CPI CARD GROUP INC., 10-K filed on 3/6/2020
Annual Report
v3.19.3.a.u2
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Feb. 20, 2020
Jun. 30, 2019
Document and Entity Information      
Entity Registrant Name CPI Card Group Inc.    
Entity Central Index Key 0001641614    
Document Type 10-K    
Document Period End Date Dec. 31, 2019    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Interactive Data Current Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Filer Category Non-accelerated Filer    
Entity Common Stock, Shares Outstanding   11,224,191  
Entity Public Float     $ 11.0
Entity Small Business true    
Entity Emerging Growth Company true    
Entity Ex Transition Period true    
Entity Shell Company false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 18,682 $ 20,291
Accounts receivable, net of allowances of $395 and $211, respectively 42,832 43,794
Inventories 20,192 9,827
Prepaid expenses and other current assets 6,345 4,997
Income taxes receivable 4,164 5,564
Total current assets 92,215 84,473
Plant, equipment, leasehold improvements and operating lease right-of-use assets, net 42,088 39,110
Intangible assets, net 30,802 35,437
Goodwill 47,150 47,150
Other assets 1,232 1,034
Total assets 213,487 207,204
Current liabilities:    
Accounts payable 16,482 16,511
Accrued expenses 22,820 23,853
Deferred revenue and customer deposits 468 912
Total current liabilities 39,770 41,276
Long-term debt 307,778 305,818
Deferred income taxes 6,896 5,749
Other long-term liabilities 11,478 3,937
Total liabilities 365,922 356,780
Commitments and contingencies (Note 14)
Series A Preferred Stock: $0.001 par value-100,000 shares authorized: 0 shares issued and outstanding at December 31, 2019 and 2018
Stockholders’ deficit:    
Common Stock; $0.001 par value—100,000,000 shares authorized; 11,224,191 shares issued and outstanding and 11,160,377 shares issued and outstanding at December 31, 2019 and 2018, respectively 11 11
Capital deficiency (111,988) (112,223)
Accumulated loss (40,458) (36,004)
Accumulated other comprehensive loss   (1,360)
Total stockholders’ deficit (152,435) (149,576)
Total liabilities and stockholders’ deficit $ 213,487 $ 207,204
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Consolidated Balance Sheets    
Allowance on accounts receivable $ 395 $ 211
Preferred shares, par value (in dollars per share) $ 0.001 $ 0.001
Preferred shares, authorized shares (in shares) 100,000 100,000
Preferred shares, issued shares (in shares) 0 0
Preferred shares, outstanding shares (in shares) 0 0
Common shares, par value (in dollars per share) $ 0.001 $ 0.001
Common shares, authorized shares (in shares) 100,000,000 100,000,000
Common shares, issued shares (in shares) 11,224,191 11,160,377
Common shares, outstanding shares (in shares) 11,224,191 11,160,377
v3.19.3.a.u2
Consolidated Statements of Operations and Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Net sales:    
Net Sales $ 278,073 $ 255,814
Cost of sales:    
Depreciation and amortization 10,971 12,417
Total cost of sales 186,754 177,224
Gross profit 91,319 78,590
Operating expenses:    
Selling, general and administrative (exclusive of depreciation and amortization shown below) 65,744 68,014
Depreciation and amortization 6,031 5,988
Litigation settlement gain (6,000)  
Total operating expenses, net 65,775 74,002
Income from operations 25,544 4,588
Other expense, net:    
Interest, net (24,891) (23,431)
Foreign currency loss (1,327) (311)
Other income (expense), net (4) 16
Total other expense, net (26,222) (23,726)
Loss before income taxes (678) (19,138)
Income tax (expense) benefit (3,652) 4,339
Net loss from continuing operations (4,330) (14,799)
Net loss from discontinued operation, net of taxes (124) (22,663)
Net loss $ (4,454) $ (37,462)
Basic and diluted loss per share:    
Basic and diluted loss per share Basic and diluted - Continuing operations (in dollar per share) $ (0.39) $ (1.33)
Basic and diluted loss per share Basic and diluted - Discontinuing operations (in dollar per share) (0.01) (2.03)
Loss per share (in dollars per share) $ (0.40) $ (3.36)
Basic and diluted weighted-average shares outstanding (in shares) 11,196,710 11,149,554
Comprehensive loss    
Net loss $ (4,454) $ (37,462)
Reclassification adjustment to foreign currency loss 1,329  
Other comprehensive loss from discontinued operations   3,983
Currency translation adjustment 31 (205)
Total comprehensive loss (3,094) (33,684)
Products    
Net sales:    
Net Sales 143,941 125,069
Cost of sales:    
Products and Services (exclusive of depreciation and amortization shown below) 94,889 82,110
Services    
Net sales:    
Net Sales 134,132 130,745
Cost of sales:    
Products and Services (exclusive of depreciation and amortization shown below) $ 80,894 $ 82,697
v3.19.3.a.u2
Consolidated Statements of Stockholders' Deficit - USD ($)
$ in Thousands
ASC 606
Accumulated loss
ASC 606
Common Stock
Capital deficiency
Accumulated loss
Accumulated other comprehensive loss
Total
Beginning balance at Dec. 31, 2017     $ 11 $ (113,081) $ (1,366) $ (5,138) $ (119,574)
Beginning balance (in shares) at Dec. 31, 2017     11,134,714        
Adoption of ASC 606 $ 2,824 $ 2,824          
Shares issued under stock-based compensation plans (in shares)     25,663        
Stock-based compensation       858     858
Components of comprehensive (loss) income:              
Net loss         (37,462)   (37,462)
Other comprehensive loss from discontinued operations           3,983 3,983
Currency translation adjustment           (205) (205)
Ending balance at Dec. 31, 2018     $ 11 (112,223) (36,004) (1,360) $ (149,576)
Ending balance (in shares) at Dec. 31, 2018     11,160,377       11,160,377
Shares issued under stock-based compensation plans (in shares)     63,814        
Stock-based compensation       235     $ 235
Components of comprehensive (loss) income:              
Net loss         (4,454)   (4,454)
Reclassification adjustment to foreign currency loss           1,329 1,329
Currency translation adjustment           $ 31 31
Ending balance at Dec. 31, 2019     $ 11 $ (111,988) $ (40,458)   $ (152,435)
Ending balance (in shares) at Dec. 31, 2019     11,224,191       11,224,191
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Operating activities    
Net loss $ (4,454) $ (37,462)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Loss from discontinued operations 124 22,663
Depreciation and amortization expense 17,002 18,405
Stock-based compensation expense 250 961
Amortization of debt issuance costs and debt discount 1,960 1,949
Deferred income tax 1,147 (6,897)
Reclassification adjustment to foreign currency loss 1,329  
Other, net 146 302
Changes in operating assets and liabilities:    
Accounts receivable (688) (5,523)
Inventories (10,410) (1,998)
Prepaid expenses and other assets (1,328) (2,108)
Income taxes 1,369 2,644
Accounts payable 1,127 2,411
Accrued expenses (4,395) 10,436
Deferred revenue and customer deposits (446) 632
Other liabilities 232 655
Cash provided by operating activities - continuing operations 2,965 7,070
Cash used in operating activities -discontinued operations (124) (3,550)
Investing activities    
Acquisitions of plant, equipment and leasehold improvements (4,175) (5,634)
Cash received from sale of Canadian subsidiary 1,451  
Other 150  
Cash used in investing activities - continuing operations (2,574) (5,634)
Cash used in investing activities - discontinued operations 0 (220)
Financing activities    
Proceeds from revolving credit facility 11,500  
Principal payment on revolving credit facility (11,500)  
Payments on financing leases (1,926) (519)
Cash used in financing activities (1,926) (519)
Effect of exchange rates on cash 50 (61)
Net decrease in cash and cash equivalents: (1,609) (2,914)
Cash and cash equivalents, beginning of period 20,291 23,205
Cash and cash equivalents, end of period 18,682 20,291
Supplemental disclosures of cash flow information    
Cash paid (refunded) during the period for: Interest 23,036 20,703
Cash paid (refunded) during the period for: Income tax (refunds) payments, net 780 (657)
Right-of-use assets obtained in exchange for lease obligations- Operating leases 8,533  
Right-of-use assets obtained in exchange for lease obligations- Financing leases 6,438 1,812
Accounts payable and accrued expenses for acquisitions of plant, equipment and leasehold improvements $ 308 $ 1,339
v3.19.3.a.u2
Business
12 Months Ended
Dec. 31, 2019
Business  
Business

1. Business

CPI Card Group 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 and Discover) and Interac (in Canada). The Company also offers an instant card issuance system and services, which provides card issuing bank customers the ability to issue a personalized debit or credit card within the bank branch to individual cardholders.

As a producer and provider of services for Financial Payment Cards, each of the Company’s secure facilities must be compliant and registered with 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.

In the fourth quarter of 2018, the Company entered into a definitive agreement to sell the Canadian subsidiary. The sale agreement did not include the portions of the business relating to Financial Payment Cards, as that business migrated to the Company’s operations in the U.S. or to other service providers in 2019. The transaction closed on April 1, 2019, and the Company received cash proceeds of $1,451.  After the payment of liabilities and transaction costs, including employee termination costs, the sale did not have a significant impact on cash, and no significant loss on sale.  In connection with the disposition of the foreign entity, the Company released the related cumulative translation adjustment from “Accumulated Other Comprehensive Loss” on the Balance Sheet into income from continuing operations during the year ended December 31, 2019. This adjustment was $1,329 and is included in “Foreign Currency Loss” on the Statement of Operations.  The Canadian subsidiary was not a significant operating segment and was part of the Other reportable segment

On August 3, 2018, the Company completed the sale of the U.K. Limited segment. The historical financial position, results of operations, and cash flows for the U.K. segment have been restated for all periods to conform with discontinued operations presentation. Unless otherwise indicated, financial information within this document relates to continuing operations.

In 2018, the Company consolidated three personalization operations in the United States into two facilities to better enable the Company to optimize operations and achieve market-leading quality and service with a market-competitive business model. In conjunction with this decision, the Company accelerated the depreciation of certain related assets, which totaled $2,398 for the year ended December 31, 2018. The Company recorded severance charges of $552, and recorded lease termination charges of $476 during the year ended December 31, 2018. The charges were recorded in the U.S. Debit and Credit segment and were included in “Cost of sales” and “Selling, general and administrative” expenses on the Consolidated Statement of Operations.

The Company’s business consists of the following reportable segments: U.S. Debit and Credit, U.S. Prepaid Debit and Other.

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 Financial Payment Cards, including contact, contactless, and dual-interface cards, CPI MetalsTM, a premium metal card and Second WaveTM payment cards featuring a core made with recovered ocean-bound plastic.  The Company also sells instant card issuance solutions, and Private Label Credit Cards that are not issued on the networks of the Payment Cards Brands. The Company provides CPI On-Demand services, and produces images, personalized payment cards, and related collateral on a one-by-one, on demand basis for its customers. This segment also provides a variety of integrated card services, including card personalization and fulfillment services and instant issuance solutions. The U.S. Debit and Credit segment operations are each audited for compliance by multiple Payment Card Brands. Many customers require the Company to comply with the standards of the PCI Security Standards Council.

U.S. Prepaid Debit Segment

The U.S. Prepaid Debit segment primarily provides integrated card services to Prepaid Debit Card providers in the United States, including tamper-evident security packaging. 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. The U.S. Prepaid Debit segment operation is audited for compliance by multiple Payment Card Brands. Many customers require the Company to comply with the standards of the PCI Security Standards Council.

Other

The Other segment includes corporate expenses and a less significant operation that generated sales from the production of Financial Payment Cards and retail gift cards, and card personalization and fulfillment services in Canada, prior to its sale. The sale agreement did not include the portions of the business relating to Financial Payment Cards, as those business customers of the Canadian subsidiary migrated to the Company’s operations in the U.S. or to other service providers in 2019.

 

v3.19.3.a.u2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

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.

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.

 

 

 

 

 

 

 

 

    

December 31, 2019

    

December 31, 2018

Trade accounts receivable

 

$

39,004

 

$

36,428

Unbilled accounts receivable

 

 

4,223

 

 

7,577

 

 

 

43,227

 

 

44,005

Less allowance for doubtful accounts

 

 

(395)

 

 

(211)

 

 

$

42,832

 

$

43,794

 

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 is determined collection will not occur. The allowance for bad debt activity for the years ended December 31, 2019 and 2018 is summarized as follows:

 

 

 

 

 

 

Balance as of December 31, 2017

    

$

48

 

Bad debt expense

 

 

169

 

Write-off of uncollectible accounts

 

 

(6)

 

Balance as of December 31, 2018

 

$

211

 

Bad debt expense

 

 

228

 

Write-off of uncollectible accounts

 

 

(37)

 

Currency translation adjustments

 

 

(7)

 

Balance as of December 31, 2019

 

$

395

 

 

The increase in bad debt expense during 2019 primarily relates to reserves established for outstanding receivables from the Company’s Canadian operations that were disposed on April 1, 2019.

For the year ended December 31, 2019 one customer represented 18% of the Company’s consolidated net sales. For the year ended December 31, 2018 one customer represented 19% of the Company’s consolidated net sales.

Inventories

Inventories consist of raw materials, and finished goods and are measured at the lower of cost or net realizable value (determined on the first-in, first-out, specific identification or weighted-average method basis). Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Finished goods inventory represents primarily stock cards and Card@Once printers.  The stock cards are ready to be personalized as customer orders are received.

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 machinery and equipment, furniture, computer equipment, 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.

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. 

Goodwill and Intangible Assets

 Goodwill is not amortized, but instead is tested for impairment at least annually on October 1 or more frequently when an event occurs or circumstances change that indicates the carrying value may not be recoverable. For impairment evaluations, the Company first makes a qualitative assessment with respect to goodwill. During 2017, the Company early adopted ASU 2017-04,  Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”) in conjunction with its annual impairment testing effective October 1, 2017. In accordance with ASU 2017-04,  an entity should perform its goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value.

During the year-ended December 31, 2019, the Company’s reporting units for goodwill impairment testing changed, based on the Company’s chief operating decision maker’s review of financial information and allocation of resources. As a result of this change in reporting units for goodwill impairment testing, the Company allocated goodwill, on a relative fair value, to the new reporting units.  All of the Company’s goodwill is included in the U.S. Debit and Credit segment.

The Company generally bases its measurement of the fair value of a reporting unit on a blended analysis of the present value of future discounted cash flows and the market valuation approach. The discounted cash flows model indicates the fair value of the reporting unit based on the present value of the cash flows that the Company expects the reporting unit to generate in the future. The Company's significant estimates in the discounted cash flows model include: its weighted average cost of capital; discrete and long-term rate of growth and profitability of the reporting unit's business; and working capital effects. The market valuation approach indicates the fair value of the business based on a comparison of the reporting unit to publicly traded companies in similar lines of business. Significant estimates in the market valuation approach model include identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.

Acquired finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets, and are reviewed for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. In such reviews, estimated undiscounted future cash flows associated with these assets are compared with their carrying value to determine if a write-down to fair value is required.    

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 income tax expense 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 income tax expense.

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 over the requisite service period. The Company accounts for forfeitures as they occur and reverses previously recognized expense for the unvested portion of the forfeited shares.  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 16 “Stock Based Compensation” for additional discussion regarding details of the Company's stock-based compensation plans.

Net Sales

Products Net Sales

“Products” net sales are recognized when obligations under the terms of a contract with a customer are satisfied. In most instances, this occurs over time as cards are manufactured for specific customers, have no alternative use, and the Company has an enforceable right to payment for work performed. For work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts. Items included in “Products” revenue are the design and production of Financial Payment Cards, including contact-EMV, Dual-Interface EMV®, metal, contactless and magnetic stripe cards, private label credit cards and retail gift cards. Card@Once® printers and consumables are also included in “Products” net sales, and their associated revenues are recognized at the time of shipping. The Company includes gross shipping and handling revenue in net sales, and shipping and handling costs in cost of sales.

 

Services Net Sales

 

Revenue is recognized for “Services” as the services are performed. Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, providing tamper-evident secure packaging and 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 usage-fees 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. “Services” revenue is also generated from personalizing retail gift cards historically in Canada prior to disposition. As applicable, for work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

 

Customer Contracts

The Company often enters into Master Services Agreements (“MSAs”) with its customers. Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. The contract term as defined by ASU 2014-09 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.

 

Use of Estimates

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles require management to make assumptions and estimates 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, leases, valuation allowances for inventories and deferred taxes, revenue recognized for work performed but not completed, and uncertain tax positions. 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 net sales, expenses, gains and losses. Translation adjustments are recorded as a component of Accumulated Other Comprehensive Loss in the accompanying consolidated financial statements. Subsequent to the sale of the UK Ltd. Segment and Canada, the Company has no significant foreign subsidiaries.

Foreign currency transaction gains and losses resulting from the process of re-measurement are recorded in “Foreign currency loss” in the accompanying Consolidated Statements of Operations and Comprehensive Loss. For the years ended December 31, 2019 and 2018 there were ($1,327) and ($311) of such foreign currency losses, respectively. During the year ended December 31, 2019, in connection with the sale of the Company’s Canada subsidiary, the Company released the related cumulative translation adjustment of $1,329 from “Accumulated Other Comprehensive Loss” on the Balance Sheet into net loss from continuing operations. 

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued ASC Topic 842, Leases (“ASC 842”), 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. ASC 842 is effective for annual and interim periods beginning after December 15, 2018 (the Company’s fiscal year 2019) with early adoption permitted.  The guidance required a modified retrospective approach, with an option to apply the transition provisions of the new guidance at the adoption date without adjusting the comparative periods presented. In July 2018, the FASB issued additional accounting standard updates clarifying certain provisions, as well as providing for a second transition method allowing entities to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. 

The Company adopted the new guidance on the effective date of January 1, 2019 and used the adoption date as the date of initial application as allowed under ASC 842. Consequently, historical financial information has not been updated and the disclosures required under the new standard have not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight transition practical expedient.

The new standard also provides practical expedients for the Company’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning the Company will not recognize right-of-use assets or lease liabilities for existing and new lease agreements as applicable. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases.

Right-of-use (“ROU’) represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. If applicable, the Company used the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

A lease is deemed to exist when the Company has the right to control the use of identified property, plant or equipment, as conveyed through a contract, for a certain period of time and consideration paid. The right to control is deemed to occur when the Company has the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets.

As a result of the adoption of ASC 842 the Company recorded $8,025 of operating ROU assets, and corresponding operating lease liabilities of $8,813 on January 1, 2019, relating to existing real estate operating leases.

The components of operating and finance lease costs for the year ended December 31, 2019 were as follows:

 

 

 

 

 

 

 

 

 

Year Ended
December 31, 2019

Total operating lease costs

 

 

$

2,625

 

 

 

 

 

Finance lease cost:

 

 

 

 

  Amortization of right-of-use assets

 

 

$

886

  Interest on lease liabilities

 

 

 

290

  Total financing lease costs

 

 

$

1,176

 

The following table reflects balances for operating leases and financing leases:

 

 

 

 

 

    

December 31, 2019

Operating leases

 

 

 

Operating lease right-of-use assets, net of amortization

 

$

6,312

 

 

 

 

Operating lease liability (current)

 

$

2,283

Long-term operating liability

 

 

5,067

  Total operating lease liabilities

 

$

7,350

 

 

 

 

Financing leases

 

 

 

Property, equipment and leasehold improvements

 

$

8,256

Accumulated depreciation

 

 

(1,094)

  Total financing leases in property, equipment and leasehold improvements, net

 

$

7,162

 

 

 

 

Financing lease liability (current)

 

$

2,211

Long-term financing liability

 

 

3,886

  Total financing lease liabilities

 

$

6,097

 

Finance and operating lease right-of-use assets are recorded in “Plant, equipment and leasehold improvements, net”. Financing and operating lease liabilities are recorded in “Accrued expenses” and “Other long-term liabilities”.

Components of lease expense were as follows:

 

 

 

 

 

 

 

 

December 31, 2019

Weighted Average Remaining Lease Term

 

 

 

  Operating Leases

 

 

3.40

  Financing Leases

 

 

2.86

 

 

 

 

Weighted Average Discount Rate

 

 

 

  Operating Leases

 

 

8.94%

  Financing Leases

 

 

9.28%

 

Future cash payments with respect to lease obligations as of December 31, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

Operating

 

 

Financing

 

 

 

Lease

 

 

Leases

Year Ending

 

 

 

 

 

 

2020

 

$

2,854

 

$

2,659

2021

 

 

2,646

 

 

2,043

2022

 

 

1,371

 

 

1,565

2023

 

 

1,097

 

 

676

2024

 

 

602

 

 

 —

  Total lease payments

 

 

8,570

 

 

6,943

Less imputed interest

 

 

(1,220)

 

 

(846)

  Total 

 

$

7,350

 

$

6,097

 

Future cash payments with respect to lease obligations as of December 31, 2018 were as follows:

 

 

 

 

 

 

 

 

    

Operating

    

Capital

 

 

Leases

 

Leases

2019

 

$

2,927

 

$

521

2020

 

 

2,771

 

 

474

2021

 

 

2,512

 

 

243

2022

 

 

1,243

 

 

256

2023

 

 

971

 

 

71

Thereafter

 

 

652

 

 

 —

Total

 

$

11,076

 

$

1,565

 

Cash paid on operating leases was $1,973 during the year ended December 31, 2019.

 

As of January 1, 2018, the Company adopted Accounting Standards Update Codification ASC 606, Revenue from Contracts with Customers, which 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. ASC 606 also requires an entity to 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. The Company applied ASC 606 as of January 1, 2018 to all its contracts using the modified retrospective method and recognized the cumulative effect of adoption as an adjustment to the opening balance of “Accumulated loss” on the Consolidated Balance Sheet. Under the new guidance, the Company recognizes certain performance obligations over time as the goods are produced, since those products provide value to only a specified customer, have no alternative use and the Company has the right to payment for work completed on such items. This accelerates the timing of revenue recognition for these arrangements, as revenue is recognized as goods are produced rather than upon shipment or delivery of goods. See Note 3 “Net Sales” for revenue recognition timing and methodology under ASC 606. 

 

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). This ASU changes the model for the recognition of credit losses from an incurred loss model, which recognized credit losses only if it was probable that a loss had been incurred, to an expected loss model, which requires the Company to estimate the total credit losses expected on the portfolio of financial instruments. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company does not anticipate the adoption of this standard will have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

v3.19.3.a.u2
Net Sales
12 Months Ended
Dec. 31, 2019
Net Sales.  
Net Sales

3. Net Sales

 

The Company disaggregates its net sales by major source as follows:

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 2019

 

 

Products

 

Services

 

Total

U.S. Debit and Credit

 

$

144,541

 

$

68,600

 

$

213,141

U.S. Prepaid Debit

 

 

 —

 

 

64,330

 

 

64,330

Other

 

 

396

 

 

1,283

 

 

1,679

Intersegment eliminations

 

 

(996)

 

 

(81)

 

 

(1,077)

Total

 

$

143,941

 

$

134,132

 

$

278,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31, 2018

 

 

Products

 

Services

 

Total

U.S. Debit and Credit

 

$

122,119

 

$

56,478

 

$

178,597

U.S. Prepaid Debit

 

 

 —

 

 

69,199

 

 

69,199

Other

 

 

4,398

 

 

5,493

 

 

9,891

Intersegment eliminations

 

 

(1,448)

 

 

(425)

 

 

(1,873)

Total

 

$

125,069

 

$

130,745

 

$

255,814

 

Products Net Sales

Products” net sales are recognized when obligations under the terms of a contract with a customer are satisfied. In most instances, this occurs over time as cards are manufactured for specific customers and have no alternative use and the Company has an enforceable right to payment for work performed. For work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts. Items included in “Products” revenue are manufactured Financial Payment Cards, including in contact-EMV, Dual-Interface EMV, contactless and magnetic stripe cards, Second Wave, metal, private label credit cards and retail gift cards. Card@Once printers and consumables are also included in “Products” revenue, and their associated revenues are recognized at the time of shipping. The Company includes gross shipping and handling revenue in net sales, and shipping and handling costs in cost of sales.

Services Net Sales

Net sales are recognized for “Services” as the services are performed. Items included in “Services” net sales include the personalization and fulfillment of Financial Payment Cards, providing tamper-evident secure packaging and fulfillment services to Prepaid Debit Card program managers and software as a service personalization of instant issuance debit cards. For work performed but not completed and unbilled, the Company estimates revenue by taking actual costs incurred and applying historical margins for similar types of contracts.

Customer Contracts

The Company often enters into Master Services Agreements (“MSAs”) with its customers. Generally, enforceable rights and obligations for goods and services occur only when a customer places a purchase order or statement of work to obtain goods or services under an MSA. The contract term as defined by ASC 606 is the length of time it takes to deliver the goods or services promised under the purchase order or statement of work. As such, the Company's contracts are generally short term in nature.

v3.19.3.a.u2
Discontinued Operation
12 Months Ended
Dec. 31, 2019
Discontinued Operation  
Discontinued Operation

4. Discontinued Operation

On August 3, 2018, the Company completed the sale of its United Kingdom facilities that comprised the U.K. Limited reporting segment. The Company did not retain significant continuing involvement with the discontinued operation subsequent to the disposal. In connection with the sale, the Company performed a goodwill impairment test and recorded a charge of $6,366 in the second quarter of 2018.  The impairment was a result of continued market softness in the U.K. Limited segment, resulting in lower sales and margins and an expected sales price below the carrying value of the segment. The Company also recorded an impairment charge of $1,249 to customer relationship intangible assets related to the U.K. Limited segment in the second quarter of 2018.

The Company recorded a $7,248 loss on sale of U.K Limited for the year ended December 31, 2018.  In connection with the substantial liquidation of the foreign entity, the Company released the related cumulative translation adjustment from accumulated other comprehensive loss into loss from discontinued operations.  This adjustment was $3,983 and is included in other expense (income), net in the schedule below.

The major line items constituting the loss of the discontinued operation for the year ended December 31, 2019 and 2018 were as follows:

 

 

 

 

 

 

 

 

 

 

For the year ended

 

 

December 31, 

 

 

2019

 

2018

Total net sales

 

$

 —

 

$

10,741

Total cost of sales

 

 

 —

 

 

10,222

Selling, general and administrative

 

 

142

 

 

4,336

Impairments

 

 

 —

 

 

7,615

Other expense (income), net

 

 

 —

 

 

4,006

Pretax loss from discontinued operation

 

 

(142)

 

 

(15,438)

  Pretax loss on sale of discontinued operation

 

 

 —

 

 

(7,248)

Total pretax loss on discontinued operation

 

 

(142)

 

 

(22,686)

Income tax benefit

 

 

18

 

 

23

Net loss from discontinued operation

 

$

(124)

 

$

(22,663)

 

v3.19.3.a.u2
Inventories
12 Months Ended
Dec. 31, 2019
Inventories  
Inventories

5. Inventories

 

Inventories are summarized below:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2019

    

2018

 

Raw materials

 

$

16,492

 

$

8,235

 

Finished goods

 

 

5,047

 

 

2,991

 

Inventory reserve

 

 

(1,347)

 

 

(1,399)

 

 

 

$

20,192

 

$

9,827

 

 

v3.19.3.a.u2
Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-use Assets
12 Months Ended
Dec. 31, 2019
Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-use Assets  
Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-use Assets

 

6. Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-use Assets

 

Plant, equipment, leasehold improvements and operating lease right-of-use assets consist of the following:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2019

    

2018

 

Machinery and equipment

 

$

52,212

 

$

62,067

 

Machinery and equipment under financing leases

 

 

8,256

 

 

1,812

 

Furniture, fixtures and computer equipment

 

 

4,749

 

 

7,730

 

Leasehold improvements

 

 

14,905

 

 

19,651

 

Construction in progress

 

 

455

 

 

1,596

 

 

 

 

80,577

 

 

92,856

 

Less accumulated depreciation and amortization

 

 

(44,801)

 

 

(53,746)

 

Operating lease right-of-use assets, net of accumulated amortization

 

 

6,312

 

 

 —

 

 

 

$

42,088

 

$

39,110

 

 

Amounts recorded for the depreciation of plant, equipment and leasehold improvements were $12,384 and $13,749 for the years ended December 31, 2019 and 2018, respectively.

 

There were no impairments of the Company’s plant, equipment, and leasehold improvement assets for the continuing operations of the Company for the years ended December 31, 2019 and 2018.

v3.19.3.a.u2
Goodwill and Other Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Other Intangible Assets  
Goodwill and Other Intangible Assets

7. Goodwill and Other Intangible Assets

 

All of the Company’s $47,150 of goodwill is included in the U.S. Debit and Credit segment at December 31, 2019 and 2018.

 

 In connection with the sale of the Company’s U.K. Limited segment, the Company performed a goodwill impairment test and recorded a charge of $6,366 in discontinued operations during the year ended December 31, 2018.  The impairment was a result of continued market softness in the U.K. operations, resulting in lower sales and margins and an expected sale price below the carrying value of the segment.

The Company completed its goodwill impairment testing as of October 1, 2019, and no impairments were recognized as a result of this analysis.

CPI’s amortizable intangible assets consist of customer relationships, technology and software, and trademarks. Total intangible assets are being amortized over a weighted-average useful life of 15.7 years. Intangible amortization expense totaled $4,635 and $4,656 for the years ended December 31, 2019 and 2018, respectively.  During the year ended December 31, 2019 there were no impairments of the Company’s amortizable intangible assets.  The Company recorded an impairment charge of $1,249 to customer relationship intangible assets related to the U.K. Limited segment in the second quarter of 2018, which is reported in discontinued operations.

Intangible assets consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

December 31, 2018

 

 

    

Weighted Average

    

 

    

Accumulated

    

Net Book

    

 

    

Accumulated

    

Net Book

 

 

 

Life (Years)

 

Cost

 

Amortization

 

Value

 

Cost

 

Amortization

 

Value

 

Customer relationships

 

17.2

 

$

55,454

 

 

(28,865)

 

$

26,589

 

$

55,454

 

$

(25,587)

 

$

29,867

 

Technology and software

 

 8

 

 

7,101

 

 

(4,952)

 

 

2,149

 

 

7,101

 

 

(4,024)

 

 

3,077

 

Trademarks

 

8.7

 

 

3,330

 

 

(1,266)

 

 

2,064

 

 

3,330

 

 

(877)

 

 

2,453

 

Noncompete agreements

 

 5

 

 

491

 

 

(491)

 

 

 —

 

 

491

 

 

(451)

 

 

40

 

Intangible assets subject to amortization

 

 

 

$

66,376

 

$

(35,574)

 

$

30,802

 

$

66,376

 

$

(30,939)

 

$

35,437

 

 

The estimated future aggregate amortization expense for the identified amortizable intangibles noted above as of December 31, 2019 is as follows:

 

 

 

 

 

2020

 

$

4,595

2021

    

 

4,352

2022

 

 

3,867

2023

 

 

3,867

2024

 

 

3,530

Thereafter

 

 

10,591

 

 

$

30,802

 

v3.19.3.a.u2
Fair Value of Financial Instruments
12 Months Ended
Dec. 31, 2019
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

 

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 that are not required to be remeasured at fair value in the Consolidated Balance Sheets are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

 

Fair Value Measurement at

 

 

 

Value as of

 

Fair Value as of

 

December 31, 2019

 

 

 

December 31,

 

December 31,

 

(Using Fair Value Hierarchy)

 

 

    

2019

    

2019

    

Level 1

    

Level 2

    

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan

 

$

312,500

 

$

234,375

 

$

 

$

234,375

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

 

Fair Value Measurement at

 

 

 

Value as of

 

Fair Value as of

 

December 31, 2018

 

 

 

December 31,

 

December 31,

 

(Using Fair Value Hierarchy)

 

 

    

2018

    

2018

    

Level 1

    

Level 2

    

Level 3

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan

 

$

312,500

 

$

203,125

 

$

 

$

203,125

 

$

 

 

The aggregate fair value of the Company’s First Lien Term Loan, as defined in Note 10, “Long-Term Debt and Credit Facility,” was based on bank quotes.

The carrying amounts for cash and cash equivalents approximate fair value due to their short maturities.

Nonrecurring fair value measurements include the Company’s goodwill and intangible asset impairments recognized during the year ended December 31, 2018, as determined based on unobservable Level 3 inputs.  Refer to Note 7, “Goodwill and Other Intangible Assets”, and Note 4, “Discontinued Operations”.

v3.19.3.a.u2
Accrued Liabilities
12 Months Ended
Dec. 31, 2019
Accrued Liabilities  
Accrued Liabilities

9. Accrued Liabilities

 

Accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

    

December 31, 2019

    

December 31, 2018

 

 

 

 

 

 

    

Accrued payroll and related employee expenses

 

$

3,954

 

$

4,040

Accrued employee performance bonus

 

 

3,920

 

 

7,137

Accrued Interest

 

 

4,951

 

 

5,058

Operating and financing lease liability (current portion)

 

 

4,494

 

 

521

Other

 

 

5,501

 

 

7,097

Total accrued expenses

 

$

22,820

 

$

23,853

 

v3.19.3.a.u2
Long-Term Debt and Credit Facility
12 Months Ended
Dec. 31, 2019
Long-Term Debt and Credit Facility  
Long-Term Debt and Credit Facility

10. Long-Term Debt and Credit Facility

 

Long-term debt consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Interest

 

December 31,

 

December 31,

 

 

 

Rate

    

2019

    

2018

    

First Lien Term Loan (a)

 

 

6.71%

 

$

312,500

 

$

312,500

 

Unamortized discount

 

 

 

 

 

(1,770)

 

 

(2,448)

 

Unamortized deferred financing costs

 

 

 

 

 

(2,952)

 

 

(4,234)

 

Total long-term debt

 

 

 

 

 

307,778

 

 

305,818

 

Less current maturities

 

 

 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

 

 

$

307,778

 

$

305,818

 

(a)

Interest rate on December 31, 2019

 

First Lien Credit Facility

On August 17, 2015, the Company entered into the first lien credit facility (the “First Lien Credit Facility”) with a syndicate of lenders providing for a  $435,000 first lien term loan (the “First Lien Term Loan”) and a $40,000 revolving credit facility (the “Revolving Credit Facility”). The First Lien Term Loan matures August 17, 2022 and the Revolving Credit Facility was terminated on March 6, 2020.     

On March 6, 2020, the Company entered into a new $30,000 senior credit facility (the “Senior Credit Facility”),  which matures on May 17, 2022.  The Revolving Credit Facility was terminated concurrently with the closing of the new Senior Credit Facility on March 6, 2020.  Refer to Note 19- Subsequent Event for further information.

The Revolving Credit Facility was, and 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 Term Loan 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%. The interest rate as of December 31, 2019 was 6.71%.

The First Lien Term Loan 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 contained a requirement that, as of the last day of any fiscal quarter, if the amount the Company has drawn under the Revolving Credit Facility was greater than 50% of the aggregate principal amount of all commitments of the lenders thereunder, then the Company must maintain a first lien net leverage not in excess of 7.0 times adjusted EBITDA, as defined in the agreement.  As of December 31, 2019, the Company was in compliance with all covenants under the First Lien Credit Facility. 

The Revolving Credit Facility required, and the First Lien Term Loan also requires a  prepayment in advance of the maturity date upon the occurrence of certain customary events, including based on an annual excess cash flow calculation, pursuant to the terms of the agreement, with any required payments to be made after the issuance of the Company’s annual financial statements. The Company did not have a required excess cash flow payment related to 2019.  

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, and an additional $10,000 during the fourth quarter of 2015.

As of December 31, 2019, the Company did not have any outstanding amounts under the Revolving Credit Facility, and had $19,950 available for borrowing. The interest rate on the Revolving Credit Facility was the Federal base rate plus 3.5%.  The Company had one outstanding letter of credit for $50 relating to the security deposit on a real property lease agreement under the terms of the Revolving Credit Facility. The Company paid a fee on outstanding letters of credit at the applicable margin, which was 4.5% as of December 31, 2019, in addition to a fronting fee of 0.125% per annum. In addition, the Company was 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 Company accrued interest of $4,951 and $5,058 recorded within “Accrued expenses” on the Consolidated Balance Sheets as of December 31, 2019, and 2018, respectively.

Deferred Financing Costs and Discount

Certain costs and discounts 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.

v3.19.3.a.u2
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Taxes

11. Income Taxes

 

Income tax (benefit) expense from continuing operations and effective income tax rates consist of the following:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2019

    

2018

    

Current taxes:

 

 

 

 

 

 

 

Domestic

 

$

2,490

 

$

2,558

 

Foreign

 

 

15

 

 

 —

 

 

 

 

2,505

 

 

2,558

 

Deferred taxes:

 

 

 

 

 

 

 

Domestic

 

 

1,147

 

 

(6,897)

 

Foreign

 

 

 —

 

 

 —

 

 

 

 

1,147

 

 

(6,897)

 

Income tax expense (benefit)

 

$

3,652

 

$

(4,339)

 

Loss before income taxes

 

 

 

 

 

 

 

Domestic income (loss)

 

$

801

 

$

(18,383)

 

Foreign

 

 

(1,479)

 

 

(755)

 

Total

 

$

(678)

 

$

(19,138)

 

Effective income tax rate

 

 

(538.6)

%

 

22.7

%

 

The effective income tax rate differs from the U.S. federal statutory income tax rate as follows:

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

2019

    

2018

    

Tax at federal statutory rate

 

21.0

%

21.0

%

State income taxes

 

(114.8)

 

4.0

 

Foreign taxes

 

(51.9)

 

(0.1)

 

Tax benefit for U.K. sale

 

345.2

 

17.5

 

Valuation allowance

 

(474.7)

 

(13.5)

 

Unrecognized tax benefits

 

(34.5)

 

(4.8)

 

Tax credits

 

(108.4)

 

2.5

 

Deferred tax impact of enacted tax rate and law changes

 

 —

 

(0.7)

 

Permanent items

 

(120.6)

 

(1.8)

 

Other

 

0.1

 

(1.4)

 

Effective income tax rate

 

(538.6)

%

22.7

%

 

The components of the deferred tax assets and liabilities are as follows:

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

    

2019

 

2018