Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 05/05/2014 16:10:18)

 



UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

 

FORM 10-Q  

 

 

 

(Mark One)

 

 

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

 

 

 

For the quarterly period ended March 31, 2014  

 

or  

 

 

 

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 No  

 

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 No  

 

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 

Accelerated filer 

Non-accelerated filer   

Smaller reporting company   

 

(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 No  

 

Common Stock, par value: $0.0001 per share.  Shares outstanding on May 01, 2014:   44,480,760

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013

1

   

Consolidated Statements of Operations for the Three Months Ended March 31, 2014 and 2013

2

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2014 and 2013

3

   

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013

4

   

Notes to Consolidated Financial Statements

5

 

Cautionary Statement Regarding Forward-Looking Statements

29

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

48

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 6.

Exhibits

49

   

Signatures

50

 

 

 

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, 2014

 

December 31, 2013

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

60,653 

 

$

86,939 

Accounts and notes receivable, net of allowance of $608 and $571 as of March 31, 2014 and December 31, 2013, respectively

 

63,854 

 

 

58,274 

Inventory, net

 

5,855 

 

 

5,302 

Restricted cash

 

27,921 

 

 

14,896 

Current portion of deferred tax asset, net

 

20,459 

 

 

21,202 

Prepaid expenses, deferred costs, and other current assets

 

23,242 

 

 

20,159 

Total current assets

 

201,984 

 

 

206,772 

Property and equipment, net

 

272,847 

 

 

270,966 

Intangible assets, net

 

150,529 

 

 

155,276 

Goodwill

 

411,140 

 

 

404,491 

Deferred tax asset, net

 

10,879 

 

 

9,680 

Prepaid expenses, deferred costs, and other noncurrent assets

 

7,260 

 

 

9,018 

Total assets

$

1,054,639 

 

$

1,056,203 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

939 

 

$

1,289 

Current portion of other long-term liabilities

 

36,329 

 

 

35,597 

Accounts payable

 

21,920 

 

 

38,981 

Accrued liabilities

 

149,380 

 

 

137,776 

Current portion of deferred tax liability, net

 

 

 

 

1,152 

Total current liabilities

 

208,568 

 

 

214,795 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

483,593 

 

 

489,225 

Asset retirement obligations

 

62,049 

 

 

60,665 

Deferred tax liability, net

 

7,140 

 

 

5,668 

Other long-term liabilities

 

36,600 

 

 

38,736 

Total liabilities

 

797,950 

 

 

809,089 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value; 125,000,000 shares authorized; 51,473,934 and 51,207,849 shares issued as of March 31, 2014 and December 31, 2013, respectively; 44,481,159 and 44,375,952 shares outstanding as of March 31, 2014 and December 31, 2013, respectively

 

 

 

Additional paid-in capital

 

335,118 

 

 

330,862 

Accumulated other comprehensive loss, net

 

(71,028)

 

 

(72,954)

Retained earnings

 

91,242 

 

 

81,677 

Treasury stock: 6,992,775 and 6,831,897 shares at cost as of March 31, 2014 and December 31, 2013, respectively

 

(96,753)

 

 

(90,679)

Total parent stockholders’ equity

 

258,584 

 

 

248,911 

Noncontrolling interests

 

(1,895)

 

 

(1,797)

Total stockholders’ equity

 

256,689 

 

 

247,114 

Total liabilities and stockholders’ equity

$

1,054,639 

 

$

1,056,203 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

1

 


 

 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

Revenues:

 

 

 

 

 

ATM operating revenues

$

238,139 

 

$

193,360 

ATM product sales and other revenues

 

6,933 

 

 

4,378 

Total revenues

 

245,072 

 

 

197,738 

Cost of revenues:

 

 

 

 

 

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

 

159,759 

 

 

129,560 

Cost of ATM product sales and other revenues

 

6,810 

 

 

4,129 

Total cost of revenues

 

166,569 

 

 

133,689 

Gross profit

 

78,503 

 

 

64,049 

Operating expenses:

 

 

 

 

 

Selling, general, and administrative expenses

 

24,527 

 

 

18,989 

Acquisition-related expenses

 

3,087 

 

 

2,822 

Depreciation and accretion expense

 

18,346 

 

 

16,285 

Amortization of intangible assets

 

8,217 

 

 

5,748 

Loss on disposal of assets

 

268 

 

 

203 

Total operating expenses

 

54,445 

 

 

44,047 

Income from operations

 

24,058 

 

 

20,002 

Other expense (income):

 

 

 

 

 

Interest expense, net

 

5,416 

 

 

5,066 

Amortization of deferred financing costs and note discount

 

2,685 

 

 

229 

Redemption costs for early extinguishment of debt

 

654 

 

 

 —

Other expense (income)

 

31 

 

 

(421)

Total other expense

 

8,786 

 

 

4,874 

Income before income taxes

 

15,272 

 

 

15,128 

Income tax expense

 

5,773 

 

 

5,980 

Net income

 

9,499 

 

 

9,148 

Net loss attributable to noncontrolling interests

 

(66)

 

 

(282)

Net income attributable to controlling interests and available to common stockholders

$

9,565 

 

$

9,430 

 

 

 

 

 

 

Net income per common share – basic

$

0.22 

 

$

0.21 

Net income per common share – diluted

$

0.21 

 

$

0.21 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,215,372 

 

 

44,247,098 

Weighted average shares outstanding – diluted

 

44,767,588 

 

 

44,479,366 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

2

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

Net income

$

9,499 

 

$

9,148 

Unrealized gains on interest rate swap contracts, net of deferred income tax expense of $919 and $3,436 for the three months ended March 31, 2014 and 2013, respectively

 

1,186 

 

 

5,703 

Foreign currency translation adjustments

 

740 

 

 

(4,040)

Other comprehensive income

 

1,926 

 

 

1,663 

Total comprehensive income

 

11,425 

 

 

10,811 

Less: comprehensive loss attributable to noncontrolling interests

 

(78)

 

 

(222)

Comprehensive income attributable to controlling interests

$

11,503 

 

$

11,033 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

   

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

9,499 

 

$

9,148 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

26,563 

 

 

22,033 

Amortization of deferred financing costs and note discount

 

 

2,685 

 

 

229 

Stock-based compensation expense

 

 

3,218 

 

 

3,165 

Deferred income taxes

 

 

(947)

 

 

1,433 

Loss on disposal of assets

 

 

268 

 

 

203 

Other reserves and non-cash items

 

 

122 

 

 

1,157 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(5,628)

 

 

(4,457)

Decrease in prepaid, deferred costs, and other current assets

 

 

1,096 

 

 

14,526 

Increase in inventory

 

 

(899)

 

 

(219)

Decrease (increase) in other assets

 

 

441 

 

 

(1,507)

Decrease in accounts payable

 

 

(19,036)

 

 

(2,722)

(Decrease) increase in accrued liabilities

 

 

(2,231)

 

 

113 

Decrease in other liabilities

 

 

(632)

 

 

(1,722)

Net cash provided by operating activities

 

 

14,519 

 

 

41,380 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(16,712)

 

 

(15,145)

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

 

 

 —

 

 

(792)

Acquisitions, net of cash acquired

 

 

(8,805)

 

 

(12,587)

Net cash used in investing activities

 

 

(25,517)

 

 

(28,524)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

 —

 

 

57,200 

Repayments of long-term debt and capital leases

 

 

(8,788)

 

 

(58,169)

Repayments of b orrowings under bank overdraft facility, net

 

 

(761)

 

 

Debt issuance and modification costs

 

 

(142)

 

 

Payment of contingent consideration

 

 

(517)

 

 

(250)

Proceeds from exercises of stock options

 

 

135 

 

 

247 

Excess tax benefit from stock-based compensation expense

 

 

912 

 

 

3,966 

Repurchase of capital stock

 

 

(6,074)

 

 

(3,804)

Net cash used in financing activities

 

 

(15,235)

 

 

(810)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(53)

 

 

219 

Net (decrease) increase in cash and cash equivalents

 

 

(26,286)

 

 

12,265 

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

86,939 

 

 

13,861 

Cash and cash equivalents as of end of period

 

$

60,653 

 

$

26,126 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

8,892 

 

$

9,115 

Cash paid for income taxes

 

$

4,012 

 

$

534 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these 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 services kiosks. As of March 31, 2014, the Company provided services to over 82,700 devices across its portfolio, which included   approximately 65,900 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 11,800 devices throughout the United Kingdom ("U.K."), approximately 900 devices throughout Germany, approximately 1,900 devices throughout Canada, and approximately 2,200 devices throughout Mexico. In the U.S., certain of the Company’s devices are 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 82,700 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 March 31, 2014, approximately 21,400 of the Company’s devices 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 (“Allpoint”), the largest surcharge-free ATM network within the U.S. (based on the number of participating ATMs). Allpoint, which has more than 56,000 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 . Allpoint 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   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, 2013 (the "2013 Form 10-K"), which includes a summary of the Company's significant accounting policies and other disclosures.

 

The financial statements as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 are unaudited. The Consolidated Balance Sheet as of December 31, 2013 was derived from the audited balance sheet filed in the 2013 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. Certain balances have been reclassified in the December 31, 2013 audited financial statements to present information consistently between periods. During the three months ended March 31, 2014, the Company changed its accounting policy related to the presentation of certain upfront merchant payments by reclassifying such payments from Intangible Assets to the Other Assets line item on the consolidated balance sheet. Prior period amounts have been reclassified to conform to this presentation. The results of operations for the three months ended March 31, 2014 and 2013 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 of intangible assets 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,

 

 

2014

 

2013

 

 

(In thousands)

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

 

$  

15,589 

 

$  

14,278 

Amortization of intangible assets  

 

 

8,217 

 

 

5,748 

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

 

$  

23,806 

 

$  

20,026 

 

 

(2) Acquisitions  

 

Acquisition of the Cardpoint ATM Portfolio

 

On August 7, 2013 , the Company completed the acquisition of Cardpoint Limited (“Cardpoint”) for approximately £105.4 million ( $161.8 million)   in cash. As a result of the Cardpoint acquisition, the Company significantly increased the size of its European operations by adding approximately 7,100 ATMs in the U.K. and approximately 800 ATMs in Germany, substantially all of which were owned by Cardpoint.  Approximately one fourth of the Company’s 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.   

   

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 months ended March 31, 2013, after giving effect to certain pro forma adjustments including: (i) amortization of 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

 

 

March 31, 2013

 

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues  

 

$  

197,738 

 

$  

223,674 

Net income attributable to controlling interests and available to common stockholders  

 

 

9,430 

 

 

9,280 

 

 

 

 

 

 

 

Earnings per share – basic

 

$  

0.21 

 

$  

0.20 

Earnings per share – diluted

 

$  

0.21 

 

$  

0.20 

 

The unaudited pro forma financial results do not reflect the impact of other acquisitions consummated by the Company during 2013, as the impact would not be material to its condensed conso lidated results of operations. The unaudited pro forma financial results assume that the Cardpoint acquisition occurred on January 1, 2013 , and are not necessarily indicative of the actual results that would have occurred had

6

 


 

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 February 6, 2014 , the Company acquired the majority of the assets of Automated Financial, LLC (“Automated Financial”), an Arizona-based provider of ATM services to approximately 2,100 ATMs consisting primarily of merchant-owned ATMs. The Automated Financial acquisition did not have a material effect on the Company's consolidated results of operations during the three months ended March 31, 2014 .  

 

(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,

 

 

2014

 

2013

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

214 

 

$  

205 

Selling, general, and administrative expenses  

 

 

3,004 

 

 

2,960 

Total stock-based compensation expense  

 

$  

3,218 

 

$  

3,165 

 

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 March 31, 2014, and changes during the three months ended March 31, 2014, are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2014

 

 

375,498 

 

$

18.42 

Vested  

 

 

(210,390)

 

$

13.50 

Forfeited

 

 

(6,250)

 

$

27.86 

RSAs outstanding as of March 31, 2014

 

 

158,858 

 

$

24.57 

 

As of March 31, 2014, the unrecognized compensation expense associated with all outstanding RSAs was approximately $ 2.7 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 a service-based vesting schedule only (“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 achieves 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.

7

 


 

 

 

The number of the Company's non-vested RSUs as of March 31, 2014, and changes during the three months ended March 31, 2014, are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Units

 

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2014

 

 

733,235 

 

$

25.26 

Granted  

 

 

427,411 

 

$

32.19 

Vested  

 

 

(250,885)

 

$

21.71 

Forfeited

 

 

(17,094)

 

$

24.03 

Non-vested RSUs as of March 31, 2014

 

 

892,667 

 

$

29.60 

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2014 but not yet earned are not included, but the Time-RSUs are included as granted.

 

As of March 31, 2014, the unrecognized compensation expense associated with earned RSUs was approximately $ 15.0 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 2.55  years .  

 

Options.   The number of the Company's outstanding stock options as of March 31, 2014, and changes during the three months ended March 31, 2014, are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2014

 

 

280,175 

 

$  

9.66 

Exercised  

 

 

(15,200)

 

$  

8.83 

Options outstanding as of March 31, 2014

 

 

264,975 

 

$  

9.70 

 

 

 

 

 

 

 

Options vested and exercisable as of March 31, 2014

 

 

264,975 

 

$  

9.70 

 

As of March 31, 2014, the Company had no unrecognized compensation expense associated with outstanding options.  

 

(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 net income available to common stockholders) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three months ended March 31, 2014 and 2013 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 under RSAs have a non-forfeitable right to cash dividends, if and when declared by the Company.  Accordingly, restricted shares issued under RSAs are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the three months ended March 31, 2014 and 2013 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

8

 


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2014

 

Three Months Ended March 31, 2013

 

 

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  

 

$  

9,565 

 

 

 

 

 

 

 

$  

9,430 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs  

 

 

(49)

 

 

 

 

 

 

 

 

(231)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

9,516 

 

 

44,215,372 

 

$  

0.22 

 

$  

9,199 

 

 

44,247,098 

 

$  

0.21 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

49 

 

 

 

 

 

 

 

$  

231 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

135,579 

 

 

 

 

 

 

 

 

232,268 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

416,637 

 

 

 

 

 

 

 

 

 —

 

 

 

Less: Undistributed earnings reallocated to RSAs  

 

 

(48)

 

 

 

 

 

 

 

 

(230)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

9,517 

 

 

44,767,588 

 

$  

0.21 

 

$  

9,200 

 

 

44,479,366 

 

$  

0.21 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock of 101,461 sh ares for the three months ended March 31, 2014 ,   and 480,284 shares for the three months ended March 31, 2013, 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 Stockholders' equity in the accompanying Consolidated Balance Sheets. The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net for the three months ended March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2014

 

$  

(18,436)

 

$  

(54,518)

(1)

 

$  

(72,954)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassification

 

 

740 

 

 

(7,552)

(2)

 

 

(6,812)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,738 

(2)

 

 

8,738 

Net current period other comprehensive income

 

 

740 

 

 

1,186 

 

 

 

1,926 

Total accumulated other comprehensive loss, net as of March 31, 2014

 

$  

(17,696)

 

$  

(53,332)

(1)

 

$  

(71,028)

___________

 

 

 

 

 

 

 

(1)     Net of deferred income tax benefit of $9,910 and $10,829 as of March 31, 2014 and January 1, 2014, respectively.

(2)     Net of deferred income tax (benefit) expense of $(5,852) and $6,771 for Other comprehensive income (loss) before reclassification and                   Amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments.

 

9

 


 

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) 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 well as the changes in the net carrying amounts for the three months ended March 31, 2014, by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

U.S.

 

Europe (1)

 

Other International (2)

 

Total

 

 

(In thousands)  

Balance as of January 1, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

288,439 

 

$  

162,763 

 

$  

3,292 

 

$  

454,494 

Accumulated impairment loss  

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$  

288,439 

 

$  

112,760 

 

$  

3,292 

 

$  

404,491 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

6,623 

 

 

 —

 

 

 —

 

 

6,623 

Purchase price adjustments

 

 

 —

 

 

(817)

 

 

 —

 

 

(817)

Foreign currency translation adjustments  

 

 

 —

 

 

928 

 

 

(85)

 

 

843 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

295,062 

 

$  

162,874 

 

$  

3,207 

 

$  

461,143 

Accumulated impairment loss  

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$  

295,062 

 

$  

112,871 

 

$  

3,207 

 

$  

411,140 

 

 

 

 

 

 

 

 

 

 

 

 

 

____________

 

(1)

The Europe segment is comprised of the Company’s operations in the U.K. and Germany.

(2)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: indefinite-lived

 

 

U.S.

 

Europe

 

Total

 

 

(In thousands)

Balance as of January 1, 2014

 

$  

200 

 

$  

560 

 

$  

760 

Foreign currency translation adjustments

 

 

 

 

 

 

Balance as of March 31, 2014

 

$  

200 

 

$  

566 

 

$  

766 

 

10

 


 

Intangible Assets with Definite Lives  

 

The following is a summary of the Company's intangible assets that were subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

Gross  

 

 

 

 Net  

 

Gross  

 

 

 

 Net  

 

 

  Carrying  

 

Accumulated  

 

 Carrying

 

  Carrying  

 

Accumulated  

 

 Carrying

 

 

Amount

 

Amortization

 

  Amount

 

Amount

 

Amortization

 

  Amount

 

 

(In thousands)

 

(In thousands)

Customer and branding contracts/relationships  

 

$  

295,404 

 

$  

(170,092)

 

$  

125,312 

 

$  

291,392 

 

$  

(162,775)

 

$  

128,617 

Deferred financing costs  

 

 

15,073 

 

 

(5,895)

 

 

9,178 

 

 

15,038 

 

 

(5,466)

 

 

9,572 

Non-compete agreements  

 

 

4,067 

 

 

(2,875)

 

 

1,192 

 

 

4,075 

 

 

(2,437)

 

 

1,638 

Technology

 

 

2,826 

 

 

(1,108)

 

 

1,718 

 

 

2,827 

 

 

(775)

 

 

2,052 

Trade name: definite-lived

 

 

13,263 

 

 

(900)

 

 

12,363 

 

 

13,164 

 

 

(527)

 

 

12,637 

Total  

 

$  

330,633 

 

$  

(180,870)

 

$  

149,763 

 

$

326,496 

 

$

(171,980)

 

$

154,516 

 

 

 

(7) Accrued Liabilities  

 

Accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

(In thousands)

Accrued merchant fees  

 

$  

38,801 

 

$  

32,619 

Accrued merchant settlement amounts

 

 

30,411 

 

 

17,365 

Accrued taxes

 

 

22,247 

 

 

23,033 

Accrued armored fees  

 

 

7,822 

 

 

5,271 

Accrued cash rental and management fees  

 

 

6,413 

 

 

4,570 

Accrued maintenance fees  

 

 

5,707 

 

 

5,186 

Accrued compensation  

 

 

5,659 

 

 

12,501 

Accrued interest rate swap payments  

 

 

3,012 

 

 

2,211 

Accrued interest expense  

 

 

2,679 

 

 

6,140 

Accrued purchases  

 

 

2,307 

 

 

2,392 

Accrued ATM telecommunications costs

 

 

1,992 

 

 

1,682 

Accrued processing costs  

 

 

919 

 

 

939 

Other accrued expenses  

 

 

21,411 

 

 

23,867 

Total  

 

$  

149,380 

 

$  

137,776 

 

 

 

11

 


 

( 8 ) Long-Term Debt  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

(In thousands)

8.25% Senior subordinated notes due September 2018

 

$  

191,606 

 

$  

200,000 

1.00% Convertible senior notes due December 2020, net of discount

 

 

218,784 

 

 

216,635 

Revolving credit facility, including swing-line credit facility (weighted-average combined interest rate of 2.5% as of both March 31, 2014 and December 31, 2013)

 

 

73,203 

 

 

72,547 

Equipment financing notes  

 

 

939 

 

 

1,332 

Total  

 

 

484,532 

 

 

490,514 

  Less: current portion  

 

 

939 

 

 

1,289 

Total long-term debt, excluding current portion  

 

$  

483,593 

 

$  

489,225 

 

12

 


 

Revolving Credit Facility  

 

As of March 31, 2014 , the Company's revolving credit facility provided for $ 375.0  million in borrowings and letters of credit (subject to the covenants contained within the facility) and had a termination date of July 2016.    

 

As of March 31, 2014, t his re volving credit facility included   a $ 15.0 million swing-line facility, a n   $ 85.0 million foreign currency sub-limit, and a $ 20.0 million letter of credit sub-limit. Bo rrowings under the facility accrued 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 the Company .  

 

As of March 31, 2014 , the Company was in compliance with all applicable covenants and ratios under the facility, which a re described in the 2013 Form 10-K .  

 

As of March 31, 2014 , $73.2 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 defa ults on the related obligations, and reduc e the Company’s borrowing capacity under the facility. As of March 31, 2014 , the Company’s available borrowing capacity under the revolving credit facility totaled approximately $ 299.7 million .

 

The revolving credit facility was subsequently amended on April 24, 2014. This amendment extended the term of the credit facility through April 2019 and amended certain other borrowing features and pricing terms. The combined limit on borrowings and letters of credit under the facility remained unchanged, except the amended facility provides for a $125.0 million accordion feature, whereby the credit facility can be increased to up to $500.0 million under certain conditions and subject to additional commitments from the lender group. 

 

$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, 2014 , the Company was in compliance with all applicable covenants required under the 2018 Notes.  

 

During the quarter ended March 31, 2014, the Company repurchased $ 8.4 million of the 2018 Notes in the open market. In connection with the repurchase, the Company recorded a   $0.1 million pre-tax charge to write off a portion of the unamortized deferred financing costs associated with the 2018 Notes, which are included in the Amortization of deferred financing costs and note discount line item in the accompanying Consolidated Statements of Operations. Additionally, the Company recorded a $0.7 million pre-tax charge related to the premium paid for the redemption, which is included in the Redemption costs for early extinguishment of debt line item in the accompanying Consolidated Statements of Operations.

 

$287.5 Million 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments

 

On November 19, 2013, the Company issued $250.0 million of 1.00% convertible senior notes due December 2020 (the "Convertible Notes") at par value. The Company also granted to the initial purchasers the option to purchase, during the 13 day period following the issuance of the notes, up to an additional $37.5 million of Convertible Notes (the “Over-allotment Opti on”). The initial purchasers exercised the Over-allotment Option on November 21, 2013. The Company received $254.2 million in net proceeds from the offering after deducting underwriting fees paid to the initial purchasers and the amount paid to repurchase its outstanding common stock concurrently with the offering. The Company used a portion of the net proceeds from the offering to pay the net cost of the convertible note hedge transaction, as described below. The convertible note hedge and warrant transactions were entered into with the initial purchasers on November 19, 2013, concurrently with the pricing of the Convertible Notes, and on November 21, 2013, concurrent with the exercise of the Over-allotment Option. The Company pays interest semi-annually (payable in arrears) on June 1st and December 1st of each year, beginning on June 1, 2014. Under U.S. GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was $215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date . Under U.S. GAAP, the Company recognizes effective interest expense on the debt component and that interest expense effectively accretes the debt component to the total principal amount due at maturity of $287.5 million. The effective rate of interest to accrete the debt balance is approximately 5.26% , which corresponds to the Company’s estimated conventional debt instrument borrowing rate at the date of issuance.  

 

13

 


 

The Convertible Notes have an initial conversion price of $52.35 per share, which equals an initial conversion rate of 19.1022 shares of common stock per $1,000 principal amount of notes, for a total of   approximately 5.5 million shares of our common stock initially underlying the debt. The conversion rate, however, is subject to adjustment under certain circumstances. Conversion can occur: (1) any time on or after September 1, 2020 ; (2) after March 31, 2014, during any calendar quarter that follows a calendar quarter in which the price of the Company’s common stock exceeds 135% of the conversion price for at least 20 days during the 30 consecutive t rading-day period ending on the last trading day of the quarter; (3) during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading price of the Convertible Notes is less than 98% of the closing price of the Company’s common stock multiplied by the applicable conversion rate on each such trading day; (4) upon specified distributions to the Company’s shareholders upon recapitalizations, reclassifications or changes in stock; and (5) upon a make-whole fundamental change. A fundamental change is defined as any one of the following: (1) any person or group that acquires 50% or more of the total voting power of all classes of common equity that is entitled to vote generally in the election of the Company’s directors; (2) the Company engages in any recapitalization, reclassification or changes of common stock as a result of which the common stock would be converted into or exchanged for, stock, other securities, or other assets or property; (3) the Company engages in any share exchange, consolidation or merger where the common stock is converted into cash, securities or other property; (4) the Company engages in any sales, lease or other transfer of all or substantially all of the consolidated assets; or (5) the Company’s stock is not listed for trading on any U.S. national securities exchange.

 

As of March 31, 2014 , none of the contingent conversion thresholds described above was met in order for the Convertible Notes to be convertible at the option of the note holders. As a result, the Convertible Notes have been classified as a noncurrent liability on the Company’s Consolidated Balance Sheets at March 31, 2014 . In future financial reporting periods, the classification of the Convertible Notes may change depending on whether any of the above contingent criteria have been subsequently satisfied.

 

Upon conversion, holders of the Convertible Notes are entitled to receive cash, shares of the Company’s common stock or a combination of cash and common stock, at the Company’s election. In the event of a change in control, as defined in the indenture under which the Convertible Notes have been issued, holders can require the Company to purchase all or a portion of their Convertible Notes for 100% of the notes' par value plus any accrued and unpaid interest.

 

Interest expense related to the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2014

 

2013

 

 

(In thousands)

Cash interest per contractual coupon rate

 

$  

719 

 

$  

 —

Amortization of note discount

 

 

2,149 

 

 

 —

Amortization of deferred financing costs

 

 

124 

 

 

 —

Total interest expense related to Convertible Notes

 

$  

2,992 

 

$  

 —

 

The carrying value of the Convertible Notes consisted of the following as of March 31, 2014 and December 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

(In thousands)

Principal balance

 

$  

287,500 

 

$  

287,500 

Discount, net of accumulated amortization

 

 

(68,716)

 

 

(70,865)

Net carrying amount of Convertible Notes

 

$  

218,784 

 

$  

216,635 

 

In connection with the issuance of the Convertible Notes, the Company entered into separate convertible note hedge and warrant transactions with certain of the initial purchasers to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The net effect of these transactions effectively raised the price at which dilution would occur from the $52.35 initial conversion price of the Convertible Notes to $73.29 . Pursuant to the convertible note hedge, the Company purchased call options granting the Company the right to acquire up to approximately 5.5 million shares of its common stock with an initial strike price of $52.35 . The call options automatically become exercisable upon conversion of the Convertible Notes, and will terminate on the second scheduled trading day immediately preceding December 1, 2020. The Company also sold to the initial purchasers warrants to acquire up to approximately 5.5 million shares of its common stock with a strike price of $73.29. The warrants will expire incrementally on a series of expiration dates subse quent to the maturity date of the Convertible Notes through August 30, 2021. If the conversion price of the Convertible Notes remains between the strike prices of the call options and warrants, the Company’s shareholders will not experience any dilution in connection with the conversion of the Convertible Notes; however, to the extent that the price of the Company’s common stock exceeds the strike price of the warrants on any or all of the series of related expiration dates of the warrants, the Company will be required to issue additional shares of its common stock to the initial purchasers. The amounts allocated to both the note hedge and warrants were recorded in equity, within the Additional paid-in capital line item.

 

14

 


 

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, 2014 . These agreements, which are denominated in pesos and bear interest at an average fixed rate of   9.85 %,   were utilized for the purchase of ATMs to support growth in the Company’s Mexico operations. As of March 31, 2014 ,   approximately $ 12.3  million pesos ($ 0.9  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, 2014 , the total amount of these guarantees was $ 6.3  million pesos ($ 0.5  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, 2014 ) 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, 2014 , the Company utilized £0.5 million of the overdraft facility leaving available borrowing capacity of £0.5 million o utstandi ng.

 

(9) 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.

 

The following table is a summary of the changes in the Company's asset retirement obligation liability for the three months ended March 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

Asset retirement obligation as of January 1, 2014

 

$  

63,831 

Additional obligations  

 

 

1,085 

Accretion expense  

 

 

813 

Payments  

 

 

(816)

Foreign currency translation adjustments  

 

 

313 

Total asset retirement obligation as of March 31, 2014

 

 

65,226 

Less: current portion    

 

 

3,177 

Asset retirement obligation, excluding current portion as of March, 31 2014    

 

$  

62,049 

 

See Note 12, Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair value measurements.

 

(10) Other Liabilities  

 

Other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

(In thousands)

Current Portion of Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

31,372 

 

$  

31,069 

Deferred revenue  

 

 

1,720 

 

 

1,315 

Asset retirement obligations

 

 

3,177 

 

 

3,166 

Other  

 

 

60 

 

 

47 

Total

 

$  

36,329 

 

$  

35,597 

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

31,864