Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 04/30/2015 18:09:08)

 

 

 

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 , 201 5  

 

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 April 28, 2015: 44,872,871

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014

1

   

Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014

2

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2015 and 2014

3

   

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014

4

   

Notes to Consolidated Financial Statements

5

 

Cautionary Statement Regarding Forward-Looking Statements

21

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

40

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

41

   

Signatures

42

 

 

 

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, 2015

 

December 31, 2014

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

17,195 

 

$

31,875 

Accounts and notes receivable, net of allowance of $1,133 and $1,082 as of March 31, 2015 and December 31, 2014, respectively

 

74,234 

 

 

80,321 

Inventory, net

 

8,032 

 

 

5,971 

Restricted cash

 

21,293 

 

 

20,427 

Current portion of deferred tax asset, net

 

26,327 

 

 

24,303 

Prepaid expenses, deferred costs, and other current assets

 

30,394 

 

 

34,508 

Total current assets

 

177,475 

 

 

197,405 

Property and equipment, net

 

332,809 

 

 

335,795 

Intangible assets, net

 

162,511 

 

 

177,540 

Goodwill

 

507,455 

 

 

511,963 

Deferred tax asset, net

 

11,763 

 

 

10,487 

Prepaid expenses, deferred costs, and other noncurrent assets

 

17,858 

 

 

22,600 

Total assets

$

1,209,871 

 

$

1,255,790 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

 

$

35 

Current portion of other long-term liabilities

 

34,814 

 

 

34,937 

Accounts payable

 

16,925 

 

 

35,984 

Accrued liabilities

 

151,633 

 

 

179,966 

Total current liabilities

 

203,372 

 

 

250,922 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

611,111 

 

 

612,662 

Asset retirement obligations

 

51,605 

 

 

52,039 

Deferred tax liability, net

 

12,214 

 

 

15,916 

Other long-term liabilities

 

45,224 

 

 

37,716 

Total liabilities

 

923,526 

 

 

969,255 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001  par value; 125,000,000  shares authorized; 52,024,250 and 51,596,360 shares issued as of March 31, 2015 and December 31, 2014, respectively; 44,871,211 and 44,562,122 shares outstanding as of March 31, 2015 and December 31, 2014, respectively

 

 

 

Additional paid-in capital

 

357,190 

 

 

352,166 

Accumulated other comprehensive loss, net

 

(99,077)

 

 

(83,007)

Retained earnings

 

134,059 

 

 

118,817 

Treasury stock: 7,153,039 and 7,034,238 shares at cost as of March 31, 2015 and December 31, 2014, respectively

 

(101,781)

 

 

(97,835)

Total parent stockholders’ equity

 

290,396 

 

 

290,146 

Noncontrolling interests

 

(4,051)

 

 

(3,611)

Total stockholders’ equity

 

286,345 

 

 

286,535 

Total liabilities and stockholders’ equity

$

1,209,871 

 

$

1,255,790 

 

 

 

 

 

 

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,

 

2015

 

2014

 

 

 

 

 

 

Revenues:

 

 

 

 

 

ATM operating revenues

$

260,023 

 

$

238,139 

ATM product sales and other revenues

 

21,878 

 

 

6,933 

Total revenues

 

281,901 

 

 

245,072 

Cost of revenues:

 

 

 

 

 

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

 

168,508 

 

 

159,759 

Cost of ATM product sales and other revenues

 

19,292 

 

 

6,810 

Total cost of revenues

 

187,800 

 

 

166,569 

Gross profit

 

94,101 

 

 

78,503 

Operating expenses:

 

 

 

 

 

Selling, general, and administrative expenses

 

30,880 

 

 

24,527 

Acquisition-related expenses

 

2,358 

 

 

3,087 

Depreciation and accretion expense

 

20,112 

 

 

18,346 

Amortization of intangible assets

 

9,497 

 

 

8,217 

(Gain) loss on disposal of assets

 

(533)

 

 

268 

Total operating expenses

 

62,314 

 

 

54,445 

Income from operations

 

31,787 

 

 

24,058 

Other expense:

 

 

 

 

 

Interest expense, net

 

4,710 

 

 

5,416 

Amortization of deferred financing costs and note discount

 

2,779 

 

 

2,685 

Redemption costs for early extinguishment of debt

 

 

 

654 

Other expense

 

1,060 

 

 

31 

Total other expense

 

8,549 

 

 

8,786 

Income before income taxes

 

23,238 

 

 

15,272 

Income tax expense

 

8,464 

 

 

5,773 

Net income

 

14,774 

 

 

9,499 

Net loss attributable to noncontrolling interests

 

(459)

 

 

(66)

Net income attributable to controlling interests and available to common stockholders

$

15,233 

 

$

9,565 

 

 

 

 

 

 

Net income per common share – basic

$

0.34 

 

$

0.22 

Net income per common share – diluted

$

0.34 

 

$

0.21 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,667,248 

 

 

44,215,372 

Weighted average shares outstanding – diluted

 

45,265,601 

 

 

44,767,588 

 

 

 

 

 

 

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,

 

2015

 

2014

 

 

 

 

 

 

Net income

$

14,774 

 

$

9,499 

Unrealized (loss) gain on interest rate swap contracts, net of deferred income tax (benefit) expense of $(3,293) and $919 for the three months ended March 31, 2015 and 2014, respectively

 

(5,154)

 

 

1,186 

Foreign currency translation adjustments

 

(10,916)

 

 

740 

Other comprehensive (loss) income

 

(16,070)

 

 

1,926 

Total comprehensive (loss) income

 

(1,296)

 

 

11,425 

Less: comprehensive loss attributable to noncontrolling interests

 

(396)

 

 

(78)

Comprehensive (loss) income attributable to controlling interests

$

(900)

 

$

11,503 

 

 

 

 

 

 

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,

   

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

14,774 

 

$

9,499 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

29,609 

 

 

26,563 

Amortization of deferred financing costs and note discount

 

 

2,779 

 

 

2,685 

Stock-based compensation expense

 

 

4,201 

 

 

3,218 

Deferred income taxes

 

 

(2,948)

 

 

(947)

(Gain) loss on disposal of assets

 

 

(533)

 

 

268 

Other reserves and non-cash items

 

 

1,219 

 

 

122 

Changes in assets and liabilities:

 

 

 

 

 

 

Decrease (increase) in accounts and note receivable, net

 

 

9,102 

 

 

(5,628)

Decrease in prepaid, deferred costs, and other current assets

 

 

2,703 

 

 

1,096 

Increase in inventory

 

 

(2,477)

 

 

(899)

(Increase) decrease in other assets

 

 

(1,720)

 

 

441 

Decrease in accounts payable

 

 

(23,234)

 

 

(19,036)

Decrease in accrued liabilities

 

 

(2,175)

 

 

(2,231)

Decrease in other liabilities

 

 

(428)

 

 

(632)

Net cash provided by operating activities

 

 

30,872 

 

 

14,519 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(31,678)

 

 

(16,712)

Acquisitions, net of cash acquired

 

 

(15,510)

 

 

(8,805)

Proceeds from disposal of assets

 

 

7,376 

 

 

 -

Net cash used in investing activities

 

 

(39,812)

 

 

(25,517)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

113,400 

 

 

 -

Repayments of long-term debt and capital leases

 

 

(114,034)

 

 

(8,788)

Repayments of borrowings under bank overdraft facility, net

 

 

(53)

 

 

(761)

Debt issuance, modification and redemption costs

 

 

 

 

 

(142)

Payment of contingent consideration

 

 

 

 

(517)

Proceeds from exercises of stock options

 

 

448 

 

 

135 

Excess tax benefit from stock-based compensation expense

 

 

416 

 

 

912 

Repurchase of capital stock

 

 

(3,946)

 

 

(6,074)

Net cash used in financing activities

 

 

(3,769)

 

 

(15,235)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(1,971)

 

 

(53)

Net decrease in cash and cash equivalents

 

 

(14,680)

 

 

(26,286)

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

31,875 

 

 

86,939 

Cash and cash equivalents as of end of period

 

$

17,195 

 

$

60,653 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

7,327 

 

$

8,892 

Cash paid for income taxes

 

$

1,955 

 

$

4,012 

 

 

 

 

 

 

 

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 automated consumer financial services through its network of automated teller machines ("ATMs") and multi-function financial services kiosks. As of March 31, 2015 , the Company provided services to approximately 111,500 devices across its portfolio, which included approximately 91,900 devices located in all 50 states of the United States ("U.S.") as well as in the U.S. territory of Puerto Rico , approximately 14,600 devices throughout the United Kingdom ("U.K."), approximately 1,000 devices throughout Germany and Poland, approximately 2,600 devices throughout Canada, and approximately 1,400 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 111,500 devices are approximately 34,300 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 BBVA Compass Bancshares, Inc., Citibank, N.A., Citizens Financial Group, Inc., Cullen/Frost Bankers, Inc., Santander Bank, N.A., and PNC Bank, N.A. in the U.S. and The Bank of Nova Scotia (“Scotiabank”) in Canada and Puerto Rico. In Mexico, the Company partners with Bansí, S.A. Institución de Banca Multiple (“Bansi”), a regional bank in Mexico and a noncontrolling interest owner in Cardtronics Mexico, S.A. de C.V. (“Cardtronics Mexico”), as well as with Grupo Financiero Banorte, S.A. de C.V. (“Banorte”) and Scotiabank to place their brands on the Company’s ATMs in exchange for certain services provided by them. As of March 31, 2015 ,   approximately 22,000 of the Company’s ATMs were under contract with 425 fin ancial institutions to place their logos on the   Company’s ATMs 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). The Allpoint network , which has approximately   55,000 participating ATMs globally, provides surcharge-free ATM access to customers of participating financial institutions that may lack a significant ATM network in exchange for either a fixed monthly fee per cardholder or a set fee per transaction that is paid by the financial institutions who are members of the network .   The Allpoint network includes a majority of the Company’s ATMs in the U.S. and a portion of the Company’s ATMs in the U.K., Canada, Puerto Rico and Mexico . 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, 2014 (the " 2014 Form 10-K"), which includes a summary of the Company's significant accounting policies and other disclosures.

 

The financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 are unaudited. The Consolidated Balance Sheet as of December 31, 2014 was derived from the audited balance sheet filed in the 2014 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, 2014 audited financial statements to present information consistently between periods. The results of operations for the three months ended March 31, 2015 and 2014 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

 

 

March 31,

 

 

2015

 

2014

 

 

(In thousands)

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

 

$  

15,382 

 

$  

15,589 

Amortization of intangible assets

 

 

9,497 

 

 

8,217 

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

 

$  

24,879 

 

$  

23,806 

 

 

 

(2) 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 Company completed its purchase accounting for Automated Financial in February 2015 which did not result in any significant adjustments.

 

On October 6, 2014 , the Company completed the acquisition of Welch ATM (“Welch”), an Illinois-based provider of ATM services to approximately 26,000 ATMs. The total purchase consideration was approximately $159.4 million, which included cash of $154.0 million and deferred purchase consideration of $5.4 million. As a result of the acquisition, the Company added over 3,600 Company-owned ATMs across 47 states, with the majority of the machines located in high-traffic convenience store locations. In addition, many of the Welch ATMs are under contract with financial institutions to carry their brand and logo on the ATM, which has further enhanced the Company's surcharge-free product offerings.

 

The total purchase consideration was preliminarily allocated to the assets acquired and liabilities assumed, including identifiable tangible and intangible assets, based on their respective fair values at the date of acquisition. The preliminary fair values of the intangible assets acquired included customer relationships valued at $52.5 million, estimated utilizing a discounted cash flow approach, with the assistance of an independent appraisal firm. The preliminary fair values of the tangible assets acquired included property, plant, and equipment valued at $11.3 million, estimated utilizing the market and cost approaches . The preliminary purchase price allocation resulted in goodwill of approximately $102.7 million, all of which has been assigned to the Company's North America reporting segment. The recognized goodwill is primarily attributable to expected synergies. All of the goodwill and intangible asset amounts are expected to be deductible for income tax purposes.

 

On November 3, 2014 , the Company completed the acquisition of Sunwin Services Group (“Sunwin”) in the U.K., a subsidiary of the Co-operative Group (“Co-op”) for aggregate cash consideration of approximately £41.5 million or approximately $66.4 million. Sunwin’s primary business is providing secure cash logistics and ATM maintenance services to ATMs and other services to retail locations. The Company also acquired approximately 1,950 ATMs from Co-op Bank and secured an exclusive ATM operating agreement to operate ATMs at Co-op Food locations. The Company has accounted for these transactions as if they were all related due to the timing of the transactions being completed and the dependency of the transactions on each other.

As of March 31, 2015, the Company had not yet completed its purchase accounting for the acquisitions of Welch and Sunwin because the final appraisals of acquired intangible assets have not yet been completed. The Company expects to complete the purchase accounting during the second quarter of 2015 as it completes its final review of the valuations of the various components involved in the transactions.

 

6

 


 

(3) Stock-Based Compensation  

 

The Company accounts for its stock-based compensation by recognizing the grant date fair value of stock-based awards, net of estimated forfeitures, as compensation expense over the underlying requisite service periods of the related awards. The grant date fair value is based upon the Company’s stock price on the date of grant. The following table reflects the total stock-based compensation expense amounts included in the accompanying Consolidated Statements of Operations:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

2014

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

334 

 

$  

214 

Selling, general, and administrative expenses  

 

 

3,867 

 

 

3,004 

Total stock-based compensation expense  

 

$  

4,201 

 

$  

3,218 

 

The increase in stock-based compensation expense was due to additional expense recognition from the additional grants made during the periods. All grants during the periods above were made under the Company's Second Amended and Restated 2007 Stock Incentive Plan (the "2007 Plan").

 

Restricted Stock Awards .  The number of the Company's outstanding Restricted Stock Awards (“RSAs”) as of March 31, 2015 , and changes during the three months ended March 31, 2015 , are presented below:

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Grant Date Fair Value

RSAs outstanding as of January 1, 2015

 

 

83,028 

 

$

27.06 

Vested  

 

 

(7,750)

 

$

26.16 

Forfeited

 

 

(3,250)

 

$

28.95 

RSAs outstanding as of March 31, 2015

 

 

72,028 

 

$

27.08 

 

As of March 31, 2015 , th e unrecognized compensation expense associated with all outstanding RSAs was approximately $1.1 million, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 1.6 years .

 

Restricted Stock Units. The Company grants restricted stock units (“RSUs”) under its Long Term Incentive Plan ("LTIP"), which is an annual equity award program under the 2007 Plan. The ultimate number of RSUs to be earned and outstanding are approved by the Compensation Committee of the Company's Board of Directors (the "Committee") 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. A portion of the awards have only a service-based vesting schedule (“Time-RSUs”), for which the associated expense is recognized ratably over four years. Performance-RSUs and Time-RSUs are convertible into the Company’s common stock after the passage of the vesting periods, which are 24, 36, and 48 months from January 31 of the grant year, at the rate of 50%, 25%, and 25%, respectively. Performance-RSUs will be earned only if the Company achieves certain performance levels. Although the Performance-RSUs are not considered to be earned and outstanding until at least the minimum performance metrics are met, the Company recognizes the related compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting methodology. RSUs are also granted outside of LTIPs, with or without performance-based vesting requirements.

 

The number of the Company's non-vested RSUs as of March 31, 2015, and changes during the three months ended March 31, 2015, are presented below:

 

 

 

 

 

 

 

 

 

Number of Units

 

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2015

 

 

786,797 

 

$

29.17 

Granted  

 

 

485,847 

 

$

38.71 

Vested  

 

 

(383,890)

 

$

26.64 

Forfeited

 

 

(15,997)

 

$

35.04 

Non-vested RSUs as of March 31, 2015

 

 

872,757 

 

$

35.49 

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 201 5 but not yet earned are not included, however, the Time-RSUs are included as granted.

 

7

 


 

As of March 31, 2015 , 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 2.2 years .  

 

Options.   The number of the Company's outstanding stock options as o f   March 31, 2015 , and changes during the three months ended   March 31, 2015 , are presented below:  

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2015

 

 

183,367 

 

$  

10.33 

Exercised  

 

 

(44,000)

 

$  

10.19 

Options outstanding as of March 31, 2015

 

 

139,367 

 

$  

10.38 

 

 

 

 

 

 

 

Options vested and exercisable as of March 31, 2015

 

 

139,367 

 

$  

10.38 

 

As of March 31, 2015 , 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 months ended March 31, 2015 and 2014 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 months ended March 31, 2015 and 2014 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2015

 

Three Months Ended March 31, 2014

 

 

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

 

$  

15,233 

 

 

 

 

 

 

 

$  

9,565 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs  

 

 

(25)

 

 

 

 

 

 

 

 

(49)

 

 

 

 

 

 

Net income available to common stockholders

 

$  

15,208 

 

 

44,667,248 

 

$  

0.34 

 

$  

9,516 

 

 

44,215,372 

 

$  

0.22 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares  

 

$  

25 

 

 

 

 

 

 

 

$  

49 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

78,795 

 

 

 

 

 

 

 

 

135,579 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

519,558 

 

 

 

 

 

 

 

 

416,637 

 

 

 

Less: Undistributed earnings reallocated to RSAs  

 

 

(25)

 

 

 

 

 

 

 

 

(48)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions

 

$  

15,208 

 

 

45,265,601 

 

$  

0.34 

 

$  

9,517 

 

 

44,767,588 

 

$  

0.21 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock issued by the Company under RSAs   of 32,185 and 101,461 sh ares for the three months ended March 31, 2015   and 2014 respectively ,   because the effect of including these shares in the computation would have been anti-dilutive .

 

8

 


 

(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 A ccumulated other comprehensive loss, net for the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2015

 

$  

(34,709)

 

$  

(48,298)

(1)

$  

(83,007)

Other comprehensive loss before reclassification

 

 

(10,916)

 

 

(13,725)

(2)

 

(24,641)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,571 

(2)

 

8,571 

Net current period other comprehensive loss

 

 

(10,916)

 

 

(5,154)

 

 

(16,070)

Total accumulated other comprehensive loss, net as of March 31, 2015

 

$  

(45,625)

 

$  

(53,452)

(1)

$  

(99,077)

____________

(1)

Net of deferred income tax benefit of $9,994 and $6,701   as of March 31, 2015 and January 1, 2015, respectively.

(2)

Net of deferred income tax (benefit) expense of $(8,769) and $5,476 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 amounts reclassified from Accumulated other comprehensive loss, net, are recognized in Cost of ATM operating revenues line item on the accompanying Consolidated Statements of Operations.

 

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, 2015 , by segment :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

North America (1)

 

Europe (2)

 

Total

 

 

(In thousands)  

Balance as of January 1, 2015:

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

398,977 

 

$  

162,989 

 

$  

561,966 

Accumulated impairment loss  

 

 

 

 

(50,003)

 

 

(50,003)

 

 

$  

398,977 

 

$  

112,986 

 

$  

511,963 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

 —

 

 

Purchase price adjustments

 

 

193 

 

 

796 

 

 

989 

Foreign currency translation adjustments  

 

 

 —

 

 

(5,283)

 

 

(5,283)

Intersegment transfer

 

 

445 

 

 

(659)

 

 

(214)

 

 

 

 

 

 

 

 

 

 

Balance as of March 31, 2015:

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

399,615 

 

$  

157,843 

 

$  

557,458 

Accumulated impairment loss  

 

 

 

 

 

(50,003)

 

 

(50,003)

 

 

$  

399,615 

 

$  

107,840 

 

$  

507,455 

 

 

 

 

 

 

 

 

 

 

____________

(1)

The North America segment is comprised of the Company’s operations in the U.S., Canada, and Mexico .

(2)

The Europe segment is comprised of the C ompany’s operations in the U.K., Germany and Poland .

 

 

 

 

 

 

 

 

 

 

9

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: indefinite-lived

 

 

North America

 

Europe

 

Total

 

 

(In thousands)

Balance as of January 1, 2015

 

$  

728 

 

$  

 

$  

728 

Foreign currency translation adjustments

 

 

(24)

 

 

 

 

(24)

Balance as of March 31, 2015

 

$  

704 

 

$  

 

$  

704 

 

Intangible Assets with Definite Lives  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

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  

 

$  

333,343 

 

$  

(193,371)

 

$  

139,972 

 

$  

338,830 

 

$  

(186,185)

 

$  

152,645 

Deferred financing costs  

 

 

16,127 

 

 

(6,365)

 

 

9,762 

 

 

16,127 

 

 

(5,851)

 

 

10,276 

Non-compete agreements  

 

 

4,495 

 

 

(3,522)

 

 

973 

 

 

4,568 

 

 

(3,374)

 

 

1,194 

Technology

 

 

2,785 

 

 

(2,305)

 

 

480 

 

 

2,803 

 

 

(2,025)

 

 

778 

Trade name: definite-lived

 

 

12,698 

 

 

(2,078)

 

 

10,620 

 

 

13,702 

 

 

(1,783)

 

 

11,919 

Total

 

$  

369,448 

 

$  

(207,641)

 

$  

161,807 

 

$

376,030 

 

$

(199,218)

 

$

176,812 

 

 

 

 

(7) Accrued Liabilities  

 

Accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

(In thousands)

Accrued merchant fees

 

$  

43,069 

 

$  

39,473 

Accrued taxes

 

 

20,527 

 

 

10,001 

Accrued maintenance

 

 

10,987 

 

 

8,945 

Accrued merchant settlement

 

 

7,076 

 

 

18,050 

Accrued compensation

 

 

6,600 

 

 

14,623 

Accrued purchases

 

 

5,440 

 

 

4,876 

Accrued cash management fees

 

 

4,413 

 

 

9,869 

Accrued armored

 

 

4,083 

 

 

8,235 

Deferred acquisition purchase price (1)

 

 

3,625 

 

 

20,580 

Accrued interest

 

 

3,505 

 

 

6,128 

Accrued interest on interest rate swaps

 

 

2,946 

 

 

3,001 

Accrued processing costs

 

 

2,427 

 

 

1,957 

Accrued telecommunications costs

 

 

2,221 

 

 

2,613 

Other accrued expenses

 

 

34,714 

 

 

31,615 

Total  

 

$  

151,633 

 

$  

179,966 

 

 

 

 

 

 

 

(1)

 

This category represents purchase price consideration on the Sunwin acquisition.

 

 

 

 

 

10

 


 

(8) Long-Term Debt  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

(In thousands)

Revolving credit facility, including swing-line credit facility (weighted-average combined interest rate of 1.9 % and 2.5% as of March 31, 2015 and December 31, 2014, respectively)

 

$  

133,488 

 

$  

137,292 

5.125% Senior notes due August 2022

 

 

250,000 

 

 

250,000 

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

 

 

227,623 

 

 

225,370 

Other

 

 

 

 

35 

Total  

 

 

611,111 

 

 

612,697 

Less: current portion  

 

 

 

 

35 

Total long-term debt, excluding current portion  

 

$  

611,111 

 

$  

612,662 

 

Revolving Credit Facility  

 

On April 24, 2014, the Company entered into an amended and restated credit agreement (the “Credit Agreement”).  The Credit Agreement provides for a $375.0 million revolving credit facility and includes an accordion feature that will allow the Company to increase the available borrowings under the revolving credit facility to $500.0 million, subject to the approval of one or more existing lenders or one or more lenders that become party to the Credit Agreement.  In addition, the revolving credit facility includes a sub-limit of up to $30.0 million for letters of credit, a sub-limit of up to $25.0 million for swingline loans and a sub-limit of up to the equivalent amount of $125.0 million for loans in currencies other than U.S. Dollars.  The revolving credit facility has a termination date of April 2019.

 

Borrowings (not including swingline loans and alternative currency loans) under the revolving credit facility accrue interest at the Company’s option at either the Alternate Base Rate (as defined in the Credit Agreement) or the Adjusted LIBO Rate (as defined in the Credit Agreement) plus a margin depending on the Company’s most recent Total Net Leverage Ratio (as defined in the Credit Agreement).  The margin for Alternative Base Rate loans varies between 0% to 1.25% and the margin for Adjusted LIBO Rate loans varies between 1.00% to 2.25% . Swingline loans bear interest at the Alternate Base Rate plus a margin as described above. The alternative currency loans bear interest at the Adjusted LIBO Rate for the relevant currency as described above.  Substantially all of the Company’s domestic assets, including the stock of its wholly-owned domestic subsidiaries and 66% of the stock of the Company’s first-tier foreign subsidiaries, are pledged as collateral to secure borrowings made under the revolving credit facility. Furthermore, each of the Company’s material wholly-owned domestic subsidiaries has guaranteed the full and punctual payment of the obligations under the revolving credit facility. Additionally, no more than 40% of the Company’s Consolidated Adjusted EBITDA (as defined in the Credit Agreement) or the book value of the aggregate consolidated assets may be attributable to restricted subsidiaries that are not guarantors under the Credit Agreement.  There are currently no restrictions on the ability of the Company’s subsidiaries to declare and pay dividends to the Company.

 

The Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, and (iv) notification of certain events. Financial covenants in the Credit Agreement require the Company to maintain: (i) as of the last day of any fiscal quarter, a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no more than 2.25 to 1.00; (ii) as of the last day of any fiscal quarter, a Total Net Leverage Ratio of no more than 4.00 to 1.00; and (iii) as of the last day of any fiscal quarter, a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of no more than 1.50 to 1 .0 . Additionally, the Company is limited on the amount of restricted payments, including dividends, which it can make pursuant to the terms of the Credit Agreement; however, the Company may generally make restricted payments so long as no event of default has occurred and is continuing and the total net leverage ratio is less than 3.0 to 1.0 at the time such restricted payment is made. 

   

As of March 31, 2015 , the Company was in compliance with all applicable covenants and ratios under the Credit Agreement .  

 

As of March 31, 2015 , $ 133.5   million was outstanding under the revolving credit facility. Additionally, the Company has posted a $2.0 million letter of credit serving to secure the overdraft facility of its U.K. subsidiary (further discussed below) and a $0.1 million letter of credit serving to secure a third-party processing contract in Canada. These letters of credit, which the applicable third-parties may draw upon in the event the Company defaults on the related obligations, reduce the Company’s borrowing capacity under the revolving credit facility.

 

As of March 31, 2015 , the Company’s availabl e borrowing capacity under the revolving credit f acility totaled approximately $ 239.4 million.

 

$250.0 Million 5.125% Senior Notes Due 2022

 

  On July 28, 2014, in a private placement offering, the Company issued $250.0 million in aggregate principal amount of 5.125% senior notes due 2022 (the “2022 Notes ”) pursuant to an indenture dated July 28, 2014 (the “Indenture”) among the Company, its subsidiary

11

 


 

guarantors (the “Guarantors”) and Wells Fargo Bank, National Association, as trustee.  Interest on the 2022 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, and commenced on February 1, 2015. 

 

The 2022 Notes and Guarantees (as defined in the Indenture) rank (i) equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior indebtedness, (ii) effectively junior to secured debt to the extent of the collateral securing such debt, including debt under the Company’s revolving credit facility and (iii) structurally junior to existing and future indebtedness of the Company’s non-guarantor subsidiaries. The 2022 Notes and Guarantees rank senior in right of payment to any of the Company’s and the Guarantors’ existing and future subordinated indebtedness.

 

The 2022 Notes contain covenants that, among other things, limit the Company’s ability and the ability of certain of its restricted subsidiaries to incur or guarantee additional indebtedness; make certain investments or pay dividends or distributions on the Company’s capital stock or repurchase capital stock or make certain other restricted payments; consolidate or merge with or into other companies; conduct asset sales; restrict dividends or other payments by restricted subsidiaries; engage in transactions with affiliates or related persons; and create liens.

 

In accordance with Rule 3-10 of Regulation S-X, condensed consolidated financial statements of non-guarantors are not required. The Company has no assets or operations independent of its subsidiaries. Obligations under its 2022 Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by the Company’s current 100%-owned domestic subsidiaries and certain of the Company’s future domestic subsidiaries, with the exception of the Company’s immaterial subsidiaries. There are no significant restrictions on the ability of the Company to obtain funds from the Guarantors by dividend or loan. None of the Guarantors’ assets represent restricted assets pursuant to Rule 4-08(e)(3) of Regulation S-X. Pursuant to a registration rights agreement, the Company and the Guarantors have agreed to file a registration statement with the SEC to allow the holders of the 2022 Notes to exchange such notes for registered notes that have substantially identical terms to the 2022 Notes.

 

The 2022 Notes are subject to certain automatic customary releases, including the sale, disposition, or transfer of the capital stock or substantially all of the assets of a Guarantor, designation of a Guarantor as unrestricted in accordance with the Indenture, exercise of the legal defeasance option or the covenant defeasance option, liquidation or dissolution of the Guarantor and a Guarantor ceasing to both guarantee other Company debt and to be an obligor under the revolving credit facility. The Guarantors may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the Indenture.

 

$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 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 Convertible Notes , up to an additional $37.5 million of Convertible Notes (the “Over-allotment Option”). 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 a repurchase of 665,994 shares of its outstanding common stock concurrent with the offering. The Company used a portion of the net proceeds from the offering to fund 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, concurrent 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. 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. 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 corresponded to the Company’s estimated conventional debt instrument borrowing rate at the date of issuance.

 

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 trading-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

12

 


 

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, 2015 , none of the contingent conversion thresholds described above were 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, 2015 . 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,

 

 

2015

 

2014

 

 

(In thousands)

Cash interest per contractual coupon rate

 

$  

719 

 

$  

719 

Amortization of note discount

 

 

2,253 

 

 

2,149 

Amortization of deferred financing costs

 

 

134 

 

 

124 

Total interest expense related to Convertible Notes

 

$  

3,106 

 

$  

2,992 

 

 

The carrying value of the Convertible N otes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

 

 

(In thousands)

Principal balance

 

$  

287,500 

 

$  

287,500 

Discount, net of accumulated amortization

 

 

(59,877)

 

 

(62,130)

Net carrying amount of Convertible Notes

 

$  

227,623 

 

$  

225,370 

 

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 to 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 subsequent 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 would be required to issue additional shares of its common stock to the warrant holders. The amounts allocated to both the note hedge and warrants were recorded in Sto ckholders’ e quity, within the Additional paid-in capital line item.

 

(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 in some cases, site restoration work. For each group of related ATM assets , 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 ATM 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.

13

 


 

 

The following table is a summary of the changes in the Company's asset retirement obligation liability for the   three months ended   March 31, 2015 (in thousands):

 

 

 

 

 

 

 

 

 

Asset retirement obligation as of January 1, 2015

 

$  

55,136 

Additional obligations  

 

 

2,038 

Accretion expense  

 

 

530 

Change in estimates

 

 

(988)

Payments  

 

 

(814)

Foreign currency translation adjustments  

 

 

(1,248)

Total Asset retirement obligation as of March 31, 2015

 

 

54,654 

Less: current portion    

 

 

3,049 

Asset retirement obligation, excluding current portion    

 

$  

51,605 

 

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, 2015

 

December 31, 2014

 

 

(In thousands)

Current Portion of Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

28,811 

 

$  

29,147 

Obligations associated with acquired unfavorable contracts

 

 

325 

 

 

284 

Deferred revenue  

 

 

1,953 

 

 

1,731 

Asset retirement obligations

 

 

3,049 

 

 

3,097 

Other  

 

 

676 

 

 

678 

Total

 

$  

34,814 

 

$  

34,937 

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps  

 

$  

34,628 

 

$  

25,847 

Obligations associated with acquired unfavorable contracts

 

 

1,127 

 

 

2,271 

Deferred revenue  

 

 

1,146 

 

 

935 

Other  

 

 

8,323 

 

 

8,663 

Total  

 

$  

45,224 

 

$  

37,716 

 

 

 

 

(11) Derivative Financial Instruments  

 

Cash Flow Hedging Strategy  

 

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

 

The interest rate swap contracts entered into with respect to the Company's vault cash rental obligations serve to mitigate the Company's exposure to interest rate risk by converting a portion of the Company's monthly floating rate vault cash rental obligations to a fixed rate.     The Company has contracts in varying notional amounts through December 31, 2020 for the Company's U.S. vault cash rental obligations .  By converting such amounts to a fixed rate, the impact of future interest rate changes (both favorable and unfavorable) on the Company's monthly vault cash rental expense amounts has been reduced.  The interest rate swap contracts typically involve the receipt of floating rate amounts from the Company's counterparties that match, in all material respects, the floating rate amounts required to be paid by the Company to its vault cash providers for the portions of the Company's outstanding vault cash obligations that have been hedged.  In return, the Company typically pays the interest rate swap counterparties a fixed rate amount per month based on the same notional amounts outstanding.  At no point is there an exchange of the underlying principal or notional amounts associated with the interest rate swaps. Additionally, none of the Company's existing interest rate swap contracts contain credit-risk-related contingent features.  

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

   

  During the quarter ended March 31, 2015, the Company added new forward-starting interest rate swaps in the aggregate notional amount of $600 .0 million that begin in 2019 and terminate in 2020 to extend the hedging program related to interest rate exposure on vault cash. The notional amounts, weighted average fixed rates, and terms associated with the Company's interest rate swap contracts accounted for as cash flow hedges that are currently in place (as of the date of the issuance of these financial statements) are as follows:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average Fixed Rate

 

Term  

(In millions)

 

 

$