Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 05/02/2013 16:03:20)

 



UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

 

FORM 10-Q  

 

 

 

(Mark One)

 

 

þ

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

 

 

 

For the quarterly period ended  March 31, 2013  

 

or  

 

 

o  

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: 001-33864  

________________________________

 

CARDTRONICS, INC.  

(Exact name of registrant as specified in its charter)

 

 

 

Delaware  

76-0681190  

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

3250 Briarpark Drive, Suite 400  

77042  

Houston, TX  

(Zip Code)

(Address of principal executive offices)

 

 

Registrant's telephone number, including area code: (832) 308-4000

 

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 þ No o  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ No o  

 

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

 

 

 

 

 

Large accelerated filer  þ

Accelerated filer  o

Non-accelerated filer  o  

Smaller reporting company  o  

 

(Do not check if a smaller reporting company)

 

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

 

Common Stock, par value: $0.0001 per share.  Shares outstanding on April   30 , 201 3 :   44, 85 8 , 110

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012

1

   

Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012

2

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012

3

   

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012

4

   

Notes to Consolidated Financial Statements

5

Cautionary Statement Regarding Forward-Looking Statements  

25

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

43

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 6.

Exhibits

44

   

Signatures

45

 

 

 

When we refer to “us,” “we,” “our,” or “ours,” we are describing Cardtronics, Inc. and/or our subsidiaries.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

26,126 

 

$

13,861 

Accounts and notes receivable, net of allowance of $564 and $476 as of March 31, 2013 and December 31, 2012, respectively

 

49,704 

 

 

45,135 

Inventory , net

 

4,200 

 

 

4,389 

Restricted cash

 

3,936 

 

 

8,298 

Current portion of deferred tax asset, net

 

13,271 

 

 

13,086 

Prepaid expenses, deferred costs, and other current assets

 

15,587 

 

 

30,980 

Total current assets

 

112,824 

 

 

115,749 

Property and equipment, net

 

226,357 

 

 

236,238 

Intangible assets, net

 

101,719 

 

 

102,573 

Goodwill

 

293,042 

 

 

285,696 

Deferred tax asset, net

 

21,340 

 

 

26,468 

Prepaid expenses, deferred costs, and other assets

 

2,897 

 

 

2,168 

Total assets

$

758,179 

 

$

768,892 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt and notes payable

$

1,582 

 

$

1,467 

Current portion of other long-term liabilities

 

25,547 

 

 

24,386 

Accounts payable

 

17,787 

 

 

21,593 

Accrued liabilities

 

74,896 

 

 

80,112 

Current portion of deferred tax liability, net

 

1,109 

 

 

1,179 

Total current liabilities

 

120,921 

 

 

128,737 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

352,407 

 

 

353,352 

Asset retirement obligations

 

39,211 

 

 

44,696 

Deferred tax liability, net

 

177 

 

 

182 

Other long-term liabilities

 

82,213 

 

 

93,121 

Total liabilities

 

594,929 

 

 

620,088 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value; 125,000,000 shares authorized; 50,942,711 and 50,569,875 shares issued as of March 31, 2013 and December 31, 2012, respectively; 44,857,024 and 44,641,224 shares outstanding as of March 31, 2013 and December 31, 2012, respectively

 

 

 

Additional paid-in capital

 

260,334 

 

 

252,956 

Accumulated other comprehensive loss, net

 

(103,422)

 

 

(105,085)

Retained earnings

 

67,291 

 

 

57,861 

Treasury stock; 6,085,687 and 5,928,651 shares at cost as of March 31, 2013 and December 31, 2012, respectively

 

(62,073)

 

 

(58,270)

Total parent stockholders’ equity

 

162,135 

 

 

147,467 

Noncontrolling interests

 

1,115 

 

 

1,337 

Total stockholders’ equity

 

163,250 

 

 

148,804 

Total liabilities and stockholders’ equity

$

758,179 

 

$

768,892 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

1

 


 

 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2013

 

2012

 

 

 

 

 

 

Revenues:

 

 

 

 

 

ATM operating revenues

$

193,360 

 

$

177,813 

ATM product sales and other revenues

 

4,378 

 

 

13,227 

Total revenues

 

197,738 

 

 

191,040 

Cost of revenues:

 

 

 

 

 

Cost of ATM operating revenues (excludes depreciation, accretion, and amortization shown separately below. See Note 1)

 

129,560 

 

 

120,627 

Cost of ATM product sales and other revenues

 

4,129 

 

 

11,781 

Total cost of revenues

 

133,689 

 

 

132,408 

Gross profit

 

64,049 

 

 

58,632 

Operating expenses:

 

 

 

 

 

Selling, general, and administrative expenses

 

18,989 

 

 

16,075 

Acquisition-related expenses

 

2,822 

 

 

1,087 

Depreciation and accretion expense

 

16,285 

 

 

13,750 

Amortization expense

 

5,748 

 

 

5,475 

Loss on disposal of assets

 

203 

 

 

548 

Total operating expenses

 

44,047 

 

 

36,935 

Income from operations

 

20,002 

 

 

21,697 

Other expense (income):

 

 

 

 

 

Interest expense, net

 

5,066 

 

 

5,365 

Amortization of deferred financing costs

 

229 

 

 

220 

Other income

 

(421)

 

 

(77)

Total other expense

 

4,874 

 

 

5,508 

Income before income taxes

 

15,128 

 

 

16,189 

Income tax expense

 

5,980 

 

 

6,146 

Net income

 

9,148 

 

 

10,043 

Net (loss) income attributable to noncontrolling interests

 

(282)

 

 

214 

Net income attributable to controlling interests and available to common stockholders

$

9,430 

 

$

9,829 

 

 

 

 

 

 

Net income per common share – basic and diluted

$

0.21 

 

$

0.22 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,247,098 

 

 

43,058,215 

Weighted average shares outstanding – diluted

 

44,479,366 

 

 

43,562,618 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

2

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2013

 

2012

 

 

 

 

 

 

Net income

$

9,148 

 

$

10,043 

Unrealized gains (losses) on interest rate swap contracts, net of income tax expense (benefit) of $3,436 and $(4,614) for the three months ended March 31, 2013 and 2012, respectively

 

5,703 

 

 

(6,372)

Foreign currency translation adjustments

 

(4,040)

 

 

1,894 

Other comprehensive income (loss)

 

1,663 

 

 

(4,478)

Total comprehensive income

 

10,811 

 

 

5,565 

Less: comprehensive (loss) income attributable to noncontrolling interests

 

(222)

 

 

352 

Comprehensive income attributable to controlling interests

$

11,033 

 

$

5,213 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

   

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

9,148 

 

$

10,043 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation, accretion, and amortization expense

 

 

22,033 

 

 

19,225 

 

Amortization of deferred financing costs

 

 

229 

 

 

220 

 

Stock-based compensation expense

 

 

3,165 

 

 

2,560 

 

Deferred income taxes

 

 

1,433 

 

 

5,380 

 

Loss on disposal of assets

 

 

203 

 

 

548 

 

Unrealized gain on derivative instruments

 

 

 

 

 

(129)

 

Amortization of accumulated other comprehensive gains associated with derivative instruments no longer designated as hedging instruments

 

 

 

 

(45)

 

Other reserves and non-cash items

 

 

1,157 

 

 

454 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Increase in accounts and notes receivable, net

 

 

(4,457)

 

 

(7,332)

 

Decrease in prepaid, deferred costs, and other current assets

 

 

14,526 

 

 

564 

 

Increase in inventory

 

 

(219)

 

 

(2,593)

 

(Increase) decrease in other assets

 

 

(1,507)

 

 

2,931 

 

Decrease in accounts payable

 

 

(2,722)

 

 

(6,857)

 

In crease (de crease ) in accrued liabilities

 

 

113 

 

 

(4,731)

 

Decrease in other liabilities

 

 

(1,722)

 

 

(1,497)

 

Net cash provided by operating activities

 

 

41,380 

 

 

18,741 

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(15,145)

 

 

(21,324)

 

Payments for exclusive license agreements, site acquisition costs, and other intangible assets

 

 

(792)

 

 

(362)

 

Acquisitions, net of cash acquired

 

 

(12,587)

 

 

(250)

 

Net cash used in investing activities

 

 

(28,524)

 

 

(21,936)

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

57,200 

 

 

53,700 

 

Repayments of long-term debt and capital leases

 

 

(58,169)

 

 

(49,470)

 

Repayments of borrowings under bank overdraft facility, net

 

 

 

 

(212)

 

Payment of contingent consideration

 

 

(250)

 

 

 

Proceeds from exercises of stock options

 

 

247 

 

 

1,264 

 

Excess tax benefit from stock-based compensation expense

 

 

3,966 

 

 

 

Repurchase of capital stock

 

 

(3,804)

 

 

(1,406)

 

Net cash (used in) provided by financing activities

 

 

(810)

 

 

3,876 

 

   

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

219 

 

 

(44)

 

Net increase in cash and cash equivalents

 

 

12,265 

 

 

637 

 

   

 

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

13,861 

 

 

5,576 

 

Cash and cash equivalents as of end of period

 

$

26,126 

 

$

6,213 

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

9,115 

 

$

9,545 

 

Cash paid for income taxes

 

$

534 

 

$

744 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

4

 


 

CARDTRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

 

  (1) General and Basis of Presentation  

   

General  

 

Cardtronics, Inc., along with its wholly- and majority-owned subsidiaries (collectively, the "Company") provides convenient consumer financial services through its network of automated teller machines ("ATMs") and multi-function financial s ervices kiosks. As of March 31, 2013 , the Company provided services to  approximately   62,600 devices across its portfolio, which included approximately 53,700 devices located in all 50 states of the United States ("U.S.") as well as in the U.S. territories of Puerto Rico and the U.S. Virgin Islands, approximately 4,300 devices throughout the United Kingdom ("U.K."), approximately 2,700 devices throughout Mexico, and approximately 1,900 devices throughout Canada. Included in the number of devices in the U.S. are approximately 2,000 multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account balance inquiries, perform other consumer financial services, including bill payments, check cashing, remote deposit capture (which is deposit taking at ATMs using electronic imaging), and money transfers. Also included in the total count of 62,600 devices are approximately 6,500 devices for which the Company provides various forms of managed services solutions, which may include services such as transaction processing, monitoring, maintenance, cash management, and customer service.

 

Through its network, the Company provides ATM management and equipment-related services (typically under multi-year contracts) to large, nationally-known retail merchants as well as smaller retailers and operators of facilities such as shopping malls and airports. In doing so, the Company provides its retail partners with a compelling automated financial services solution that helps attract and retain customers, and in turn, increases the likelihood that the devices placed at their facilities will be utilized.

 

In addition to its retail merchant relationships, the Company also partners with leading national financial institutions to brand selected ATMs and financial services kiosks within its network, including Citibank, N.A., JPMorgan Chase Bank, N.A., Sovereign Bank, N.A., SunTrust Banks, Inc., PNC Bank, N.A , Frost Bank, The Bank of Nova Scotia (“Scotiabank”) in Canada , Mexico, and Puerto Rico , and Grupo Financiero Banorte, S.A. de C.V. in Mexico . As of March 31, 2013 ,   approximately   18,400 of the Company’s domestic devices and approximately 500 of the Company’s ATMs in Canada were under contract with financial institutions to place their logos on those machines, and to provide convenient surcharge-free access for their banking customers.

 

The Company also owns and operates the Allpoint network, the largest surcharge-free ATM network within the U . S . (based on the number of participating ATMs). The Allpoint network , which has more than 55,000 participating ATMs globally , provides surcharge-free ATM access to customers of participating financial institutions that lack a significant ATM network in exchange for either a fixed monthly fee per cardholder or a set fee per transaction that is paid by the financial institutions who are members of the network .   The Allpoint network includes a majority of the Company’s ATMs in the U.S., U.K., Puerto Rico and Mexico, approximately a   quarter of the Company’s ATMs in Canada, and over 5,000 locations in Australia through a partnership with a local ATM owner and operator in that market. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general purpose, payroll and electronic benefits transfer (“EBT”) cards. Under these programs, the issuing financial institutions pay Allpoint a fee per issued stored-value card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.

 

Finally, the Company owns and operates an electronic funds transfer (“EFT”) transaction processing platform that provides transaction processing services to its network of ATMs and financial services kiosks as well as other ATMs under managed services arrangements.

 

Basis of Presentation  

 

This Quarterly Report on Form 10-Q (this "Form 10-Q") has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP"), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company's Annual Report on Form 10-K for the year ended December 31, 2012  ( the " 2012 Form 10-K"), which includes a summary of the Company's significant accounting policies and other disclosures.

 

The financial statements as of March 31, 2013 and for the three   months ended March 31, 2013 and 2012 are unaudited. The Consolidated Balance Sheet as of December 31, 2012 was derived from the audited balance sheet filed in the 2012 Form 10-K. In management's opinion, all normal recurring adjustments necessary for a fair presentation of the Company's interim and prior period results have been made. The results of operations for the three   months ended March 31, 2013 and 2012 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year. Additionally, the financial statements for prior periods include certain minor reclassifications. Those reclassifications did not impact the Company's total reported net income or stockholders' equity.

 

5

 


 

The unaudited interim consolidated financial statements include the accounts of Cardtronics, Inc. and its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Because the Company owns a majority (51.0%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, S.A. de C.V. (“Cardtronics Mexico”) , this entity is reflected as a consolidated subsidiary in the accompanying consolidated financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could be material to the financial statements.

 

Cost of ATM Operating Revenues and Gross Profit Presentation  

 

The Company presents Cost of ATM operating revenues and Gross profit within its Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization expense related to ATMs and ATM-related assets. The following table sets forth the amounts excluded from Cost of ATM operating revenues and Gross profit for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2013

 

2012

 

 

(In thousands)

Depreciation and accretion expenses related to ATMs and ATM-related assets  

 

$  

14,278 

 

$  

12,329 

Amortization expense  

 

 

5,748 

 

 

5,475 

Total depreciation, accretion, and amortization expenses excluded from Cost of ATM operating revenues and Gross profit  

 

$  

20,026 

 

$  

17,804 

 

 

(2) Acquisitions  

 

On March 7, 2013 , the Company completed the acquisition of i-design group plc (“i-design ), a Scotland-based provider and developer of marketing and advertising software and services for ATM owners . The acquisition of i-design did not have a material effect on the Company's consolidated results of operations during the quarter ended March 31, 2013. As of March 31, 2013 , the Company had not yet completed its analysis to assign the purchase consideration for this acquisition since it is still in the process of determining the fair value of the assets and liabilities acquired, including intangible assets . The Company expects to complete this work during its second quarter of 2013, and as a result of the completion of the work, the Company’s preliminary allocation of the purchase consideration to the net assets acquired may change.

 

(3) Stock-Based Compensation  

 

The Company calculates the fair value of stock-based awards granted to employees and directors on the date of grant and recognizes the calculated fair value, net of estimated forfeitures, as compensation expense over the requisite service periods of the related awards. The following table reflects the total stock-based compensation expense amounts included in the Company's Consolidated Statements of Operations for the periods indicated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2013

 

2012

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

205 

 

$  

203 

Selling, general, and administrative expenses  

 

 

2,960 

 

 

2,357 

Total stock-based compensation expense  

 

$  

3,165 

 

$  

2,560 

 

The increase in stock-based compensation expense during the three month s ended March 31, 2013 was due to the issuance of additional shares of restricted stock awards ("RSAs") and restricted stock units ("RSUs") to certain of the Company's employees and directors during the last twelve months and additional expense recognition associated with grants of certain awards to employees who have met the qualified retirement provisions of our RSUs . All grants during the periods above were made under the Company's Amended and Restated 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan").

  

Restricted Stock Awards .  The number of the Company's outstanding RSAs as of March 31, 2013 , and changes during the three month s ended March 31, 2013 , are presented below:

 

 

6

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2013

 

 

632,107 

 

$

16.36 

Granted  

 

 

73,901 

 

$

26.15 

Vested  

 

 

(210,502)

 

$

13.60 

Forfeited

 

 

(10,000)

 

$

29.57 

RSAs outstanding as of March 31, 2013

 

 

485,506 

 

$

18.75 

 

As of March 31, 2013 , the unrecognized compensation expense associated with all outstanding restricted share grants was approximately $ 7.1 million ,   which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 2.2  years.

 

Restricted Stock Units.   In the first quarters of each year since 2011, the Company granted RSUs under its respective year’s Long Term Incentive Plans ("LTIPs"), which are equity programs under the 2007 Plan. The ultimate number of RSUs to be earned and outstanding are approved by the Compensation Committee of the Company's Board of Directors (the "Committee"), and are based on the Company's achievement of certain performance levels during the calendar year of its grant. The majority of these grants have both a performance-based and a service-based vesting schedule (“Performance - RSUs”) , and the Company recognizes the related compensation expense based on the estimated performance levels that management believes will ultimately be met. Starting with the grants made in 2013, a portion of the awards have only a service-based vesting schedule (“Time-RSUs”) , for which the associated expense is recognized ratably over four years .   Performance-RSUs and Time- RSUs   are convertible into the Company’s common stock after the passage of the vesting periods , which are 24 ,   36 , and 48 months from January 31 of the grant year , at the rate of 50 %, 25 %, and 25 %, respectively . Performance- RSUs will be earned only if the Company achie ves certain performance levels . Although the RSUs are not considered to be earned and outstanding until at least the minimum performance metrics are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting methodology.

 

The number of the Company's non-vested RSUs as of March 31, 2013 , and changes during the three months ended March 31, 2013 , are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Unit s

 

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2013

 

 

749,948 

 

$

20.01 

Granted  

 

 

119,744 

 

$

27.10 

Vested  

 

 

(261,000)

 

$

16.98 

Forfeited

 

 

(10,567)

 

$

22.67 

Non-vested RSUs as of March 31, 2013

 

 

598,125 

 

$

22.70 

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2013 but not yet earned are not included, but the Time-RSUs are included as granted.

 

As of March 31, 2013 , the unrecognized compensation expense associated with earned RSUs was approximately $ 7. 8 million, which will be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for Time-RSUs, over a remaining weighted-average vesting period of approximately 2.5  years .  

 

Options.   The number of the Company's outstanding stock options as of March 31, 2013 , and changes during the three months ended March 31, 2013 , are presented below:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2013

 

 

552,799 

 

$  

9.68 

Exercised  

 

 

(37,935)

 

$  

6.51 

Forfeited

 

 

(1,875)

 

$

11.05 

Options outstanding as of March 31, 2013

 

 

512,989 

 

$  

9.91 

 

 

 

 

 

 

 

Options vested and exercisable as of March 31, 2013

 

 

487,239 

 

$  

10.03 

 

As of March 31, 2013 , the unrecognized compensation expense associated with outstanding options was approximately $ 48,000 ,   which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 0.7  years .  

7

 


 

 

(4) Earnings per Share  

 

The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the statements of operations) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three month s ended March 31, 2013 and 2012 included all outstanding stock options and shares of restricted stock, which were included in the calculation of diluted earnings per share for these periods.

 

Additionally, the shares of restricted stock issued by the Company have a non-forfeitable right to cash dividends, if and when declared by the Company.  Accordingly, restricted shares are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the three month s ended March 31, 2013 and 2012 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

Earnings per Share (in thousands, excluding share and per share amounts):  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2013

 

Three Months Ended March 31, 2012

 

 

Income  

 

Weighted Average Shares Outstanding

 

Earnings Per Share  

 

Income  

 

Weighted Average Shares Outstanding

 

Earnings Per Share  

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to controlling interests and available to common stockholders  

 

$  

9,430 

 

 

 

 

 

 

 

$  

9,829 

 

 

 

 

 

 

Less: U ndistributed earnings allocated to unvested restricted shares  

 

 

(231)

 

 

 

 

 

 

 

 

(334)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

9,199 

 

 

44,247,098 

 

$  

0.21 

 

$  

9,495 

 

 

43,058,215 

 

$  

0.22 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

231 

 

 

 

 

 

 

 

$  

334 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

232,268 

 

 

 

 

 

 

 

 

504,403 

 

 

 

Less: Undistributed earnings reallocated to restricted shares  

 

 

(230)

 

 

 

 

 

 

 

 

(330)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

9,200 

 

 

44,479,366 

 

$  

0.21 

 

$  

9,499 

 

 

43,562,618 

 

$  

0.22 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock (including both RSAs and RSUs) of  480 , 284 and  6 72 , 627 shares for the three month s ended March 31, 2013   and 2012, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

 

(5) Accumulated Other Comprehensive Loss , Net

 

Accumulated other comprehensive loss, net is displayed as a separate component of S tockholders' equity in the accompanying Consolidated Balance Sheets . The following table presents the changes in the balances of each component of accumulated other comprehensive loss, net :  

 

 

8

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized losses on interest rate swap contracts

 

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of December 31, 2012

 

$  

(24,634)

 

$  

(80,451)

(1)

 

$  

(105,085)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss before reclassification

 

 

(4,040)

 

 

(627)

(2)

 

 

(4,667)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

6,330 

(2)

 

 

6,330 

Net current period other comprehensive (loss) income

 

 

(4,040)

 

 

5,703 

 

 

 

1,663 

Total accumulate d other comprehensive loss, net as of March 31, 2013

 

$  

(28,674)

 

$  

(74,748)

(1)

 

$  

(103,422)

___________

 

 

 

 

 

 

 

(1) Net of income tax benefit of $23,977 and $27,412 as of March 31, 2013 and December 31, 2012, respectively.

(2) Net of income tax (benefit) expense of $(378) and $3,814 for the other comprehensive loss before reclassification and the amounts reclassified from accumulated other comprehensive loss, net, respectively.

 

The Company records unrealized losses related to its interest rate swaps net of estimated taxes in the Accumulated other comprehensive loss, net line item within Stockholders' equity in the accompanying Consolidated Balance Sheets since it is more likely than not that the Company will be able to realize the benefits associated with its net deferred tax asset positions in the future.

 

The Company currently believes that the unremitted earnings of its foreign subsidiaries will be reinvested for an indefinite period of time. Accordingly, no deferred taxes have been provided for the differences between the Company's book basis and underlying tax basis in these subsidiaries or on the foreign currency translation adjustment amounts.

 

(6) Prepaid Expenses and Other Assets

 

As of December 31, 2012, the Company had $ 13.4 million recorded for an  insurance recovery receivable related to a loss sustained as a result of the misappropriation of cash in February 2010 by the president and principal owner of Mount Vernon Money Center ("MVMC"), one of the Company's former third-party armored service providers in the Northeast U.S.   The Company collected this entire amount from its insurer in January 2013 .

 

(7) Intangible Assets  

 

Intangible Assets with Indefinite Lives  

 

The following table presents the net carrying amount of the Company's intangible assets with indefinite lives as of March 31, 2013 , as well as the changes in the net carrying amounts for the three month s ended March 31, 2013 , by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

U.S.

 

U.K.

 

Other International (1)

 

Total

 

 

(In thousands)  

Balance as of January 1, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

268,454 

 

$  

64,142 

 

$  

3,103 

 

$  

335,699 

Accumulated impairment loss  

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$  

268,454 

 

$  

14,139 

 

$  

3,103 

 

$  

285,696 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

7,997 

 

 

 

 

7,997 

Purchase price adjustments

 

 

 

 

 

 

204 

 

 

204 

Foreign currency translation adjustments  

 

 

 

 

(795)

 

 

(60)

 

 

(855)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

268,454 

 

$  

71,344 

 

$  

3,247 

 

$  

343,045 

Accumulated impairment loss  

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$  

268,454 

 

$  

21,341 

 

$  

3,247 

 

$  

293,042 

___________

 

 

 

 

 

 

 

 

 

 

 

 

(1) The Other International segment is currently comprised of the Company’s operations in Mexico and Canada.  

 

 

9

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name

 

 

U.S.

 

U.K.

 

Total

 

 

(In thousands)

Balance as of January 1, 2013

 

$  

200 

 

$  

3,231 

 

$  

3,431 

Acquisitions

 

 

 

 

453 

 

 

453 

Foreign currency translation adjustments

 

 

 

 

(191)

 

 

(191)

Balance as of March 31, 2013

 

$  

200 

 

$  

3,493 

 

$  

3,693 

 

Intangible Assets with Definite Lives  

 

The following is a summary of the Com pany's intangible assets that we re subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

Gross   Carrying   Amount

 

Accumulated   Amortization

 

 Net Carrying Amount

 

Gross   Carrying   Amount

 

Accumulated   Amortization

 

 Net Carrying Amount

 

 

(In thousands)

 

(In thousands)

Customer and branding contracts/relationships  

 

$  

213,744 

 

$  

(130,561)

 

$  

83,183 

 

$  

212,509 

 

$  

(125,920)

 

$  

86,589 

Deferred financing costs  

 

 

9,169 

 

 

(4,602)

 

 

4,567 

 

 

9,169 

 

 

(4,373)

 

 

4,796 

Exclusive license agreements  

 

 

18,167 

 

 

(12,692)

 

 

5,475 

 

 

18,724 

 

 

(12,543)

 

 

6,181 

Non-compete agreements  

 

 

3,045 

 

 

(1,516)

 

 

1,529 

 

 

2,822 

 

 

(1,246)

 

 

1,576 

Acquired technology

 

 

3,342 

 

 

(70)

 

 

3,272 

 

 

 

 

 

 

Total  

 

$  

247,467 

 

$  

(149,441)

 

$  

98,026 

 

$

243,224 

 

$

(144,082)

 

$

99,142 

 

 

 

(8) Accrued Liabilities  

 

Accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

(In thousands)

Accrued merchant fees  

 

$  

27,450 

 

$  

23,510 

Accrued merchant settlement amounts

 

 

7,460 

 

 

9,255 

Accrued armored fees

 

 

5,904 

 

 

4,628 

Accrued cash rental and management fees

 

 

5,293 

 

 

4,067 

Accrued compensation

 

 

4,344 

 

 

9,524 

Accrued maintenance fees

 

 

3,757 

 

 

4,865 

Accrued interest rate swap payments

 

 

2,183 

 

 

2,299 

Accrued interest expense

 

 

1,734 

 

 

5,753 

Accrued purchases

 

 

1,549 

 

 

2,084 

Accrued ATM telecommunications costs

 

 

1,362 

 

 

1,254 

Accrued processing costs  

 

 

675 

 

 

1,510 

Other accrued expenses  

 

 

13,185 

 

 

11,363 

Total  

 

$  

74,896 

 

$  

80,112 

 

 

(9) Long-Term Debt  

 

The Company's long-term debt consisted of the following:

10

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

(In thousands)

8.25% Senior subordinated notes due September 2018

 

$  

200,000 

 

$  

200,000 

Revolving credit facility, including swing-line credit facility (weighted-average combined interest rate of 2.4% and 2.2% as of March 31, 2013 and December 31, 2012, respectively)

 

 

151,400 

 

 

152,000 

Equipment financing notes  

 

 

2,589 

 

 

2,819 

Total  

 

 

353,989 

 

 

354,819 

Less: current portion  

 

 

1,582 

 

 

1,467 

Total long-term debt, excluding current portion  

 

$  

352,407 

 

$  

353,352 

 

Revolving Credit Facility  

 

As of March 31, 2013 , the Company's revolving credit facility provided for $ 250.0  million in borrowings and letters of credit (subject to the covenants contained within the facility), had a termination date of July 2016 , and contained a feature that allows the Company to expand the facility up to $ 325.0 million, subject to the availability of additional bank commitments by existing or new syndicate participants. 

 

This revolving credit facility includes a $ 15.0 million swing-line facility, a $ 60.0 million foreign currency sub-limit, and a $ 20.0 million letter of credit sub-limit. Borrowings under the facility bear interest at a variable rate, based upon the Company's total leverage ratio and the London Interbank Offered Rate ("LIBOR") or Alternative Base Rate (as defined in the agreement) at the Company's option. Additionally, the Company is required to pay a commitment fee on the unused portion of the revolving credit facility. Substantially all of the Company's assets, including the stock of its wholly-owned domestic subsidiaries and 66 % of the stock of its foreign subsidiaries, are pledged to secure borrowings made under the revolving credit facility. Furthermore, each of the Company's domestic subsidiaries has guaranteed the Company's obligations under the revolving credit facility. There are currently no restrictions on the ability of the Company's wholly-owned subsidiaries to declare and pay dividends directly to us.  

 

As of March 31, 2013 , the Company was in compliance with all applicable covenants and ratios under the facility, which were described in the 2012 Form 10-K.

 

As of March 31, 2013 , $ 151.4 million was outstanding under the Company’s revolving credit facility. Additionally, the Company has posted a $ 2.0 million letter of credit serving to secure the overdraft facility of its U.K. subsidiary (further discussed below) and a $ 0.1 million letter of credit serving to secure a third-party processing contract in Canada. These letters of credit, which the applicable third-parties may draw upon in the event the Company defaults on the related obligations, reduce the Company’s borrowing capacity under the facility. As of March 31, 2013 , the Company’s available borrowing capacity under the revolving credit facility totaled approximately $ 96.5 million .

 

$200.0 Million 8.25% Senior Subordinated Notes Due 2018

 

The $ 200.0 million 8.25 % senior subordinated notes due September 2018 (the "2018 Notes"), which are guaranteed by all of the Company's domestic subsidiaries, contain no maintenance covenants and only limited incurrence covenants, under which the Company has considerable flexibility. Interest under the 2018 Notes is paid semi-annually in arrears on March 1st and September 1st of each year. As of March 31, 2013 , the Company was in compliance with all applicable covenants required under the 2018 Notes.  

 

Other Borrowing Facilities

 

Cardtronics Mexico equipment financing agreements.   Between 2007 and 2010, Cardtronics Mexico entered into several separate five -year equipment financing agreements with a single lender, of which four agreements have outstanding balances as of March 31, 2013 . These agreements, which are denominated in pesos and bear interest at an average fixed rate of 10.04 %, were utilized for the purchase of ATMs to support the growth of the Company’s Mexico operations. As of March 31, 2013 ,   approximately $ 31 .8  million pesos ($ 2.6  million U.S.) were outstanding unde r the agreements . Pursuant to the terms of the loan agreements, the Company has issued guarantees for 51.0 % of the obligations under these agreements (consistent with its ownership percentage in Cardtronics Mexico). As of March 31, 2013 , the total amount of these guarantees was $ 1 6 . 2  million pesos ($ 1.3  million U.S.).

 

Bank Machine overdraft facility.   Bank Machine, Ltd. (“Bank Machine”) has a £ 1.0  million overdraft facility. This overdraft facility, which bears interest at 1.0 % over the bank’s base rate ( 0.5 % as of March 31, 2013 ) and is secured by a letter of credit posted under the Company’s revolving credit facility as discussed above in the Revolving Credit Facility section, is utilized for general corporate purposes for the Company’s U.K. operations. As of March 31, 2013 , there were no amounts outstanding under the overdraft facility.

 

11

 


 

(10) Asset Retirement Obligations  

 

Asset retirement obligations consist primarily of costs to deinstall the Company's ATMs and costs to restore the ATM sites to their original condition, which are estimated based on current market rates. In most cases, the Company is contractually required to perform this deinstallation and restoration work. For each group of ATMs, the Company has recognized the fair value of the asset retirement obligation as a liability on its balance sheet and capitalized that cost as part of the cost basis of the related asset. The related assets are depreciated on a straight-line basis over five years, which is the estimated average time period that an ATM is installed in a location before being deinstalled, and the related liabilities are accreted to their full value over the same period of time.   As reflected in the table below, during the quarter ended March 31, 2013, the Company revised its estimated future liabilities based on recent actual experience, changes in certain customer-specific estimates and other cost estimate changes. The changes in estimated future costs were recorded as a reduction in the carrying amount of the remaining unamortized asset and will reduce the Company’s depreciation and accretion expense amounts in future periods .

 

The following table is a summary of the changes in the Company's asset retirement obligation liability for the  three months ended   March 31, 2013   (in thousands) :  

 

 

 

 

 

 

 

 

 

Asset retirement obligation as of January 1, 2013

 

$  

44,696 

Additional obligations  

 

 

867 

Accretion expense  

 

 

660 

Change in estimates

 

 

(5,245)

Payments  

 

 

(621)

Foreign currency translation adjustments  

 

 

(1,146)

Asset retirement obligation as of March 31, 2013

 

$  

39,211 

 

See Note 13, Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair value measurements.

 

( 11) Other Liabilities  

 

Other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

(In thousands)

Current Portion of Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

23,591 

 

$  

23,117 

Deferred revenue  

 

 

1,512 

 

 

835 

Other  

 

 

444 

 

 

434 

Total

 

$  

25,547 

 

$  

24,386 

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

75,347 

 

$  

84,973 

Obligations associated with acquired unfavorable contracts

 

 

 

 

 

964 

Deferred revenue  

 

 

1,204 

 

 

1,353 

Other  

 

 

5,662 

 

 

5,831 

Total  

 

$  

82,213 

 

$  

93,121 

 

 

(12) Derivative Financial Instruments  

 

Cash Flow Hedging Strategy  

 

The Company is exposed to certain risks relating to its ongoing business operations, including interest rate risk associated with its vault cash rental obligations and, to a lesser extent, borrowings under its revolving credit facility.  The Company is also exposed to foreign currency exchange rate risk with respect to its investments in its foreign subsidiaries, most notably its investment in Bank Machine in the U.K.  While the Company does not currently utilize derivative instruments to hedge its foreign currency exchange rate risk, it does utilize interest rate swap contracts to manage the interest rate risk associated with its vault cash rental obligations in the U.S. and the U.K.  The Company does not currently utilize any derivative instruments to manage the interest rate risk associated with its vault cash rental obligations in Mexico or Canada, nor does it utilize derivative instruments to manage the interest rate risk associated with borrowings outstanding under its revolving credit facility.  

 

The interest rate swap contracts entered into with respect to the Company's vault cash rental obligations serve to mitigate the Company's exposure to interest rate risk by converting a portion of the Company's monthly floating rate vault cash rental obligations to a fixed rate.   The Company has contracts in varying notional amounts through December 31, 2018 for the Company's U.S. vault cash rental obligations .  By

12

 


 

converting such amounts to a fixed rate, the impact of future interest rate changes (both favorable and unfavorable) on the Company's monthly vault cash rental expense amounts has been reduced.  The interest rate swap contracts typically involve the receipt of floating rate amounts from the Company's counterparties that match, in all material respects, the floating rate amounts required to be paid by the Company to its vault cash providers for the portions of the Company's outstanding vault cash obligations that have been hedged.  In return, the Company typically pays the interest rate swap counterparties a fixed rate amount per month based on the same notional amounts outstanding.  At no point is there an exchange of the underlying principal or notional amounts associated with the interest rate swaps. Additionally, none of the Company's existing interest rate swap contracts contain credit-risk-related contingent features.  

 

For each derivative instrument that is designated and qualifies as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedge transaction affects earnings.  Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge components that are excluded from the assessment of effectiveness are recognized in earnings.  However, because the Company currently only utilizes fixed-for-floating interest rate swaps in which the underlying pricing terms agree, in all material respects, with the pricing terms of the Company’s vault cash rental obligations, the amount of ineffectiveness associated with such interest rate swap contracts has historically been immaterial.  Accordingly, no ineffectiveness amounts associated with the Company’s effective cash flow hedges have been recorded in the Company’s consolidated financial statements. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the Consolidated Statements of Operations during the current period.

   

 The notional amounts, weighted average fixed rates, and terms associated with the Company's interest rate swap contracts accounted for as cash flow hedges that are currently in place (as of the date of the issuance of these financial statements) are as follows:  

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts  

 

Notional Amounts  

 

Notional Amounts  

 

Weighted Average  

 

 

U.S.  

 

U.K.  

 

Consolidated (1)  

 

Fixed Rate  

 

Term  

(in thousands)  

 

 

 

 

$  

1,000,000 

 

£  

25,000

 

$  

1,037,973 

 

2.69 

%  

 

April 1, 2013 – December 31, 2013  

$  

1,250,000 

 

£  

 

$  

1,250,000 

 

2.98 

%  

 

January 1, 2014 – December 31, 2014  

$  

1,300,000 

 

£  

 

$  

1,300,000 

 

2.84 

%  

 

January 1, 2015 – December 31, 2015  

$  

1,300,000 

 

£  

 

$  

1,300,000 

 

2.74 

%  

 

January 1, 2016 – December 31, 2016  

$  

1,000,000 

 

£  

 

$  

1,000,000 

 

2.53 

%  

 

January 1, 2017 – December 31, 2017

$  

750,000 

 

£  

 

$  

750,000 

 

2.54 

%  

 

January 1, 2018 – December 31, 2018

___________

 

 

 

 

 

 

 

 

 

 

 

(1) U.K. pound sterling amounts have been converted into U.S. dollars at approximately $1.52 to £1.00, which was the exchange rate in effect as of March 31, 2013.

 

Accounting Policy  

 

The Company recognizes all of its derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value.  The accounting for changes in the fair value (e.g., gains or losses) of those derivative instruments depends on (1) whether these instruments have been designated (and qualify) as part of a hedging relationship and (2) the type of hedging relationship actually designated. For derivative instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation.  

 

The Company has designated all of its interest rate swap contracts as cash flow hedges of the Company’s forecasted vault cash rental obligations.  Accordingly, changes in the fair values of the related interest rate swap contracts have been reported in the Accumulated other comprehensive loss, net line item within stockholders’ equity in the accompanying Consolidated Balance Sheets.

 

The Company believes that it is more likely than not that it will be able to realize the benefits associated with its domestic net deferred tax asset positions in the future.  Therefore, the Company records the unrealized losses related to its domestic interest rate swaps net of estimated tax benefit s in the Accumulated other comprehensive loss, net line item within Stockholders' equity in the accompanying Consolidated Balance Sheets.  

 

Tabular Disclosures  

 

The following tables depict the effects of the use of the Company's derivative contracts on its Consolidated Balance Sheets and Consolidated Statements of Operations.

 

13

 


 

Balance Sheet Data  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

Liability Derivative Instruments:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts  

Current portion of other long-term liabilities

 

$  

23,591 

 

Current portion of other long-term liabilities

 

$  

23,117 

Interest rate swap contracts  

Other long-term liabilities

 

 

75,347 

 

Other long-term liabilities

 

 

84,973 

Total Derivatives

 

 

$  

98,938 

 

 

 

$  

108,090 

 

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

Derivatives in Cash Flow Hedging Relationship

 

Amount of Loss Recognized in OCI on Derivative Instruments

(Effective Portion)

 

Location of Loss Reclassed from Accumulated OCI Into Income

(Effective Portion) 

 

Amount of Loss Reclassified from Accumulated OCI into Income

(Effective Portion)  

 

 

2013

 

2012

 

 

 

2013

 

2012

 

 

(in thousands)  

 

 

 

(in thousands)

Interest rate swap contracts  

 

$  

(627)

 

$  

(12,721)

 

Cost of ATM operating revenues  

 

$  

(6,330)

 

$  

(6,394)

 

 

The Company does not currently have any derivative instruments that have been designated as fair value or net investment hedges.  The Company has not historically, and does not currently anticipate terminating its existing derivative instruments prior to their expiration dates.  If the Company concludes that it is no longer probable that the anticipated future vault cash rental obligations that have been hedged will occur, or if changes are made to the underlying terms and conditions of the Company's vault cash rental agreements, thus creating some amount of ineffectiveness associated with the Company's current interest rate swap contracts, any resulting gains or losses will be recognized within the Other expense (income) line item of the Company's Consolidated Statements of Operations.

 

As of March 31, 2013 , the Company expected to reclassify $ 23.4 million of net derivative-related losses contained within accumulated OCI into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.

 

See Note 13, Fair Value Measurements for additional disclosures on the Company's interest rate swap contracts in respect to its fair value measurements.

 

(13) Fair Value Measurements  

 

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2013 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at March 31, 2013

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

(In thousands)

Liabilities  

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swaps

 

$

98,938 

 

$

 

 

$

98,938 

 

$

Acquisition-related contingent consideration

 

 

3,285 

 

 

 

 

 

 

3,285 

 

 

14

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2012

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

(In thousands)

Liabilities  

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swaps

 

$

108,090 

 

$

 

$

108,090