UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September~~March 924, ~~2017~~2018



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

For the transition period from to

Commission File Number: 001-35882

BLACKHAWK NETWORK HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		43-2099257
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
		(I.R.S. Employer Identification No.)

6220 Stoneridge Mall Road Pleasanton, CA		94588
(Address of Principal Executive Offices)		(Zip Code)

(925) 226-9990

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

As of ~~October~~April 1023, ~~2017~~2018, there were 5657,~~813~~117,~~300~~000 shares of the Registrant’s common stock outstanding.

Table of Contents

Blackhawk Network Holdings, Inc.

FORM 10-Q

Table of Contents

		Page
PART I. FINANCIAL STATEMENTS
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2124
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3837
Item 4.	Controls and Procedures	3837
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	3938
Item 1A.	Risk Factors	3938
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4039
Item 3.	Defaults upon Senior Securities	4039
Item 4.	Mine Safety Disclosures	4039
Item 5.	Other Information	4039
Item 6.	Exhibits	4039
Signatures		4140

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	September 9, 2017		December 31, 2016		September 10, 2016
	March 24, 2018		December 30, 2017		March 25, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	~~304~~351,~~904~~099	$	1,~~008~~096,~~125~~195	$	~~300~~214,~~349~~536
Restricted cash	6669,~~509~~781		10135,~~793~~345		256,~~500~~832
Settlement receivables, net	~~429~~416,~~494~~633		~~641~~1,~~691~~038,347		~~275~~319,~~471~~557
Accounts receivable, net	~~226~~152,~~126~~262		~~262~~185,~~672~~741		~~199~~259,~~552~~138
Other current assets	~~191~~158,~~691~~301		~~131~~142,~~375~~737		~~123~~165,~~919~~898
Total current assets	1,~~218~~148,~~724~~076		2,~~054~~598,~~656~~365		~~901~~1,~~791~~015,961
Property, equipment and technology, net	~~180~~172,~~554~~132		172,~~381~~607		~~168~~173,~~865~~403
Intangible assets, net	~~418~~417,~~046~~946		~~350~~430,~~185~~978		~~293~~338,~~034~~672
Goodwill	~~656~~565,~~266~~913		~~570~~563,~~398~~405		~~508~~570,~~607~~313
Deferred income taxes	~~351~~235,~~760~~860		~~362~~235,~~302~~797		~~352~~361,~~683~~981
Other assets	86185,~~610~~739		85121,~~856~~667		6991,~~039~~166
TOTAL ASSETS	$	2,~~911~~725,~~960~~666	$	34,~~595~~122,~~778~~819	$	2,~~294~~551,~~019~~496
See accompanying notes to condensed consolidated financial statements

Table of Contents

BLACKHAWK NETWORK HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS (continued)(In thousands, except par value)(Unaudited)
	September 9, 2017			December 31, 2016			September 10, 2016
	March 24, 2018			December 30, 2017			March 25, 2017
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Settlement payables	$	~~646~~683,~~160~~027		$	12,~~626~~074,~~827~~673		$	~~522~~547,~~133~~179
Consumer and customer deposits	~~267~~321,~~642~~970			~~173~~326,~~344~~685			~~115~~269,~~085~~026
Accounts payable and accrued operating expenses	~~142~~125,~~029~~073			~~153~~156,~~885~~182			~~103~~143,~~920~~430
Deferred revenue	151,425			150,582			113,867
Contract liabilities	54,088			60,607			46,867
Note payable, current portion	914,~~890~~912			910,~~856~~662			97,~~846~~390
Notes payable to Safeway	43,~~201~~941			3,~~163~~941			32,~~239~~909
Bank line of credit	~~115,000~~—			—			—14,415
Other current liabilities	7456,~~804~~453			51102,~~176~~823			4885,~~630~~651
Total current liabilities	1,~~411~~259,~~151~~464			2,~~168~~735,~~833~~573			~~916~~1,~~720~~116,867
Deferred income taxes	3029,~~516~~648			2729,~~887~~085			1928,~~930~~796
Note payable	~~178~~258,~~048~~315			~~137~~202,~~984~~441			~~137~~130,~~848~~560
Convertible notes payable	~~437~~444,~~769~~707			~~429~~441,~~026~~655			~~425~~431,~~833~~941
Other liabilities	2644,~~644~~967			3938,~~653~~877			2553,~~429~~635
Total liabilities	2,~~084~~037,~~128~~101			23,~~803~~447,~~383~~631			1,~~525~~761,~~760~~799
Commitments and contingencies (see Note 9)
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000 shares authorized; no shares outstanding	—			—			—
Common stock: $0.001 par value; 210,000 shares authorized; 56,777, 55,667 and 55,368 shares outstanding, respectively	57			56			55
Common stock: $0.001 par value; 210,000 shares authorized; 57,097, 55,767 and 56,290 shares outstanding, respectively	57			56			56
Additional paid-in capital	~~638~~670,~~008~~756			~~608~~649,~~568~~546			~~594~~612,~~739~~328
Accumulated other comprehensive loss	(14,934		)	(48,877		)	(34,398		)
Treasury stock	(40,023		)	(40,023		)	—
Retained earnings	200,484			228,451			203,791
Accumulated other comprehensive loss	(8,362		)	(16,121		)	(42,967		)
Total Blackhawk Network Holdings, Inc. equity	823,615			788,198			764,187
Retained earnings	62,097			77,864			216,001
Non-controlling interests	4,217			4,197			4,072
Total Blackhawk Network Holdings, Inc. equity	684,525			671,322			785,418
Total stockholders’ equity	827,832			792,395			768,259
Non-controlling interests	4,040			3,866			4,279
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,911,960		$	3,595,778		$	2,294,019
Total stockholders’ equity	688,565			675,188			789,697
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,725,666		$	4,122,819		$	2,551,496

See accompanying notes to condensed consolidated financial statements

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BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except for per share amounts)

(Unaudited)

	12 weeks ended						~~36 weeks ended~~
	September 9, 2017			September 10, 2016			September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
OPERATING REVENUES:
Commissions and fees	$	~~269~~288,~~737~~626		$	~~248~~249,~~138~~525		$	~~807,576~~		$	~~750,693~~
Program and other fees	95101,~~592~~402			6495,~~857~~865			~~304,416~~			~~207,718~~
Marketing	14,~~348~~367			1714,~~943~~281			~~53,454~~			~~52,098~~
Product sales	3924,~~582~~813			3026,~~622~~741			~~124,195~~			~~108,719~~
Total operating revenues	~~419~~429,~~259~~208			~~361~~386,~~560~~412			~~1,289,641~~			~~1,119,228~~
OPERATING EXPENSES:
Partner distribution expense	~~196~~218,~~633~~449			~~178~~175,~~363~~123			~~577,634~~			~~541,749~~
Processing and services	9392,~~877~~949			75101,~~818~~021			~~303,829~~			~~226,634~~
Sales and marketing	5864,~~711~~181			5262,~~327~~658			~~199,218~~			~~166,176~~
Costs of products sold	3724,~~148~~256			2927,~~122~~849			~~117,882~~			~~103,163~~
General and administrative	2429,~~122~~322			2129,~~773~~025			~~78,710~~			~~67,827~~
Transition and acquisition	~~665~~4,927			~~2,574~~451			~~2,021~~			~~4,160~~
Amortization of acquisition intangibles	1314,~~904~~107			1012,~~376~~562			~~40,577~~			~~35,533~~
Change in fair value of contingent consideration	~~(2,~~100		)	1,~~300~~040			~~(5,097~~		)	~~2,100~~
Goodwill impairment	9,000			—			9,000			—
Total operating expenses	448,291			409,729
Total operating expenses	431,960			371,653			1,323,774			1,147,342
OPERATING INCOME (LOSS)	(19,083		)	(23,317		)
OPERATING INCOME (LOSS)	(12,701		)	(10,093		)	(34,133		)	(28,114		)
OTHER INCOME (EXPENSE):
OTHER INCOME (EXPENSE):
Interest income and other income (expense), net	(224		)	836
Interest income and other income (expense), net	631			2,360			2,134			3,258
Interest expense	(7,786		)	(6,943		)
Interest expense	(7,374		)	(5,684		)	(21,368		)	(13,868		)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)	(27,093		)	(29,424		)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)	(19,444		)	(13,417		)	(53,367		)	(38,724		)
INCOME TAX EXPENSE (BENEFIT)	(11,505		)	(12,082		)
INCOME TAX EXPENSE (BENEFIT)	(11,858		)	(8,357		)	(26,224		)	(18,884		)
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	(15,588		)	(17,342		)
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	(7,586		)	(5,060		)	(27,143		)	(19,840		)
Loss (income) attributable to non-controlling interests, net of tax	(179		)	(123		)
Loss (income) attributable to non-controlling interests, net of tax	(180		)	(42		)	(460		)	(152		)
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.	$	(15,767	)	$	(17,465	)
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.	$	(7,766	)	$	(5,102	)	$	(27,603	)	$	(19,992	)
EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE:
Basic	$	(0.28	)	$	(0.31	)
Basic	$	(0.14	)	$	(0.09	)	$	(0.49	)	$	(0.36	)
Diluted	$	(0.28	)	$	(0.31	)
Diluted	$	(0.14	)	$	(0.09	)	$	(0.49	)	$	(0.36	)
Weighted average shares outstanding—basic	56,477			55,904
Weighted average shares outstanding—basic	56,709			55,668			56,355			55,851
Weighted average shares outstanding—diluted	56,477			55,904
Weighted average shares outstanding—diluted	56,709			55,668			56,355			55,851

See accompanying notes to condensed consolidated financial statements

Table of Contents

BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	12 weeks ended						~~36 weeks ended~~
	September 9, 2017			September 10, 2016			September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	$	(715,~~586~~588	)	$	(517,~~060~~342	)	$	~~(27,143~~	)	$	~~(19,840~~	)
Other comprehensive income (loss):
Currency translation adjustments	197,~~764~~752			(25,~~504~~975		)	~~33,503~~			~~5,547~~
COMPREHENSIVE INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	12(7,~~178~~836		)	(711,~~564~~367		)	~~6,360~~			~~(14,293~~		)
Comprehensive loss (income) attributable to non-controlling interests, net of tax	15—			~~129~~(82		)	~~(20~~		)	98
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.	$	12(7,~~193~~836	)	$	(711,~~435~~449	)	$	~~6,340~~		$	~~(14,195~~	)

See accompanying notes to condensed consolidated financial statements

Table of Contents

BLACKHAWK NETWORK HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	36 weeks ended
	12 weeks ended
	September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
OPERATING ACTIVITIES:
Net income (loss) before allocation to non-controlling interests	$	(2715,~~143~~588	)	$	(1917,~~840~~342	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of property, equipment and technology	3712,~~518~~148			3311,~~096~~600
Goodwill impairment	9,000			—
Amortization of intangibles	15,951			13,755
Amortization of intangibles	44,416			38,988
Amortization of deferred program and contract costs	7,905			7,397
Amortization of deferred program and contract costs	21,706			18,805
Amortization of deferred financing costs and debt discount	2,860			3,162
Amortization of deferred financing costs and debt discount	9,546			2,984
Loss on property, equipment and technology disposal/write-down	16			108
Loss on property, equipment and technology disposal/write-down	660			2,758
Employee stock-based compensation expense	8,062			8,401
Employee stock-based compensation expense	24,560			24,865
Change in fair value of contingent consideration	100			1,040
Change in fair value of contingent consideration	(5,097		)	2,100
Deferred income taxes	—			(2,307		)
Other	(32,~~388~~942		)	381,605
Changes in operating assets and liabilities:
Settlement receivables	~~233~~634,~~441~~105			~~359~~330,~~398~~177
Settlement payables	(1,~~003~~401,~~220~~302		)	(1,~~091~~080,~~151~~989		)
Accounts receivable, current and long-term	3529,~~179~~788			44(7,~~585~~666		)
Other current assets	16(3,~~807~~273		)	3(7,~~940~~146		)
Other assets	(1263,~~172~~174		)	(93,~~299~~037		)
Consumer and customer deposits	12(13,~~330~~424		)	1332,~~963~~018
Accounts payable and accrued operating expenses	(1727,~~426~~065		)	(284,~~775~~645		)
Deferred revenue	4,948			2,703
Contract liabilities	(6,673		)	2,980
Other current and long-term liabilities	5(21,~~334~~820		)	~~(24,912~~635		)
Income taxes, net	(2814,~~276~~642		)	(139,~~883~~944		)
Net cash (used in) provided by operating activities	(~~641~~853,~~277~~084		)	(~~639~~720,~~637~~198		)
INVESTING ACTIVITIES:
Expenditures for property, equipment and technology	(4315,~~484~~819		)	(3316,~~522~~697		)
Business acquisitions, net of cash acquired	~~(170,773~~—		)	(~~144~~10,~~284~~881		)
Investment in unconsolidated entities	~~(5,801~~—		)	(35,~~901~~200		)
Change in restricted cash	2,500			689
Other	(1,000		)	—
Other	(3,245		)	4,000
Net cash (used in) provided by investing activities	(16,819		)	(32,778		)
Net cash (used in) provided by investing activities	(220,803		)	(177,018		)
See accompanying notes to condensed consolidated financial statements

Table of Contents

BLACKHAWK NETWORK HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)(In thousands)(Unaudited)
	36 weeks ended
	12 weeks ended
	September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
FINANCING ACTIVITIES:
Payments for acquisition liability	(52,~~503~~000		)	—
Repayment of debt assumed in business acquisitions	(8,585		)	(8,964		)
Proceeds from issuance of note payable	75,000			—
Proceeds from issuance of note payable	50,000			250,000
Repayment of note payable	(15,000		)	(10,000		)
Repayment of note payable	(10,000		)	(463,750		)
Borrowings under revolving bank line of credit	127,536			667,936
Payments of financing costs	(1,025		)	(15,926		)
Repayments on revolving bank line of credit	(127,536		)	(653,521		)
Borrowings under revolving bank line of credit	1,771,381			1,959,749
Repayment on notes payable to Safeway	—			(254		)
Repayments on revolving bank line of credit	(1,656,381		)	(1,959,749		)
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans	10,924			3,700
Proceeds from convertible debt	—			500,000
Other stock-based compensation related	(18,254		)	(8,897		)
Payments for note hedges	—			(75,750		)
Net cash (used in) provided by financing activities	50,670			(1,036		)
Proceeds from warrants	—			47,000
Effect of exchange rate changes on cash, cash equivalents and restricted cash	8,573			6,462
Repayment on notes payable to Safeway	(254		)	(890		)
Decrease in cash, cash equivalents and restricted cash	(810,660		)	(747,550		)
Proceeds from issuance of common stock from exercise of employee stock options and employee stock purchase plans	13,286			4,491
Cash, cash equivalents and restricted cash—beginning of period	1,231,540			1,018,918
Other stock-based compensation related	(10,157		)	(2,135		)
Cash, cash equivalents and restricted cash—end of period	$	420,880		$	271,368
Repurchase of common stock	—			(34,845		)
Other	—			(155		)
Net cash (used in) provided by financing activities	142,762			199,076
Effect of exchange rate changes on cash and cash equivalents	16,097			3,352
Decrease in cash and cash equivalents	(703,221		)	(614,227		)
Cash and cash equivalents—beginning of period	1,008,125			914,576
Cash and cash equivalents—end of period	$	304,904		$	300,349
NONCASH FINANCING AND INVESTING ACTIVITIES:
Financing of business acquisition with contingent consideration	$	~~1,640~~—		$	202,~~100~~000

Reconciliation of cash, cash equivalents and restricted cash as shown in the statement of cash flows is presented in the table below (in thousands):



	March 24, 2018		March 25, 2017
Cash and cash equivalents	$	351,099	$	214,536
Restricted cash	69,781		56,832
Total cash, cash equivalents and restricted cash	$	420,880	$	271,368

See accompanying notes to condensed consolidated financial statements

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BLACKHAWK NETWORK HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. The Company and Significant Accounting Policies

The Company

Blackhawk Network Holdings, Inc., together with its subsidiaries (“we”, “us”, “our”, the “Company”), is a leading prepaid payment network utilizing proprietary technology to offer consumers and businesses a broad selection of prepaid cards in physical and electronic forms, as well as complementary prepaid products, payment services and incentives solutions. We currently offer our products and/or solutions directly or through commercial relationships in the United States and 25 other countries and can deliver solutions in over 100 countries. Our product offerings include single-use gift cards; loyalty, incentive and reward products and services; prepaid telecom products and prepaid financial services products, including general purpose reloadable (“GPR”) cards, and our reload network (collectively, “prepaid products”). We offer gift cards from leading consumer brands (known as “closed loop”) as well as branded gift and incentive cards from leading payment network card associations such as American Express, Discover, MasterCard and Visa (known as “open loop”) and prepaid telecom products offered by prepaid wireless telecom carriers. We also distribute GPR cards and operate a proprietary reload network named Reloadit, which allows consumers to reload funds onto their previously purchased GPR cards. We distribute these prepaid products across multiple high-traffic channels such as grocery, convenience, specialty and online retailers (referred to as “retail distribution partners”) in the Americas, Europe, Africa, Australia and Asia and provide these prepaid products and related services to business clients for their loyalty, incentive and reward programs.

Merger Agreement

On January 15, 2018, we entered into an agreement and plan of merger (the “Merger Agreement”) with BHN Holdings, Inc., a Delaware corporation (“Parent”), and BHN Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). The Merger Agreement provides, among other things and subject to the terms and conditions set forth therein, that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Parent has agreed to acquire the Company in an all-cash transaction for a total consideration of approximately $3.5 billion, which includes assumption of our debt. Pursuant to the terms of the Merger Agreement, the completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the stockholder approval which was obtained at the Special Meeting of Stockholders held on March 30, 2018. The completion of the Merger remains subject to certain other customary closing conditions, including, among others, (i) the absence of any law, order or injunction of a court or governmental entity of competent jurisdiction prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement; (ii) receipt of certain consents and approvals (or confirmation that no consent is required) from the applicable regulatory authority in a number of jurisdictions, including various U.S. states; and (iii) the absence of a “material adverse effect” on the Company after the date of the Merger Agreement. As of the date of this report, the Company continues to expect to complete the Merger in mid-2018. See Part I, Item 1A, “Risk Factors” and Note 16- Subsequent Event of the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the fiscal year ended on December 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2018 (the “Annual Report”).

Basis of Presentation

The accompanying condensed consolidated financial statements of Blackhawk Network Holdings, Inc. are unaudited. We have prepared our unaudited interim condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the ~~Securities and Exchange Commission (“~~SEC”) regarding interim financial reporting. We have condensed or omitted certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP pursuant to such rules and regulations. Accordingly, our interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in ~~our Annual Report on Form 10-K, filed with~~ the ~~SEC on February 27, 2017 (the “~~Annual Report”). We have prepared our condensed consolidated financial statements on the same basis as our annual audited consolidated financial statements and, in the opinion of management, have reflected all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations for the interim periods presented. Our results for the interim periods are not necessarily reflective of the results to be expected for the year ending December 3029, ~~2017~~2018 or for any other interim period or other future year. Our condensed consolidated balance sheet as of December 3130, ~~2016~~2017, included herein was derived from our audited consolidated financial statements as of that date but does not include all disclosures required by GAAP for annual financial statements, including notes to the financial statements.

Seasonality

For our retail business, a significant portion of gift card sales occurs in late December each year during the holiday selling season. As a result, we earn a significant portion of our revenues, net income and cash flows during the fourth quarter of each year and remit the majority of the cash, less commissions, to our content providers in January of the following year. The timing of our fiscal year-end, December holiday sales and the related January cash settlement with content providers significantly increases our Cash and cash equivalents, Settlement receivables and Settlement payables balances at the end of each fiscal year relative to normal daily balances. The cash settlement with our content providers in January accounts for the majority of the use of cash from operating activities in our condensed consolidated statements of cash flows during our first three fiscal quarters. We also experience an increase in revenues, net income and cash flows during the second quarter of each year, which we primarily attribute to the Mother’s Day, Father’s Day and graduation gifting season and the Easter holiday. Depending on when the Easter holiday occurs, the associated increase is in either the first or second quarter. As a result, quarterly financial results are not necessarily reflective of the results to be expected for the year or any other interim or future period. Seasonality also impacts our incentives businesses, but such impact is smaller in comparison to our retail business.

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~~Recently Issued or Adopted Accounting Pronouncements~~Seasonality

InFor ~~May~~our ~~2014~~retail business, ~~the~~a ~~Financial~~significant ~~Accounting~~portion ~~Standards~~of ~~Board~~gift ~~(“FASB”)~~card ~~issued~~sales ~~Accounting~~occurs ~~Standards~~in ~~Update~~late ~~(“ASU”)~~December ~~2014-09~~each ~~Revenue~~year ~~from~~during ~~Contracts~~the ~~with~~holiday ~~Customers~~selling ~~(Topic~~season. ~~606)~~As a result, ~~which~~we earn a significant portion of our revenues, ~~along~~net ~~with~~income ~~amendments~~and ~~issued~~cash inflows ~~2015~~during the fourth quarter of each year and ~~2016~~remit the majority of the cash, ~~replaces~~less ~~nearly~~commissions, ~~all~~to ~~current~~our Ucontent providers in January of the following year.S. ~~GAAP~~The ~~guidance~~timing onof ~~this~~our ~~topic~~fiscal year-end, December holiday sales and the related January cash settlement with acontent ~~comprehensive~~providers ~~revenue~~significantly ~~measurement~~increases our Cash and ~~recognition~~cash ~~standard~~equivalents, Settlement receivables and ~~expanded~~Settlement ~~disclosure~~payables ~~requirements.~~balances ~~This~~at ~~new~~the ~~guidance~~end ~~provides~~of aeach ~~five-step~~fiscal ~~analysis~~year inrelative ~~determining~~to ~~when~~normal ~~and~~daily ~~how~~balances. ~~revenue~~We isalso ~~recognized.~~experience ~~Under~~an ~~the~~increase ~~new~~in ~~guidance~~revenues, ~~revenue~~net isincome ~~recognized~~and ~~when~~cash aflows ~~customer~~during ~~obtains~~the ~~control~~second quarter of ~~promised~~each ~~goods~~year, orwhich ~~services~~we ~~and~~primarily isattribute ~~recognized~~to inthe anMother’s ~~amount~~Day, ~~that~~Father’s ~~reflects~~Day and graduation gifting season and the ~~consideration~~Easter ~~which~~holiday. Depending on when the ~~entity~~Easter ~~expects~~holiday tooccurs, ~~receive~~the inassociated ~~exchange~~increase ~~for~~is ~~those~~in ~~goods~~either the first or ~~services~~second quarter. As Ina ~~addition~~result, ~~the~~quarterly ~~new~~financial ~~guidance~~results ~~requires~~are ~~disclosure~~not necessarily reflective of the ~~nature,~~results ~~amount,~~to ~~timing~~be ~~and~~expected ~~uncertainty~~for ofthe ~~revenue~~year ~~and~~or ~~cash~~any ~~flows~~other ~~arising~~interim ~~from~~or ~~contracts~~future ~~with~~period. Seasonality ~~customers~~also impacts our incentives businesses, but such impact is smaller in comparison to our retail business.

WeSignificant ~~will~~Accounting adopt this new guidance using the full retrospective method in the first quarter of fiscal 2018 to restate each prior reporting period presented. While we are continuing to evaluate the impacts of this new guidance on our consolidated financial statements, including disclosures, we have identified the following areas that will be affected by the adoption of this new standard:Policies

~~Revenue~~The Company's significant accounting policies are detailed in "Note 1: Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 30, 2017.

~~Content~~Recently ~~Provider~~Adopted ~~Commissions—Under~~Accounting the new guidance, we will continue to recognize content provider commissions as revenue at the time of card activation, as our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances.Pronouncements

~~Consumer~~In ~~Purchase~~May ~~Fees and Program Management Fees—Under the new guidance~~2014, ~~we consider~~ the ~~transaction~~Financial ~~price~~Accounting ~~for~~Standards ~~our~~Board ~~open~~(“FASB”) ~~loop~~issued ~~gift~~Accounting ~~cards,~~Standards ~~including~~Update ~~our~~(“ASU”) ~~Visa gift card, to include consumer purchase fees and program management fees. Under the new guidance, we have identified three performance obligations~~ 2014-09 ~~distribution-and-activation, redemption service and customer care.~~ Revenue from ~~Consumer~~Contracts ~~Purchase~~with ~~Fees~~Customers ~~and~~(Topic ~~Program~~606)(“ASC ~~Management~~606”), ~~Fees~~which, ~~included~~along ~~within~~with ~~Commissions~~amendments ~~and~~issued ~~fees~~in ~~and~~2015, ~~Program~~2016 and ~~other fees~~2017, ~~respectively,~~replaces ~~related~~nearly toall ~~our~~current ~~Visa~~U.S. ~~gift~~GAAP ~~cards~~guidance ~~will~~on ~~predominantly~~this betopic ~~recognized~~with asa comprehensive revenue atmeasurement ~~the~~and ~~time~~recognition ofstandard ~~card activation when our distribution-~~and~~-activation~~ ~~obligation~~expanded isdisclosure ~~complete~~requirements. ~~The~~This ~~remainder~~new ~~will~~guidance beprovides ~~recognized~~a ~~over~~five-step ~~the~~analysis ~~estimated~~in ~~period~~determining ofwhen ~~card redemption as redemption service~~ and ~~customer~~how ~~care obligations are performed. Under current GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange~~ revenue ~~will~~is be recognized. ~~over~~Under the ~~period~~new ~~of card redemption as we track and redeem cards~~guidance, ~~similar to our current~~ revenue ~~recognition. Additionally,~~is ~~revenue~~recognized ~~from~~when ~~program~~a ~~management~~customer ~~fees~~obtains ~~related~~control toof ~~our~~promised ~~proprietary~~goods ~~Visa~~or ~~gift~~services ~~cards~~and ~~issued~~is byrecognized ~~MetaBank~~in ~~will~~an beamount ~~based~~that onreflects ~~a blended rate over~~ the ~~appropriate~~consideration ~~periods~~which ~~as required by~~ the ~~contract-specific~~entity ~~terms~~expects ~~compared~~ to areceive ~~contractually~~in ~~stated~~exchange ~~rate~~for ~~under~~those ~~the~~goods ~~current~~or ~~accounting policy~~services. ~~Although~~In weaddition, ~~expect~~ the ~~blended~~new ~~rate~~guidance torequires bedisclosure ~~lower~~of ~~than~~ the ~~contract rate initially~~nature, ~~the economics of the arrangement will be the same over the long term. Under current GAAP~~amount, wetiming ~~defer consumer purchase fees~~ and ~~program~~uncertainty ~~management~~of ~~fees related to our Visa gift cards in Deferred~~ revenue and ~~recognize~~cash ~~revenue~~flows ~~ratably~~arising in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card. There may be changes to the classification of program management fees and breakage revenue from ~~Program~~contracts ~~and~~with ~~other fees to Commission and fees within Total Operating Revenue~~customers.

~~Rebate~~As ~~Processing~~part ~~Fees—While~~of weour ~~expect~~assessment ~~the~~and ~~recognition~~implementation ofplan, ~~revenue~~we ~~for~~evaluated ~~rebates~~and ~~fulfilled~~made bychanges ~~checks~~to orour ~~closed~~policies ~~loop~~and ~~cards~~procedures. toAdditionally, ~~remain~~we ~~unchanged~~evaluated ~~under~~ the ~~new~~impact ~~guidance,~~of ~~the~~this new guidance ~~will~~on ~~require~~the uspurchase toaccounting ~~recognize~~or ~~revenue~~intangibles ~~for~~assets ~~rebates~~from ~~fulfilled~~our ~~with~~recent ~~open~~acquisitions; ~~loop~~this ~~incentive~~resulted ~~cards~~in ~~when~~a wereclassification ~~fulfill~~of ~~the~~certain ~~cards~~backlog assets to ~~the~~contract ~~end~~asset, ~~consumer~~with ~~versus~~no ~~ratably~~impact into ~~proportion~~our toconsolidated ~~historical~~net ~~redemption~~income. ~~patterns~~The asCompany ~~our~~adopted ~~performance~~this ~~obligation~~new ~~for~~guidance ~~rebate~~using ~~processing~~the isfull ~~complete~~retrospective atmethod ~~time~~in the first quarter of ~~fulfillment~~fiscal 2018, which impacted each prior reporting period presented.

~~Incentive~~Revenue ~~Merchandise~~Recognition ~~Rewards—The~~under ~~adoption~~ASC of the new guidance is expected to classify certain incentive merchandise rewards costs as a reduction to revenue versus a cost of products sold. Under the new accounting guidance, these costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service.606

Performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of the Company’s contracts have multiple performance obligations, as the promise to transfer individual goods or services is separately identifiable from other promises in the contracts and, therefore, is distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on its relative standalone selling price. Our performance obligations are satisfied at a point in time or over time as work progresses.

Revenue from goods and services transferred to customers at a point in time accounted for 5% and 6% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. Revenue recognized at a point in time relates to our card production services, handset sales and our Cardpool business. Revenue on these contracts is recognized when the goods are delivered or when the service is provided.

Revenue from products and services transferred to customers over time accounted for 95% and 94% of total operating revenues for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. This primarily includes revenue related to our employee engagement business, our rebate processing and reward fulfillment businesses as well as the sale of closed loop and open loop gift cards under long-term contracts for which we have a stand-ready obligation to provide services over the term of the contract. Revenue is typically recognized over time using an input measure (e.g., number of days passed or units sold) to measure progress.

Revenue allocated to the remaining performance obligations represent contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and

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~~Operating~~recognized ~~Expenses~~as revenue in future periods, including noncancelable contractual commitments related to our employee engagement business. Based on average historical commission rates earned on redeemed points, total contracted not recognized revenue was $107.7 million as of March 24, 2018. Based on historical trends, points related to our employee engagement business are estimated to be redeemed and recognized as revenue within a year following the issuance of such points. The Company expects to recognize approximately 61% of its remaining performance obligations as revenue in fiscal 2018, an additional 20% by fiscal 2019 and 19% of the amount thereafter.

~~Partner~~Significant Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and open loop incentive cards will predominantly be recognized at the time of card activation when our distribution-and-activation obligation is complete. The remainder will be recognized over the estimated period of card redemption. Under current GAAP, we defer these expenses and amortize them based on the redemption pattern of the card.Estimates

~~Processing~~Transaction ~~and Services~~price—~~Under~~The transaction price is determined based on the ~~new~~consideration ~~guidance,~~to ~~processing~~which ~~and~~we expect to be entitled in exchange for transferring services ~~costs,~~to ~~card~~the ~~production~~customer. ~~and~~The ~~upfront~~nature ~~transaction~~of ~~processing~~our contracts gives rise to several types of variable consideration. The amount of program management fees ~~for~~or ~~the~~merchant ~~Visa~~commissions ~~gift~~that we will receive from the card ~~and~~partner ~~open~~or ~~loop~~issuing ~~incentive~~bank varies according to the redemption rates on those cards. ~~will~~Variable ~~predominantly~~consideration beis ~~recognized~~included atin the ~~time~~transaction ofprice ~~card~~if, ~~activation~~in ~~when~~ our ~~distribution-and-activation~~judgment, ~~obligation~~it is ~~complete.~~probable ~~The~~that ~~remainder~~a significant future reversal of cumulative revenue under the contract will benot ~~recognized~~occur. ~~over~~We estimate the ~~estimated~~amount ~~period~~we ofultimately ~~card~~expect ~~redemption~~to collect from our customers and record a receivable or contract asset depending on the contractual billing schedule. ~~Under~~ ~~current~~Estimating ~~GAAP,~~the ~~these~~transaction ~~costs~~price ~~are~~requires ~~deferred~~significant management judgment about future events and ~~expensed~~is based on ~~the~~historical ~~same~~card redemption ~~pattern~~patterns as well as other relevant information for the respective card programs. The estimated transaction price is determined at the inception of the contract; we recognize the related revenue as the performance obligation is fulfilled.

~~Sales~~Standalone ~~and~~selling ~~Marketing~~price—~~The~~For ~~accounting~~contracts ~~for~~with multiple performance obligations, the ~~recognition~~Company ofallocates ~~costs~~the ~~related~~contract’s transaction price to ~~obtaining~~each ~~customer~~performance ~~contracts~~obligation ~~under~~based on its relative standalone selling price. The standalone selling prices are determined based on the ~~new~~prices ~~guidance~~at iswhich ~~different~~the ~~from~~Company ~~our~~separately ~~current~~sells ~~capitalization~~these ~~policy~~services. ~~The~~For ~~adoption~~services ofthat are not sold separately, the ~~new~~Company ~~guidance~~estimates ~~will~~the ~~result~~standalone inselling ~~additional~~prices ~~capitalized~~using ~~commissions~~the expected cost plus a margin approach, under which ~~will~~we beforecast ~~amortized~~our ~~over~~expected costs of satisfying a ~~longer~~performance ~~term~~obligation ~~than~~and ~~our~~then ~~current~~add ~~policy~~an appropriate margin for that distinct good or service. Forecasting the expected costs and estimating the appropriate margin require significant management judgement and affects the timing of revenue recognition.

AsMaterial ~~part~~right—We ofalso ~~our~~consider ~~assessment~~whether ~~and~~renewal ~~implementation~~options ~~plan,~~for wecertain ~~are~~customer ~~also~~contracts ~~evaluating~~represents a material right and ~~making~~should ~~changes~~be toaccounted ~~our~~for ~~policies,~~as ~~procedures~~a ~~and~~separate ~~internal~~performance ~~controls~~obligation. WeThis ~~continue~~requires us to evaluate whether the ~~impact~~renewal ofoption ~~this~~to ~~new~~acquire ~~guidance~~additional ongoods and services provides the ~~Company,~~customer ~~including~~with ~~any~~a ~~impacts~~discount onthat ~~purchase~~is ~~accounting~~incremental orto ~~intangibles~~a ~~assets~~discount ~~from~~typically ~~our~~given ~~recent~~to ~~acquisitions~~that class of customer. We ~~expect~~concluded tothat ~~continue~~one ~~providing~~of ~~relevant~~our ~~information~~key ~~prior~~customer tocontracts ~~adoption~~includes a material right and we have accounted for this material right as a separate performance obligation.

InThese ~~January~~significant ~~2017,~~estimates ~~the~~are ~~FASB issued ASU 2017~~re-~~04,~~assessed ~~Intangibles~~each - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the existing two-step guidance for goodwill impairment testing by eliminating the second step resulting in a write-down to goodwill equal to the initial amount of impairment determined in step one. The ASU is to be applied prospectively for reporting ~~periods~~period ~~beginning~~as ~~after December 15, 2019~~required. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We have early adopted this standard in the first quarter of 2017 to reduce the complexity of calculating goodwill impairment. During the third quarter of 2017, we recognized a $9.0 million goodwill impairment charge related to our Cardpool reporting unit, reducing the carrying value of goodwill to $31.5 million. See Note 6—Goodwill for additional information on this charge.

~~Significant~~Contract ~~Accounting Policies~~Balances

~~Except~~We ~~for~~receive ~~Cardpool~~payments ~~goodwill~~from ascustomers ~~stated~~based ~~above~~upon contractual billing schedules. The timing of revenue recognition, ~~there~~billings ~~have~~and ~~been~~cash nocollections ~~material~~results ~~changes~~in tocontract ~~our~~assets ~~significant~~(billed ~~accounting~~accounts ~~policies~~receivable and unbilled receivables), and contract liabilities. We record a receivable when we have an unconditional right to invoice and receive payment in the future. Amounts recognized as ~~compared~~revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables which are anticipated to be invoiced in the ~~significant~~next ~~accounting~~twelve ~~policies~~months ~~described~~are included in Accounts receivable, net on the ~~audited~~condensed consolidated ~~financial~~balance ~~statements~~sheet. ~~and~~Long-term ~~related~~unbilled ~~notes~~receivables are included in Other assets. Amounts collected in advance of services being provided are included in Contract Liability if we expect to recognize the ~~Annual~~revenue ~~Report~~within the next twelve months. Long-term contract liabilities are included in Other Liabilities.

2. Business Acquisitions

2017 Acquisitions

CashStar

On August 29, 2017, we acquired CashStar, Inc. and its subsidiaries (collectively “CashStar”), for $166.0 million in cash. CashStar provides a digital commerce platform for the sales, marketing and distribution of digital and physical gift cards. This acquisition strengthens our position in the emerging digital gift card market and establishes our Company as a leading provider in the fast-growing, first-party digital gift card market. We financed the purchase using cash on hand and approximately $110 million of borrowings under our Restated Credit Agreement (See Note 3—Financing). We accounted for this acquisition as a business combination.

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The following table provides information about receivables and contract liabilities from contracts with customers (in thousands):

The following table presents our initial estimates of the purchase price allocation. We may make adjustments to these amounts through the measurement period as we finalize information regarding our forecasts, valuation assumptions and income taxes (in thousands):



	March 24, 2018		December 30, 2017		March 25, 2017
Accounts receivables, net	$	152,262	$	185,741	$	259,138

Unbilled receivables, current	$	143,824	$	193,734	$	167,392
Unbilled receivables, long-term	11,265		9,235		1,475
Total unbilled receivables	$	155,089	$	202,969	$	168,867

Contract liabilities, current	$	54,088	$	60,607	$	46,867
Contract liabilities, long-term	24,463		23,897		16,318
Total contract liabilities	$	78,551	$	84,504	$	63,185

Changes in contract liabilities were as follows (in thousands):

Cash and cash equivalents	$	14,469
	12 weeks ended
Restricted cash	7,820
	March 24, 2018			March 25, 2017
Settlement receivables, net	2,815
Balance, beginning of period	$	84,504		$	63,410
Identifiable technology and intangible assets	89,132
Revenue recognized that was included in the contract liability balance at beginning of period	(51,790		)	(39,222		)
Goodwill	95,387
Deferrals, excluding amounts recognized as revenue during the period	45,625			38,799
Other tangible assets, net	1,570
Exchange rate effect	212			198
Settlement payables	(7,852		)
Balance, end of period	$	78,551		$	63,185
Consumer and customer deposits	(11,779		)
Accounts payable and accrued operating expenses	(7,025		)
Debt assumed	(8,285		)
Deferred income taxes	(10,256		)
Total purchase consideration	$	165,996

~~Deferred~~Contract income taxes include $32.7 million of deferred tax liabilities for nondeductible amortization of identifiable technology and intangible assets, $20.2 million of deferred tax assets for net operating loss carryforwards, and $2.2 million for other deferred tax assets, net.Costs

AtCost ~~closing,~~to weobtain ~~repaid~~a ~~the~~contract—The ~~assumed~~Company ~~debt~~defers all incremental costs of acquiring customer contracts, which weconsist ~~present~~of insales ~~financing~~commissions ~~activities~~paid inor payable to our ~~condensed~~direct ~~consolidated~~sales ~~statements~~force. The deferred commission amounts are recoverable through future revenue streams under the contracts and are amortized on a straight-line basis over an estimated period of ~~cash~~benefit ~~flows~~of six years. WeDeferred ~~also~~commissions ~~paid~~were $38.2 million ofand ~~CashStar's~~$6.5 ~~transaction~~million ~~expenses~~at ~~included~~March ~~above~~24, ~~within~~2018 ~~accounts~~and ~~payable~~March 25, 2017, respectively. Amortization recognized during the 12 weeks ended March 24, 2018 and ~~accrued~~March ~~operating~~25, ~~expenses~~2017, ~~which~~was we$0.3 ~~present~~million inand ~~operating~~$0.3 ~~activities~~million, respectively, included in ~~our~~Sales ~~condensed~~and ~~consolidated~~marketing ~~statements~~expense. ofThere ~~cash~~was ~~flows~~no impairment loss in relation to the deferred commissions.

~~Goodwill~~Cost ~~represents~~to fulfill a contract—The Company sometimes incurs costs to fulfill its contract obligations before transferring goods or services to the ~~value~~customer. In certain card programs (for example, aggregated category gift cards), where redemption service has been identified to be the only performance obligation under ASC 606, we incur partner distribution expense upon the sale of a card prior to performing the redemption service. The costs are recoverable through the future ~~cash~~revenue ~~flows~~streams ~~from~~associated ~~new~~with ~~customers~~the card programs. Under ASC 606, such costs are deferred and recognized in Partner Distribution Expense ratably in proportion to the ~~value~~historical redemption patterns of the ~~assembled~~card ~~workforce~~portfolio over the estimated life of the card. ~~Goodwill~~Deferred ispartner ~~not~~distribution ~~expected~~expenses towere be$2.4 ~~deductible~~million ~~for~~and ~~income~~$4.3 ~~tax~~million ~~purposes~~at March 24, 2018 and March 25, 2017, respectively. Amortization recognized during the three months ended March 24, 2018 and March 25, 2017, was $2.4 million and $2.5 million, respectively. There was no impairment loss in relation to the deferred partner distribution expenses.

The following table summarizes the components of the identifiable technology and intangible assets and their estimated useful lives at the acquisition date (dollars in thousands):

	Fair Value		Useful Life
Customer relationships	$	87,132	5 years
Technology	2,000		1.5 years
Total identifiable technology and intangible assets	$	89,132

Customer relationships represent the estimated fair value of the underlying relationships and agreements with CashStar's business clients. Technology consists of CashStar's internally-developed software.

Pro forma financial information

The following table summarizes the combined pro forma results of operations of us and CashStar as though we have been combined as of the beginning of fiscal 2016 (in thousands, except per share amounts):

	36 weeks ended
	September 9, 2017			September 10, 2016
	(Unaudited)
Total revenues	$	1,317,226		$	1,139,796
Net loss attributable to Blackhawk Network Holdings, Inc.	$	(35,782	)	$	(30,846	)
Pro forma EPS—Basic	$	(0.63	)	$	(0.55	)
Pro forma EPS—Diluted	$	(0.63	)	$	(0.55	)

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~~The~~Disaggregation ~~pro forma financial information includes adjustments to reclassify acquisition-related costs from 2017 to 2016, to amortize technology and intangible assets starting at the beginning~~ of ~~2016, to reflect the impact on~~ revenue resulting from the step-down in basis of deferred revenue from its book value to its fair value as of the beginning of 2016 and to increase interest expense assuming the related financing had been applied to the beginning of 2016. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2016.

The following table provides information about disaggregated revenue by major product line for each of our segments (in thousands):

We have not presented separate results of operations since closing of us and the acquisition since the beginning of fiscal 2016, as results of operations for the acquisition are immaterial.



	12 weeks ended
	March 24, 2018
	U.S. Retail		Incentives & Rewards		International		Total
Card services—physical retail (1)	$	185,625	$	—	$	118,171	$	303,796
Card services—e-commerce (2)	25,787		12,921		—		38,708
Marketing services (3)	5,770		—		8,597		14,367
Other services (4)	14,753		44,533		13,051		72,337
	$	231,935	$	57,454	$	139,819	$	429,208

Acquisition-related expenses totaled $0.4 million, which we report in Transition and acquisition expense.



	12 weeks ended
	March 25, 2017
	U.S. Retail		Incentives & Rewards		International		Total
Card services—physical retail (1)	$	159,647	$	—	$	98,097	$	257,744
Card services—e-commerce (2)	11,459		8,719		—		20,178
Marketing services (3)	7,309		—		6,972		14,281
Other services (4)	19,558		44,541		30,110		94,209
	$	197,973	$	53,260	$	135,179	$	386,412

~~Other~~(1) Card ~~Acquisitions~~services-physical retail: This includes all prepaid products sold in our retail distribution stores and card production services.

~~During~~(2) Card ~~the~~services-e-commerce: ~~first~~This ~~quarter~~includes ofall ~~2017,~~prepaid weproducts ~~completed~~sold anonline ~~acquisition~~through ofeither aour ~~rebates~~own ~~and~~websites ~~incentives~~or ~~business. During~~third-party ~~the~~online ~~third~~retailers. ~~quarter~~It ofalso ~~2017,~~includes weour ~~acquired~~first-party ~~certain~~digital ~~assets~~business, ofour aloyalty ~~full-service~~business ~~recognition~~as ~~and~~well ~~reward~~as ~~provider~~digital ~~with~~services ~~operations~~for ~~primarily~~online inand ~~Australia~~mobile applications.

The purchase consideration for these acquisitions totaled approximately $30.1 million, which includes $27.6 million cash on hand and approximately $1.6 million related to contingent consideration, which is a cash payment of up to(3) ~~$2.0~~Marketing ~~million~~services: ~~based~~Funds onreceived ~~the~~from ~~performance~~content ofproviders ~~the acquired business through December 31, 2017, and $0.9 million relating~~ to ~~working~~promote ~~capital~~their ~~adjustments.~~prepaid Incards ~~aggregate,~~throughout ~~$8.3 million cash was acquired, and based on~~ our ~~initial~~distribution ~~estimate~~partner ~~of the purchase price allocation, $15~~network.5 ~~million was attributed to intangible assets, $13.1 million was attributed to goodwill, and $6.8 million was attributed to net tangible liabilities acquired.~~

~~For~~(4) Other ~~the~~services: ~~intangible~~This ~~assets~~includes ~~acquired,~~our ~~customer~~rebate ~~relationships~~processing ~~have~~and anreward ~~average~~fulfillment ~~useful~~businesses, ~~life~~software ~~ranging~~and reward redemption revenue from 7our toemployee 10engagement ~~years~~business, telecom handset sales, our Cardpool business and the Meetings and Events business of Grass Roots, which was sold in the fourth quarter of 2017.

WeIn ~~expect~~addition, tosee ~~deduct~~Note ~~$9.9~~10—Segment ~~million~~Reporting ~~of goodwill and $7.8 million of identifiable technology and intangible assets~~ for ~~tax~~additional ~~purposes,~~information aregarding ~~portion~~our ofreportable ~~which will commence upon settlement of contingent consideration and contingent liabilities~~segments.

WeSignificant ~~have~~changes ~~not~~in ~~presented~~accounting ~~separate~~policies ~~results~~resulting offrom ~~operations since closing or combined pro forma financial information of us and these acquisitions since~~ the ~~beginning~~adoption of ~~fiscal~~ASC ~~2016, as results of operations for these acquisitions are immaterial.~~ 606

~~Acquisition-related expenses totaled $0.4 million, which we report in Transition and acquisition expense.~~Revenue

~~2016~~Content ~~Acquisitions~~Provider Commissions—Under the new guidance, we will continue to recognize content provider commissions for closed loop cards as revenue at the time of card activation, as that is the time that our performance obligation to the content provider is complete. However, the actual revenue recognition treatment required under the new guidance may be dependent on contract-specific terms and, therefore, may vary in some instances.

OnConsumer ~~October~~Purchase 6,Fees ~~2016,~~and weProgram ~~acquired~~Management ~~all~~Fees—Under of the ~~outstanding~~new ~~common~~guidance, ~~stock~~we ofconsider ~~The~~the ~~Grass~~transaction ~~Roots~~price ~~Group~~for ~~Holdings~~our ~~Limited~~open ~~and~~loop ~~its~~gift ~~subsidiaries (collectively~~cards, ~~“Grass~~including ~~Roots”)~~our ~~for~~Visa ~~total~~gift card, to include consumer purchase ~~consideration~~fees ofand ~~£93~~program management fees.9 Under ~~million~~the new guidance, orwe ~~$119.3~~have ~~million~~identified ~~based~~three onperformance ~~the~~obligations ~~exchange~~- ~~rate~~distribution-and-activation, onredemption ~~the~~service ~~acquisition~~and ~~date~~customer care. Revenue ~~Grass~~from ~~Roots~~consumer ispurchase afees ~~leading~~and ~~provider~~program ofmanagement ~~employee~~fees, included within Commissions and ~~customer~~fees ~~engagement~~and ~~solutions,~~Program and ~~the~~other ~~acquisition~~fees, ~~broadens~~respectively, ~~the~~related ~~global~~to ~~capabilities~~our Visa gift cards will predominantly be recognized as revenue at the time of card activation when our ~~incentives~~ distribution-and-activation ~~rewards~~obligation ~~businesses.~~is

The acquisition was funded using a combination of cash on hand and borrowings under our Credit Agreement. The purchase consideration included £87.2 million, or $110.8 million, in cash and an additional £6.7 million, or $8.5 million, related to the Grass Roots Employee Benefit Trust (“GREBT”), which we include in our consolidated financial statements. At closing, we paid $0.6 million for transaction expenses.

During the second quarter of 2017, we recorded a measurement period adjustment for Grass Roots, which increased the purchase price by $0.8 million, increased accounts receivables by $0.4 million, decreased consumer and customer deposits by $1.8 million and decreased goodwill by $1.4 million.

We also recorded a measurement period adjustment for Spafinder Wellness, Inc. and its subsidiaries (collectively, “Spafinder”), which increased goodwill by $0.3 million and decreased inventory by $0.3 million. The measurement periods for IMShopping, Inc. and its subsidiary (collectively, “NimbleCommerce”) and 888extramoney.com LLC (“Extrameasures”) were closed in the first and second quarter of 2017, respectively.

The measurement period for our acquisitions of Grass Roots, Spafinder and Samba Days Experience Group Ltd. and certain of its subsidiaries remains open with respect to intangibles and deferred taxes.

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complete. The remainder will be recognized over the estimated period of card redemption as redemption service and customer care obligations are performed. Under previous GAAP, we defer these revenues and recognize them based on the redemption pattern of the card. Interchange revenue will be recognized over the period of card redemption as we provide information required for card redemption, similar to our current revenue recognition. Additionally, revenue from program management fees related to our proprietary Visa gift cards issued by MetaBank will be based on a blended rate over the appropriate periods as required by the contract-specific terms compared to a contractually stated rate under the current accounting policy. Although we expect the blended rate to be lower than the contract rate initially, the economics of the arrangement will be the same over the term of the contract period. Under previous GAAP, we defer consumer purchase fees and program management fees related to our Visa gift cards in Deferred revenue and recognize revenue ratably in proportion to the historical redemption patterns of the card portfolio over the estimated life of the card.

Rebate Processing Fees—Under the new guidance, we recognize revenue for rebates fulfilled with open loop incentive cards when we fulfill the cards to the end consumer versus ratably in proportion to historical redemption patterns as our performance obligation for rebate processing is complete at time of fulfillment. The recognition of revenue for rebates fulfilled by checks or closed loop cards is recognized at fulfillment and remains unchanged under the new guidance.

Incentive Merchandise Rewards—Under the new guidance, we classify the costs of certain incentive merchandise rewards issued in connection with our employee engagement solutions as a reduction to revenue versus a cost of products sold. These costs will only be recorded as a cost of product sold if it is determined that we control the goods or services before they are transferred to the customer. In doing so, we will evaluate (i) if we are primarily responsible for fulfilling the promise to provide the good or service; (ii) if we have inventory risk before the good or service has been transferred to customer or after transfer of control to the customer; and (iii) if we have discretion in establishing the price for the good or service.

Operating Expenses

Partner Distribution Expense—Under the new guidance, partner distribution expense for Visa gift and other open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, we defer these expenses and amortize them based on the redemption pattern of the card.

Processing and Services—Under the new guidance, card production and upfront transaction processing fees for the Visa gift card and open loop incentive cards will be recognized at the time of card activation when our distribution-and-activation obligation is complete. Under previous GAAP, these costs are deferred and expensed based on the same redemption pattern as the related revenue.

Sales and Marketing—The accounting for the recognition of costs related to obtaining customer contracts under the new guidance is different from our current capitalization policy. The adoption of the new guidance results in additional capitalized commissions which will be amortized over a longer term than our previous policy.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to explain the changes in the combined total of restricted and unrestricted cash balances in the statement of cash flows. ASU 2016-18 should be applied using a retrospective transition method, for fiscal years beginning after December 15, 2017, and early adoption is permitted. The Company adopted this new guidance using the full retrospective method in the first quarter of fiscal 2018, which impacted each prior reporting period presented. The new guidance has no impact on the Company’s condensed consolidated balance sheets or income statements; but impacted the presentation of restricted cash and restricted cash equivalents within our condensed consolidated statements of cash flows.

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Impacts to Previously Reported Results

Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated balance sheets as follows (in thousands):



	As of December 30, 2017
	As Previously Reported			Impact of Adoption			As Adjusted
Assets:
Accounts receivable, net	$	184,994		$	747		$	185,741
Other current assets	$	165,374		$	(22,637	)	$	142,737
Intangible assets, net	$	431,681		$	(703	)	$	430,978
Deferred income taxes	$	236,496		$	(699	)	$	235,797
Other assets	$	115,236		$	6,431		$	121,667
Total assets	$	4,139,680		$	(16,861	)	$	4,122,819
Liabilities:
Consumer and customer deposits	$	252,822		$	73,863		$	326,685
Contract liabilities (previously reported as Deferred revenue)	$	179,684		$	(119,077	)	$	60,607
Deferred income taxes, long term	$	28,083		$	1,002		$	29,085
Other liabilities	$	16,747		$	22,130		$	38,877
Total liabilities	$	3,469,713		$	(22,082	)	$	3,447,631
Stockholders’ equity:
Accumulated other comprehensive loss	$	(16,049	)	$	(72	)	$	(16,121	)
Retained earnings	$	72,571		$	5,293		$	77,864
Total stockholder’s equity	$	669,967		$	5,221		$	675,188



	As of March 25, 2017
	As Previously Reported			Impact of Adoption			As Adjusted
Assets:
Other current assets	$	177,463		$	(11,565	)	$	165,898
Intangible assets, net	$	340,846		$	(2,174	)	$	338,672
Deferred income taxes	$	361,404		$	577		$	361,981
Other assets	$	85,647		$	5,519		$	91,166
Total assets	$	2,559,139		$	(7,643	)	$	2,551,496
Liabilities:
Consumer and customer deposits	$	199,822		$	69,204		$	269,026
Accounts payable	$	143,858		$	(428	)	$	143,430
Contract liabilities (previously reported as Deferred revenue)	$	140,834		$	(93,967	)	$	46,867
Deferred income taxes, long term	$	28,200		$	596		$	28,796
Other liabilities	$	37,745		$	15,890		$	53,635
Total liabilities	$	1,770,504		$	(8,705	)	$	1,761,799
Stockholders’ equity:
Accumulated other comprehensive loss	$	(42,861	)	$	(106	)	$	(42,967	)
Retained earnings	$	214,833		$	1,168		$	216,001
Total stockholder’s equity	$	788,635		$	1,062		$	789,697

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Adoption of ASU 2014-09 impacted select lines in our previously reported condensed consolidated income statement as follows (in thousands, except per share amounts):



	12 weeks ended
	For the quarter ended March 25, 2017
	As Previously Reported			Impact of Adoption			As Adjusted
Operating revenues:
Commissions and fees	$	255,206		$	(5,681	)	$	249,525
Program and other fees	$	100,910		$	(5,045	)	$	95,865
Product sales	$	36,839		$	(10,098	)	$	26,741
Total operating revenues	$	407,236		$	(20,824	)	$	386,412
Operating expenses:
Partner distribution expense	$	179,476		$	(4,353	)	$	175,123
Processing and services	$	102,272		$	(1,251	)	$	101,021
Sales and marketing	$	62,785		$	(127	)	$	62,658
Costs of products sold	$	36,193		$	(8,344	)	$	27,849
Amortization of acquisition intangibles	$	13,025		$	(463	)	$	12,562
Total operating expenses	$	424,267		$	(14,538	)	$	409,729
Income tax expense (benefit)	$	(9,775	)	$	(2,307	)	$	(12,082	)
Net income (loss) attributable to Blackhawk Network Holdings, Inc.	$	(13,486	)	$	(3,979	)	$	(17,465	)
Diluted earnings (loss) per share	$	(0.24	)	$	(0.07	)	$	(0.31	)

Adoption of ASU 2014-09 and ASU 2016-18 impacted select lines in our previously reported condensed consolidated statement of cash flows as follows (in thousands):



	12 weeks ended
	March 25, 2017
	As Previously Reported			Impact of Adoption			As Adjusted
Net loss	$	(13,363	)	$	(3,979	)	$	(17,342	)
Amortization of intangibles	$	14,218		$	(463	)	$	13,755
Deferred income taxes	$	—		$	(2,307	)	$	(2,307	)
Change in operating assets and liabilities:
Other current assets	$	(2,215	)	$	(4,931	)	$	(7,146	)
Other assets	$	(3,158	)	$	121		$	(3,037	)
Consumer and customer deposits	$	(24,484	)	$	56,502		$	32,018
Accounts payable and accrued operating expenses	$	(4,218	)	$	(427	)	$	(4,645	)
Contract liabilities (previously reported as Deferred revenue)	$	3,585		$	(605	)	$	2,980
Other current and long-term liabilities	$	(1,403	)	$	2,038		$	635
Net cash provided (used in ) by operating activities	$	(766,147	)	$	45,949		$	(720,198	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	$	6,372		$	90		$	6,462
Increase (decrease) in cash, cash equivalents and restricted cash	$	(793,589	)	$	46,039		$	(747,550	)
Cash, cash equivalents and restricted cash—beginning of period	$	1,008,125		$	10,793		$	1,018,918
Cash, cash equivalents and restricted cash—end of period	$	214,536		$	56,832		$	271,368

In March 2018, the FASB issued ASU 2018-05 Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. ASU 2018-05 formally amended ASC Topic 740, Income Taxes (“ASC 740”) for the guidance previously provided by SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC 740 in the reporting period in which the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law. The Company

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adopted SAB 118 in the fourth quarter of year-end 2017 and therefore, the Company’s subsequent adoption of ASU 2018-05 in the first quarter of year-end 2018 had no impact on its accounting for income taxes in the first quarter of year-end 2018. Additional information regarding the accounting for income taxes for the Tax Reform Act is contained in Note 8, Income Taxes.

Except for the adoption of ASU 2014-09, ASU 2016-18 and ASU 2018-05 as stated above, there have been no material changes to our significant accounting policies, as compared to the significant accounting policies described in the audited consolidated financial statements and related notes included in the Annual Report.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 changes the current lease accounting standard by requiring the recognition of lease assets and lease liabilities for all leases, including those currently classified as operating leases. This new guidance is to be applied under a modified retrospective application to the earliest reporting period presented for reporting periods beginning after December 15, 2018. Early adoption is permitted. We plan to adopt this guidance for our 2019 fiscal year. While management is evaluating the comprehensive impact of this guidance, this new guidance would require us to capitalize, at the appropriate discount rate, our operating lease commitments.

2. Business Acquisitions

There were no acquisitions entered into during the first quarter of 2018. There were also no measurement period adjustments made in the first quarter of 2018. The measurement period for the rebates and incentives business acquired during the first quarter of 2017 is now closed.

3. Financing

Credit Agreement

In ~~March~~On ~~2017~~January 11, 2018, we ~~repaid~~borrowed an additional $~~10.0~~75 million ofin the form of a term loan ~~outstanding~~ under ~~our~~the Amended and Restated Credit Agreement, asdated ~~amended~~July ~~and~~27, ~~restated~~2016, (between the ~~“Restated~~Company and lenders party thereto and Wells Fargo Bank, National Association as administrative agent (Credit Agreement”), as further amended. The terms of the new term loan are substantially similar to the outstanding term loan.

On ~~April~~March 2021, ~~2017~~2018, we ~~borrowed~~repaid ~~an additional~~ $~~50.0~~15 million of the term loan outstanding under the ~~Restated~~amended Credit Agreement. ~~The terms of the new term loan are substantially similar to the outstanding term loan.~~

The following table presents the amounts due by maturity date of our term loan and convertible notes as of March 24, 2018 (in thousands):

On April 25, 2017, we entered into an amendment to the Restated Credit Agreement to extend the term loan commitments provided by the lenders under our Restated Credit Agreement to January 12, 2018 and made certain modifications to the financial and other covenants to add operating flexibility, including modification of the leverage covenant and increasing the dollar limitation on dividends, stock repurchases and other restricted payments under certain conditions.



	March 24, 2018
2019	$	15,000
2020	30,000
2021	230,000
2022	500,000
Total long-term debt	$	775,000

OnAs ~~August~~a ~~28,~~result ~~2017,~~of ~~we entered into~~ the ~~second~~covenants ~~amendment~~in to the ~~Restated~~amended Credit Agreement which, ~~among~~require ~~other~~us ~~things,~~to ~~modified~~maintain ~~the~~certain ~~definition~~leverage ratios of ~~Consolidated~~total debt to adjusted EBITDA~~. As~~ a(as ~~result,~~defined wein ~~can~~the ~~access~~amended anCredit ~~increased~~Agreement), ~~portion~~and depending on our levels of ~~the~~adjusted ~~available~~EBITDA, ~~lending~~we ~~commitments~~are tolimited ~~fund~~in ~~permitted~~our ~~acquisitions~~ability ~~and~~to ~~for~~incur ~~other~~additional ~~corporate~~indebtedness ~~purposes~~either under the ~~Restated~~amended Credit Agreement or through other debt facilities. These limitations also affect the amount of capital we can allocate to acquisitions, internal capital developments and capital returned to stockholders.

~~The following table presents the amounts due by maturity date of our term loan and convertible notes as of September 9, 2017 (in thousands):~~15

	September 9, 2017
2018	$	10,000
2019	10,000
2020	20,000
2021	150,000
2022	500,000
Total long-term debt	$	690,000

As a result of the covenants in our Restated Credit Agreement which require us to maintain certain leverage ratios of total debt to adjusted EBITDA (as defined in the Restated Credit Agreement), and depending on our levels of adjusted EBITDA, we are limited in our ability to incur additional indebtedness either under the Restated Credit Agreement or through other debt facilities. These limitations also affect the amount of capital we can allocate to acquisitions, internal capital developments and capital returned to stockholders.

4. Fair Value Measurements

We measure certain assets and liabilities at fair value on a recurring basis. The table below summarizes the fair values of these assets and liabilities as of September 9, 2017, December 31, 2016 and September 10, 2016 (in thousands):

	September 9, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	75	$	—	$	—	$	75
Liabilities
Contingent consideration	$	—	$	—	$	14,792	$	14,792

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	December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	300,015	$	—	$	—	$	300,015
Liabilities
Contingent consideration	$	—	$	—	$	23,752	$	23,752

4. Fair Value Measurements

	September 10, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	5,112	$	—	$	—	$	5,112
Liabilities
Contingent consideration	$	—	$	—	$	22,200	$	22,200

We measure certain assets and liabilities at fair value on a recurring basis. The table below summarizes the fair values of these assets and liabilities as of March 24, 2018, December 30, 2017 and March 25, 2017 (in thousands):



	March 24, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	43,236	$	—	$	—	$	43,236
Contingent asset	$	—	$	—	$	6,413	$	6,413
Liabilities
Contingent consideration	$	—	$	—	$	4,029	$	4,029



	December 30, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	694,075	$	—	$	—	$	694,075
Contingent asset	$	—	$	—	$	6,131	$	6,131
Liabilities
Warrants	$	—	$	20,000	$	—	$	20,000
Contingent consideration	$	—	$	—	$	3,886	$	3,886



	March 25, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents
Money market mutual funds	$	4,073	$	—	$	—	$	4,073
Liabilities
Contingent consideration	$	—	$	—	$	21,096	$	21,096

Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities. Level 1 investments include money market mutual funds.

Level 2— Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.

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. Level 3 includes the estimated fair value of our contingent consideration liabilities. We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets.

During the 3612 weeks ended ~~September~~March 924, ~~2017~~2018, there were no transfers between levels.

Term loan —As of ~~September~~March 924, ~~2017~~2018, using Level 2 inputs, we estimate the fair value of our term loan (classified as Note payable on the balance sheet) to be approximately $~~190~~275.0 million.

Convertible notes payable—As of ~~September~~March 924, ~~2017~~2018, using Level 2 inputs, we estimate the fair value of our convertible notes payable to be approximately $~~565~~552.05 million.

Contingent ~~consideration~~asset—~~We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets.~~ The changes in fair value of contingent ~~consideration~~asset for the 36the ~~weeks~~first ~~ended~~quarter ~~September 9,~~of ~~2017~~2018 ~~and~~is ~~September 10,~~due ~~2016~~to ~~are~~foreign ascurrency ~~follows~~translation ~~(in thousands):~~adjustment.

	36 weeks ended
	September 9, 2017			September 10, 2016
Balance, beginning of period	$	23,752		$	—
Additions from acquisitions (see Note 2—Business Acquisitions)	1,640			20,100
Change in fair value of contingent consideration	(5,097		)	2,100
Settlement	(5,503		)	—
Balance, end of period	$	14,792		$	22,200

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Contingent consideration—We estimate the fair value of the contingent consideration based on our estimates of the probability of achieving the relevant targets and discount rates reflecting the risk of meeting these targets. The changes in fair value of contingent consideration for the 12 weeks ended March 24, 2018 and March 25, 2017 are as follows (in thousands):



	12 weeks ended
	March 24, 2018		March 25, 2017
Balance, beginning of period	$	3,886	$	23,752
Additions from acquisitions	—		2,000
Foreign currency translation adjustments	43		—
Change in fair value of contingent consideration	100		1,040
Settlement	—		(5,696		)
Balance, end of period	$	4,029	$	21,096

We present the change in the fair value of contingent consideration in Change in fair value of contingent consideration and as a noncash adjustment to net income in our condensed consolidated statements of cash flows. A significant increase (decrease) in our estimates of the amounts payable for and probability of achieving the relevant targets or a significant decrease (increase) in the discount rate could materially increase (decrease) the estimated fair value of contingent consideration.

13As of March 25, 2017, related to our acquisition of 888extramoney.com LLC (“Extrameasures”), $5.7 million was estimated to be payable for achieving relevant targets during the first earn-out year, and we estimated the fair value of the remaining contingent consideration based on our estimates of the amounts payable for and probability of achieving the relevant targets and a discount rate of 17%.

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The issuance and increase in fair value of contingent consideration during 2016 was related to our acquisition of Extrameasures. During the 36 weeks ended September 9, 2017, we paid out $5.5 million for achieving relevant targets during the first earn-out year, and we estimated the fair value of the remaining contingent consideration based on our estimates of the amounts payable for and probability of achieving the relevant targets and a discount rate of 17%.

5. Consolidated Financial Statement Details

The following tables represent the components of Other current assets, Other assets, Other current liabilities and Other liabilities as of ~~September~~March 924, ~~2017~~2018, December 3130, ~~2016~~2017 and ~~September~~March 1025, ~~2016~~2017 consisted of the following (in thousands):

	September 9, 2017		December 31, 2016		September 10, 2016
	March 24, 2018		December 30, 2017		March 25, 2017
Other current assets:
Inventory	$	4038,~~124~~663	$	4337,~~950~~007	$	3548,~~634~~683
Deferred expenses	194,~~194~~894		225,~~148~~831		123,~~099~~334
Income tax receivables	4118,~~393~~547		1310,~~599~~823		3822,~~427~~960
Other	44,159		51,678		37,759
Contract asset	540		702		1,657
Assets held for sale	46,821		—		—
Other	68,451		64,912		44,313
Total other current assets	$	191,691	$	131,375	$	123,919
Assets held for sale	27,206		23,462		44,951
Total other current assets	$	158,301	$	142,737	$	165,898
Other assets:
Deferred program and contract costs	$	38118,~~820~~819	$	4860,~~066~~000	$	4448,~~388~~678
Other receivables	111,~~646~~265		29,~~713~~235		1,~~390~~475
Income tax receivables	2,~~270~~323		2,~~358~~321		—2,358
Deferred financing costs	2,~~999~~579		2,~~688~~759		2,~~871~~552
Other	40,875		30,031		20,390
Contract asset	—		—		516
Total other assets	$	86,610	$	85,856	$	69,039
Other	50,753		47,352		35,587
Total other assets	$	185,739	$	121,667	$	91,166
Other current liabilities:
Payroll and related liabilities	$	2834,~~920~~693	$	2443,~~944~~022	$	2528,~~425~~198
Income taxes payable	41,~~994~~841		48,~~199~~056		3,~~158~~860
Acquisition liability	52,~~983~~329		64,~~672~~012		119,~~250~~047
Other payables and accrued liabilities	10,509		15,361		8,797
Warrant liability	—		20,000		—
Liabilities held for sale	24,398		—		—
Other payables and accrued liabilities	15,353		25,292		9,836
Total other current liabilities	$	74,804	$	51,176	$	48,630
Liabilities held for sale	2,237		2,441		34,710
Total other current liabilities	$	56,453	$	102,823	$	85,651
Other liabilities:
Contingent consideration	$	91,~~800~~700	$	171,~~080~~874	$	1017,~~950~~744
Income taxes payable	43,~~595~~393		63,~~957~~883		67,~~213~~056
Deferred income and other liabilities	12,249		15,616		8,266
Contract liability	24,463		23,897		16,318
Total other liabilities	$	26,644	$	39,653	$	25,429
Other long-term liabilities	15,411		9,223		12,517
Total other liabilities	$	44,967	$	38,877	$	53,635

Assets held for sale

~~During~~On ~~the~~October ~~third~~9, ~~quarter of~~ 2017, the ~~Company~~Board ~~recorded~~of anDirectors ~~impairment~~approved ~~charge~~management’s plan to ~~reduce~~sell the ~~carrying~~Cardpool ~~value~~gift ofcard exchange business. As we begin to actively market the Cardpool ~~reporting~~business, ~~unit~~we may identify specific assets and liabilities to ~~its~~be ~~estimated~~retained ~~fair~~by ~~value~~the Company. ~~See~~ ~~Note~~It ~~6—Goodwill~~is probable that such sale will occur within one year from the date of approval. As a result, beginning from the time the plan was approved, Cardpool’s assets and liabilities were accounted for ~~additional~~as ~~information~~held onfor ~~this~~sale ~~charge~~and measured at the lower of its carrying value or fair value less cost to sell.

On October 9, 2017, subsequent to the end of the third quarter of 2017, the Board of Directors approved management’s plan to sell the Cardpool gift card exchange business. As we begin to actively market the Cardpool business, we may identify specific assets and liabilities to be retained by the Company. It is probable that such sale will occur within one year. As a result, beginning from the time the plan was approved, Cardpool’s assets and liabilities will be accounted for as held for sale and measured at the lower of its carrying value or fair value less cost to sell. If it is determined, as a result of our selling efforts, that the carrying value of the net assets to be sold is higher than the expected selling price less the costs to sell, additional impairment charges will be recorded.18

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The following table presents the aggregate carrying amounts of the major classes of assets and liabilities as of ~~September~~March 924, ~~2017~~2018 related to the Cardpool business (in thousands):

	September 9, 2017
	March 24, 2018
Other current assets	$	56,~~708~~349
Property, equipment and technology, net	78,~~097~~467
Goodwill	318,~~491~~991
Intangible assets, net	431
Total assets	$	4424,~~727~~238
Accounts payable and accrued operating expenses	$	1,~~479~~468
Other current liabilities	~~503~~377
Deferred revenue	167
Contract liabilities	392
Total liabilities	$	2,~~149~~237

During the first quarter of ~~2017~~2018, ~~management~~the ~~approved~~Cardpool ~~a plan to sell all assets and liabilities related to Grass Roots’ Meetings & Events (“M&E”)~~ business. Itrecorded ispre-tax ~~probable~~loss ~~that~~of ~~such sale will occur within one year~~$1.8 Asmillion aduring ~~result, beginning from~~ the ~~time~~period ~~the~~it ~~plan~~ was ~~approved, each of the relevant asset and liability balances will be~~ accounted for as an asset held for sale ~~and measured at the lower of its carrying value or fair value less cost to sell~~. Based on the purchase price allocation performed in the fourth quarter of 2016, we believe that the carrying value of all the relevant assets and liabilities does not exceed fair value less cost to sell.

~~The~~Also ~~following~~included ~~table~~in ~~presents~~Assets ~~the~~held ~~aggregate~~for ~~carrying~~sale ~~amounts~~is of$3.0 ~~the~~million ~~major~~related ~~classes~~to ofa ~~assets~~building ~~and~~in ~~liabilities~~the ~~related~~UK tothat ~~the~~was ~~M&E~~held ~~business~~for sale as of ~~September~~March 924, ~~2017~~2018. ~~(in~~The ~~thousands):~~sale has since been completed.

	September 9, 2017
Accounts receivable, net	$	9,737
Other current assets	3,002
Property, equipment and technology, net	490
Intangible assets, net	6,173
Goodwill	26,303
Deferred income taxes	1,116
Total assets held for sale	$	46,821
Settlement payables	$	7,061
Consumer and customer deposits	1,812
Accounts payable and accrued operating expenses	3,135
Deferred revenue	1,784
Other current liabilities	10,493
Deferred income taxes	113
Total liabilities held for sale	$	24,398

During the first three quarters of 2017, the M&E business recorded pre-tax income of $1.6 million during the period it was accounted for as an asset held for sale.

6. Goodwill

We have assigned goodwill to our U.S. Retail, Incentives & Rewards and International segments. ~~During~~To ~~the first quarter of 2017~~date, ~~as a result of changes in reporting financial results to our Chief Operating Decision Maker (“CODM”),~~ we ~~concluded~~have ~~that~~recorded wegoodwill ~~would~~impairment ~~report~~charges ~~the~~totaling ~~international~~$31.5 ~~incentives~~million ~~businesses~~and ~~within the International reportable segment~~$46.0 ~~Accordingly,~~million werelated ~~re-allocated a portion of the goodwill from the Incentives & Rewards segment~~ to the ~~International~~Cardpool ~~segment~~and ~~based~~Blackhawk onEngagement ~~their~~Solutions ~~relative~~reporting units respectively.

15In March 2018, management became aware that a retail distribution partner in Germany will not be renewing its contract with us after the contract expires at the end of 2018. Accordingly, we performed a goodwill impairment test incorporating such information and determined that the fair value of the Europe East reporting unit exceeded its carrying value by $19.1 million, or 22%. The fair value was determined using a combination of the income approach and the market approach. We believe that the income approach is the more reliable indication of value since it incorporates estimated revenues and earnings for the Europe East reporting unit that the market approach may not directly incorporate. Therefore, a weighting of 75% was assigned to the income approach and a weighting of 25% was assigned to the market approach. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for indicators of goodwill impairment.

We also assessed the recoverability of the intangible asset related to the Germany retail distribution partner relationships as we concluded that an impairment indicator was present in the current quarter. As of March 24, 2018, the Germany retail distribution partner relationship intangible asset had a remaining carrying value of $18.8 million. The results of the recoverability test indicated that the estimate future undiscounted cash flows exceeded the carrying value of the asset, therefore no impairment was recorded during the quarter. We continue to monitor potential triggering events in our Europe East reporting unit.

A summary of changes in goodwill during the 12 weeks ended March 24, 2018 is as follows (in thousands):



	March 24, 2018
	U.S. Retail		Incentives & Rewards			International		Total
Balance, beginning of period	$	132,660	$	335,298		$	95,447	$	563,405
Foreign currency translation adjustments	—		(814		)	3,322		2,508
Balance, end of period	$	132,660	$	334,484		$	98,769	$	565,913

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fair values. As we continue to develop our e-commerce strategy, we also re-allocated a portion of the e-commerce goodwill from U.S. Retail to Incentives & Rewards to align with the way our business is managed.

We had performed our annual review of goodwill balances for impairment as of September 11, 2016. For the Cardpool reporting unit, we performed both a qualitative and quantitative assessment of goodwill impairment and determined that Cardpool had an elevated risk of goodwill impairment due to its exposure to lowered expectations of sales volume related to the card exchange business and lower operating margins. Based on this assessment, the fair value of the Cardpool reporting unit exceeded its carrying value by $3.4 million, or 6.9%.

Subsequent to the annual goodwill impairment assessment performed in the fourth quarter of 2016, we continued to monitor the actual performance of Cardpool and determined the fair value of Cardpool was not less than its carrying value for the first and second quarter of fiscal 2017. During the third quarter of 2017, we determined that there were indicators present to suggest that it was more likely than not that the fair value of the Cardpool reporting unit was less than its carrying amount. The significant changes for the Cardpool reporting unit, subsequent to the annual goodwill impairment test performed in the fourth quarter of 2016, included a decline in forecasted operating revenues, operating income and cash flows. To test for impairment, we estimated the fair value of the Cardpool reporting unit under the income approach, discounting estimated future cash flows using a weighted-average cost of capital, based on a rate of return available from similar, alternative investments and reflecting the inherent risks associated with the estimated cash flows. To reduce the carrying value to its estimated fair value, we recorded an impairment charge of $9.0 million during the third quarter of 2017, reducing the carrying value of Cardpool goodwill to $31.5 million.

On October 9, 2017, subsequent to the end of the third quarter of 2017, the Board of Directors approved management’s plan to sell the Cardpool gift card exchange business. If it is determined, as a result of our selling efforts, that the carrying value of the net assets to be sold is higher than the expected selling price less the costs to sell, additional impairment charges will be recorded. See Note 5 —Consolidated Financial Statement Details for additional information.

A summary of changes in goodwill during the 36 weeks ended September 9, 2017 is as follows (in thousands):

	September 9, 2017
	U.S. Retail			Incentives & Rewards			International			Total
Balance, beginning of period	$	99,685		$	366,508		$	104,205		$	570,398
Goodwill impairment	(9,000		)	—			—			(9,000		)
Re-allocation of international Incentives goodwill	—			(7,152		)	7,152			—
Re-allocation of e-commerce goodwill	(10,505		)	10,505			—			—
Acquisitions (see Note 2—Business Acquisitions)	—			105,306			3,153			108,459
Measurement period of adjustments for 2016 acquisitions	338			—			(1,384		)	(1,046		)
Asset held for sale (see Note 5—Consolidated Financial Statement Details)	—			—			(26,303		)	(26,303		)
Foreign currency translation adjustments	—			2,344			11,414			13,758
Balance, end of period	$	80,518		$	477,511		$	98,237		$	656,266

7. Stock-Based Compensation

During the 3612 weeks ended ~~September~~March 924, ~~2017~~2018, our Board of Directors granted 1665,~~024,169~~733 restricted stock units. ~~and~~No ~~200,700~~ performance stock units. were granted during 12 weeks ended March 24, 2018.

16The following table presents total stock-based compensation expense according to the income statement line in our condensed consolidated statements of income (loss) for 12 weeks ended March 24, 2018 and March 25, 2017 (in thousands):

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	12 weeks ended
	March 24, 2018		March 25, 2017
Processing and services	$	1,779	$	1,702
Sales and marketing	2,558		2,812
Cost of products sold	16		17
General and administrative	3,709		3,870
Total stock-based compensation expense	$	8,062	$	8,401

The following table presents total stock-based compensation expense according to the income statement line in our condensed consolidated statements of income (loss) for the 12 weeks ended and 36 weeks ended September 9, 2017 and September 10, 2016 (in thousands):

	12 weeks ended				36 weeks ended
	September 9, 2017		September 10, 2016		September 9, 2017		September 10, 2016
Processing and services	$	1,681	$	1,401	$	5,181	$	4,365
Sales and marketing	2,705		2,759		8,401		8,600
Cost of products sold	14		31		35		89
General and administrative	3,709		4,102		10,943		11,811
Total stock-based compensation expense	$	8,109	$	8,293	$	24,560	$	24,865

8. Income Taxes

~~Our~~On ~~effective~~December ~~tax rates were 61.0% and 62.3% for the 12 weeks ended September 9~~22, 2017, ~~and~~the ~~September~~Tax ~~10,~~Reform ~~2016,~~Act ~~respectively,~~was ~~and~~signed ~~49.1%~~into ~~and~~law ~~48.8%~~by ~~for~~ the 36President ~~weeks~~of ~~ended~~the ~~September 9,~~United ~~2017 and September 10, 2016, respectively~~States. ~~The~~We ~~decrease~~recognized in the ~~effective~~income tax ~~rate~~effects ~~for~~of the 12Tax ~~weeks~~Reform ~~ended~~Act ~~September~~in 9,our 2017 ~~compared~~financial tostatements ~~the~~in 12accordance ~~weeks~~with ~~ended~~SAB ~~September 10~~118, ~~2016~~subsequently ~~was~~codified ~~primarily~~by ~~due~~ASU to2018-05 ~~prior~~(see ~~year~~Note ~~discrete~~1, ~~tax~~The ~~benefit~~Company ~~for~~and aSignificant ~~tax~~Accounting ~~return to provision true-up~~Policies, ~~compared~~Recently toAdopted aAccounting ~~current~~Pronouncements), ~~year~~which ~~discrete~~provides ~~tax~~guidance ~~benefit~~for ~~related~~the toapplication anof ~~uncertain~~ASC ~~tax~~740 ~~position. The increase~~ in the ~~effective~~reporting ~~tax~~period ~~rate~~in ~~for~~which the 36Tax ~~weeks~~Reform ~~ended~~Act ~~September 9,~~was ~~2017~~signed ~~compared~~into tolaw. ~~the~~The 36guidance ~~weeks~~addresses ~~ended~~how ~~September 10,~~a ~~2016~~company ~~was~~recognizes ~~primarily~~provisional ~~due~~amounts towhen a ~~current~~company ~~year~~does ~~discrete~~not ~~tax~~have ~~benefit~~the ~~related~~necessary toinformation anavailable, ~~uncertain~~prepared ~~tax~~or ~~position~~analyzed ~~and excess tax benefits of employee stock-based compensation~~ (~~both~~including ~~increasing~~computations) ~~the~~in ~~effective~~reasonable ~~tax~~detail ~~rate due~~ to ~~pre-tax~~complete ~~loss),~~its ~~compared~~accounting tofor athe ~~prior~~effect ~~year~~of ~~discrete~~the ~~tax~~changes ~~benefit~~in ~~for~~the aTax ~~tax~~Reform ~~return to provision true-up~~Act.

As noted at year-end 2017 our accounting for the Tax Reform Act is incomplete, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the Deemed Repatriation Transition Tax and are continuing to evaluate its impact on outside basis differences with respect to our foreign operations. Further, we are continuing to assess how to account for the global intangible low-taxed income of foreign subsidiaries from an accounting policy standpoint.

Our effective tax rates were 42.5% and 41.1% for the 12 weeks ended March 24, 2018 and March 25, 2017, respectively. The increase in the effective tax rate for the 12 weeks ended March 24, 2018 compared to the 12 weeks ended March 25, 2017 was primarily due to current year U.S. taxation of certain income of our foreign subsidiaries and a discrete tax benefit related to an uncertain tax position (increasing the effective tax rate due to pre-tax loss), offset by a decrease in the U.S. federal corporate tax rate effective for our fiscal year ending December 29, 2018.

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9. Commitments and Contingencies

Distribution Partner Commitments

Our sales and marketing teams manage our relationships with our distribution partners and develop retail marketing programs and communication strategies to reach our consumers. We provide or fund product display fixtures and provide or coordinate merchandising visits intended to maintain in-stock conditions on the displays. We also manage or participate in the design of effective in-store marketing programs funded jointly by our distribution partners.

Future commitments to our distribution partners as of March 24, 2018 are as follows (in thousands):



	Distribution Partner Commitments
2018	$	62,088
2019	67,772
2020	50,458
2021	46,751
2022 and after	86,574
Distribution partner commissions (uncertainty in timing of future payments)	6,232
Total	$	319,875

Included above is $130.0 million which represents the maximum potential payments depending on performance under the arrangements. The estimated fair value of such commitments is approximately $12.0 million.

Contingencies

From time to time, we enter into contracts containing provisions that require us to indemnify various parties against certain potential claims from third parties. Under contracts with certain issuing banks, we are responsible to the banks for any unrecovered overdrafts on cardholders’ accounts. Under contracts with certain content providers, retail distribution partners and issuing banks, we are responsible for potential losses resulting from certain claims from third parties. Because the indemnity amounts associated with these agreements are not explicitly stated, the maximum amount of the obligation cannot be reasonably estimated. Historically, we have paid immaterial amounts pursuant to these indemnification provisions.

We are subject to audits related to various indirect taxes, including, but not limited to, sales and use taxes, value-added tax, and goods and services tax, in various foreign and state jurisdictions. We evaluate our exposure related to these audits and potential audits and do not believe that it is probable that any audit would hold us liable for any material amounts due.

Legal ~~Matters~~and other matters

There are various claims and lawsuits arising in the normal course of business pending against us, including the matters described below, some of which seek damages and other relief which, if granted, may require future cash expenditures. Management does not believe that it is probable that the resolution of these matters would result in any liability that would materially affect our results of operations or financial condition.

OnWe ~~March~~have ~~30,~~equity ~~2015,~~investments ~~Greg Haney~~ in ~~his~~various ~~capacity as representative of the selling stockholders of CardLab, Inc~~markets. ~~filed a lawsuit against us~~ inWith ~~the~~respect ~~Delaware~~to ~~Chancery~~one ~~Court~~of ~~(the~~our ~~“Court”)~~equity ~~(CardLab~~investments, ~~Inc. v. Blackhawk Network Holdings, Inc., Case No. 10851). The complaint generally alleged that~~ we ~~failed~~are tocurrently ~~disclose~~in ~~material~~dispute ~~information~~and ~~relating~~attempting to anegotiate ~~potential earn-out payment in connection~~ with ~~our~~certain ~~acquisition~~ of ~~CardLab,~~the ~~Inc.~~investment inpartners ~~2014.~~regarding Onthe ~~August~~future 8,operations ~~2017,~~of ~~the~~such ~~parties~~investment. ~~agreed~~The tocarrying ~~dismiss~~value ~~the~~of ~~action~~such injoint ~~its~~investment ~~entirety~~is ~~with prejudice~~$8.8 ~~Accordingly,~~million ~~the~~as ~~parties filed a Stipulation~~ of ~~Dismissal~~March 24, 2018, which ~~was~~may ~~granted~~be onadjusted ~~August~~depending ~~15,~~on ~~2017,~~the ~~dismissing~~outcome ~~all~~of ~~claims~~the ~~with~~negotiation ~~prejudice~~attempts.

In addition, we transact business in non-U.S. markets and may, from time to time, be subject to disputes and tax audits by foreign tax authorities related to value added or other indirect taxes typically on commissions or fees we receive from non-resident content providers. After the application of third party indemnities, our present exposure is approximately $54.16 million, primarily in a single jurisdiction. If we were to be assessed for this exposure, we believe it is probable that we will prevail.

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10. Segment Reporting

Our three reportable segments are U.S. Retail, Incentives & Rewards and International. During the first quarter of 2017, as a result of changes in reporting financial results to our CODM, we concluded that we would report the international incentives businesses within the International reportable segment. We ~~also~~do ~~determined~~not ~~that~~assess itperformance ~~would~~based beon ~~appropriate~~assets ~~to allocate all costs that have been previously reported within Corporate~~ and ~~Unallocated:~~do i)not ~~account~~provide ~~management~~information ~~and~~on ~~marketing personnel, ii)~~ the ~~substantial~~assets ~~majority~~ of our ~~technology~~reportable ~~personnel~~segments ~~and~~to ~~related~~our ~~depreciation~~CODM. ~~and~~The ~~amortization~~key ofmetrics ~~technology~~used and related hardware, iii) accounting, finance, legal, compliance, human resources and other administrative functions and iv) noncash charges including amortization of acquisition intangibles, stock-based compensation and change in fair value of contingent consideration, to the respective reportable segments.

We do not assess performance based on assets and do not provide information on the assets of our reportable segments to our CODM. The key metrics used by our CODM to assess segment performance include Operating revenues, Operating revenues, net of Partner distribution expense and segment profit. 21

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by our CODM to assess segment performance include Operating revenues, Operating revenues, net of Partner distribution expense and segment profit.

The following tables present the key metrics used by our CODM for the evaluation of segment performance, including certain significant noncash charges (consisting of certain depreciation and amortization of property, equipment and technology and distribution partner stock-based compensation expense) which have been deducted from the segment profit amounts shown below, and reconciliations of these amounts to our condensed consolidated financial statements (in thousands):

12 weeks ended

September 9, 2017

March 24, 2018

U.S. Retail

Incentives & Rewards

International

Consolidated

Total operating revenues

~~204~~231,~~420~~935

8057,~~671~~454

~~134~~139,~~168~~819

~~419~~429,~~259~~208

Partner distribution expense

~~115~~130,~~565~~190

5,~~521~~027

7583,~~547~~232

~~196~~218,~~633~~449

Operating revenues, net of Partner distribution expense

88101,~~855~~745

7552,~~150~~427

5856,~~621~~587

~~222~~210,~~626~~759

Other operating expenses

~~100~~108,~~527~~777

7659,~~382~~076

5861,~~418~~989

~~235~~229,~~327~~842

Segment profit (loss) / Operating income (loss)

(117,~~672~~032

)

(16,~~232~~649

)

~~203~~(5,402

)

(1219,~~701~~083

)

Other income (expense)

(68,~~743~~010

)

Income (loss) before income tax expense

(1927,~~444~~093

)

Noncash charges

2218,~~324~~158

1214,~~953~~870

8,~~377~~370

12 weeks ended

September 10, 2016

March 25, 2017

U.S. Retail

Incentives & Rewards

International

Consolidated

Total operating revenues

~~195~~197,~~878~~973

6353,~~803~~260

~~101~~135,~~879~~179

~~361~~386,~~560~~412

Partner distribution expense

~~103~~97,~~473~~978

43,~~996~~856

6973,~~894~~289

~~178~~175,~~363~~123

Operating revenues, net of Partner distribution expense

9299,~~405~~995

5849,~~807~~404

3161,~~985~~890

~~183~~211,~~197~~289

Other operating expenses

89108,~~768~~604

6556,~~981~~827

3769,~~541~~175

~~193~~234,~~290~~606

Segment profit (loss) / Operating income (loss)

2(8,~~637~~609

)

(7,~~174~~423

)

(57,~~556~~285

)

(1023,~~093~~317

)

Other income (expense)

(36,~~324~~107

)

Income (loss) before income tax expense

(1329,~~417~~424

)

Noncash charges

1013,~~070~~856

2214,~~148~~718

47,~~402~~829

1822

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	36 weeks ended
	September 9, 2017
	U.S. Retail			Incentives & Rewards			International			Consolidated
Total operating revenues	$	649,763		$	224,598		$	415,280		$	1,289,641
Partner distribution expense	342,041			16,257			219,336			577,634
Operating revenues, net of Partner distribution expense	307,722			208,341			195,944			712,007
Other operating expenses	321,138			219,130			205,872			746,140
Segment profit (loss) / Operating income (loss)	$	(13,416	)	$	(10,789	)	$	(9,928	)	$	(34,133	)
Other income (expense)										(19,234		)
Income (loss) before income tax expense										$	(53,367	)
Noncash charges	$	49,600		$	40,652		$	24,902

	36 weeks ended
	September 10, 2016
	U.S. Retail		Incentives & Rewards			International			Consolidated
Total operating revenues	$	648,982	$	184,576		$	285,670		$	1,119,228
Partner distribution expense	329,827		13,045			198,877			541,749
Operating revenues, net of Partner distribution expense	319,155		171,531			86,793			577,479
Other operating expenses	304,212		196,122			105,259			605,593
Segment profit (loss) / Operating income (loss)	$	14,943	$	(24,591	)	$	(18,466	)	$	(28,114	)
Other income (expense)									(10,610		)
Income (loss) before income tax expense									$	(38,724	)
Noncash charges	$	35,313	$	60,449		$	14,267

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11. Earnings Per Share

The following table provides reconciliations of net income (loss) and shares used in calculating basic earnings (loss) per share (“EPS”) to those used in calculating diluted EPS (in thousands, except per share amounts):



	12 weeks ended
	March 24, 2018						March 25, 2017
	Basic			Diluted			Basic			Diluted
Net income (loss) attributable to common stockholders	$	(15,767	)	$	(15,767	)	$	(17,465	)	$	(17,465	)
Weighted-average common shares outstanding	56,477			56,477			55,904			55,904
Common share equivalents				—						—
Weighted-average shares outstanding				56,477						55,904
Earnings (loss) per share	$	(0.28	)	$	(0.28	)	$	(0.31	)	$	(0.31	)

	12 weeks ended
	September 9, 2017						September 10, 2016
	Basic			Diluted			Basic			Diluted
Net income (loss) attributable to Blackhawk Network Holdings, Inc.	$	(7,766	)	$	(7,766	)	$	(5,102	)	$	(5,102	)
Distributed and undistributed earnings allocated to participating securities	—			—			—			—
Net income (loss) attributable to common stockholders	$	(7,766	)	$	(7,766	)	$	(5,102	)	$	(5,102	)
Weighted-average common shares outstanding	56,709			56,709			55,668			55,668
Common share equivalents				—						—
Weighted-average shares outstanding				56,709						55,668
Earnings (loss) per share	$	(0.14	)	$	(0.14	)	$	(0.09	)	$	(0.09	)

The weighted-average common shares outstanding for diluted EPS for the 12 weeks ended March 24, 2018 and March 25, 2017, excluded approximately 4,378,000 and 5,307,000, respectively, of total potential common stock outstanding because the effect would have been anti-dilutive.

	36 weeks ended
	September 9, 2017						September 10, 2016
	Basic			Diluted			Basic			Diluted
Net income (loss) attributable to Blackhawk Network Holdings, Inc.	$	(27,603	)	$	(27,603	)	$	(19,992	)	$	(19,992	)
Distributed and undistributed earnings allocated to participating securities	—			—			(15		)	(15		)
Net income (loss) attributable to common stockholders	$	(27,603	)	$	(27,603	)	$	(20,007	)	$	(20,007	)
Weighted-average common shares outstanding	56,355			56,355			55,851			55,851
Common share equivalents				—						—
Weighted-average shares outstanding				56,355						55,851
Earnings (loss) per share	$	(0.49	)	$	(0.49	)	$	(0.36	)	$	(0.36	)

The weighted-average common shares outstanding for diluted EPS for the 12 weeks ended September 9, 2017 and September 10, 2016, excluded approximately 4,770,000 and 6,266,000, respectively, and for the 36 weeks ended September 9, 2017 and September 10, 2016, excluded approximately 5,041,000 and 5,971,000, respectively, of total potential common stock outstanding because the effect would have been anti-dilutive.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and ~~our~~the Annual Report ~~filed on Form 10-K filed with the Securities and Exchange Commission (the “SEC”)~~, on February 2728, ~~2017~~2018 (the Annual Report). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. You should review the “Risk Factors” section of ~~our~~the Annual Report and the “Special Note regarding Forward-Looking Statements” section and the “Risk Factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Special Note regarding Forward Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are indicated by words or phrases such as “guidance,” “believes,” “expects,” “intends,” “forecasts,” “can,” “could,” “may,” “anticipates,” “estimates,” “plans,” “projects,” “seeks,” “should,” “targets,” “will,” “would,” “outlook,” “continuing,” “ongoing,” “on track” and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following:

•~~our~~the ~~ability~~occurrence toof ~~grow~~any ~~adjusted~~event, ~~operating~~change ~~revenues~~or ~~and~~other ~~net~~circumstance ~~income~~that ascould ~~anticipated,~~give rise to the termination of the Merger Agreement;

•~~our~~the ~~ability~~failure to ~~grow~~obtain atcertain ~~historic~~required ~~rates~~regulatory approvals to the completion of the Merger or atthe ~~all,~~failure to satisfy any of the other conditions to the completion of the Merger;

•the ~~consequences~~effect ~~should~~of wethe ~~lose~~announcement ~~one~~of orthe ~~more~~Merger ofon our ~~top~~ability ~~distribution~~to ~~partners,~~retain ~~fail~~and tohire ~~maintain~~key orpersonnel ~~renew~~and ~~existing~~maintain relationships with our ~~distribution~~ partners, onclients, ~~the~~customers, ~~same~~providers, oradvertisers, ~~similar~~and ~~economic~~others ~~terms~~with orwhom ~~fail~~we todo ~~attract~~business, ~~new distribution partners to our network~~ or ifon ~~the financial performance of~~ our ~~distribution~~operating ~~partners’~~results and businesses ~~decline,~~generally;

•~~our~~risks ~~reliance~~associated onwith ~~our~~the ~~content~~disruption ~~providers,~~of ~~the~~management’s ~~demand~~attention ~~for~~from ~~their~~ongoing ~~products~~business ~~and~~operations due to the Merger; our ~~exclusivity~~ability ~~arrangements~~to ~~with~~meet ~~them,~~expectations regarding the timing and completion of the Merger;

•our ~~reliance~~ability onto ~~relationships~~grow ~~with~~adjusted ~~card~~operating ~~issuing~~revenues ~~banks,~~and net income as anticipated;

•~~the consequences to~~ our ~~future~~ability ~~growth if our distribution partners fail~~ to ~~actively~~grow ~~and~~at ~~effectively~~historic ~~promote~~rates ~~our~~or ~~products~~at ~~and~~all; ~~services,~~

•~~changes~~the inconsequences ~~consumer~~should ~~behavior~~we ~~away~~lose ~~from~~one or more of our top distribution partners, fail to maintain or renew existing relationships with our ~~products~~distribution ~~resulting~~partners ~~from~~on ~~limits~~the same or ~~controls~~similar ~~implemented~~economic byterms ~~our~~or fail to attract new distribution partners ~~during~~to ~~their~~our ~~transition~~network toor ~~comply~~if ~~with~~the ~~Europay,~~financial ~~MasterCard~~performance ~~and~~of ~~Visa~~our ~~(“EMV”)~~distribution ~~requirements,~~partners’ businesses decline;

•our ~~ability~~reliance toon ~~successfully~~our ~~integrate~~content providers, the demand for their products and our ~~acquisitions,~~exclusivity arrangements with them;

•our ~~ability~~reliance toon ~~generate~~relationships ~~adequate~~with ~~taxable~~card ~~income~~issuing tobanks; ~~enable us to fully utilize our tax benefits,~~

•~~changes~~the inconsequences ~~applicable~~to ~~tax~~our ~~law~~future ~~that~~growth ~~preclude~~if usour ~~from~~distribution ~~fully~~partners ~~utilizing~~fail to actively and effectively promote our ~~tax~~products ~~benefits,~~and services;

•~~the~~changes ~~requirement~~in ~~that~~consumer webehavior ~~comply~~away ~~with~~from ~~applicable~~our ~~laws~~distribution ~~and~~partners ~~regulations,~~or ~~including~~our ~~increasingly~~products ~~stringent~~resulting ~~anti-money~~from ~~laundering~~limits ~~rules~~or ~~and~~controls ~~regulations~~implemented by our distribution partners during their transition to comply with Europay, MasterCard and Visa (“EMV”) requirements;

•~~other risks and uncertainties described in~~ our ~~reports~~ability ~~and~~to ~~filings~~successfully ~~with~~integrate ~~the SEC, including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in~~ our ~~Annual Report on the Form 10-K for the year ended December 31, 2016, this Quarterly Report on Form 10-Q and other subsequent periodic reports we file with the SEC.~~ acquisitions;

•our ability to generate adequate taxable income to enable us to fully utilize our tax benefits;

•changes in applicable tax law that preclude us from fully utilizing our tax benefits;

•the requirement that we comply with applicable laws and regulations, including increasingly stringent anti-money laundering rules and regulations; and

•other risks and uncertainties described in our reports and filings with the SEC, including the risks and uncertainties set forth in Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 30, 2017, this Quarterly Report on Form 10-Q and other subsequent periodic reports we file with the SEC.

Furthermore, such forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

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Quarterly Results of Operations and Seasonality

22Merger Agreement

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Key Operating Statistics

The following table sets forth key operating statistics that directly affect our financial performance, a reconciliation of Commissions and fees and Program and other fees to Prepaid and processing revenues and a reconciliation of Total operating revenues to Adjusted operating revenues for the 12 ~~and 36~~ weeks ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017:

	12 weeks ended						~~36 weeks ended~~
	September 9, 2017			September 10, 2016			September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
	(in thousands, except percentages and per share amounts)
Prepaid and processing revenues	$	365,329		$	312,995		$	1,111,992		$	958,411
Prepaid and processing revenues:
Partner distribution expense as a % of prepaid and processing revenues	53.8		%	57.0		%	51.9		%	56.5		%
Commissions and fees	$	288,626		$	249,525
Prepaid and processing revenues:
Program and other fees	101,402			95,865
Commissions and fees	$	269,737		$	248,138		$	807,576		$	750,693
Prepaid and processing revenues	$	390,028		$	345,390
Program and other fees	95,592			64,857			304,416			207,718
Partner distribution expense as % of prepaid and processing revenues	56.0		%	50.7		%
Prepaid and processing revenues	$	365,329		$	312,995		$	1,111,992		$	958,411
Total operating revenues	$	429,208		$	386,412
Total operating revenues	$	419,259		$	361,560		$	1,289,641		$	1,119,228
Revenue adjustment from purchase accounting (2)	520			1,574
Revenue adjustment from purchase accounting (2)	965			3,666			4,454			11,875
Marketing revenue and other pass-through revenue	(17,708		)	(16,980		)
Marketing revenue and other pass-through revenue	(15,336		)	(17,943		)	(59,969		)	(52,098		)
Partner distribution expense	(218,449		)	(175,123		)
Partner distribution expense	(196,633		)	(178,363		)	(577,634		)	(541,749		)
Adjusted operating revenues (1)	$	193,571		$	195,883
Adjusted operating revenues (1)	$	208,255		$	168,920		$	656,492		$	537,256

(1)

Our Adjusted operating revenues is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. This measure, however, should be considered in addition to, and not as a substitute for or superior to, operating revenues, operating income, operating margin, cash flows, or other measures of the financial performance prepared in accordance with GAAP.


(2)	Impact on revenues recognized resulting from the step down in basis of deferred revenue from its carrying value to fair value in a business combination at the acquisition date.

Prepaid and Processing Revenues—Represents the total amount of Commissions and fees and Program and other fees recognized during the period. Our prepaid product revenues vary among our various product offerings: content provider commissions from closed loop gift and prepaid telecom cards; program management fees, interchange, software revenue and other fees included in Program and other fees in addition to the consumer and client purchase fees included in Commissions and fees from open loop gift cards and incentive and reward products and services; for our employee engagement businesses, the gross billings are recorded as deferred revenue and recognized as the products are delivered or services are rendered, and we only include the portion of revenue related to software in Program and other fees in this metric, as we present revenue from the redemption of employee rewards in Product sales.

Partner Distribution Expense as a Percentage of Prepaid and Processing Revenues—Represents partner distribution expense divided by Prepaid and processing revenues during the period. Partner Distribution Expense represents the expense recognized for the portion of content provider commissions and purchase or load fees shared with our retail distribution partners (known as distribution partner commissions), as well as other compensation we pay our retail business partners and certain business clients, including certain program development payments to our retail distribution partners, compensation for the distribution of our open loop products and expense recognized for equity awards issued to certain retail distribution partners. We present this expense as a percentage of prepaid and processing revenues to present the overall portion of our revenues from the sale of our prepaid products and services that we share with our retail distribution partners and business clients. The substantial majority of this expense is distribution partner commissions which are based on a percentage of the gross content provider commissions and consumer purchase fees. These percentages are individually negotiated with our retail distribution partners and are independent of the commission rates negotiated between us and our content providers. Partner distribution expense percentage is affected by changes in the proportion of sales i) among our various products (as we share significantly lower amounts of revenues included in Program and other fees generated by our open loop gift, open loop incentive and financial services products), ii) among our various regions (as commission share percentages differ from region to region, particularly those with sub-distributor relationships) and iii) among retail distribution partners (as the commission share percentage is individually negotiated with each retail distribution partner).

23Adjusted Operating Revenues—We regard Adjusted operating revenues as a useful measure of operational and financial performance of the business. Adjusted operating revenues are prepared and presented to offset the distribution commissions

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paid and other compensation to ~~region~~our distribution partners and business clients, ~~particularly~~to ~~those~~remove ~~with~~marketing ~~sub~~revenues and other pass-~~distributor~~through ~~relationships)~~revenues which have offsetting marketing expenses included in Sales and ~~iii)~~marketing ~~among~~expense ~~retail~~and ~~distribution~~to ~~partners~~remove ~~(as~~the impact of the ~~commission~~step ~~share~~down ~~percentage~~in isbasis ~~individually~~of ~~negotiated~~deferred ~~with~~revenue ~~each~~from ~~retail~~its ~~distribution~~book ~~partner)~~value to its fair value in purchase accounting. Our Adjusted operating revenues may not be comparable to similarly titled measures of other organizations because other organizations may not calculate these measures in the same manner as we do. You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.

Adjusted Operating Revenues—We regard Adjusted operating revenues as a useful measure of operational and financial performance of the business. Adjusted operating revenues are prepared and presented to offset the distribution commissions paid and other compensation to our distribution partners and business clients, to remove marketing revenues and other pass-through revenues which have offsetting marketing expenses included in Sales and marketing expense and to remove the impact of the step down in basis of deferred revenue from its book value to its fair value in purchase accounting. Our Adjusted operating revenues may not be comparable to similarly titled measures of other organizations because other organizations may not calculate these measures in the same manner as we do. You are encouraged to evaluate our adjustments and the reasons we consider them appropriate.

We believe Adjusted operating revenues is useful to evaluate our operating performance for the following reasons:


•	adjusting our operating revenues for distribution commissions paid and other compensation to our retail distribution partners and business clients is useful to understanding our operating margin;


•	adjusting our operating revenues for marketing and other pass-through revenue, which has offsetting expense, is useful for understanding our operating margin;


•	in a business combination, a company records an adjustment to reduce the carrying value of deferred revenue to its fair value and reduces the company’s revenues from what it would have recorded otherwise, and as such we do not believe is indicative of our core operating performance.

Transaction Dollar Volume—For our incentives and rewards businesses, transaction dollar volume generally dodoes not correlate with the amount of revenues recognized in the same period. Due to the growth of our incentives businesses worldwide, we no longer monitor this metric at the reportable segment level for Incentives & Rewards and International. Transaction dollar volume remains a key operating statistic for our U.S. Retail segment as discussed in our Results of Operations.

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Results of Operations

Comparison of the 12 ~~and 36~~ Weeks ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017

The fiscal periods presented in the accompanying tables below and throughout this Results of Operations section consist of the 12-week ~~and 36-week~~ periods ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017 (the ~~third~~first quarter of ~~2017~~2018 and ~~third~~first quarter of ~~2016~~2017, respectively).

The following tables set forth the revenue and expense amounts as a percentage of total operating revenues by the line items in our condensed consolidated statements of income (loss) for the ~~third~~first quarter of ~~2017~~2018 and ~~third~~first quarter of ~~2016~~2017.

	12 weeks ended September 9, 2017			% of Total Operating Revenues		12 weeks ended September 10, 2016			% of Total Operating Revenues
	12 weeks ended March 24, 2018			% of Total Operating Revenues		12 weeks ended March 25, 2017			% of Total Operating Revenues
	(in thousands, except percentages)
OPERATING REVENUES:
Commissions and fees	$	~~269~~288,~~737~~626		6467.32	%	$	~~248~~249,~~138~~525		68.6	%
Program and other fees	95101,~~592~~402			2223.86	%	6495,~~857~~865			17.9	%
Marketing	14,~~348~~367			3.43	%	1714,~~943~~281			5.0	%
Product sales	3924,~~582~~813			9.5.9	%	3026,~~622~~741			8.5	%
Total operating revenues	~~419~~429,~~259~~208			100.0	%	~~361~~386,~~560~~412			100.0	%
OPERATING EXPENSES:
Partner distribution expense	~~196~~218,~~633~~449			4650.9	%	~~178~~175,~~363~~123			4945.2	%
Processing and services	9392,~~877~~949			2221.36	%	75101,~~818~~021			2126.01	%
Sales and marketing	5864,~~711~~181			1415.0	%	5262,~~327~~658			1416.52	%
Costs of products sold	3724,~~148~~256			85.97	%	2927,~~122~~849			87.12	%
General and administrative	2429,~~122~~322			56.8	%	2129,~~773~~025			67.05	%
Transition and acquisition	~~665~~4,927			01.21	%	~~2,574~~451			0.71	%
Amortization of acquisition intangibles	1314,~~904~~107			3.3	%	1012,~~376~~562			23.93	%
Change in fair value of contingent consideration	~~(2,~~100		)	~~(0.5~~—	)%	1,~~300~~040			0.43	%
Goodwill impairment	9,000			2.1	%	—			—	%
Total operating expenses	448,291			104.4	%	409,729			106.0	%
Total operating expenses	431,960			103.0	%	371,653			102.8	%
OPERATING INCOME (LOSS)	(19,083		)	(4.4	)%	(23,317		)	(6.0	)%
OPERATING INCOME (LOSS)	(12,701		)	(3.0	)%	(10,093		)	(2.8	)%
OTHER INCOME (EXPENSE):
Interest income and other income (expense), net	~~631~~(224		)	(0.21	)%	~~2,360~~836			0.72	%
Interest expense	(7,~~374~~786		)	(1.8	)%	(56,~~684~~943		)	(1.68	)%
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)	(1927,~~444~~093		)	(4.6.3	)%	(1329,~~417~~424		)	(3.7.6	)%
INCOME TAX EXPENSE (BENEFIT)	(11,~~858~~505		)	(2.87	)%	(812,~~357~~082		)	(2.3.1	)%
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	(715,~~586~~588		)	(13.86	)%	(517,~~060~~342		)	(1.4.5	)%
Loss (income) attributable to non-controlling interests, net of tax	(~~180~~179		)	(0.1	)%	(42123		)	—	%
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.	$	(715,~~766~~767	)	(13.97	)%	$	(517,~~102~~465	)	(1.4.5	)%

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	36 weeks ended September 9, 2017			% of Total Operating Revenues		36 weeks ended September 10, 2016			% of Total Operating Revenues
	(in thousands, except percentages)
OPERATING REVENUES:
Commissions and fees	$	807,576		62.6	%	$	750,693		67.1	%
Program and other fees	304,416			23.6	%	207,718			18.6	%
Marketing	53,454			4.2	%	52,098			4.6	%
Product sales	124,195			9.6	%	108,719			9.7	%
Total operating revenues	1,289,641			100.0	%	1,119,228			100.0	%
OPERATING EXPENSES:
Partner distribution expense	577,634			44.8	%	541,749			48.4	%
Processing and services	303,829			23.6	%	226,634			20.2	%
Sales and marketing	199,218			15.4	%	166,176			14.8	%
Costs of products sold	117,882			9.1	%	103,163			9.2	%
General and administrative	78,710			6.1	%	67,827			6.1	%
Transition and acquisition	2,021			0.2	%	4,160			0.4	%
Amortization of acquisition intangibles	40,577			3.1	%	35,533			3.2	%
Change in fair value of contingent consideration	(5,097		)	(0.4	)%	2,100			0.2	%
Goodwill impairment	9,000			0.7	%	—			—
Total operating expenses	1,323,774			102.6	%	1,147,342			102.5	%
OPERATING INCOME (LOSS)	(34,133		)	(2.6	)%	(28,114		)	(2.5	)%
OTHER INCOME (EXPENSE):
Interest income and other income (expense), net	2,134			0.2	%	3,258			0.3	%
Interest expense	(21,368		)	(1.7	)%	(13,868		)	(1.3	)%
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	(53,367		)	(4.1	)%	(38,724		)	(3.5	)%
INCOME TAX EXPENSE (BENEFIT)	(26,224		)	(2.0	)%	(18,884		)	(1.7	)%
NET INCOME (LOSS) BEFORE ALLOCATION TO NON-CONTROLLING INTERESTS	(27,143		)	(2.1	)%	(19,840		)	(1.8	)%
Loss (income) attributable to non-controlling interests, net of tax	(460		)	—	%	(152		)	—	%
NET INCOME (LOSS) ATTRIBUTABLE TO BLACKHAWK NETWORK HOLDINGS, INC.	$	(27,603	)	(2.1	)%	$	(19,992	)	(1.8	)%

We identify our reportable segments based on how we manage our operations and how our Chief Operating Decision Maker (“CODM”) reviews financial information. Our reportable segments are described below:


•	U.S. Retail - sale of prepaid cards to consumers in the U.S. through our physical retail distribution partners as well as through our various online distribution channels.


•	Incentives & Rewards - our incentives businesses in the U.S., which provide software, services and prepaid products to business clients for their loyalty, incentive and reward programs, our e-commerce incentives business, as well as our Achievers business in Canada.

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•	International - our retail and incentives businesses outside of the United States, except for our Achievers business in Canada, which is reported in the Incentives & Rewards segment.

Further information regarding our reportable segments can be found in Note 10—Segment Reporting.

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Operating Revenues, Partner Distribution Expense and Operating Revenues, net of Partner Distribution Expense

The following tables set forth our consolidated Total operating revenues, Partner distribution expense and Operating revenues, net of Partner distribution expense for the 12-week ~~and 36-week~~ periods ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017.

12 weeks ended

September 9, 2017

September 10, 2016

Change

March 24, 2018

March 25, 2017

Change

(in thousands, except percentages)

OPERATING REVENUES:

Commissions and fees

~~269~~288,~~737~~626

~~248~~249,~~138~~525

2139,~~599~~101

815.7

Program and other fees

95101,~~592~~402

6495,~~857~~865

305,~~735~~537

475.48

Marketing

14,~~348~~367

1714,~~943~~281

~~(3,595~~86

)

~~(20.~~0.6

Product sales

3924,~~582~~813

3026,~~622~~741

8(1,~~960~~928

)

29(7.32

Total operating revenues

~~419~~429,~~259~~208

~~361~~386,~~560~~412

5742,~~699~~796

1611.01

Partner distribution expense

~~196~~218,~~633~~449

~~178~~175,~~363~~123

1843,~~270~~326

1024.27

Operating revenues, net of Partner distribution expense

~~222~~210,~~626~~759

~~183~~211,~~197~~289

~~39,429~~(530

)

21(0.53

	36 weeks ended
	September 9, 2017		September 10, 2016		Change
	(in thousands, except percentages)
OPERATING REVENUES:
Commissions and fees	$	807,576	$	750,693	$	56,883	7.6	%
Program and other fees	304,416		207,718		96,698		46.6	%
Marketing	53,454		52,098		1,356		2.6	%
Product sales	124,195		108,719		15,476		14.2	%
Total operating revenues	$	1,289,641	$	1,119,228	$	170,413	15.2	%
Partner distribution expense	577,634		541,749		35,885		6.6	%
Operating revenues, net of Partner distribution expense	$	712,007	$	577,479	$	134,528	23.3	%

U.S. Retail

The following tables set forth our Total operating revenues, Partner distribution expense and Operating revenues, net of Partner distribution expense and related key operating statistics for our U.S. Retail segment for the 12-week ~~and 36-week~~ periods ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017.

	12 weeks ended
	September 9, 2017			September 10, 2016			Change
	March 24, 2018			March 25, 2017			Change
	(in thousands, except percentages)
Total operating revenues	$	~~204~~231,~~420~~935		$	~~195~~197,~~878~~973		$	833,~~542~~962		417.42	%
Partner distribution expense	~~115~~130,~~565~~190			~~103~~97,~~473~~978			1232,~~092~~212			1132.79	%
Operating revenues, net of Partner distribution expense	$	88101,~~855~~745		$	9299,~~405~~995		$	(31,~~550~~750	)	(31.8	)%
Transaction dollar volume (1)	$	2,~~052~~202,~~745~~142		$	1,~~816~~824,~~665~~213		$	~~236~~377,~~080~~929		1320.07	%
Prepaid and processing revenues	$	~~186~~209,~~187~~111		$	168,~~242~~703		$	1740,~~945~~408		1024.70	%
Prepaid and processing revenues as a percentage of transaction dollar volume (2)	9.15		%	9.32		%	(0.23		)%	(23.23	)%
Partner distribution expense as a percentage of prepaid and processing revenues	62.13		%	6158.51		%	04.62		%	17.02	%

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	36 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
Total operating revenues	$	649,763		$	648,982		$	781		0.1	%
Partner distribution expense	342,041			329,827			12,214			3.7	%
Operating revenues, net of Partner distribution expense	$	307,722		$	319,155		$	(11,433	)	(3.6	)%
Transaction dollar volume (1)	$	6,114,300		$	5,822,170		$	292,130		5.0	%
Prepaid and processing revenues	$	569,588		$	543,437		$	26,151		4.8	%
Prepaid and processing revenues as a percentage of transaction dollar volume (2)	9.3		%	9.3		%	—		%	—	%
Partner distribution expense as a percentage of prepaid and processing revenues	60.1		%	60.7		%	(0.6		)%	(1.0	)%


(1)	Transaction dollar volume represents the total dollar amount of value loaded onto any of our prepaid products. The dollar amount and volume of card sales and rebates processed directly affect the amount of our revenues and direct costs. We measure and monitor Transaction dollar volume by retail distribution partner channel and content provider program.

(2)

Prepaid and processing revenues as a percentage of transaction dollar volume—Represents the total amount of Commissions and fees and Program and other fees recognized during the period as a percentage of Transaction dollar volume for the same period. Our prepaid product revenues vary among our various product offerings: closed loop gift and prepaid telecom cards generate the highest rates due to the content provider commissions; open loop gift cards also generate high rates due to program management fees, interchange and other fees included in Program and other fees in addition to the consumer purchase fees included in Commissions and fees; financial services products generate the lowest rates due to higher average transaction values. This metric helps us understand and manage overall margins from our product offerings.

• Transaction dollar volume—On October 1, 2015, the payment industry shifted liability for certain debit and credit card transactions to retailers who do not accept EMV chip technology transactions. During 2016, our non-EMV compliant distribution partners placed restrictions on the sale of open loop gift cards and some closed loop gift cards until they completed their EMV implementation. By the end of 2016, most of our distribution partner locations were EMV compliant and had lifted those restrictions. In 2017, the negative impact of restricted sales has gradually decreased which is reflected in higher transaction dollar volume in the third quarter and first 36 weeks of 2017. These increases were partially offset by the discontinuation of certain low-margin financial services programs, including certain co-branded general-purpose reloadable (“GPR”) cards.

• Prepaid and processing revenues as a percentage of transaction dollar volume—Decreased for the third quarter of 2017 due to a lower prepaid and processing revenue rate for open loop gift products, which resulted from a shift in mix from lower denomination cards to higher denomination cards due to the reduction of the impact from EMV restrictions. Prepaid and processing revenues as a percentage of transaction dollar volume was also impacted by a lower program management fee rate that will continue to decrease as a result of a contract amendment with MetaBank, our primary issuing bank, based on changing redemption patterns for open loop products. Prepaid and processing revenues as a percentage of transaction dollar volume for the first 36 weeks of 2017 did not change compared to the same period in 2016 primarily due to increased sales of higher-margin products and the discontinuation of certain low-margin financial services programs, offset by a lower prepaid and processing revenue rate for open loop gift cards and increased sales of lower-margin closed gift products.

• Partner distribution expense as a percentage of prepaid and processing revenues—Partner distribution expense as a percentage of prepaid and processing revenues increased for the third quarter of 2017 due to an increase in the proportion of closed loop sales through retail distribution partners with higher commission share rates. This impact was partially offset by higher sales of open loop gift cards which have a lower partner distribution expense as a percentage of prepaid and processing revenues. For the first 36 weeks of 2017, partner distribution expense as a percentage of prepaid and processing revenues decreased due to higher sales of open loop gift cards as well as an increase in sales through our online distribution channels which we do not incur partner distribution expense. This decrease was partially offset by a higher partner distribution expense as a percentage of prepaid and processing revenues on sales of our closed loop gift cards. The Company has recently experienced increasing competitive

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pressures in some U.S. retail markets which are expected to result in higher partner distribution expense as a percentage of prepaid and processing revenues.

Our Operating revenues, net of Partner distribution expense were also impacted by a decrease of $7.2 million and $23.5 million for the third quarter and first 36 weeks of 2017, respectively, in sales from Cardpool. In the third quarter of 2017, we recorded a goodwill impairment charge of $9.0 million related to our Cardpool reporting unit, reducing the carrying value of Cardpool goodwill to $31.5 million. See Note 6—Goodwill and Critical Accounting Policies and Estimates for additional information on this charge.

Incentives & Rewards

The following tables set forth our Total operating revenues, Partner distribution expense and Operating revenues, net of Partner distribution expense and related key operating statistics for our Incentives & Rewards segment for the 12-week and 36-week periods ended September 9, 2017 and September 10, 2016.

	12 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
Total operating revenues	$	80,671		$	63,803		$	16,868		26.4	%
Partner distribution expense	5,521			4,996			525			10.5	%
Operating revenues, net of Partner distribution expense	$	75,150		$	58,807		$	16,343		27.8	%
Prepaid and processing revenues	$	55,359		$	54,071		$	1,288		2.4	%
Partner distribution expense as a percentage of prepaid and processing revenues	10.0		%	9.2		%	0.8		%	8.7	%

	36 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
Total operating revenues	$	224,598		$	184,576		$	40,022		21.7	%
Partner distribution expense	16,257			13,045			3,212			24.6	%
Operating revenues, net of Partner distribution expense	$	208,341		$	171,531		$	36,810		21.5	%
Prepaid and processing revenues	$	159,594		$	155,927		$	3,667		2.4	%
Partner distribution expense as a percentage of prepaid and processing revenues	10.2		%	8.4		%	1.8		%	21.4	%

• Prepaid and processing revenues—Prepaid and processing revenues increased $1.3 million in the third quarter of 2017, driven by the growth in our employee engagement business. Prepaid and processing revenues grew $3.7 million for the first 36 weeks of 2017 primarily due to an increase of $5.9 million in our employee engagement business and an increase of $2.1 million in our rebate and incentives processing business. This increase was partially offset by a one-time benefit of $4.3 million in the first 36 weeks of 2016 as a result of a contractual amendment with one of our issuing banks that did not repeat in 2017.

• Partner distribution expense as a percentage of prepaid and processing revenues—Increased for the third quarter and first 36 weeks of 2017 due to higher proportion of sales through business clients for which we recognize net pricing discounts as an expense.

Our Operating revenues and Operating revenues net of Partner distribution expense also increased for the third quarter and first 36 weeks of 2017 due to an increase in product sales of $15.3 million and $36.1 million for the third quarter and first 36 weeks of 2017, respectively, from the growth in our employee engagement business and loyalty programs.

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~~International~~• Transaction dollar volume—Increased due to higher sales of prepaid products as a result of the expansion of our retail network, increased sales through our online distribution channels as well as our acquisition of CashStar, Inc. and its subsidiaries (collectively “CashStar”) in the third quarter of 2017.

~~The~~• ~~following~~Prepaid ~~tables~~and ~~set~~processing ~~forth~~revenues ~~our~~as ~~Total~~a ~~operating~~percentage ~~revenues,~~of ~~Partner~~transaction ~~distribution~~dollar ~~expense~~volume—In ~~and~~the ~~Operating~~first ~~revenues~~quarter of 2018, ~~net~~we ofentered ~~Partner~~into ~~distribution~~a ~~expense~~contractual ~~and~~amendment related ~~key~~to ~~operating~~an ~~statistics~~open ~~for~~loop ~~our~~product ~~International~~which ~~segment~~resulted ~~for~~in ~~the~~a 12one-~~week~~time benefit of $7.1 million which we recognized in Program and ~~36-week~~other ~~periods~~fees. ~~ended~~Excluding ~~September 9~~this benefit, ~~2017~~our Prepaid and ~~September 10,~~processing ~~2016~~revenue rate remained the same as the first quarter of 2017 at 9.2%.

	12 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
Total operating revenues	$	134,168		$	101,879		$	32,289		31.7	%
Partner distribution expense	75,547			69,894			5,653			8.1	%
Operating revenues, net of Partner distribution expense	$	58,621		$	31,985		$	26,636		83.3	%
Prepaid and processing revenues	$	123,783		$	90,682		$	33,101		36.5	%
Partner distribution expense as a percentage of prepaid and processing revenues	61.0		%	77.1		%	(16.1		)%	(20.9	)%

•

Partner distribution expense as a percentage of prepaid and processing revenues—Partner distribution expense as a percentage of prepaid and processing revenues increased for the first quarter of 2018 due to an increase in the proportion of closed loop sales through retail distribution partners with higher commission share rates as well as recent increases in competitive pressures in some U.S. retail markets which we expect to continue to result in higher partner distribution expense as a percentage of prepaid and processing revenues. These impacts were partially offset by higher sales of open loop gift cards which have a lower partner distribution expense as a percentage of prepaid and processing revenues.

	36 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
Total operating revenues	$	415,280		$	285,670		$	129,610		45.4	%
Partner distribution expense	219,336			198,877			20,459			10.3	%
Operating revenues, net of Partner distribution expense	$	195,944		$	86,793		$	109,151		125.8	%
Prepaid and processing revenues	$	382,810		$	259,047		$	123,763		47.8	%
Partner distribution expense as a percentage of prepaid and processing revenues	57.3		%	76.8		%	(19.5		)%	(25.4	)%

Our Operating revenues, net of Partner distribution expense for the first quarter of 2018 was also impacted by $5.4 million lower revenues from Cardpool and $1.6 million lower marketing revenue.

•Incentives Prepaid and processing revenues—Our acquisition of The Grass Roots Group Holdings Limited and its subsidiaries (collectively, “Grass Roots”) in the fourth quarter of 2016 accounted for increases of $21.7 million and $89.3 million in prepaid and processing revenues for the third quarter and the first 36 weeks of 2017, respectively, of which $7.5 million for the third quarter and $42.9 million for the first 36 weeks of 2017 related to the Meetings & Events business (see Note 5—Consolidated Financial Statement Details—Assets held for sale). Prepaid and processing revenues also increased $11.4 million for the third quarter of 2017 due to increased sales volume in all regions, primarily Germany, South Korea, Brazil and Australia. Prepaid and processing revenues increased $35.2 million for the first 36 weeks of 2017, due to increased sales volume in all regions, primarily Germany, South Korea, Mexico and Australia.Rewards

•The ~~Partner~~following ~~distribution~~tables ~~expense~~set asforth ~~a percentage of prepaid and processing revenues—Decreased mainly due to~~ our ~~acquisition~~Total ofoperating ~~Grass Roots~~revenues, ~~which~~Partner ~~did not incur any partner~~ distribution expense. ~~Excluding~~and ~~Grass~~Operating ~~Roots~~revenues, ~~our~~net ~~partner~~of Partner distribution expense ~~as a percentage of prepaid~~ and ~~processing~~related ~~revenue~~key ~~decreased~~operating ~~from~~statistics ~~77.1% to 74.0%~~ for ~~the~~our ~~third~~Incentives ~~quarter~~& ~~and~~Rewards ~~from~~segment ~~77.1% to 74.7%~~ for the ~~first~~12-week periods 36ended ~~weeks~~March 24, of2018 ~~2017. The decrease for both the third quarter~~ and ~~first 36 weeks of 2017 is due to higher sales of products which have lower partner distribution expense along with a decrease in proportion of sales through our sub-distributor relationships~~March 25, ~~primarily in Japan (for which we share a higher portion of commission but for which we incur minimal other operating expenses)~~2017.

Operating revenues and Operating revenues, net of Partner distribution expense were also impacted by a decrease in marketing revenue of $1.9 million for the third quarter of 2017 and an increase of $4.7 million, for the first 36 weeks of 2017, mainly due to activity in Japan and Australia.



	12 weeks ended
	March 24, 2018			March 25, 2017			Change
	(in thousands, except percentages)
Total operating revenues	$	57,454		$	53,260		$	4,194		7.9	%
Partner distribution expense	5,027			3,856			1,171			30.4	%
Operating revenues, net of Partner distribution expense	$	52,427		$	49,404		$	3,023		6.1	%
Prepaid and processing revenues	$	52,999		$	49,389		$	3,610		7.3	%
Partner distribution expense as a percentage of prepaid and processing revenues	9.5		%	7.8		%	1.7		%	21.8	%


•	Prepaid and processing revenues—Prepaid and processing revenues increased $3.6 million in the first quarter of 2018, driven by the growth in our employee engagement business, loyalty programs and e-commerce channel. These increases were partially offset by decreases in other incentives programs.


•	Partner distribution expense as a percentage of prepaid and processing revenues—Increased for the first quarter due to higher proportion of sales through business clients for which we recognize net pricing discounts as an expense, partially offset by growth in businesses where we do not incur partner distribution expense.

Our Operating revenues and Operating revenues net of Partner distribution expense also increased for the first quarter of 2018 due to an increase in product sales of $0.5 million from the growth in our loyalty programs.

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International

The following tables set forth our Total operating revenues, Partner distribution expense and Operating revenues, net of Partner distribution expense and related key operating statistics for our International segment for the 12-week periods ended March 24, 2018 and March 25, 2017.



	12 weeks ended
	March 24, 2018			March 25, 2017			Change
	(in thousands, except percentages)
Total operating revenues	$	139,819		$	135,179		$	4,640		3.4	%
Partner distribution expense	83,232			73,289			9,943			13.6	%
Operating revenues, net of Partner distribution expense	$	56,587		$	61,890		$	(5,303	)	(8.6	)%
Prepaid and processing revenues	$	127,918		$	127,298		$	620		0.5	%
Partner distribution expense as a percentage of prepaid and processing revenues	65.1		%	57.6		%	7.5		%	13.0	%

•

Prepaid and processing revenues— Remained relatively constant compared to the first quarter of 2017 primarily due to the sale of The Grass Roots Group Holdings Limited and its subsidiaries (collectively “Grass Roots”) Meeting and Events business (“M&E”) in the fourth quarter of 2017. Excluding M&E, prepaid and processing revenues increased $15.6 million for the first quarter of 2018 due to increased sales volume in all regions, primarily Germany and Canada, partially due to the expansion of our distribution network.

•

Partner distribution expense as a percentage of prepaid and processing revenues—Increased mainly due to the sale of our M&E business resulting in a reduction of $15.1 million in Prepaid and processing revenues with no corresponding decrease in Partner distribution expense. Excluding the effects of the M&E sale, our partner distribution expense as a percentage of prepaid and processing revenue decreased from 65.3% to 65.1% for the first quarter of 2018 primarily due to higher sales of products which have lower partner distribution expense along with a decrease in proportion of sales through our sub-distributor relationships, primarily in Japan (for which we share a higher portion of commission but for which we incur minimal other operating expenses).

Total operating revenues and Operating revenues, net of Partner distribution expense were also impacted by a $1.6 million increase in marketing revenue and $2.4 million increase in product revenue for the first quarter of 2018, mainly due to activity in Canada, Japan and Australia.

Operating Expenses

The following tables set forth our consolidated operating expenses for the 12-week periods ended March 24, 2018 and March 25, 2017.

	12 weeks ended
	September 9, 2017			September 10, 2016		Change
	March 24, 2018			March 25, 2017		Change
	(in thousands, except percentages)
OPERATING EXPENSES:
Partner distribution expense	$	~~196~~218,~~633~~449		$	~~178~~175,~~363~~123	$	1843,~~270~~326		1024.27	%
Processing and services	9392,~~877~~949			75101,~~818~~021		18(8,~~059~~072		)	~~23.~~(8.0	)%
Sales and marketing	5864,~~711~~181			5262,~~327~~658		61,~~384~~523			~~12.~~2.4	%
Costs of products sold	3724,~~148~~256			2927,~~122~~849		8(3,~~026~~593		)	27(12.69	)%
General and administrative	2429,~~122~~322			2129,~~773~~025		~~2,349~~297			101.80	%
Transition and acquisition	~~665~~4,927			~~2,574~~451		(14,~~909~~476		)	~~(74~~992.25	)%
Amortization of acquisition intangibles	1314,~~904~~107			1012,~~376~~562		31,~~528~~545			3412.03	%
Change in fair value of contingent consideration	~~(2,~~100		)	1,~~300~~040		(~~3,400~~940		)	~~N/M~~(90.4	)%
Goodwill impairment	9,000			—		9,000			N/M
Total operating expenses	$	448,291		$	409,729	$	38,562		9.4	%
Total operating expenses	$	431,960		$	371,653	$	60,307		16.2	%

	36 weeks ended
	September 9, 2017			September 10, 2016		Change
	(in thousands, except percentages)
OPERATING EXPENSES:
Partner distribution expense	$	577,634		$	541,749	$	35,885		6.6	%
Processing and services	303,829			226,634		77,195			34.1	%
Sales and marketing	199,218			166,176		33,042			19.9	%
Costs of products sold	117,882			103,163		14,719			14.3	%
General and administrative	78,710			67,827		10,883			16.0	%
Transition and acquisition	2,021			4,160		(2,139		)	(51.4	)%
Amortization of acquisition intangibles	40,577			35,533		5,044			14.2	%
Change in fair value of contingent consideration	(5,097		)	2,100		(7,197		)	N/M
Goodwill impairment	9,000			—		9,000			N/M
Total operating expenses	$	1,323,774		$	1,147,342	$	176,432		15.4	%

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Partner distribution expense—Please see our discussion of Operating revenues, net of Partner distribution expense and Partner distribution expense as a percentage of prepaid and processing revenues for our reportable segments above.

Processing and Services

Processing and services expenses as a percentage of Prepaid and processing revenues ~~increased~~decreased from 2429.2% to ~~25.7% for the third quarter and from~~ 23.68% ~~to 27.3%~~ for the first 36quarter ~~weeks~~ of ~~2017~~2018 primarily due to ~~our~~the ~~acquisition~~sale of ~~Grass~~our ~~Roots~~M&E inbusiness ~~the~~which ~~fourth~~was ~~quarter~~a ofsignificant ~~2016.~~contributor to our Processing and services expenses ~~increased~~as bya ~~$18.1~~percentage ~~million~~of ~~for~~Prepaid ~~the~~and ~~third~~processing ~~quarter ($77~~revenues.2 ~~million~~Excluding ~~for~~M&E and the ~~first~~one-time 36benefit ~~weeks)~~from ofa ~~2017~~contractual ~~primarily~~amendment ~~due to costs~~ related to ~~Grass~~an ~~Roots~~open inloop ~~the~~product, ~~amount~~Processing ofand ~~$10.4~~services ~~million~~as ~~for~~a ~~the~~percentage ~~third~~of ~~quarter~~Prepaid ~~($53.8~~and ~~million~~processing ~~for~~revenues ~~the~~decreased ~~first~~from ~~36 weeks) of 2017, of which $3~~26.78% ~~million~~to ~~for the third quarter ($33~~24.03%, ~~million~~mainly ~~for~~driven ~~the~~by ~~first~~proportionally 36lower ~~weeks)~~program ofmanagement ~~2017~~and ~~was~~employee ~~related~~costs relative to ~~the~~our ~~Meetings~~growth &in ~~Events~~Prepaid ~~business~~and ~~(see~~processing ~~Note 5—Consolidated Financial Statement Details—Assets held for sale)~~revenues. ~~Excluding Grass Roots,~~ Processing and services expenses were impacted by a $04.75 million ~~decrease~~primarily ~~for~~due ~~the~~to ~~third quarter (~~a $43.94 million increase ~~for the first 36 weeks) of 2017~~ in technology and infrastructure expenses, including depreciation of capitalized software and other equipment; a $01.4 million increase for ~~the~~merchant ~~third quarter ($3.2 million for the first 36 weeks) of 2017 for technology and operations personnel including employee and contractor compensation~~services, ~~benefits~~processing and ~~travel~~other ~~related~~ costs; and a $3.0 ~~million increase for the third quarter ($6~~.03 million ~~for~~decrease ~~the first 36 weeks) of 2017~~ for program management and maintaining our distribution network~~; and a $5~~.~~0 million increase for the third quarter ($9.3 million for the first 36 weeks) of 2017 for merchant services, processing and other costs.~~

Sales and Marketing

Sales and marketing expenses increased by $61.45 million ~~and $33.0 million~~ for the ~~third~~first quarter ~~and first 36 weeks~~ of ~~2017~~2018, ~~respectively.~~primarily ~~Grass~~from ~~Roots~~our ~~contributed~~CashStar ~~$5.2~~business ~~million~~which ~~and~~we ~~$18.8~~acquired ~~million of the increase~~ in ~~those respective periods. Excluding Grass Roots,~~ the increase in Sales and marketing expenses reflects increases in personnel costs, including employee compensation, benefit and travel related costs, as well as changes in program marketing and development expenses which decreased by $0.2 million for the third quarter ~~but increased by $13.6 million for the first 36 weeks~~ of 2017 ~~due to higher program marketing expenses, including costs related to our Visa 5% cash back program~~.

Costs of Products Sold

Costs of products sold ~~increased~~decreased by $83.06 million ~~and $14.7 million~~ for the ~~third~~first quarter ~~and first 36 weeks~~ of ~~2017.~~2018 ~~Product~~primarily ~~costs~~due ~~related~~ to ~~our~~a ~~incentives business and card services increased by~~ $~~13.~~4 ~~million and $32~~.69 million ~~for~~reduction ~~the~~in ~~third~~Cardpool ~~quarter~~costs ~~and~~which ~~first~~is ~~36 weeks of 2017, respectively, reflecting the increase~~ in ~~product~~line ~~sales~~with inreduced ~~our~~Cardpool ~~incentives business~~revenues. ~~The~~This ~~increase~~decrease iswas partially offset by ~~decreases~~an inincrease ~~Cardpool costs~~ of $41.93 million ~~and $17.8 million for the third quarter and first 36 weeks of 2017, respectively, reflecting lower sales from Cardpool. Gross margin increased for the third quarter and first 36 weeks of 2017~~ primarily due to ~~increases~~increased inproduct ~~the~~revenues ~~gross~~in ~~margin for both~~ our ~~card services, incentives and~~ loyalty programs~~, offset by the decrease in the gross margin of our Cardpool product~~.

General and Administrative

General and administrative expenses increased by $20.3 million ~~and $10.9 million~~ for the ~~third~~first quarter ~~and first 36 weeks~~ of ~~2017,~~2018 ~~respectively.~~primarily ~~Grass~~from ~~Roots~~our ~~contributed~~CashStar ~~$1.3~~business ~~million~~which ~~and~~we ~~$5.5~~acquired ~~million of the increase~~ in ~~those respective periods. Excluding Grass Roots,~~ the ~~increase in General and administrative for the~~ third quarter of 2017, isslightly ~~primarily~~offset ~~due~~by tothe areduction ~~one-time gain~~ in ~~the~~costs ~~third~~as ~~quarter~~a ofresult ~~2016~~ of ~~$0.8 million from~~ the sale of our ~~U.S.~~M&E ~~GPR~~ business ~~under~~in the ~~PayPower~~fourth ~~brand,~~quarter ~~net~~ of ~~related write-offs of GPR technology assets~~2017. Excluding Grass Roots, the remaining $5.4 million increase for the first 36 weeks was primarily due to an increase of $3.2 million related to higher personnel costs, including employee compensation, benefits and travel related costs, as a result of increased headcount from acquisitions, $1.4 million due to higher rent expense, professional services and other costs and the one-time net gain of $0.8 million from the sale of our U.S. GPR business, as previously discussed.

Transition and Acquisition

Transition and acquisition expenses include legal, tax, audit and valuation professional services related to acquisitions, divestitures and the Merger, severance resulting from integration of acquisitions and certain employment compensation payments that we recognize in our post -combination financial statements. Such expenses were ~~lower~~higher in the ~~third~~first quarter ~~and first 36 weeks~~ of ~~2017~~2018 compared to the ~~same~~first ~~periods~~quarter of ~~2016~~2017 because of ~~lower~~expenses ~~acquisition~~related ~~activity. (see~~to ~~Note~~the ~~2—Business Acquisitions)~~Merger.

Amortization of Acquisition Intangibles

Amortization ~~expense~~of acquisition intangibles increased in the ~~third~~first quarter ~~and the first 36 weeks~~ of ~~2017~~2018 due to the addition of finite lived intangibles from our various acquisitions in ~~2016 and~~ 2017.

Change in Fair Value of Contingent Consideration

The change in the fair value of contingent consideration primarily relates to our Extrameasures acquisition in 2016. Changes in contingent liabilities result from changes in time value of money and changes in expectations related to meeting of financial targets.

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Change in Fair Value of Contingent Consideration

The change in the fair value of contingent consideration relates to our Extrameasures acquisition in 2016. Changes in contingent liabilities result from changes in time value of money and changes in expectations related to meeting of financial targets.

Goodwill and other asset impairments

In the third quarter of 2017, we recorded an estimated goodwill impairment charge of $9 million related to our Cardpool reporting unit. See Note 6—Goodwill and Critical Accounting Policies and Estimates for additional information on this charge.

Other Income (Expense) and Income Tax Expense (Benefit)

The following tables set forth our consolidated other income (expense), and income tax expense (benefit) and effective tax rates for the 12~~-week~~ ~~and~~weeks ~~36-week periods~~ ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017:

	12 weeks ended
	September 9, 2017			September 10, 2016			Change
	March 24, 2018			March 25, 2017			Change
	(in thousands, except percentages)
OTHER INCOME (EXPENSE):
Interest income and other income (expense), net	$	~~631~~(224	)	$	~~2,360~~836		$	(1,~~729~~060	)	(73126.38	)%
Interest expense	(7,~~374~~786		)	(56,~~684~~943		)	(~~1,690~~843		)	2912.71	%
Total other income (expense)	$	(68,~~743~~010	)	$	(36,~~324~~107	)	$	(31,~~419~~903	)	~~102~~31.92	%
INCOME TAX EXPENSE (BENEFIT)	$	(11,~~858~~505	)	$	(812,~~357~~082	)	$	~~(3,501~~577	)	41(4.98	)%
EFFECTIVE TAX RATE	6142.05		%	6241.31		%	(1.34		)%

	36 weeks ended
	September 9, 2017			September 10, 2016			Change
	(in thousands, except percentages)
OTHER INCOME (EXPENSE):
Interest income and other income (expense), net	$	2,134		$	3,258		$	(1,124	)	(34.5	)%
Interest expense	(21,368		)	(13,868		)	(7,500		)	54.1	%
Total other income (expense)	$	(19,234	)	$	(10,610	)	$	(8,624	)	81.3	%
INCOME TAX EXPENSE (BENEFIT)	$	(26,224	)	$	(18,884	)	$	(7,340	)	38.9	%
EFFECTIVE TAX RATE	49.1		%	48.8		%	0.3		%

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Other Income (Expense)

Interest income and other income (expense), net decreased for the ~~third~~first quarter ~~and the first 36 weeks~~ of ~~2017~~2018 primarily due to alosses ~~one-time~~recognized ~~gain~~ on ~~the sale of~~ our ~~member~~equity ~~interest~~investments inand ~~Visa Europe in the third quarter of 2016 partially offset by~~ higher foreign exchange ~~gains~~losses compared to the ~~third~~first quarter ~~and the first 36 weeks~~ of ~~2016~~2017.

Interest expense includes interest charged under ~~our~~the ~~Restated~~ Credit Agreement and convertible notes (see Note 3—Financing in the notes to our condensed financial statements), the amortization of deferred financing costs and the discount on our term loan and convertible notes. In the ~~third~~first quarter of ~~2017~~2018, interest expense for our credit facility and convertible notes increased by $0.46 million and amortization expense increased by $~~1.3 million. For the first 36 weeks of 2017, interest expense for our credit facility and convertible notes increased by $~~0.82 million ~~and amortization expense increased by $6~~.6 ~~million.~~ The increase in interest expense for our credit facility was primarily due to overall higher level of borrowings, driven by our acquisition activity; ~~the increase~~ in ~~amortization expense was driven by the increase in deferred financing costs and debt discounts when we issued the convertible notes during the third quarter of 2016~~2017.

Income Tax Expense (Benefit)

Our effective tax rates were 6142.05% and 6241.31% for the 12 weeks ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016, respectively, and 49.1% and 48.8% for the 36 weeks ended September 9,~~ 2017 ~~and September 10~~, ~~2016,~~ respectively. The ~~decrease~~increase in the effective tax rate for the 12 weeks ended ~~September 9~~March 24, ~~2017~~2018 compared to the 12 weeks ended ~~September 10~~March 25, ~~2016~~2017 was primarily due to ~~prior year discrete tax benefit for a tax return to provision true-up, compared to a~~ current year ~~discrete tax benefit related to an uncertain tax position~~U. ~~The~~S. ~~increase~~taxation inof ~~the~~certain ~~effective~~income ~~tax~~of ~~rate~~our ~~for~~foreign ~~the~~subsidiaries 36and ~~weeks ended September 9, 2017 compared to the 36 weeks ended September 10, 2016 was primarily due to~~ a ~~current year~~ discrete tax benefit related to an uncertain tax position ~~and excess tax benefits of employee stock-based compensation~~ (~~both~~ increasing the effective tax rate due to pre-tax loss), ~~compared~~offset toby a ~~prior~~decrease ~~year~~in ~~discrete~~the U.S. federal corporate tax ~~benefit~~rate effective for aour ~~tax~~fiscal ~~return~~year toending ~~provision~~December ~~true-up~~29, 2018.

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Liquidity and Capital Resources

The following table sets forth the major sources and uses of cash for the 3612 weeks ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017.

	36 weeks ended
	12 weeks ended
	September 9, 2017			September 10, 2016
	March 24, 2018			March 25, 2017
	(in thousands)
Net cash (used in) provided by operating activities	$	(~~641~~853,~~277~~084	)	$	(~~639~~720,~~637~~198	)
Net cash (used in) provided by investing activities	(~~220~~16,~~803~~819		)	(~~177~~32,~~018~~778		)
Net cash (used in) provided by financing activities	~~142~~50,~~762~~670			~~199~~(1,~~076~~036		)
Effect of exchange rate changes on cash and cash equivalents	16,097			3,352
Effect of exchange rate changes on cash, cash equivalents and restricted cash	8,573			6,462
Decrease in cash and cash equivalents	$	(703,221	)	$	(614,227	)
Decrease in cash, cash equivalents and restricted cash	$	(810,660	)	$	(747,550	)

Cash Flows from Operating Activities

Our use of cash during both 3612 weeks ended ~~September~~March 924, ~~2017~~2018 and ~~September~~March 1025, ~~2016~~2017 primarily reflects the timing of cash settlement of Settlement receivables, Settlement payables and Consumer and customer deposits which are significantly impacted by the portion of gift card sales that occur in late December. Excluding the impact of these settlement related items, net cash ~~provided~~used byin operating activities during the 3612 weeks ended ~~September~~March 924, ~~2017~~2018 increased by $3871.01 million compared to the 3612 weeks ended ~~September~~March 1025, ~~2016~~2017. This increase in use of cash primarily reflects:

• an increase of $4473.43 million cash ~~provided~~used by non-settlement related operating assets and liabilities for the 3612 weeks ended ~~September~~March 924, ~~2017~~2018 compared to the 3612 weeks ended ~~September~~March 1025, ~~2016~~2017, mainly due to an increase in our operating ~~liabilities~~assets; partially offset by

• apre-tax ~~decrease of $7.1 million cash provided by~~ income, ~~tax~~adjusted ~~related receivables and payables~~ for ~~the~~noncash 36reconciling ~~weeks~~items ~~ended~~(excluding ~~September~~deferred 9,income ~~2017 compared to the 36 weeks ended September 10~~taxes), ~~2016,~~increased ~~due to a non-recurring income tax refund of~~ $7.5.2 million ~~received in the 36 weeks ended September 10, 2016.~~

Cash Flows from Investing Activities

The net cash used in investing activities for the 3612 weeks ended ~~September~~March 924, ~~2017~~2018 totaled $~~220~~16.8 million, which primarily included $~~170~~15.8 million for ~~acquisitions (see Note 2-Business Acquisitions in the notes to our condensed consolidated financial statements), $43.5 million for~~ expenditures for property, equipment and technology~~, and $5~~.8 ~~million investment in equity ventures.~~ The net cash used in investing activities for the 3612 weeks ended ~~September~~March 1025, ~~2016~~2017 totaled $~~177~~32.08 million, which primarily included $~~144~~16.37 million for ~~our~~expenditures ~~acquisitions~~for ~~of GiftCards~~property, ~~NimbleCommerce~~equipment and ~~Extrameasures~~technology and $3310.59 million for ~~expenditures~~the ~~for~~acquisition ~~property,~~of ~~equipment~~a company in the rebates and ~~technology~~incentives business.

Cash Flows from Financing Activities

The net cash provided by financing activities for the 3612 weeks ended ~~September~~March 924, ~~2017~~2018 totaled $~~142~~50.87 million, primarily driven by ~~$115.0 million of net borrowings under our revolving bank line of credit,~~ an additional $5075.0 million draw down on our term loan (see Note 3—Financing in the notes to our condensed consolidated financial statements) and $1310.39 million net proceeds from employee stock-related activities, partially offset by ~~our term loan repayment of~~ $1018.03 million, ~~$10.2 million~~ related to the exercise and settlement of employee stock awards, ~~$8.6~~our ~~million~~term loan repayment of ~~debt~~$15.0 ~~assumed~~million, ~~in business acquisitions~~ and $52.50 million payment of contingent consideration related to ~~the~~our ~~Extrameasures~~ acquisition of a rebates and incentives business.

InThe ~~January~~net ~~2016,~~cash weused ~~exercised~~by ~~our~~financing ~~option~~activities tofor ~~draw~~the ~~down~~12 anweeks ~~additional~~ended ~~$100 million under our term loan~~March 25, ~~which~~2017 wetotaled ~~used to finance our acquisition of GiftCards~~$1.0 ~~In March 2016~~million, weprimarily ~~made~~driven ~~our~~by ~~scheduled~~an ~~term~~increase ~~loan repayment~~ of $3714.54 million. Inin ~~July 2016~~borrowings, wenet ~~entered~~of ~~into~~repayments anunder ~~amendment and restatement to~~ our ~~Credit~~bank ~~Agreement~~line ~~(the~~of ~~Restated Credit Agreement)~~credit. WeThis ~~repaid~~is ~~all~~partially ~~amounts~~offset ~~outstanding~~by ~~under~~ our ~~revolving~~repayment ~~line~~ of ~~credit and~~ $~~276~~10.0 million of the ~~$426 million outstanding under our~~ term loan ~~such that $150 million remained~~ outstanding. ~~Additionally,~~under ~~we issued $500 million of aggregate principal amount of 1.50% Convertible Senior Notes due in January 2022. Concurrently with the pricing of the Notes, we purchased call options for~~ our ~~own~~Credit ~~common stock to hedge the Notes for $75~~Agreement.8 ~~million,~~We ~~sold~~also ~~call~~had ~~options~~a ~~for~~net ~~our~~cash ~~own~~outflow ~~common stock for $47.0 million and repurchased $34.8 million~~ of ~~our common stock. Collectively, these activities, net of debt issuance costs, provided us with~~ $~~206~~5.72 million ~~during~~related ~~the~~to ~~36 weeks ended September 10, 2016. Significant additional cash flows from financing activities during~~ the 36exercise ~~weeks ended September 10, 2016 include repayments $9.0 million for debt assumed from business acquisitions~~ and ~~net~~settlement ~~proceeds~~ of ~~$2.4 million from~~ employee stock~~-related~~ ~~activities~~awards.

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Off-Balance Sheet Arrangements

None.

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Critical Accounting Policies and Estimates

Critical accounting policies are those accounting policies that our management believes are important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our ~~2016~~2017 Annual Report on Form 10-K includes a description of certain accounting policies, including those with respect to revenue recognition, deferred income taxes, business acquisitions, goodwill, intangible assets, income tax contingencies, and employee stock-based compensation.

Revenue Recognition

~~The~~We have adopted the new standard related to revenue recognition, Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606), ~~is expected to impact our consolidated financial statements when we adopt the new guidance~~ in the first quarter of 2018, as required. See Note 1 — The Company and Significant Accounting Policies in the notes to our condensed consolidated financial statement for additional information.

Goodwill

We early adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, in the first quarter of 2017, which simplifies the existing two-step guidance for goodwill impairment testing by eliminating the second step resulting in a write-down to goodwill equal to the initial amount of impairment determined in step one. As a result of this new guidance, we have updated our discussion of critical accounting policies and estimates with respect to goodwill, as follows.

Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. At the acquisition date, we assign goodwill to a reporting unit, which may be an operating segment or a level below an operating segment, known as a component. If facts or circumstances change, we may re-allocate goodwill to different reporting units. Goodwill is not subject to amortization but is tested annually for impairment.

We perform an annual impairment assessment in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine whether it is more likely than not that the fair value of a reporting unit which carries goodwill is less than its carrying value. Qualitative factors that we consider include historical and projected financial performance of the reporting unit, industry and market considerations and other relevant events and factors affecting the reporting unit.

If we conclude that it is more likely than not that the fair value is less than its carrying value, we perform ~~step~~a 1quantitative ~~of the goodwill~~ impairment test of goodwill, in which we compare the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not considered impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit ~~under the prior standard~~, we were required to perform the second step of the goodwill impairment test to determine the implied fair value of the reporting unit’s goodwill, which included valuing intangible assets existing at the time of the test, even if not recorded by the reporting unit. If it was determined during the second step that the carrying value of a reporting unit’s goodwill exceeds its implied fair value, we ~~would~~ record an impairment loss equal to ~~the difference. Under the new standard, if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, we record an impairment loss equal to~~ that difference~~, without consideration of the value of unrecorded intangible assets~~. As ~~a result, the impairment charge recorded under the new standard may be different than what would have been recorded under the prior standard.~~

In performing our annual review of goodwill balances for impairment, we estimate the fair value of our reporting units based on projected future operating results and cash flows, market assumptions and comparative market multiple methods. Determining fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such as growth in transaction dollar volume, operating revenues and operating expenses; our ability to retain and expand distribution partners or business clients, amount and timing of future cash flows and the discount rate applied to the cash flows. Projected future operating results and cash flows used for valuation purposes may reflect considerable improvements relative to historical periods with respect to, among other things, revenue growth and operating margins. Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units to achieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flow estimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions. These assumptions could be adversely impacted by certain of the risks discussed in “Risk Factors” in Item 1A in our Annual Report on Form 10-K.

During 2017, we had recorded goodwill impairment charges totaling $31.5 million and $46.0 million related to the Cardpool and Blackhawk Engagement Solutions reporting units respectively. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for signs of possible declines in estimated fair value and goodwill impairment. As of March 24, 2018, we had $565.9 million of goodwill reported on our consolidated balance sheets (see Note 6—Goodwill and Other Intangible Assets), as well as $9.0 million of goodwill reported within Other current assets (see Note 5—Consolidated Financial Statement Details).

In March 2018, management became aware that a retail distribution partner in Germany will not be renewing its contract with us after the contract expires at the end of 2018. Accordingly, we performed a goodwill impairment test incorporating such

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information and determined that the fair value of the Europe East reporting unit exceeded its carrying value by $19.1 million, or 22%. The fair value was determined using a combination of the income approach and the market approach. We believe that the income approach is the more reliable indication of value since it incorporates estimated revenues and earnings for the Europe East reporting unit that the market approach may not directly incorporate. Therefore, a weighting of 75% was assigned to the income approach and a weighting of 25% was assigned to the market approach. We continue to monitor the operating results and cash flows of our reporting units on a quarterly basis for indicators of goodwill impairment.

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projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flow estimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions. These assumptions could be adversely impacted by certain of the risks discussed in “Risk Factors” our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

We monitor the operating results and cash flows of our reporting units on a quarterly basis for signs of possible declines in the estimated fair value of our reporting units and indicators of potential goodwill impairment. In the third quarter of 2017, we performed a goodwill impairment test prior to the annual goodwill impairment test date which occurs in the fourth quarter, and recorded a goodwill impairment charge of $9.0 million related to our Cardpool reporting unit, reducing the carrying value of Cardpool goodwill to $31.5 million. The fair value of the Cardpool reporting unit was determined using a discounted cash flow model. As a result of this impairment charge, the net book value of the Cardpool reporting unit is equal to its estimated fair value. The failure of Cardpool to achieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit, resulting in additional impairment charges to goodwill in the future. See Note 6—Goodwill for additional information on this charge.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk position from the information provided under “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report filed on Form 10-K filed with the Securities and Exchange Commission on February 2728, ~~2017~~2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~March 924, ~~2017~~2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of ~~September~~March 924, ~~2017~~2018, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended ~~September~~March 924, ~~2017~~2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved from time to time in various legal proceedings arising in the ordinary course of business~~, including the matters described below~~. Although the outcome of any pending matters, ~~including the matters described below,~~ and the amount, if any, of our ultimate liability and any other forms of remedies with respect to these matters, cannot be determined or predicted with certainty, we currently do not believe that it is probable that the resolution of any of these matters would result in any liability that would have a material adverse effect on our results of operations or financial condition.On March 30, 2015, Greg Haney in his capacity as representative of the selling stockholders of CardLab, Inc. filed a lawsuit against us in the Delaware Chancery Court (the “Court”) (CardLab, Inc. v. Blackhawk Network Holdings, Inc., Case No. 10851). The complaint generally alleged that we failed to disclose material information relating to a potential earn-out payment in connection with our acquisition of CardLab, Inc. in 2014. On August 8, 2017, the parties agreed to dismiss the action in its entirety with prejudice. Accordingly, the parties filed a Stipulation of Dismissal, which was granted on August 15, 2017, dismissing all claims with prejudice.

In addition, we transact business in non-U.S. markets and may, from time to time, be subject to disputes and tax audits by foreign tax authorities related to ~~value~~indirect ~~added~~ or other ~~indirect~~value added taxes typically on commissions or fees received from non-resident content providers.

ITEM 1A. RISK FACTORS

Our business is subject to many risks and uncertainties, which may materially and adversely affect our business, prospects, financial condition and results of operations. These risk factors are disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended on December 3130, ~~2016~~2017. There have been no material changes to our risk factors since our Annual Report on Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table summarizes purchases of our ordinary shares made by or on behalf of us or any of our “affiliated purchasers” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during each fiscal period during the 12 weeks ended ~~September~~March 924, ~~2017~~2018:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
June 18, 2017 to July 15, 2017	45	$	43.60	—	$	—
Dec 31 2017 to Jan 27 2018	43	$	35.75	—	$	—
July 16, 2017 to August 12, 2017	—	$	—	—	$	—
Jan 28 2018 to Feb 24 2018	101	$	45.28	—	$	—
August 13, 2017 to September 09, 2017	—	$	—	—	$	—
Feb 25 2018 to Mar 24 2018	—	$	—	—	$	—
Total	45144	$	4342.6043	—	$	—

_________________________

(1)

This table does not include shares of common stock that we withheld in order to satisfy minimum tax withholding requirements in connection with the vesting of restricted stock units or exercise of options or stock appreciation rights. The numbers represent the shares of common stock that we withheld in order to satisfy minimum tax withholding requirements in connection with the vesting of restricted stock awards.


(2)	Average price paid per share of common stock does not include brokerage commissions.

In October 2016, the Company’s Board of Directors approved a stock repurchase program that authorizes the Company to purchase up to $100 million of the Company’s outstanding common stock over a period of up to two (2) years. Under the repurchase program, purchases of shares of common stock may be made from time to time in the open market, or in privately negotiated transactions, or as otherwise may be determined by the authorized officers of the Company, in compliance with applicable state and federal securities laws. The timing and amounts of any purchases are based on market conditions and other factors including price, regulatory requirements, and capital availability. The stock repurchase program does not obligate the company to acquire any specific number of shares in any period. AsIn ofOctober ~~September 9~~2017, ~~2017~~the Company repurchased 1,176,069 shares for approximately $40.0 million. In the first quarter of 2018, the Company had not made any purchases under the program. As of March 24, 2018, approximately $60.0 million remained available under this stock repurchase program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS

A list of exhibits filed with this report or incorporated herein by reference is found in the Index to Exhibits immediately following the signature page of this report and is incorporated into this Item 6 by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Blackhawk Network Holdings, Inc. /s/ ~~Jerry~~Charles ~~Ulrich~~O. ~~Jerry~~Garner ~~Ulrich~~Charles ~~Chief~~O. ~~Financial~~Garner ~~Officer and~~ Chief ~~Administrative~~Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

Date: ~~October~~May 171, ~~2017~~2018

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INDEX TO EXHIBITS

Incorporated by Reference

FiledHerewith

Exhibit No

Description of Exhibit

Form

File No.

Exhibit(s)

Filing Date

10.1

~~Second~~ Amendment No. 10 to ~~Credit~~Servicing Agreement, dated as of ~~August~~March 281, ~~2017~~2018, bybetween ~~and among~~ Blackhawk Network ~~Holdings~~, Inc., ~~as borrower, the financial institutions signatory thereto, as lenders,~~ and ~~Wells Fargo Bank~~MetaBank, ~~National~~dba ~~Association,~~Meta asPayment ~~administrative agent~~Systems.

10.2

Reaffirmation Agreement dated as of August 28, 2017, executed by the Company and certain of its subsidiaries in favor of Wells Fargo Bank, National Association, as administrative agent.

10.3†

Amendment No. 8 to Servicing Agreement, dated as of August 18, 2017, between Blackhawk Network, Inc. and MetaBank, dba Meta Payment Systems.

31.1

Certification Required Under Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2

Certification Required Under Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*

Certification Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section §1350.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

______________________



†	Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.
*	The certification attached as Exhibit 32.1 to this Quarterly Report is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Quarterly Report), irrespective of any general incorporation language contained in such filing.

4241

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

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