Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 10/29/2014 16:48:41)

 



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  September 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 October 27 , 2014: 44,523,555

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

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

1

   

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013

2

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013

3

   

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013

4

   

Notes to Consolidated Financial Statements

5

 

Cautionary Statement Regarding Forward-Looking Statements

26

Item 2.

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

27

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

December 31, 2013

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

140,861 

 

$

86,939 

Accounts and notes receivable, net of allowance of $817 and $571 as of September 30, 2014 and December 31, 2013, respectively

 

63,601 

 

 

58,274 

Inventory, net

 

5,859 

 

 

5,302 

Restricted cash

 

16,207 

 

 

14,896 

Current portion of deferred tax asset, net

 

20,731 

 

 

21,202 

Prepaid expenses, deferred costs, and other current assets

 

31,828 

 

 

20,159 

Total current assets

 

279,087 

 

 

206,772 

Property and equipment, net

 

286,007 

 

 

270,966 

Intangible assets, net

 

135,290 

 

 

155,276 

Goodwill

 

400,974 

 

 

404,491 

Deferred tax asset, net

 

11,644 

 

 

9,680 

Prepaid expenses, deferred costs, and other noncurrent assets

 

8,355 

 

 

9,018 

Total assets

$

1,121,357 

 

$

1,056,203 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

302 

 

$

1,289 

Current portion of other long-term liabilities

 

35,591 

 

 

35,597 

Accounts payable

 

25,497 

 

 

38,981 

Accrued liabilities

 

130,826 

 

 

137,776 

Current portion of deferred tax liability, net

 

 

 

1,152 

Total current liabilities

 

192,216 

 

 

214,795 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

541,349 

 

 

489,225 

Asset retirement obligations

 

58,598 

 

 

60,665 

Deferred tax liability, net

 

11,883 

 

 

5,668 

Other long-term liabilities

 

28,806 

 

 

38,736 

Total liabilities

 

832,852 

 

 

809,089 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001  par value; 125,000,000  shares authorized; 51,543,235 and 51,207,849 shares issued as of September 30, 2014 and December 31, 2013, respectively; 44,521,555 and 44,375,952 shares outstanding as of September 30, 2014 and December 31, 2013, respectively

 

 

 

Additional paid-in capital

 

345,037 

 

 

330,862 

Accumulated other comprehensive loss, net

 

(69,576)

 

 

(72,954)

Retained earnings

 

113,304 

 

 

81,677 

Treasury stock: 7,021,680 and 6,831,897 shares at cost as of September 30, 2014 and December 31, 2013, respectively

 

(97,363)

 

 

(90,679)

Total parent stockholders’ equity

 

291,407 

 

 

248,911 

Noncontrolling interests

 

(2,902)

 

 

(1,797)

Total stockholders’ equity

 

288,505 

 

 

247,114 

Total liabilities and stockholders’ equity

$

1,121,357 

 

$

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

September 30,

 

Nine Months Ended

September 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

256,779 

 

$

222,678 

 

$

746,970 

 

$

619,637 

ATM product sales and other revenues

 

9,068 

 

 

6,141 

 

 

23,978 

 

 

14,904 

Total revenues

 

265,847 

 

 

228,819 

 

 

770,948 

 

 

634,541 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

167,306 

 

 

154,319 

 

 

490,445 

 

 

417,361 

Cost of ATM product sales and other revenues

 

8,872 

 

 

5,950 

 

 

23,436 

 

 

14,307 

Total cost of revenues

 

176,178 

 

 

160,269 

 

 

513,881 

 

 

431,668 

Gross profit

 

89,669 

 

 

68,550 

 

 

257,067 

 

 

202,873 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

27,683 

 

 

21,073 

 

 

80,136 

 

 

58,994 

Acquisition-related expenses

 

2,299 

 

 

3,536 

 

 

13,028 

 

 

7,542 

Depreciation and accretion expense

 

18,949 

 

 

16,890 

 

 

56,892 

 

 

49,056 

Amortization of intangible assets

 

7,965 

 

 

7,998 

 

 

24,647 

 

 

19,827 

Loss on disposal of assets

 

1,078 

 

 

109 

 

 

1,662 

 

 

469 

Total operating expenses

 

57,974 

 

 

49,606 

 

 

176,365 

 

 

135,888 

Income from operations

 

31,695 

 

 

18,944 

 

 

80,702 

 

 

66,985 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5,423 

 

 

5,445 

 

 

16,167 

 

 

15,570 

Amortization of deferred financing costs and note discount

 

4,895 

 

 

275 

 

 

10,342 

 

 

735 

Redemption costs for early extinguishment of debt

 

7,722 

 

 

 

 

9,075 

 

 

Other expense (income)

 

1,665 

 

 

(559)

 

 

(3,565)

 

 

(3,030)

Total other expense

 

19,705 

 

 

5,161 

 

 

32,019 

 

 

13,275 

Income before income taxes

 

11,990 

 

 

13,783 

 

 

48,683 

 

 

53,710 

Income tax expense

 

4,397 

 

 

22,765 

 

 

18,185 

 

 

38,779 

Net income (loss)

 

7,593 

 

 

(8,982)

 

 

30,498 

 

 

14,931 

Net loss attributable to noncontrolling interests

 

(471)

 

 

(574)

 

 

(1,120)

 

 

(1,418)

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

$

8,064 

 

$

(8,408)

 

$

31,618 

 

$

16,349 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share – basic

$

0.18 

 

$

(0.19)

 

$

0.71 

 

$

0.36 

Net income (loss) per common share – diluted

$

0.18 

 

$

(0.19)

 

$

0.70 

 

$

0.36 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,370,460 

 

 

44,477,023 

 

 

44,304,092 

 

 

44,373,627 

Weighted average shares outstanding – diluted

 

44,903,657 

 

 

44,477,023 

 

 

44,830,780 

 

 

44,593,624 

 

 

 

 

 

 

 

 

 

 

 

 

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

September 30,

 

Nine Months Ended

September 30,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

$

7,593 

 

$

(8,982)

 

$

30,498 

 

$

14,931 

Unrealized gains (losses) on interest rate swap contracts, net of deferred income tax expense (benefit) of $4,968 and $(1,728) for the three months ended September 30, 2014 and 2013, respectively, and $4,875 and $12,253 for the nine months ended September 30, 2014 and 2013, respectively

 

7,687 

 

 

(2,861)

 

 

7,307 

 

 

20,390 

Foreign currency translation adjustments

 

(8,098)

 

 

8,919 

 

 

(3,929)

 

 

4,382 

Other comprehensive (loss) income

 

(411)

 

 

6,058 

 

 

3,378 

 

 

24,772 

Total comprehensive income (loss)

 

7,182 

 

 

(2,924)

 

 

33,876 

 

 

39,703 

Less: comprehensive loss attributable to noncontrolling interests

 

(421)

 

 

(568)

 

 

(1,085)

 

 

(1,387)

Comprehensive income (loss) attributable to controlling interests

$

7,603 

 

$

(2,356)

 

$

34,961 

 

$

41,090 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

September 30,

   

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

30,498 

 

$

14,931 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

81,539 

 

 

68,883 

Amortization of deferred financing costs and note discount

 

 

10,342 

 

 

735 

Stock-based compensation expense

 

 

11,485 

 

 

8,915 

Deferred income taxes

 

 

(1,811)

 

 

15,663 

Loss on disposal of assets

 

 

1,662 

 

 

469 

Other reserves and non-cash items

 

 

9,911 

 

 

3,703 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(7,603)

 

 

(2,949)

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

 

 

(8,073)

 

 

14,037 

Increase in inventory

 

 

(2,817)

 

 

(1,061)

Decrease (increase) in other assets

 

 

714 

 

 

(1,497)

(Decrease) increase in accounts payable

 

 

(11,536)

 

 

1,081 

(Decrease) increase in accrued liabilities

 

 

(7,351)

 

 

5,567 

Decrease in other liabilities

 

 

(3,900)

 

 

(6,002)

Net cash provided by operating activities

 

 

103,060 

 

 

122,475 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(63,169)

 

 

(41,708)

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

 

 

(1,909)

 

 

(3,894)

Acquisitions, net of cash acquired

 

 

(8,803)

 

 

(186,964)

Net cash used in investing activities

 

 

(73,881)

 

 

(232,566)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

250,000 

 

 

275,977 

Repayments of long-term debt and capital leases

 

 

(204,431)

 

 

(176,879)

Repayments of borrowings under bank overdraft facility, net

 

 

(1,402)

 

 

 —

Debt issuance, modification and redemption costs

 

 

(14,750)

 

 

(761)

Payment of contingent consideration

 

 

(516)

 

 

(750)

Proceeds from exercises of stock options

 

 

331 

 

 

2,060 

Excess tax benefit from stock-based compensation expense

 

 

3,084 

 

 

17,867 

Repurchase of capital stock

 

 

(6,684)

 

 

(3,917)

Net cash provided by financing activities

 

 

25,632 

 

 

113,597 

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(889)

 

 

1,189 

Net increase in cash and cash equivalents

 

 

53,922 

 

 

4,695 

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

86,939 

 

 

13,861 

Cash and cash equivalents as of end of period

 

$

140,861 

 

$

18,556 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

19,170 

 

$

19,662 

Cash paid for income taxes

 

$

23,360 

 

$

3,845 

 

 

 

 

 

 

 

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 September 30, 2014 , the Company provided services to over 85,000 devices across its portfolio, which included approximately 67,000 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 12,300 devices throughout the United Kingdom ("U.K."), approximately 900 devices throughout Germany, approximately 2,600 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 85,000 devices are approximately 15,500 devices for which the Company provides various forms of managed services solutions, which may include services such as transaction processing, monitoring, maintenance, cash management, communications, and customer service.

 

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

 

In addition to its retail merchant relationships, the Company also partners with leading national financial institutions to brand selected ATMs and financial services kiosks within its network, including Citibank, N.A., JPMorgan Chase Bank, N.A., Sovereign Bank, N.A., PNC Bank, N.A., Frost Bank, The Bank of Nova Scotia (“ Scotiabank”) in Canada, Mexico, and Puerto Rico, and Grupo Financiero Banorte, S.A. de C.V. in Mexico . As of September 30, 2014, approximately 22,000 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 approximately   55,000 participating ATMs globally, provides surcharge-free ATM access to customers of participating financial institutions that lack a significant ATM network in exchange for either a fixed monthly fee per cardholder or a set fee per transaction that is paid by the financial institutions who are members of the network . 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 September 30, 2014 and for the three and nine months ended September 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 nine months ended September 30, 2014 , the Company changed its accounting policy related to the presentation of certain upfront merchant payments by reclassifying such payments from Intangible assets, net to the Prepaid expenses, deferred costs, and other noncurrent assets line item on the Consolidated Balance Sheet. Prior peri od amounts have been reclassified to conform to this presentation. The results of operations for the three and nine months ended September 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 the Company and its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been elimin ated in consolidation. T he 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”), thus 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

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

(In thousands)

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

 

$  

15,926 

 

$  

14,846 

 

$  

47,781 

 

$  

42,982 

Amortization of intangible assets

 

 

7,965 

 

 

7,998 

 

 

24,647 

 

 

19,827 

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

 

$  

23,891 

 

$  

22,844 

 

$  

72,428 

 

 $

62,809 

 

 

 

 

(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. 

 

Pro Forma Results of Operations

 

The following table presents the unaudited pro forma combined results of operations of the Company and the acquired Cardpoint portfolios for the three and nine   months ended September 30, 2013 , 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

 

Nine Months Ended

 

 

September 30, 2013

 

September 30, 2013

 

 

As Reported

 

Pro Forma

 

As Reported

 

Pro Forma

 

 

(In thousands, excluding per share amounts)

Total revenues  

 

$  

228,819 

 

$  

239,423 

 

$  

634,541 

 

$  

697,017 

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

 

 

(8,408)

 

 

(8,620)

 

 

16,349 

 

 

16,754 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share – basic

 

$  

(0.19)

 

$  

(0.19)

 

$  

0.36 

 

$  

0.37 

Earnings (loss) per share – diluted

 

$  

(0.19)

 

$  

(0.19)

 

$  

0.36 

 

$  

0.37 

 

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 nine months ended September 30, 2014 .  

 

On Sept ember 2, 2014 , the Company announced the acquisition of Sunwin Services Group ("SSG"), a subsidiary of the Co-operative Group (“Co-op”) . SSG's primary business is providing secure cash logistics and ATM maintenance to the Co-op Food ATM estate.  This acquisition is subject to the satisfaction of certain closing conditions and is expected to close in the fourth quarter of 2014.  

 

On October 6 , 2014 , the Company acquired all of the assets of Welch ATM (“Welch”), an Illinois-based provider of ATM services to approximately 26,000 ATMs. The Company will include the financial results of Welch from the date of acquisition in its consolidated statement of operations .

 

 

 

(3) Stock-Based Compensation  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2014

 

2013

 

2014

 

2013

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

337 

 

$  

239 

 

$  

904 

 

$  

651 

Selling, general, and administrative expenses  

 

 

4,231 

 

 

2,932 

 

 

10,581 

 

 

8,264 

Total stock-based compensation expense  

 

$  

4,568 

 

$  

3,171 

 

$  

11,485 

 

$  

8,915 

 

All grants during the periods above were made under the Company's Amended and Restated 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan").

 

Restricted Stock Awards .  The number of the Company's outstanding Restricted Stock Awards (“RSAs”) as of September 30, 2014 , and changes during the nine months ended September 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  

 

 

(235,456)

 

$

14.71 

Forfeited

 

 

(18,164)

 

$

27.26 

RSAs outstanding as of September 30, 2014

 

 

121,878 

 

$

24.27 

 

As of September 30, 2014 , th e unrecognized compensation expense associated with all outstanding RSAs was approximately $1.7 million, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 1.9 years.

 

7

 


 

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.

 

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

 

 

405,687 

 

$

31.82 

Vested  

 

 

(289,794)

 

$

23.43 

Forfeited

 

 

(56,257)

 

$

27.93 

Non-vested RSUs as of September 30, 2014

 

 

792,871 

 

$

29.09 

 

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

 

As of September 30, 2014 , the unrecognized compensation expense associated with earned RSUs was approximately $ 10.2 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 2.19 years .  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2014

 

 

280,175 

 

$  

9.66 

Exercised  

 

 

(45,592)

 

$  

7.24 

Forfeited

 

 

 

 

$

Cancelled

 

 

(3,716)

 

$

0.03 

Options outstanding as of September 30, 2014

 

 

230,867 

 

$  

10.29 

 

 

 

 

 

 

 

Options vested and exercisable as of September 30, 2014

 

 

230,867 

 

$  

10.29 

 

As of September 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 nine months ended September 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.

8

 


 

 

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 nine months ended September 30, 2014 and 2013 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

September 30, 2014

 

Three Months Ended

September 30, 2013

 

 

Income

 

Weighted Average Shares Outstanding

 

Earnings Per Share  

 

Loss

 

Weighted Average Shares Outstanding

 

Earnings Per Share  

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$  

8,064 

 

 

 

 

 

 

 

$  

(8,408)

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs  

 

 

(23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common stockholders

 

$  

8,041 

 

 

44,370,460 

 

$  

0.18 

 

$  

(8,408)

 

 

44,477,023 

 

$  

(0.19)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

23 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

114,872 

 

 

 

 

 

 

 

 

 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

418,325 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Undistributed earnings reallocated to RSAs  

 

 

(23)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$  

8,041 

 

 

44,903,657 

 

$  

0.18 

 

$  

(8,408)

 

 

44,477,023 

 

$  

(0.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

September 30, 2014

 

Nine Months Ended

September 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  

 

$  

31,618 

 

 

 

 

 

 

 

$  

16,349 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares  

 

 

(120)

 

 

 

 

 

 

 

 

(449)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

31,498 

 

 

44,304,092 

 

$  

0.71 

 

$  

15,900 

 

 

44,373,627 

 

$  

0.36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

120 

 

 

 

 

 

 

 

$  

449 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

123,743 

 

 

 

 

 

 

 

 

219,997 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

402,945 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Undistributed earnings reallocated to restricted shares  

 

 

(119)

 

 

 

 

 

 

 

 

(447)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

31,499 

 

 

44,830,780 

 

$  

0.70 

 

$  

15,902 

 

 

44,593,624 

 

$  

0.36 

 

9

 


 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock of 54,161 and 68,665 sh ares for the three and nine months ended September 30, 2014 , respectively, and 492,3 76   shares for the nine months ended September 30, 2013 .

 

(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 nine months ended September 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 July 1, 2014

 

$  

(14,267)

 

$  

(54,898)

(1)

$  

(69,165)

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss before reclassification

 

 

(8,098)

 

 

(1,247)

(2)

 

(9,345)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,934 

(2)

 

8,934 

Net current period other comprehensive (loss) income

 

 

(8,098)

 

 

7,687 

 

 

(411)

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

 

$  

(22,365)

 

$  

(47,211)

(1)

$  

(69,576)

 

(1)

Net of deferred income tax benefit of $5,954 and $10,922 as of September 30, 2014 and July 1, 2014, respectively.

(2)

Net of deferred income tax (benefit) expense of $(806) and $5,774 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from A ccumulated 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 loss before reclassification

 

 

(3,929)

 

 

(19,219)

(2)

 

(23,148)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

26,526 

(2)

 

26,526 

Net current period other comprehensive (loss) income

 

 

(3,929)

 

 

7,307 

 

 

3,378 

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

 

$  

(22,365)

 

$  

(47,211)

(1)

$  

(69,576)

____________

 

(1)

Net of deferred income tax benefit of $5,954 and $10,829 as of September 30, 2014 and January 1, 2014, respectively.

(2)

Net of deferred income tax (benefit) expense of ($12,822) and $17,697 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from A ccumulated 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 nine months ended September 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

 

 

(1,493)

 

 

(6,334)

 

 

 

 

(7,827)

Foreign currency translation adjustments  

 

 

 

 

 

(2,210)

 

 

(103)

 

 

(2,313)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

293,569 

 

$  

154,219 

 

$  

3,189 

 

$  

450,977 

Accumulated impairment loss  

 

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$  

293,569 

 

$  

104,216 

 

$  

3,189 

 

$  

400,974 

 

 

 

 

 

 

 

 

 

 

 

 

 

____________

 

(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

 

 

 

 

 

(8)

 

 

(8)

Balance as of September 30, 2014

 

$  

200 

 

$  

552 

 

$  

752 

 

Intangible Assets with Definite Lives  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2014

 

December 31, 2013

 

 

Gross  

 

 

 

 Net  

 

Gross  

 

 

 

 Net  

 

 

  Carrying  

 

Accumulated  

 

 Carrying

 

  Carrying  

 

Accumulated  

 

 Carrying

 

 

Amount

 

Amortization

 

  Amount

 

Amount

 

Amortization

 

  Amount

 

 

(In thousands)

 

(In thou