Cardtronics, plc.
CARDTRONICS INC (Form: 10-Q, Received: 10/29/2015 16:50:27)

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION  

Washington, D.C. 20549  

 

FORM 10-Q  

 

(Mark One)

 

 

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

 

 

 

For the quarterly period ended  September 30 , 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 October 27 , 2015: 44,911,573

 

 

 

 


 

 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

 

 

PART I.   FINANCIAL INFORMATION  

 

 

Item 1.  

Financial Statements ( U naudited)

 

 

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

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2015 and 2014

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

 

 

Notes to Consolidated Financial Statements

 

 

Cautionary Statement Regarding Forward-Looking Statements

 

38 

Item 2.  

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

 

39 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

 

61 

Item 4.  

Controls and Procedures

 

63 

 

 

 

 

PART II. OTHER INFORMATION  

 

 

Item 1.  

Legal Proceedings

 

65 

Item 1A.  

Risk Factors

 

65 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

 

66 

Item 6.  

Exhibits

 

66 

 

Signatures

 

67 

 

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.

2


 

 

PART I. FINANCIAL INFORMATIO N

 

Item 1. Financial Statement s

 

CARDTRONICS, INC.
CONSOLIDATED BALANCE SHEET S
(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

( Unaudited )

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,483

 

$

31,875

 

Accounts and notes receivable, net of allowance of $1,752 and $1,082 as of September 30, 2015 and December 31, 2014, respectively

 

 

91,836

 

 

80,321

 

Inventory, net

 

 

10,512

 

 

5,971

 

Restricted cash

 

 

50,833

 

 

20,427

 

Current portion of deferred tax asset, net

 

 

20,535

 

 

24,303

 

Prepaid expenses, deferred costs, and other current assets

 

 

36,169

 

 

34,508

 

Total current assets

 

 

228,368

 

 

197,405

 

Property and equipment, net

 

 

375,770

 

 

335,795

 

Intangible assets, net

 

 

168,046

 

 

177,540

 

Goodwill

 

 

552,055

 

 

511,963

 

Deferred tax asset, net

 

 

12,607

 

 

10,487

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

 

20,549

 

 

22,600

 

Total assets

 

$

1,357,395

 

$

1,255,790

 

   

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 —

 

$

35

 

Current portion of other long-term liabilities

 

 

36,325

 

 

34,937

 

Accounts payable

 

 

27,396

 

 

35,984

 

Accrued liabilities

 

 

201,322

 

 

179,966

 

Total current liabilities

 

 

265,043

 

 

250,922

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

635,970

 

 

612,662

 

Asset retirement obligations

 

 

54,980

 

 

52,039

 

Deferred tax liability, net

 

 

12,716

 

 

15,916

 

Other long-term liabilities

 

 

46,176

 

 

37,716

 

Total liabilities

 

 

1,014,885

 

 

969,255

 

   

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001  par value; 125,000,000  shares authorized; 52,073,357 and 51,596,360 shares issued as of September 30, 2015 and December 31, 2014, respectively; 44,900,992 and 44,562,122 shares outstanding as of September 30, 2015 and December 31, 2014, respectively

 

 

5

 

 

5

 

Additional paid-in capital

 

 

368,292

 

 

352,166

 

Accumulated other comprehensive loss, net

 

 

(90,025)

 

 

(83,007)

 

Retained earnings

 

 

171,066

 

 

118,817

 

Treasury stock: 7,172,365 and 7,034,238 shares at cost as of September 30, 2015 and December 31, 2014, respectively

 

 

(102,445)

 

 

(97,835)

 

Total parent stockholders’ equity

 

 

346,893

 

 

290,146

 

Noncontrolling interests

 

 

(4,383)

 

 

(3,611)

 

Total stockholders’ equity

 

 

342,510

 

 

286,535

 

Total liabilities and stockholders’ equity

 

$

1,357,395

 

$

1,255,790

 

 

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

3


 

 

CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS  
(In thousands, excluding share and per share amounts)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

296,836

 

$

256,779

 

$

842,295

 

$

746,970

 

ATM product sales and other revenues

 

 

14,514

 

 

9,068

 

 

54,702

 

 

23,978

 

Total revenues

 

 

311,350

 

 

265,847

 

 

896,997

 

 

770,948

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

185,142

 

 

167,306

 

 

537,183

 

 

490,445

 

Cost of ATM product sales and other revenues

 

 

13,892

 

 

8,872

 

 

50,193

 

 

23,436

 

Total cost of revenues

 

 

199,034

 

 

176,178

 

 

587,376

 

 

513,881

 

Gross profit

 

 

112,316

 

 

89,669

 

 

309,621

 

 

257,067

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

35,759

 

 

27,683

 

 

100,829

 

 

80,136

 

Acquisition and divestiture-related expenses

 

 

13,289

 

 

2,299

 

 

21,207

 

 

13,028

 

Depreciation and accretion expense

 

 

22,127

 

 

18,949

 

 

64,142

 

 

56,892

 

Amortization of intangible assets

 

 

10,048

 

 

7,965

 

 

29,040

 

 

24,647

 

(Gain) loss on disposal of assets

 

 

(12,139)

 

 

1,078

 

 

(12,425)

 

 

1,662

 

Total operating expenses

 

 

69,084

 

 

57,974

 

 

202,793

 

 

176,365

 

Income from operations

 

 

43,232

 

 

31,695

 

 

106,828

 

 

80,702

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

5,033

 

 

5,423

 

 

14,496

 

 

16,167

 

Amortization of deferred financing costs and note discount

 

 

2,859

 

 

4,895

 

 

8,455

 

 

10,342

 

Redemption costs for early extinguishment of debt

 

 

 —

 

 

7,722

 

 

 —

 

 

9,075

 

Other expense (income)

 

 

1,067

 

 

1,665

 

 

2,882

 

 

(3,565)

 

Total other expense

 

 

8,959

 

 

19,705

 

 

25,833

 

 

32,019

 

Income before income taxes

 

 

34,273

 

 

11,990

 

 

80,995

 

 

48,683

 

Income tax expense

 

 

12,629

 

 

4,397

 

 

29,837

 

 

18,185

 

Net income

 

 

21,644

 

 

7,593

 

 

51,158

 

 

30,498

 

Net loss attributable to noncontrolling interests

 

 

(365)

 

 

(471)

 

 

(1,081)

 

 

(1,120)

 

Net income attributable to controlling interests and available to common stockholders

 

$

22,009

 

$

8,064

 

$

52,239

 

$

31,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

 

$

0.49

 

$

0.18

 

$

1.17

 

$

0.71

 

Net income per common share – diluted

 

$

0.48

 

$

0.18

 

$

1.15

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

44,833,117

 

 

44,370,460

 

 

44,769,661

 

 

44,304,092

 

Weighted average shares outstanding – diluted

 

 

45,391,667

 

 

44,903,657

 

 

45,323,784

 

 

44,830,780

 

 

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

4


 

 

CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

21,644

 

$

7,593

 

$

51,158

 

$

30,498

 

Unrealized (loss) gain on interest rate swap contracts, net of deferred income tax benefit (expense) of $4,460 and $(4,968) for the three months ended September 30, 2015 and 2014, respectively, and $2,752 and $(4,875) for the nine months ended September 30, 2015 and 2014, respectively

 

(7,117)

 

 

7,687

 

 

(4,273)

 

 

7,307

 

Foreign currency translation adjustments

 

 

(13,502)

 

 

(8,098)

 

 

(2,745)

 

 

(3,929)

 

Other comprehensive (loss) income

 

 

(20,619)

 

 

(411)

 

 

(7,018)

 

 

3,378

 

Total comprehensive income

 

 

1,025

 

 

7,182

 

 

44,140

 

 

33,876

 

Less: comprehensive income (loss) attributable to noncontrolling interests

 

 

1,570

 

 

(421)

 

 

965

 

 

(1,085)

 

Comprehensive (loss) income attributable to controlling interests

 

$

(545)

 

$

7,603

 

$

43,175

 

$

34,961

 

 

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

5


 

 

CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

   

    

2015

    

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

51,158

 

$

30,498

 

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

 

 

 

 

 

 

 

Depreciation, accretion, and amortization of intangible assets

 

 

93,182

 

 

81,539

 

Amortization of deferred financing costs and note discount

 

 

8,455

 

 

10,342

 

Stock-based compensation expense

 

 

14,263

 

 

11,485

 

Deferred income taxes

 

 

2,233

 

 

(1,811)

 

(Gain) loss on disposal of assets

 

 

(12,425)

 

 

1,662

 

Other reserves and non-cash items

 

 

2,680

 

 

9,911

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Increase in accounts and note receivable, net

 

 

(1,621)

 

 

(7,603)

 

Increase in prepaid, deferred costs, and other current assets

 

 

(4,373)

 

 

(8,073)

 

Increase in inventory

 

 

(4,915)

 

 

(2,817)

 

(Increase) decrease in other assets

 

 

(6,832)

 

 

714

 

Decrease in accounts payable

 

 

(8,402)

 

 

(11,536)

 

Increase (decrease) in accrued liabilities

 

 

10,832

 

 

(7,351)

 

Increase (decrease) in other liabilities

 

 

2,877

 

 

(3,900)

 

Net cash provided by operating activities

 

 

147,112

 

 

103,060

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(99,987)

 

 

(63,169)

 

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

 

 

(3,890)

 

 

(1,909)

 

Acquisitions, net of cash acquired

 

 

(103,874)

 

 

(8,803)

 

Sale of assets and businesses

 

 

36,661

 

 

 —

 

Net cash used in investing activities

 

 

(171,090)

 

 

(73,881)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

 —

 

 

250,000

 

Repayment of long-term debt

 

 

 —

 

 

(200,000)

 

Proceeds from borrowings under revolving credit facility

 

 

340,250

 

 

 —

 

Repayments of borrowings under revolving credit facility

 

 

(324,186)

 

 

(4,431)

 

Repayments of borrowings under bank overdraft facility, net

 

 

(30)

 

 

(1,402)

 

Debt issuance, modification, and redemption costs

 

 

 —

 

 

(14,750)

 

Payment of contingent consideration

 

 

 —

 

 

(516)

 

Proceeds from exercises of stock options

 

 

586

 

 

331

 

Excess tax benefit from stock-based compensation expense

 

 

1,287

 

 

3,084

 

Repurchase of capital stock

 

 

(4,610)

 

 

(6,684)

 

Net cash provided by financing activities

 

 

13,297

 

 

25,632

 

   

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(2,711)

 

 

(889)

 

Net (decrease) increase in cash and cash equivalents

 

 

(13,392)

 

 

53,922

 

   

 

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

31,875

 

 

86,939

 

Cash and cash equivalents as of end of period

 

$

18,483

 

$

140,861

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

17,345

 

$

19,170

 

Cash paid for income taxes

 

$

19,411

 

$

23,360

 

 

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

6


 

 

CARDTRONICS, INC.
NOTES TO CONDENSE D 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 September 30 , 2015, the Company provided services to approximately 190,000 devices across its portfolio, which included approximately 168,700 devices located in all 50 states of the United States ("U.S.")   (including the U.S. territory of Puerto Rico) , approximately 15,700 devices throughout the United Kingdom ("U.K."), approximately 1,100 devices throughout Germany and Poland, approximately 3,100 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. The total count of 190,000 devices also includes devices for which the Company provides processing only services and 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 September 30 , 2015, approximately 22,000 of the Company’s ATMs were under contract with approximately 500 financial 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 approximately 1,300 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. Additionally, through its recent acquisition of Columbus Data Services, L.L.C. (“CDS”),

7


 

 

Cardtronics provides leading-edge ATM processing solutions to ATM sales and service organizations and financial institutions.

 

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 September 30, 2015 and for the three and nine months ended September 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 nine months ended September 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.

 

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 eliminated in consolidation. The 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.  

 

Restricted Cash

 

The balance characterized as restricted cash consists of amounts collected on behalf of, but not yet remitted to, certain of the Company’s merchant customers or third-party service providers. The amounts include deposits held by the Company for transactions processed by its customers, as well as surcharge and interchange fees earned by the Company’s customers on transactions processed. These balances are classified as Restricted cash in Current assets in the Company’s Consolidated Balance Sheets based on when the Company expects this cash to be paid. The Company held $ 50.8 million and $ 20.4  million of restricted cash in current assets as of September 30, 2015 and December 31, 2014, respectively. The increase in restricted cash from December 31, 2014 to September 30, 2015 is mostly attributable to settlement balances associated with the acquisition of CDS, on July 1, 2015. These assets are offset by accrued liability balances in the current liability section of our balance sheet.

 

8


 

 

Cost of ATM Operating Revenues and Gross Profit Presentation  

 

The Company presents Cost of ATM operating revenues and Gross profit within its Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets. The following table sets forth the amounts excluded from Cost of ATM operating revenues and Gross profit for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

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

 

$  

17,135

 

$  

15,926

 

$  

48,731

 

$  

47,781

 

Amortization of intangible assets

 

 

10,048

 

 

7,965

 

 

29,040

 

 

24,647

 

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

 

$  

27,183

 

$  

23,891

 

$  

77,771

 

$

72,428

 

 

 

 

(2) Acquisitions and Divestitures  

 

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. 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 Welch purchase consideration was 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 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 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 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 completed the purchase accounting for Welch in September 2015 , recognizing immaterial final adjustments to the previously estimated amounts recorded for goodwill and intangibles.

 

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 preliminary opening balance sheet and the settlement of final working capital adjustments.

 

On July 1 , 2015, the Company completed the divestiture of its retail cash-in-transit operation in the U.K. This operation , which mainly relates to the collection of cash by couriers at retail locations, was originally acquired through the Sunwin acquisition discussed above   and not deemed to be a core part of the Company’s on-going strategy. The Company is expected to receive estimated proceeds of approximately £23.2 million, or approximately $36.0 million , on the sale

9


 

 

transaction. A portion of the total proceeds from the sale are subject to certain conditions related to customer transition and other matters , and as a result, the Company has recorded the estimated fair value of the consideration . Of the amount expected to be received, £18.7 million, or approximately $2 9 .1 million, was received by September 30, 2015. The net pre-tax gain recognized on this transaction was $14.7   million as of September 30, 2015. The net   gain is included in the (Gain) l oss on disposal of assets line item on the accompanying Consolidated Statement s of Operations. The major classes of assets and liabilities sold included: tangible assets with a carrying value of $6.8 million and goodwill and intangible assets with a combined carrying values of $14.5   million. Prior to the sale, the operation was part of the Company’s Europe   operating segment.

 

In conjunction with the U.K. divestiture activities discussed above, and to optimize the remaining ATM-related infrastructure, the Company closed   six cash depots that were not part of the sale but were no longer necessary or economical to operate based on the remaining work at these facilities. The Company wrote-off certain assets in these facilities, recording approximately $3.0 million in disposa l losses, included in the ( Gain )   l oss on disposal of assets line on the accompanying Consolidated Statements of Operations. Upon exiting these facilities, the Company recognized lease exit costs of $1.4 million and employee severance costs of $2.3 million. The Company also recorded approximately $3.1   million in operating costs related to the six closed depots that were no longer profitable to operate as a result of the sale of the retail cash-in-transit operation. These costs and other costs totaling $10.7 million , including the excess operating costs associated with work that was in transition to other facilities during the period, were recorded within the Acquisition and d ivestiture -related expense line in the accompanying Consolidated Statement s of Operations .

 

On July 1, 2015, the Company completed the acquisition of CDS for a total purchase price of approximately $80.6   million. CDS is a leading independent transaction processor for ATM deployers and payment card issuers, providing leading-edge solutions to ATM sales and service organizations and financial institutions. CDS now operates as a separate division of the Company.

 

The total purchase consideration for CDS 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 included the acquired customer relationships valued at $1 5.7 million, technology valued at $ 7.8 million, and other intangibles assets of $ 1.7 million. Intangible values were estimated utilizing primarily 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 and were valued at $ 4.6 million, estimated utilizing the market and cost approaches. The preliminary purchase price allocation resulted in goodwill of $53.5 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.

 

 

(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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

Cost of ATM operating revenues

 

$  

277

 

$  

337

 

$  

775

 

$  

904

 

Selling, general, and administrative expenses

 

 

4,876

 

 

4,231

 

 

13,488

 

 

10,581

 

Total stock-based compensation expense

 

$  

5,153

 

$  

4,568

 

$  

14,263

 

$  

11,485

 

 

The increase in stock-based compensation expense was due to additional expense recognition related to 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").

10


 

 

 

Restricted Stock Awards . The number of the Company's outstanding Restricted Stock Awards (“RSAs”) as of September 30, 2015, and changes during the nine months ended September 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

 

Granted

 

 —

 

$

 —

 

Vested

 

(28,943)

 

$

26.56

 

Forfeited

 

(3,500)

 

$

28.69

 

RSAs outstanding as of September 30, 2015

 

50,585

 

$

27.24

 

 

As of September 30, 2015, the unrecognized compensation expense associated with all outstanding RSAs was approximately $ 0.7   million, which will be recognized on a straight-line basis over a remaining weighted   average vesting period of approximately 1.4 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 .0 % ,   25 .0 % , and 25 .0 % , 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 September 30, 2015, and changes during the nine months ended September 30, 2015, are presented below:

 

 

 

 

 

 

 

 

 

    

Number of Shares

    

Weighted Average Grant Date Fair Value

 

Non-vested RSUs as of January 1, 2015

 

786,797

 

$

29.17

 

Granted

 

558,678

 

$

38.40

 

Vested

 

(419,895)

 

$

27.32

 

Forfeited

 

(26,254)

 

$

35.18

 

Non-vested RSUs as of September 30, 2015

 

899,326

 

$

35.60

 

 

The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2015 but not yet earned are not included. The number of Performance-RSUs granted at target in 2015, net of forfeitures, was 246,544   units with a grant date fair value of $38.45 per unit. Time-RSUs are included as granted.

 

As of September 30, 2015, the unrecognized compensation expense associated with earned RSUs was approximately $ 14.0   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 .  

 

11


 

 

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

 

 

 

 

 

 

 

 

 

    

Number of Shares

    

Weighted Average Exercise Price

    

Options outstanding as of January 1,  2015

 

183,367

 

$  

10.33

 

Exercised

 

(57,102)

 

$  

10.27

 

Forfeited

 

 —

 

$  

 —

 

Options outstanding as of September 30, 2015

 

126,265

 

$  

10.36

 

 

 

 

 

 

 

 

Options vested and exercisable as of September 30, 2015

 

126,265

 

$  

10.36

 

 

As of September 30, 2015, the Company had no unrecognized compensation expense associated with outstanding options.

 

(4) Earnings per Share  

 

The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common stockholders) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three and nine months ended September 30 , 2015 and 2014 included all outstanding stock options ,   RSAs, and RSUs , which were included in the calculation of diluted earnings per share for these periods , if dilutive .   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 nine months ended September 30 , 2015 and 2014 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:

 

12


 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2015

 

September 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

 

$  

22,009

 

 

 

 

 

 

$  

8,064

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(28)

 

 

 

 

 

 

 

(23)

 

 

 

 

 

 

Net income available to common stockholders

 

$  

21,981

 

44,833,117

 

$  

0.49

 

$  

8,041

 

44,370,460

 

$  

0.18

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$  

28

 

 

 

 

 

 

$  

23

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

60,693

 

 

 

 

 

 

 

114,872

 

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

497,857

 

 

 

 

 

 

 

418,325

 

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(27)

 

 

 

 

 

 

 

(23)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions

 

$  

21,982

 

45,391,667

 

$  

0.48

 

$  

8,041

 

44,903,657

 

$  

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2015

 

September 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

 

$  

52,239

 

 

 

 

 

 

$  

31,618

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested RSAs

 

 

(79)

 

 

 

 

 

 

 

(120)

 

 

 

 

 

 

Net income available to common stockholders

 

$  

52,160

 

44,769,661

 

$  

1.17

 

$  

31,498

 

44,304,092

 

$  

0.71

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares

 

$  

79

 

 

 

 

 

 

$  

120

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method

 

 

 

 

68,245

 

 

 

 

 

 

 

123,743

 

 

 

 

RSUs added to the denominator under the treasury stock method

 

 

 

 

485,878

 

 

 

 

 

 

 

402,945

 

 

 

 

Less: Undistributed earnings reallocated to RSAs

 

 

(78)

 

 

 

 

 

 

 

(119)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions

 

$  

52,161

 

45,323,784

 

$  

1.15

 

$  

31,499

 

44,830,780

 

$  

0.70

 

 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock issued by the Company under RSAs of 27,052 and 32,106 shares for the three and nine months ended September 30 , 2015 ,   respectively, and   54,161 and 68,665 for the three and nine months ended September 30 , 2014 , respectively, because the effect of including these shares in the computation would have been anti-dilutive.

 

13


 

 

(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 compr ehensive loss, net for the three and nine months ended September 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 July 1, 2015

 

$  

(23,952)

 

 

(45,454)

(1)

$  

(69,406)

 

Other comprehensive loss before reclassification

 

 

(13,502)

 

 

(15,762)

(2)

 

(29,264)

 

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 

 

8,645

(2)

 

8,645

 

Net current period other comprehensive loss

 

 

(13,502)

 

 

(7,117)

 

 

(20,619)

 

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

 

$  

(37,454)

 

$  

(52,571)

(1)

$  

(90,025)

 

 


(1)

Net of deferred income tax benefit of $9,453 and $4,993 as of September 30, 2015 and July 1, 2015, respectively.

(2)

Net of deferred income tax benefit (expense) of $9,877 and $(5,417) for Other comprehensive 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 loss before reclassification

 

 

(2,745)

 

 

(30,107)

(2)

 

(32,852)

 

Amounts reclassified from accumulated other comprehensive loss, net

 

 

 —

 

 

25,834

(2)

 

25,834

 

Net current period other comprehensive loss

 

 

(2,745)

 

 

(4,273)

 

 

(7,018)

 

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

 

$  

(37,454)

 

$  

(52,571)

(1)

$

(90,025)

 

 

 


(1)

Net of deferred income tax benefit of $9,453 and $6,701 as of September 30, 2015 and January 1, 2015, respectively.

(2)

Net of deferred income tax benefit (expense) of $19,392 and $(16,640) for Other comprehensive 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.

 

14


 

 

(6) Intangible Assets  

 

Intangible Assets with Indefinite Lives  

 

The following table presents the net carrying amount of the Company's intangible assets with indefinite lives as well as the changes in the net carrying amounts for the nine months ended September 30, 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

 

 

53,519

 

 

 —

 

 

53,519

 

Divestitures

 

 

 —

 

 

(13,342)

 

 

(13,342)

 

Purchase price adjustments

 

 

1,051

 

 

915

 

 

1,966

 

Foreign currency translation adjustments

 

 

(451)

 

 

(1,600)

 

 

(2,051)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2015:

 

 

 

 

 

 

 

 

 

 

Gross balance

 

$  

453,096

 

$  

148,962

 

$  

602,058

 

Accumulated impairment loss

 

 

 —

 

 

(50,003)

 

 

(50,003)

 

 

 

$  

453,096

 

$  

98,959

 

$  

552,055

 

 


(1)

The North America segment is comprised of the Company’s operations in the U.S., Canada ,   M exico , and Puerto Rico .

(2)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name: indefinite-lived

 

 

    

North America (1)

    

Europe (2)

    

Total

 

 

 

(In thousands)

 

Balance as of January 1, 2015

 

$

728

 

$  

 —

 

$  

728

 

Acquisitions

 

 

1,700

 

 

 —

 

 

1,700

 

Foreign currency translation adjustments

 

 

(15)

 

 

 —

 

 

(15)

 

Balance as of September 30, 2015

 

$  

2,413