ |
159,220 |
|
$ |
101,360 |
|
Services net sales(b) |
|
|
132,501 |
|
|
101,786 |
|
|
95,010 |
|
Total net sales: |
|
$ |
374,110 |
|
$ |
261,006 |
|
$ |
196,370 |
|
(a) |
Product net sales include the design and production of Financial Payment Cards, in contact EMV, dual-interface EMV, contactless and magnetic stripe formats. The Company also generates product revenue from the sale of Card@Once® instant issuance systems, Private Label Credit Cards, and retail gift cards. |
(b) |
Services net sales include revenue from the personalization and fulfillment of Financial Payment Cards, the provision of tamper-evident security packaging, providing fulfillment services to Prepaid Debit Card program managers and software as a service personalization of instant issuance debit cards. The Company also generates service revenue from personalizing retail gift cards (primarily in Canada and the United Kingdom) and from click-fees generated from the Company’s patented card design software, known as MYCA, which provides customers and cardholders the ability to design cards on the internet and customize cards with individualized digital images. |
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||
2015 by Quarter: |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
2015 |
|
|||||
Net sales |
|
$ |
77,310 |
|
$ |
95,536 |
|
$ |
107,697 |
|
$ |
93,567 |
|
$ |
374,110 |
|
Gross profit |
|
|
25,508 |
|
|
35,835 |
|
|
43,049 |
|
|
31,429 |
|
|
135,821 |
|
Income (loss) from continuing operations |
|
|
5,960 |
|
|
12,155 |
|
|
14,760 |
|
|
(1,615) |
|
|
31,261 |
|
Income (loss) from discontinued operation, net of taxes |
|
|
281 |
|
|
- |
|
|
- |
|
|
(679) |
|
|
(398) |
|
Net income (loss) |
|
|
6,242 |
|
|
12,155 |
|
|
14,760 |
|
|
(2,294) |
|
|
30,863 |
|
Preferred stock dividends |
|
|
(12,611) |
|
|
(12,747) |
|
|
(7,096) |
|
|
(94) |
|
|
(32,548) |
|
Net (loss) income attributable to common shareholders |
|
$ |
(6,369) |
|
$ |
(592) |
|
$ |
7,664 |
|
$ |
(2,388) |
|
$ |
(1,685) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.16) |
|
$ |
(0.02) |
|
$ |
0.19 |
|
$ |
(0.03) |
|
$ |
(0.03) |
|
Discontinued operation |
|
|
0.01 |
|
|
- |
|
|
- |
|
|
(0.01) |
|
|
(0.01) |
|
|
|
$ |
(0.15) |
|
$ |
(0.02) |
|
$ |
0.19 |
|
$ |
(0.04) |
|
$ |
(0.04) |
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|||||
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|||||
2014 by Quarter: |
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
2014 |
|
|||||
Net sales |
|
$ |
42,531 |
|
$ |
53,236 |
|
$ |
77,374 |
|
$ |
87,865 |
|
$ |
261,006 |
|
Gross profit |
|
|
10,244 |
|
|
15,554 |
|
|
26,663 |
|
|
29,266 |
|
|
81,727 |
|
Income from continuing operations |
|
|
496 |
|
|
3,070 |
|
|
6,768 |
|
|
5,638 |
|
|
15,972 |
|
(Loss) income from discontinued operation, net of taxes |
|
|
(1,596) |
|
|
(1,167) |
|
|
699 |
|
|
(606) |
|
|
(2,670) |
|
Net (loss) income |
|
|
(1,100) |
|
|
1,903 |
|
|
7,467 |
|
|
5,032 |
|
|
13,302 |
|
Preferred stock dividends |
|
|
(10,432) |
|
|
(10,548) |
|
|
(10,692) |
|
|
(12,805) |
|
|
(44,477) |
|
Net loss attributable to common shareholders |
|
$ |
(11,532) |
|
$ |
(8,645) |
|
$ |
(3,225) |
|
$ |
(7,773) |
|
$ |
(31,175) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.24) |
|
$ |
(0.18) |
|
$ |
(0.10) |
|
$ |
(0.17) |
|
$ |
(0.69) |
|
Discontinued operation |
|
|
(0.04) |
|
|
(0.03) |
|
|
0.02 |
|
|
(0.01) |
|
|
(0.07) |
|
|
|
$ |
(0.28) |
|
$ |
(0.21) |
|
$ |
(0.08) |
|
$ |
(0.18) |
|
$ |
(0.76) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|