Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 07/30/2014 16:48:54)

 



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 June 30, 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 July 25 , 2014:   44,4 72 , 002

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013

1

   

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013

2

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013

3

   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013

4

   

Notes to Consolidated Financial Statements

5

 

Cautionary Statement Regarding Forward-Looking Statements

31

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

53

   

   

 

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

54

   

Signatures

55

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2014

 

December 31, 2013

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

61,364 

 

$

86,939 

Accounts and notes receivable, net of allowance of $807 and $571 as of June 30, 2014 and December 31, 2013, respectively

 

62,866 

 

 

58,274 

Inventory, net

 

6,919 

 

 

5,302 

Restricted cash

 

27,545 

 

 

14,896 

Current portion of deferred tax asset, net

 

20,397 

 

 

21,202 

Prepaid expenses, deferred costs, and other current assets

 

30,229 

 

 

20,159 

Total current assets

 

209,320 

 

 

206,772 

Property and equipment, net

 

284,167 

 

 

270,966 

Intangible assets, net

 

145,254 

 

 

155,276 

Goodwill

 

412,964 

 

 

404,491 

Deferred tax asset, net

 

12,119 

 

 

9,680 

Prepaid expenses, deferred costs, and other noncurrent assets

 

7,716 

 

 

9,018 

Total assets

$

1,071,540 

 

$

1,056,203 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

615 

 

$

1,289 

Current portion of other long-term liabilities

 

36,555 

 

 

35,597 

Accounts payable

 

21,199 

 

 

38,981 

Accrued liabilities

 

150,124 

 

 

137,776 

Current portion of deferred tax liability, net

 

 —

 

 

1,152 

Total current liabilities

 

208,493 

 

 

214,795 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

473,613 

 

 

489,225 

Asset retirement obligations

 

64,881 

 

 

60,665 

Deferred tax liability, net

 

5,555 

 

 

5,668 

Other long-term liabilities

 

42,392 

 

 

38,736 

Total liabilities

 

794,934 

 

 

809,089 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001  par value; 125,000,000  shares authorized; 51,477,361 and 51,207,849 shares issued as of June 30, 2014 and December 31, 2013, respectively; 44,472,905 and 44,375,952 shares outstanding as of June 30, 2014 and December 31, 2013, respectively

 

 

 

Additional paid-in capital

 

339,842 

 

 

330,862 

Accumulated other comprehensive loss, net

 

(69,165)

 

 

(72,954)

Retained earnings

 

105,230 

 

 

81,677 

Treasury stock: 7,004,456 and 6,831,897 shares at cost as of June 30, 2014 and December 31, 2013, respectively

 

(96,824)

 

 

(90,679)

Total parent stockholders’ equity

 

279,088 

 

 

248,911 

Noncontrolling interests

 

(2,482)

 

 

(1,797)

Total stockholders’ equity

 

276,606 

 

 

247,114 

Total liabilities and stockholders’ equity

$

1,071,540 

 

$

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 June 30,

 

Six Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

252,052 

 

$

203,599 

 

$

490,191 

 

$

396,959 

ATM product sales and other revenues

 

7,977 

 

 

4,385 

 

 

14,910 

 

 

8,763 

Total revenues

 

260,029 

 

 

207,984 

 

 

505,101 

 

 

405,722 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

163,380 

 

 

133,482 

 

 

323,139 

 

 

263,042 

Cost of ATM product sales and other revenues

 

7,754 

 

 

4,228 

 

 

14,564 

 

 

8,357 

Total cost of revenues

 

171,134 

 

 

137,710 

 

 

337,703 

 

 

271,399 

Gross profit

 

88,895 

 

 

70,274 

 

 

167,398 

 

 

134,323 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

27,926 

 

 

18,932 

 

 

52,453 

 

 

37,921 

Acquisition-related expenses

 

7,642 

 

 

1,184 

 

 

10,729 

 

 

4,006 

Depreciation and accretion expense

 

19,597 

 

 

15,881 

 

 

37,943 

 

 

32,166 

Amortization of intangible assets

 

8,465 

 

 

6,081 

 

 

16,682 

 

 

11,829 

Loss on disposal of assets

 

316 

 

 

157 

 

 

584 

 

 

360 

Total operating expenses

 

63,946 

 

 

42,235 

 

 

118,391 

 

 

86,282 

Income from operations

 

24,949 

 

 

28,039 

 

 

49,007 

 

 

48,041 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5,328 

 

 

5,059 

 

 

10,744 

 

 

10,125 

Amortization of deferred financing costs and note discount

 

2,762 

 

 

231 

 

 

5,447 

 

 

460 

Redemption costs for early extinguishment of debt

 

699 

 

 

 —

 

 

1,353 

 

 

 —

Other income

 

(5,261)

 

 

(2,050)

 

 

(5,230)

 

 

(2,471)

Total other expense

 

3,528 

 

 

3,240 

 

 

12,314 

 

 

8,114 

Income before income taxes

 

21,421 

 

 

24,799 

 

 

36,693 

 

 

39,927 

Income tax expense

 

8,015 

 

 

10,034 

 

 

13,788 

 

 

16,014 

Net income

 

13,406 

 

 

14,765 

 

 

22,905 

 

 

23,913 

Net loss attributable to noncontrolling interests

 

(583)

 

 

(562)

 

 

(649)

 

 

(844)

Net income attributable to controlling interests and available to common stockholders

$

13,989 

 

$

15,327 

 

$

23,554 

 

$

24,757 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

$

0.31 

 

$

0.34 

 

$

0.53 

 

$

0.54 

Net income per common share – diluted

$

0.31 

 

$

0.33 

 

$

0.52 

 

$

0.54 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,324,747 

 

 

44,394,230 

 

 

44,270,363 

 

 

44,321,069 

Weighted average shares outstanding – diluted

 

44,830,978 

 

 

44,615,021 

 

 

44,800,298 

 

 

44,547,851 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30,

 

Six Months Ended June 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

13,406 

 

$

14,765 

 

$

22,905 

 

$

23,913 

Unrealized gains (losses) on interest rate swap contracts, net of deferred income tax expense (benefit) of $(1,012) and $10,545 for the three months ended June 30, 2014 and 2013, respectively, and $(93) and $13,981 for the six months ended June 30, 2014 and 2013, respectively

 

(1,566)

 

 

17,548 

 

 

(380)

 

 

23,251 

Foreign currency translation adjustments

 

3,429 

 

 

(497)

 

 

4,169 

 

 

(4,537)

Other comprehensive income

 

1,863 

 

 

17,051 

 

 

3,789 

 

 

18,714 

Total comprehensive income

 

15,269 

 

 

31,816 

 

 

26,694 

 

 

42,627 

Less: comprehensive loss attributable to noncontrolling interests

 

(586)

 

 

(597)

 

 

(664)

 

 

(819)

Comprehensive income attributable to controlling interests

$

15,855 

 

$

32,413 

 

$

27,358 

 

$

43,446 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

   

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

22,905 

 

$

23,913 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

54,625 

 

 

43,995 

Amortization of deferred financing costs and note discount

 

 

5,447 

 

 

460 

Stock-based compensation expense

 

 

6,917 

 

 

5,744 

Deferred income taxes

 

 

(2,734)

 

 

3,584 

Loss on disposal of assets

 

 

584 

 

 

360 

Other reserves and non-cash items

 

 

1,693 

 

 

2,689 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(5,308)

 

 

(3,538)

(Increase) decrease in prepaid, deferred costs, and other current assets

 

 

(8,131)

 

 

9,945 

Increase in inventory

 

 

(2,510)

 

 

(1,649)

Decrease (increase) in other assets

 

 

3,460 

 

 

(1,327)

(Decrease) increase in accounts payable

 

 

(16,322)

 

 

2,398 

Decrease in accrued liabilities

 

 

(2,623)

 

 

(1,532)

Decrease in other liabilities

 

 

(1,132)

 

 

(4,688)

Net cash provided by operating activities

 

 

56,871 

 

 

80,354 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(41,753)

 

 

(26,422)

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

 

 

 -

 

 

(3,433)

Acquisitions, net of cash acquired

 

 

(8,805)

 

 

(29,610)

Net cash used in investing activities

 

 

(50,558)

 

 

(59,465)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

 -

 

 

85,600 

Repayments of long-term debt and capital leases

 

 

(22,991)

 

 

(104,846)

Repayments of b orrowings under bank overdraft facility, net

 

 

(1,534)

 

 

Debt issuance, modification and redemption costs

 

 

(2,676)

 

 

Payment of contingent consideration

 

 

(518)

 

 

(750)

Proceeds from exercises of stock options

 

 

141 

 

 

459 

Excess tax benefit from stock-based compensation expense

 

 

1,998 

 

 

10,832 

Repurchase of capital stock

 

 

(6,145)

 

 

(3,821)

Net cash used in financing activities

 

 

(31,725)

 

 

(12,526)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(163)

 

 

117 

Net (decrease) increase in cash and cash equivalents

 

 

(25,575)

 

 

8,480 

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

86,939 

 

 

13,861 

Cash and cash equivalents as of end of period

 

$

61,364 

 

$

22,341 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

11,645 

 

$

10,132 

Cash paid for income taxes

 

$

18,114 

 

$

2,550 

 

 

 

 

 

 

 

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 June 30, 2014 , the Company provided services to   over 83,600 devices across its portfolio, which included   approximately 66,500 devices located in all 50 s tates of the United States ("U.S.") as well as in the U.S. territories of Puerto Rico and the U.S. Virgin Islands, approximately 12,000 devices throughout the United Kingdom ("U.K."), approximately 900 devices throughout Germany, approximately 2,000 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 83,600 devices are approximately 14,700 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 June 30, 2014 ,   approximately 21,300 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 56,100 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., and Mexico, and approximately a quarter of the Company’s ATMs in Canada . 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 June 30, 2014 and for the three and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 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 it’s 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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

(In thousands)

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

 

$  

16,266 

 

$  

13,858 

 

$  

31,855 

 

$  

28,136 

Amortization of intangible assets

 

 

8,465 

 

 

6,081 

 

 

16,682 

 

 

11,829 

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

 

$  

24,731 

 

$  

19,939 

 

$  

48,537 

 

 $

39,965 

 

 

 

(2) Acquisitions  

 

Acquisition of the Cardpoint ATM Portfolio

 

On August 7, 2013 , the Company completed the acquisition of Cardpoint Limited (“Cardpoint”) for approxima tely £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.  The Company has preliminarily allocated purchase consideration to the assets acquired and expects to complete its purchase accounting for this acquisition during the third quarter of 2014.

 

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 six   months ended June 30, 2013, a fter 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 e xpense on additional borrowings by the Company to fund the acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2013

 

June 30, 2013

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues  

 

$  

207,984 

 

$  

233,920 

 

$  

405,722 

 

$  

457,594 

Net income attributable to controlling interests and available to common stockholders  

 

 

15,327 

 

 

16,094 

 

 

24,757 

 

 

25,374 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic

 

$  

0.34 

 

$  

0.35 

 

$  

0.54 

 

$  

0.56 

Earnings per share – diluted

 

$  

0.33 

 

$  

0.35 

 

$  

0.54 

 

$  

0.55 

 

6

 


 

The unaudited pro forma financial results do not reflect the impact of other acquisitions consummated by the Company during 2013 and 2014 , 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 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 and six months ended June 30, 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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

353 

 

$  

207 

 

$  

567 

 

$  

412 

Selling, general, and administrative expenses  

 

 

3,346 

 

 

2,372 

 

 

6,350 

 

 

5,332 

Total stock-based compensation expense  

 

$  

3,699 

 

$  

2,579 

 

$  

6,917 

 

$  

5,744 

 

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 June 30, 2014, and changes during the six months ended June 30, 2014, are presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2014

 

 

375,498 

 

$

18.42 

Granted  

 

 

 —

 

$

 —

Vested  

 

 

(218,999)

 

$

14.00 

Forfeited

 

 

(15,664)

 

$

27.28 

RSAs outstanding as of June 30, 2014

 

 

140,835 

 

$

24.32 

 

As of June 30, 2014, th e unrecognized compensation expense associated with all outstanding RSAs was approximately $ 2.1 million, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 2.1 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 the LTIP, with or without performance-based vesting requirements , in accordance with the terms of the 2007 Stock Incentive Plan.

7

 


 

The number of the Company's non-vested RSUs as of June 30, 2014, a nd changes during the six months ended June 30, 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  

 

 

398,697 

 

$

31.75 

Vested  

 

 

(253,412)

 

$

21.72 

Forfeited

 

 

(46,187)

 

$

26.16 

Non-vested RSUs as of June 30, 2014

 

 

832,333 

 

$

29.40 

 

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 June 30, 2014, the unrecognized compensation expense associated with earned RSUs was approximately $ 12.4 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 2.28 years .  

 

Options.   The number of the Company's outstanding stock options as o f June 30, 2014, and changes during the six months ended   June 30, 2014, are presented below:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2014

 

 

280,175 

 

$  

9.66 

Exercised  

 

 

(16,100)

 

$  

8.71 

Forfeited

 

 

 —

 

$

 —

Options outstanding as of June 30, 2014

 

 

264,075 

 

$  

9.71 

 

 

 

 

 

 

 

Options vested and exercisable as of June 30, 2014

 

 

264,075 

 

$  

9.71 

 

As of June 30, 2014, t he 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 and six months ended June 30, 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.     The   potentially   dilutive effect of   outstanding   warrants and the   underlying shares exercisable under the Company’s   convertible notes   were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company’s common stock. The effect of the   note   hedge   the Company purchased to offset the underlying conversion option embedded in its convertible notes was   also   excluded,   as the effect is anti-dilutive.  

 

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 and six months ended June 30, 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 June 30, 2014

 

Three Months Ended June 30, 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  

 

$  

13,989 

 

 

 

 

 

 

 

$  

15,327 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs  

 

 

(49)

 

 

 

 

 

 

 

 

(448)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

13,940 

 

 

44,324,747 

 

$  

0.31 

 

$  

14,879 

 

 

44,394,230 

 

$  

0.34 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

49 

 

 

 

 

 

 

 

$  

448 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

125,207 

 

 

 

 

 

 

 

 

220,791 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

381,024 

 

 

 

 

 

 

 

 

 —

 

 

 

Less: Undistributed earnings reallocated to RSAs  

 

 

(49)

 

 

 

 

 

 

 

 

(445)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

13,940 

 

 

44,830,978 

 

$  

0.31 

 

$  

14,882 

 

 

44,615,021 

 

$  

0.33 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

Six Months Ended June 30, 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  

 

$  

23,554 

 

 

 

 

 

 

 

$  

24,757 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares  

 

 

(102)

 

 

 

 

 

 

 

 

(666)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

23,452 

 

 

44,270,363 

 

$  

0.53 

 

$  

24,091 

 

 

44,321,069 

 

$  

0.54 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

102 

 

 

 

 

 

 

 

$  

666 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

130,562 

 

 

 

 

 

 

 

 

226,782 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

399,373 

 

 

 

 

 

 

 

 

 —

 

 

 

Less: Undistributed earnings reallocated to restricted shares  

 

 

(100)

 

 

 

 

 

 

 

 

(662)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

23,454 

 

 

44,800,298 

 

$  

0.52 

 

$  

24,095 

 

 

44,547,851 

 

$  

0.54 

 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock of 61,031 and 80,298 sh ares for the three and six months ended June 30, 2014 , respectively, and 454,918 and 466,152   shares for the three and six months ended June 30, 2013, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

9

 


 

 

(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 and six months ended June 30, 2014:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized (losses) gains on interest rate swap contracts

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of April 1, 2014

 

$  

(17,696)

 

$  

(53,332)

(1)

$  

(71,028)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassification

 

 

3,429 

 

 

(10,420)

(2)

 

(6,991)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,854 

(2)

 

8,854 

Net current period other comprehensive income (loss)

 

 

3,429 

 

 

(1,566)

 

 

1,863 

Total accumulated other comprehensive loss, net as of June 30, 2014

 

$  

(14,267)

 

$  

(54,898)

(1)

$  

(69,165)

 

(1)

Net of deferred income tax benefit of $10,922 and $9,910 as of June 30, 2014 and April 1, 2014, respectively.

(2)

Net of deferred income tax (benefit) expense of $( 6,734 ) and $ 5,722 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

4,169 

 

 

(17,972)

(2)

 

(13,803)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

17,592 

(2)

 

17,592 

Net current period other comprehensive income (loss)

 

 

4,169 

 

 

(380)

 

 

3,789 

Total accumulated other comprehensive loss, net as of June 30, 2014

 

$  

(14,267)

 

$  

(54,898)

(1)

$  

(69,165)

____________

 

(1)

Net of deferred income tax benefit of $10,922 and $10,829 as of June 30, 2014 and January 1, 2014, respectively.

(2)

Net of deferred income tax (benefit) expense of $(4,398) and $4,305 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments .

 

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.

10

 


 

(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 six months ended June 30, 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

 

 

(1,174)

 

 

(509)

 

 

 —

 

 

(1,683)

Foreign currency translation adjustments  

 

 

 —

 

 

3,528 

 

 

 

 

3,533 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

293,888 

 

$  

165,782 

 

$  

3,297 

 

$  

462,967 

Accumulated impairment loss  

 

 

 —

 

 

(50,003)

 

 

 —

 

 

(50,003)

 

 

$  

293,888 

 

$  

115,779 

 

$  

3,297 

 

$  

412,964 

 

 

 

 

 

 

 

 

 

 

 

 

 

____________

 

(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

 

 

 —

 

 

18 

 

 

18 

Balance as of June 30, 2014

 

$  

200 

 

$  

578 

 

$  

778 

Intangible Assets with Definite Lives  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 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  

 

$  

298,145 

 

$  

(178,105)

 

$  

120,040 

 

$