Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 07/30/2015 17:47:43)

 

 

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

 

FORM 10-Q  

 

 

 

 

 

(Mark One)

 

 

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

 

 

 

For the quarterly period ended June 30, 2015  

 

or  

 

 

 

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

 

 

 

For the transition period from____ to____           

 

 

Commission File Number: 001-33864  

________________________________

 

CARDTRONICS, INC.  

(Exact name of registrant as specified in its charter)

 

 

 

Delaware  

76-0681190  

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

 

3250 Briarpark Drive, Suite 400  

77042  

Houston, TX  

(Zip Code)

(Address of principal executive offices)

 

 

Registrant's telephone number, including area code: (832) 308-4000

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer'' and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

Large accelerated filer 

Accelerated filer 

Non-accelerated filer   

Smaller reporting company   

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  

 

Common Stock, par value: $0.0001 per share.  Shares outstanding on July   28 , 2015: 44,881,530

 

 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of June 30 , 2015 and December 31, 2014

1

   

Consolidated Statements of Operations for the Three and Six Months Ended June 30 , 2015 and 2014

2

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2015 and 2014

3

   

Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2015 and 2014

4

   

Notes to Consolidated Financial Statements

5

 

Cautionary Statement Regarding Forward-Looking Statements

31

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

50

Item 4.

Controls and Procedures

52

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 6.

Exhibits

54

   

Signatures

55

 

 

 

When we refer to “us,” “we,” “our,” or “ours,” we are describing Cardtronics, Inc. and/or our subsidiaries, depending on the context in which the statements are made.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

24,789 

 

$

31,875 

Accounts and notes receivable, net of allowance of $1,628 and $1,082 as of June 30, 2015 and December 31, 2014, respectively

 

83,606 

 

 

80,321 

Inventory, net

 

9,221 

 

 

5,971 

Restricted cash

 

17,901 

 

 

20,427 

Current portion of deferred tax asset, net

 

22,133 

 

 

24,303 

Prepaid expenses, deferred costs, and other current assets

 

42,114 

 

 

34,508 

Total current assets

 

199,764 

 

 

197,405 

Property and equipment, net

 

355,862 

 

 

335,795 

Intangible assets, net

 

155,402 

 

 

177,540 

Goodwill

 

519,640 

 

 

511,963 

Deferred tax asset, net

 

11,362 

 

 

10,487 

Prepaid expenses, deferred costs, and other noncurrent assets

 

18,214 

 

 

22,600 

Total assets

$

1,260,244 

 

$

1,255,790 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

$

 —

 

$

35 

Current portion of other long-term liabilities

 

33,776 

 

 

34,937 

Accounts payable

 

35,851 

 

 

35,984 

Accrued liabilities

 

151,829 

 

 

179,966 

Total current liabilities

 

221,456 

 

 

250,922 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

599,048 

 

 

612,662 

Asset retirement obligations

 

54,622 

 

 

52,039 

Deferred tax liability, net

 

16,528 

 

 

15,916 

Other long-term liabilities

 

32,261 

 

 

37,716 

Total liabilities

 

923,915 

 

 

969,255 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001  par value; 125,000,000  shares authorized; 52,037,242 and 51,596,360 shares issued as of June 30, 2015 and December 31, 2014, respectively; 44,881,817 and 44,562,122 shares outstanding as of June 30, 2015 and December 31, 2014, respectively

 

 

 

Additional paid-in capital

 

362,741 

 

 

352,166 

Accumulated other comprehensive loss, net

 

(69,406)

 

 

(83,007)

Retained earnings

 

149,057 

 

 

118,817 

Treasury stock: 7,155,425 and 7,034,238 shares at cost as of June 30, 2015 and December 31, 2014, respectively

 

(101,862)

 

 

(97,835)

Total Parent stockholders’ equity

 

340,535 

 

 

290,146 

Noncontrolling interests

 

(4,206)

 

 

(3,611)

Total stockholders’ equity

 

336,329 

 

 

286,535 

Total liabilities and stockholders’ equity

$

1,260,244 

 

$

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

June 30,

 

Six Months Ended

June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

285,436 

 

$

252,052 

 

$

545,459 

 

$

490,191 

ATM product sales and other revenues

 

18,310 

 

 

7,977 

 

 

40,188 

 

 

14,910 

Total revenues

 

303,746 

 

 

260,029 

 

 

585,647 

 

 

505,101 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

183,533 

 

 

163,380 

 

 

352,041 

 

 

323,139 

Cost of ATM product sales and other revenues

 

17,009 

 

 

7,754 

 

 

36,301 

 

 

14,564 

Total cost of revenues

 

200,542 

 

 

171,134 

 

 

388,342 

 

 

337,703 

Gross profit

 

103,204 

 

 

88,895 

 

 

197,305 

 

 

167,398 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

34,190 

 

 

27,926 

 

 

65,070 

 

 

52,453 

Acquisition-related expenses

 

5,560 

 

 

7,642 

 

 

7,918 

 

 

10,729 

Depreciation and accretion expense

 

21,903 

 

 

19,597 

 

 

42,015 

 

 

37,943 

Amortization of intangible assets

 

9,495 

 

 

8,465 

 

 

18,992 

 

 

16,682 

Loss (gain) on disposal of assets

 

247 

 

 

316 

 

 

(286)

 

 

584 

Total operating expenses

 

71,395 

 

 

63,946 

 

 

133,709 

 

 

118,391 

Income from operations

 

31,809 

 

 

24,949 

 

 

63,596 

 

 

49,007 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

4,753 

 

 

5,328 

 

 

9,463 

 

 

10,744 

Amortization of deferred financing costs and note discount

 

2,817 

 

 

2,762 

 

 

5,596 

 

 

5,447 

Redemption costs for early extinguishment of debt

 

 —

 

 

699 

 

 

 —

 

 

1,353 

Other expense (income)

 

755 

 

 

(5,261)

 

 

1,815 

 

 

(5,230)

Total other expense

 

8,325 

 

 

3,528 

 

 

16,874 

 

 

12,314 

Income before income taxes

 

23,484 

 

 

21,421 

 

 

46,722 

 

 

36,693 

Income tax expense

 

8,744 

 

 

8,015 

 

 

17,208 

 

 

13,788 

Net income

 

14,740 

 

 

13,406 

 

 

29,514 

 

 

22,905 

Net loss attributable to noncontrolling interests

 

(257)

 

 

(583)

 

 

(716)

 

 

(649)

Net income attributable to controlling interests and available to common stockholders

$

14,997 

 

$

13,989 

 

$

30,230 

 

$

23,554 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

$

0.33 

 

$

0.31 

 

$

0.67 

 

$

0.53 

Net income per common share – diluted

$

0.33 

 

$

0.31 

 

$

0.67 

 

$

0.52 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

44,807,829 

 

 

44,324,747 

 

 

44,737,413 

 

 

44,270,363 

Weighted average shares outstanding – diluted

 

45,319,363 

 

 

44,830,978 

 

 

45,280,588 

 

 

44,800,298 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

2

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

14,740 

 

$

13,406 

 

$

29,514 

 

$

22,905 

Unrealized gain (loss) on interest rate swap contracts, net of deferred income tax expense (benefit) of $5,081 and $(1,012) for the three months ended June 30, 2015 and 2014, respectively, and $1,788 and $(93) for the six months ended June 30, 2015 and 2014, respectively

 

7,998 

 

 

(1,566)

 

 

2,844 

 

 

(380)

Foreign currency translation adjustments

 

21,673 

 

 

3,429 

 

 

10,757 

 

 

4,169 

Other comprehensive income

 

29,671 

 

 

1,863 

 

 

13,601 

 

 

3,789 

Total comprehensive income

 

44,411 

 

 

15,269 

 

 

43,115 

 

 

26,694 

Less: comprehensive loss attributable to noncontrolling interests

 

(211)

 

 

(586)

 

 

(607)

 

 

(664)

Comprehensive income attributable to controlling interests

$

44,622 

 

$

15,855 

 

$

43,722 

 

$

27,358 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

June 30,

   

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

29,514 

 

$

22,905 

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

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

61,007 

 

 

54,625 

Amortization of deferred financing costs and note discount

 

 

5,596 

 

 

5,447 

Stock-based compensation expense

 

 

9,150 

 

 

6,917 

Deferred income taxes

 

 

2,085 

 

 

(2,734)

(Gain) loss on disposal of assets

 

 

(286)

 

 

584 

Other reserves and non-cash items

 

 

2,216 

 

 

1,693 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(3,057)

 

 

(5,308)

Increase in prepaid, deferred costs, and other current assets

 

 

(7,644)

 

 

(8,131)

Increase in inventory

 

 

(3,789)

 

 

(2,510)

Decrease in other assets

 

 

2,221 

 

 

3,460 

Increase (decrease) in accounts payable

 

 

78 

 

 

(16,322)

Decrease in accrued liabilities

 

 

(12,111)

 

 

(2,623)

Increase (decrease) in other liabilities

 

 

1,606 

 

 

(1,132)

Net cash provided by operating activities

 

 

86,586 

 

 

56,871 

   

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(56,418)

 

 

(41,753)

Acquisitions, net of cash acquired

 

 

(23,956)

 

 

(8,805)

Proceeds from disposal of assets

 

 

7,610 

 

 

 —

Net cash used in investing activities

 

 

(72,764)

 

 

(50,558)

   

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings under revolving credit facility

 

 

180,500 

 

 

 —

Repayments of borrowings under revolving credit facility and other long-term debt

 

 

(199,500)

 

 

(22,991)

Repayments of borrowings under bank overdraft facility, net

 

 

(84)

 

 

(1,534)

Debt issuance, modification and redemption costs

 

 

 —

 

 

(2,676)

Payment of contingent consideration

 

 

 —

 

 

(518)

Proceeds from exercises of stock options

 

 

581 

 

 

141 

Excess tax benefit from stock-based compensation expense

 

 

841 

 

 

1,998 

Repurchase of capital stock

 

 

(4,027)

 

 

(6,145)

Net cash used in financing activities

 

 

(21,689)

 

 

(31,725)

   

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

781 

 

 

(163)

Net decrease in cash and cash equivalents

 

 

(7,086)

 

 

(25,575)

   

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

31,875 

 

 

86,939 

Cash and cash equivalents as of end of period

 

$

24,789 

 

$

61,364 

   

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

9,627 

 

$

11,645 

Cash paid for income taxes

 

$

18,214 

 

$

18,114 

 

 

 

 

 

 

 

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 June 30, 2015 , the Company provided services to approximately 113,500 devices across its portfolio, which included approximately 92,600 devices located in all 50 states of the United States ("U.S.") as well as in the U.S. territory of Puerto Rico, approximately 15,500 devices throughout the United Kingdom ("U.K."), approximately 1,000 devices throughout Germany and Poland, approximately 3,000 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. T he total count of 113,500 devices also includes approximately 35,300 devices for which the Company provides various forms of managed services solutions, which may include 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 June 30, 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). Allpoint , 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 June 30, 2015 and for the three and six months ended June 30, 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. The results of operations for the three and six months ended June 30, 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, 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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

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

 

$  

16,214 

 

$  

16,266 

 

$  

31,596 

 

$  

31,855 

Amortization of intangible assets

 

 

9,495 

 

 

8,465 

 

 

18,992 

 

 

16,682 

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

 

$  

25,709 

 

$  

24,731 

 

$  

50,588 

 

$

48,537 

 

 

 

 

 

 

(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 7,350 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 $103.7 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.

 

The Company has not made any significant adjustments during the six months ended June 30, 2015 related to Welch, and now expects to complete the purchase accounting during the third quarter of 2015 as it completes its final review of the valuations of the various components involved in the transaction.

 

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 2,000 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.  The Company completed the purchase accounting for Sunwin in June 2015 recognizing immaterial final adjustments to the opening balance sheet and the settlement of the final working capital adjustments.

6

 


 

On July 1, 2015, the Company completed its acquisition of   Columbus Data Services, L.L.C . (“CDS”) for a total purchase price of approximately $80.0  million, subject to customary closing adjustments.  CDS is an independent transaction processor for ATM deployers and payment card issuers, providing leading-edge solutions to ATM sales and service organizations and financial institutions. CDS will operate as a separate division of the Company and will continue to be led by the pre-acquisition CDS management team.

 

(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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

Cost of ATM operating revenues  

 

$  

204 

 

$  

353 

 

$  

538 

 

$  

567 

Selling, general, and administrative expenses  

 

 

4,745 

 

 

3,346 

 

 

8,612 

 

 

6,350 

Total stock-based compensation expense  

 

$  

4,949 

 

$  

3,699 

 

$  

9,150 

 

$  

6,917 

 

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 June 30, 2015 , and changes during the six months ended June 30, 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  

 

 

(14,234)

 

$

27.42 

Forfeited

 

 

(3,500)

 

$

28.69 

RSAs outstanding as of June 30, 2015

 

 

65,294 

 

$

26.90 

 

As of June 30, 2015 , th e unrecognized compensation expense associated with all outstanding RSAs was approximately $1.0 million, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 1.5 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 June 30, 2015 , and changes during the six months ended June 30, 2015 , are presented below:

7

 


 

 

 

 

 

 

 

 

 

 

Number of Units

 

Weighted Average Grant Date Fair Value

Non-vested RSUs as of January 1, 2015

 

 

786,797 

 

$

29.17 

Granted  

 

 

536,356 

 

$

38.55 

Vested  

 

 

(384,265)

 

$

26.57 

Forfeited

 

 

(20,729)

 

$

35.58 

Non-vested RSUs as of June 30, 2015

 

 

918,159 

 

$

35.59 

 

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

 

As of June 30, 2015 , the unrecognized compensation expense associated with earned RSUs was approximately $16.2 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 2.3 years .  

 

Options.   The number of the Company's outstanding stock options as o f   June 30, 2015 , and changes during the six months ended   June 30, 2015 , are presented below:  

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2015

 

 

183,367 

 

$  

10.33 

Exercised  

 

 

(56,617)

 

$  

10.27 

Options outstanding as of June 30, 2015

 

 

126,750 

 

$  

10.37 

 

 

 

 

 

 

 

Options vested and exercisable as of June 30, 2015

 

 

126,750 

 

$  

10.37 

 

As of June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2015 and 2014 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

8

 


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

 

Three Months Ended June 30, 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  

 

$  

14,997 

 

 

 

 

 

 

 

$  

13,989 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs  

 

 

(23)

 

 

 

 

 

 

 

 

(49)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

14,974 

 

 

44,807,829 

 

$  

0.33 

 

$  

13,940 

 

 

44,324,747 

 

$  

0.31 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$  

23 

 

 

 

 

 

 

 

$  

49 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

64,511 

 

 

 

 

 

 

 

 

125,207 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

447,023 

 

 

 

 

 

 

 

 

381,024 

 

 

 

Less: Undistributed earnings reallocated to RSAs  

 

 

(23)

 

 

 

 

 

 

 

 

(49)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

14,974 

 

 

45,319,363 

 

$  

0.33 

 

$  

13,940 

 

 

44,830,978 

 

$  

0.31 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

Six Months Ended June 30, 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  

 

$  

30,230 

 

 

 

 

 

 

 

$  

23,554 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(50)

 

 

 

 

 

 

 

 

(102)

 

 

 

 

 

 

Net income available to common stockholders  

 

$  

30,180 

 

 

44,737,413 

 

$  

0.67 

 

$  

23,452 

 

 

44,270,363 

 

$  

0.53 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$  

50 

 

 

 

 

 

 

 

$  

102 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method  

 

 

 

 

 

71,750 

 

 

 

 

 

 

 

 

130,562 

 

 

 

RSUs added to the denominator under the treasury stock method  

 

 

 

 

 

471,425 

 

 

 

 

 

 

 

 

399,373 

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(49)

 

 

 

 

 

 

 

 

(100)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions  

 

$  

30,181 

 

 

45,280,588 

 

$  

0.67 

 

$  

23,454 

 

 

44,800,298 

 

$  

0.52 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock issued by the Company under RSAs   of 33,694 and 33,911 sh ares for the three and six months ended June 30, 2015 and   61,031 and 80,298 for the three and six months ended June 30, 2014 respectively ,   because the effect of including these shares in the computation would have been anti-dilutive .

 

9

 


 

(5) Accumulated Other Comprehensive Loss, Net

 

Accumulated other comprehensive loss, net is displayed as a separate component of Stockholders' equity in the accompanying Consolidated Balance Sheets. The following tables present the changes in the balances of each component of Accumulated other comprehensive loss, net for the three and six months ended June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized (losses) gains on interest rate swap contracts

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of April 1, 2015

 

$  

(45,625)

 

$  

(53,452)

(1)

$  

(99,077)

Other comprehensive income (loss) before reclassification

 

 

21,673 

 

 

(620)

(2)

 

21,053 

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,618 

(2)

 

8,618 

Net current period other comprehensive income

 

 

21,673 

 

 

7,998 

 

 

29,671 

Total accumulated other comprehensive loss, net as of June 30, 2015

 

$  

(23,952)

 

$  

(45,454)

(1)

$  

(69,406)

____________

(1)

Net of deferred income tax benefit of $4,993 and $9,994 as of June 30 , 2015 and April 1, 2015, respectively.

(2)

Net of deferred income tax (benefit) expense of $(394) and $5, 4 75 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from Accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

Unrealized (losses) gains on interest rate swap contracts

 

Total

 

 

(In thousands)

Total accumulated other comprehensive loss, net as of January 1, 2015

 

$  

(34,709)

 

$  

(48,298)

(1)

$  

(83,007)

Other comprehensive income  (loss) before reclassification

 

 

10,757 

 

 

(14,345)

(2)

 

(3,588)

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

17,189 

(2)

 

17,189 

Net current period other comprehensive income

 

 

10,757 

 

 

2,844 

 

 

13,601 

Total accumulated other comprehensive loss, net as of June 30, 2015

 

$  

(23,952)

 

$  

(45,454)

(1)

$

(69,406)

____________

(1)

Net of deferred income tax benefit of $4,993 and $6,701 as of June 30 , 2015 and January 1, 2015, respectively.

(2)

Net of deferred income tax (benefit) expense of $(9,019) and $10,807 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 the 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 six months ended June 30, 2015 , by segment :

 

10

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

 

 

 

 

 

 

 

 

 

Purchase price adjustments

 

 

1,160 

 

 

5,600 

 

 

6,760 

Foreign currency translation adjustments  

 

 

(170)

 

 

1,087 

 

 

917 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015:

 

 

 

 

 

 

 

 

 

Gross balance  

 

$  

399,967 

 

$  

169,676 

 

$  

569,643 

Accumulated impairment loss  

 

 

 —

 

 

(50,003)

 

 

(50,003)

 

 

$  

399,967 

 

$  

119,673 

 

$  

519,640 

___________

(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 .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: indefinite-lived

 

 

North America

 

Europe

 

Total

 

 

(In thousands)

Balance as of January 1, 2015

 

$

728 

 

$  

 —

 

$  

728 

Foreign currency translation adjustments

 

 

 

 

 —

 

 

Balance as of June 30, 2015

 

$  

734 

 

$  

 —

 

$  

734 

 

Intangible Assets with Definite Lives  

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 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  

 

$  

337,248 

 

$  

(203,607)

 

$  

133,641 

 

$  

338,830 

 

$  

(186,185)

 

$  

152,645 

Deferred financing costs  

 

 

16,187 

 

 

(6,899)

 

 

9,288 

 

 

16,127 

 

 

(5,851)

 

 

10,276 

Non-compete agreements  

 

 

4,538 

 

 

(3,766)

 

 

772 

 

 

4,568 

 

 

(3,374)

 

 

1,194 

Technology

 

 

2,802 

 

 

(2,680)

 

 

122 

 

 

2,803 

 

 

(2,025)

 

 

778 

Trade name: definite-lived

 

 

13,393 

 

 

(2,548)