XNAS:CATM Cardtronics Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

 

FORM 10-Q 

 

 

 

(Mark One)

 

 

þ

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

 

 

 

For the quarterly period ended June 30, 2012 

 

or 

 

 

o 

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 þ No o 

 

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 þ No o 

 

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 þ

Accelerated filer o

Non-accelerated filer o 

Smaller reporting company o 

 

(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 o No þ 

 

Common Stock, par value: $0.0001 per share.  Shares outstanding on July 27, 2012:  44,211,611

 

 

 

 

 

 

 


 

CARDTRONICS, INC.

 

TABLE OF CONTENTS

 

   

Page 

   

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

1

   

Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011

1

   

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2011

2

 

Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2012 and 2011

3

   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011

4

   

Notes to Consolidated Financial Statements

5

Cautionary Statement Regarding Forward-Looking Statements 

30

Item 2.

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

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

51

   

   

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 6.

Exhibits

52

   

Signatures

53

 

 

 

When we refer to “us,” “we,” “our,” or “ours,” we are describing Cardtronics, Inc. and/or our subsidiaries.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, excluding share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

7,044 

 

$

5,576 

Accounts and notes receivable, net of allowance of $530 and $251 as of June 30, 2012 and December 31, 2011, respectively

 

48,246 

 

 

40,867 

Inventory

 

3,171 

 

 

3,517 

Restricted cash

 

3,372 

 

 

4,512 

Current portion of deferred tax asset, net

 

19,032 

 

 

26,902 

Prepaid expenses, deferred costs, and other current assets

 

14,080 

 

 

13,056 

Total current assets

 

94,945 

 

 

94,430 

Property and equipment, net

 

227,402 

 

 

191,331 

Intangible assets, net

 

104,092 

 

 

111,603 

Goodwill

 

272,114 

 

 

271,562 

Deferred tax asset, net

 

35,973 

 

 

23,101 

Prepaid expenses, deferred costs, and other assets

 

17,539 

 

 

20,774 

Total assets

$

752,065 

 

$

712,801 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt and notes payable

$

1,721 

 

$

2,317 

Current portion of other long-term liabilities

 

24,917 

 

 

25,101 

Accounts payable

 

24,008 

 

 

33,337 

Accrued liabilities

 

80,119 

 

 

77,948 

Current portion of deferred tax liability, net

 

934 

 

 

927 

Total current liabilities

 

131,699 

 

 

139,630 

Long-term liabilities:

 

 

 

 

 

Long-term debt

 

372,208 

 

 

368,632 

Asset retirement obligations

 

40,178 

 

 

34,517 

Other long-term liabilities

 

94,389 

 

 

56,877 

Total liabilities

 

638,474 

 

 

599,656 

   

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

   

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $0.0001 par value; 125,000,000 shares authorized; 50,041,316 and 49,745,989 shares issued as of June 30, 2012 and December 31, 2011, respectively; 44,127,037 and 43,999,443 shares outstanding as of June 30, 2012 and December 31, 2011, respectively

 

 

 

Additional paid-in capital

 

242,856 

 

 

234,716 

Accumulated other comprehensive loss, net

 

(106,845)

 

 

(83,902)

Retained earnings

 

33,763 

 

 

14,270 

Treasury stock; 5,914,279 and 5,746,546 shares at cost as of June 30, 2012 and December 31, 2011, respectively

 

(57,895)

 

 

(53,500)

Total parent stockholders’ equity

 

111,884 

 

 

111,588 

Noncontrolling interests

 

1,707 

 

 

1,557 

Total stockholders’ equity

 

113,591 

 

 

113,145 

Total liabilities and stockholders’ equity

$

752,065 

 

$

712,801 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

1

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, excluding share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

ATM operating revenues

$

181,567 

 

$

141,429 

 

$

359,380 

 

$

274,528 

ATM product sales and other revenues

 

10,453 

 

 

5,865 

 

 

23,680 

 

 

10,807 

Total revenues

 

192,020 

 

 

147,294 

 

 

383,060 

 

 

285,335 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

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

 

123,621 

 

 

93,117 

 

 

244,248 

 

 

181,903 

Cost of ATM product sales and other revenues

 

9,479 

 

 

5,214 

 

 

21,260 

 

 

9,561 

Total cost of revenues

 

133,100 

 

 

98,331 

 

 

265,508 

 

 

191,464 

Gross profit

 

58,920 

 

 

48,963 

 

 

117,552 

 

 

93,871 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

16,589 

 

 

12,925 

 

 

32,664 

 

 

25,929 

Acquisition-related expenses

 

390 

 

 

343 

 

 

1,477 

 

 

343 

Depreciation and accretion expense

 

14,735 

 

 

11,437 

 

 

28,485 

 

 

22,807 

Amortization expense

 

5,412 

 

 

3,667 

 

 

10,887 

 

 

7,294 

Loss on disposal of assets

 

264 

 

 

86 

 

 

812 

 

 

163 

Total operating expenses

 

37,390 

 

 

28,458 

 

 

74,325 

 

 

56,536 

Income from operations

 

21,530 

 

 

20,505 

 

 

43,227 

 

 

37,335 

Other expense (income):

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

5,332 

 

 

4,754 

 

 

10,697 

 

 

9,567 

Amortization of deferred financing costs

 

224 

 

 

213 

 

 

444 

 

 

424 

Other expense (income)

 

26 

 

 

139 

 

 

(51)

 

 

(60)

Total other expense

 

5,582 

 

 

5,106 

 

 

11,090 

 

 

9,931 

Income before income taxes

 

15,948 

 

 

15,399 

 

 

32,137 

 

 

27,404 

Income tax expense

 

6,369 

 

 

6,657 

 

 

12,515 

 

 

12,104 

Net income

 

9,579 

 

 

8,742 

 

 

19,622 

 

 

15,300 

Net (loss) income attributable to noncontrolling interests

 

(85)

 

 

27 

 

 

129 

 

 

105 

Net income attributable to controlling interests and available to common stockholders

$

9,664 

 

$

8,715 

 

$

19,493 

 

$

15,195 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share – basic

$

0.22 

 

$

0.20 

 

$

0.44 

 

$

0.35 

Net income per common share – diluted

$

0.21 

 

$

0.20 

 

$

0.43 

 

$

0.35 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

43,268,541 

 

 

41,910,944 

 

 

43,163,377 

 

 

41,712,659 

Weighted average shares outstanding – diluted

 

43,730,200 

 

 

42,659,587 

 

 

43,648,954 

 

 

42,476,101 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

2

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

9,579 

 

$

8,742 

 

$

19,622 

 

$

15,300 

 

Unrealized losses on interest rate swap contracts, net of income tax benefit of $10,436 and $5,530 for the three months ended June 30, 2012 and 2011, respectively, and $15,050 and $4,309 for the six months ended June 30, 2012 and 2011, respectively

 

(16,873)

 

 

(9,747)

 

 

(23,245)

 

 

(6,724)

 

Foreign currency translation adjustments

 

(1,592)

 

 

(184)

 

 

302 

 

 

1,430 

 

Other comprehensive loss

 

(18,465)

 

 

(9,931)

 

 

(22,943)

 

 

(5,294)

 

Total comprehensive (loss) income

 

(8,886)

 

 

(1,189)

 

 

(3,321)

 

 

10,006 

 

Less: comprehensive (loss) income attributable to noncontrolling interests

 

(201)

 

 

53 

 

 

151 

 

 

204 

 

Comprehensive (loss) income attributable to controlling interests

$

(8,685)

 

$

(1,242)

 

$

(3,472)

 

$

9,802 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

3

 


 

 

 

 

CARDTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

   

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

19,622 

 

$

15,300 

 

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

 

 

 

 

 

 

 

Depreciation, accretion, and amortization expense

 

 

39,372 

 

 

30,101 

 

Amortization of deferred financing costs

 

 

444 

 

 

424 

 

Stock-based compensation expense

 

 

6,008 

 

 

4,624 

 

Deferred income taxes

 

 

11,131 

 

 

11,554 

 

Loss on disposal of assets

 

 

812 

 

 

163 

 

Unrealized gain on derivative instruments

 

 

(256)

 

 

(519)

 

Amortization of accumulated other comprehensive (gains) losses associated with derivative instruments no longer designated as hedging instruments

 

 

(122)

 

 

232 

 

Other reserves and non-cash items

 

 

1,101 

 

 

678 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Increase in accounts and notes receivable, net

 

 

(7,593)

 

 

(6,484)

 

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

 

 

(1,870)

 

 

60 

 

Increase in inventory

 

 

(1,758)

 

 

(333)

 

Decrease (increase) in other assets

 

 

4,404 

 

 

(19,024)

 

Decrease in accounts payable

 

 

(10,480)

 

 

(4,382)

 

(Decrease) increase in accrued liabilities

 

 

(1,093)

 

 

558 

 

Decrease in other liabilities

 

 

(3,801)

 

 

(1,913)

 

Net cash provided by operating activities

 

 

55,921 

 

 

31,039 

 

   

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(51,245)

 

 

(23,090)

 

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

 

 

(3,971)

 

 

(2,307)

 

Acquisitions

 

 

(250)

 

 

 

 

Net cash used in investing activities

 

 

(55,466)

 

 

(25,397)

 

   

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

117,300 

 

 

107,900 

 

Repayments of long-term debt and capital leases

 

 

(114,499)

 

 

(115,445)

 

Repayments of borrowings under bank overdraft facility, net

 

 

(195)

 

 

(1,042)

 

Proceeds from exercises of stock options

 

 

2,247 

 

 

5,931 

 

Repurchase of capital stock

 

 

(3,759)

 

 

(2,015)

 

Net cash provided by (used in) financing activities

 

 

1,094 

 

 

(4,671)

 

   

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(81)

 

 

(162)

 

Net increase in cash and cash equivalents

 

 

1,468 

 

 

809 

 

   

 

 

 

 

 

 

 

Cash and cash equivalents as of beginning of period

 

 

5,576 

 

 

3,189 

 

Cash and cash equivalents as of end of period

 

$

7,044 

 

$

3,998 

 

   

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid for interest, including interest on capital leases

 

$

10,508 

 

$

9,911 

 

Cash paid for income taxes

 

$

2,900 

 

$

1,691 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

4

 


 

 

 

 

 

 

 

CARDTRONICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) General and Basis of Presentation 

  

General 

 

Cardtronics, Inc., along with its wholly- and majority-owned subsidiaries (collectively, the "Company") provides convenient consumer financial services through its network of automated teller machines ("ATMs") and multi-function financial services kiosks. As of June 30, 2012, the Company provided services to over 54,900 devices across its portfolio, which included approximately 47,100 devices located in all 50 states of the United States ("U.S.") as well as in the U.S. territories of Puerto Rico and the U.S. Virgin Islands, approximately 4,100 devices throughout the United Kingdom ("U.K."), approximately 2,800 devices throughout Mexico, and approximately 900 devices throughout Canada. Included in the number of devices in the U.S. are approximately 2,200 multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account balance inquiries, perform other consumer financial services, including bill payments, check cashing, remote deposit capture (which is deposit taking at ATMs using electronic imaging), and money transfers. Also included in the total count of 54,900 devices are approximately 6,000 devices for which the Company provides various forms of managed services solutions, which may include services such as transaction processing, monitoring, maintenance, cash management, and customer service. 

 

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

 

In addition to its retail merchant relationships, the Company also partners with leading national financial institutions to brand selected ATMs and financial services kiosks within its network, including Citibank, N.A., JPMorgan Chase Bank, N.A., Sovereign Bank, N.A., SunTrust Banks, Inc., and PNC Bank, N.A. As of June 30, 2012,  approximately 16,500 of the Company’s domestic devices were under contract with financial institutions to place their logos on those machines, and to provide convenient surcharge-free access for their banking customers. The Company also owns and operates the Allpoint network, the largest surcharge-free ATM network within the U.S. (based on the number of participating ATMs). The Allpoint network, which has more than 47,800 participating ATMs, provides surcharge-free ATM access to customers of participating financial institutions that lack a significant ATM network. The Allpoint network includes a majority of the Company’s ATMs in the U.S., Puerto Rico and Mexico, approximately half of the Company’s ATMs in Canada, all of the Company’s ATMs in the U.K., and over 5,000 locations in Australia through a partnership with a local ATM owner and operator in that market. 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 in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network. Finally, the Company owns and operates an electronic funds transfer (“EFT”) transaction processing platform that provides transaction processing services to its network of ATMs and financial services kiosks as well as other ATMs under managed services arrangements.

 

Basis of Presentation 

 

This Quarterly Report on Form 10-Q (this "Form 10-Q") has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP"), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company's Annual Report on Form 10-K for the year ended December 31, 2011 ("2011 Form 10-K"), which includes a summary of the Company's significant accounting policies and other disclosures. 

 

The financial statements as of June 30, 2012 and for the three and six month periods ended June 30, 2012 and 2011 are unaudited. The Consolidated Balance Sheet as of December 31, 2011 was derived from the audited balance sheet filed in the 2011 Form 10-K. In management's opinion, all normal recurring adjustments necessary for a fair presentation of the Company's interim and prior period results have been made. The results of operations for the three and six month periods ended June 30, 2012 and 2011 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year. Additionally, the financial statements for prior periods include certain minor reclassifications. Those reclassifications did not impact the Company's total reported net income or stockholders' equity. 

 

The unaudited interim consolidated financial statements include the accounts of Cardtronics, Inc. and its wholly and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Because the Company owns a

5

 


 

majority (51.0%) interest in, and realizes a majority of the earnings and/or losses of, Cardtronics Mexico, S.A. de C.V. ("Cardtronics Mexico"), this entity is reflected as a consolidated subsidiary in the accompanying consolidated financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests. 

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could be material to the financial statements. 

 

Cost of ATM Operating Revenues and Gross Profit Presentation 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

(In thousands)

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

 

$ 

12,810 

 

$ 

9,855 

 

$ 

24,715 

 

$ 

19,641 

Amortization expense 

 

 

5,412 

 

 

3,667 

 

 

10,887 

 

 

7,294 

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

 

$ 

18,222 

 

$ 

13,522 

 

$ 

35,602 

 

 $

26,935 

 

(2) Acquisitions 

 

Acquisition of EDC

     

On July 25, 2011, the Company completed the acquisition of EDC ATM Subsidiary, LLC and Efmark Deployment I, Inc. (collectively referred to as "EDC") for approximately $145.0 million in cash. As a result of the acquisition, the Company added over 3,600 ATMs across 47 states, with the majority of the machines located in high-traffic convenience store locations. In addition, many of the EDC ATMs were 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.

    

Pro Forma Results of Operations. The following table presents the unaudited pro forma combined results of operations of the Company and the acquired EDC portfolios for the three and six months ended June 30, 2011, after giving effect to certain pro forma adjustments including: (1) elimination of intercompany transactions prior to the consummation of EDC into the Company, (2) amortization of acquired intangible assets and unfavorable contract liabilities assumed, (3) the impact of certain fair value adjustments such as depreciation on the acquired property and equipment, and (4) an interest expense adjustment to remove the historical long-term debt of EDC which was repaid and to add interest expense on additional borrowings by the Company to fund the acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended 

 

 

Six Months Ended 

 

 

 

June 30, 2011 

 

 

June 30, 2011

 

 

 

As Reported 

 

 

Pro Forma 

 

 

As Reported

 

 

Pro Forma 

 

 

 

(In thousands) 

 

Total revenues 

 

$ 

147,294 

 

 

$ 

162,292 

 

 

$ 

285,335 

 

 

$ 

315,171 

 

Net income attributable to controlling interests and available to common stockholders 

 

 

8,715 

 

 

 

7,495 

 

 

 

15,195 

 

 

 

14,898 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma earnings per share – basic

 

$

0.20 

 

 

$

0.17 

 

 

$

0.35 

 

 

$

0.35 

 

Pro forma earnings per share – diluted

 

$

0.20 

 

 

$

0.17 

 

 

$

0.35 

 

 

$

0.34 

 

 

The unaudited pro forma financial results do not reflect the impact of the other acquisitions consummated by the Company in 2011, as the impact from these acquisitions would not be material to the condensed consolidated results of operations. The unaudited pro forma financial results assume that the EDC acquisition occurred on January 1, 2010, and are not necessarily indicative of the actual results that would have occurred had those transactions been completed on that date. Furthermore, it does not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated operations.

 

6

 


 

Other Acquisitions

 

During the year ended December 31, 2011, the Company completed three other business combinations that were not material individually or in the aggregate, including LocatorSearch, LLC (“LocatorSearch”) on August 1, 2011, Mr. Cash ATM Network, Inc. (“Mr. Cash”) on October 28, 2011, and Access to Money, Inc. ("Access to Money") on November 1, 2011. 

 

Additionally, on January 25, 2012, the Company acquired certain assets from Complete Technical Services Limited (“CTS”), an ATM installation company in the U.K. The acquisition of the CTS assets did not have a material effect on the Company’s consolidated results of operations during the three and six months ended June 30, 2012.

 

(3) Stock-Based Compensation 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

(In thousands)

Cost of ATM operating revenues 

 

$ 

320 

 

$ 

253 

 

$ 

523 

 

$ 

519 

Selling, general, and administrative expenses 

 

 

3,128 

 

 

2,140 

 

 

5,485 

 

 

4,105 

Total stock-based compensation expense 

 

$ 

3,448 

 

$ 

2,393 

 

$ 

6,008 

 

$ 

4,624 

 

The increase in stock-based compensation expense during the three and six month periods ended June 30, 2012 was due to the issuance of additional shares of restricted stock awards ("RSAs") and restricted stock units ("RSUs") to certain of the Company's employees and directors during the last twelve months. All grants during the periods above were granted under the Company's Amended and Restated 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan").

 

 Options.  The number of the Company's outstanding stock options as of June 30, 2012, and changes during the six months ended June 30, 2012, are presented below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

Weighted Average Exercise Price

Options outstanding as of January 1, 2012

 

 

1,281,950 

 

$ 

9.73 

Exercised 

 

 

(246,592)

 

$ 

8.65 

Options outstanding as of June 30, 2012

 

 

1,035,358 

 

$ 

9.99 

 

 

 

 

 

 

Options vested and exercisable as of June 30, 2012

 

 

968,858 

 

$ 

10.19 

 

As of June 30, 2012, the unrecognized compensation expense associated with outstanding options was approximately $0.2 million.

 

Restricted Stock Awards.  The number of the Company's outstanding RSAs as of June 30, 2012, and changes during the six months ended June 30, 2012, are presented below: 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

RSAs outstanding as of January 1, 2012

 

 

1,106,612 

Granted 

 

 

48,735 

Vested 

 

 

(498,058)

Forfeited

 

 

(5,850)

RSAs outstanding as of June 30, 2012

 

 

651,439 

 

The restricted shares granted during the six months ended June 30, 2012 had a total grant-date fair value of approximately $1.2 million, or weighted average share price of $25.09 per share.  As of June 30, 2012, the unrecognized compensation expense associated with all outstanding restricted share grants was approximately $8.1 million. 

 

Restricted Stock Units.  In the first quarters of 2012 and 2011, the Company granted RSUs under the Company's 2012 and 2011 Long Term Incentive Plans ("LTIPs"), respectively, which are equity programs under the 2007 Stock Incentive Plan. The ultimate number of RSUs

7

 


 

to be earned and outstanding are approved by the Compensation Committee of the Company's Board of Directors (the "Committee"), and are based on the Company's achievement of certain performance levels during the calendar year following its grant. Since these grants have both a performance-based and a service-based vesting schedule, the Company recognizes the related compensation expense over the requisite service period using a graded vesting methodology, based on the estimated performance levels that management believes will ultimately be met.

 

During the first quarter of 2012, the performance-based vesting requirements for the 2011 LTIP were determined to have been met by the Committee.  As of June 30, 2012,  524,500 RSUs were granted and outstanding. The unrecognized compensation expense associated with RSU grants was approximately $4.3 million as of June 30, 2012.

 

(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 statements of operations) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three and six month periods ended June 30, 2012 and 2011 included all outstanding stock options and shares of restricted stock, which were included in the calculation of diluted earnings per share for these periods.

 

Additionally, the shares of restricted stock issued by the Company have a non-forfeitable right to cash dividends, if and when declared by the Company.  Accordingly, restricted shares are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the three and six month periods ended June 30, 2012 and 2011 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows: 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2012

 

Six Months Ended June 30, 2012

 

 

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 

 

$ 

9,664 

 

 

 

 

 

 

 

$ 

19,493 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares 

 

 

(359)

 

 

 

 

 

 

 

 

(696)

 

 

 

 

 

 

Net income available to common stockholders 

 

$ 

9,305 

 

 

43,268,541 

 

$ 

0.22 

 

$ 

18,797 

 

 

43,163,377 

 

$ 

0.44 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares 

 

$ 

359 

 

 

 

 

 

 

 

$ 

696 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method 

 

 

 

 

 

461,659 

 

 

 

 

 

 

 

 

485,577 

 

 

 

Less: Undistributed earnings reallocated to restricted shares 

 

 

(356)

 

 

 

 

 

 

 

 

(689)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions 

 

$ 

9,308 

 

 

43,730,200 

 

$ 

0.21 

 

$ 

18,804 

 

 

43,648,954 

 

$ 

0.43 

8

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2011

 

Six Months Ended June 30, 2011

 

 

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 

 

$ 

8,715 

 

 

 

 

 

 

 

$ 

15,195 

 

 

 

 

 

 

Less: Undistributed earnings allocated to unvested restricted shares 

 

 

(262)

 

 

 

 

 

 

 

 

(478)

 

 

 

 

 

 

Net income available to common stockholders 

 

$ 

8,453 

 

 

41,910,944 

 

$ 

0.20 

 

$ 

14,717 

 

 

41,712,659 

 

$ 

0.35 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add: Undistributed earnings allocated to restricted shares 

 

$ 

262 

 

 

 

 

 

 

 

$ 

478 

 

 

 

 

 

 

Stock options added to the denominator under the treasury stock method 

 

 

 

 

 

748,643 

 

 

 

 

 

 

 

 

763,442 

 

 

 

Less: Undistributed earnings reallocated to restricted shares 

 

 

(258)

 

 

 

 

 

 

 

 

(470)

 

 

 

 

 

 

Net income available to common stockholders and assumed conversions 

 

$ 

8,457 

 

 

42,659,587 

 

$ 

0.20 

 

$ 

14,725 

 

 

42,476,101 

 

$ 

0.35 

 

The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock (including both RSAs and RSUs) of 688,414 and 683,639 shares for the three and six month periods ended June 30, 2012, respectively, and 531,127 and 526,487 shares for the three and six month periods ended June 30, 2011, respectively, because the effect of including these shares in the computation would have been anti-dilutive.

 

(5) Accumulated Other Comprehensive Loss

 

 Accumulated other comprehensive loss, net is displayed as a separate component of stockholders' equity in the accompanying Consolidated Balance Sheets and consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

(In thousands)

Foreign currency translation adjustments 

 

$ 

(26,833)

 

$ 

(27,135)

Unrealized losses on interest rate swap contracts, net of income tax benefit of $28,728 and $11,219 as of June 30, 2012 and December 31, 2011, respectively

 

 

(80,012)

 

 

(56,767)

Total accumulated other comprehensive loss, net 

 

$ 

(106,845)

 

$ 

(83,902)

 

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

 

The Company currently believes that the unremitted earnings of its foreign subsidiaries will be reinvested for an indefinite period of time. Accordingly, no deferred taxes have been provided for the differences between the Company's book basis and underlying tax basis in these subsidiaries or on the foreign currency translation adjustment amounts.

 

(6) Noncurrent Prepaid Expenses and Other Assets

 

The $17.5 million of Prepaid expenses, deferred costs, and other assets as of June 30, 2012 included $13.4 million recorded for an insurance receivable, related to the loss sustained as a result of the misappropriation of cash in February 2010 by the president and principal owner of Mount Vernon Money Center ("MVMC"), one of the Company's former third-party armored service providers in the Northeast U.S.   

  

In February 2010, the Company reported a loss under its own cash insurance policy related to the cash misappropriated by MVMC. In May 2011, the Company's supplier of the vault cash at issue demanded repayment from the Company for the $16.2 million that MVMC had misappropriated. The Company subsequently repaid this amount to the vault cash provider through a borrowing under its revolving credit

9

 


 

facility.  Initially, the Company’s insurance provider indicated that any otherwise unreimbursed portions of the $16.2 million loss would ultimately be recoverable under the Company’s cash insurance policy. As a result of making the repayment to the vault cash provider, the Company recorded a receivable, currently classified as noncurrent, as the Company expected to receive full reimbursement of the amount of misappropriated cash. In March 2011, the Company filed a formal insurance claim with its insurer seeking reimbursement of the $16.2 million. In November 2011, the Company filed a lawsuit against its insurer seeking to expedite the repayment of the Company’s loss. In January 2012, the insurer filed a general denial, along with certain affirmative defenses. In January 2012, the Company received $2.8 million from the government receiver, representing a pro rata allocation of the assets seized by the government.  This payment reduced this noncurrent receivable balance. While it is uncertain as to the timing of the recovery of the remainder of the assets, the Company believes that it is probable that the Company will be able to fully recover the remaining $13.4 million currently recorded as a noncurrent receivable as of June 30, 2012 from the Company’s insurance provider. Events continue to develop in the pending litigation (with its inherent uncertainties) and, as a result, the timing of recovery and the ultimate amount recovered may differ from current expectations.

 

(7) 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 of June 30, 2012, as well as the changes in the net carrying amounts for the six months ended June 30, 2012, by segment: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

U.S.

 

U.K.

 

Other International

 

Total

 

 

(In thousands) 

Balance as of January 1, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance 

 

$ 

255,465 

 

$ 

63,364 

 

$ 

2,736 

 

$ 

321,565 

Accumulated impairment loss 

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$ 

255,465 

 

$ 

13,361 

 

$ 

2,736 

 

$ 

271,562 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase price adjustments

 

 

256 

 

 

 

 

 

 

256 

Acquisition

 

 

 

 

199 

 

 

 

 

199 

Foreign currency translation adjustments 

 

 

 

 

108 

 

 

(11)

 

 

97 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

Gross balance 

 

$ 

255,721 

 

$ 

63,671 

 

$ 

2,725 

 

$ 

322,117 

Accumulated impairment loss 

 

 

 

 

(50,003)

 

 

 

 

(50,003)

 

 

$ 

255,721 

 

$ 

13,668 

 

$ 

2,725 

 

$ 

272,114 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Name

 

 

U.S.

 

U.K.

 

Total

 

 

(In thousands)

Balance as of January 1, 2012

 

$ 

200 

 

$ 

3,098 

 

$ 

3,298 

Foreign currency translation adjustments 

 

 

 

 

25 

 

 

25 

Balance as of June 30, 2012

 

$ 

200 

 

$ 

3,123 

 

$ 

3,323 

 

Intangible Assets with Definite Lives 

 

The following is a summary of the Company's intangible assets that were subject to amortization as of June 30, 2012: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

 Net Carrying Amount

 

 

(In thousands)

Customer and branding contracts/relationships 

 

$ 

202,602 

 

$ 

(116,315)

 

$ 

86,287 

Deferred financing costs 

 

 

9,169 

 

 

(3,922)

 

 

5,247 

Exclusive license agreements 

 

 

19,170 

 

 

(11,153)

 

 

8,017 

Non-compete agreements 

 

 

1,982 

 

 

(764)

 

 

1,218 

Total 

 

$ 

232,923 

 

$ 

(132,154)

 

$ 

100,769 

 

 

10

 


 

(8) Accrued Liabilities 

 

Accrued liabilities consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

(In thousands)

Accrued merchant fees 

 

$ 

23,354 

 

$ 

20,387 

Accrued armored fees 

 

 

7,173 

 

 

5,497 

Accrued compensation

 

 

6,380 

 

 

9,991 

Accrued maintenance fees

 

 

6,189 

 

 

1,233 

Accrued interest expense

 

 

5,970 

 

 

5,709 

Accrued cash rental and management fees

 

 

5,369 

 

 

4,188 

Accrued merchant settlement amounts

 

 

4,845 

 

 

4,739 

Accrued purchases

 

 

4,386 

 

 

9,200 

Accrued interest rate swap payments

 

 

2,168 

 

 

2,034 

Accrued ATM telecommunications costs

 

 

1,331 

 

 

1,161 

Accrued processing costs 

 

 

954 

 

 

935 

Other accrued expenses 

 

 

12,000 

 

 

12,874 

Total 

 

$ 

80,119 

 

$ 

77,948 

 

(9) Long-Term Debt 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

(In thousands)

8.25% Senior subordinated notes due September 2018

 

$ 

200,000 

 

$ 

200,000 

Revolving credit facility, including swing-line credit facility (weighted-average combined interest rate of 2.4% and 2.7% as of June 30, 2012 and December 31, 2011, respectively)

 

 

170,200 

 

 

166,000 

Equipment financing notes 

 

 

3,729 

 

 

4,949 

Total 

 

 

373,929 

 

 

370,949 

Less: current portion 

 

 

1,721 

 

 

2,317 

Total long-term debt, excluding current portion 

 

$ 

372,208 

 

$ 

368,632 

 

Revolving Credit Facility 

 

As of June 30, 2012, the Company's revolving credit facility provided for $250.0 million in borrowings and letters of credit (subject to the covenants contained within the facility), had a termination date of July 2016, and contained a feature that allows the Company to expand the facility up to $325.0 million, subject to the availability of additional bank commitments by existing or new syndicate participants. 

 

This revolving credit facility includes a $15.0 million swing-line facility, a $60.0 million foreign currency sub-limit, and a $20.0 million letter of credit sub-limit. Borrowings under the facility bear interest at a variable rate, based upon the Company's total leverage ratio and the London Interbank Offered Rate ("LIBOR") or Alternative Base Rate (as defined in the agreement) at the Company's option. Additionally, the Company is required to pay a commitment fee on the unused portion of the revolving credit facility. Substantially all of the Company's assets, including the stock of its wholly-owned domestic subsidiaries and 66% of the stock of its foreign subsidiaries, are pledged to secure borrowings made under the revolving credit facility. Furthermore, each of the Company's domestic subsidiaries has guaranteed the Company's obligations under the revolving credit facility. There are currently no restrictions on the ability of the Company's wholly-owned subsidiaries to declare and pay dividends directly to us. 

 

As of June 30, 2012, the Company was in compliance with all applicable covenants and ratios under the facility, which were described in the 2011 Form 10-K.

 

As of June 30, 2012, $170.2 million was outstanding under the Company’s revolving credit facility. Additionally, the Company has posted a $2.0 million letter of credit serving to secure the overdraft facility of its U.K. subsidiary (further discussed below) and a $0.1 million letter of credit servicing to secure a third-party processing contract in Canada. These letters of credit, which the applicable third-parties may draw upon in the event the Company defaults on the related obligations, reduce the Company’s borrowing capacity under the facility. As of June 30, 2012, the Company’s available borrowing capacity under the revolving credit facility totaled approximately $77.7 million.

 

11

 


 

$200.0 Million 8.25% Senior Subordinated Notes Due 2018

 

The $200.0 million 8.25% senior subordinated notes due September 2018 (the "2018 Notes"), which are guaranteed by all of the Company's domestic subsidiaries, contain no maintenance covenants and only limited incurrence covenants, under which the Company has considerable flexibility. Interest under the 2018 Notes is paid semi-annually in arrears on March 1st and September 1st of each year. As of June 30, 2012, the Company was in compliance with all applicable covenants required under the 2018 Notes. 

 

Other Facilities 

 

Cardtronics Mexico equipment financing agreements. Between 2007 and 2010, Cardtronics Mexico entered into nine separate five-year equipment financing agreements with a single lender. These agreements, which are denominated in pesos and bear interest at an average fixed rate of 10.16%, were utilized for the purchase of ATMs to support the growth in the Company’s Mexico operations. As of June 30, 2012,  approximately $50.6 million pesos ($3.7 million U.S.) were outstanding under the agreements, with any future borrowings to be individually negotiated between the lender and Cardtronics Mexico. Pursuant to the terms of the loan agreements, the Company has issued guarantees for 51.0% of the obligations under these agreements (consistent with its ownership percentage in Cardtronics Mexico). As of June 30, 2012, the total amount of these guarantees was $25.8 million pesos ($1.9 million U.S.).

 

Bank Machine overdraft facility.  In addition to Cardtronics, Inc.’s $250.0 million revolving credit facility, Bank Machine, Ltd. (“Bank Machine”) has a £1.0 million overdraft facility. This overdraft facility, which bears interest at 1.0% over the bank’s base rate (0.5% as of June 30, 2012) and is secured by a letter of credit posted under the Company’s revolving credit facility as discussed above in the Revolving Credit Facility section, is utilized for general corporate purposes for the Company’s U.K. operations. As of June 30, 2012, there were no amounts outstanding under the overdraft facility.

 

(10) 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 restoration work. For each group of ATMs, 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 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. 

 

The following table is a summary of the changes in the Company's asset retirement obligation liability for the six months ended June 30, 2012 (in thousands): 

 

 

 

 

 

 

 

 

 

Asset retirement obligation as of January 1, 2012

 

$ 

34,517 

Additional obligations 

 

 

6,387 

Accretion expense 

 

 

1,250 

Payments 

 

 

(2,130)

Foreign currency translation adjustments 

 

 

154 

Asset retirement obligation as of June 30, 2012

 

$ 

40,178 

 

See Note 13, Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair value measurements.

 

12

 


 

(11) Other Liabilities 

 

Other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

(In thousands)

Current Portion of Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps 

 

$ 

23,774 

 

$ 

23,637 

Deferred revenue 

 

 

1,105 

 

 

1,440 

Other 

 

 

38 

 

 

24 

Total

 

$ 

24,917 

 

$ 

25,101 

 

 

 

 

 

 

 

Other Long-Term Liabilities:

 

 

 

 

 

 

Interest rate swaps 

 

$ 

86,002 

 

$ 

47,423 

Obligations associated with acquired unfavorable contracts

 

 

2,168 

 

 

3,349 

Deferred revenue 

 

 

1,184 

 

 

1,248 

Other 

 

 

5,035 

 

 

4,857 

Total 

 

$ 

94,389 

 

$ 

56,877 

 

The significant increase in the noncurrent portion of other long-term liabilities since December 31, 2011 is attributable to the Company's interest rate swaps, the liabilities for which increased due to the movement of the forward interest rate curve, particularly for the swaps entered into during 2012 that extend through 2018. This resulted in an increase in the Company's estimated future liabilities under such contracts, which as of June 30, 2012, carried approximately $109.5 million in estimated future liabilities. See Note 12, Derivative Financial Instruments for additional information on the Company's interest rate swaps.

 

(12) 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, most notably its investment in Bank Machine in the U.K.  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. and the U.K.  The Company does not currently utilize any derivative instruments to manage the interest rate risk associated with its vault cash rental obligations in Mexico or Canada, 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 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.  Such contracts are in place through December 31, 2018 for the Company's U.S. vault cash rental obligations, and December 31, 2013 for the Company's U.K. vault cash rental obligations.  By converting such amounts to a fixed rate, the impact of future interest rate changes (both favorable and unfavorable) on the Company's monthly vault cash rental expense amounts has been reduced.  The interest rate swap contracts typically involve the receipt of floating rate amounts from the Company's counterparties that match, in all material respects, the floating rate amounts required to be paid by the Company to its vault cash providers for the portions of the Company's outstanding vault cash obligations that have been hedged.  In return, the Company typically pays the interest rate swap counterparties a fixed rate amount per month based on the same notional amounts outstanding.  At no point is there an exchange of the underlying principal or notional amounts associated with the interest rate swaps. Additionally, none of the Company's existing interest rate swap contracts contain credit-risk-related contingent features. 

 

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

  

13

 


 

 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:  

 

 

 

 

 

 

 

 

 

 

 

 

 

23 

 

 

 

 

 

 

 

 

Notional Amounts 

 

Notional Amounts 

 

Notional Amounts 

 

Weighted Average 

 

 

U.S. 

 

U.K. 

 

Consolidated (1) 

 

Fixed Rate 

 

Term 

(in thousands) 

 

 

 

 

$ 

750,000 

 

£ 

50,000

 

$ 

828,075 

 

3.45 

% 

 

July 1, 2012 – December 31, 2012

$ 

1,000,000 

 

£ 

25,000

 

$ 

1,039,038 

 

2.69 

% 

 

January 1, 2013 – December 31, 2013 

$ 

1,250,000 

 

£ 

 

$ 

1,250,000 

 

2.98 

% 

 

January 1, 2014 – December 31, 2014 

$ 

1,300,000 

 

£ 

 

$ 

1,300,000 

 

2.84 

% 

 

January 1, 2015 – December 31, 2015 

$ 

1,300,000 

 

£ 

 

$ 

1,300,000 

 

2.74 

% 

 

January 1, 2016 – December 31, 2016 

$ 

1,000,000 

 

£ 

 

$ 

1,000,000 

 

2.53 

% 

 

January 1, 2017 – December 31, 2017

$ 

750,000 

 

£ 

 

$ 

750,000 

 

2.54 

% 

 

January 1, 2018 – December 31, 2018

____________ 

 

 

(1) 

U.K. pound sterling amounts have been converted into U.S. dollars at approximately $1.56 to £1.00, which was the exchange rate in effect as of June 30, 2012. 

 

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 (e.g., gains or losses) of those derivative instruments depends on (1) whether these instruments have been designated (and qualify) as part of a hedging relationship and (2) 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 a majority 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 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 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 taxes in the Accumulated other comprehensive loss, net line item within Stockholders' equity in the accompanying Consolidated Balance Sheets. 

 

The Company is also a party to certain derivative instruments that were originally, but are no longer, designated as cash flow hedges.  Specifically, during 2009, the Company entered into a number of interest rate swaps to hedge its exposure to changes in market rates of interest on its vault cash rental expense in the U.K.  During the fourth quarter of 2009, the Company's vault cash provider in that market exercised its rights under the contract to modify the pricing terms and changed the target vault cash rental rate within the agreement.  As a result of this change, the Company was no longer able to apply cash flow hedge accounting treatment to the underlying interest rate swap agreements.  In December 2009, the Company entered into a series of additional trades, the effects of which were to mostly offset the existing swaps and establish new swaps to match the modified underlying vault cash rental rate.  Since the underlying swaps were not deemed to be effective hedges of the Company's underlying vault cash rental costs, the Company was required to record an unrealized gain and a corresponding realized loss of $0.1 million and $0.3 million for the three months ended June 30, 2012 and 2011, respectively, and an unrealized gain and a corresponding realized loss of $0.3 million and $0.5 million for the six months ended June 30,  2012 and 2011, respectively, related to these swaps, which have been reflected in the Other expense (income) line item in the accompanying Consolidated Statements of Operations. 

 

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. 

 

14

 


 

Balance Sheet Data 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

Asset Derivative Instruments: 

(In thousands) 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts 

Prepaid expenses, deferred costs, and other current assets 

 

$ 

314 

 

Prepaid expenses, deferred costs, and other current assets 

 

$ 

606 

 

 

 

 

 

 

 

 

 

 

Liability Derivative Instruments: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts 

Current portion of other long-term liabilities 

 

$ 

23,196 

 

Current portion of other long-term liabilities 

 

$ 

22,520 

Interest rate swap contracts 

Other long-term liabilities 

 

 

86,002 

 

Other long-term liabilities 

 

 

47,423 

Total 

 

 

$ 

109,198 

 

 

 

$ 

69,943 

 

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

Interest rate swap contracts 

Current portion of other long-term liabilities 

 

$ 

578 

 

Current portion of other long-term liabilities 

 

$ 

1,117 

 

 

 

 

 

 

 

 

 

 

Total Derivatives 

 

 

$ 

109,462 

 

 

 

$ 

70,454 

 

The asset derivative instruments reflected in the table above relate to the portions of certain derivative instruments that were in an overall liability position, for which the remainder of the fair value is reflected in the liability derivative instruments portion above. 

 

Statements of Operations Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 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) 

 

 

2012

 

2011

 

 

 

2012

 

2011

 

 

(in thousands) 

 

 

 

(in thousands)

Interest rate swap contracts 

 

$ 

(23,244)

 

$ 

(15,761)

 

Cost of ATM operating revenues 

 

$ 

(6,448)

 

$ 

(5,937)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 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) 

 

 

2012

 

2011

 

 

 

2012

 

2011

 

 

(in thousands) 

 

 

 

(in thousands)

Interest rate swap contracts 

 

$ 

(35,965)

 

$ 

(18,654)

 

Cost of ATM operating revenues 

 

$ 

(12,842)

 

$ 

(11,698)

 

 

15

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

Derivatives Not Designated as Hedging Instruments

 

Location of Income (Loss) Recognized into Income on Derivative 

 

Amount of Income (Loss) Recognized into Income on Derivative 

 

 

 

 

2012

 

2011

 

 

 

 

(In thousands) 

Interest rate swap contracts

 

Cost of ATM operating revenues 

 

$ 

77 

 

$ 

(77)

Interest rate swap contracts

 

Other income

 

 

(5)

 

 

(37)

 

 

 

 

$ 

72 

 

$ 

(114)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

Derivatives Not Designated as Hedging Instruments

 

Location of Income (Loss) Recognized into Income on Derivative 

 

Amount of Income (Loss) Recognized into Income on Derivative 

 

 

 

 

2012

 

2011

 

 

 

 

(In thousands) 

Interest rate swap contracts

 

Cost of ATM operating revenues 

 

$ 

122 

 

$ 

(232)

Interest rate swap contracts

 

Other income

 

 

(6)

 

 

(50)

 

 

 

 

$ 

116 

 

$ 

(282)

 

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, as occurred during the fourth quarter of 2009, any resulting gains or losses will be recognized within the Other expense (income) line item of the Company's Consolidated Statements of Operations. 

 

As of June 30, 2012, the Company expected to reclassify $23.2 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. 

 

See Note 13, Fair Value Measurements for additional disclosures on the Company's interest rate swap contracts in respect to its fair value measurements.

 

(13) Fair Value Measurements 

 

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2012 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.