Item 1. Financial Statements
ITEM 1 . FINANCIAL STATEMENTS (UNAUDITED)
EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
As of
September 30,
2021
December 31,
2020
(unaudited)
ASSETS
Current assets:
Cash an d cas h equivalents
$
1,048,466
$
1,420,255
ATM cash
669,686
411,054
Restricted cash
3,626
3,334
Settlement assets
928,740
1,140,875
Trade accounts receivable, net of credit losses of $ 4,504 and $ 5,926
152,564
117,517
Prepaid expenses and other current assets
235,209
272,900
Total current assets
3,038,291
3,365,935
Operating right of use lease assets
165,327
162,074
Property and equipment, net of accumulated depreciation of $ 517,319 and $ 490,429
350,727
378,441
Goodwill
646,178
665,821
Acquired intangible assets, net of accumulated amortization of $ 180,100 and $ 175,210
102,238
121,883
Other assets, net of accumulated amortization of $ 60,908 and $ 55,710
223,557
232,557
Total assets
$
4,526,318
$
4,926,711
LIABILITIES AND EQUITY
Current liabilities:
Settlement obligations
$
928,740
$
1,140,875
Trade accounts payable
168,792
147,593
Accrued expenses and other current liabilities
369,283
404,021
Current portion of operating lease liabilities
54,210
52,436
Short-term debt obligations and current maturities of long-term debt obligations
985
797
Income taxes payable
53,147
36,359
Deferred revenue
67,677
73,360
Total current liabilities
1,642,834
1,855,441
Debt obligations, net of current portion
1,197,495
1,437,589
Operating lease obligations, net of current portion
115,289
106,502
Deferred income taxes
38,666
37,875
Other long-term liabilities
40,577
43,401
Total liabilities
3,034,861
3,480,808
Equity:
Euronet Worldwide, Inc. stockholders’ equity:
Preferred Stock, $ 0.02 par value. 10,000,000 shares authorized; none issued
—
—
Common Stock, $ 0.02 par value. 90,000,000 shares authorized; shares issued 63,483,092 and 63,366,010
1,270
1,267
Additional paid-in-capital
1,260,283
1,228,446
Treasury stock, at cost, shares issued 10,627,621 and 10,631,961
( 703,136
)
( 703,032
)
Retained earnings
1,087,007
1,013,155
Accumulated other comprehensive loss
( 154,048
)
( 94,214
)
Total Euronet Worldwide, Inc. stockholders’ equity
1,491,376
1,445,622
Noncontrolling interests
81
281
Total equity
1,491,457
1,445,903
Total liabilities and equity
$
4,526,318
$
4,926,711
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Revenues
$
816,560
$
664,351
$
2,183,916
$
1,776,061
Operating expenses:
Direct operating costs
484,438
407,598
1,389,770
1,117,065
Salaries and benefits
119,421
101,577
356,160
293,769
Selling, general and administrative
64,298
55,225
182,193
169,333
Goodwill and acquired intangible assets impairmen t
—
1,467
—
106,021
Depreciation and amortization
33,909
32,412
100,729
93,470
Total operating expenses
702,066
598,279
2,028,852
1,779,658
Operating income (loss)
114,494
66,072
155,064
( 3,597
)
Other income (expense):
Interest income
153
139
539
867
Interest expense
( 10,072
)
( 9,477
)
( 28,718
)
( 27,594
)
Foreign currency exchange loss, net
( 8,135
)
( 1,368
)
( 12,051
)
( 17,679
)
Other gains, net
—
—
31
728
Other expense, net
( 18,054
)
( 10,706
)
( 40,199
)
( 43,678
)
Income (loss) before income taxes
96,440
55,366
114,865
( 47,275
)
Income tax expense
( 22,726
)
( 15,051
)
( 41,140
)
( 26,423
)
Net income (loss)
73,714
40,315
73,725
( 73,698
)
Net loss (income) attributable to noncontrolling interests
168
( 66
)
127
64
Net income (loss) attributable to Euronet Worldwide, Inc.
$
73,882
$
40,249
$
73,852
$
( 73,634
)
Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders:
Basic
$
1.40
$
0.77
$
1.40
$
( 1.40
)
Diluted
$
1.37
$
0.76
$
1.37
$
( 1.40
)
Weighted average shares outstanding:
Basic
52,829,386
52,294,522
52,799,199
52,712,030
Diluted
53,853,675
53,201,971
53,933,226
52,712,030
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Net income (loss)
$
73,714
$
40,315
$
73,725
$
( 73,698
)
Translation adjustment
( 29,692
)
47,006
( 59,907
)
19,360
Comprehensive income (loss)
44,022
87,321
13,818
( 54,338
)
Comprehensive loss (income) attributable to noncontrolling interests
196
( 133
)
200
11
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.
$
44,218
$
87,188
$
14,018
$
( 54,327
)
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited, in thousands, except share data)
Number of
Shares Outstanding
Common
Stock
Additional
Paid-in Capital
Treasury
Stock
Balance as of December 31, 2019
54,220,854
$
1,256
$
1,190,058
$
( 463,704
)
Net income (loss)
Other comprehensive loss
Stock issued under employee stock plans
80,519
1
1,701
( 249
)
Share-based compensation
6,338
Repurchase of shares
( 2,095,683
)
( 239,763
)
Balance as of March 31, 2020
52,205,690
1,257
1,198,097
( 703,716
)
Net (loss) income
Other comprehensive income
Stock issued under employee stock plans
82,841
2
3,763
59
Share-based compensation
3,125
Balan ce as of June 30, 2020
52,288,531
$
1,259
$
1,204,985
$
( 703,657
)
Net income
Other comprehensive income
Stock issued under employee stock plans
21,604
687
53
Share-based compensation
5,037
Balance as of September 30, 2020
52,310,135
$
1,259
$
1,210,709
$
( 703,604
)
Number of
Shares Outstanding
Common
Stock
Additional
Paid-in Capital
Treasury
Stock
Balance as of December 31, 2020
52,734,049
$
1,267
$
1,228,446
$
( 703,032
)
Net (loss) income
Other comprehensive loss
Stock issued under employee stock plans
62,436
1
3,335
( 482
)
Share-based compensation
8,492
Balance as of March 31, 2021
52,796,485
1,268
1,240,273
( 703,514
)
Net income (loss)
Other comprehensive income
Stock issued under employee stock plans
25,769
1
1,199
267
Share-based compensation
10,984
Balance as of June 30, 2021
52,822,254
$
1,269
$
1,252,456
$
( 703,247
)
Net income (loss)
Other comprehensive income
Stock issued under employee stock plans
33,217
1
1,022
111
Share-based compensation
6,805
Balance as of September 30, 2021
52,855,471
$
1,270
$
1,260,283
$
( 703,136
)
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
(Unaudited, in thousands)
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Balance as of December 31, 2019
$
1,016,554
$
( 164,890
)
$
68
$
1,579,342
Net income (loss)
1,921
( 201
)
1,720
Other comprehensive loss
( 59,777
)
( 41
)
( 59,818
)
Stock issued under employee stock plans
1,453
Share-based compensation
6,338
Repurchase of shares
( 239,763
)
Balance as of March 31, 2020
1,018,475
( 224,667
)
( 174
)
1,289,272
Net (loss) income
( 115,804
)
71
( 115,733
)
Other comprehensive income
32,145
27
32,172
Stock issued under employee stock plans
3,824
Share-based compensation
3,125
Balance as of June 30, 2020
902,671
( 192,522
)
( 76
)
1,212,660
Net income
40,249
66
40,315
Other comprehensive income
46,939
67
47,006
Stock issued under employee stock plans
740
Share-based compensation
5,037
Balance as of September 30, 2020
$
942,920
$
( 145,583
)
$
57
$
1,305,758
Retained Earnings
Accumulated Other
Comprehensive Loss
Noncontrolling
Interests
Total
Balance as of December 31, 2020
$
1,013,155
$
( 94,214
)
$
281
$
1,445,903
Net (loss) income
( 8,665
)
44
( 8,621
)
Other comprehensive loss
( 42,845
)
( 56
)
( 42,901
)
Stock issued under employee stock plans
2,854
Share-based compensation
8,492
Balance as of March 31, 2021
1,004,490
( 137,059
)
269
1,405,727
Net income (loss)
8,635
( 3
)
8,632
Other comprehensive income
12,675
11
12,686
Stock issued under employee stock plans
1,467
Share-based compensation
10,984
Balance as of June 30, 2021
1,013,125
( 124,384
)
277
1,439,496
Net income
73,882
( 168
)
73,714
Other comprehensive income
( 29,664
)
( 28
)
( 29,692
)
Stock issued under employee stock plans
1,134
Share-based compensation
6,805
Balance as of September 30, 2021
$
1,087,007
$
( 154,048
)
$
81
$
1,491,457
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
2021
2020
Net income (loss)
$
73,725
$
( 73,698
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
100,729
93,470
Share-based compensation
26,281
14,500
Unrealized foreign exchange loss, net
12,051
17,679
Deferred income taxes
1,412
( 5,011
)
Goodwill and acquired intangible assets impairment
—
106,021
Accretion of convertible debt discount and amortization of debt issuance costs
15,099
13,996
Changes in working capital, net of amounts acquired:
Income taxes payable, net
17,464
( 26,625
)
Trade accounts receivable
96,541
232,380
Prepaid expenses and other current assets
119,698
( 25,917
)
Trade accounts payable
( 209,069
)
( 127,291
)
Deferred revenue
( 2,782
)
( 4,540
)
Accrued expenses and other current liabilities
47,254
25,110
Changes in noncurrent assets and liabilities
5,937
( 19,658
)
Net cash provided by operating activities
304,340
220,416
Cash flows from investing activities:
Acquisitions, net of cash acquired
—
( 451
)
Purchases of property and equipment
( 66,058
)
( 71,396
)
Purchases of other long-term assets
( 6,171
)
( 5,968
)
Other, net
1,277
742
Net cash used in investing activities
( 70,952
)
( 77,073
)
Cash flows from financing activities:
Proceeds from issuance of shares
6,443
6,564
Repurchase of shares
( 979
)
( 240,838
)
Borrowings from revolving credit agreements
3,539,100
2,018,600
Repayments of revolving credit agreements
( 3,756,300
)
( 2,018,600
)
Net borrowing (repayments) from short-term debt obligations
199
( 5,032
)
Other, net
( 4,754
)
( 4,763
)
Net cash used in financing activities
( 216,291
)
( 244,069
)
Effect of exchange rate changes on cash and cash equivalents and restricted cash
( 82,667
)
32,042
Decrease in cash and cash equivalents and restricted cash
( 65,570
)
( 68,684
)
Cash and cash equivalents and restricted cash at beginning of period
2,099,508
1,817,379
Cash and cash equivalents and restricted cash at end of period
$
2,033,938
$
1,748,695
Supplemental disclosure of cash flow information:
Interest paid during the period
$
17,226
$
16,653
Income taxes paid during the period
$
28,752
$
50,300
See accompanying notes to the unaudited consolidated financial statements.
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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
( 1 ) GENERAL
Organization
Euronet Worldwide, Inc. (the “Company” or “Euronet”) was established as a Delaware corporation on December 13, 1996 and succeeded Euronet Holding N.V. as the group holding company, which was founded and established in 1994. Euronet is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, electronic distribution of prepaid mobile airtime and other electronic payment products, and global money transfer services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the consolidated financial position and the results of operations, comprehensive income, changes in equity and cash flows for the interim periods. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2020 , including the notes thereto, set forth in the Company’s 2020 Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2021 .
Seasonality
Euronet’s Electronic Funds Transfer ("EFT") Processing Segment normally experiences its heaviest demand for dynamic currency conversion ("DCC") services during the third quarter of the fiscal year, normally coinciding with the tourism season. Additionally, the EFT Processing and epay Segments are normally impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by region of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and its lowest transaction levels during the first quarter of the year.
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(2) RECENTLY ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" which simplifies the accounting for convertible instruments by eliminating certain accounting models when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in-capital. Under this ASU, certain debt instruments with embedded conversion features will be accounted for as a single liability measured at its amortized cost. Additionally, this ASU eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of ASU 2020-06 will have on the consolidated financial statements.
( 3 ) PENDING ACQUISITION
In March 2021, the Company entered into an agreement to purchase the Piraeus Bank Merchant Acquiring business of Piraeus Bank for € 300 million, or approximately $ 360 millio n. The proposed arrangement will include separate commercial agreements for a long-term strategic partnership with Piraeus Bank for collaborative product distribution, processing and customer referrals. The acquisition will expand the Company’s omnichannel payments strategy and position the Company in Greece’s growing market for merchant acquiring services. The closing is targeted for late 2021 and is subject to regulatory approvals, finalization of the commercial agreements, and customary closing conditions. The Company expects to finance the purchase price using cash on hand.
(4) SETTLEMENT ASSETS AND OBLIGATIONS
Settlement assets represent funds received or to be received from agents for unsettled money transfers and from merchants for unsettled prepaid transactions. The Company records corresponding settlement obligations relating to accounts payable. Settlement assets consist of cash and cash equivalents, restricted cash, accounts receivable and prepaid expenses and other current assets. Cash received by Euronet agents and merchants generally becomes available to the Company within two weeks after initial receipt by the business partner. Receivables from business partners represent funds collected by such business partners that are in transit to the Company.
Settlement obligations consist of accrued expenses for money transfers, content providers, and EFT customer deposits and accounts payable to agents and content providers. Money transfer accrued expenses represent amounts to be paid to transferees when they request funds. Most agents typically settle with transferees first then obtain reimbursement from the Company. Money order accrued expenses represent amounts not yet presented for payment. Due to the agent funding and settlement process, accrued expenses to agents represent amounts due to agents for money transfers that have not been settled with transferees.
As of
(in thousands)
September 30,
2021
December 31,
2020
Settlement assets:
Settlement cash and cash equivalents
$
259,727
$
188,191
Settlement restricted cash
52,433
76,674
Accounts receivable, net of credit losses of $ 31,220 and $ 35,800
478,760
641,955
Prepaid expenses and other current assets
137,820
234,055
Total settlement assets
$
928,740
$
1,140,875
Settlement obligations:
Trade account payables
$
319,193
$
571,175
Accrued expenses and other current liabilities
609,547
569,700
Total settlement obligations
$
928,740
$
1,140,875
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The table below reconciles cash and cash equivalents, restricted cash, ATM cash, settlement cash and cash equivalents, and settlement restricted cash as presented within "Cash and cash equivalents and restricted cash" in the Consolidated Statement of Cash Flows.
As of
(in thousands)
September 30,
2021
December 31,
2020
September 30,
2020
December 31,
2019
Cash and cash equivalents
$
1,048,466
$
1,420,255
$
1,008,183
$
786,081
Restricted cash
3,626
3,334
14,204
34,301
ATM cash
669,686
411,054
409,683
665,641
Settlement cash and cash equivalents
259,727
188,191
272,467
282,188
Settlement restricted cash
52,433
76,674
44,158
49,168
Cash and cash equivalents and restricted cash at end of period
$
2,033,938
$
2,099,508
$
1,748,695
$
1,817,379
(5) STOCKHOLDERS' EQUITY
Earnings (Loss) Per Share
Basic earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for the potential dilution of options to purchase the Company's common stock, assumed vesting of restricted stock and the assumed conversion of the Company's convertible debt, if such conversion would be dilutive.
The following table provides the computation of diluted weighted average number of common shares outstanding:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding
52,829,386
52,294,522
52,799,199
52,712,030
Incremental shares from assumed exercise of stock options and vesting of restricted stock
1,024,289
907,449
1,134,027
—
Diluted weighted average shares outstanding
53,853,675
53,201,971
53,933,226
52,712,030
The table includes all stock options and restricted stock that are dilutive to the Company's weighted average common shares outstanding during the period. The calculation of diluted earnings (loss) per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding of approximately 770,000 and 751,000 for the three and nine months ended September 30, 2021, respectively, and approximately 1,122,000 and 1,887,000 for the three and nine months ended September 30, 2020 , respectively .
The Company issued Convertible Senior Notes ("Convertible Notes") due March 2049 on March 18, 2019. The Company's Convertible Notes currently have a settlement feature requiring the Company upon conversion to settle the principal amount of the debt and any conversion value in excess of the principal value ("conversion premium"), for cash or shares of the Company's common stock or a combination thereof, at the Company's option. The Company has stated its intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion premium. Accordingly, the Convertible Notes were included in the calculation of diluted earnings (loss) per share if their inclusion was dilutive. The dilutive effect increases the more the market price exceeds the conversion price. The Convertible Notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price of $ 188.73 per share. The market price per share of common stock was $ 127.28 on September 30, 2021 and $ 91.10 on September 30, 2020 , t herefore, according to ASC Topic 260, Earnings per Share (“ASC 260”) , there was no dilutive effect of the assumed conversion of the debentures for the three and nine months ended September 30, 2021 and 2020. See Note 9, Debt Obligations, to the consolidated financial statements for more information about the Convertible Notes.
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Share Repurchases
On March 11, 2019, in connection with the issuance of the Convertible Notes, the Board of Directors authorized a repurchase program of $ 120 million in value of the Company's common stock through March 11, 2021. On February 26, 2020, the Company put a repurchase program in place to repurchase up to $ 250 million in value, but not more than 5.0 million shares of common stock through February 28, 2022. For the three and nine months ended September 30, 2021, there were no repurchases of stock under the repurchase programs . Repurchases under the current program may take place in the open market or in privately negotiated transactions, including derivative transactions, and may be made under a Rule 10b5-1 plan.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) consists entirely of foreign currency translation adjustments. The Company recorded a foreign currency translation loss of $ 29.7 million and $ 59.9 million for the three and nine months ended September 30, 2021, respectively, and a gain of $ 47.0 million and $ 19.4 million for the three and nine months ended September 30, 2020, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 .
( 6 ) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine months ended September 30, 2021 is presented below:
(in thousands)
Acquired
Intangible
Assets
Goodwill
Total
Intangible
Assets
Balance as of December 31, 2020
$
121,883
$
665,821
$
787,704
Decreases:
Acquisition
—
—
—
Amortization
( 17,388
)
—
( 17,388
)
Foreign currency exchange rate changes
( 2,257
)
( 19,643
)
( 21,900
)
Balance as of September 30, 2021
$
102,238
$
646,178
$
748,416
Of the total goodwill balance of $ 646.2 million as of September 30, 2021 , $ 393.9 million relates to the Money Transfer Segment, $ 131.0 million relates to the epay Segment and the remaining $ 121.3 million relates to the EFT Processing Segment. Estimated amortization expense on acquired intangible assets with finite lives as of September 30, 2021, is expected to total $ 5.6 million for the remainder of 2021, $ 21.2 million for 2022, $ 16.3 million for 2023, $ 9.6 million for 2024, $ 6.3 million for 2025 and $ 6.2 million for 2026 .
( 7 ) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
As of
(in thousands)
September 30, 2021
December 31, 2020
Accrued expenses
$
339,023
$
331,713
Derivative liabilities
25,498
65,905
Current portion of finance lease obligations
4,762
6,403
Total
$
369,283
$
404,021
(8) UNEARNED REVENUES
The Company records deferred revenues when cash payments are received or due in advance of its performance. The decrease in the deferred revenue balance for the nine months ended September 30, 2021 is driven by $ 39.7 million of cash payments received in the current year for which the Company has not yet satisfied the performance obligations, offset by $ 45.4 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2020.
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(9) DEBT OBLIGATIONS
Debt obligations consist of the following:
As of
(in thousands)
September 30, 2021
December 31, 2020
Credit Facility:
Revolving credit agreement
$
53,200
$
270,400
Convertible Debt:
0.75 % convertible notes, unsecured, due 2049
464,161
452,228
1.375 % Senior Notes, due 2026
694,860
732,840
Other obligations
1,054
850
Total debt obligations
1,213,275
1,456,318
Unamortized debt issuance costs
( 14,795
)
( 17,932
)
Carrying value of debt
1,198,480
1,438,386
Short-term debt obligations and current maturities of long-term debt obligations
( 985
)
( 797
)
Long-term debt obligations
$
1,197,495
$
1,437,589
Credit Facility
On October 17, 2018, the Company entered into an unsecured revolving credit agreement (the "Credit Facility") for $ 1.0 billion that expires on October 17, 2023 . In May 2021, an additional lender joined the Credit Facility which increased the revolving commitment by $ 30 million. Fees and interest on borrowings are based upon the Company's corporate credit rating and are based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over London Inter-Bank Offered Rate (“LIBOR”) or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.125 % to 2.0 % (or 0.175 % to 1.0 % for base rate loans). The Credit Facility allows for borrowings in Australian dollars, British pounds sterling, Canadian dollars, Czech koruna, Danish krone, euro, Hungarian forints, Japanese yen, New Zealand dollars, Norwegian krone, Polish zlotys, Swedish krona, Swiss francs and U.S. dollars. The Credit Facility contains a $ 200 million sublimit for the issuance of letters of credit, a $ 50 million sublimit for U.S. dollar swingline loans, and a $ 90 million sublimit for certain foreign currencies swingline loans. The Credit Facility contains customary affirmative and negative covenants, events of default and financial covenants. The Company was in compliance with all debt covenants as of September 30, 2021 .
Convertible Debt
On March 18, 2019, the Company completed the sale of $ 525.0 million of Convertible Senior Notes ("Convertible Notes"). The Convertible Notes mature in March 2049 unless redeemed or converted prior to such date, and are convertible into shares of Euronet common stock at a conversion price of approximately $ 188.73 per share if certain conditions are met (relating to the closing price of Euronet common stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes on each of March 15, 2025, March 15, 2029, March 15, 2034, March 15, 2039 and March 15, 2044 at a repurchase price equal to 100 % of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.
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In accordance with ASC 470-20-30-27, proceeds from the issuance of convertible debt is allocated between debt and equity components so that debt is discounted to reflect the Company's nonconvertible debt borrowing rate. ASC 470-20-35- 13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid-in capital of $ 99.7 million for the Convertible Notes.
Contractual interest expense for the Convertible Notes was $ 1.0 million and $ 3.0 million for the three and nine months ended September 30, 2021, respectively, and $ 1.0 million and $ 3.0 million for the three and nine months ended September 30, 2020, respectively . Accretion expense for the Convertible Notes was $ 4.0 million and $ 11.9 million for the three and nine months ended September 30, 2021 , respectively, and $ 3.8 million and $ 11.4 million for the three and nine months ended September 30, 2020, respectively . The effective interest rate was 4.4 % for the three and nine months ended September 30, 2021. As of September 30, 2021, the unamortized discount was $ 60.8 million and will be amortized through March 2025.
1.375 % Senior Notes due 2026
On May 22, 2019, the Company completed the sale of € 600 million ( $ 669.9 million ) aggregate principal amount of Senior Notes that expire in May 2026 (the “Senior Notes”). The Senior Notes accrue interest at a rate of 1.375 % per year, payable annually in arrears commencing May 22, 2020, until maturity or earlier redemption. As of September 30, 2021 , the Company has outstanding € 600 million ( $ 694.9 million ) principal amount of the Senior Notes. In addition, the Company may redeem some or all of these notes on or after February 22, 2026 at their principal amount plus any accrued and unpaid interest.
Other Obligations
Certain of the Company's subsidiaries have available lines of credit and overdraft credit facilities that generally provide for short-term borrowings that are used from time to time for working capital purposes. As of September 30, 2021 and December 31, 2020 , borrowings under these arrangements were $ 1.1 million and $ 0.9 million , respectively.
(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) certain foreign currency denominated other asset and liability positions. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC Topic 815, Derivatives and Hedging ("ASC 815") , primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect.
Foreign Currency Exchange Contracts - Ria Operations and Corporate
In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days , to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity. T he Company had foreign currency forward contracts outstanding in the U.S. with a notional value of $ 275 million and $ 246 million as of September 30, 2021 and December 31, 2020, respectively . The foreign currency forward contracts consist primarily in Australian dollars, Canadian dollars, British pounds sterling, euro and Mexican pesos.
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In addition, the Company uses forward contracts, typically with maturities from a few days to less than one year, to offset foreign exchange rate fluctuations on certain short-term borrowings that are payable in currencies other than the U.S dollar. T he Company had foreign currency forward contracts outstanding with a notional value of $ 46 million and $ 454 million as of September 30, 2021 and December 31, 2020, respectively , primarily in euro.
Foreign Currency Exchange Contracts - xe Operations
xe writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. xe aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from xe's total portfolio of positions were $ 20.1 million and $ 58.5 million for the three and nine months ended September 30, 2021 , respectively, and $ 14.4 million and $ 45.7 million for t he three and nine months ended September 30, 2020, respectively. All of the derivative contracts used in the Company's xe operations are economic hedges and are not designated as hedges under ASC 815 . The duration of these derivative contracts is generally less than one year.
The fair value of xe's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. xe manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. xe does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amount of foreign currency derivative customer contracts held by the Company in its xe operations as of September 30, 2021 and December 31, 2020 was approximately $ 1.1 billion and $ 1.3 billion , respectively. The significant majority of customer contracts are written in major currencies such as the euro, U.S. dollar, British pounds sterling, Australian dollar and New Zealand dollar.
Balance Sheet Presentation
The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
Asset Derivatives
Liability Derivatives
Fair Value
Fair Value
(in thousands)
Balance Sheet Location
September 30, 2021
December 31, 2020
Balance Sheet Location
September 30, 2021
December 31, 2020
Derivatives not designated as hedging instruments
Foreign currency exchange contracts
Other current assets
$
31,160
$
80,879
Other current liabilities
$
( 25,498
)
$
( 65,905
)
The following tables summarize the gross and net fair value of derivative assets and liabilities as of September 30, 2021 and December 31, 2020 (in thousands):
Offsetting of Derivative Assets
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of September 30, 2021
Gross Amounts of Recognized Assets
Gross Amounts Offset in the Consolidated Balance Sheet
Net Amounts Presented in the Consolidated Balance Sheet
Financial Instruments
Cash Collateral Received
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
31,160
$
—
$
31,160
$
( 12,780
)
$
( 2,616
)
$
15,764
As of December 31, 2020
Derivatives subject to a master netting arrangement or similar agreement
$
80,879
$
—
$
80,879
$
( 44,893
)
$
( 2,778
)
$
33,208
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Offsetting of Derivative Liabilities
Gross Amounts Not Offset in the Consolidated Balance Sheet
As of September 30, 2021
Gross Amounts of Recognized Liabilities
Gross Amounts Offset in the Consolidated Balance Sheet
Net Amounts Presented in the Consolidated Balance Sheet
Financial Instruments
Cash Collateral Paid
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
( 25,498
)
$
—
$
( 25,498
)
$
12,780
$
825
$
( 11,893
)
As of December 31, 2020
Derivatives subject to a master netting arrangement or similar agreement
$
( 65,905
)
$
—
$
( 65,905
)
$
44,893
$
12,272
$
( 8,740
)
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
Income Statement Presentation
The following table summarizes the location and amount of gains and losses on derivatives in the Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 :
Amount of Gain (Loss) Recognized in Income on Derivative Contracts (a)
Location of Gain (Loss) Recognized in Income on Derivative Contracts
Three Months Ended
September 30,
Nine Months Ended September 30,
(in thousands)
2021
2020
2021
2020
Foreign currency exchange contracts - Ria Operations
Foreign currency exchange gain (loss), net
$
388
$
( 4,060 )
$
1,835
$
( 4,283 )
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its xe operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
See Note 11, Fair Value Measurements, for the determination of the fair values of derivatives.
( 11 ) FAIR VALUE MEASUREMENTS
Fair value measurements used in the unaudited consolidated financial statements are based upon 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. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing.
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The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
As of September 30, 2021
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
31,160
$
—
$
31,160
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 25,498
)
$
—
$
( 25,498
)
As of December 31, 2020
(in thousands)
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Assets
Foreign currency exchange contracts
Other current assets
$
—
$
80,879
$
—
$
80,879
Liabilities
Foreign currency exchange contracts
Other current liabilities
$
—
$
( 65,905
)
$
—
$
( 65,905
)
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt obligations approximate fair values due to their short maturities. The carrying values of the Company’s revolving credit agreements approximate fair values because interest is based on LIBOR that resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes and Senior Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of September 30, 2021 , the fair values of the Convertible Notes and Senior Notes were $ 603.1 million and $ 710.3 million , respectively, with carrying values of $ 464.2 million and $ 694.9 million , respectively.
(12) SEGMENT INFORMATION
Euronet’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting (“ASC 280”) . The Company currently operates in the following three reportable operating segments:
Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East, Asia Pacific, the United States and Africa. The Company provides comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion, domestic and international surcharges and other value added services. Through this segment, the Company also offers a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
Through the epay Segment, the Company provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products in Europe, the Middle East, Asia Pacific, the U.S. and South America.
Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria, AFEX, IME, and xe. Ria, AFEX and IME provide global consumer-to-consumer money transfer services through a network of sending agents, Company-owned stores and Company-owned websites, disbursing money transfers through a worldwide correspondent network. xe offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. xe is also a provider of foreign currency exchange information. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. Furthermore, xe provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
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In addition, the Company accounts for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.
The following tables present the Company’s reportable segment results for the three and nine months ended September 30, 2021 and 2020 :
For the Three Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
227,129
$
238,319
$
353,451
$
( 2,339
)
$
816,560
Operating expenses:
Direct operating costs
106,321
180,206
200,231
( 2,320
)
484,438
Salaries and benefits
23,665
20,104
65,285
10,367
119,421
Selling, general and administrative
11,301
9,802
41,533
1,662
64,298
Depreciation and amortization
22,640
2,253
8,897
119
33,909
Total operating expenses
163,927
212,365
315,946
9,828
702,066
Operating income (expense)
$
63,202
$
25,954
$
37,505
$
( 12,167
)
$
114,494
For the Three Months Ended September 30, 2020
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
144,062
$
198,939
$
323,092
$
( 1,742
)
$
664,351
Operating expenses:
Direct operating costs
82,626
149,993
176,718
( 1,739
)
407,598
Salaries and benefits
25,182
16,108
52,035
8,252
101,577
Selling, general and administrative
8,577
8,455
36,601
1,592
55,225
Goodwill and acquired intangible assets impairment
—
—
1,467
—
1,467
Depreciation and amortization
21,516
2,134
8,645
117
32,412
Total operating expenses
137,901
176,690
275,466
8,222
598,279
Operating income (expense)
$
6,161
$
22,249
$
47,626
$
( 9,964
)
$
66,072
For the Nine Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
427,687
$
724,540
$
1,037,659
$
( 5,970
)
$
2,183,916
Operating expenses:
Direct operating costs
258,614
547,828
589,273
( 5,945
)
1,389,770
Salaries and benefits
71,334
59,248
188,535
37,043
356,160
Selling, general and administrative
33,062
28,594
115,975
4,562
182,193
Depreciation and amortization
66,907
6,524
26,886
412
100,729
Total operating expenses
429,917
642,194
920,669
36,072
2,028,852
Operating (loss) income
$
( 2,230
)
$
82,346
$
116,990
$
( 42,042
)
$
155,064
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For the Nine Months Ended September 30, 2020
(in thousands)
EFT
Processing
epay
Money
Transfer
Corporate Services,
Eliminations
and Other
Consolidated
Total revenues
$
368,375
$
559,413
$
852,189
$
( 3,916
)
$
1,776,061
Operating expenses:
Direct operating costs
232,627
424,123
464,216
( 3,901
)
1,117,065
Salaries and benefits
68,562
46,996
154,958
23,253
293,769
Selling, general and administrative
29,033
25,928
108,355
6,017
169,333
Goodwill and acquired intangible assets impairment
21,861
—
84,160
—
106,021
Depreciation and amortization
61,772
5,629
25,793
276
93,470
Total operating expenses
413,855
502,676
837,482
25,645
1,779,658
Operating (loss) income
$
( 45,480
)
$
56,737
$
14,707
$
( 29,561
)
$
( 3,597
)
The following table presents the Company’s total assets by reportable segment:
Total Assets as of
(in thousands)
September 30, 2021
December 31, 2020
EFT Processing
$
1,834,405
$
1,541,610
epay
912,934
1,135,204
Money Transfer
1,625,178
1,755,651
Corporate Services, Eliminations and Other
153,801
494,246
Total
$
4,526,318
$
4,926,711
The following table presents the Company's revenues disaggregated by segment and region. Sales and usage-based taxes are excluded from revenues. The Company believes disaggregation by segment and region best depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The disaggregation of revenues by segment and region is based on management's assessment of segment performance together with allocation of financial resources, both capital and operating support costs, on a segment and regional level. Both segments and regions benefit from synergies achieved through concentration of operations and are influenced by macro-economic, regulatory and political factors in the respective segment and region.
For the Three Months Ended September 30, 2021
For the Nine Months Ended September 30, 2021
(in thousands)
EFT
Processing
epay
Money
Transfer
Total
EFT
Processing
epay
Money
Transfer
Total
Europe
$
183,163
$
150,465
$
145,813
$
479,441
$
303,134
$
475,933
$
428,258
$
1,207,325
North America
16,341
35,876
169,473
221,690
46,010
104,318
492,099
642,427
Asia Pacific
27,381
39,303
24,588
91,272
78,110
111,998
79,581
269,689
Other
244
12,675
13,577
26,496
433
32,291
37,721
70,445
Eliminations
—
—
—
( 2,339
)
—
—
—
( 5,970
)
Total
$
227,129
$
238,319
$
353,451
$
816,560
$
427,687
$
724,540
$
1,037,659
$
2,183,916
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For the Three Months Ended September 30, 2020
For the Nine Months Ended September 30, 2020
(in thousands)
EFT
Processing
epay
Money
Transfer
Total
EFT
Processing
epay
Money
Transfer
Total
Europe
$
107,182
$
131,330
$
127,399
$
365,911
$
251,583
$
368,101
$
317,187
$
936,871
North America
14,318
32,645
152,195
199,158
42,461
102,603
422,980
568,044
Asia Pacific
22,562
26,679
34,036
83,277
74,327
69,916
91,116
235,359
Other
—
8,285
9,462
17,747
4
18,793
20,906
39,703
Eliminations
—
—
—
( 1,742
)
—
—
—
( 3,916
)
Total
$
144,062
$
198,939
$
323,092
$
664,351
$
368,375
$
559,413
$
852,189
$
1,776,061
( 13 ) INCOME TAXES
Our effective income tax rate was 23.6 % and 35.8 % for the three and nine months ended September 30, 2021, respectively, compared to 27.2 % and ( 55.9 )% for t he three and nine months ended September 30, 2020, respectively. Our effective income tax rate for the three and nine months ended September 30, 2021 was higher than the applicable statutory income tax rate of 21 % as a result of certain foreign earnings being subject to higher local statutory tax rates, the non-recognition of tax benefits from losses in certain foreign countries where we have a limited history of profitable earnings and as a result of an increase in the valuation allowance in certain jurisdictions relating to the reversal of tax benefits recognized in the first quarter of 2021 for continuing net operating losses. Our effe ctive income tax rate for the three and nine months ended September 30, 2020 was different than the applicable statutory income tax rate of 21 % primarily due to the non-deductible goodwill impairment charge during the second quarter of 2020 and as a result of an increase in the valuation allowance in certain jurisdictions relating to the reversal of tax benefits recognized in the first and second quarters of 2020 for net operating losses in those jurisdictions which have a limited history of profitable earnings.
(14) COMMITMENTS
As of September 30, 2021 , the Company had $ 85.3 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $ 57.9 million are outstanding under the Credit Facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $ 3.7 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2021 , the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $ 11.4 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $ 39.4 million over the terms of agreements with the customers.
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From time to time, the Company enters into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet's liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash. As of September 30, 2021 , the balance of such cash used in the Company's ATM networks for which the Company was responsible was approximately $ 719 million . The Company maintains insurance policies to mitigate this exposure;
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for losses suffered by its customers and other parties as a result of the breach of its computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through its processing systems. The Company maintains insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, the Company provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and
Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of September 30, 2021 or December 31, 2020 .
( 15 ) LITIGATION AND CONTINGENCIES
From time to time, the Company is a party to legal or regulatory proceedings arising in the ordinary course of its business. Currently, there are no legal proceedings or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.
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( 16 ) LEASES
The Company enters into operating leases for ATM sites, office spaces, retail stores and equipment. The Company's finance leases are immaterial. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease terms.
The present value of lease payments is determined using the incremental borrowing rate based on information available at the lease commencement date. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Most leases include an option to renew, with renewal terms that can extend the lease terms. The exercise of lease renewal options is at the Company’s sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease terms. The Company also has a unilateral termination right for most of the ATM site leases. Since the Company is not reasonably certain not to exercise termination options, p ayments for ATM site leases with termination options subject to the short-term lease exemption are expensed in the period incurred and corresponding leases are excluded from the right of use lease asset and lease liability balances. Certain of the Company's lease agreements include variable rental payments based on revenues generated from the use of the leased location and certain leases include rental payments adjusted periodically for inflation. Variable lease payments are recognized when the event, activity or circumstance in the lease agreement on which those payments are assessed occurs and are excluded from the right of use assets and lease liabilities balances. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Future Minimum Lease Payments
Future minimum lease payments under non-cancelable operating leases (with initial lease terms in excess of one year) as of September 30, 2021 are:
As of September 30, 2021
Maturity of Lease Liabilities (in thousands)
Operating Leases (1)
R emainde r of 2021
$
12,459
2022
45,386
2023
35,053
2024
25,704
2025
18,363
Thereafter
34,972
Total lease payments
$
171,937
Less: imputed interest
( 2,438
)
Present value of lease liabilities
$
169,499
(1) Operating lease payments reflect the Company's current fixed obligations under the operating lease agreements. Certain ATM site leases contain termination options that grant the Company the option to terminate the lease prior to the stated term of the agreement. The Company includes the future minimum lease payments for these ATM site leases only to the extent that the termination option is not reasonably certain to be exercised.
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Lease expense recognized in the Consolidated Statements of Operations is summarized as follows:
Lease Expense
(in thousands)
Income Statement Classification
Three Months Ended
September 30, 2021
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Operating lease expense
Selling, general and administrative and Direct operating costs
$
13,880
$
14,694
$
41,884
$
68,927
Short-term and variable lease expense
Selling, general and administrative and Direct operating costs
34,808
26,429
84,279
47,390
Total lease expense
$
48,688
$
41,123
$
126,163
$
116,317
Other information about lease amounts recognized in the consolidated financial statements is summarized as follows:
Lease Term and Discount Rate of Operating Leases
As of September 30, 2021
Weighted- average remaining lease term (years)
5.0
W eighted- average discount rate
2.26
%
The following table presents supplemental cash flow and non-cash information related to leases.
Other Information (in thousands)
Nine Months Ended
September 30, 2021
Nine Months Ended
September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities (a)
$
38,763
$
66,402
Supplemental non-cash information on lease liabilities arising from obtaining ROU assets:
ROU assets obtained in exchange for new operating lease liabilities
$
57,580
$
64,149
(a) Included in Net cash provided by operating activities on the Company's Consolidated Statements of Cash Flows.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.