catm_Current folio_10Q_Taxonomy2015

 

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 (Unaudited)

 

 

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 INFORMATION

 

Item 1. Financial Statements

 

CARDTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(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 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 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 $29.1 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) loss on disposal of assets line item on the accompanying Consolidated Statements 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 disposal losses, included in the (Gain)  loss 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 divestiture-related expense line in the accompanying Consolidated Statements 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 $15.7 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 comprehensive 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, Mexico, 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

 

$ 

 —

 

$ 

2,413

 

 


(1)

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

(2)

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

 

15


 

 

Intangible Assets with Definite Lives 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 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

 

$  

350,825

 

$  

(211,538)

 

$  

139,287

 

$  

338,830

 

$  

(186,185)

 

$  

152,645

 

Deferred financing costs

 

 

16,521

 

 

(7,444)

 

 

9,077

 

 

16,127

 

 

(5,851)

 

 

10,276

 

Non-compete agreements

 

 

4,484

 

 

(3,857)

 

 

627

 

 

4,568

 

 

(3,374)

 

 

1,194

 

Technology

 

 

10,587

 

 

(3,209)

 

 

7,378

 

 

2,803

 

 

(2,025)

 

 

778

 

Trade name: definite-lived

 

 

11,936

 

 

(2,672)

 

 

9,264

 

 

13,702

 

 

(1,783)

 

 

11,919

 

Total

 

$  

394,353

 

$ 

(228,720)

 

$ 

165,633

 

$

376,030

 

$

(199,218)

 

$

176,812

 

 

 

 

(7) Accrued Liabilities 

 

Accrued liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

(In thousands)

 

Accrued merchant settlement (1)

 

$  

49,342

 

$  

9,869

 

Accrued merchant fees

 

 

43,466

 

 

39,473

 

Accrued taxes

 

 

17,558

 

 

14,623

 

Accrued purchases

 

 

14,223

 

 

10,001

 

Accrued compensation

 

 

12,963

 

 

18,050

 

Accrued cash management fees

 

 

10,828

 

 

8,235

 

Accrued maintenance

 

 

6,896

 

 

8,945

 

Accrued processing costs

 

 

6,014

 

 

1,957

 

Accrued armored

 

 

5,145

 

 

4,876

 

Accrued interest

 

 

3,507

 

 

6,128

 

Accrued interest on interest rate swaps

 

 

2,808

 

 

3,001

 

Accrued telecommunications costs

 

 

1,874

 

 

2,613

 

Deferred acquisition purchase price (2)

 

 

 —

 

 

20,580

 

Other accrued expenses

 

 

26,698

 

 

31,615

 

Total

 

$  

201,322

 

$  

179,966

 

 

 


(1)

The increase in accrued merchant settlement from December 31, 2014, is largely attributable to merchant settlements owed by the CDS business acquired on July 1, 2015.

(2)

This category represents purchase price consideration on the Sunwin acquisition that was paid during the first nine months of 2015.

 

 

 

 

 

 

 

 

 

 

16


 

 

(8) Long-Term Debt 

 

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

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

(In thousands)

 

Revolving credit facility, including swingline credit facility (weighted average combined interest rate of 2.0% and 2.2% as of September 30, 2015 and December 31, 2014, respectively)

 

$  

153,750

 

$  

137,292

 

5.125% Senior notes due August 2022

 

 

250,000

 

 

250,000

 

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

 

 

232,220

 

 

225,370

 

Other

 

 

 —

 

 

35

 

Total

 

 

635,970

 

 

612,697

 

Less: current portion

 

 

 —

 

 

35

 

Total long-term debt, excluding current portion

 

$  

635,970

 

$  

612,662

 

 

Revolving Credit Facility 

 

On May 26, 2015, the Company entered into a second amendment (the “Second Amendment”) to its amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $375.0 million revolving credit facility and includes an accordion feature that will allow the Company to increase the available borrowings under the revolving credit facility to $500.0 million, subject to the approval of one or more existing lenders or one or more lenders that become party to the Credit Agreement. Under the Second Amendment, a new $75.0 million tranche (the “European Commitments”) was created under which Cardtronics Europe Limited (“Cardtronics Europe”), a subsidiary of the Company, can borrow directly from the existing lenders in different currencies. The Second Amendment provides for sub-limits under the European Commitments of $15.0 million for swingline loans and $15.0 million for letters of credit. In addition, the Second Amendment reduces the commitments of the lending parties to make loans to the Company (the “U.S. Commitments”) from $375.0 million to $300.0 million and reduced the alternative currency sub-limit to $75.0 million, from $125.0 million under the Credit Agreement. The letter of credit sub-limit and the swingline sub-limit under the U.S. Commitments remain at $30.0 million and $25.0 million, respectively, under the Second Amendment. The Credit Agreement expires in April 2019. 

 

Borrowings (not including swingline loans and alternative currency loans) under the revolving credit facility accrue interest at the Company’s option at either the Alternate Base Rate (as defined in the Credit Agreement) or the Adjusted LIBO Rate (as defined in the Credit Agreement) plus a margin depending on the Company’s most recent Total Net Leverage Ratio (as defined in the Credit Agreement). The margin for Alternative Base Rate loans varies between 0% to 1.25% and the margin for Adjusted LIBO Rate loans varies between 1.00% to 2.25%. Swingline loans denominated in U.S. dollars bear interest at the Alternate Base Rate plus a margin as described above and swingline loans denominated in alternative currencies bear interest at the Overnight LIBO Rate (as defined in the credit agreement) plus the applicable margin for the Adjusted LIBO Rate. The alternative currency loans bear interest at the Adjusted LIBO Rate for the relevant currency as described above. Substantially all of the Company’s domestic assets, including the stock of its wholly-owned domestic subsidiaries and 66.0% of the stock of the Company’s first-tier foreign subsidiaries, are pledged as collateral to secure borrowings made under the revolving credit facility. Furthermore, each of the Company’s material wholly-owned domestic subsidiaries has guaranteed the full and punctual payment of the obligations under the revolving credit facility. The European Commitments are also secured by the assets of the Company’s foreign subsidiaries, which do not guarantee the obligations of the Company’s domestic subsidiaries. There are currently no restrictions on the ability of the Company’s subsidiaries to declare and pay dividends to the Company.

 

The Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including, among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable laws, and (iv) notification of certain events. Financial covenants in the Credit Agreement require the Company to maintain: (i) as of the last day of any fiscal quarter, a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no more than 2.25 to 1.00; (ii) as of the last day of any fiscal quarter, a Total Net Leverage Ratio of no more than 4.00 to 1.00; and (iii) as of the last day of any fiscal quarter, a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of no less than 1.50 to 1.0. Additionally, the Company is limited on the amount

17


 

 

of restricted payments, including dividends, which it can make pursuant to the terms of the Credit Agreement; however, the Company may generally make restricted payments so long as no event of default exists at the time of such payment and the total net leverage ratio is less than 3.0 to 1.0 at the time such restricted payment is made. 

 

As of September 30, 2015, the Company was in compliance with all applicable covenants and ratios under the Credit Agreement.

 

As of September 30, 2015, the Company’s outstanding balance on the revolving credit facility was $153.8 million, of which $126.0 million was outstanding under the U.S. Commitments and $27.8 million was outstanding under the European Commitments. The available borrowing capacity under the revolving credit facility totaled approximately $221.2 million, of which $174.0 million is available to the U.S. and $47.2 million is available to Cardtronics Europe. 

 

$250.0 Million 5.125% Senior Notes Due 2022

 

On July 28, 2014, in a private placement offering, the Company issued $250.0 million in aggregate principal amount of 5.125% senior notes due 2022 (the “2022 Notes”) pursuant to an indenture dated July 28, 2014 (the “Indenture”) among the Company, its subsidiary guarantors (the “Guarantors”) and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, and commenced on February 1, 2015. Pursuant to a registration rights agreement, on June 5,  2015, the Company and the Guarantors filed a registration statement with the SEC to allow the holders of the 2022 Notes to exchange such notes for registered notes that have substantially identical terms to the 2022 Notes. This exchange offer commenced June 17, 2015 and resulted in all 2022 Notes being exchanged for registered notes.

 

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

 

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

 

The 2022 Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by certain wholly owned domestic subsidiaries. The guarantees of the 2022 Notes by any Guarantor are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the Guarantor; (ii) the disposition of sufficient capital stock of the Guarantor so that it no longer qualifies under the Indenture as a restricted subsidiary of the Company; (iii) the designation of the Guarantor as unrestricted in accordance with the Indenture; (iv) the legal or covenant defeasance of the notes or the satisfaction and discharge of the Indenture; (v) the liquidation or dissolution of the Guarantor; or (vi) provided the Guarantor is not wholly owned by the Company, its ceasing to guarantee other debt of the Company or another Guarantor. A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than the Company or another Guarantor), unless no default under the Indenture exists and either the successor to the Guarantor assumes its guarantee of the 2022 Notes or the disposition, consolidation or merger complies with the “Asset Sales” covenant in the Indenture.

 

$287.5 Million 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments

 

On November 19, 2013, the Company issued $250.0 million of 1.00% convertible senior notes due 2020 (the "Convertible Notes") at par value. The Company also granted to the initial purchasers the option to purchase, during the 13 day period following the issuance of the Convertible Notes, up to an additional $37.5 million of Convertible Notes (the “Over-allotment Option”). The initial purchasers exercised the Over-allotment Option on November 21, 2013. The Company received $254.2 million in net proceeds from the offering after deducting underwriting fees paid to the initial

18


 

 

purchasers and a repurchase of 665,994 shares of its outstanding common stock concurrent with the offering. The Company used a portion of the net proceeds from the offering to fund the net cost of the convertible note hedge transaction, as described below. The convertible note hedge and warrant transactions were entered into with the initial purchasers on November 19, 2013, concurrent with the pricing of the Convertible Notes, and on November 21, 2013, concurrent with the exercise of the Over-allotment Option. The Company pays interest semi-annually (payable in arrears) on June 1st and December 1st of each year. Under U.S. GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was $215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date. The Company recognizes effective interest expense on the debt component and that interest expense effectively accretes the debt component to the total principal amount due at maturity of $287.5 million. The effective rate of interest to accrete the debt balance is approximately 5.26%, which corresponded to the Company’s estimated conventional debt instrument borrowing rate at the date of issuance.

 

The Convertible Notes have an initial conversion price of $52.35 per share, which equals an initial conversion rate of 19.1022 shares of common stock per $1,000 principal amount of notes, for a total of approximately 5.5 million shares of our common stock initially underlying the debt. The conversion rate, however, is subject to adjustment under certain circumstances. Conversion can occur: (i) any time on or after September 1, 2020; (ii) after March 31, 2014, during any calendar quarter that follows a calendar quarter in which the price of the Company’s common stock exceeds 135% of the conversion price for at least 20 days during the 30 consecutive trading-day period ending on the last trading day of the quarter; (iii) during the ten consecutive trading-day period following any five consecutive trading-day period in which the trading price of the Convertible Notes is less than 98% of the closing price of the Company’s common stock multiplied by the applicable conversion rate on each such trading day; (iv) upon specified distributions to the Company’s shareholders upon recapitalizations, reclassifications or changes in stock; and (v) upon a make-whole fundamental change. A fundamental change is defined as any one of the following: (i) any person or group that acquires 50% or more of the total voting power of all classes of common equity that is entitled to vote generally in the election of the Company’s directors; (ii) the Company engages in any recapitalization, reclassification or changes of common stock as a result of which the common stock would be converted into or exchanged for, stock, other securities, or other assets or property; (iii) the Company engages in any share exchange, consolidation or merger where the common stock is converted into cash, securities or other property; (iv) the Company engages in any sales, lease or other transfer of all or substantially all of the consolidated assets; or (v) the Company’s stock is not listed for trading on any U.S. national securities exchange.

 

As of September 30, 2015, none of the contingent conversion thresholds described above were met in order for the Convertible Notes to be convertible at the option of the note holders. As a result, the Convertible Notes have been classified as a noncurrent liability on the Company’s Consolidated Balance Sheets at September 30, 2015. In future financial reporting periods, the classification of the Convertible Notes may change depending on whether any of the above contingent criteria have been subsequently satisfied.

 

Upon conversion, holders of the Convertible Notes are entitled to receive cash, shares of the Company’s common stock or a combination of cash and common stock, at the Company’s election. In the event of a change in control, as defined in the indenture under which the Convertible Notes have been issued, holders can require the Company to purchase all or a portion of their Convertible Notes for 100% of the notes' par value plus any accrued and unpaid interest.

 

Interest expense related to the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

 

 

(In thousands)

 

Cash interest per contractual coupon rate

 

$  

719

 

$ 

719

 

Amortization of note discount

 

 

2,313

 

 

2,195

 

Amortization of deferred financing costs

 

 

142

 

 

133

 

Total interest expense related to Convertible Notes

 

$  

3,174

 

$ 

3,047

 

 

 

19


 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

 

 

(In thousands)

 

Cash interest per contractual coupon rate

 

$  

2,156

 

$ 

2,156

 

Amortization of note discount

 

 

6,850

 

 

6,510

 

Amortization of deferred financing costs

 

 

413

 

 

387

 

Total interest expense related to Convertible Notes

 

$  

9,419

 

$ 

9,053

 

 

The carrying value of the Convertible Notes consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

(In thousands)

 

Principal balance

 

$  

287,500

 

$  

287,500

 

Discount, net of accumulated amortization

 

 

(55,280)

 

 

(62,130)

 

Net carrying amount of Convertible Notes

 

$  

232,220

 

$  

225,370

 

 

In connection with the issuance of the Convertible Notes, the Company entered into separate convertible note hedge and warrant transactions with certain of the initial purchasers to reduce the potential dilutive impact upon the conversion of the Convertible Notes. The net effect of these transactions effectively raised the price at which dilution would occur from the $52.35 initial conversion price of the Convertible Notes to $73.29. Pursuant to the convertible note hedge, the Company purchased call options granting to the Company the right to acquire up to approximately 5.5 million shares of its common stock with an initial strike price of $52.35. The call options automatically become exercisable upon conversion of the Convertible Notes, and will terminate on the second scheduled trading day immediately preceding December 1, 2020. The Company also sold to the initial purchasers warrants to acquire up to approximately 5.5 million shares of its common stock with a strike price of $73.29. The warrants will expire incrementally on a series of expiration dates subsequent to the maturity date of the Convertible Notes through August 30, 2021. If the conversion price of the Convertible Notes remains between the strike prices of the call options and warrants, the Company’s shareholders will not experience any dilution in connection with the conversion of the Convertible Notes; however, to the extent that the price of the Company’s common stock exceeds the strike price of the warrants on any or all of the series of related expiration dates of the warrants, the Company would be required to issue additional shares of its common stock to the warrant holders. The amounts allocated to both the note hedge and warrants were recorded in Stockholders’ equity, within the Additional paid-in capital line item.

 

(9) Asset Retirement Obligations 

 

Asset retirement obligations consist primarily of costs to deinstall the Company's ATMs and costs to restore the ATM sites to their original condition, which are estimated based on current market rates. In most cases, the Company is contractually required to perform this deinstallation and in some cases, site restoration work. For each group of related ATM assets, the Company has recognized the fair value of the asset retirement obligation as a liability on its balance sheet and capitalized that cost as part of the cost basis of the related asset. The related ATM assets are depreciated on a straight-line basis over five years, which is the estimated average time period that an ATM is installed in a location before being deinstalled, and the related liabilities are accreted to their full value over the same period of time.

20


 

 

The following table is a summary of the changes in the Company's asset retirement obligation liability for the nine months ended September 30, 2015 (in thousands):

 

 

 

 

 

 

Asset retirement obligation as of January 1, 2015

    

$  

55,136

 

Additional obligations

 

 

5,715

 

Accretion expense

 

 

1,725

 

Change in estimates

 

 

(997)

 

Payments

 

 

(2,403)

 

Foreign currency translation adjustments

 

 

(1,129)

 

Total asset retirement obligation at end of period

 

 

58,047

 

Less: current portion

 

 

3,067

 

Asset retirement obligation, excluding current portion

 

$  

54,980

 

 

See Note 12. Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair value measurements.

 

(10) Other Liabilities 

 

Other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

(In thousands)

 

Current Portion of Other Long-Term Liabilities:

 

 

 

 

 

 

 

Interest rate swaps

 

$  

27,717

 

$  

29,147

 

Obligations associated with acquired unfavorable contracts

 

 

1,378

 

 

284

 

Deferred revenue

 

 

2,466

 

 

1,731

 

Asset retirement obligations

 

 

3,067

 

 

3,097

 

Other

 

 

1,697

 

 

678

 

Total

 

$  

36,325

 

$  

34,937

 

 

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

 

 

Interest rate swaps

 

$  

34,314

 

$  

25,847

 

Obligations associated with acquired unfavorable contracts

 

 

1,187

 

 

2,271

 

Deferred revenue

 

 

1,359

 

 

935

 

Other

 

 

9,316

 

 

8,663

 

Total

 

$  

46,176

 

$  

37,716

 

 

 

 

 

(11) Derivative Financial Instruments 

 

Cash Flow Hedging Strategy 

 

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

 

The interest rate swap contracts entered into with respect to the Company's vault cash rental obligations serve to mitigate the Company's exposure to interest rate risk by converting a portion of the Company's monthly floating rate vault cash rental obligations to a fixed rate. The Company has contracts in varying notional amounts through December 31, 2020 for the Company's U.S. vault cash rental obligations. By converting such amounts to a fixed rate, the impact of future

21


 

 

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

 

For each derivative instrument that is designated and qualifies as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedge transaction affects earnings. Gains and losses on the derivative instrument representing either hedge ineffectiveness or hedge components that are excluded from the assessment of effectiveness are recognized in earnings. However, because the Company currently only utilizes fixed-for-floating interest rate swaps in which the underlying pricing terms agree, in all material respects, with the pricing terms of the Company’s vault cash rental obligations, the amount of ineffectiveness associated with such interest rate swap contracts has historically been immaterial. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the Consolidated Statements of Operations during the current period.

 

During the nine months ended September 30, 2015, the Company added new forward-starting interest rate swaps in the aggregate notional amount of $600.0 million that begin in 2019 and terminate in 2020 to extend the hedging program related to interest rate exposure on vault cash. The notional amounts, weighted average fixed rates, and terms associated with the Company's interest rate swap contracts accounted for as cash flow hedges that are currently in place (as of the date of the issuance of these financial statements) are as follows: 

 

 

 

 

 

 

 

 

 

Notional Amounts

    

Weighted Average Fixed Rate

    

Term 

 

(In millions)

 

 

 

 

 

 

$  

1,300

 

2.84

%  

 

October 1, 2015 – December 31, 2015

 

$  

1,300

 

2.74

%  

 

January 1, 2016 – December 31, 2016

 

$  

1,000

 

2.53

%  

 

January 1, 2017 – December 31, 2017

 

$  

750

 

2.54

%  

 

January 1, 2018 – December 31, 2018

 

$  

600

 

2.42

%  

 

January 1, 2019 – December 31, 2019

 

$  

600

 

2.42

%  

 

January 1, 2020 – December 31, 2020

 

 

Accounting Policy 

 

The Company recognizes all of its derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. The accounting for changes in the fair value (i.e., gains or losses) of those derivative instruments depends on (i) whether these instruments have been designated (and qualify) as part of a hedging relationship and (ii) the type of hedging relationship actually designated. For derivative instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation. 

 

The Company has designated all of its interest rate swap contracts as cash flow hedges of the Company’s forecasted vault cash rental obligations. Accordingly, changes in the fair values of the related interest rate swap contracts (net of tax) have been reported in the Accumulated other comprehensive loss, net line item within Stockholders’ equity in the accompanying Consolidated Balance Sheets.

 

The Company believes that it is more likely than not that it will be able to realize the benefits associated with its domestic net deferred tax asset positions in the future. Therefore, the Company records the unrealized losses related to its domestic interest rate swaps net of estimated tax benefits in the Accumulated other comprehensive loss, net line item within Stockholders' equity in the accompanying Consolidated Balance Sheets. 

22


 

 

Tabular Disclosures 

 

The following tables depict the effects of the use of the Company's derivative contracts on its Consolidated Balance Sheets and Consolidated Statements of Operations.

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

Liability Derivative Instruments

    

Balance Sheet Location

    

Fair Value

    

Balance Sheet Location

    

Fair Value

 

 

 

 

 

(In thousands) 

 

 

 

(In thousands) 

 

Derivatives Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap contracts

 

Current portion of other long-term liabilities

 

$  

27,717

 

Current portion of other long-term liabilities

 

$  

29,147

 

Interest rate swap contracts

 

Other long-term liabilities

 

 

34,314

 

Other long-term liabilities

 

 

25,847

 

Total Derivatives

 

 

 

$  

62,031

 

 

 

$  

54,994

 

 

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30,

 

Derivatives in Cash Flow Hedging Relationship

 

Amount of Loss Recognized in OCI on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassed from Accumulated OCI Into Income (Effective Portion)

 

Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)

 

 

    

2015

    

2014

    

 

    

2015

    

2014

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Interest rate swap contracts

 

$  

(15,762)

 

$  

(1,247)

 

Cost of ATM operating revenues

 

$  

(8,645)

 

$  

(8,934)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

Derivatives in Cash Flow Hedging Relationship

 

Amount of Loss Recognized in OCI on Derivative Instruments (Effective Portion)

 

Location of Loss Reclassed from Accumulated OCI Into Income (Effective Portion)

 

Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)

 

 

    

2015

    

2014

    

 

    

2015

    

2014

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Interest rate swap contracts

 

$  

(30,107)

 

$  

(19,219)

 

Cost of ATM operating revenues

 

$  

(25,834)

 

$  

(26,526)

 

 

The Company does not currently have any derivative instruments that have been designated as fair value or net investment hedges. The Company has not historically, and does not currently anticipate terminating its existing derivative instruments prior to their expiration dates. If the Company concludes that it is no longer probable that the anticipated future vault cash rental obligations that have been hedged will occur, or if changes are made to the underlying terms and conditions of the Company's vault cash rental agreements, thus creating some amount of ineffectiveness associated with the Company's current interest rate swap contracts, any resulting gains or losses will be recognized within the Other expense line item of the Company's Consolidated Statements of Operations.

 

As of September 30, 2015, the Company expects  to reclassify $27.7 million of net derivative-related losses contained within accumulated OCI into earnings during the next twelve months concurrent with the recording of the related vault cash rental expense amounts.

 

23


 

 

See Note 12. Fair Value Measurements for additional disclosures on the Company's interest rate swap contracts in respect to its fair value measurements.

 

(12) Fair Value Measurements 

 

The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2015 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at September 30, 2015

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

 

 

(In thousands)

 

Liabilities 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swaps

 

$

62,031

 

$

 —

 

$

62,031

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31,  2014

 

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

 

 

(In thousands)

 

Liabilities 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities associated with interest rate swaps

 

$

54,994

 

$

 —

 

$

54,994

 

$

 —

 

 

 

Interest rate swaps. The fair value of the Company's interest rate swaps was a liability of $62.0 million as of September 30, 2015. These financial instruments are carried at fair value, calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These derivatives are valued using pricing models based on significant other observable inputs (Level 2 inputs), while taking into account the creditworthiness of the party that is in the liability position with respect to each trade. See Note 11. Derivative Financial Instruments for additional disclosures on the valuation process of this liability.

 

Other Fair Value Disclosures

 

Below are descriptions of the Company's valuation methodologies for assets and liabilities measured at fair value. The methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

Additions to asset retirement obligation liability. The Company estimates the fair value of additions to its asset retirement obligation liability using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Liabilities added to the Asset retirement obligations line item in the accompanying Consolidated Balance Sheets are measured at fair value at the time of the asset installations on a nonrecurring basis using Level 3 inputs, and are only reevaluated periodically based on current fair value. Amounts added to the asset retirement obligation liability during the nine months ended September 30, 2015 and 2014 totaled $5.7 million and $7.0 million, respectively.

 

Cash and cash equivalents, accounts and notes receivable, net of the allowance for doubtful accounts, other current assets, accounts payable, accrued expenses, and other current liabilities. These financial instruments are not carried at fair value, but are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.

 

Acquisition-related intangible assets. The estimated fair values of acquisition-related intangible assets are valued based on a discounted cash flows analysis using significant non-observable inputs (Level 3 inputs). The Company tests intangible assets for impairment on a quarterly basis by measuring the related carrying amounts against the estimated undiscounted future cash flows associated with the related contract or portfolio of contracts.

 

24


 

 

Long-term debt. The carrying amount of the long-term debt balance related to borrowings under the Company's revolving credit facility approximates fair value due to the fact that any borrowings are subject to short-term floating interest rates. As of September 30, 2015, the fair value of the Company's 2022 Notes and the Convertible Notes (see Note 8. Long-Term Debt) totaled $244.5 million and $274.5 million, respectively, based on the quoted prices in markets that are not active (Level 2 input) for these notes as of that date.

 

(13) Commitments and Contingencies

 

Legal Matters 

 

The Company is subject to various legal proceedings and claims arising in the ordinary course of its business. The Company has provided reserves where necessary for all claims and the Company’s management does not expect the outcome in any legal proceedings, individually or collectively, to have a material adverse impact on the Company’s financial condition or results of operations. Additionally, the Company currently expenses all legal costs as they are incurred.

 

Other Commitments 

 

Asset Retirement Obligations. The Company's asset retirement obligations consist primarily of deinstallation costs of the ATM and costs to restore the ATM site to its original condition. In most cases, the Company is legally required to perform this deinstallation and restoration work. The Company had $58.0 million accrued for these liabilities as of September 30, 2015. For additional information, see Note 9. Asset Retirement Obligations.

 

(14) Income Taxes 

 

Income tax expense based on the Company's income before income taxes was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2015

 

2014

 

2015

 

2014

 

 

(In thousands, excluding percentages)

 

 

(In thousands, excluding percentages)

 

Income tax expense

 

$

12,629

 

 

$

4,397

 

 

$

29,837

 

 

$

18,185

 

Effective tax rate

 

 

36.8

%

 

 

36.7

%

 

 

36.8

%

 

 

37.4

%

 

The effective tax rate for the quarter ended September 30, 2015 is consistent with that of the same period in 2014. The slight decrease in the effective tax rate during the nine months ended September 30, 2015 when compared to the same period in 2014, is attributable to the change in the mix of earnings across jurisdictions.

 

The Company assesses deferred tax asset valuation allowances at the end of each reporting period. The determination of whether a valuation allowance for deferred tax assets is needed is subject to considerable judgment and requires an evaluation of all available positive and negative evidence. Based on the assessment at September 30, 2015 and the weight of all available evidence, the Company concluded that maintaining the deferred tax asset valuation allowance for certain of its entities in the U.K., Mexico, and Poland was appropriate, as the Company currently believes that it is more likely than not that these tax assets will not be realized. However, with increased recent profitability and increasing visibility into continued projected profitability in the U.K., the Company believes it is possible that the valuation allowance associated with certain U.K. entities could be reduced or removed in future periods.

 

The deferred taxes associated with the Company’s unrealized gains and losses on derivative instruments have been reflected within the Accumulated other comprehensive loss balance in the accompanying Consolidated Balance Sheets.

 

(15) Segment Information

 

As of September 30, 2015, the Company's operations consisted of its North America and Europe segments. The Company's operations in the U.S., Canada, Mexico, and Puerto Rico are included in its North America segment. The

25


 

 

Company’s operations in the U.K., Germany, and Poland are included in its Europe segment. In 2015, the Company reorganized and created a North America Business Group under common management. During the three months ended March 31, 2015, the Company revised its operating segments to merge the Company’s U.S. and Other International segments into a single North America segment. Previously, the Other International segment was comprised of the Company’s operations in Mexico and Canada. While both of the reporting segments provide similar kiosk-based and/or ATM-related services, each segment is currently managed separately as they require different marketing and business strategies. Segment information presented for prior periods was restated to reflect this change in operating segments.

 

Management uses Adjusted EBITDA and Adjusted EBITA along with U.S. GAAP-based measures, to assess the operating results and effectiveness of its segments. Management believes Adjusted EBITDA and Adjusted EBITA are useful measures because they allow management to more effectively evaluate operating performance and compare its results of operations from period to period without regard to financing method or capital structure. Additionally, Adjusted EBITDA and Adjusted EBITA do not reflect acquisition and divestiture-related costs and the Company's obligations for the payment of income taxes, loss on disposal of assets, interest expense, certain other non-operating and nonrecurring items or other obligations such as capital expenditures. Additionally, Adjusted EBITDA excludes depreciation and accretion expense.

 

Adjusted EBITDA and Adjusted EBITA, as defined by the Company, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with U.S. GAAP. In evaluating the Company's performance as measured by Adjusted EBITDA and Adjusted EBITA, management recognizes and considers the limitations of these measurements. Accordingly, Adjusted EBITDA and Adjusted EBITA are only two of the measurements that management utilizes. Therefore, Adjusted EBITDA and Adjusted EBITA should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating, investing, and financing activities or other income or cash flow statement data prepared in accordance with U.S. GAAP.

26


 

 

 

Below is a reconciliation of Adjusted EBITDA and Adjusted EBITA to net income attributable to controlling interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands) 

 

(In thousands) 

 

Adjusted EBITA

 

$  

59,719

 

$  

47,968

 

$

159,419

 

$

132,454

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (1)

 

 

22,014

 

 

18,622

 

 

63,767

 

 

55,869

 

Adjusted EBITDA

 

$  

81,733

 

$  

66,590

 

$  

223,186

 

$  

188,323

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) loss on disposal of assets

 

 

(12,139)

 

 

1,078

 

 

(12,425)

 

 

1,662

 

Other expense (income)

 

 

1,067

 

 

1,665

 

 

2,882

 

 

(3,565)

 

Noncontrolling interests (2)

 

 

(336)

 

 

(428)

 

 

(1,047)

 

 

(1,192)

 

Stock-based compensation expense (1)

 

 

5,147

 

 

4,561

 

 

14,360

 

 

11,464

 

Acquisition and divestiture-related expenses (3)

 

 

13,289

 

 

2,299

 

 

21,207

 

 

13,028

 

EBITDA

 

$  

74,705

 

$  

57,415

 

$  

198,209

 

$  

166,926

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net, including amortization of deferred financing costs and note discount, and redemption costs for early extinguishment of debt

 

 

7,892

 

 

18,040

 

 

22,951

 

 

35,584

 

Income tax expense

 

 

12,629

 

 

4,397

 

 

29,837

 

 

18,185

 

Depreciation and accretion expense

 

 

22,127

 

 

18,949

 

 

64,142

 

 

56,892

 

Amortization of intangible assets

 

 

10,048

 

 

7,965

 

 

29,040

 

 

24,647

 

Net income attributable to controlling interests and available to common stockholders

 

$

22,009

 

$

8,064

 

$

52,239

 

$

31,618

 

 


(1)

Amounts exclude 49.0% of the expense incurred by Cardtronics Mexico as such amounts are allocable to the noncontrolling interest stockholders.

(2)

Noncontrolling interest adjustment made such that Adjusted EBITDA includes only the Company's 51.0% ownership interest in the Adjusted EBITDA of its Mexico subsidiary.

(3)

Acquisition and divestiture-related expenses include nonrecurring costs incurred for professional and legal fees and certain transition and integration-related costs, including contract termination and facility exit costs, employee-related severance costs, and related to our recent divestitures, excess operating costs associated with facilities that are in the process of being shut down or transitioned as a result of recent divestitures.

 

27


 

 

The following tables reflect certain financial information for each of the Company's reporting segments for the three and nine months ended September 30, 2015 and 2014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations/
Adjustments

    

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

214,082

 

$

97,268

 

$

 —

 

$

311,350

 

Intersegment revenues

 

 

2,522

 

 

 —

 

 

(2,522)

 

 

 —

 

Cost of revenues

 

 

137,128

 

 

64,428

 

 

(2,522)

 

 

199,034

 

Selling, general, and administrative expenses

 

 

28,233

 

 

7,526

 

 

 —

 

 

35,759

 

Acquisition and divestiture-related expenses

 

 

1,215

 

 

12,074

 

 

 —

 

 

13,289

 

Loss (gain) on disposal of assets

 

 

570

 

 

(12,709)

 

 

 —

 

 

(12,139)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

56,425

 

 

25,308

 

 

 —

 

 

81,733

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

13,380

 

 

8,747

 

 

 —

 

 

22,127

 

Adjusted EBITA

 

 

43,158

 

 

16,561

 

 

 —

 

 

59,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

7,838

 

 

2,210

 

 

 —

 

 

10,048

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

7,548

 

 

344

 

 

 —

 

 

7,892

 

Income tax expense

 

 

10,001

 

 

2,628

 

 

 —

 

 

12,629

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

37,205

 

$

10,253

 

$

 —

 

$

47,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2014

 

 

 

North America

 

Europe

 

Eliminations/
Adjustments

 

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

193,470

 

$

72,377

 

$

 —

 

$

265,847

 

Intersegment revenues

 

 

1,663

 

 

 —

 

 

(1,663)

 

 

 —

 

Cost of revenues

 

 

128,084

 

 

49,757

 

 

(1,663)

 

 

176,178

 

Selling, general, and administrative expenses

 

 

22,935

 

 

4,748

 

 

 —

 

 

27,683

 

Acquisition and divestiture-related expenses

 

 

922

 

 

1,377

 

 

 —

 

 

2,299

 

Loss on disposal of assets

 

 

1,016

 

 

62

 

 

 —

 

 

1,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

48,717

 

 

17,873

 

 

 —

 

 

66,590

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

12,102

 

 

6,847

 

 

 —

 

 

18,949

 

Adjusted EBITA

 

 

36,943

 

 

11,025

 

 

 —

 

 

47,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

5,501

 

 

2,464

 

 

 —

 

 

7,965

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

9,993

 

 

325

 

 

 —

 

 

10,318

 

Redemption costs for early extinguishment of debt

 

 

7,722

 

 

 —

 

 

 —

 

 

7,722

 

Income tax expense

 

 

3,914

 

 

483

 

 

 —

 

 

4,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

12,410

 

$

10,915

 

$

 —

 

$

23,325

 

 

 

28


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations/
Adjustments

    

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

616,729

 

$

280,268

 

$

 —

 

$

896,997

 

Intersegment revenues

 

 

6,787

 

 

 —

 

 

(6,787)

 

 

 —

 

Cost of revenues

 

 

398,368

 

 

195,795

 

 

(6,787)

 

 

587,376

 

Selling, general, and administrative expenses

 

 

78,423

 

 

22,406

 

 

 —

 

 

100,829

 

Acquisition and divestiture-related expenses

 

 

4,409

 

 

16,798

 

 

 —

 

 

21,207

 

Loss (gain) on disposal of assets

 

 

1,852

 

 

(14,277)

 

 

 —

 

 

(12,425)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

161,116

 

 

62,070

 

 

 —

 

 

223,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

38,529

 

 

25,613

 

 

 —

 

 

64,142

 

Adjusted EBITA

 

 

122,961

 

 

36,458

 

 

 —

 

 

159,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

22,339

 

 

6,701

 

 

 —

 

 

29,040

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

21,299

 

 

1,652

 

 

 —

 

 

22,951

 

Income tax expense

 

 

25,613

 

 

4,224

 

 

 —

 

 

29,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

68,584

 

$

35,293

 

$

 —

 

$

103,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

    

North America

    

Europe

    

Eliminations/
Adjustments

    

Total

 

 

 

(In thousands)

 

Revenue from external customers

 

$

565,832

 

$

205,116

 

$

 —

 

$

770,948

 

Intersegment revenues

 

 

4,447

 

 

 —

 

 

(4,447)

 

 

 —

 

Cost of revenues

 

 

372,371

 

 

145,957

 

 

(4,447)

 

 

513,881

 

Selling, general, and administrative expenses

 

 

66,706

 

 

13,430

 

 

 —

 

 

80,136

 

Acquisition and divestiture-related expenses

 

 

1,733

 

 

11,295

 

 

 —

 

 

13,028

 

Loss on disposal of assets

 

 

1,587

 

 

75

 

 

 —

 

 

1,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

142,606

 

 

45,717

 

 

 —

 

 

188,323

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense

 

 

35,776

 

 

21,116

 

 

 —

 

 

56,892

 

Adjusted EBITA

 

 

107,863

 

 

24,591

 

 

 —

 

 

132,454

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangible assets

 

 

17,225

 

 

7,422

 

 

 —

 

 

24,647

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

 

25,199

 

 

1,310

 

 

 —

 

 

26,509

 

Redemption costs for early extinguishment of debt

 

 

9,075

 

 

 —

 

 

 —

 

 

9,075

 

Income tax expense (benefit)

 

 

18,243

 

 

(58)

 

 

 —

 

 

18,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (1)

 

$

35,316

 

$

29,762

 

$

 —

 

$

65,078

 

 

 

 


(1)

Capital expenditure amounts include payments made for exclusive license agreements, site acquisition costs, and other intangible assets. Additionally, capital expenditure amounts for Mexico (included in the North America segment) are reflected gross of any noncontrolling interest amounts.

 

 

29


 

 

Identifiable Assets:

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

(In thousands) 

 

North America

 

$  

1,144,446

 

$  

1,028,047

 

Europe

 

 

382,160

 

 

398,602

 

Eliminations

 

 

(169,211)

 

 

(170,859)

 

Total

 

$  

1,357,395

 

$  

1,255,790

 

 

 

 

(16) Supplemental Guarantor Financial Information

 

The 2022 Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by certain wholly owned domestic subsidiaries. The guarantees of the 2022 Notes by any Guarantor are subject to automatic and customary releases upon: (i) the sale or disposition of all or substantially all of the assets of the Guarantor; (ii) the disposition of sufficient capital stock of the Guarantor so that it no longer qualifies under the Indenture as a restricted subsidiary of the Company; (iii) the designation of the Guarantor as unrestricted in accordance with the Indenture; (iv) the legal or covenant defeasance of the notes or the satisfaction and discharge of the Indenture; (v) the liquidation or dissolution of the Guarantor; or (vi) provided the Guarantor is not wholly owned by the Company, its ceasing to guarantee other debt of the Company or another Guarantor. A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into, another company (other than the Company or another Guarantor), unless no default under the Indenture exists and either the successor to the Guarantor assumes its guarantee of the 2022 Notes or the disposition, consolidation, or merger complies with the "Asset Sales" covenant in the Indenture.

 

The following information sets forth the condensed consolidating statements of operations and cash flows for the three and nine months ended September 30, 2015 and 2014 and the condensed consolidating balance sheets as of September 30, 2015 and December 31, 2014 of (i) Cardtronics, Inc., the parent company and issuer of the 2022 Notes ("Parent"); (ii) the Guarantors; and (iii) the Non-Guarantors:

 

Condensed Consolidating Statements of Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2015

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Revenues

$

 —

 

$  

199,811

 

$  

115,084

 

$  

(3,545)

 

$  

311,350

 

Operating costs and expenses

 

4,862

 

 

167,631

 

 

99,170

 

 

(3,545)

 

 

268,118

 

Operating (loss) income

 

(4,862)

 

 

32,180

 

 

15,914

 

 

 —

 

 

43,232

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

6,042

 

 

1,437

 

 

413

 

 

 —

 

 

7,892

 

Equity in (earnings) losses of subsidiaries

 

(31,273)

 

 

(9,755)

 

 

 —

 

 

41,028

 

 

 —

 

Other (income) expense, net

 

(1,235)

 

 

(1,002)

 

 

3,292

 

 

12

 

 

1,067

 

Income before income taxes

 

21,604

 

 

41,500

 

 

12,209

 

 

(41,040)

 

 

34,273

 

Income tax (benefit) expense

 

(52)

 

 

9,891

 

 

2,790

 

 

 —

 

 

12,629

 

Net income

 

21,656

 

 

31,609

 

 

9,419

 

 

(41,040)

 

 

21,644

 

Net loss attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(365)

 

 

(365)

 

Net income attributable to controlling interests and available to common stockholders

 

21,656

 

 

31,609

 

 

9,419

 

 

(40,675)

 

 

22,009

 

Other comprehensive loss attributable to controlling interests

 

(1,716)

 

 

(7,158)

 

 

(13,680)

 

 

 —

 

 

(22,554)

 

Comprehensive income (loss) attributable to controlling interests

$

19,940

 

$  

24,451

 

$  

(4,261)

 

$  

(40,675)

 

$  

(545)

 

 

 

30


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2014

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Revenues

$

 —

 

$  

185,217

 

$  

85,334

 

$  

(4,704)

 

$  

265,847

 

Operating costs and expenses

 

4,891

 

 

155,918

 

 

77,787

 

 

(4,444)

 

 

234,152

 

Operating (loss) income

 

(4,891)

 

 

29,299

 

 

7,547

 

 

(260)

 

 

31,695

 

Interest expense, net, including amortization of deferred financing costs

 

7,571

 

 

2,367

 

 

380

 

 

 —

 

 

10,318

 

Redemption costs for early extinguishment of debt

 

7,722

 

 

 —

 

 

 —

 

 

 —

 

 

7,722

 

Equity in (earnings) losses of subsidiaries

 

(27,718)

 

 

(1,520)

 

 

 —

 

 

29,238

 

 

 —

 

Other (income) expense, net

 

(3,293)

 

 

(359)

 

 

5,294

 

 

23

 

 

1,665

 

Income before income taxes

 

10,827

 

 

28,811

 

 

1,873

 

 

(29,521)

 

 

11,990

 

Income tax expense

 

2,952

 

 

727

 

 

718

 

 

 —

 

 

4,397

 

Net income

 

7,875

 

 

28,084

 

 

1,155

 

 

(29,521)

 

 

7,593

 

Net loss attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(471)

 

 

(471)

 

Net income attributable to controlling interests and available to common stockholders

 

7,875

 

 

28,084

 

 

1,155

 

 

(29,050)

 

 

8,064

 

Other comprehensive income (loss) attributable to controlling interests

 

5,178

 

 

(12,016)

 

 

6,475

 

 

(98)

 

 

(461)

 

Comprehensive income attributable to controlling interests

$

13,053

 

$  

16,068

 

$  

7,630

 

$  

(29,148)

 

$  

7,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Revenues

$

 —

 

$  

587,142

 

$  

317,665

 

$  

(7,810)

 

$  

896,997

 

Operating costs and expenses

 

14,062

 

 

494,259

 

 

289,658

 

 

(7,810)

 

 

790,169

 

Operating (loss) income

 

(14,062)

 

 

92,883

 

 

28,007

 

 

 —

 

 

106,828

 

Interest expense, net, including amortization of deferred financing costs and note discount

 

16,327

 

 

4,830

 

 

1,794

 

 

 —

 

 

22,951

 

Equity in (earnings) losses of subsidiaries

 

(71,050)

 

 

(16,614)

 

 

 —

 

 

87,664

 

 

 —

 

Other (income) expense, net

 

(313)

 

 

(2,633)

 

 

5,815

 

 

13

 

 

2,882

 

Income before income taxes

 

40,974

 

 

107,300

 

 

20,398

 

 

(87,677)

 

 

80,995

 

Income tax (benefit) expense

 

(12,403)

 

 

37,706

 

 

4,534

 

 

 —

 

 

29,837

 

Net income

 

53,377

 

 

69,594

 

 

15,864

 

 

(87,677)

 

 

51,158

 

Net loss attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(1,081)

 

 

(1,081)

 

Net income attributable to controlling interests and available to common stockholders

 

53,377

 

 

69,594

 

 

15,864

 

 

(86,596)

 

 

52,239

 

Other comprehensive (loss) income attributable to controlling interests

 

(8,813)

 

 

1,300

 

 

(2,425)

 

 

874

 

 

(9,064)

 

Comprehensive income attributable to controlling interests

$

44,564

 

$  

70,894

 

$  

13,439

 

$  

(85,722)

 

$  

43,175

 

 

31


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Revenues

$

 —

 

$  

540,153

 

$  

238,283

 

$  

(7,488)

 

$  

770,948

 

Operating costs and expenses

 

11,864

 

 

452,694

 

 

232,916

 

 

(7,228)

 

 

690,246

 

Operating (loss) income

 

(11,864)

 

 

87,459

 

 

5,367

 

 

(260)

 

 

80,702

 

Interest expense, net, including amortization of deferred financing costs

 

16,463

 

 

8,546

 

 

1,500

 

 

 —

 

 

26,509

 

Redemption costs for early extinguishment of debt

 

9,075

 

 

 —

 

 

 —

 

 

 —

 

 

9,075

 

Equity in (earnings) losses of subsidiaries

 

(81,468)

 

 

(2,849)

 

 

 —

 

 

84,317

 

 

 —

 

Other (income) expense, net

 

(951)

 

 

(5,122)

 

 

2,890

 

 

(382)

 

 

(3,565)

 

Income before income taxes

 

45,017

 

 

86,884

 

 

977

 

 

(84,195)

 

 

48,683

 

Income tax expense

 

14,652

 

 

3,356

 

 

177

 

 

 —

 

 

18,185

 

Net income

 

30,365

 

 

83,528

 

 

800

 

 

(84,195)

 

 

30,498

 

Net loss attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(1,120)

 

 

(1,120)

 

Net income attributable to controlling interests and available to common stockholders

 

30,365

 

 

83,528

 

 

800

 

 

(83,075)

 

 

31,618

 

Other comprehensive income (loss) attributable to controlling interests

 

5,576

 

 

(12,243)

 

 

10,094

 

 

(84)

 

 

3,343

 

Comprehensive income attributable to controlling interests

$

35,941

 

$  

71,285

 

$  

10,894

 

$  

(83,159)

 

$  

34,961

 

 

 

32


 

 

Condensed Consolidating Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2015

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

6

 

$

1,811

 

$

16,666

 

$

 —

 

$

18,483

 

Accounts and notes receivable, net

 

 —

 

 

46,948

 

 

44,888

 

 

 —

 

 

91,836

 

Current portion of deferred tax asset, net

 

 —

 

 

17,411

 

 

3,124

 

 

 —

 

 

20,535

 

Other current assets

 

476

 

 

19,536

 

 

77,502

 

 

 —

 

 

97,514

 

Total current assets

 

482

 

 

85,706

 

 

142,180

 

 

 —

 

 

228,368

 

Property and equipment, net

 

 —

 

 

227,147

 

 

148,623

 

 

 —

 

 

375,770

 

Intangible assets, net

 

9,021

 

 

88,645

 

 

70,380

 

 

 —

 

 

168,046

 

Goodwill

 

 —

 

 

396,939

 

 

155,116

 

 

 —

 

 

552,055

 

Investments in and advances to subsidiaries

 

606,053

 

 

359,273

 

 

 —

 

 

(965,326)

 

 

 —

 

Intercompany receivable

 

476,915

 

 

157,895

 

 

496,096

 

 

(1,130,906)

 

 

 —

 

Deferred tax asset, net

 

 —

 

 

 —

 

 

12,607

 

 

 —

 

 

12,607

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

137

 

 

6,908

 

 

13,504

 

 

 —

 

 

20,549

 

Total assets

$

1,092,608

 

$

1,322,513

 

$

1,038,506

 

$

(2,096,232)

 

$

1,357,395

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of other long-term liabilities

 

 —

 

 

31,631

 

 

4,694

 

 

 —

 

 

36,325

 

Accounts payable and accrued liabilities

 

7,196

 

 

99,832

 

 

121,690

 

 

 —

 

 

228,718

 

Total current liabilities

 

7,196

 

 

131,463

 

 

126,384

 

 

 —

 

 

265,043

 

Long-term debt

 

608,220

 

 

 —

 

 

27,750

 

 

 —

 

 

635,970

 

Intercompany payable

 

134,545

 

 

399,454

 

 

596,907

 

 

(1,130,906)

 

 

 —

 

Asset retirement obligations

 

 —

 

 

28,400

 

 

26,580

 

 

 —

 

 

54,980

 

Deferred tax liability, net

 

 —

 

 

10,613

 

 

2,103

 

 

 —

 

 

12,716

 

Other long-term liabilities

 

137

 

 

42,218

 

 

3,821

 

 

 —

 

 

46,176

 

Total liabilities

 

750,098

 

 

612,148

 

 

783,545

 

 

(1,130,906)

 

 

1,014,885

 

Stockholders' equity

 

342,510

 

 

710,365

 

 

254,961

 

 

(965,326)

 

 

342,510

 

Total liabilities and stockholders' equity

$

1,092,608

 

$

1,322,513

 

$

1,038,506

 

$

(2,096,232)

 

$

1,357,395

 

 

 

33


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 —

 

$

9,391

 

$

22,484

 

$

 —

 

$

31,875

 

Accounts and notes receivable, net

 

 —

 

 

43,588

 

 

36,733

 

 

 —

 

 

80,321

 

Current portion of deferred tax asset, net

 

16,522

 

 

2,973

 

 

4,808

 

 

 —

 

 

24,303

 

Other current assets

 

5,299

 

 

23,260

 

 

32,347

 

 

 —

 

 

60,906

 

Total current assets

 

21,821

 

 

79,212

 

 

96,372

 

 

 —

 

 

197,405

 

Property and equipment, net

 

 —

 

 

201,864

 

 

133,931

 

 

 —

 

 

335,795

 

Intangible assets, net

 

10,207

 

 

109,170

 

 

58,163

 

 

 —

 

 

177,540

 

Goodwill

 

835

 

 

395,878

 

 

115,250

 

 

 —

 

 

511,963

 

Investments in and advances to subsidiaries

 

538,890

 

 

297,095

 

 

 —

 

 

(835,985)

 

 

 —

 

Intercompany receivable

 

354,266

 

 

101,737

 

 

466

 

 

(456,469)

 

 

 —

 

Deferred tax asset, net

 

 —

 

 

 —

 

 

10,487

 

 

 —

 

 

10,487

 

Prepaid expenses, deferred costs, and other noncurrent assets

 

 —

 

 

4,860

 

 

17,740

 

 

 —

 

 

22,600

 

Total assets

$

926,019

 

$

1,189,816

 

$

432,409

 

$

(1,292,454)

 

$

1,255,790

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

 —

 

$

 —

 

$

35

 

$

 —

 

$

35

 

Current portion of other long-term liabilities

 

 —

 

 

33,154

 

 

1,783

 

 

 —

 

 

34,937

 

Accounts payable and accrued liabilities

 

13,773

 

 

104,870

 

 

97,307

 

 

 —

 

 

215,950

 

Total current liabilities

 

13,773

 

 

138,024

 

 

99,125

 

 

 —

 

 

250,922

 

Long-term debt

 

612,662

 

 

 —

 

 

 —

 

 

 —

 

 

612,662

 

Intercompany payable

 

 —

 

 

375,372

 

 

133,508

 

 

(508,880)

 

 

 —

 

Asset retirement obligations

 

 —

 

 

27,456

 

 

24,583

 

 

 —

 

 

52,039

 

Deferred tax liability, net

 

13,049

 

 

185

 

 

2,682

 

 

 —

 

 

15,916

 

Other long-term liabilities

 

 —

 

 

37,716

 

 

 —

 

 

 —

 

 

37,716

 

Total liabilities

 

639,484

 

 

578,753

 

 

259,898

 

 

(508,880)

 

 

969,255

 

Stockholders' equity

 

286,535

 

 

611,063

 

 

172,511

 

 

(783,574)

 

 

286,535

 

Total liabilities and stockholders' equity

$

926,019

 

$

1,189,816

 

$

432,409

 

$

(1,292,454)

 

$

1,255,790

 

 

 

34


 

 

Condensed Consolidating Statement of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2015

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Net cash (used in) provided by operating activities

$

(61,116)

 

$

138,086

 

$

68,875

 

$

1,267

 

$

147,112

 

Additions to property and equipment

 

 —

 

 

(60,522)

 

 

(39,089)

 

 

(376)

 

 

(99,987)

 

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

 

 —

 

 

(3,890)

 

 

 —

 

 

 —

 

 

(3,890)

 

Acquisitions, net of cash acquired

 

 —

 

 

(80,504)

 

 

(23,370)

 

 

 —

 

 

(103,874)

 

Sale of assets and businesses

 

 —

 

 

 —

 

 

36,661

 

 

 —

 

 

36,661

 

Net cash used in investing activities

 

 —

 

 

(144,916)

 

 

(25,798)

 

 

(376)

 

 

(171,090)

 

Proceeds from borrowings under revolving credit facility

 

312,500

 

 

 —

 

 

27,750

 

 

 —

 

 

340,250

 

Repayments of borrowings under revolving credit facility

 

(324,186)

 

 

 —

 

 

 —

 

 

 —

 

 

(324,186)

 

Repayments of borrowings under bank overdraft facility, net

 

 —

 

 

 —

 

 

(30)

 

 

 —

 

 

(30)

 

Repayments of intercompany notes payable

 

75,545

 

 

(750)

 

 

(74,795)

 

 

 —

 

 

 —

 

Proceeds from exercises of stock options

 

586

 

 

 —

 

 

 —

 

 

 —

 

 

586

 

Excess tax benefit from stock-based compensation expense

 

1,287

 

 

 —

 

 

 —

 

 

 —

 

 

1,287

 

Repurchase of capital stock

 

(4,610)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,610)

 

Net cash provided by (used in) financing activities

 

61,122

 

 

(750)

 

 

(47,075)

 

 

 —

 

 

13,297

 

Effect of exchange rate changes on cash

 

 —

 

 

 —

 

 

(1,820)

 

 

(891)

 

 

(2,711)

 

Net increase (decrease) in cash and cash equivalents

 

6

 

 

(7,580)

 

 

(5,818)

 

 

 —

 

 

(13,392)

 

Cash and cash equivalents as of beginning of period

 

 —

 

 

9,391

 

 

22,484

 

 

 —

 

 

31,875

 

Cash and cash equivalents as of end of period

$

6

 

$

1,811

 

$

16,666

 

$

 —

 

$

18,483

 

 

 

 

35


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2014

 

 

Parent

    

Guarantors

    

Non-Guarantors

    

Eliminations   

    

Total

 

 

(In thousands)

 

Net cash (used in) provided by operating activities

$

(28,970)

 

$

91,495

 

$

40,555

 

$

(20)

 

$

103,060

 

Additions to property and equipment

 

 —

 

 

(29,361)

 

 

(33,808)

 

 

 —

 

 

(63,169)

 

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

 

 —

 

 

 —

 

 

(1,909)

 

 

 —

 

 

(1,909)

 

Acquisitions, net of cash acquired

 

 —

 

 

(8,803)

 

 

 —

 

 

 —

 

 

(8,803)

 

Net cash used in investing activities

 

 —

 

 

(38,164)

 

 

(35,717)

 

 

 —

 

 

(73,881)

 

Proceeds from borrowings of long-term debt

 

250,000

 

 

 

 

 

 

 

 

 

 

 

250,000

 

Repayment of long-term debt

 

(200,000)

 

 

 

 

 

 

 

 

 

 

 

(200,000)

 

Repayments of borrowings under revolving credit facility

 

(3,401)

 

 

(4)

 

 

(1,026)

 

 

 —

 

 

(4,431)

 

Repayments of borrowings under bank overdraft facility, net

 

 —

 

 

 —

 

 

(1,402)

 

 

 —

 

 

(1,402)

 

Debt issuance, modification, and redemption costs

 

(14,750)

 

 

 —

 

 

 —

 

 

 —

 

 

(14,750)

 

Payment of contingent consideration

 

 —

 

 

(200)

 

 

(316)

 

 

 —

 

 

(516)

 

Proceeds from exercises of stock options

 

331

 

 

 —

 

 

 —

 

 

 —

 

 

331

 

Excess tax benefit from stock-based compensation expense

 

3,084

 

 

 —

 

 

 —

 

 

 —

 

 

3,084

 

Repurchase of capital stock

 

(6,684)

 

 

 —

 

 

 —

 

 

 —

 

 

(6,684)

 

Net cash provided by (used in) financing activities

 

28,580

 

 

(204)

 

 

(2,744)

 

 

 —

 

 

25,632

 

Effect of exchange rate changes on cash

 

 —

 

 

 —

 

 

(889)

 

 

 —

 

 

(889)

 

Net (decrease) increase in cash and cash equivalents

 

(390)

 

 

53,128

 

 

1,205

 

 

(20)

 

 

53,922

 

Cash and cash equivalents as of beginning of period

 

412

 

 

73,379

 

 

13,148

 

 

 —

 

 

86,939

 

Cash and cash equivalents as of end of period

$

22

 

$

126,506

 

$

14,353

 

$

(20)

 

$

140,861

 

 

 

 

 

 

 

(17) Concentration Risk

 

Significant Customers. 7-Eleven, Inc. (“7-Eleven”) in the U.S. represents the largest merchant customer in the Company’s portfolio, and comprised approximately 17.5% and 22.0% of the Company’s unaudited pro forma revenues for the years ended December 31, 2014 and 2013, respectively. In July 2015, the Company received notification from 7-Eleven that 7-Eleven does not intend on renewing its ATM placement agreement with Cardtronics upon expiration. The existing agreement between Cardtronics and 7-Eleven remains in effect until mid-2017, and calls for a transition period that, at 7-Eleven’s request, could extend our contract in part for up to six months. See Part II. Other Information, Item 1A. Risk Factors.

 

(18) New Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the "FASB") issued FASB Accounting Standards Updates ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)"  ("ASU 2014-09"), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition.  

 

The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.

 

36


 

 

ASU 2014-09 was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two retrospective application methods. However, in July 2015, FASB approved the deferral of the effective date of ASU 2014-09 to interim and annual periods beginning after December 15, 2017. Early application is not permitted. In May 2015 the FASB issued proposed amendments to clarify and simplify accounting for licenses of intellectual property and the identification of performance obligations. The Company is currently monitoring the amendments and evaluating the effect that the adoption of ASU 2014-09 will have on the Company’s financial statements.

 

In April 2015, the FASB issued ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. ASU 2015-03 requires retrospective application and is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03 to have a material effect on the Company's results of operations; however, it will impact future balance sheet presentation and financial statement disclosures related to the Company's debt issuance costs.

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 applies to inventory that is measured using either the first-in, first-out or average cost methods and requires entities to measure their inventory at the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods therein. The Company does not expect ASU 2015-11 to have a material effect on the Company’s results of operations.

 

In August 2015, the FASB issued ASU No. 2015-15, “Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” (“ASU 2015-15”), which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The Company does not expect ASU 2015-15 to have a material effect on the Company’s results of operations; however, it could impact future balance sheet presentation and financial statement disclosures related to the Company's debt issuance costs.

 

The Company plans to implement ASU No 2015-03 and 2015-15 for its year commencing on January 1, 2016.

 

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires an acquirer to recognize adjustments to provisional amounts in the period in which the adjustment amount is determined. The acquirer is also required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition the acquirer is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and requires prospective application. The Company does not expect ASU 2015-16 to have a material effect on the Company’s results of operations.

37


 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements and information in this Form 10-Q may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “project,” “believe,” “estimate,” “expect,” “future,” “anticipate,” “intend,” “contemplate,” “foresee,” “would,” “could,” “plan,” and similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

 

·

our financial outlook and the financial outlook of the ATM industry and the continued usage of cash by consumers at rates near historical patterns;

·

our ability to respond to recent and future network and regulatory changes, including forthcoming requirements surrounding Europay, MasterCard, and Visa (“EMV”) security standards;

·

our ability to renew our existing customer relationships on comparable economic terms and add new customers;

·

our ability to pursue and successfully integrate acquisitions;

·

changes in interest rates and foreign currency rates;

·

our ability to successfully manage our existing international operations and to continue to expand internationally;

·

our ability to manage concentration risks with key customers, vendors and service providers;

·

our ability to prevent thefts of cash;

·

our ability to manage cybersecurity risks and prevent data breaches;

·

our ability to respond to potential reductions in the amount of net interchange fees that we receive from global and regional debit networks for transactions conducted on our ATMs due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks;

·

our ability to provide new ATM solutions to retailers and financial institutions including placing additional banks’ brands on ATMs currently deployed;

·

our ATM vault cash rental needs, including potential liquidity issues with our vault cash providers and our ability to continue to secure vault cash rental agreements in the future;

·

our ability to manage the risks associated with our third-party service providers failing to perform their contractual obligations;

·

our ability to successfully implement our corporate strategy;

·

our ability to compete successfully with new and existing competitors;

·

our ability to meet the service levels required by our service level agreements with our customers;

·

the additional risks we are exposed to in our U.K. armored transport business; and

·

our ability to retain our key employees and maintain good relations with our employees.

 

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (i)  Part II. Other Information, Item 1A. Risk Factors in this Form 10-Q and (ii) Part I. Item 1A. Risk Factors in the 2014 Form 10‑K.

 

Readers are cautioned not to place undue reliance on forward-looking statements contained in this document, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Cardtronics, Inc. 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, we were the world’s largest retail ATM owner, providing services to approximately 190,000 devices throughout the United States (“U.S.”) (including the U.S. territory of Puerto Rico), the United Kingdom (“U.K.”), Germany, Poland, Canada, and Mexico. In the U.S., certain of our devices are multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account balance inquiries, perform other consumer financial services including bill payments, check cashing, remote deposit capture (which is deposit-taking at ATMs using electronic imaging), and money transfers. Also included in the number of devices in our network as of September 30, 2015 were approximately 112,200 ATMs to which we provided processing services or various forms of managed services solutions. Under a managed services arrangement, retailers, financial institutions, and ATM distributers rely on us to handle some or all of the operational aspects associated with operating and maintaining ATMs, typically in exchange for a monthly service fee or fee per service provided.

 

We often partner with large, nationally and regionally-known retail merchants under multi-year contracts to place our ATMs and kiosks within their store locations. In doing so, we provide our retail partners with a compelling automated financial services solution that helps attract and retain customers, and in turn, increases the likelihood that our devices will be utilized. We also own and operate electronic funds transfer (“EFT”) transaction processing platforms that provide transaction processing services to our network of ATMs and financial services kiosks, as well as to other ATMs owned and operated by third parties.

 

We also own and operate 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 lack a significant ATM network in exchange for either a fixed monthly fee per cardholder or a set fee per transaction that is paid by the financial institutions who are members of the network. Allpoint includes a majority of our 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.

 

For additional discussion of our operations and the manner in which we derive revenues, please refer to our 2014 Form 10-K.

 

Strategic Outlook

 

Our strategy is to leverage the expertise and scale we have built in our two largest markets, the U.S. and U.K., to continue to expand in those markets, continue to grow in our other markets, and to drive expansion into new international markets to enhance our position as a leading provider of automated consumer financial services. To do so, we will continue to partner with leading financial institutions and retailers to expand our network of conveniently located ATMs and financial services kiosks. Additionally, we will seek to deploy additional products and services that will further incentivize consumers to utilize our network of devices. In order to execute this strategy, we endeavor to:

 

·

Increase our Number of Deployed Devices with Existing and New Merchant Relationships. We believe that there are opportunities to deploy additional ATMs with our existing retail customers in locations that currently do not have ATMs. Furthermore, many of our retail customers continue to expand their number of active store locations, either through acquisitions or through new store openings, thus providing us with additional ATM deployment opportunities. Additionally, we seek opportunities to deploy ATMs with new retailers, including retailers that currently do not have ATMs, as well as those that have existing ATM programs but that are looking for a new ATM provider. We believe our expertise, broad geographic footprint, strong record of customer service, and

39


 

 

significant scale positions us to successfully market to and enter into long-term contracts with additional leading merchants. In addition, we believe our existing relationships with leading U.S. and U.K. based retailers positions us to expand into international locations where these partners have operations.

 

·

Expand our Relationships with Leading Financial Institutions. Through our merchant relationships as well as our diverse product and service offerings, we believe we can provide our existing financial institution customers with convenient solutions to fulfill their growing ATM and automated consumer financial services requirements. Further, we believe we can leverage our product offerings to attract additional financial institutions as customers. Services currently offered to financial institutions include branding our ATMs with their logos, on-screen advertising and content management, providing image deposit capture, providing surcharge-free access to their customers, and providing managed services for their ATM portfolios. Our EFT transaction processing capabilities enable us to provide customized control over the content of the information appearing on the screens of our ATMs and ATMs we process for financial institutions, which increases the types of products and services we are able to offer to financial institutions. We also plan to continue growing the number of machines and financial institutions participating in our Allpoint network, which drives higher transaction counts and profitability on our existing ATMs and increases our value to the retailers where our ATMs are located through increased foot traffic.

 

·

Work with Non-Traditional Financial Institutions and Card Issuers to Further Leverage our Extensive ATM and Financial Services Kiosk Network. We believe there are opportunities to develop or expand relationships with non-traditional financial institutions and card issuers, such as reloadable prepaid card issuers and alternative payment networks, which are seeking an extensive and convenient ATM network to complement their card offerings. Additionally, we believe that many of the prepaid debit card issuers in the U.S. can benefit by providing their cardholders with access to our ATM network on a discounted or fee-free basis. For example, through our Allpoint network, we have sold access to our ATM network to issuers of stored-value prepaid debit cards to provide the customers of these issuers with convenient and surcharge-free access to cash.

 

·

Increase Transaction Levels at our Existing Locations. We believe there are opportunities to increase the number of transactions that are occurring today at our existing ATM locations. On average, only a small fraction of the customers that enter our retail customers’ locations utilize our ATMs and financial services kiosks. In addition to our existing initiatives that tend to drive additional transaction volumes to our ATMs, such as bank-branding and network-branding, we have developed and are continuing to develop new initiatives to drive incremental transactions to our existing ATM locations. For example, we have developed a data analysis technology that we refer to as SightLine to analyze transaction patterns at our ATMs, which we believe has value to retailers and financial institutions alike by enabling them to better understand their customers’ behavior. We are also developing programs to steer cardholders of our existing financial institution partners and members of our Allpoint network to visit our ATMs in convenient retail locations. These programs may include incentives to cardholders such as coupons, rewards, and other offers that tend to provide incentives for customers to visit our ATMs within our existing retail footprint. While we are in various stages of developing and implementing many of these programs, we believe that these programs, when properly structured, can serve to benefit each party (i.e. the retailer, the financial institution, and the cardholder). These various initiatives are intended to drive increased transaction volumes, which would in turn drive increased revenues to us, and would also be beneficial to our retail and financial institution partners. 

 

·

Develop and Provide Additional Services at our Existing ATMs. Service offerings by ATMs continue to evolve over time. Certain ATM models are capable of providing numerous automated consumer financial services, including check cashing, image deposit capture, money transfer, bill payment services, and stored-value card reload services. Certain of our devices are capable of, and currently provide, these types of services. We believe these additional consumer financial services offered by our devices, and other machines that we or others may develop, could provide a compelling and cost-effective solution for financial institutions and stored-value prepaid debit card issuers looking to provide convenient broader financial services to their customers at well-known retail locations. We also allow advertisers to place their messages on our ATMs equipped with advertising software in the U.S., Canada, and the U.K. Offering additional services at our devices, such as advertising, allows us to create new revenue streams from assets that have already been deployed, in addition to providing value to our customers

40


 

 

through beneficial offers and convenient services. We plan to develop additional products and services that can be delivered through our existing ATM network.

 

·

Pursue Additional Managed Services Opportunities. Over the last several years, we significantly expanded the number of ATMs that are operated under managed services arrangements. Under these arrangements, retailers and financial institutions generally pay us a fixed management fee per ATM and/or a set fee per transaction in exchange for handling some or all of the operational aspects associated with operating and maintaining their ATM fleets. Surcharge and interchange fees under these arrangements are generally earned by the retailer or the financial institution rather than by us. As a result, in this arrangement type, our revenues are partly protected from fluctuations in transaction levels of these machines and changes in network interchange rates. We plan to continue pursuing additional managed services opportunities with leading merchants and financial institutions in the markets in which we operate.

 

·

Pursue International Growth Opportunities. We have invested significant amounts of capital in our U.K., Canada, and Mexico businesses, and we plan to continue to grow our business in these markets, as well as in the recently entered Germany and Poland markets, applying many of the aforementioned strategies. Additionally, we expect to expand our operations into selected other international markets where we believe we can leverage our operational expertise, EFT transaction processing platform and scale advantages. Our future international expansion, if any, will depend on a number of factors, including the estimated economic opportunity to us, the business and regulatory environment in the international market, our ability to identify suitable business partners in the market and, other factors.

 

·

Pursue Acquisition Opportunities. We have historically generated a large part of our growth through acquisitions, and expect to continue to pursue select acquisition opportunities in the future. Since 2011, we have acquired: (i) eight domestic ATM operators, expanding our fleet in both multi-unit regional retail chains and individual merchant ATM locations in the U.S., (ii) two Canadian ATM operators, which allowed us to enter into and expand our international presence in Canada, (iii) Cardpoint Limited (“Cardpoint”) in August 2013, which further expanded our U.K. ATM operations and also allowed us to enter into the German market, and (iv) Sunwin Services Group (“Sunwin”) in November of 2014, which further expanded our cash-in-transit and maintenance servicing capabilities in the U.K. and allowed us to acquire and operate approximately 2,000 existing high-transacting ATMs located at the Co-operative Group (“Co-op”) Food stores and the opportunity to install and operate new ATMs in stores that do not currently have ATMs.

 

In addition to ATM acquisitions, we have also made strategic acquisitions including (i) LocatorSearch in August 2011, a domestic leading provider of location search technology deployed by financial institutions to help customers and members find the nearest, most appropriate and convenient ATM location based on the service they seek, (ii) i-design group plc (“i-design”) in March 2013, which is a Scotland-based provider and developer of marketing and advertising software and services for ATM operators, and (iii) Columbus Data Services, L.L.C ("CDS") in July 2015, 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.

 

Recent Events and Trends

 

Over the last several years, we have grown our business through a combination of organic growth through the strategies described above and with acquisitions. During the nine months ended September 30, 2015, total revenues, on a constant-currency basis, grew by approximately 20.5% over the prior year, reflecting approximately 16.9% growth from acquisitions and 3.6% from organic growth. 

 

Withdrawal Transaction and Revenue Trends – North America. Many banks are reducing the number of branches they operate to reduce their operating costs, giving rise to a desire for automated banking solutions, such as ATMs. Over the last several years, some of the largest banks serving the U.S. market for consumer banking services have begun to aggressively compete for market share, and part of their competitive strategy is to increase their number of customer touch points, including the establishment of an ATM network to provide convenient, surcharge-free access to cash for their customers. As a result, in certain situations, we have faced direct competition from large U.S. banks for ATM placement

41


 

 

opportunities. While a large ATM network would be a key strategic asset for a bank, we believe it would be uneconomical for all but the largest banks to build and operate an extensive ATM network. Bank-branding of our ATMs and participation in our surcharge-free network allow financial institutions to rapidly increase and maintain a surcharge-free ATM access for their customers at a substantially lower cost than building and maintaining their own ATM network. We also believe there is an opportunity for a large non-bank ATM and financial services kiosk operator such as ourselves, with lower costs and an established operating history, to contract with financial institutions and retailers to manage their ATM networks. Such an outsourcing arrangement could reduce a financial institution’s operating costs while extending its customer service. Furthermore, we believe there are opportunities to provide selected services on an outsourced basis, such as transaction processing services, to other independent owners and operators of ATMs and financial services kiosks. These factors have led to an increase in bank-branding, participation in surcharge-free networks, and managed services arrangements, and we believe that there will be continued growth in such arrangements.

 

In 2014, we received notice from one of our largest branding partners, JP Morgan Chase & Co. (“Chase”), of their intention not to renew or extend a number of ATM branding contracts with us. While this action is having a moderately negative impact on 2015 results, we do not believe that it will have a long-term adverse impact on our financial results and our ability to continue offering bank-branding solutions to financial institutions. We have already reached agreements with several financial institutions and are in advanced discussions with multiple other financial institutions to replace the branding on a significant number of the ATMs previously branded by Chase.

 

Excluding locations that were impacted by the Chase debranding activity, the remainder of our U.S. fleet produced same-store withdrawals that were essentially flat for both the three and nine months ended September 30, 2015. Same-store revenues for our U.S. ATMs were up approximately 2% for the three months ended September 30, 2015, and this slightly higher growth rate compared to the near-flat same-store withdrawal transaction growth rate is primarily attributable to an increase in bank and network-branding and surcharge rate increases at certain locations.

 

Total same-store cash withdrawal transactions conducted on our U.S. ATMs decreased for the three and nine months ended September 30, 2015 by 6.3% and 5.4%, respectively, compared to the prior year, inclusive of the locations previously branded by Chase. The decline was due to a number of our ATMs having the Chase brand removed during the first quarter of 2015. This debranding activity caused a shift in consumer behavior at some of our ATMs, as ATMs that were previously free-to-use to Chase cardholders, now charge convenience fees to those cardholders. Chase may also charge its customers an out of network fee, making the ATM less attractive for Chase cardholders to use them. For the remainder of 2015, we expect to see a decline in same-store withdrawal transactions as a result of the debranding activity mentioned above. Excluding ATM locations that have been debranded during the year, we expect an approximately flat withdrawal transaction growth rate on a same-store basis on our domestic ATMs in the near-term. 

 

In July 2015, we received notification from 7-Eleven, Inc. (“7-Eleven”) that 7-Eleven does not intend on renewing its ATM placement agreement with us upon expiration of the agreement in mid-2017. 7-Eleven announced that it has selected a related entity of 7-Eleven’s parent company as its next ATM provider. 7-Eleven in the U.S. represents the single largest merchant customer in our portfolio, and comprised approximately 17.5% and 22.0% of our unaudited pro forma revenues for the years ended December 31, 2014 and 2013, respectively. The existing agreement between Cardtronics and 7-Eleven remains in effect until mid-2017. At this time, we do not expect a significant change in our revenues and earnings through mid-2017 as a result of this notification. See Part II. Other Information, Item 1A. Risk Factors.

 

Withdrawal Transaction and Revenue Trends – Europe. In recent periods, we have installed more free-to-use ATMs as opposed to surcharging pay-to-use ATMs in the U.K., which is our largest operation in Europe, due in part to our major corporate customer contract additions that tend to operate mostly in high traffic locations where free-to-use ATMs are more prevalent. Although we earn less revenue per cash withdrawal transaction on a free-to-use machine, the significantly higher volume of transactions conducted on free-to-use machines have generally translated into higher overall revenues. Our same-store withdrawal transactions have been slightly negative  (2.0 -  3.0%) in recent periods in the U.K. However, in the current quarter, our overall organic revenue growth rate in Europe was over 10% on a constant-currency basis, driven primarily by success in the U.K., as we have been able to secure several ATM operating agreements with new and existing relationships and we also benefited from a higher interchange rate. Additionally, through our significant operating scale in this market, we have been able to grow our profit margins with the additional revenues from the expanded ATM estate.

 

42


 

 

Financial Regulatory Reform in the U.K. and the European Union. In March 2013, the U.K. Treasury department (the “Treasury”) issued a formal recommendation to further regulate the U.K. payments industry, including LINK, the nation’s formal ATM scheme. In October 2013, the U.K. government responded by establishing the new Payment Systems Regulator (“PSR”) to oversee any payment system operating in the U.K. and its participants. The PSR went live in April 2015 and to date there has been no significant immediate effect on Cardtronics or its operations. We will continue to monitor and report on any further developments.

 

In July 2013, the European Commission put forward a new draft directive to regulate payment service providers operating in the European Union (“PSD2”). Broadly, PSD2 sought to harmonize rules for the licensing of payment institutions and introduce certain common rules applicable to all payment service providers (“PSPs”) throughout the European Union. PSD2 set out the rights and obligations of payment service users and PSPs together with transparency and security requirements to facilitate safe, efficient payment transactions. PSD2 was finalized on October 8, 2015, carrying forward the exemption related to independent ATM operators that was present in the prior directive (“PSD1”).  

 

Europay, MasterCard, Visa (“EMV”) Standard in the U.S. The EMV standard provides for the security and processing of information contained on microchips embedded in certain debit and credit cards, known as “chip cards.” This standard has already been adopted in the U.K., Germany, Poland, Mexico, and Canada, and our ATMs in those markets are in compliance. In the U.S., MasterCard has announced plans for a liability shift from the issuers of these cards to the party that has not made the investment in EMV equipment (acquirer) on various dates. MasterCard’s liability shift on International Maestro (MasterCard) transactions occurred in April 2013, and while the majority of our U.S. ATMs are not currently EMV-compliant, to date, we have not experienced and do not expect this liability shift to have a significant impact on our business or results as International Maestro transactions currently comprise less than 1.0% of our U.S. transaction volume. As of the Maestro liability shift date of April 2013, we implemented additional fraud monitoring methods to minimize fraud losses. To date, we have seen minimal fraud losses. MasterCard has also announced that liability shift for its domestic ATM transactions on EMV-issued cards will occur starting in October 2016. In February 2013, Visa announced plans for a liability shift to occur in October 2017 for all transactions types on domestic or international EMV-issued cards. At this time, neither MasterCard nor Visa are requiring mandatory upgrades to ATM equipment; however, all of our recent ATM deployments have been with ATMs that are EMV-ready, and we plan to upgrade the majority of our U.S. fleet in advance of the October 2016 MasterCard liability shift date for domestic transactions. We have commenced our plan to make our U.S. fleet EMV-compliant, and currently estimate that the incremental potential cost to make our entire current Company-owned U.S. ATM fleet, inclusive of recent acquisitions, fully compliant with the EMV standard is approximately $40.0 million to $50.0 million, a portion of which was incurred during 2014 and 2015. With the increased capital investments required as a result of EMV, our depreciation expense will likely increase in the future. Additionally, there is a possibility that we could incur asset write-offs or accelerated depreciation expense on certain ATM units. We may experience a higher rate of unit count attrition for our merchant-owned ATMs as a result of this standard, however, we are currently offering programs to make EMV upgrades attractive to merchants that own their own ATMs. At this time, through a combination of ordinary replacement of equipment, routine scheduled maintenance visits to our ATMs, and evolving technology to meet compliance, we do not expect the U.S. EMV standard, being driven by MasterCard- and Visa-announced liability shifts, to have a major impact on our operating results.

 

Capital Investments. In the next twelve to eighteen months, we anticipate a moderate increase in the rate of capital investment than our recent run-rate, but we do not expect that this temporary increased level of capital investment will continue past 2016. These expected temporary increases in capital spending levels are being driven by the upcoming EMV requirements discussed above, coupled with many other factors including: (i) our strategic initiatives to enhance the consumer experience at our ATMs and drive transaction growth; (ii) increased demand from merchants and financial institutions for multi-function ATMs; (iii) competition for new merchant and customer contracts and a  significant number of long-term renewals of existing merchant contracts; (iv) certain software and hardware enhancements required to facilitate our strategic initiatives, enhance security and to continue running supported versions; and (v) other compliance related matters. As a result of the increased capital investments being planned, we are working to optimize our existing assets, but it is possible that as a result of this activity we could incur some asset write-offs or impairments and increased depreciation expense in the near term. However, we project that the long-term revenue benefits of the investments will drive increased profitability in future periods and allow us to expand our position as the leading ATM operator of non-bank branch locations.

 

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Acquisitions. On July 1, 2015, we completed the acquisition of CDS for a total purchase price of $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.

 

Divestitures. On July 1, 2015, we completed the divestiture of our retail cash-in-transit operation in the U.K. This business component, which mainly relates to the collection of cash by couriers at retail locations, was originally acquired through the Sunwin acquisition completed in November 2014. As this component was not deemed to be a core part of our on-going strategy, the business was sold to a third party operator. We expect to receive estimated proceeds of £23.2 million, or approximately $36.0 million on the sale transaction. Of this amount, £18.7 million, or approximately $29.1 million, was received during the third quarter. As of September 30, 2015, the gain recognized on this transaction was $14.7 million, recognized within the (Gain) loss on disposal of assets line item on the accompanying Consolidated Statement of Operations. We also recorded approximately $10.7 million in costs associated with the sale of the assets and costs to close certain facilities in the U.K. that were no longer profitable to operate as a result of the sale of the non-core retail cash-in-transit operation. These costs and other costs, including excess operating costs associated with work that was in transition to other facilities during the period, are recorded within the Acquisition and divestiture-related expense line in the accompanying Consolidated Statement of Operations.

 

For additional discussion related to the acquisition and divestiture discussions above, see Item 1. Financial Statements, Note 2. Acquisitions and Divestitures.

 

Factors Impacting Comparability Between Periods

 

·

Foreign Currency Exchange Rates. Our reported financial results are subject to fluctuations in exchange rates. With relatively minor fluctuations in the average rates from 2011 to 2014, our overall results have not been significantly impacted. However, during the second half of 2014, the U.S. dollar began to significantly appreciate in value relative to the currencies we transact business in our foreign operations. During the nine months of 2015, our results were adversely impacted by a strengthened U.S. dollar. We estimate that the year-over-year strengthening in the U.S. dollar relative to the currencies in the foreign markets in which we operated caused our reported revenues to be lower by approximately $32.1 million or 3.6% for the nine months ended September 30, 2015. 

 

·

Acquisitions and Divestitures. The results of operations for any acquired entities during a particular year have been included in our consolidated results for that year since the respective dates of acquisition. Similarly, the results of operations for any divested operations have been excluded from our consolidated results since the dates of divestiture.

44


 

 

Results of Operations

 

The following table sets forth line items from our Consolidated Statements of Operations as a percentage of total revenues for the periods indicated. Percentages may not add due to rounding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

95.3

%

 

96.6

%

 

93.9

%

 

96.9

%

 

ATM product sales and other revenues

 

4.7

 

 

3.4

 

 

6.1

 

 

3.1

 

 

Total revenues

 

100.0

 

 

100.0

 

 

100.0

 

 

100.0

 

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

59.5

 

 

62.9

 

 

59.9

 

 

63.6

 

 

Cost of ATM product sales and other revenues

 

4.5

 

 

3.3

 

 

5.6

 

 

3.0

 

 

Total cost of revenues

 

63.9

 

 

66.3

 

 

65.5

 

 

66.7

 

 

Gross profit

 

36.1

 

 

33.7

 

 

34.5

 

 

33.3

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses 

 

11.5

 

 

10.4

 

 

11.2

 

 

10.4

 

 

Acquisition and divestiture-related expenses

 

4.3

 

 

0.9

 

 

2.4

 

 

1.7

 

 

Depreciation and accretion expense

 

7.1

 

 

7.1

 

 

7.2

 

 

7.4

 

 

Amortization of intangible assets

 

3.2

 

 

3.0

 

 

3.2

 

 

3.2

 

 

(Gain) loss on disposal of assets

 

(3.9)

 

 

0.4

 

 

(1.4)

 

 

0.2

 

 

Total operating expenses

 

22.2

 

 

21.8

 

 

22.6

 

 

22.9

 

 

Income from operations

 

13.9

 

 

11.9

 

 

11.9

 

 

10.5

 

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

1.6

 

 

2.0

 

 

1.6

 

 

2.1

 

 

Amortization of deferred financing costs and note discount

 

0.9

 

 

1.8

 

 

0.9

 

 

1.3

 

 

Redemption costs for early extinguishment of debt

 

 —

 

 

2.9

 

 

 —

 

 

1.2

 

 

Other expense (income)

 

0.3

 

 

0.6

 

 

0.3

 

 

(0.5)

 

 

Total other expense

 

2.9

 

 

7.4

 

 

2.9

 

 

4.2

 

 

Income before income taxes

 

11.0

 

 

4.5

 

 

9.0

 

 

6.3

 

 

Income tax expense

 

4.1

 

 

1.7

 

 

3.3

 

 

2.4

 

 

Net income

 

7.0

 

 

2.9

 

 

5.7

 

 

4.0

 

 

Net loss attributable to noncontrolling interests

 

(0.1)

 

 

(0.2)

 

 

(0.1)

 

 

(0.1)

 

 

Net income attributable to controlling interests and available to common stockholders

 

7.1

%

 

3.0

%

 

5.8

%

 

4.1

%

 

 


(1)

Excludes effects of depreciation, accretion, and amortization of intangible assets of $27.2 million and $23.9 million for the three months ended September 30, 2015 and 2014, respectively, and $77.8 million and $72.4 million for the nine months ended September 30, 2015 and 2014, respectively. The inclusion of such amounts in Cost of ATM operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 8.7% and 9.0% for the three months ended September 30, 2015 and 2014, respectively, and 8.7% and 9.4% for the nine months ended September 30, 2015 and 2014, respectively.

45


 

 

Key Operating Metrics 

 

We rely on certain key measures to gauge our operating performance, including total transactions, total cash withdrawal transactions, ATM operating revenues per ATM per month and ATM operating gross profit margin. The following table sets forth information regarding certain of these key measures for the periods indicated, excluding the effect of the acquisitions during the periods presented for comparative purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 EXCLUDING ACQUISITIONS:

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Average number of transacting ATMs:

 

 

 

 

 

 

 

 

 

 

 

 

 

United States: Company-owned

 

 

31,114

 

 

30,338

 

 

30,635

 

 

29,895

 

United Kingdom

 

 

13,639

 

 

12,194

 

 

13,231

 

 

11,920

 

Mexico

 

 

1,432

 

 

2,191

 

 

1,558

 

 

2,174

 

Canada

 

 

1,915

 

 

1,686

 

 

1,757

 

 

1,663

 

Germany and Poland

 

 

1,048

 

 

882

 

 

987

 

 

871

 

Subtotal

 

 

49,148

 

 

47,291

 

 

48,168

 

 

46,523

 

United States: Merchant-owned (1)

 

 

17,542

 

 

22,002

 

 

16,911

 

 

22,152

 

Average number of transacting ATMs – ATM operations

 

 

66,690

 

 

69,293

 

 

65,079

 

 

68,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Managed Services and Processing

 

 

 

 

 

 

 

 

 

 

 

 

 

United States: Managed services – Turnkey

 

 

2,181

 

 

2,155

 

 

2,165

 

 

2,121

 

United States: Managed services – Processing Plus and Processing operations, net

 

 

15,700

 

 

12,298

 

 

14,666

 

 

11,794

 

United Kingdom: Managed services

 

 

20

 

 

21

 

 

20

 

 

21

 

Canada: Managed services

 

 

1,120

 

 

668

 

 

1,011

 

 

426

 

Average number of transacting ATMs – Managed services and processing

 

 

19,021

 

 

15,142

 

 

17,862

 

 

14,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total average number of transacting ATMs

 

 

85,711

 

 

84,435

 

 

82,941

 

 

83,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

265,950

 

 

264,494

 

 

771,682

 

 

766,860

 

Managed services and processing, net

 

 

23,764

 

 

19,958

 

 

66,810

 

 

56,071

 

Total transactions

 

 

289,714

 

 

284,452

 

 

838,492

 

 

822,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

159,020

 

 

156,562

 

 

466,780

 

 

453,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per ATM per month amounts (excludes managed services and processing):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions

 

 

795

 

 

753

 

 

797

 

 

734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

1,239

 

$

1,197

 

$

1,230

 

$

1,174

 

Cost of ATM operating revenues (2)

 

 

779

 

 

781

 

 

787

 

 

771

 

ATM operating gross profit (2) (3)

 

$

460

 

$

416

 

$

443

 

$

403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating gross profit margin  (2) (3)

 

 

37.1

%

 

34.8

%

 

36.0

%

 

34.3

%


(1)

Certain ATMs previously reported in this category are now included in the United States: Managed services – Processing Plus and Processing operations, net category below.

(2)

Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our Consolidated Statements of Operations.

(3)

ATM operating gross profit and ATM operating gross profit margin are measures of profitability that are calculated based on only the revenues and expenses that relate to operating ATMs in our portfolio. Revenues and expenses relating to managed services and ATM equipment sales and other ATM-related services are not included.

46


 

 

 

The following table sets forth information regarding certain of these key measures for the periods indicated, including the effect of the acquisitions in the periods presented for comparative purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 INCLUDING ACQUISITIONS:

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Average number of transacting ATMs:

 

 

 

 

 

 

 

 

 

 

 

 

 

United States: Company-owned

 

 

38,510

 

 

30,338

 

 

38,310

 

 

29,895

 

United Kingdom

 

 

15,582

 

 

12,194

 

 

14,762

 

 

11,920

 

Mexico

 

 

1,432

 

 

2,191

 

 

1,558

 

 

2,174

 

Canada

 

 

1,915

 

 

1,686

 

 

1,757

 

 

1,663

 

Germany and Poland

 

 

1,048

 

 

882

 

 

987

 

 

871

 

Subtotal

 

 

58,487

 

 

47,291

 

 

57,374

 

 

46,523

 

United States: Merchant-owned (1)

 

 

19,609

 

 

22,002

 

 

20,301

 

 

22,152

 

Average number of transacting ATMs – ATM operations

 

 

78,096

 

 

69,293

 

 

77,675

 

 

68,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Managed Services and Processing

 

 

 

 

 

 

 

 

 

 

 

 

 

United States: Managed services – Turnkey

 

 

2,181

 

 

2,155

 

 

2,165

 

 

2,121

 

United States: Managed services – Processing Plus and Processing operations, net (2)

 

 

107,326

 

 

12,298

 

 

61,421

 

 

11,794

 

United Kingdom: Managed services

 

 

20

 

 

21

 

 

20

 

 

21

 

Canada: Managed services

 

 

1,120

 

 

668

 

 

1,011

 

 

426

 

Average number of transacting ATMs – Managed services and processing

 

 

110,647

 

 

15,142

 

 

64,617

 

 

14,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Total average number of transacting ATMs

 

 

188,743

 

 

84,435

 

 

142,292

 

 

83,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

327,269

 

 

264,494

 

 

926,921

 

 

766,860

 

Managed services and processing, net (2)

 

 

170,896

 

 

19,958

 

 

239,701

 

 

56,071

 

Total transactions

 

 

498,165

 

 

284,452

 

 

1,166,622

 

 

822,931

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operations

 

 

197,365

 

 

156,562

 

 

564,072

 

 

453,627

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per ATM per month amounts (excludes managed services and processing):

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash withdrawal transactions

 

 

842

 

 

753

 

 

807

 

 

734

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

 

$

1,199

 

$

1,197

 

$

1,153

 

$

1,174

 

Cost of ATM operating revenues (3) 

 

 

753

 

 

781

 

 

739

 

 

771

 

ATM operating gross profit (3) (4) 

 

$

446

 

$

416

 

$

414

 

$

403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ATM operating gross profit margin (3) (4) 

 

 

37.2

%

 

34.8

%

 

35.9

%

 

34.3

%


(1)

Certain ATMs previously reported in this category are now included in the United States: Managed services – Processing Plus and Processing, net category below.

(2)

The notable increase in the United States: Managed services – Processing Plus and Processing operations, net category is mostly attributable to the July 1, 2015 acquisition of CDS and the incremental number of transacting ATMs for which CDS provides processing services. 

(3)

Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our Consolidated Statements of Operations.

(4)

ATM operating gross profit and ATM operating gross profit margin are measures of profitability that are calculated based on only the revenues and expenses that relate to operating ATMs in our portfolio. Revenues and expenses relating to managed services, processing, and ATM equipment sales and other ATM-related services are not included.

47


 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

ATM operating revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

206,885

 

$

186,667

 

10.8

%

 

$

596,198

 

$

547,616

 

8.9

%

 

Europe

 

 

92,473

 

 

71,775

 

28.8

%

 

 

252,884

 

 

203,801

 

24.1

%

 

Eliminations

 

 

(2,522)

 

 

(1,663)

 

51.7

%

 

 

(6,787)

 

 

(4,447)

 

52.6

%

 

Total ATM operating revenues

 

 

296,836

 

 

256,779

 

15.6

%

 

 

842,295

 

 

746,970

 

12.8

%

 

ATM product sales and other revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

9,719

 

 

8,466

 

14.8

%

 

 

27,318

 

 

22,663

 

20.5

%

 

Europe

 

 

4,795

 

 

602

 

n/m

%

 

 

27,384

 

 

1,315

 

n/m

%

 

Total ATM product sales and other revenues

 

 

14,514

 

 

9,068

 

60.1

%

 

 

54,702

 

 

23,978

 

128.1

%

 

Total revenues

 

$

311,350

 

$

265,847

 

17.1

%

 

$

896,997

 

$

770,948

 

16.3

%

 

 

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

 

ATM operating revenues. ATM operating revenues generated during the three months ended September 30, 2015 increased  $40.1 million, or 15.6%, from the three months ended September 30, 2014. Below is the detail, by segment, of the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance: Three Months Ended September 30, 2014 to

 

 

 

Three Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations

    

Total

 

 

 

Increase (decrease)

 

 

 

(In thousands)

 

Surcharge revenues

 

$

5,248

 

$

(2,104)

 

$

 —

 

$

3,144

 

Interchange revenues

 

 

845

 

 

22,965

 

 

 —

 

 

23,810

 

Bank-branding and surcharge-free network revenues

 

 

5,474

 

 

 —

 

 

 —

 

 

5,474

 

Managed services revenues

 

 

2,525

 

 

(4)

 

 

 —

 

 

2,521

 

Other revenues

 

 

6,126

 

 

(159)

 

 

(859)

 

 

5,108

 

Total increase in ATM operating revenues

 

$

20,218

 

$

20,698

 

$

(859)

 

$

40,057

 

 

North America. Our North American operations, which include our operations in the U.S., Canada, Mexico, and Puerto Rico, experienced a $20.2 million, or 10.8%, increase in ATM operating revenues during the three months ended September 30, 2015 when compared to the same period in 2014. The Welch ATM (“Welch”) acquisition completed during the fourth quarter of 2014 and the CDS acquisition completed during the third quarter of 2015 accounted for the majority of the increase during the quarter. Our Canadian operations also experienced revenue growth, driven by an increase in the number of transacting ATMs. The growth in our Canada operation was offset by a decline in Mexico.

 

For additional information on recent trends that have impacted, and may continue to impact, the revenues generated by our U.S. operations, see Recent Events and Trends - Withdrawal Transaction and Revenue Trends – North America above.

 

Europe. Our European operations, which include our operations in the U.K., Germany, and Poland, experienced a $20.7 million, or 28.8%, increase in ATM operating revenues during the three months ended September 30, 2015 when compared to the same period in 2014.  The acquisition of a new ATM operating agreement with Co-op Food completed during the fourth quarter of 2014 accounted for the majority of the increase. Our core European business also generated organic revenue growth rate of over 10%  on a constant-currency basis during the three months ended September 30, 2015, driven mostly by an increase in the number of transacting ATMs, from business with new merchants. Our European results would have been higher by $7.9 million, or an additional 8.6%, absent adverse foreign currency exchange rate movements from the prior year.

 

48


 

 

For additional information on recent trends that have impacted, and may continue to impact, the revenues generated by our U.K. operations, see Recent Events and Trends - Withdrawal Transaction and Revenue Trends –Europe above.

 

ATM product sales and other revenues. ATM product sales and other revenues for the three months ended September 30, 2015 totaled $14.5 million, representing an increase of $5.4 million from the same period in 2014. This increase was primarily attributable to higher ATM equipment sales to merchants and distributors in the U.S. and our acquisition of Sunwin in the U.K. during the fourth quarter of 2014, which contributed approximately $3.8 million of the increase.

 

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

 

ATM operating revenues. ATM operating revenues generated during the nine months ended September 30, 2015 increased  $95.3 million, or 12.8%, from the nine months ended September 30, 2014. Below is the detail, by segment, of the changes in the various components of ATM operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance: Nine Months Ended September 30, 2014 to

 

 

 

Nine Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations

    

Total

 

 

 

Increase (decrease)

 

 

 

(In thousands)

 

Surcharge revenue

 

$

15,000

 

$

(8,097)

 

$

 —

 

$

6,903

 

Interchange revenue

 

 

2,180

 

 

57,413

 

 

 —

 

 

59,593

 

Bank-branding and surcharge-free network revenues

 

 

14,558

 

 

 —

 

 

 —

 

 

14,558

 

Managed services revenues

 

 

9,046

 

 

(13)

 

 

 —

 

 

9,033

 

Other revenues

 

 

7,798

 

 

(220)

 

 

(2,340)

 

 

5,238

 

Total increase in ATM operating revenues

 

$

48,582

 

$

49,083

 

$

(2,340)

 

$

95,325

 

 

North America. Our North American operations, which include our operations in the U.S., Canada, Mexico, and Puerto Rico, experienced a $48.6 million, or 8.9%, increase in ATM operating revenues during the nine months ended September 30, 2015 when compared to the same period in 2014. The Welch acquisition completed during the fourth quarter of 2014 and the CDS acquisition completed during the third quarter of 2015 accounted for the majority of the increase during the period. Based on the same factors described above in the three months ended September 30, 2015, our Canadian operations experienced revenue growth partially offset by a decline in Mexico.

 

Europe. Our European operations, which include our operations in the U.K., Germany, and Poland, experienced a $49.1 million, or 24.1%, increase in ATM operating revenues during the nine months ended September 30, 2015 when compared to the same period in 2014. The acquisition of a new ATM operating agreement with Co-op Food completed during the fourth quarter 2014 accounted for the majority of the increase. Our core European business also generated organic revenue growth rate of over 10%  on a constant-currency basis during the nine months ended September 30, 2015, driven mostly by an increase in the number of transacting ATMs. Our European results would have been higher by $24.3 million or an additional 9.6%, absent adverse foreign currency exchange rate movements from the prior year.

 

ATM product sales and other revenues. ATM product sales and other revenues for the nine months ended September 30, 2015 totaled $54.7 million, representing an increase of $30.7 million from the same period in 2014.  This increase was primarily attributable to our acquisition of Sunwin in the U.K. during the fourth quarter of 2014, which contributed approximately $24.2 million of the increase

 

49


 

 

Cost of Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Cost of ATM operating revenues (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

127,284

 

$

119,419

 

6.6

%

 

$

371,226

 

$

349,754

 

6.1

%

 

Europe

 

 

60,380

 

 

49,550

 

21.9

%

 

 

172,744

 

 

145,138

 

19.0

%

 

Eliminations

 

 

(2,522)

 

 

(1,663)

 

51.6

%

 

 

(6,787)

 

 

(4,447)

 

52.6

%

 

Total cost of ATM operating revenues

 

 

185,142

 

 

167,306

 

10.7

%

 

 

537,183

 

 

490,445

 

9.5

%

 

Cost of ATM product sales and other revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

9,844

 

 

8,665

 

13.6

%

 

 

27,142

 

 

22,617

 

20.0

%

 

Europe

 

 

4,048

 

 

207

 

n/m

%

 

 

23,051

 

 

819

 

n/m

%

 

Total cost of ATM product sales and other revenues

 

 

13,892

 

 

8,872

 

56.6

%

 

 

50,193

 

 

23,436

 

114.2

%

 

Total cost of revenues (1)

 

$

199,034

 

$

176,178

 

13.0

%

 

$

587,376

 

$

513,881

 

14.3

%

 

 


(1)

Exclusive of depreciation, accretion, and amortization of intangible assets.

 

Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014

 

Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) for the three months ended September 30, 2015 increased  $17.8 million, or 10.7%, when compared to the same period in 2014. The following is a detail, by segment, of changes in the various components of the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance: Three Months Ended September 30, 2014 to

 

 

 

Three Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations

    

Total

 

 

 

Increase (decrease)

 

 

 

(In thousands)

 

Merchant commissions

 

$

907

 

$

6,538

 

$

 —

 

$

7,445

 

Vault cash rental

 

 

523

 

 

1,063

 

 

 —

 

 

1,586

 

Other costs of cash

 

 

1,163

 

 

(5,311)

 

 

 —

 

 

(4,148)

 

Repairs and maintenance

 

 

60

 

 

2,058

 

 

 —

 

 

2,118

 

Communications

 

 

629

 

 

841

 

 

 —

 

 

1,470

 

Transaction processing

 

 

(53)

 

 

1,135

 

 

(769)

 

 

313

 

Stock-based compensation

 

 

(60)

 

 

 —

 

 

 —

 

 

(60)

 

Other expenses

 

 

4,696

 

 

4,506

 

 

(90)

 

 

9,112

 

Total increase in cost of ATM operating revenues

 

$

7,865

 

$

10,830

 

$

(859)

 

$

17,836

 

 

North America. During the three months ended September 30, 2015, our North American operations experienced a $7.9 million, or 6.6%, increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2014, which was primarily driven by the Welch acquisition completed during the fourth quarter of 2014, and to a lesser degree, the CDS acquisition completed during the third quarter of 2015.

 

Europe. During the three months ended September 30, 2015, our European operations experienced a $10.8 million, or 21.9%, increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2014. The Co-op Food ATM acquisition and our organic revenue growth drove the majority of the increase, which was partially offset by lower operating costs from continued realization of cost improvements, particularly in the area of cost of cash, which was driven by more favorable pricing on our vault cash

50


 

 

supply. Additionally, through the Sunwin acquisition completed in 2014, we are now able to service a higher percentage of our ATMs in the U.K. with internal resources for cash delivery services, which drove a reduction in the other costs of cash line in the table above. This cost decrease is partly offset by an increase in the Other expenses category in the table above, as the former Sunwin employee costs and related facility and operating costs are now included in the Other Expenses category. Changes in currency exchange rates also lowered our operating costs by approximately  $5.8 million, or an additional 9.5%, compared to the same period last year.

 

Cost of ATM product sales and other revenues. The increase in cost of ATM product sales and other revenues of  $5.0 million for the three months ended September 30, 2015 compared to the same period in 2014 is consistent with the increase in related revenues, as discussed above, and is primarily related to our acquisition of Sunwin during the fourth quarter of 2014.

 

Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014

 

Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) for the nine months ended September 30, 2015 increased  $46.7 million, or 9.5%, when compared to the same period in 2014. The following is a detail, by segment, of changes in the various components of the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variance: Nine Months Ended September 30, 2014 to

 

 

 

Nine Months Ended September 30, 2015

 

 

    

North America

    

Europe

    

Eliminations

    

Total

 

 

 

Increase (decrease)

 

 

 

(In thousands)

 

Merchant commissions

 

$

3,513

 

$

14,850

 

$

 —

 

$

18,363

 

Vault cash rental

 

 

2,421

 

 

3,167

 

 

 —

 

 

5,588

 

Other costs of cash

 

 

3,940

 

 

(13,547)

 

 

 —

 

 

(9,607)

 

Repairs and maintenance

 

 

1,149

 

 

5,964

 

 

 —

 

 

7,113

 

Communications

 

 

1,866

 

 

2,193

 

 

 —

 

 

4,059

 

Transaction processing

 

 

809

 

 

2,290

 

 

(2,168)

 

 

931

 

Stock-based compensation

 

 

(129)

 

 

 —

 

 

 —

 

 

(129)

 

Other expenses

 

 

7,903

 

 

12,689

 

 

(172)

 

 

20,420

 

Total increase in cost of ATM operating revenues

 

$

21,472

 

$

27,606

 

$

(2,340)

 

$

46,738

 

 

North America. During the nine months ended September 30, 2015, our North American operations experienced a $21.5 million, or 6.1%, increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2014, which was primarily driven by the Welch acquisition completed during the fourth quarter of 2014.

 

Europe. During the nine months ended September 30, 2015, our European operations experienced a $27.6 million, or 19.0%, increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2014. Similar to the factors described above in the analysis of the three months ended September 30, 2015, the Co-op Food ATM acquisition drove the majority of the increase, which was partially offset by lower operating costs from continued realization of cost improvements and changes in currency exchange rates. Changes in currency exchange rates also lowered our operating costs by $16.7 million, or an additional 9.7%, compared to the same period last year. Additionally, through the Sunwin acquisition completed in 2014, we are now able to service a higher percentage of our ATMs in the U.K. with internal resources for cash delivery services, which drove a reduction in the other costs of cash line in the table above. This cost decrease is partly offset by an increase in the Other expenses category in the table above, as the former Sunwin employee costs and related facility and operating costs are now included in the Other Expenses category. This cost decrease is partly offset by increased in internal labor, facility and other costs included in the other expense category in the table above.

 

Cost of ATM product sales and other revenues. The cost of ATM product sales and other revenues for the nine months ended September 30, 2015 totaled $50.2 million, representing an increase of  $26.8 million from the same period in 2014. 

51


 

 

This increase is consistent with the increase in related revenues, as discussed above, and is primarily related to our acquisition of Sunwin during the fourth quarter of 2014.

 

Gross Profit Margin

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

 

2014

 

2015

 

2014

 

ATM operating gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

Exclusive of depreciation, accretion, and amortization of intangible assets

 

37.6

%

 

34.8

%

 

36.2

%

 

34.3

%

 

Inclusive of depreciation, accretion, and amortization of intangible assets

 

28.5

%

 

25.5

%

 

27.0

%

 

24.6

%

 

ATM product sales and other revenues gross profit margin

 

4.3

%

 

2.2

%

 

8.2

%

 

2.3

%

 

Total gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

Exclusive of depreciation, accretion, and amortization of intangible assets.

 

36.1

%

 

33.7

%

 

34.5

%

 

33.3

%

 

Inclusive of depreciation, accretion, and amortization of intangible assets

 

27.3

%

 

24.7

%

 

25.8

%

 

23.9

%

 

 

ATM operating gross profit margin. For the three and nine months ended September 30, 2015, our ATM operating gross profit margin exclusive of depreciation, accretion, and amortization of intangible assets increased when compared to the same periods in 2014. The increase is primarily a result of our revenue growth and continuation of cost improvements in our U.K. and U.S. operations.

 

ATM product sales and other revenues gross profit margin. For the three and nine months ended September 30, 2015, our gross profit margin on ATM product sales and other revenues increased primarily as a result of the Sunwin acquisition in November 2014, which generates higher gross profit margins than our U.S. equipment sales business, which comprised the majority of the result in this category during the 2014 period.

 

Selling, General, and Administrative Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Selling, general, and administrative expenses

 

$

30,883

 

$

23,452

 

31.7

%

 

$

87,341

 

$

69,555

 

25.6

%

 

Stock-based compensation

 

 

4,876

 

 

4,231

 

15.2

%

 

 

13,488

 

 

10,581

 

27.5

%

 

Total selling, general, and administrative expenses

 

$

35,759

 

$

27,683

 

29.2

%

 

$

100,829

 

$

80,136

 

25.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

 

9.9

%

 

8.8

%

 

 

 

 

9.7

%

 

9.0

%

 

 

 

Stock-based compensation

 

 

1.6

%

 

1.6

%

 

 

 

 

1.5

%

 

1.4

%

 

 

 

Total selling, general, and administrative expenses

 

 

11.5

%

 

10.4

%

 

 

 

 

11.2

%

 

10.4

%

 

 

 

 

Selling, general, and administrative expenses (“SG&A expenses”), excluding stock-based compensation. SG&A expenses, excluding stock-based compensation, increased  $7.4 million, or 31.7%, and $17.8 million, or 25.6%, for the three and nine months ended September 30, 2015, respectively, when compared to the same period in 2014. This increase was due to the following: (i) higher payroll-related costs compared to the same periods in 2014 due to increased headcount, including employees added from our acquisitions completed during 2014; (ii) increased office and facilities costs, a portion of which is attributable to our acquisitions completed during 2014; (iii) higher legal and professional expenses; and (iv) increased costs related to strengthening our information technology and product development organizations.

 

52


 

 

Stock-based compensation. Stock-based compensation increased  $0.6 million, or 15.2%, and $2.9 million, or 27.5%, for the three and nine months ended September 30, 2015, respectively, when compared to the same period in 2014. These increases were primarily attributable to an increase in employee headcount, driven by acquisitions and overall growth in the business. For additional details on equity awards, see Item 1. Financial Statements, Note 3. Stock-Based Compensation.  

 

 

Acquisition and Divestiture-related Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

Acquisition and divestiture-related expenses

 

$

13,289

 

$

2,299

 

478.0

%

 

$

21,207

 

$

13,028

 

62.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

4.3

%

 

0.9

%

 

 

 

 

2.4

%

 

1.7

%

 

 

 

Acquisition and divestiture-related expenses. Acquisition and divestiture-related expenses increased  $11.0 million and $8.2 million for the three and nine months ended September 30, 2015, respectively, when compared to the same periods in 2014. The increase is primarily attributable to the 2014 acquisition of Sunwin and the subsequent integration costs, as well as divestiture and closure costs associated with the sale of certain non-core operations that were incurred during the three months ended September 30, 2015. During the three months ended September 30, 2015, we divested the operation of our retail cash-in-transit operation that was not deemed to be a core part of our on-going strategy of operating ATMs in the U.K. This business related to cash delivery and pick-up at retail sites in the U.K. and was not associated with replenishment of cash at ATMs. This business component was originally acquired through the Sunwin acquisition in late 2014. In conjunction with the sale of this business component, we 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 divestiture-related costs incurred during the third quarter 2015 totaled $10.7 million and relate to employee severance, lease exit costs, operating costs associated with the six depots we closed and other divestiture-related costs. These costs partly offset the net gain we recorded of $14.7 million related to the sale of the retail cash-in-transit operations.  See further discussion below in the (Gain)  Loss on Disposal of Assets section. For additional details, see Item 1. Financial Statements, Note 2. Acquisitions and Divestitures.

 

Depreciation and Accretion Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Depreciation expense

 

$

21,504

 

$

18,133

 

18.6

%

 

$

62,417

 

$

54,382

 

14.8

%

 

Accretion expense

 

 

623

 

 

816

 

(23.7)

%

 

 

1,725

 

 

2,510

 

(31.3)

%

 

Depreciation and accretion expense

 

$

22,127

 

$

18,949

 

16.8

%

 

$

64,142

 

$

56,892

 

12.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

6.9

%

 

6.8

%

 

 

 

 

7.0

%

 

7.1

%

 

 

 

Accretion expense

 

 

0.2

%

 

0.3

%

 

 

 

 

0.2

%

 

0.3

%

 

 

 

Depreciation and accretion expense

 

 

7.1

%

 

7.1

%

 

 

 

 

7.2

%

 

7.4

%

 

 

 

 

Depreciation expense. For the three and nine months ended September 30, 2015, depreciation expense increased  $3.4 million, or 18.6%, and $8.0 million, or 14.8%, respectively, when compared to the same periods in 2014 primarily as a result of the various acquisitions during the last twelve months and the deployment of additional Company-owned ATMs over the past year as a result of our organic ATM unit growth. 

 

Accretion expense. For the three and nine months ended September 30, 2015, accretion expense decreased  $0.2 million, or 23.7%, and $0.8 million, or 31.3%, respectively, when compared to the same period in 2014. This decrease is primarily

53


 

 

due to a change in accounting estimate regarding our future costs associated with asset retirement obligations. When we install ATMs we estimate the fair value of future retirement obligations associated with those ATMs, including the anticipated costs to deinstall, and in some cases, restore the ATM site at certain merchant locations. Accretion expense represents the increase of this liability from the original discounted net present value to the amount we ultimately expect to incur. 

 

Amortization of Intangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Amortization of intangible assets

 

$

10,048

 

$

7,965

 

26.2

%

 

$

29,040

 

$

24,647

 

17.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

3.2

%

 

3.0

%

 

 

 

 

3.2

%

 

3.2

%

 

 

 

 

Amortization of intangible assets relates primarily to merchant contracts and relationships recorded in connection with purchase price accounting valuations for completed acquisitions. The increase in amortization of intangible assets of $2.1 million, or 26.2%, and $4.4 million, or 17.8%,  for the three and nine months ended September 30, 2015, respectively, when compared to the same period in 2014 was primarily due to the addition of intangible assets from the acquisitions completed during the last twelve months.

 

(Gain)  Loss on Disposal of Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

(Gain) loss on disposal of assets

 

$

(12,139)

 

$

1,078

 

n/m

%

 

$

(12,425)

 

$

1,662

 

n/m

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of total revenues

 

 

(3.9)

%

 

0.4

%

 

 

 

 

(1.4)

%

 

0.2

%

 

 

 

 

(Gain) loss on disposal of assets for nine months ended September 30, 2015 is related to a net $16.4 million gain (of which approximately $14.7 million was recorded during the three months ended September 30, 2015) recognized on the divestiture of our non-core business components in the U.K. completed in February 2015 and July 2015. See the Acquisition and Divestiture-related Expenses section above for additional information on the costs incurred in association with the sale occurring during the three months ended September 30, 2015. The gains on the sales of the non-core businesses in the U.K. were partly offset by losses on asset disposals in the ordinary course of business. Also, see Item 1. Financial Statements, Note 2. Acquisitions and Divestitures.

 

 

Interest Expense, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Interest expense, net

 

$

5,033

 

$

5,423

 

(7.2)

%

 

$

14,496

 

$

16,167

 

(10.3)

%

 

Amortization of deferred financing costs and note discount

 

 

2,859

 

 

4,895

 

(41.6)

%

 

 

8,455

 

 

10,342

 

(18.2)

%

 

Total interest expense, net

 

$

7,892

 

$

10,318

 

(23.5)

%

 

$

22,951

 

$

26,509

 

(13.4)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54


 

 

Percentage of total revenues

 

 

2.5

%

 

3.9

%

 

 

 

 

2.6

%

 

3.4

%

 

 

 

 

Interest expense, net. Interest expense, net, decreased  $0.4 million, or 7.2%, and $1.7 million, or 10.3%, during the three and nine months ended September 30, 2015 when compared to the same period in 2014. These decreases were primarily the result of the 2014 retirement of our 8.250% senior subordinated notes due 2018 (the “2018 Notes”) and the issuance of lower rate 5.125% senior notes due 2022 (the “2022 Notes”) during the third quarter of 2014. This impact was partially offset by increased borrowings outstanding under our revolving credit facility following the July 1, 2015 acquisition of CDS.  For additional details, see Item 1. Financial Statements, Note 8. Long-Term Debt.

 

Amortization of deferred financing costs and note discount. Amortization of deferred financing costs and note discount decreased approximately $2.0 million during both the three and nine months ended September 30, 2015, compared to the same period in 2014. The amortization expense associated with the deferred financing costs related to the 2022 Notes was lower than the deferred financing costs related to the 2018 Notes.

 

Redemption Costs for Early Extinguishment of Debt 

 

In connection with the early extinguishment of the 2018 Notes, we recorded a $7.7 million and $9.1 million pre-tax charge during the three and nine months ended September 30, 2014, respectively, related to the premium paid for the redemption, which is included in the 2014 Redemption costs for early extinguishment of debt line item in the accompanying Consolidated Statements of Operations.

 

Income Tax Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

% Change

    

2015

    

2014

    

% Change

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

 

 

Income tax expense

 

$

12,629

 

$

4,397

 

187.2

%

 

$

29,837

 

$

18,185

 

64.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

36.8

%

 

36.7

%

 

 

 

 

36.8

%

 

37.4

%

 

 

 

 

The effective tax rate for the quarter ended September 30, 2015 is consistent with that of the same period in 2014. The slight decrease in the effective tax rate during the nine month ended September 30, 2015, when compared to the same period in 2014, is attributable to the change in the mix of earnings across jurisdictions.  

55


 

 

Non-GAAP Financial Measures

 

Included below are certain non-GAAP financial measures that we use to evaluate the performance of our business. We believe that the presentation of these measures and the identification of unusual or certain nonrecurring adjustments and non-cash items enhance an investor’s understanding of the underlying trends in our business and provide for better comparability between periods in different years. EBITDA, Adjusted EBITDA, Adjusted EBITA, Adjusted Net Income, and Free Cash Flow are non-GAAP financial measures provided as a complement to results prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and may not be comparable to similarly-titled measures reported by other companies.

 

Adjusted EBITDA excludes depreciation, accretion, and amortization of intangible assets as these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDA also excludes stock-based compensation, acquisition and divestiture-related expenses, certain other non-operating and nonrecurring items, gains or losses on disposal of assets, our obligations for the payment of income taxes, interest expense and other obligations such as capital expenditures, and includes an adjustment for noncontrolling interests. Adjusted Net Income represents net income computed in accordance with GAAP, before amortization of intangible assets, gains or losses on disposal of assets, stock-based compensation expense, certain other expense (income) amounts, nonrecurring expenses, and acquisition and divestiture-related expenses, and uses an estimated long-term cash tax rate of 32.0% for the three and nine months ended September 30, 2015 and 2014, with certain adjustments for noncontrolling interests. Adjusted EBITDA % is calculated by taking Adjusted EBITDA over GAAP total revenues. Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by weighted average diluted shares outstanding. Free Cash Flow is defined as cash provided by operating activities less payments for capital expenditures, including those financed through direct debt but excluding acquisitions. The Free Cash Flow measure does not take into consideration certain other non-discretionary cash requirements such as, for example, mandatory principal payments on portions of our long-term debt.

 

The non-GAAP financial measures presented herein should not be considered in isolation or as a substitute for operating income, net income, cash flows from operating, investing, or financing activities, or other income or cash flow measures prepared in accordance with U.S. GAAP.

 

A reconciliation of EBITDA, Adjusted EBITDA, Adjusted EBITA, and Adjusted Net Income to Net Income Attributable to Controlling Interests, their most comparable U.S. GAAP financial measure, and a reconciliation of Free Cash Flow to cash provided by operating activities, the most comparable U.S. GAAP financial measure, are presented as follows:

 

56


 

 

Reconciliation of Net Income Attributable to Controlling Interests to EBITDA, Adjusted EBITDA, Adjusted EBITA, and Adjusted Net Income, (In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Net income attributable to controlling interests

 

$

22,009

 

$

8,064

 

$

52,239

 

$

31,618

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Income tax expense

 

 

12,629

 

 

4,397

 

 

29,837

 

 

18,185

 

Depreciation and accretion expense

 

 

22,127

 

 

18,949

 

 

64,142

 

 

56,892

 

Amortization of intangible assets

 

 

10,048

 

 

7,965

 

 

29,040

 

 

24,647

 

EBITDA 

 

$

74,705

 

$

57,415

 

$

198,209

 

$

166,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back:

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) loss on disposal of assets

 

 

(12,139)

 

 

1,078

 

 

(12,425)

 

 

1,662

 

Other expense (income)

 

 

1,067

 

 

1,665

 

 

2,882

 

 

(3,565)

 

Noncontrolling interests (1)

 

 

(336)

 

 

(428)

 

 

(1,047)

 

 

(1,192)

 

Stock-based compensation expense (2)

 

 

5,147

 

 

4,561

 

 

14,360

 

 

11,464

 

Acquisition and divestiture-related expenses (3)

 

 

13,289

 

 

2,299

 

 

21,207

 

 

13,028

 

Adjusted EBITDA

 

$

81,733

 

$

66,590

 

$

223,186

 

$

188,323

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and accretion expense (2)

 

 

22,014

 

 

18,622

 

 

63,767

 

 

55,869

 

Adjusted EBITA

 

$

59,719

 

$

47,968

 

$

159,419

 

$

132,454

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net (2) 

 

 

5,033

 

 

5,416

 

 

14,493

 

 

16,139

 

  Adjusted pre-tax income

 

 

54,686

 

 

42,552

 

 

144,926

 

 

116,315

 

Income tax expense (4)

 

 

17,500

 

 

13,609

 

 

46,376

 

 

37,216

 

Adjusted Net Income

 

$

37,186

 

$

28,943

 

$

98,550

 

$

79,099

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income per share

 

$

0.83

 

$

0.65

 

$

2.20

 

$

1.79

 

Adjusted Net Income per diluted share

 

$

0.82

 

$

0.64

 

$

2.17

 

$

1.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 


(1)

Noncontrolling interest adjustment made such that Adjusted EBITDA includes only our 51.0% ownership interest in the Adjusted EBITDA of Cardtronics Mexico.

(2)

Amounts exclude 49.0% of the expenses incurred by Cardtronics Mexico as such amounts are allocable to the noncontrolling interest stockholders.

(3)

Acquisition and divestiture-related expenses include nonrecurring costs incurred for professional and legal fees and certain transition and integration-related costs, including contract termination and facility exit costs, employee-related severance costs, and related to our recent divestitures,  excess operating costs associated with facilities that are in the process of being shut down or transitioned as a result of recent divestitures.

(4)

Calculated using our estimated long-term, cross-jurisdictional effective cash tax rate of 32.0%.

 

57


 

 

Reconciliation of Free Cash Flow

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

(In thousands)

 

Cash provided by operating activities

 

$

60,525

 

$

46,189

 

$

147,112

 

$

103,060

 

Payments for capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash used in investing activities, excluding acquisitions and divestitures

 

 

(47,459)

 

 

(23,325)

 

 

(103,877)

 

 

(65,078)

 

Free cash flow

 

$

13,066

 

$

22,864

 

$

43,235

 

$

37,982

 

 

 

 

Liquidity and Capital Resources

 

Overview

 

As of September 30, 2015, we had $18.5 million in cash and cash equivalents and $636.0 million in outstanding long-term debt.

 

We have historically funded our operations primarily through cash flows from operations, borrowings under our revolving credit facilities, and the issuance of debt and equity securities. We have historically used a portion of our cash flows to invest in additional ATMs, either through the acquisition of ATM networks or through organically-generated growth. We have also used cash to fund increases in working capital and to pay interest and principal amounts outstanding under our borrowings. Because we collect a sizable portion of our cash from sales on a daily basis but generally pay our merchants and vendors on 30-day terms and are not required to pay certain of our merchants until 20 days after the end of each calendar month, we are able to utilize the excess available cash flow to reduce borrowings made under our revolving credit facility and to fund capital expenditures. Accordingly, it is not uncommon for us to reflect a working capital deficit position on our Consolidated Balance Sheet.

 

We believe that our cash on hand and our current revolving credit facility will be sufficient to meet our working capital requirements and contractual commitments for the next 12 months. We expect to fund our working capital needs from cash flows generated from our operations and borrowings under our revolving credit facility, to the extent needed. As we expect to continue to generate positive free cash flow during 2015 and during the near term, we expect to repay the amounts outstanding under our revolving credit facility absent any acquisitions. See additional discussion under Financing Facilities below.

 

Operating Activities

 

Net cash provided by operating activities totaled $147.1 million for the nine months ended September 30, 2015, as compared to $103.1 million during the same period in 2014. The increase in net cash provided by operating activities is attributable to an increase in net income, excluding the impact of non-cash items and was partially offset by an increase in net working capital.

 

Investing Activities

 

Net cash used in investing activities totaled $171.1 million for the nine months ended September 30, 2015, compared to $73.9 million during the same period in 2014. The change in net cash used in investing activities is primarily related to increases in additions to property and equipment and amounts paid for acquisitions, partly offset by proceeds from divestitures. 

 

Anticipated Future Capital Expenditures. We currently anticipate that the majority of our capital expenditures for the foreseeable future will be driven by organic growth projects, including the purchase of ATMs for existing as well as new ATM management agreements and various compliance requirements as discussed in,  Recent Events and Trends – Capital Investments. Our capital expenditures for the remainder of 2015 are estimated to total approximately $35.0 million,  

58


 

 

supporting new business growth, along with technology and compliance upgrades to enhance our existing ATM equipment with additional functionalities. We expect such expenditures to be funded primarily through cash generated from our operations and borrowings under our revolving credit facility. 

 

Acquisitions and divestitures. On July 1, 2015, we completed the acquisition of CDS for a total purchase price of approximately $80.6 million and the divestiture of the retail cash-in-transit operation in the U.K., originally acquired through the Sunwin acquisition in 2014.

 

We continually evaluate selected acquisition opportunities that complement our existing business. We believe that expansion opportunities continue to exist in all of our current markets, as well as in other international markets, and we will continue to pursue those opportunities as they arise. Such acquisition opportunities, individually or in the aggregate, could be material and may be funded by additional borrowings under our revolving credit facility or other financing sources that may be available to us. We also continually evaluate our business activities and will from time to time divest of assets and businesses that are not aligned with our long-term strategy.

 

Financing Activities

 

Net cash provided by financing activities totaled $13.3 million for the nine months ended September 30, 2015, compared to $25.6 million during the same period in 2014. The cash provided by financing activities during the nine months ended September 30, 2015 was primarily due to the net additional borrowings on our revolving credit facility. The net cash provided by financing activities during the nine months ended September 30, 2014 primarily related to the proceeds from the issuance of the 2022 Notes. These cash outflows were mostly offset by the net cash used to retire the 2018 Notes.

 

Financing Facilities

 

As of September 30, 2015, we had approximately $636.0 million in outstanding long-term debt, which was primarily comprised of: (i) $287.5 million of the Convertible Notes of which $232.2 million was recorded on our balance sheet net of the unamortized note discount, (ii) $250.0 million of the 2022 Notes, and (iii) $153.8 million in borrowings under our revolving credit facility.

 

Revolving Credit Facility. As of September 30, 2015, we had a $375.0 million revolving credit facility that was led by a syndicate of banks including JPMorgan Chase, N.A. and Bank of America, N.A. This revolving credit facility provides us with $375.0 million in available borrowings and letters of credit (subject to the covenants contained within the Credit Agreement governing the revolving credit facility) and can be increased up to $500.0 million under certain conditions and subject to additional commitments from the lender group. On May 26, 2015, we entered into a second amendment (the “Second Amendment”) to our amended and restated credit agreement (the “Credit Agreement”). Under the Second Amendment, a new $75.0 million tranche (the “European Commitments”) was created under which Cardtronics Europe Limited (“Cardtronics Europe”), a subsidiary of Cardtronics, Inc. can borrow directly from the existing lenders in different currencies. The Second Amendment provides for sub-limits under the European Commitments of $15.0 million for swingline loans and $15.0 million for letters of credit. In addition, the Second Amendment reduces the commitments of the lending parties to make loans to us (the “U.S. Commitments”) from $375.0 million to $300.0 million and reduced the alternative currency sub-limit to $75.0 million, from $125.0 million under the Credit Agreement. The letter of credit sub-limit and the swingline sub-limit under the U.S. Commitments remain at $30.0 million and $25.0 million, respectively, under the Second Amendment. The Credit Agreement expires in April 2019. 

 

Borrowings (not including swingline loans and alternative currency loans) under the revolving credit facility accrue interest at our option at either the Alternate Base Rate (as defined in the Credit Agreement) or the Adjusted LIBO Rate (as defined in the Credit Agreement) plus a margin depending on the our most recent Total Net Leverage Ratio (as defined in the Credit Agreement). The margin for Alternative Base Rate loans varies between 0% to 1.25% and the margin for Adjusted LIBO Rate loans varies between 1.00% to 2.25%. Swingline loans denominated in U.S. dollars bear interest at the Alternate Base Rate plus a margin as described above and swingline loans denominated in alternative currencies bear interest at the Overnight LIBO Rate (as defined in the credit agreement) plus the applicable margin for the Adjusted LIBO Rate. Substantially all of our domestic assets, including the stock of our wholly-owned domestic subsidiaries and 66.0%

59


 

 

of the stock of our first-tier foreign subsidiaries, are pledged as collateral to secure borrowings made under the revolving credit facility. Furthermore, each of our material wholly-owned domestic subsidiaries has guaranteed the full and punctual payment of the obligations under the revolving credit facility. The European Commitments are also secured by the assets of our foreign subsidiaries, which do not guarantee the obligations of our domestic subsidiaries. There are currently no restrictions on the ability of our subsidiaries to declare and pay dividends to us.  

 

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

 

As of September 30, 2015, the weighted average interest rate on our outstanding revolving credit facility borrowings was approximately 2.0%. Additionally, as of September 30, 2015, we were in compliance with all the covenants contained within the revolving credit facility. 

 

As of September 30, 2015, our outstanding balance on the revolving credit facility was $153.8 million, of which $126.0 million was outstanding under the U.S. Commitments and $27.8 million was outstanding under the European Commitments. The available borrowing capacity under the revolving credit facility totaled approximately $221.2 million, of which $174.0 million is available to the U.S. and $47.2 million is available to Cardtronics Europe. 

 

$287.5 Million 1.00% Convertible Senior Notes due 2020. In November 2013, we completed a private placement of $287.5 million in Convertible Notes that pay interest semi-annually at a rate of 1.00% per annum and mature on December 1, 2020. There are no restrictive covenants associated with these Convertible Notes. In connection with the Convertible Notes, we also entered into note hedges at a purchase price of $72.6 million, and sold warrants for proceeds of $40.5 million, the net effect of which was to raise the effective conversion price of the Convertible Notes to $73.29. We are required to pay interest semi-annually on June 1st and December 1st, and to make principal payments on the Convertible Notes at maturity or upon conversion. We are permitted to settle any conversion obligation under the Convertible Notes, in excess of the principal balance, in cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. We intend to satisfy any conversion premium by issuing shares of our common stock. For additional details, see Item 1. Financial Statements, Note 8. Long-Term Debt.

 

$250.0 Million 5.125% Senior Notes due 2022. On July 28, 2014, in a private placement offering, we issued the 2022 Notes pursuant to an indenture dated July 28, 2014 among us, our subsidiary guarantors and Wells Fargo Bank, National Association, as trustee. Interest on the 2022 Notes is payable semi-annually in cash in arrears on February 1 and August 1 of each year, and commenced on February 1, 2015. Pursuant to the associated registration rights agreement, on June 5, 2015, we filed a registration statement with the Securities and Exchange Commission to allow the holders of the 2022 Notes to exchange such notes for registered notes that have substantially identical terms to the 2022 Notes. This exchange offer commenced June 17, 2015, and resulted in all 2022 Notes being exchanged for registered notes in July of 2015.

 

As of September 30, 2015, we were in compliance with all applicable covenants required under the 2022 Notes.

 

New Accounting Standards

 

See Item 1. Financial Statements, Note 18. New Accounting Pronouncements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in the 2014 Form 10-K.

 

We are exposed to a variety of market risks, including interest rate risk and foreign currency exchange rate risk. The following quantitative and qualitative information is provided about financial instruments to which we were a party at September 30, 2015, and from which we may incur future gains or losses from changes in market interest rates or foreign currency exchange prices. We do not enter into derivative or other financial instruments for speculative or trading purposes.

 

Hypothetical changes in interest rates and foreign currencies chosen for the following estimated sensitivity analysis are considered to be reasonably possible near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates and foreign currencies, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.

 

Interest Rate Risk

 

Vault cash rental expense. Because our ATM vault cash rental expense is based on market rates of interest, it is sensitive to changes in the general level of interest rates in the respective countries in which we operate. In the U.S., the U.K., and Germany we pay a monthly fee to our vault cash providers on the average amount of vault cash outstanding under a formula based on the respective market’s London Interbank Offered Rates. In Mexico we pay a monthly fee to our vault cash provider under a formula based on the Interbank Equilibrium Interest Rate (commonly referred to as the “TIIE”). In Canada we pay interest to our vault cash providers based on the average amount of vault cash outstanding under a formula based on the Bank of Canada’s bankers’ acceptance rate.

 

As a result of the significant sensitivity surrounding our vault cash rental expense, we have entered into a number of interest rate swaps to effectively fix the rate we pay on the amounts of our current and anticipated outstanding vault cash balances. During the nine months ended September 30, 2015, we added new forward-starting interest rate swaps in the aggregate notional amount of $600.0 million that begin in 2019 and terminate in 2020 to extend our hedging program related to interest rate exposure on vault cash. The following swaps currently in place serve to fix the rate utilized for our vault cash rental agreements in the U.S. for the following notional amounts and periods:

 

 

 

 

 

 

 

 

 

Notional Amounts

 

Weighted Average Fixed Rate

 

Term 

 

(In millions)

 

 

 

 

 

 

$  

1,300

 

2.84

%  

 

October 1, 2015 – December 31, 2015

 

$  

1,300

 

2.74

%  

 

January 1, 2016 – December 31, 2016

 

$  

1,000

 

2.53

%  

 

January 1, 2017 – December 31, 2017

 

$  

750

 

2.54

%  

 

January 1, 2018 – December 31, 2018

 

$  

600

 

2.42

%  

 

January 1, 2019 – December 31, 2019

 

$  

600

 

2.42

%  

 

January 1, 2020 – December 31, 2020

 

 

As of September 30, 2015, we had a net liability of $62.0 million recorded on our Consolidated Balance Sheet related to our interest rate swaps, which represented the fair value liability of the agreements, as derivative instruments are required to be carried at fair value. Fair value was calculated as the present value of amounts estimated to be received or paid to a marketplace participant in a selling transaction. These swaps are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy established by U.S. GAAP), while taking into account the nonperformance risk of the party that is in the liability position with respect to each trade. These swaps are accounted for as cash flow hedges; accordingly, the changes in the fair values of the swaps and the resulting unrealized loss (net of estimated taxes) have been reported in Accumulated other comprehensive loss, net in the accompanying Consolidated Balance Sheets.

 

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Summary of interest rate exposure on average vault cash outstanding in North America (in millions):

 

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in North America based on our average outstanding vault cash balances for the three months ended September 30, 2015 and assuming a 100 basis point increase in interest rates:

 

 

 

 

 

 

Average vault cash balance

 

$

2,210

 

Interest rate swap fixed notional amount

 

 

(1,300)

 

Residual unhedged vault cash balance

 

$

910

 

 

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

9.10

 

 

We also have terms in certain of our North American contracts with merchants and financial institution partners where we can decrease fees paid to merchants or increase fees paid to us by financial institutions if vault cash rental costs increase. We had such protection in place on approximately $440.0 million of vault cash as of September 30, 2015. Such protection will serve to reduce but not eliminate the exposure calculated above.

 

Summary of interest rate exposure on average vault cash outstanding in Europe (in millions):

 

The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in Europe based on our average outstanding vault cash balances for the three months ended September 30, 2015 and assuming a 100 basis point increase in interest rates:

 

 

 

 

 

 

Average vault cash balance

 

$

1,422

 

Interest rate swap fixed notional amount

 

 

 —

 

Residual unhedged vault cash balance

 

$

1,422

 

 

 

 

 

 

Additional annual interest incurred on 100 basis point increase

 

$

14.22

 

 

Our sensitivity to changes in interest rates in Europe is somewhat mitigated by the interchange rate setting methodology that impacts the majority of our U.K. interchange revenue. Estimates of interest rates and cash costs are considered for determining the interchange rates. As a result of this structure, should interest rates rise in the U.K., causing our operating expenses to rise, we would expect to see a rise in interchange rates (and our revenues), albeit with a potential lag. We expect some growth in outstanding vault cash balances as a result of expected future business growth in the U.K., and we may seek additional ways to mitigate our exposure to floating interest rates through merchant contract terms and by engaging in derivative instruments in the future.

 

Interest expense. Our interest expense is also sensitive to changes in interest rates in the U.S., as borrowings under our revolving credit facility accrue interest at floating rates. Based on the $153.8 million outstanding under our revolving credit facility as of September 30, 2015, an increase of 100 basis points in the underlying interest rate would have had a $1.2 million impact on our interest expense in the nine months ended September 30, 2015. Should we increase our borrowings under our revolving credit facility in the future, and/or if interest rates significantly increase, the interest that we would be required to pay would be more significant. We have not entered into interest rate hedging arrangements in the past to hedge our interest rate risk for our floating rate borrowings on our revolving credit facility, and have no plans to do so. Due to fluctuating balances in the amount outstanding under our revolving credit facility, we do not believe such arrangements are cost effective.

 

Outlook. If we continue to experience low short-term interest rates in the U.S. and the U.K., it will be beneficial to the amount of interest expense we incur under our bank credit facilities and our vault cash rental expense. Although we currently hedge a substantial portion of our vault cash interest rate risk in the U.S., and work to mitigate our interest rate risk via our contracts, we may not be able to enter into similar hedging arrangements for similar amounts in the future, and any significant increase in interest rates in the future could have an adverse impact on our business, financial condition and results of operations by increasing our operating costs and expenses. However, we expect that the impact on our

62


 

 

financial statements from a significant increase in interest rates would be partially mitigated by the interest rate swaps that we currently have in place associated with our vault cash balances in the U.S. and contractual rights we have with certain partners. Nonetheless, any net increase in interest rates in any of the markets in which we operate is likely to have an adverse impact on our financial results.

 

Foreign Currency Exchange Rate Risk

 

As a result of our operations in the U.K., Germany, Poland, Mexico, and Canada, we are exposed to market risk from changes in foreign currency exchange rates, specifically with respect to changes in the U.S. dollar relative to the British pound, Euro, Polish zloty, Mexican peso, and the Canadian dollar. All of our international subsidiaries are consolidated into our financial results and are subject to risks typical of international businesses including, but not limited to, differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Furthermore, we are required to translate the financial condition and results of our international operations into U.S. dollars, with any corresponding translation gains or losses being recorded in other comprehensive income in our consolidated financial statements. As of September 30, 2015, this accumulated translation loss totaled approximately $37.5 million compared to approximately $34.7 million as of December 31, 2014.

 

Our consolidated financial results were impacted by changes in foreign currency exchange rates during the three months ended September 30, 2015 compared to the prior year periods. Our total revenues during the three and nine months ended September 30, 2015 would have been higher by approximately $10.7 million and $32.1 million, respectively, had the currency exchange rates from the three and nine months ended September 30, 2014 remained unchanged. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10.0% against the British pound, Euro, Polish zloty, Mexican peso, or Canadian dollar the effect upon our consolidated operating income would have been approximately $1.5 million and $2.8 million, respectively, for the three and nine months ended September 30, 2015. 

 

Certain intercompany balances between our U.S. parent company and our U.K. operations were designated as short-term in nature prior to September 2015. Due to this short-term designation, the changes in these balances related to currency exchange rates were recorded in our Consolidated Statements of Operations and we were exposed to foreign currency exchange risk as it related to these intercompany balances. However, in conjunction with the amendments to our revolving credit facility discussed above that enabled direct borrowings under the revolving credit facility by our European subsidiary, we amended certain terms of the intercompany balances and now do not expect that they will be settled in the foreseeable future. As a result, changes in currency exchange rates will no longer impact the majority of our intercompany borrowings and advances.

 

We do not hold derivative commodity instruments, and all of our cash and cash equivalents are held in money market and checking funds.

 

Item 4. Controls and Procedures

 

Management’s Quarterly Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2015 at the reasonable assurance level.

 

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Changes in Internal Control over Financial Reporting

 

There have been no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

For a description of our material pending legal and regulatory proceedings and settlements, see Part I. Financial Information, Item 1. Financial Statements, Note 13. Commitments and Contingencies.

 

Item 1A. Risk Factors

 

In addition to the information below and the other information set forth in the Form 10-Q, you should carefully consider the risks discussed in the 2014 Form 10-K under Part I. Item 1A. Risk Factors.  These risks could materially affect our business, financial condition or future results.  Other than as set forth below, there have been no material changes to our risk factors since the filing of the 2014 Form 10-K. 

 

We derive a substantial portion of our revenue from devices placed with a small number of merchants. The expiration, termination or renegotiation of any of these contracts or if one or more of our top merchants were to cease doing business with us, or substantially reduce its dealings with us, our revenues could decline significantly and our business, financial condition and results of operations could be adversely impacted.

 

For the year ended December 31, 2014, we derived 31.4% of our pro forma revenues from ATMs and financial services kiosks placed at the locations of our five largest merchant customers. For the year ended December 31, 2014, our top five merchants (based on our total revenues) were 7-Eleven, Inc. (“7-Eleven”), CVS Caremark Corporation, Walgreen Co., Speedway LLC, and The Pantry Inc. Our ATM placement agreement with 7-Eleven in the United States, which is the largest merchant customer in our portfolio, comprised approximately 17.5% of our pro forma revenues, including the effect of acquisitions completed during the applicable period, for the year ended December 31, 2014. The next four largest merchant customers together comprised approximately 13.9% of our pro forma revenues. In July 2015, we were informed by 7-Eleven that it does not intend to renew the ATM operating contract with us when it expires in mid-2017. While the ultimate impact to our business as a result of this decision is not known at this time, if we are unable to replace the revenues generated by that contract, our business, financial condition and results of operations would be adversely impacted. In addition, the non-renewal of the contract could affect us by adversely impacting, among other things, our partner and supplier relationships that are utilized in servicing the 7-Eleven relationship. Additionally, other matters related to the non-renewal of the 7-Eleven contract that could impact our future revenues and earnings include, but are not limited to, service transition discussions with 7-Eleven and its affiliates, the contractual terms and requirements under the contract, risk management and compliance-related matters, including the EMV standard and other factors.

 

Because a significant percentage of our future revenues and operating income depends upon the successful continuation of our relationship with our top merchants, the loss of any of our largest merchants or a decision by any one of them to reduce the number of our devices placed in their locations would result in a decline in our revenues or otherwise adversely impact our business operations. Furthermore, if their financial conditions were to deteriorate in the future, and as a result, one or more of these merchants was required to close a significant number of their store locations, our revenues would be significantly impacted. Additionally, these merchants may elect not to renew their contracts when they expire. As of September 30, 2015, the contracts we have with our top five merchants, other than 7-Eleven, had a weighted average remaining life of 3.04 years.

 

Even if other major contracts are extended or renewed, the renewal terms may be less favorable to us than the current contracts. If any of our largest merchants enters bankruptcy proceedings and rejects its contract with us, fails to renew its contract upon expiration, or if the renewal terms with any of them are less favorable to us than under our current contracts, it could result in a decline in our revenues and profits.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table provides information about purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the three months ended September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number of Shares

 

Approximate Dollar Value

 

 

 

Total Number of

 

Average Price

 

Purchased as Part of a Publicly

 

that may Yet be Purchased

 

Period

 

Shares Purchased (1)

 

Paid Per Share (2)

 

Announced Plan or Program

 

Under the Plan or Program (3)

 

July 1 — July 31, 2015

 

913

 

$

33.84

 

 —

 

$

 —

 

August 1 — August 31, 2015

 

6,510

 

$

35.21

 

 —

 

$

 —

 

September 1 — September 30, 2015

 

9,517

 

$

33.89

 

 —

 

$

 —

 

 


(1)

Represents shares surrendered to us by participants in our Second Amended and Restated 2007 Stock Incentive Plan (the “2007 Plan”) to settle the participants’ personal tax liabilities that resulted from the lapsing of restrictions on shares awarded to the participants under the 2007 Plan.

(2)

The price paid per share was based on the trading prices of our common stock on the dates on which we repurchased shares from the participants under our 2007 Plan.

(3)

In connection with the lapsing of the forfeiture restrictions on restricted shares granted by us under our 2007 Plan, which was adopted in December 2007 and expires in December 2017, we permitted employees to sell a portion of their shares to us in order to satisfy their tax liabilities that arose as a consequence of the lapsing of the forfeiture restrictions. In future periods, we may not permit individuals to sell their shares to us in order to satisfy such tax liabilities. Since the number of restricted shares that will become unrestricted each year is dependent upon the continued employment of the award recipients, we cannot forecast either the total amount of such securities or the approximate dollar value of those securities that we might purchase in future years as the forfeiture restrictions on such shares lapse.

 

Item 6. Exhibits

 

The exhibits required to be filed or furnished pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Index to Exhibits accompanying this Form 10-Q, and such Index to Exhibits is incorporated herein by reference.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

CARDTRONICS, INC.

 

 

 

October 29, 2015

 

/s/ J. Chris Brewster

 

 

J. Chris Brewster

 

 

Chief Financial Officer

 

 

(Duly Authorized Officer and

 

 

Principal Financial Officer)

 

 

 

October 29, 2015

 

/s/ E. Brad Conrad

 

 

E. Brad Conrad

 

 

Chief Accounting Officer

 

 

(Duly Authorized Officer and

 

 

Principal Accounting Officer)

 

 

 

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INDEX TO EXHIBITS

 

Each exhibit identified below is part of this Form 10-Q.

 

 

 

 

 

 

 

Exhibit
Number

 

Description

3.1

 

Fourth Amended and Restated Certificate of Incorporation of Cardtronics, Inc. (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Cardtronics, Inc. on May 23, 2014, SEC File No. 001-33864).

 

 

 

3.2

 

Fourth Amended and Restated Bylaws of Cardtronics, Inc. (incorporated herein by reference to Exhibit 3.2 of the Current Report on Form 8-K filed by Cardtronics, Inc. on May 23, 2014, SEC File No. 001-33864).

 

 

 

 

 

 

31.1*

 

Certification of the Chief Executive Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification of the Chief Financial Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification of the Chief Executive Officer and Chief Financial Officer of Cardtronics, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL*

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.LAB*

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE*

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

101.DEF*

 

XBRL Taxonomy Extension Definition Linkbase Document

 


* Filed herewith. 

 

 Management contract or compensatory plan or arrangement.

 

** Furnished herewith.

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