Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 11/04/2013 16:04:23)

 



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  September 30 , 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 October   31 , 201 3 :   4 5 , 004 , 612

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

1

   

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012

2

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012

3

   

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

4

   

Notes to Consolidated Financial Statements

5

Cautionary Statement Regarding Forward-Looking Statements  

 

30

Item 2.

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

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

52

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

54

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 6.

Exhibits

55

   

Signatures

56

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

December 31, 2012

 

 

(U naudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

18,556 

 

$

13,861 

Accounts and notes receivable, net of allowance of $449 and $476 as of September 30, 2013 and December 31, 2012, respectively

 

49,971 

 

 

45,135 

Inventory

 

5,326 

 

 

4,389 

Restricted cash

 

27,828 

 

 

8,298 

Current portion of deferred tax asset, net

 

19,654 

 

 

13,086 

Prepaid expenses, deferred costs, and other current assets

 

21,832 

 

 

30,980 

Total current assets

 

143,167 

 

 

115,749 

Property and equipment, net

 

251,999 

 

 

236,238 

Intangible assets, net

 

175,827 

 

 

102,573 

Goodwill

 

390,296 

 

 

285,696 

Deferred tax asset, net

 

3,353 

 

 

26,468 

Prepaid expenses, deferred costs, and other assets

 

2,818 

 

 

2,168 

Total assets

$

967,460 

 

$

768,892 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt and notes payable

$

1,387 

 

$

1,467 

Current portion of other long-term liabilities

 

30,328 

 

 

24,386 

Accounts payable

 

27,377 

 

 

21,593 

Accrued liabilities

 

124,496 

 

 

80,112 

Current portion of deferred tax liability, net

 

1,178 

 

 

1,179 

Total current liabilities

 

184,766 

 

 

128,737 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

456,383 

 

 

353,352 

Asset retirement obligations

 

59,502 

 

 

44,696 

Deferred tax liability, net

 

2,831 

 

 

182 

Other long-term liabilities

 

50,539 

 

 

93,121 

Total liabilities

 

754,021 

 

 

620,088 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value; 125,000,000 shares authorized; 51,141,278 and 50,569,875 shares issued as of September 30, 2013 and December 31, 2012, respectively; 44,990,125 and 44,641,224 shares outstanding as of September 30, 2013 and December 31, 2012, respectively

 

 

 

Additional paid-in capital

 

281,775 

 

 

252,956 

Accumulated other comprehensive loss, net

 

(80,313)

 

 

(105,085)

Retained earnings

 

74,210 

 

 

57,861 

Treasury stock; 6,151,153 and 5,928,651 shares at cost as of September 30, 2013 and December 31, 2012, respectively

 

(62,187)

 

 

(58,270)

Total parent stockholders’ equity

 

213,490 

 

 

147,467 

Noncontrolling interests

 

(51)

 

 

1,337 

Total stockholders’ equity

 

213,439 

 

 

148,804 

Total liabilities and stockholders’ equity

$

967,460 

 

$

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 September 30,

 

Nine Months Ended September 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

222,678 

 

$

191,469 

 

$

619,637 

 

$

550,849 

ATM product sales and other revenues

 

6,141 

 

 

7,560 

 

 

14,904 

 

 

31,240 

Total revenues

 

228,819 

 

 

199,029 

 

 

634,541 

 

 

582,089 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

154,319 

 

 

130,064 

 

 

417,361 

 

 

374,312 

Cost of ATM product sales and other revenues

 

5,950 

 

 

6,665 

 

 

14,307 

 

 

27,925 

Total cost of revenues

 

160,269 

 

 

136,729 

 

 

431,668 

 

 

402,237 

Gross profit

 

68,550 

 

 

62,300 

 

 

202,873 

 

 

179,852 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

21,073 

 

 

15,292 

 

 

58,994 

 

 

47,956 

Acquisition-related expenses

 

3,536 

 

 

381 

 

 

7,542 

 

 

1,858 

Depreciation and accretion expense

 

16,890 

 

 

15,758 

 

 

49,056 

 

 

44,243 

Amortization expense

 

7,998 

 

 

5,565 

 

 

19,827 

 

 

16,452 

Loss (gain) on disposal of assets

 

109 

 

 

(28)

 

 

469 

 

 

784 

Total operating expenses

 

49,606 

 

 

36,968 

 

 

135,888 

 

 

111,293 

Income from operations

 

18,944 

 

 

25,332 

 

 

66,985 

 

 

68,559 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5,445 

 

 

5,269 

 

 

15,570 

 

 

15,966 

Amortization of deferred financing costs

 

275 

 

 

225 

 

 

735 

 

 

669 

Other income

 

(559)

 

 

(1,037)

 

 

(3,030)

 

 

(1,088)

Total other expense

 

5,161 

 

 

4,457 

 

 

13,275 

 

 

15,547 

Income before income taxes

 

13,783 

 

 

20,875 

 

 

53,710 

 

 

53,012 

Income tax expense

 

22,765 

 

 

8,169 

 

 

38,779 

 

 

20,684 

Net (loss) income

 

(8,982)

 

 

12,706 

 

 

14,931 

 

 

32,328 

Net loss attributable to noncontrolling interests

 

(574)

 

 

(191)

 

 

(1,418)

 

 

(62)

Net (loss) income attributable to controlling interests and available to common stockholders

$

(8,408)

 

$

12,897 

 

$

16,349 

 

$

32,390 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share – basic

$

(0.19)

 

$

0.29 

 

$

0.36 

 

$

0.72 

Net (loss) income per common share – diluted

$

(0.19)

 

$

0.28 

 

$

0.36 

 

$

0.71 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,477,023 

 

 

43,669,756 

 

 

44,373,627 

 

 

43,333,407 

Weighted average shares outstanding – diluted

 

44,477,023 

 

 

44,045,021 

 

 

44,593,624 

 

 

43,783,534 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

2

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(8,982)

 

$

12,706 

 

$

14,931 

 

$

32,328 

Unrealized (losses) gains on interest rate swap contracts, net of deferred income tax (benefit) expense of $(1,728) and $(3,045) for the three months ended September 30, 2013 and 2012, respectively, and $12,253 and $(18,095) for the nine months ended September 30, 2013 and 2012, respectively

 

(2,861)

 

 

(4,994)

 

 

20,390 

 

 

(28,239)

Foreign currency translation adjustments

 

8,919 

 

 

2,403 

 

 

4,382 

 

 

2,705 

Other comprehensive income (loss)

 

6,058 

 

 

(2,591)

 

 

24,772 

 

 

(25,534)

Total comprehensive (loss) income

 

(2,924)

 

 

10,115 

 

 

39,703 

 

 

6,794 

Less: comprehensive (loss) income attributable to noncontrolling interests

 

(568)

 

 

(87)

 

 

(1,387)

 

 

64 

Comprehensive (loss) income attributable to controlling interests

$

(2,356)

 

$

10,202 

 

$

41,090 

 

$

6,730 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

   

 

2013

 

2012

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

14,931 

 

$

32,328 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization expense

 

 

68,883 

 

 

60,695 

Amortization of deferred financing costs

 

 

735 

 

 

669 

Stock-based compensation expense

 

 

8,915 

 

 

8,691 

Deferred income taxes

 

 

15,663 

 

 

18,391 

Loss on disposal of assets

 

 

469 

 

 

784 

Unrealized gain and amortization of accumulated other comprehensive gains associated with derivative instruments no longer designated as hedging instruments

 

 

 

 

(616)

Other reserves and non-cash items

 

 

3,703 

 

 

2,293 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(2,949)

 

 

(6,119)

Decrease (increase) in prepaid, deferred costs, and other current assets

 

 

14,037 

 

 

(1,833)

Increase in inventory

 

 

(1,061)

 

 

(3,099)

(Increase) decrease in other assets

 

 

(1,497)

 

 

4,359 

Increase (decrease) in accounts payable

 

 

1,081 

 

 

(9,791)

Increase (decrease) in accrued liabilities

 

 

5,567 

 

 

(6,767)

Decrease in other liabilities

 

 

(6,002)

 

 

(5,660)

Net cash provided by operating activities

 

 

122,475 

 

 

94,325 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(41,708)

 

 

(75,875)

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

 

 

(3,894)

 

 

(4,717)

Acquisitions, net of cash acquired

 

 

(186,964)

 

 

(17,885)

Net cash used in investing activities

 

 

(232,566)

 

 

(98,477)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

275,977 

 

 

207,900 

Repayments of long-term debt and capital leases

 

 

(176,879)

 

 

(198,396)

Repayments of borrowings under bank overdraft facility, net

 

 

 

 

(162)

Debt issuance and modification costs

 

 

(761)

 

 

Payment of contingent consideration

 

 

(750)

 

 

Proceeds from exercises of stock options

 

 

2,060 

 

 

5,128 

Excess tax benefit from stock-based compensation expense

 

 

17,867 

 

 

Repurchase of capital stock

 

 

(3,917)

 

 

(4,462)

Net cash provided by financing activities

 

 

113,597 

 

 

10,008 

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

1,189 

 

 

(335)

Net increase in cash and cash equivalents

 

 

4,695 

 

 

5,521 

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

13,861 

 

 

5,576 

Cash and cash equivalents as of end of period

 

$

18,556 

 

$

11,097 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

19,662 

 

$

19,980 

Cash paid for income taxes

 

$

3,845 

 

$

3,292 

 

 

 

 

 

 

 

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 September 30, 2013 , the Company provided services to  over   80,400 devices across its portfolio, which included approximately 63,500 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 11,500 devices throughout the United Kingdom ("U.K."), approximately 800 devices throughout Germany , approximately 2,000 devices throughout Canada , and   approximately 2,600 devices throughout Mexico . Included in the number of devices in the U.S. are approximately 2,200 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 80,400 devices are approximately 13,900 devices for which the Company provides various forms of managed services solutions, which may include services such as transaction processing, monitoring, maintenance, cash management, communications, and customer service.

 

Through its network, the Company provides ATM management and equipment-related services (typically under multi-year contracts) to large, nationally and regionally -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., 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 September 30, 2013 ,   approximately   18,400 of the Company’s domestic devices , approximately 2,000 of the Company’s ATMs in Mexico,   and approximately 500 of the Company’s ATMs in Canada were under contract with fin ancial 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 September 30, 2013 and for the three and nine   months ended September 30, 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 and nine   months ended September 30, 2013 and 2012 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

 

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

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2013

 

2012

 

2013

 

2012

 

 

(In thousands)

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

 

$  

14,846 

 

$  

13,983 

 

$  

42,982 

 

$  

39,580 

Amortization expense  

 

 

7,998 

 

 

5,565 

 

 

19,827 

 

 

16,452 

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

 

$  

22,844 

 

$  

19,548 

 

$  

62,809 

 

 $

56,032 

 

 

(2) Acquisitions  

 

Acquisition of the Ca rdpoint ATM Portfolio

 

On August 7, 2013 ,   Cardtronics Europe Limited (“Cardtronics Europe”), a newly formed wholly-owned subsidiary of the Company ,   entered into , and consummated the transactions contemplated by, the Share Sale and Purchase Agreement (the “Purchase Agreement”) including the   purchas e   of all of the outstanding shares issued by Cardpoint Limited   (“Cardpoint”) from Payzone Ventures Limited (the “Seller”) and the individuals named as warrantors in the Purchase Agreement .

 

Pursuant to the Purchase Agreement, Cardtronics Europe acquired all of the outstanding shares issued by Cardpoint for purchase consideration of £ 100.0 million   ($153.5 million ) in cash , which include d the aggregate amount required to be paid (including principal and interest) in order to fully discharge all of Cardpoint’s outstanding indebtedness to the Seller at closing. Additionally, as part of the Purchase Agreement, Cardtronics Europe entered into a locked box agreement, under which additional cash at closing was paid to the Seller in the amount of approximately   £5 .9 million ( $9. 0 million ) as additional consideration for earnings since February 28, 2013.  No further working capital adjustments are required under the Purchase Agreement. The Company also paid to certain members of Cardpoint’s management transaction bonuses on behalf of the Seller in an aggregate amount of approximately   £ 0.5 million   ( $0. 7 million ), pursuant to the Purchase Agreement. The total amount paid for the acquisition was approximately £105 . 4 million ($161.8 million) at closing, which was financed through borrowings under the Company’s amended revolving credit facility .  

 

As a result of the Cardpoint acquisition, the Company significantly increase d the size of its European operations.  Cardpoint operated approximately 7,100 ATMs in the U.K. and approximately 800 ATMs in Germa ny, substantially all of which we re owned by Cardpoint.  Approximately one fourth of the ATMs deployed in the U.K. are placed with well-known multi-location retailers, whereas the remainder of the ATMs in the U.K., and most of the ATMs in Germany, are primarily placed with individual merchants at their retail locations.   

 

The results of operations of the acquired Ca rdpoint portfolio have been included in the Company's consolidated statement of operations subsequent to the August 7, 2013 acquisition date. Revenue and net income  of $1 7.8   million and $ 3.5  m illion, respectively, were included in both the three and nine month periods ended September 30, 201 3 . The earnings contribution ex cludes approximately $ 3.6   million in acquisition-related expenses incurred during the quarter   related to this acquisition . The acquisition-related expenses incurred year-to-date for this acquisition totaled   $ 4.5   million.

 

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date (amounts in thousands). The total purchase consideration was allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. This allocation resulted in goodwill of approximately $ 81.3   million, all of which has been assigned to the Company's Europe reporting segment, which now includes operations from both the U.K. and Germany. The recognized goodwill is primarily attributable to expected synergies. None o f   the goodwill or intangible

6

 


 

asset amount s   are expected to be deductible for income tax purposes. The Company expects to complete its purchase accounting during the fourth quarter of 2013 , when it plans to finalize the fair value measurement of acquired assets and assumed liabilities .

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Cash and cash equivalents

 

$  

4,782 

Accounts and notes receivable

 

 

619 

Inventory

 

 

863 

Restricted cash

 

 

7,522 

Prepaid expenses, deferred costs, and other current assets

 

 

6,665 

Property and equipment

 

 

25,052 

Deferred tax assets

 

 

8,317 

Intangible assets

 

 

73,874 

Goodwill

 

 

81,282 

Total assets acquired

 

 

208,976 

 

 

 

Accounts payable

 

 

6,051 

Accrued liabilities

 

 

24,393 

Deferred revenue

 

 

58 

Asset retirement obligations

 

 

16,645 

Total liabilities assumed

 

 

47,147 

 

 

 

Net assets acquired

 

$  

161,829 

 

The fair values of intangible assets acquired have been initially estimated by utilizing a discounted cash flow approach, with the assistance of an independent appraisal firm. The intangible assets acquired as part of the Cardpoint acquisition are being amortized on a straight-line basis, and the preliminary fair values consist of the following: 

 

 

 

 

 

 

 

 

Fair Values  

 

Useful Lives  

 

Weighted Average Period Before Next Renewal

Customer contracts

$  

62,824 

 

7 years

 

3.9 years

Trade name 

 

9,556 

 

5 years

 

N/A  

Non-compete agreements 

 

1,494 

 

3 years

 

N/A  

Total 

$  

73,874 

 

 

 

 

   

Pro Forma Results of Operations

 

The following table presents the unaudited pro forma combined results of operations of the Company and the acquired Cardpoint portfolios for the three and nine months ended September 30, 2013 and 2012, after giving effect to certain pro forma adjustments including: (i) amortization o f acquired intangible assets , (ii) the impact of certain fair value adjustments such as depreciation on the acquired property and equipment, and (iii) interest expense adjustment for historical long-term debt of Cardpoint that was repaid and interest expense on additional borrowings by the Company to fund the acquisition.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2013

 

September 30, 2013

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues  

 

$  

228,819 

 

$  

239,423 

 

$  

634,541 

 

$  

697,017 

Net (loss) income attributable to controlling interests and available to common stockholders  

 

 

(8,408)

 

 

(3,626)

 

 

16,349 

 

 

21,748 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) e arnings per share – basic

 

$  

(0.19)

 

$  

(0.08)

 

$  

0.36 

 

$  

0.48 

(Loss) e arnings per share – diluted

 

$  

(0.19)

 

$  

(0.08)

 

$  

0.36 

 

$  

0.47 

 

 

7

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 2012

 

September 30, 2012

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues  

 

$  

199,029 

 

$  

224,529 

 

$  

582,089 

 

$  

658,590 

Net income attributable to controlling interests and available to common stockholders  

 

 

12,897 

 

 

13,119 

 

 

32,390 

 

 

26,818 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic

 

$  

0.29 

 

$  

0.29 

 

$  

0.72 

 

$  

0.60 

Earnings per share – diluted

 

$  

0.28 

 

$  

0.29 

 

$  

0.71 

 

$  

0.59 

 

The unaudited pro forma financial results do not reflect the impact of other acquisition s consummated by the Company during the nine months ended September 30, 2013 (see further details below), as the impact would not be material to its condensed consolidated results of operations. The unaudited pro forma financial results assume that the Cardpoint acquisition occurred on January 1, 2012, and are not necessarily indicative of the actual results that would have occurred had those transactions been completed on that date. Furthermore, it does not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated operations.

 

Other 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 .   Additionally, on May 1, 2013 and June 3, 2013 , the Company acquired the majority of the assets of Aptus Group, LLC (“Aptus”) and Merrimak ATM Group, LLC (“Merrimak”) , respectively .  Both Aptus and Merrimak were providers of ATM services to fleet s of approximately 3,300 ATMs and 4,800 ATMs, respectively, consisting primarily of merchant-owned machines.

 

The i-design , Aptus, and Merrim ak   acquisitions, both on an individual basis and on a combined basis, did not have a material effect on the Company's consolidated results of operations during the three and nine months ended September 30, 2013 .  

 

(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

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2013

 

2012

 

2013

 

2012

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

239 

 

$  

231 

 

$  

651 

 

$  

754 

Selling, general, and administrative expenses  

 

 

2,932 

 

 

2,452 

 

 

8,264 

 

 

7,937 

Total stock-based compensation expense  

 

$  

3,171 

 

$  

2,683 

 

$  

8,915 

 

$  

8,691 

 

The in crease in stock-based compensation expense during the three and nine month s ended September 30, 2013 compared to the prior year was due to additional expense recognition from the additional grants made during the periods. 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 Restricted Stock Awards (“ RSAs ”) as of September 30, 2013 , and changes during the nine month s ended September 30, 2013 , are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2013

 

 

632,107 

 

$

16.36 

Granted  

 

 

97,401 

 

$

26.86 

Vested  

 

 

(232,913)

 

$

14.57 

Forfeited

 

 

(71,872)

 

$

24.30 

RSAs outstanding as of September 30, 2013

 

 

424,723 

 

$

18.38 

 

8

 


 

As of September 30, 2013 , the unrecognized compensation expense associated with all outstanding restricted share grants was approximately $ 4.6   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 quarter of each year since 2011, the Company granted restricted stock units (“ RSUs ”) under its Long Term Incentive Plan ("LTIP "), which is an   annual equity award program under the 2007 Stock Incentive 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") on an annual basis , 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. RSUs are also granted outside of LTIPs, with or without performance-based vesting requirements.

 

The number of the Company's non-vested RSUs as of September 30, 2013 , and changes during the nine months ended September 30, 2013 , are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Units

 

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2013

 

 

749,948 

 

$

20.01 

Granted  

 

 

262,744 

 

$

31.56 

Vested  

 

 

(261,503)

 

$

17.00 

Forfeited

 

 

(12,529)

 

$

22.51 

Non-vested RSUs as of September 30, 2013

 

 

738,660 

 

$

25.14 

 

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 September 30, 2013 , the unrecognized compensation expense associated with earned RSUs was approximately $ 10.0 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. 8  years .  

 

Options.   The number of the Company's outstanding stock options as of September 30, 2013 , and changes during the nine months ended September 30, 2013 , are presented below:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2013

 

 

552,799 

 

$  

9.68 

Exercised  

 

 

(212,499)

 

$  

9.69 

Forfeited

 

 

(1,875)

 

$

11.05 

Options outstanding as of September 30, 2013

 

 

338,425 

 

$  

9.67 

 

 

 

 

 

 

 

Options vested and exercisable as of September 30, 2013

 

 

332,675 

 

$  

9.64 

 

As of September 30, 2013 , the unrecognized compensation expense associated with outstanding options was approximately $ 12 ,000 ,   which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 0. 4  yea rs .  

 

(4) Earnings (L oss) 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 n et income available to common stockholders ) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three and nine month s ended September 30, 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.

9

 


 

 

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 and nine month s ended September 30, 2013 and 2012 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2013

 

Nine Months Ended September 30, 2013

 

 

Loss

 

Weighted Average Shares Outstanding

 

Loss Per Share  

 

Income  

 

Weighted Average Shares Outstanding

 

Earnings Per Share  

Basic and Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to controlling interests and available to common stockholders  

 

$  

(8,408)

 

 

 

 

 

 

 

$  

16,349 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares  

 

 

 

 

 

 

 

 

 

 

 

(449)

 

 

 

 

 

 

Net (loss) income available to common stockholders  

 

$  

(8,408)

 

 

44,477,023 

 

$  

(0.19)

 

$  

15,900 

 

 

44,373,627 

 

$  

0.36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

 

 

 

 

 

 

 

 

 

$  

449 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219,997 

 

 

 

Less: Undistributed earnings reallocated to restricted shares  

 

 

 

 

 

 

 

 

 

 

 

(447)

 

 

 

 

 

 

Net (loss) income available to common stockholders and assumed conversions  

 

$  

(8,408)

 

 

44,477,023 

 

$  

(0.19)

 

$  

15,902 

 

 

44,593,624 

 

$  

0.36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2012

 

Nine Months Ended September 30, 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  

 

$  

12,897 

 

 

 

 

 

 

 

$  

32,390 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares  

 

 

(437)

 

 

 

 

 

 

 

 

(1,137)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

12,460 

 

 

43,669,756 

 

$  

0.29 

 

$  

31,253 

 

 

43,333,407 

 

$  

0.72 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

437 

 

 

 

 

 

 

 

$  

1,137 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

375,265 

 

 

 

 

 

 

 

 

450,127 

 

 

 

Less: Undistributed earnings reallocated to restricted shares  

 

 

(434)

 

 

 

 

 

 

 

 

(1,126)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

12,463 

 

 

44,045,021 

 

$  

0.28 

 

$  

31,264 

 

 

43,783,534 

 

$  

0.71 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock (including both RSAs and RSUs )   of  4 92 , 376 sh ares for the nine month s ended September 30, 2013 ,   and 592 , 130 and 646 , 503 shares for the three and nine  

10

 


 

month s ended September 30, 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 s present the changes in the balances of each component of accumulated other comprehensive loss, net for the three and nine months ended September 30, 2013 :  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized (losses) gains on interest rate swap contracts

 

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of July 1, 2013

 

$  

(29,171)

 

$  

(57,200)

(1)

 

$  

(86,371)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassification

 

 

8,919 

 

 

(9,396)

(2)

 

 

(477)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

6,535 

(2)

 

 

6,535 

Net current per iod other comprehensive income (loss)

 

 

8,919 

 

 

(2,861)

 

 

 

6,058 

Total accumulated other comprehensive loss, net as of September 30, 2013

 

$  

(20,252)

 

$  

(60,061)

(1)

 

$  

(80,313)

___________

 

 

 

 

 

 

 

(1) Net of deferred income tax benefit of $15,159 and $13,431 as of September 30, 2013 and July 1, 2013, respectively.

(2) Net of deferred income tax (benefit) expense of $(5,675) and $3,947 for Other comprehensive income (loss) before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 12 .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized (losses) gains on interest rate swap contracts

 

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of January 1, 2013

 

$  

(24,634)

 

$  

(80,451)

(1)

 

$  

(105,085)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

 

4,382 

 

 

1,096 

(2)

 

 

5,478 

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

19,294 

(2)

 

 

19,294 

Net current period other comprehensive income

 

 

4,382 

 

 

20,390 

 

 

 

24,772 

Total accumulated other comprehensive loss, net as of September 30, 2013

 

$  

(20,252)

 

$  

(60,061)

(1)

 

$  

(80,313)

___________

 

 

 

 

 

 

 

(1) Net of deferred income tax benefit of $15,159 and $27,412 as of September 30, 2013 and January 1, 2013, respectively.

(2) Net of deferred income tax expense of $659 and $11,594 for Other comprehensive income before reclassification and Amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 12 .

 

The Company records unrealized gains and 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.   The Company collected this entire amount from its insurer in January 2013 .

 

11

 


 

(7) Intangible Assets  

 

Intangible Assets with Indefinite Li