Creating Value Through Vision
2014 Annual Report and 10-K
At Cardtronics, 2014 has been a year of consistent delivery and execution. At the same
time, we’ve continued to lay the groundwork to support our long-term vision - a vision
that promises to drive growth for years to come through innovative product and service
development and thoughtful acquisitions.
By creating value for our customers – retailers and financial institutions, as well as the
consumers they serve – we are creating sustainable growth that delivers value to our
shareholders.
Cardtronics: Creating Value Through Vision
Contents
Financial Metrics
Letter from the CEO
Cardtronics at a Glance
Value: Delivered
Realizing Our Vision of a Broad
European Footprint
Value Through Visionary Ideas
North American Business
Delivers Solid Performance
Executive Leadership
1
2
4
5
6
9
10
12
Cardtronics: A History
Insert
Contact Information
and Notices
Inside Back Cover
Financial Metrics
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Total Revenue (in millions)
$532.1 million
$624.6 million
$780.4 million
+20%
vs. 2013
130.8
156.3
+16%
vs. 2013
189.5
218.8
253.9
32.3%
32.7%
31.3%
33.1%
33.3%
Adjusted EBITDA* (in millions)
Adjusted Gross Profit Margin*
$876.5 million
$1,050 million
$2.41
+25%
vs. 2013
$1.93
$1.61
$1.37
$1.00
2010
2013 2014
2011
2012
Adjusted Earnings per
Diluted Share*
*For details on the calculation of Adjusted EBITDA, Adjusted Earnings per Diluted Share and Adjusted Gross Profit Margin, please see the
non-GAAP reconciliation included in the Form 10-K.
1
www.cardtronics.com | 2014 Annual Report Letter from the CEO
Dear Cardtronics Shareholder,
A billion reasons explain why 2014 proved to be
a strong year for Cardtronics. For the first time,
we exceeded the “one billion” milestone both for
consolidated revenues ($1.05 billion) and for the
number of ATM transactions (1.13 billion). Not
only were these symbolic landmark numbers,
but – more importantly – they represented both
impressive and continued double-digit growth.
That pace of growth extended to several vital financial measures:
adjusted EBITDA; adjusted net income; and adjusted earnings per
diluted share. Indeed, for the fifth year in a row, we registered at least
17 percent growth in adjusted earnings per share.
We achieved these advances in classic Cardtronics fashion. Never
reliant on a single business driver to power our growth, we delivered
value to our shareholders with action on several fronts during
2014. We completed acquisitions that drive scale. We grew in the
U.K. and Germany, expanding our European business to deliver a
significant and meaningful share (28 percent) of our revenue. We
signed new retail clients in multiple geographic regions. We gained
more share from existing retail clients. We signed new bank and
credit union clients and expanded branding relationships with
others. We attracted more cardholders to our ATMs, strengthening
the ties between our financial institutions and the consumers they
serve, while spurring foot traffic into our retailers and, subsequently,
increasing their sales.
CARDTRONICS
by the numbers
2
$1BILLION+
in consolidated
revenue in 2014
2014 Annual Report | www.cardtronics.com In short, we created value through the steady
execution of our vision during 2014. With a
Cardtronics relationship, the retailer receives
additional trackable spend from the foot traffic
our branding, surcharge-free and locator
products bring to their doors. The financial
institution benefits from delivering a network
of convenient surcharge-free ATMs that is often
superior to any other bank or credit union. And
the consumer gets convenient, reliable access
to cash and – as we continue technology
innovations – sometimes a little more.
That is a powerful combination of value
delivery. The year’s results are a testament to
our strategy. Expanding product capabilities
continue to create value for our clients and
their customers. Multiple revenue drivers
deliver value to our shareholders transaction
by transaction, time and time again.
1BILLION+
transactions
in 2014
Never reliant on a single
business driver to power
our growth, we delivered
value to our shareholders
on several fronts during
2014.
23
consecutive quarters of
double-digit adjusted
EPS growth
3
www.cardtronics.com | 2014 Annual Report Cardtronics at a Glance
WHO WE ARE
By making ATM cash access convenient where
people shop, work and live, Cardtronics is at the
convergence of retailers, financial institutions and
the customers they share. Cardtronics operates
over 110,000 strategically located retail ATMs
in the U.S., U.K., Mexico, Canada, Germany, and the
Caribbean. Whether Cardtronics is driving
foot traffic for America’s most relevant retailers,
enhancing ATM brand presence for card issuers
or expanding cardholders’ surcharge-free cash
access on the local, national or international scene,
Cardtronics is convenient access to cash, when and
where consumers need it.
WHERE WE DO BUSINESS
Total transacting ATMs worldwide
(owned and/or operated): 110,000+
Cardtronics ATMs by country
(owned and/or operated):
• United States:
• United Kingdom:
• Canada:
• Mexico:
• Germany:
92,000
13,000
2,500
2,000
900
ATMs in our Allpoint surcharge-free
ATM network: 55,000
North American bank-branded ATMs: 22,000+
In this growing network, our ATMs process
over 1.1 billion transactions each year.
Our innovative strategy is supported by a vast
network of trusted client relationships that includes:
• 10 out of the top 15 U.S. financial institutions*
• 8 out of the top 10 U.S. retailers**
Greater Convenience
& Relevance
WHERE CASH MEETS COMMERCE
Increased Traffic
and Sales
Expanded Reach
and Service
CARDTRONICS COMMUNITY
OUR NETWORK
-owned and/or operated-
92,000
United States
13,000
United
Kingdom
2,500
Canada
2,000
Mexico
900
Germany
our relationships
10 out of 15
8 out of 10
Top FIs
Top Retailers
* U.S. retail financial institutions ranked by assets.
**Retailers with an ATM presence in their stores. Top retailers per National Retail Federation.
4
2014 Annual Report | www.cardtronics.com
Value: Delivered
IN JUST
ONE
YEAR,
Cardtronics clients have seen dramatic increases in ATM withdrawals and point-of-sale spend at retailer
locations with ATMs branded by our financial institutions. Cardtronics’ SightLine offering allows us to track
meaningful data for our clients and turn it into actionable information. The results provide insight into the
differentiated and sophisticated value that Cardtronics is bringing to its relationships.
Consumers boost their in-store spend
Point-of-sale spend: Regional bank cardholders at
convenience store locations
Cardholders add cash to their shopping lists
ATM withdrawals: Regional bank cardholders at grocery store locations
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
One Year
Later
20000
One Year
Later
15000
10000
5000
Branding
Begins
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New customers discover the in-store ATM
and existing customers use it more often
New and repeating customer visits: Large bank cardholders at grocery store locations
One Year Later
2000
1500
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Branding
Begins
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New Unique
Repeaters
“ATM branding with Cardtronics
is making it more convenient
for cardholders to access their
money while exposing more
people to our financial institution
clients’ brands. But even more
important is the impact branding
arrangements have on our
customers’ bottom lines, through
stickier customer relationships
and debit POS transaction
revenue for banks and credit
unions, as well as increased sales
for our retailers.”
David Dove
President, North American Business Group
5
www.cardtronics.com | 2014 Annual Report
FIVE YEARS OF GROWTH
2014 was my fifth year at the helm of
Cardtronics, and we have achieved much since
February 2010. This year, we:
• Grew placements to more than 110,000
ATMs, up 37 percent from 2013’s 80,500 and
more than 214 percent from 2010’s 35,000.
We announced new deals in the U.S.,
Canada, the U.K., and Puerto Rico.
• Increased the global number of ATM
transactions that traveled our rails to 1.13
billion, up 23 percent from 920.1 million
in 2013 and 162 percent from 2010’s 431.4
million.
• Acquired three companies: Welch ATM and
Automated Financial in the U.S. and Sunwin
Services Group in the U.K.
• Continued our growth story with our
23rd consecutive quarter of double-digit
adjusted EPS growth.
What we achieved in 2014 – as well as the
previous four years – sets Cardtronics on a
sustainable growth path ahead.
REALIZING OUR VISION OF A BROAD EUROPEAN FOOTPRINT
Two milestones achieved by Cardtronics U.K. in September 2014 illuminate our European
business’s exceptional results in 2014.
The first was a transaction volume record of more than one million withdrawals for a single day.
On a single September Friday, approximately 16 percent of all U.K. consumers who used an ATM
somewhere other than their own bank did so at a Cardtronics ATM. Additionally, September was
a record month for installations with 250 ATMs installed in the U.K. alone.
Growth is the name of the game in Europe – and we seized that opportunity by increasing
revenues here by a whopping 64 percent to $293.7 million for the year, while our ATM count rose
12 percent to more than 13,000. Europe drove 28 percent of our overall revenues and accounted
for one-fourth of our consolidated gross margins. Transaction dollar volume surpassed $445
million, a 32 percent jump.
Highlights: Completion of a two-prong agreement with Co-op Food Group proved significant;
we acquired Sunwin Services Group and its U.K.-wide armored cash-in-transit operation and
also secured a seven-year exclusive contract for 1,950 existing high-volume ATMs and the future
deployment of several hundred at Co-op locations without an ATM.
We continued to win business from regional U.K. Co-op groups; expanded our relationship with
Waitrose, adding 300 ATM sites at the U.K. grocery chain and its sister John Lewis Department
Stores; and became the sole supplier of ATMs to BP in the U.K., expanding our existing
relationship with ATMs at 75 additional sites and boosting our total for BP to about 320.
In Germany, we expanded our ATM pact with Gauselmann Group for 50 new gaming hall sites,
and we made plans to enter another market, Poland, in early 2015.
Jonathan Simpson-Dent
Managing Director of Cardtronics Europe
6
2014 Annual Report | www.cardtronics.com 58% of U.K. ATM users
claim the ATM was the
main reason for their
store visit.
What we achieved
in 2014 – as well
as the previous
four years – sets
Cardtronics on
a sustainable
growth path
ahead.
Source: Cardtronics/Populus U.K. report, The Value of Cash
ACQUISITIONS: ADDING VALUE INSIDE AND OUTSIDE THE COMPANY
Acting on our expectations of growing more aggressively in North America,
we acquired the retail ATM services company Welch ATM in October. This
deal added more than 26,000 U.S. ATMs, including both turnkey and
merchant- and distributor-owned ATMs - further diversifying our portfolio.
The Welch portfolio provides a deeper relationship with Walgreens,
increasing our ATMs at its stores to 5,100, and adds Rite Aid as a premier
retailer, delivering 3,100 ATMs in its stores. The combination enhances our
market leadership in the pharmacy category.
In the U.K., our acquisition of Sunwin Services Group was part of a larger
deal that nicely expanded our presence in that country. (You can read more
about that in Realizing Our Vision of a Broad European Footprint on p. 6.)
While growth in scale has been a meaningful element of our acquisition
strategy, the addition of new talent and incorporation of new assets has
driven internal changes as well, as we’ve focused significant attention
on integrating the leadership and best practices we’ve acquired. For
example, we gained management strength with the addition of key
leadership and sales and operational talent from the Welch acquisition.
And we’re implementing lessons learned from a model that has worked
very successfully for us in Europe: building out highly focused teams with
responsibility for individual elements of the North American business as
well as shared services organizations that deliver efficiencies across those
elements, and pulling together a stronger sales engine.
7
www.cardtronics.com | 2014 Annual Report A growing global ATM market is giving
Cardtronics room to grow.
ATMs globally
3 million
110,000
6%
Annual global
ATM population
growth
Cardtronics ATMs
Cardtronics today owns or operates only 3%
of the global ATM population.
8%
Annual global
ATM transaction
volume growth
ATM transactions globally
95 billion
1.1 billion
ATM transactions processed
by Cardtronics
Cardtronics today processes only 1%
of the global ATM transaction volume
Source: RBR, Global ATM Market and Forecasts, Cardtronics
VALUE THROUGH VISIONARY PRODUCTS
AND SERVICES
This year, we’ve invested substantially in
building the products and tools that will
enable an increasingly unique and valuable
customer experience at Cardtronics ATMs. We
are building, testing, piloting and introducing
a number of products that are intended to
drive ATM transaction volume as well as
spending in the stores where are ATMs are
located. These include enhancements to our
ATM marketing and loyalty offerings and our
LocatorSearch engine, SightLine, and the
ALLTM. These products are building blocks for
our future.
These products are building
blocks for our future.
In addition to developing the products our
customers and cardholders are able to see and
feel, we’ve been putting resources toward back-
end technology. As those investments take hold
over the coming months, we’ll have more and
more flexibility to do things we haven’t been
able to do before. We’re becoming better able to
make screen modifications, for example, from
our headquarters in Houston rather than going
out and touching every ATM for every change.
All of this work is intended to keep us in the
forefront of the industry, to maintain our position
as the leader in providing value to our clients,
consumers, and our shareholders. And part of
seizing that role is doing our best to ensure that
all Cardtronics customers have the best user
experience when accessing their cash. While
we already work diligently – through ongoing
maintenance and regular inspections – to keep
our fleet of ATMs compliant with the accessibility
standards outlined by the Americans with
Disabilities Act (ADA), we’ve chosen to raise the
bar beyond compliance.
This year, in collaboration with the National
Federation of the Blind, we established the
Cardtronics Accessibility Center of Excellence. Its
mission is to deliver a superior, industry-leading
voice-guided user experience at our ATMs for
blind customers. We intend to be at the forefront
of developing standards for accessibility that
are among the industry’s highest, and we look
forward to implementing the work coming out of
that center.
8
2014 Annual Report | www.cardtronics.com OUR VISION FOR THE YEAR(S) AHEAD
Cardtronics’ year ahead – and, for that matter,
the next several years – looks promising,
indeed. While historical performance is never
a guarantee of future success, trends and
track records matter. And performance history
validates business models and execution
capability. Our 20 percent revenue growth
in 2014 continued a decade-long history of
attractive revenue growth that averaged 18
percent, with a slight acceleration during the
last three years.
History and current performance suggest two
themes associated with Cardtronics’ revenue
profile: consistency and gradual acceleration.
We are a growing company in a global ATM
market that is growing at about six percent a
year. And while we may be the largest retail
ATM owner/operator, we still represent only
three percent of the global ATM count – and
just one percent of the transaction volume.
We’ve got lots of room to grow.
The strategic investments we have made and
are continuing to make in 2015 should pay off
in substantial ways by expanding the value we
provide our customers and that they in turn
provide to their own customers.
While we’re gazing into our crystal ball, we
also expect to become more aggressive in new
geographic market entry over the next year
or so with our pace of entries increasing. This
is consistent with our strategy for diversifying
revenue and our view of the opportunities
available to us.
At the same time, we expect to continue
to develop and master the art of drawing
transaction share to our ATMs, and associated
point-of-sale spend in our retail partners. We
believe our sizeable investments in pioneering
products and tools will drive share – and that
transaction share will drive shareholder value.
VALUE THROUGH VISIONARY IDEAS
It’s all about our ATMs and their users. At Cardtronics, we never lose
sight of the need for our machines to provide value that goes beyond
simple access to cash.
Our investment in technology is bearing fruit in terms of new product
development and platform enhancement. Beyond advances on the
machines themselves, we’re delivering value for retailer and financial
institution clients alike through developments that help our clients
make savvy marketing decisions.
Highlights:
In October, we advanced our vision of what an ATM can be in a world
increasingly dominated by mobile technology, for consumers who are
always on the lookout for the best deal. We began dispensing cash +
digital rewards through our ALLTM™ Network at 17 grocery locations in
Phoenix. A screen atop the ALLTM invites users with promotional offers
and local weather content. But the real rewards come when ALLTM users
unlock savings at the participating retailer using the mobile app.
Further expanding on the ways Cardtronics ATMs can bring consumers
and retailers together, we began deploying our ATMpass network
in December, with the full launch taking place in early 2015. After
purchasing an ATMpass membership, consumers can use their existing
ATM cards to get cash at thousands of participating locations without
paying a surcharge fee. ATMpass was developed to give consumers the
freedom to choose convenient ATM cash access, independent of their
financial institution’s ATM network.
As we have continued to look for ways our ATMs can do more, we
needed to devise a way to enable our clients to measure their results.
Enter SightLine, our enterprise data warehouse offering, which delivers
a way for retailers and financial institutions to track what works –
whether that’s ATM marketing campaigns, ATM branding, or one of our
newer offerings. (See p. 5 for some of the results demonstrated by our
SightLine data.)
9
www.cardtronics.com | 2014 Annual Report NORTH AMERICAN
BUSINESS DELIVERS SOLID
PERFORMANCE
Supporting Cardtronics’ solid growth in
2014, operations in North America made
strong gains again this year. Our acquisition
of Welch ATM added more than 26,000 ATMs
to our U.S. roster, and our North American
ATM network grew 41 percent to more than
96,000. Our U.S. revenues grew by double
digits (10 percent) and our total North
American transaction volume grew by 16
percent.
These results reflect a busy year in our
North American business – a year of
executing nicely on our plans and realizing
the benefit.
Highlights
New and Expanded Relationships: Tedeschi
Food Shops, a Massachusetts-based
convenience store chain, and Fresh & Easy,
a chain of neighborhood markets with
stores in California, Arizona and Nevada,
both named Cardtronics their exclusive ATM
services provider.
We expanded our relationships with Pioneer
Energy in Canada, becoming its exclusive
full-service ATM provider; with PNC Bank to
brand 95 more locations in the southeast
U.S.; with CVS, adding 375 locations; with
BI-LO supermarkets at 240 locations; and
with Kroger at more than 100 locations. We
agreed to provide managed services for
Petro Canada, signing CIBC to brand these
locations.
We renewed our relationship with Walgreens
and added more stores with the Welch
acquisition, bringing the total Walgreens
locations we serve to 5,100. We also signed
renewals with The Pantry, for which we
operate more than 1,400 ATMs; and with
Global Cash Card, a leading provider of
custom pay card programs.
David Dove
President, North American Business Group
Our Allpoint Network continued to provide
surcharge-free access to more cardholders
through new and renewing relationships.
First Data’s STAR Network renewed the
agreement allowing STARsf® surcharge-free
program member financial institutions and
their cardholders unlimited access to the
Allpoint network in the United States. And
Mobile Money by T-Mobile, which includes a
T-Mobile Visa® Prepaid Card, now offers its
cardholders access to the Allpoint Network.
Getting Closer to Customers: Internally, we’ve
reorganized our North American business
structure, bringing together sales, product
and operations teams into divisions that
focus resources closer to our customers
in the different markets we serve. These
changes are intended to position us for
success next year and beyond, helping us to
manage our next stages of growth.
10
2014 Annual Report | www.cardtronics.com THAT’S A WRAP
I leave you with an observation that illustrates our evolution from the “vending cash” business to
a partner in growing store sales. For our largest retailer clients, I’ve noticed that we’re engaging
in dialogue at different levels in the organization than we have ever dealt with before. We’ve often
come in through the treasury function. And now, perhaps, we’re talking with people in innovation, or
marketing. We still talk with finance managers, but the table has grown in size.
A transition in dialogue is underway, where the conversation with our customers has become richer,
deeper, broader, and much more focused on what’s really important to them: how we can help drive
their top and bottom lines.
To me, this is one example among many of how executing on our vision is truly delivering value for
our stakeholders. We thank you for your confidence in that vision, and the continued support that
enables us to bring it to life.
Sincerely,
Steve Rathgaber
Chief Executive Officer
11
www.cardtronics.com | 2014 Annual Report Executive Leadership
BOARD OF DIRECTORS
EXECUTIVE MANAGEMENT
Dennis Lynch
Chairman of the Board
Steve Rathgaber
Chief Executive Officer
Tim Arnoult
Former President of Global Treasury Services
Bank of America
David Dove
President
North American Business Group
Jorge Diaz
Division President and Chief Executive Officer
Fiserv Output Solutions, a division of Fiserv, Inc.
Jonathan Simpson-Dent
Managing Director
Cardtronics Europe
Julie Gardner
Former Chief Marketing Officer
Kohl’s Corporation
Patrick Phillips
Former President of Premier Banking
Bank of America
Steve Rathgaber
Chief Executive Officer
Cardtronics
Mark Rossi
Senior Managing Director
Cornerstone Equity Investors LLC
Chris Brewster
Chief Financial Officer
Mike McCarthy
Chief Information Officer
Jerry Garcia
Chief Information Security Officer
Debra Bronder
Executive Vice President
Human Resources
Juli Spottiswood
Senior Vice President and General Manager
Blackhawk Engagement Solutions
Phillip Chin
Executive Vice President
Corporate Development & Investor Relations
Tom Pierce
Chief Marketing Officer
Mike Keller
General Counsel
12
2014 Annual Report | www.cardtronics.com 13
C A R D T R O N I C S
A H I S T O R Y
Cardtronics was founded as a one-man operation and has become the largest
retail ATM operator in the world.
EARLY GROWTH
17,980 ATMS
GLOBAL EXPANSION
35,900 ATMS
CONTINUED SUCCESS
62,800 ATMS
LOOKING AHEAD
110,000+ ATMS
2005
2006
2010
2010
2012
2013
Cardtronics is born as Cardpro
13,000 ATMs added
through E*TRADE
ATM estate
1993
2004
Cardtronics enters
Mexico
Cardtronics acquires
7-Eleven ATM fleet
adding advanced
functionality kiosks
to its network
2007
2002
2005
2008
Cardtronics sets sail
with Carnival Cruise
Lines, Kroger and
Travelex
Cardtronics acquires
LocatorSearch to
enhance convenience
marketing with locator
technology
2011
Cardtronics partners
with i-design to provide
ATM Marketing
2010
Acquisition of McLane
ATM business
Acquisition of Diebold
ATM portfolio
2001
2004
Cardtronics goes
public with IPO
NASDAQ: CATM
Global expansion
begins in the UK with
Bank Machine
Scotiabank brands
200 Cardtronics ATMs
in Puerto Rico
Cardtronics provides
high-volume ATM solution
for Gaylord Hotels
2001
Circle K signed
as first national
retail partner
Acquisition of
American Express
ATM fleet
2005
ATM Branding takes
flight with PNC
and Huntington
Surcharge-free goes
mainstream with
Allpoint acquisition
2001
2003
2006
2007
2009
Cardtronics enters
Puerto Rico
®
FeeAlert steers
cardholders to nearby
surcharge-free ATMs
Cardtronics introduces
Preferred Branding
Cardtronics transforms
UK operation and
enters Germany with
Cashzone acquisition
2011
2013
2014
Speedway, Wegmans,
and Harris Teeter join
retail partner lineup
Acquisition of
i-design, Merrimak,
Aptus and CGI Direct
Cardtronics expands
global presence with
7-Eleven Canada and
Shell UK
2012
Cardtronics enables
CIBC to offer fee-free
ATM access at Pioneer
Energy Stores and
Petro-Canada
2014
Allpoint offers cash and
check deposits
2014
BBVA Compass brands
300 ATMs at H-E-B stores
in Texas
Cardtronics launches
ALLTM concept at
Fresh & Easy markets
in Phoenix
2011
Acquisition of
Access to Money
and EDC
Cardtronics enters
Canada with Mr. Cash
acquisition
2011
Cardtronics acquires
ATM Network and
Can-Do-Cash
Discover Bank joins
financial services
client portfolio
2012
Frost grows in Texas
through ATM Branding
in Corner Store locations
2014
Co-operative Food
Store ATMs migrate to
Cardtronics U.K.
2014
Cardtronics acquires
Automated Financial,
Welch ATM and
Sunwin Services Group
2013
C A R D T R O N I C S
A H I S T O R Y
Cardtronics was founded as a one-man operation and has become the largest
retail ATM operator in the world.
EARLY GROWTH
17,980 ATMS
GLOBAL EXPANSION
35,900 ATMS
CONTINUED SUCCESS
62,800 ATMS
LOOKING AHEAD
110,000+ ATMS
Cardtronics is born as Cardpro
13,000 ATMs added
through E*TRADE
ATM estate
1993
2004
Cardtronics enters
Mexico
Cardtronics acquires
7-Eleven ATM fleet
adding advanced
functionality kiosks
to its network
2007
Cardtronics sets sail
with Carnival Cruise
Lines, Kroger and
Travelex
Cardtronics acquires
LocatorSearch to
enhance convenience
marketing with locator
technology
2011
FeeAlert steers
cardholders to nearby
surcharge-free ATMs
Cardtronics introduces
Preferred Branding
Cardtronics transforms
UK operation and
enters Germany with
Cashzone acquisition
2005
2006
2010
2010
2012
2013
2002
2005
2008
Acquisition of McLane
ATM business
Acquisition of Diebold
ATM portfolio
2001
2004
Cardtronics goes
public with IPO
NASDAQ: CATM
Global expansion
begins in the UK with
Bank Machine
Scotiabank brands
200 Cardtronics ATMs
in Puerto Rico
Cardtronics provides
high-volume ATM solution
for Gaylord Hotels
2011
2013
2014
Speedway, Wegmans,
and Harris Teeter join
retail partner lineup
Cardtronics expands
global presence with
7-Eleven Canada and
Shell UK
2012
Acquisition of
i-design, Merrimak,
Aptus and CGI Direct
Cardtronics partners
with i-design to provide
ATM Marketing
2010
Cardtronics enables
CIBC to offer fee-free
ATM access at Pioneer
Energy Stores and
Petro-Canada
2014
Allpoint offers cash and
check deposits
2014
BBVA Compass brands
300 ATMs at H-E-B stores
in Texas
Cardtronics launches
ALLTM concept at
Fresh & Easy markets
in Phoenix
2001
Circle K signed
as first national
retail partner
Acquisition of
American Express
ATM fleet
2005
ATM Branding takes
flight with PNC
and Huntington
Surcharge-free goes
mainstream with
Allpoint acquisition
2001
2003
2006
2011
Cardtronics enters
Canada with Mr. Cash
acquisition
Acquisition of
Access to Money
and EDC
2011
Cardtronics acquires
ATM Network and
Can-Do-Cash
Discover Bank joins
financial services
client portfolio
2012
Frost grows in Texas
through ATM Branding
in Corner Store locations
2013
2014
Cardtronics acquires
Automated Financial,
Welch ATM and
Sunwin Services Group
Co-operative Food
Store ATMs migrate to
Cardtronics U.K.
2014
2007
2009
®
Cardtronics enters
Puerto Rico
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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
(State or other jurisdiction of
incorporation or organization)
3250 Briarpark Drive, Suite 400
Houston, TX
(Address of principal executive offices)
76-0681190
(I.R.S. Employer
Identification No.)
77042
(Zip Code)
Registrant's telephone number, including area code: (832) 308-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. Yes No
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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 Act). Yes No
Aggregate market value of common stock held by non-affiliates as June 30, 2014, the last business day of the registrant’s most recently completed second
fiscal quarter, based on the reported last sale price of common stock on that date: $1,495,458,277.
Number of shares outstanding as of February 20, 2015: 44,806,955 shares of Common Stock, par value $0.0001 per share.
Portions of our definitive proxy statement for the 2015 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days of December 31, 2014, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
CARDTRONICS, INC.
TABLE OF CONTENTS
Properties
Legal Proceedings
Mine Safety Disclosures
Cautionary Statement Regarding Forward-Looking Statements
PART I
Business
Item 1.
Item 1A.
Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
Exhibits, Financial Statement Schedules
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
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When we refer to “us,” “we,” “our,” “ours,” “the Company,” or “Cardtronics,” we are describing Cardtronics, Inc. and/or our subsidiaries,
unless the context indicates otherwise.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the “2014 Form 10-K”) contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are identified by the use of the
words “project,” “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “foresee,” “would,” “could,” “plan,” and similar
expressions that 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 estimates for 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. Known material factors
that could cause actual results to differ materially from those in the forward-looking statements are those described in: Part I, Item 1A. Risk
Factors.
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 2014 Form 10-K. 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.
1
PART I
ITEM 1. BUSINESS
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 December 31, 2014, we were the world’s largest retail ATM owner, providing
services to approximately 110,200 devices throughout the United States (“U.S.”) (including the U.S. territories of Puerto Rico and the U.S.
Virgin Islands), the United Kingdom (“U.K.”), Germany, Canada, and Mexico. During 2014, 68.5% of our total revenues were derived from
our operations in the U.S., 27.7% from our operations in Europe, and 3.8% from our operations in other international locations. 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 December 31, 2014 were approximately 32,000 ATMs to which we provided various forms of managed services. Under a managed
services arrangement, retailers, financial institutions, and ATM distributors 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 an electronic funds
transfer (“EFT”) transaction processing platform that provides transaction processing services to our network of ATMs and financial services
kiosks, as well as to ATMs owned and operated by third-parties.
We generally deploy and operate devices under three distinct arrangements with our retail partners: Company-owned ATM placements,
merchant-owned ATM placements, and managed services. Under Company-owned arrangements, we provide the physical device (ATM) and
are typically responsible for all aspects of its operations, including transaction processing, managing cash and cash delivery, supplies, and
telecommunications, as well as routine and technical maintenance. Under merchant-owned arrangements, the retail merchant or an
independent distributor owns the device and is usually responsible for providing cash and performing simple maintenance tasks, while we
provide more complex maintenance services, transaction processing, and connection to the EFT networks. We also offer various forms of
managed services, depending on the needs of our customers. Each managed services arrangement is a customized ATM management solution
that can include any combination of the following services: monitoring, maintenance, cash management, cash delivery, customer service,
transaction processing, and other services. As of December 31, 2014, 49% of our devices operated were Company-owned, 22% were
merchant-owned and 29% of our devices were operated under a managed services solution. Each of the arrangement types described above
are attractive to us, and we plan to continue growing our revenues under each arrangement type.
In addition to our retail merchant relationships, we also partner with leading national financial institutions to brand selected ATMs and
financial services kiosks within our network, including Citibank, N.A., Santander Bank, N.A., PNC Bank, N.A., and Frost Bank, in the U.S.,
The Bank of Nova Scotia (“Scotiabank”) in Canada, Mexico, and Puerto Rico, Grupo Financiero Banorte, S.A. de C.V. in Mexico, and
Canadian Imperial Bank of Commerce (“CIBC”) in Canada. As of December 31, 2014, approximately 22,800 of our devices were under
contract with 413 financial institutions to place their logos on those machines, and to provide convenient surcharge-free access for their
banking customers.
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 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 number of locations in the U.K., Canada, 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.
Our revenues are recurring in nature, and historically have been derived primarily from convenience transaction fees, which are paid by
cardholders, and transaction fees, including interchange fees, which are paid by the cardholder’s financial institution for the use of the devices
serving their customers and the connectivity to the applicable EFT network that transmits data between the device and the cardholder’s
financial institution. Other revenue sources include: (1) branding our devices with the logos of leading national and regional banks and other
financial institutions, (2) providing managed services solutions to retailers and financial institutions, (3) collecting fees from financial
institutions that participate in our Allpoint surcharge-free network, and (4) selling ATM-related equipment and other ancillary services.
2
Organizational and Operational History
We were formed as a Texas corporation in 1993 and originally operated under the name of Cardpro, Inc. In June 2001, Cardpro, Inc. was
converted into a Delaware limited partnership and renamed Cardtronics, LP. Also, in June 2001, Cardtronics Group, Inc. was incorporated
under the laws of the state of Delaware to act as a holding company for Cardtronics, LP, with Cardtronics Group, Inc. indirectly owning
100% of the equity of Cardtronics, LP. In January 2004, Cardtronics Group, Inc. changed its name to Cardtronics, Inc. In December 2007, we
completed the initial public offering of 12,000,000 shares of our common stock. In December 2008, Cardtronics, LP was converted into a
corporation under the laws of Delaware and changed its name to Cardtronics USA, Inc. Cardtronics USA, Inc. is the primary domestic
operating subsidiary of Cardtronics, Inc.
Since May 2001, we have acquired 26 ATM portfolios, which expanded our operations both domestically and internationally in multi-
unit retail chains and individual merchant locations. We have also made other strategic acquisitions including the acquisition of Allpoint, our
surcharge-free network, i-design group plc (“i-design”), a Scotland-based provider and developer of marketing and advertising software and
services for ATM owners, and more recently in November 2014, Sunwin Services Group (“Sunwin”), a U.K. based provider of secure cash
logistics, ATM maintenance, and other services.
From 2001 to 2014, the total number of annual transactions processed within our network increased from approximately 19.9 million to
approximately 1.13 billion.
Additional Company Information
General information about us can be found on our website at http://www.cardtronics.com. We file annual, quarterly, and current reports
as well as other information electronically with the SEC under the Exchange Act. Our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports are available free of charge on our website as soon as
reasonably practicable after the reports are filed or furnished electronically with the SEC. You may read and copy any materials that we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. You may also
request an electronic or paper copy of our SEC filings at no cost by writing or telephoning us at the following: Cardtronics, Inc., Attention:
Chief Financial Officer, 3250 Briarpark Drive, Suite 400, Houston, Texas 77042; (832) 308-4000. Information on our website is not
incorporated into this 2014 Form 10-K or our other securities filings.
Our Strategy
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 as well as to drive expansion into new international markets in order 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 are actively pursuing 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 significant scale position 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 existing 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 these offerings to attract additional
financial institutions as customers. Our services currently offered to financial institutions include branding our ATMs with their logos, on-
screen advertising and content management, providing remote deposit capture, providing surcharge-free access to their customers through our
Allpoint network, and providing managed services for their ATM portfolios. Our EFT transaction processing capabilities provide us with the
ability 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 that 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.
3
Work with Non-Traditional Financial Institutions and Card Issuers to Further Leverage our Extensive ATM and Financial Services
Kiosk Network. We believe that 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 new card offerings. Additionally, we believe that many of the prepaid debit card issuers that exist today 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 that 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
potentially drive incremental transactions to our existing ATM locations. Examples of this effort are our 2011 acquisition of LocatorSearch,
which helps consumers find our ATMs, and the launch of FeeAlert in the third quarter of 2012, which enables financial institutions to help
their customers save money by steering them toward nearby in-network ATMs and away from ATM fees. We also have developed data
analysis technology that we refer to as SightLine to analyze the transaction patterns at our various 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 additional
and broader programs to steer the 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 motivation 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, remote 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 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 our managed services arrangement type. Under this arrangement, 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 this arrangement 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 surcharge or 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 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 completed several acquisitions including the acquisitions of: (1)
eight domestic ATM operators, expanding our fleet in both multi-unit regional retail chains and individual merchant ATM locations in the
U.S. by approximately 57,950 ATMs, inclusive of our acquisition of Welch ATM (“Welch”) in 2014, (2) two Canadian ATM operators for a
total of approximately 1,400 ATMs, which allowed us to enter into and expand our international presence in Canada, (3) Cardpoint Limited
(“Cardpoint”) in August 2013, which further expanded our U.K. ATM operations by approximately 7,100 ATMs and also allowed us to enter
into the German market with approximately 800 ATMs and (4) 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 1,950 existing high-transacting ATMs
located at Co-op Food stores and the opportunity to install and operate new ATMs in up to 800 stores that do not currently have ATMs. In
addition to ATM acquisitions, we have also made strategic acquisitions including (1) 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, and (2) i-design in March 2013, which is a Scotland-based provider and
developer of marketing and advertising software and services for ATM operators.
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 German market, 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
4
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 risks associated with international expansion.
For additional information on items that may impact our strategy, see Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Developing Trends in the ATM and Financial Services Industry.
Our Products and Services
Under our Company-owned arrangement type, we typically provide our merchant customers with all of the services required to operate
ATMs and financial services kiosks, which include monitoring, maintenance, cash management, customer service, and transaction
processing. We believe our merchant customers value our high level of service and our 24-hour per day monitoring and accessibility. In
connection with the operation of our devices under our traditional ATM services model, we generate revenue on a per-transaction basis from
the surcharge fees charged to cardholders for the convenience of using our devices and from interchange fees charged to these cardholders’
financial institutions for processing the related transactions conducted on those devices. As further described below, we also earn revenues on
these devices based on our relationships with certain financial institutions and our Allpoint network.
Under our merchant-owned arrangement type, we typically provide transaction processing services, certain customer support functions,
and settlement services. We generally earn interchange revenue on a per transaction basis in this arrangement. In some cases, the surcharge is
earned completely by the merchant, in which case our revenues are derived solely from interchange revenues. In other arrangements, we also
share a portion of the surcharge revenues with the merchant.
For ATMs under managed services arrangements, we typically receive a fixed monthly management fee and/or fixed rate per transaction
in return for providing the agreed-upon service or suite of services. We do not generally receive surcharge and interchange fees in these
arrangements, but rather those amounts are earned by our customer.
We also receive other revenues, such as dynamic currency conversion fees, on-screen advertising fees, and other transaction fees, across
our various arrangement types.
The following table provides detail relating to the number of devices we owned and operated under our various arrangements as of
December 31, 2014:
Number of devices at period end
Percentage
ATM Operations
Company-
Owned
53,436
48.5%
Merchant-
Owned
24,781
22.5%
Subtotal
78,217
71.0%
Managed
Services
31,989
29.0%
Total
110,206
100.0%
We have found that the primary factor affecting transaction volumes at a given ATM or financial services kiosk is its location. Therefore,
our strategy in deploying our devices, particularly those placed under Company-owned arrangements, is to identify and deploy them at
locations that provide high visibility and high retail transaction volume. Our experience has demonstrated that the following locations often
meet these criteria: convenience stores and a combination of convenience stores and gas stations, grocery stores, drug stores, transportation
hubs (e.g., airports), and other major regional and national retail outlets. We have entered into multi-year agreements with many well-known
merchants, including 7-Eleven, Inc. (“7-Eleven”), CVS Caremark Corporation (“CVS”), Cumberland Farms, Inc., Hess Corporation, The
Kroger Co., HEB Grocery Company, L.P., The Pantry, Inc. (“Pantry”), Safeway, Inc., Bi-Lo Holdings, LLC, Speedway LLC (“Speedway”),
Sunoco, Inc., Target Corporation, Valero Energy Corporation (“Valero”), Rite Aid Corporation, and Walgreen Co. (“Walgreens”) in the U.S.;
Bank of Ireland Group, BP p.l.c., BT Group plc, Martin McColl Ltd., Network Rail Infrastructure Limited, Royal Dutch Shell plc, Southern
Railway Ltd., Tates Ltd., Waitrose Ltd., Welcome Break Holdings Ltd., and Co-op Group in the U.K.; Cadena Comercial OXXO S.A. de
C.V. in Mexico; and 7-Eleven as well as Suncor Energy’s retail and wholesale marketing brand (“Petro-Canada”) in Canada.
We generally operate our ATMs and kiosks under multi-year contracts that provide a recurring and stable source of revenue and typically
have an initial term of five to seven years. As of December 31, 2014, our contracts with our top five merchant customers (based on 2014 pro-
forma revenues) accounted for 31% of our pro-forma revenues and had a weighted average remaining life of 2.7 years.
Additionally, we enter into arrangements with financial institutions to brand certain of our Company-owned ATMs with their logos.
These branding arrangements allow a financial institution to expand its geographic presence for a fraction of the cost of building a branch
location and typically for less than the cost of placing one of its own ATMs at that location. These arrangements allow a financial institution
to rapidly increase its number of branded ATM sites and improve its competitive position. Under these arrangements, the branding
institution’s customers are allowed to use the branded ATMs without paying a surcharge fee to us. In return, we receive monthly fees on a
per-ATM basis from the branding institution, while retaining our standard fee schedule for other cardholders using the branded ATMs. In
addition, our branded machines typically generate higher interchange revenue as a result of the increased usage of our ATMs by the branding
institution’s customers and others who prefer to use a bank-branded ATM. In 2013, we introduced a new approach to bank branding by
launching “preferred branding,” where additional financial institutions (aside from the “principal branding” partner on the ATM) can add
5
their logos to the ATM’s screen and safe door. We intend to continue pursuing additional branding arrangements as part of our growth
strategy. As of December 31, 2014, we had bank branding on approximately 22,800 ATMs with 413 financial institutions including Citibank,
N.A., Citizens Financial Group, Inc., Cullen/Frost Bankers, Inc., BBVA Compass Bancshares, Inc., Santander Bank, N.A., and PNC Bank,
N.A. in the U.S.; Bansí, S.A. Institución de Banca Multiple (“Bansi”) and Grupo Financiero Banorte, S.A. de C.V. (“Banorte”) in Mexico;
and The Bank of Nova Scotia (“Scotiabank”) and Canadian Imperial Bank of Commerce (“CIBC”) in Canada.
In addition to our bank branding arrangements, we offer financial institutions another type of surcharge-free program through our
Allpoint nationwide surcharge-free ATM network. Under the Allpoint network, financial institutions who are members of the network pay us
either a fixed monthly fee per cardholder or a set fee per transaction in exchange for us providing their cardholders with surcharge-free access
to ATMs in the Allpoint network, which includes ATMs throughout the U.S., U.K., Mexico, Canada, and Puerto Rico. We believe our
Allpoint network offers an attractive alternative to financial institutions that lack their own extensive ATM network.
For additional information on the amount of revenue contributed by our various service offerings, see Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Components of Revenues, Costs of Revenues, and Expenses –
Revenues.
Segment and Geographic Information
As of December 31, 2014, our operations consisted of our U.S., Europe, and Other International segments. Our U.S. segment includes
our operations in all 50 states, Puerto Rico and the U.S. Virgin Islands, and accounted for approximately 68.5% of our total revenues for the
year ended December 31, 2014. Our Europe segment includes our operations in the U.K. and Germany, and accounted for approximately
27.7% of our total revenues for the year ended December 31, 2014. Our Other International segment includes our operations in Mexico and
Canada, and accounted for approximately 3.8% of our total revenues for the year ended December 31, 2014. While each of these reporting
segments provides similar kiosk-based and/or ATM-related services, each segment is currently managed separately, as they require different
marketing and business strategies.
For financial information including revenues, earnings, and total assets of our reporting segments, see Part II, Item 8. Financial
Statements and Supplementary Data, Note 20, Segment Information. Additionally, for a discussion of the risks associated with our
international operations, see Item 1A. Risk Factors — Our international operations, including any future international operations, involve
special risks and may not be successful, which would result in a reduction of our gross and net profits.
Sales and Marketing
In the U.S., our sales and marketing teams are organized by customer type. We have a team principally focused on developing new
relationships with national, regional, and local merchants as well as building and maintaining relationships with our existing merchants and
ATM distributors. In addition to the merchant-focused sales and marketing group, we have a sales and marketing group that is focused on
developing and managing our branding relationships with financial institutions. Finally, we have a sales and marketing team that is focused
on developing and managing our Allpoint relationships with financial institutions and stored-value debit card issuers, as we look to expand
the types of services that we offer to such institutions. Our sales and marketing teams also focus on identifying potential managed services
opportunities with financial institutions and retailers alike. Additionally, we maintain sales teams in each of the international markets in
which we currently operate.
In addition to targeting new business opportunities, our sales and marketing teams support our customer retention and growth initiatives
by building and maintaining relationships with our established and recently-acquired merchants. We seek to identify growth opportunities
within each merchant account by analyzing the merchant’s sales at each of its locations. We also analyze foot traffic and various demographic
data to determine the best opportunities for new ATM and financial services kiosk placements, as well as the optimum drivers for increasing
same-store ATM transactions that will positively impact merchant point-of-sale (“POS”) levels. The employees that focus on sales are
typically compensated with a combination of incentive-based compensation and base salary.
Technology
Our technology and operations platform consists of ATMs and financial services kiosks, central transaction processing systems, network
infrastructure components (including hardware, software, and telecommunication circuits used to provide real-time device monitoring,
software distribution, and transaction processing services), cash management and forecasting software tools, customer service, and ATM
management infrastructure.
Equipment. We purchase our ATMs from global manufacturers, including, but not limited to, NCR Corporation (“NCR”), Triton
Systems of Delaware, Inc. (“Triton”), Diebold Incorporated (“Diebold”), and Nautilus Hyosung, Inc. (“Hyosung”), and place them in our
customers’ locations. The wide range of advanced technology available from these ATM manufacturers provides our customers with
advanced features and reliability through sophisticated diagnostics and self-testing routines. The different machine types can all perform basic
functions, such as dispensing cash and displaying account information. However, our technology is also capable of providing additional
services in response to changing consumer demand. Additionally, some of our devices provide enhanced financial services transactions,
including bill payments, check cashing, remote deposit capture, and money transfers.
6
Transaction Processing. We place significant emphasis on providing quality service with a high level of security and minimal
interruption. We have carefully selected support vendors and systems, as well as developed internal professional staff to optimize the
performance of our network. In 2006, we implemented an EFT transaction processing operation, which is based in Frisco, Texas. This
operation enables us to process and monitor transactions on our devices and to control the flow and content of information appearing on the
screens of such devices. We have also implemented new products and services such as currency conversion services and have introduced
targeted marketing campaigns through on-screen advertising. As with our existing network operation, we have carefully selected support
vendors and developed internal professional staff to help provide sophisticated security analysis and monitoring 24 hours a day to ensure the
continued performance of our ATMs. With our acquisitions of ATM portfolios over the past few years, we are actively converting the
transaction processing of the acquired ATMs to our in-house solution as previous contractual processing relationships expire or are
terminated.
Internal Systems. Our internal systems, including our EFT transaction processing operation, include multiple layers of security to help
protect the systems from unauthorized access. Protection from external sources is provided by the use of hardware- and software-based
security features that prevent and report unauthorized access attempts. We employ user authentication and security measures at multiple
levels. These systems are protected by detailed security rules to only allow appropriate access to information based on the employee’s job
responsibilities. All changes to the systems are controlled by policies and procedures, with automatic prevention and reporting controls that
are placed within our processes. Our real-time connections to the various financial institutions’ authorization systems that allow withdrawals,
balance inquiries, transfers, and advanced functionality transactions are accomplished via gateway relationships or direct connections. We
have installed these communications circuits with backup connectivity to help protect us from telecommunications interruption in any
particular circuit. We use commercially-available and custom software that continuously monitors the performance of the devices in our
network, including details of transactions at each device and expenses relating to those devices, further allowing us to monitor our on-line
availability and financial profitability at each location. We analyze transaction volume and profitability data to determine whether to continue
operating at a given site, to determine how to price various operating arrangements with merchants and branding partners, and to create a
profile of successful locations to assist us in deciding the best locations for additional deployments.
Product Development. In recent years we have made investments to develop new technology which we anticipate will drive transaction
volume at our ATMs. In March 2013, we acquired i-design, a Scotland-based company providing technology and services for ATM operators
to enable custom screens, graphical receipt content, advertising and marketing data capture on the ATM. We expect to continue to grow and
leverage the products and services of this business within our own network of ATMs and with select external parties. A number of products
that have been under development are in various stages of pilot and rollout, including FeeAlert, which allows financial institutions to direct
their customers to our surcharge-free ATMs for future transactions when they pay a surcharge at an ATM; Allpoint Deposits, a new
capability for Allpoint member customers to make check image-deposits and cash deposits into select Cardtronics advanced functionality
ATMs; and the ALLTM, a new ATM concept with a digital screen atop the ATM in a vibrant structure that provides users with access to
special retail coupons and special offers digitally through their mobile phone.
Cash Management. Our cash management department uses commercially-available software and proprietary analytical models to
determine the necessary fill frequency and cash load amount for each ATM. We project cash requirements for each ATM on a daily basis,
taking into consideration its location, the day of the week, the timing of holidays, and other factors such as specific events occurring in the
vicinity of the ATM. After receiving a cash order from us, the cash provider forwards the request to its vault location nearest to the applicable
ATM. Personnel at the vault location then arrange for the requested amount of cash to be set aside and made available for the designated
armored courier to access and subsequently transport to the ATM. Our cash management department utilizes data generated by the cash
providers, internally-generated data, and a proprietary methodology to confirm daily orders, audit delivery of cash to armored couriers and
ATMs, monitor cash balances for cash shortages, coordinate and manage emergency cash orders, and audit costs from both armored couriers
and cash providers.
In the U.K., we operate our own armored courier operation, Green Team Services Limited (“Green Team”) and recently further
expanded this internal capability through the acquisition of Sunwin in November 2014. As of December 31, 2014, this operation was
servicing over 9,500 of our ATMs in the U.K.
Customer Service. We believe one of the factors that differentiates us from our competitors is our customer service responsiveness and
proactive approach to managing any downtime experienced by our devices. We use an advanced software package that monitors the
performance of our devices 24 hours a day for service interruptions and notifies our maintenance engineers and vendors for prompt dispatch
of necessary service calls.
Finally, we use proprietary software systems to maintain a database of transactions made on, and performance metrics for, each of our
devices. This data is aggregated into individual merchant customer profiles that are readily accessible by our customer service representatives
and managers. We believe our proprietary databases enable us to provide superior quality and accessible and reliable customer support, along
with information on trends that is valuable to our retail and financial institution partners.
7
Primary Vendor Relationships
To maintain an efficient and flexible operating structure, we outsource certain aspects of our operations, including cash supply and cash
delivery, maintenance, and certain transaction processing services. Due to the large number of devices we operate, we believe we have
obtained favorable pricing terms from most of our major vendors. We contract for the provision of the services described below in connection
with our operations.
Transaction Processing. Although we have our own EFT processing platform that utilizes commercially available software, our
processing efforts are primarily focused on controlling the flow and content of information on the ATM screen. We refer to this process as
terminal driving. As such, we mostly rely on third-party service providers to handle our connections to the EFT networks and to perform
certain funds settlement and reconciliation procedures on our behalf. These third-party transaction processors communicate with the
cardholder’s financial institution through various EFT networks to obtain transaction authorizations and to provide us with the information
we need to ensure that the related funds are properly settled. In addition, we have developed a capability to connect to major financial
institutions on a direct basis and expect to expand this direct model, thus controlling fees and interchange on a negotiated basis with our
financial institution customers. As a result of our recent acquisitions, a portion of our withdrawal transactions are currently processed through
other third-party processors, with whom the acquired businesses had existing contractual relationships. We plan to convert transaction
processing services to our EFT processing platform as these contracts expire or are terminated.
EFT Network Services. Our transactions are routed over various EFT networks to obtain authorization for cash disbursements and to
provide account balances. EFT networks set the interchange fees that they charge to the financial institutions, as well as the amount paid to
us. We attempt to maximize the utility of our ATMs to cardholders by participating in as many EFT networks as practical. Additionally, we
own the Allpoint network, the largest surcharge-free network in the U.S. Having this network further enhances our ATM utility by providing
certain cardholders surcharge-free access to our ATMs, as well as allowing us to receive network-related economic benefits such as receiving
additional transaction-based revenue and setting interchange rates on transactions over this network.
Equipment. We purchase substantially all of our ATMs from a number of global ATM manufacturers, including NCR, Diebold, Triton,
and Hyosung. The large quantity of machines that we purchase from these manufacturers enables us to receive favorable pricing and payment
terms. In addition, we maintain close working relationships with these manufacturers in the course of our business, allowing us to stay
informed about product updates and to receive prompt attention for any technical problems with purchased equipment. The favorable pricing
we receive from these manufacturers also allows us to offer certain of our customers an affordable solution to replace their ATMs to be
compliant with new regulatory requirements as they arise.
Although we currently purchase the majority of our devices from NCR, we regularly purchase devices from other suppliers. In the event
of a device supply shortage from one supplier, we can shift purchases to another supplier.
Maintenance. We typically contract with third-party service providers for on-site maintenance services, except for in the U.K., where
maintenance services are mostly performed by our in-house technicians.
Cash Management. We obtain cash to fill our Company-owned devices, and in some cases merchant-owned and managed services
ATMs, under arrangements with various cash providers. We pay a monthly fee based on the average amount outstanding to our primary vault
cash providers under a formula, which is generally based on various benchmark interest rates such as London Interbank Offered Rates
(“LIBOR”). In the significant majority of cases, beneficial ownership of the cash is retained by the cash providers, and we have no right to
the cash and no access except for those ATMs that are serviced by our wholly-owned armored courier operations in the U.K. While our U.K.
armored courier operations have physical access to the cash loaded in those machines, beneficial ownership of that cash remains with the cash
provider at all times. We also contract with third-parties to provide us with certain cash management services, which varies by geography,
which may include reporting, armored courier coordination, cash ordering, cash insurance, reconciliation of ATM cash balances, and claims
processing with armored couriers, financial institutions, and processors.
For the quarter ended December 31, 2014, we had an average of approximately $1.9 billion in cash in our domestic ATMs under these
arrangements, with Bank of America, N.A. (“Bank of America”), Wells Fargo, N.A. (“Wells Fargo”), Elan (which is a business of U.S.
Bancorp), and Capital One Financial Corp. (“Capital One”). In the U.K. and Germany, the average balance of cash held in our ATMs was
$968.1 million for the quarter ended December 31, 2014, which was primarily supplied by The Santander Group and Barclays. For the
quarter ended December 31, 2014, our average vault cash balances in Mexico and Canada, totaled approximately $103.7 million. For
additional information on our vault cash agreements and the related risks, see Item 1A. Risk Factors – We rely on third-parties to provide us
with the cash we require to operate many of our devices. If these third-parties were unable or unwilling to provide us with the necessary cash
to operate our devices, we would need to locate alternative sources of cash to operate our devices or we would not be able to operate our
business.
The vault cash that we are contractually responsible for in all of the jurisdictions in which we operate is insured up to certain per location
loss limits and subject to per incident and annual aggregate deductibles through a syndicate of multiple Lloyd’s of London and U.S.-based
underwriters.
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Cash Replenishment. We contract with armored courier services to transport and transfer most of the cash to our devices. We use leading
third-party armored couriers in all of our jurisdictions except for in the U.K., where we primarily utilize Green Team and Sunwin, our own
armored courier operations. Under these arrangements, the armored couriers pick up the cash in bulk, and using instructions received from us
and our cash providers, prepare the cash for delivery to each ATM on the designated fill day. Following a predetermined schedule, the
armored couriers visit each location on the designated fill day, load cash into each ATM by either adding additional cash into a cassette or by
swapping out the remaining cash for a new fully loaded cassette, and then balance each machine and provide cash reporting to the applicable
cash provider. Green Team and Sunwin currently provide cash replenishment services to over 9,500 of our ATMs in the U.K..
Merchant Customers
In each of our markets, we typically deploy our Company-owned devices under long-term contracts with major national and regional
merchants, including convenience stores, supermarkets, drug stores, and other high-traffic locations. Our merchant-owned ATMs are
typically deployed under arrangements with smaller independent merchants.
The terms of our merchant contracts vary as a result of negotiations at the time of execution. In the case of Company-owned devices, the
contract terms vary, but typically include the following:
a multi-year term, typically five to seven years;
exclusive deployment of devices at locations where we install a device;
the right to increase surcharge fees, with merchant consent required in some cases;
in the U.S., our right to terminate or remove devices or renegotiate the fees payable to the merchant if surcharge fees or interchange
fees are reduced or eliminated as a result of regulatory action; and
provisions that make the merchant’s fee dependent on the number of device transactions.
Our contracts under merchant-owned arrangements typically include similar terms, as well as the following additional terms:
in the U.S., provisions prohibiting in-store check cashing by the merchant and, in the U.S. and the U.K., the operation of any other
cash-back devices; and
provisions requiring the merchant to operate the ATMs at any time its stores are open for business.
Finally, our managed services contracts are tailored to the needs of the merchant and therefore vary in scope and terms. Under these
types of arrangements, our customers determine the location, the surcharge fee, and the services offered while we typically receive a fixed
management fee on a per machine basis and/or a fixed rate per transaction.
7-Eleven in the United States is the largest merchant customer in our portfolio, representing approximately 17.5% of our pro forma
revenues for the year ended December 31, 2014. The underlying merchant agreement with 7-Eleven, which had an initial term of 10 years
from the effective date of the acquisition, expires in July 2017 unless it is renewed or extended. We are currently in discussions with 7-Eleven
about an extension or replacement contract. After 7-Eleven, our next four largest merchant customers (based on revenues) during 2014 were
CVS, Walgreens, Speedway, and Pantry, none of which individually generated in excess of 5% of our pro forma revenues in 2014. Our pro
forma revenues for 2014 were calculated based on actual 2014 revenues plus an estimate of the revenues from our late 2014 acquisitions for
the period of time during the year that they were not included in our reported results. For a discussion of the risks associated with our
customer mix, see Item 1A. Risk Factors – We derive a substantial portion of our revenue from devices placed with a small number of
merchants. If one or more of our top merchants were to suffer a material deterioration of their business and cease doing business with us, or
to substantially reduce its dealings with us, our revenues could decline.
Seasonality
Our overall business is somewhat seasonal in nature with generally fewer transactions occurring in the first quarter of the fiscal year.
Transaction volumes at our devices located in regions affected by strong winter weather patterns typically experience declines in volume
during the first and fourth quarters as a result of decreases in the amount of consumer traffic through such locations. These declines, however,
have been partially offset somewhat by increases in the number of our devices located in retail locations that benefit from increased consumer
traffic during the holiday buying season. With all of our ATMs located in the northern hemisphere, we usually see an increase in transactions
in the warmer summer months from May through August, which are also aided by increased vacation and holiday travel. We expect these
fluctuations in transaction volumes to continue in the future.
9
Competition
Historically, we have competed with financial institutions and other independent ATM deployers (commonly referred to as “IADs”) for
additional ATM placements, new merchant accounts, branding, and acquisitions. However, we also have established relationships with
leading national and regional financial institutions through our bank branding program and our Allpoint network. Both of these programs can
be cost-efficient alternatives to banks and other financial service providers in lieu owning and operating extensive ATM networks. We
believe the scale of our extensive network, our EFT transaction processing services and our focus on customer service provide us with
competitive advantages for providing services to leading financial institutions. However, our devices do compete with the devices owned and
operated by financial institutions and other IADs for underlying consumer transactions. In certain merchant location types with very high foot
traffic, such as airports or major train stations, large arenas or stadiums, we often will see competition from large financial institutions as the
institutions may contemplate utilizing such locations for marketing and advertising purposes and in some cases are willing to subsidize the
operations of the ATM.
Through our Allpoint surcharge-free network, we have significantly expanded our relationships with local and regional financial
institutions as well as large issuers of stored-value debit card programs. With regard to our Allpoint network, we encounter competition from
other organizations’ surcharge-free networks who are seeking to both sell their network to retail locations and offer surcharge-free ATM
access to issuers of stored-value debit cards, as well as smaller financial institutions that lack large ATM footprints.
As previously noted, we are increasing the types of services we provide to financial institutions and merchants, including providing
services to manage their ATMs. With respect to our managed services offering, we believe we are well-positioned to offer a comprehensive
ATM outsourcing solution with our breadth of services, in-house expertise, and network of existing locations, that can leverage the
economies of the physical services required to operate an ATM portfolio. There are several large financial services companies, equipment
manufacturers, and service providers that currently offer some of the services we provide, with whom we expect to compete directly in this
area. In spite of this, we believe that we have unique advantages that will allow us to offer a compelling solution to financial institutions and
retailers alike.
We also compete for acquisition opportunities in each of the markets in which we operate. Acquisitions have been a consistent part of
our strategy and we expect to continue to seek acquisition opportunities in our existing markets and new markets. Typically competition for
acquisitions is from other IADs, financial service or payments businesses, or private equity sponsors for ATM portfolios.
We also face indirect competition from alternative payment mechanisms, such as smart phones. While we have not experienced or been
able to detect significant direct effects from alternative payment sources on our transaction volumes to date, expansion in electronic payment
forms such as Apple Pay, could cause reduced demand for cash at merchant locations, and we expect to continue to face competition from
emerging payments technology in the future.
Government and Industry Regulation
Our principal business, ATM network ownership and operation, is subject to government (federal, state or local) regulation and industry
regulations. Our failure to comply with applicable laws and regulations could result in restrictions on our ability to provide our products and
services in such jurisdictions, as well as the imposition of civil fines. Recent regulatory matters that have impacted our operations or are
expected to impact us in the future are discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Recent Events, including financial regulatory reform in the U.S., the Europay, MasterCard, Visa (“EMV”) standard financial
regulatory reform in the U.K. and the European Union including the establishment of new governmental agencies, and other matters.
Risk Management
We have adopted a formalized Enterprise Risk Management (“ERM”) program that seeks to identify and manage the major risks we
face. The major risks are prioritized and assigned to a member of the management team who develops mitigation plans, monitors the risk
activity, and is responsible for implementation of the mitigation plan, if necessary. The risks, plans, and activities are monitored by our
management team and Board of Directors on a regular basis.
Employees
As of December 31, 2014, we had approximately 2,683 employees, 389 of which were represented by a union or covered by a collective
bargaining agreement. We currently believe our relationships with employees represented by unions are good and we have not experienced
any work stoppages.
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ITEM 1A. RISK FACTORS
Risks associated with our industry
The proliferation of payment options other than cash, including credit cards, debit cards, stored-value cards, and mobile payments
options could result in a reduced need for cash in the marketplace and a resulting decline in the usage of our ATMs.
The U.S. and other developed markets have seen a shift in consumer payment trends since the late 1990’s, with more customers now
opting for electronic forms of payment (e.g., credit cards and debit cards) for their in-store purchases over traditional paper-based forms of
payment (e.g., cash and checks). Additionally, some merchants offer free cash back at the point-of-sale (“POS”) for customers that utilize
debit cards for their purchases, thus providing an additional incentive for consumers to use these cards. According to the Nilson Report issued
in December 2014, the percentage of cash transaction counts in the U.S. declined from approximately 33% of all payment transactions in
2008 to approximately 28% in 2013, with declines also seen in check and credit usage as debit and stored-value card transactions increased.
However, in terms of absolute dollar value, the volume of cash used in payment transactions actually increased from $1.5 trillion in 2008 to
$1.6 trillion in 2013. While we saw an increase in the number of cash withdrawal transactions conducted on our domestic ATMs over the past
several years, in part due to the proliferation of stored-value cards, thus implying continued demand for convenient and reliable access to
cash, we have seen a lower transaction growth rate in recent periods. Additionally, the continued growth in electronic payment methods could
result in a reduced need for cash in the marketplace and ultimately, a decline in the usage of ATMs. New payment technology and adoption
of such technology such as Apple Pay or Square® mobile payment technology, virtual currencies such as Bitcoin, or other new payment
method preferences by consumers could reduce the general population’s need or demand for cash and negatively impact our transaction
volumes in the future.
Interchange fees, which comprise a substantial portion of our transaction revenues, may be lowered in some cases at the discretion of
the various EFT networks through which our transactions are routed, or through potential regulatory changes, thus reducing our future
revenues.
Interchange fees, which represented approximately 34% of our total ATM operating revenues for the year ended December 31, 2014, are
in some cases set by the various EFT networks through which transactions conducted on our devices are routed, and typically vary from one
network to the next. As of December 31, 2014, approximately 5% of our total ATM operating revenues were subject to pricing changes by
U.S. networks over which we currently have limited influence or where we have no ability to offset pricing changes through lower payments
to merchants. Approximately 15% of our total ATM operating revenues during the year ended December 31, 2014 were derived from
interchange revenues from our U.K. operation, where the significant majority of the interchange revenues we earn are based on rates set by
the major interbank network in that market, LINK, based on an annual cost-based study performed by an independent third-party
organization. The remainder of reported interchange revenue reflects transaction-based revenues whereby we have contractually agreed to the
rate with a financial institution or network. Accordingly, if some of the networks through which our ATM transactions are routed were to
reduce the interchange rates paid to us or increase their transaction fees charged to us for routing transactions across their network, our future
transaction revenues could decline.
In past years, certain networks have reduced the net interchange rates paid to ATM deployers for ATM transactions in the U.S. routed
across their debit networks through a combination of reducing the transaction rates charged to financial institutions and higher per transaction
fees charged by the networks to ATM operators. In addition to the impact of the net interchange rate decrease, we saw certain financial
institutions migrate their volume away from some networks to take advantage of the lower pricing offered by other networks, resulting in
lower net interchange rates per transaction to us.
Additionally, some consumer groups in the U.S. have expressed concern that consumers using an ATM may not be aware that, in
addition to paying the surcharge fee that is disclosed to them at the ATM, their financial institution may also assess an additional fee to offset
any interchange fee assessed to the financial institution by the EFT networks with regard to that consumer’s transaction. These fees are
sometimes referred to as “foreign bank fees” or “out of network fees.” While there are currently no pending legislative actions calling for
limits on the amount of interchange fees that can be charged by the EFT networks to financial institutions for ATM transactions or the
amount of fees that financial institutions can charge to their customers to offset their interchange expense, there can be no assurance that such
legislative actions will not occur in the future. Any potential future network or legislative actions that affect the amount of interchange fees
that can be assessed on a transaction may adversely affect our revenues.
Finally, interchange rates in the U.K., most of which are set by LINK, using a cost-based methodology that incorporates average
operating costs, interest rates, and cash costs from two years back (i.e., average operating costs, interest rates, and other costs from 2013 are
considered for determining the 2015 interchange rate) can vary year-to-year based on the output of the cost-based study. We have seen this
LINK rate move both up and down based on the results of the cost study. While over time, we think this methodology generally enables us to
recover our costs and earn a reasonable profit margin, large spikes in costs within a particular time period could adversely impact our
profitability in this market as the interchange rates are currently fixed on a calendar year basis. In addition to LINK transactions, certain card
issuers in the U.K. have issued cards that are not affiliated with the LINK network, and instead carry the Visa or MasterCard network brands.
Transactions conducted on our ATMs from these cards, which currently represent less than 2% of our annual withdrawal transactions in the
U.K., receive interchange fees that are set by Visa or MasterCard, respectively. The interchange rates set by Visa and MasterCard have
11
historically been less than the rates that have been established by LINK. Accordingly, if any major financial institutions in the U.K. were to
decide to leave the LINK network in favor of Visa or MasterCard, such a move could further reduce the interchange revenues that we receive
from the related withdrawal transactions conducted on our ATMs in that market.
We operate in a changing and unpredictable regulatory environment. If we are subject to new legislation regarding the operation of
our ATMs, we could be required to make substantial expenditures to comply with that legislation, which may reduce our net income and
our profit margins.
With its initial roots in the banking industry, the U.S. ATM industry is regulated by the rules and regulations of the federal Electronic
Funds Transfer Act, which establishes the rights, liabilities, and responsibilities of participants in EFT systems. The vast majority of states
have few, if any, licensing requirements. However, legislation related to the U.S. ATM industry is periodically proposed at the state and local
level. In past years, certain members of the U.S. Congress called for a re-examination of the interchange and surcharge fees that are charged
for an ATM transaction, although no legislation was passed relative to that matter. As a part of the Dodd-Frank Act, the Consumer Financial
Protection Bureau was created, and it is possible that this governmental agency could enact new or modify existing regulations that could
have a direct or indirect impact on our business. For further discussion on this topic, see the risk factor below entitled: The passage of
legislation banning or limiting the fees we receive for transactions conducted on our ATMs would severely impact our revenues.
The Americans with Disabilities Act (“ADA”) requires that ATMs be accessible to and independently usable by individuals with
disabilities, such as visually-impaired or wheel-chair bound persons. The U.S. Department of Justice has issued accessibility regulations
under the ADA that became effective in March 2012. Leading up to this deadline, we took measures to achieve compliance with the ADA
for our ATMs, which required us to upgrade and replace a portion of our ATM fleet. It is possible that future similar regulations may require
us to make more substantial expenditures and we may be forced to replace and or stop operating such ATMs until such time as compliance
has been achieved.
In the U.K., the ATM industry is largely self-regulating. Most ATMs in the U.K. are part of the LINK network and must operate under
the network rules set forth by LINK, including complying with rules regarding required signage and screen messages. However, in March
2013, the U.K. Treasury department 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 new PSR will become active in April 2015. We are
currently uncertain of the effect the new regulator will have on LINK, its rules and its interchange rate setting process, or on our business.
In July 2013, the European Commission put forward a new draft directive (the “draft Directive”) to regulate payment service providers
operating in the European Union (“PSD2”). Broadly, PSD2 seeks to harmonize rules for the licensing of payment institutions and introduces
certain common rules affecting all payment service providers (“PSPs”) throughout the European Union. The draft Directive sets out the rights
and obligations of payment service users and PSPs together with transparency and security requirements to facilitate safe, efficient payment
transactions. Whereas the current Payment Services Directive exempts independent ATM deployers, PSD2 (as currently drafted) will apply
to businesses of this nature. The draft Directive is currently still in Committee stage in the European Parliament and has not yet been properly
considered by the Council. At this time, we are uncertain what impact, if any, these proposed regulatory changes will have on our business.
We are also subject to various regulations in other jurisdictions that we operate in, including Germany, Mexico and Canada. Legislation
proposed in any of the jurisdictions that we operate in, or adverse changes in the laws that we are subject to, may materially affect our
business through the requirement of additional expenditures to comply with that legislation. We will continue to monitor all such legislation
and attempt, to the extent possible, to prevent the passage of such laws that we believe are needlessly burdensome or unnecessary. If
regulatory legislation is passed in any of the jurisdictions in which we operate, we could be required to make substantial expenditures which
would reduce our net income.
On December 4, 2007, the U.S. District Court for the District of Massachusetts (“District Court”) granted final approval of a class action
settlement agreement (“Settlement Agreement”) in regard to Civil Action No. 03-11206-NMG (the “Lawsuit”) wherein the National
Federation of the Blind, the Commonwealth of Massachusetts, et. al. and certain individuals (“Class Members”) representing a class of
similarly situated persons (collectively the "Plaintiffs") sought to require, among other things, that ATMs deployed by Cardtronics be voice-
guided.
The parties subsequently had a number of disputes concerning performance of the Settlement Agreement by Cardtronics. The parties
ultimately resolved these disputes through a revised agreement called a Remediation Plan, which was granted final approval by the Court on
November 3, 2010. The Remediation Plan extended some of the deadlines in the Settlement Agreement and also obligated Cardtronics to
install customized voice-guidance software on the vast majority of its owned machines by December 31, 2010.
On July 29, 2011, and again in August 2012, Plaintiffs moved for contempt sanctions, alleging that Cardtronics was not in compliance
with the Settlement Agreement and Remediation Plan. On March 21, 2013, the Court issued an Order finding that contempt sanctions against
Cardtronics were warranted, but stating further that the extent of Cardtronics’ violations remained to be ascertained. After extensive
negotiations, and with the assistance of a Court-appointed Special Master, the parties have now entered into an Amended and Restated Class
Action Settlement Agreement (“Proposed Amended Agreement”) to resolve all remaining disputes concerning Cardtronics’ alleged
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noncompliance with the Settlement Agreement and Remediation Plan. This Proposed Amended Agreement is subject to approval by the
District Court, following a notice and comment period provided to the Class Members. A copy of the Proposed Amended Agreement is
available on Cardtronics’ website: http://www.cardtronics.com/about/legal.asp and the website of the National Federation of the Blind, Inc:
https://nfb.org/images/nfb/documents/pdf/cardtronics_settlement_agreement.pdf. The net impact of the Proposed Amended Agreement will
require us to incur costs to ensure compliance with the agreement, but it is not expected to have a material adverse impact on our financial
results in the future. However, should we fail to comply with the terms of the Proposed Amended Agreement, we could incur significant
costs, including penalties and fines.
Security breaches, including the occurrence of a cyber-incident or a deficiency in our cybersecurity, could harm our business by
compromising merchant and cardholder information and disrupting our transaction processing services, thus damaging our relationships
with our merchant customers and exposing us to liability.
As part of our transaction processing services, we electronically process and transmit cardholder information. In recent years, companies
that process and transmit this information have been specifically and increasingly targeted by sophisticated criminal organizations in an effort
to obtain the information and utilize it for fraudulent transactions. We also maintain a proprietary database of merchant customer profiles.
The technical and procedural controls we and our partners use to provide security for storage, processing and transmission of confidential
customer and other information may not be effective to protect against data security breaches. The risk of unauthorized circumvention of our
security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Unauthorized
access to our computer systems, or those of our third-party service providers, could result in the theft or publication of the information or the
deletion or modification of sensitive records, and could cause interruptions in our operations. Any inability to prevent security breaches could
damage our relationships with our merchant and financial institution customers, cause a decrease in transactions by individual cardholders,
expose us to liability including claims for unauthorized purchases, and subject us to network fines. These claims also could result in
protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business
practices. Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance
obligations. Any material increase in our costs resulting from additional regulatory burdens being imposed upon us or litigation could have a
material adverse effect on our operating revenues and profitability. We maintain insurance intended to cover some of these risks; however,
this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.
Computer viruses or unauthorized software (malware) could harm our business by disrupting our transaction processing services,
causing noncompliance with network rules and damaging our relationships with our merchant customers, causing a decrease in
transactions by individual cardholders.
Computer viruses or malware could infiltrate our systems, thus disrupting our delivery of services and making our applications
unavailable. Although we utilize several preventative and detective security controls in our network, they may be ineffective in preventing
computer viruses or malware that could damage our relationships with our merchant customers, cause a decrease in transactions by individual
cardholders, or cause us to be in non-compliance with applicable network rules and regulations.
The ATM industry is highly competitive and such competition may increase, which may adversely affect our profit margins.
The ATM business is and can be expected to remain highly competitive. Our principal competition comes from independent ATM
companies and financial institutions in all of the countries in which we operate. Our competitors could prevent us from obtaining or
maintaining desirable locations for our devices, cause us to reduce the surcharge revenue generated by transactions at our devices, or cause us
to pay higher merchant fees, thereby reducing our profits. In addition to our current competitors, additional competitors may enter the market.
We can offer no assurance that we will be able to compete effectively against these current and future competitors. Increased competition
could result in transaction fee reductions, reduced gross margins and loss of market share.
The passage of legislation banning or limiting the fees we receive for transactions conducted on our ATMs would severely impact our
revenues.
Despite the nationwide acceptance of surcharge fees at ATMs in the U.S. since their introduction in 1996, consumer activists have from
time to time attempted to impose local bans or limits on surcharge fees. Even in the few instances where these efforts have passed the local
governing body (such as with an ordinance adopted by the city of Santa Monica, California), federal courts have overturned these local laws
on federal preemption grounds. Although Section 1044 of the Dodd-Frank Act passed in July 2010 contains a provision that will limit the
application of federal preemption with respect to state laws that do not discriminate against national banks, federal preemption will not be
affected by local municipal laws, where such proposed bans or limits often arise. More recently, some federal officials have expressed
concern that surcharge fees charged by banks and non-bank ATM operators are unfair to consumers. To that end, in 2010, an amendment
proposing limits on the fees that ATM operators, including financial institutions, can charge consumers was introduced in the U.S. Senate,
but was not ultimately included in the final version of the Dodd-Frank Act that was signed into law. Additionally, we rely on transaction
based revenues in each of our international markets and any regulatory fee limits that could be imposed on our transactions may have an
adverse impact on our revenues and profits. If legislation were to be enacted in the future in any of our markets, and the amount we were able
to charge for consumers to use our ATMs was reduced, our revenues and related profitability would be negatively impacted. Furthermore, if
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such limits were set at levels that are below our current or future costs to operate our ATMs, it would have a material adverse impact on our
ability to continue to operate under our current business model.
Potential new currency designs may require modifications to our ATMs that could severely impact our cash flows.
In that action styled: American Council of the Blind, et. al., v. Timothy F. Geithner, Secretary of the Treasury (Case #1:02-cv-00864) in
the U.S. District Court for the District of Columbia (the “Court”) an order was entered that found that U.S. currencies (as currently designed)
violated the Rehabilitation Act, a law that prohibits discrimination in government programs on the basis of disability, as the paper currencies
issued by the U.S. are identical in size and color, regardless of denomination. As a consequence of this ruling, the U.S. Treasury stated in its
semi-annual status report filed with the Court in September 2012, that the Bureau of Engraving and Printing (“BEP”) was making progress
towards implementing the Secretary’s decision to provide meaningful access to paper currency by: “(1) adding a raised tactile feature to each
Federal Reserve note that the BEP may lawfully redesign; (2) continuing the BEP’s program of adding large high-contrast numerals and
different colors to each denomination that it may lawfully redesign; and (3) implementing a supplemental currency reader distribution
program for blind and other visually impaired U.S. citizens and legal residents.” Of these three steps only the first materially affects the
ATM industry. In its 12th semi-annual status report dated September 16, 2014, the U.S. Treasury stated that the BEP expects to select the
technology for the tactile feature in March 2015. Until that selection is made and until it is disclosed by the BEP, and how the tactile feature
will be applied to the notes is disclosed by the BEP, what impact, if any, this raised tactile feature on the notes will have on the ATM industry
(including us), remains unknown. However, it is possible that such a change could require us to incur additional costs, which could be
substantial, to modify our ATMs in order to store and dispense notes with raised tactile features.
Risks associated with our business
We depend on ATM and financial services transaction fees for substantially all of our revenues, and our revenues and profits would
be reduced by a decline in the usage of our ATMs and financial services kiosks or a decline in the number of devices that we operate,
whether as a result of global economic conditions or otherwise.
Transaction fees charged to cardholders and their financial institutions for transactions processed on our ATMs and financial services
kiosks, including surcharge and interchange transaction fees, have historically accounted for most of our revenues. We expect that transaction
fees, including fees we receive through our bank branding and surcharge-free network offerings, will continue to account for a substantial
majority of our revenues for the foreseeable future. Consequently, our future operating results will depend on many factors, including: (1) the
market acceptance of our services in our target markets, (2) the level of transaction fees we receive, (3) our ability to install, acquire, operate,
and retain more devices, (4) usage of our devices by cardholders, and (5) our ability to continue to expand our surcharge-free and other
consumer financial services offerings. If alternative technologies to our services are successfully developed and implemented, we may
experience a decline in the usage of our devices. Surcharge rates, which are largely market-driven and are negotiated between us and our
merchant partners, could be reduced over time. Further, growth in surcharge-free ATM networks and widespread consumer bias toward these
networks could adversely affect our revenues, even though we maintain our own surcharge-free offerings. Many of our devices are utilized by
consumers that frequent the retail establishments in which our devices are located, including convenience stores and gas stations, malls,
grocery stores, drug stores, airports, and other large retailers. If there is a significant slowdown in consumer spending, and the number of
consumers that frequent the retail establishments in which we operate our devices declines significantly, the number of transactions
conducted on those devices, and the corresponding transaction fees we earn, may also decline. A decline in usage of our devices by
cardholders or in the levels of fees received by us in connection with this usage, or a decline in the number of devices that we operate, would
have a negative impact on our revenues and gross profits and would limit our future growth potential. For further discussion on interchange
fees, see the risk factor above entitled Interchange fees, which comprise a substantial portion of our transaction revenues, may be lowered in
some cases at the discretion of the various EFT networks through which our transactions are routed, or through potential regulatory
changes, thus reducing our future revenues.
We derive a substantial portion of our revenue from devices placed with a small number of merchants. If one or more of our top
merchants were to suffer a material deterioration of their business and cease doing business with us, or to substantially reduce its
dealings with us, our revenues could decline.
For the year ended December 31, 2014, we derived 31% of our pro forma revenues from ATMs and financial services kiosks placed at
the locations of our five largest merchant customers. Pro forma revenues are our actual total revenues for 2014 and the pro forma effect of the
revenues from our acquisitions completed in 2014 for the entire year. For the year ended December 31, 2014, our top five merchants (based
on our total revenues) were 7-Eleven, CVS, Walgreens, Speedway, and Pantry. Our contract with 7-Eleven in the United States, which is the
single largest merchant customer in our portfolio, comprised approximately 17.5% of our pro forma revenues for the year ended December
31, 2014 and also accounts for a significant portion of our income. Accordingly, a significant percentage of our future revenues and operating
income will be dependent upon the successful continuation of our relationship with 7-Eleven as well as our other 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. 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 December 31, 2014, the contracts we have with
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our top five merchants had a weighted average remaining life of 2.7 years, and our current contract with 7-Eleven expires in July 2017. We
are currently in discussions with 7-Eleven regarding a potential contract term renewal or extension, but there can be no assurance that we will
be successful in our efforts. Even if this contract or any 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.
Deterioration in global credit markets, as well as changes in legislative and regulatory requirements, could have a negative impact on
financial institutions that we conduct business with.
We have a significant number of customer and vendor relationships with financial institutions in all of our key markets, including
relationships in which those financial institutions pay us for the right to place their brands on our devices. Additionally, we rely on a small
number of financial institution partners to provide us with the cash that we maintain in our Company-owned devices and some of our
merchant-owned ATMs. Volatility in the global credit markets, such as that experienced in 2008 to 2009, may have a negative impact on
those financial institutions and our relationships with them. In particular, if the liquidity positions of the financial institutions with which we
conduct business deteriorate significantly, these institutions may be unable to perform under their existing agreements with us. If these
defaults were to occur, we may not be successful in our efforts to identify new branding partners and cash providers, and the underlying
economics of any new arrangements may not be consistent with our current arrangements. Furthermore, if our existing bank branding
partners or cash providers are acquired by other institutions with assistance from the Federal Deposit Insurance Corporation (“FDIC”), or
placed into receivership by the FDIC, it is possible that our agreements may be rejected in part or in their entirety.
We rely on third-parties to provide us with the cash we require to operate many of our devices. If these third-parties were unable or
unwilling to provide us with the necessary cash to operate our devices, we would need to locate alternative sources of cash to operate our
devices or we would not be able to operate our business.
In the U.S., including Puerto Rico, we rely on Bank of America, Wells Fargo, Elan, and Capital One to provide us with the cash that we
use in approximately 35,500 of our domestic devices where cash is not provided by the merchant. In the U.K., we rely on Santander and
Barclays to provide us with the vault cash that we use in over 13,000 of our ATMs. We also rely on various third-parties to provide us with
the vault cash used in our ATMs located in other international markets. Under our vault cash rental agreements with these providers, we pay a
vault cash rental fee based on the total amount of vault cash that we are using at any given time. For the quarter ended December 31, 2014,
we had an average balance of vault cash of $1.9 billion held in our domestic ATMs, $968.1 million in our ATMs in the U.K and Germany,
and $103.7 million in our other international subsidiaries.
Under our vault cash rental agreements, at all times during this process, beneficial ownership of the cash is retained by the cash
providers, and we have no access or right to the cash except for those ATMs that are serviced by Green Team or Sunwin, our wholly-owned
armored courier operations in the U.K. While our armored courier operations have physical access to the cash loaded in those machines,
beneficial ownership of that cash remains with the cash provider at all times.
Our existing vault cash rental agreements expire at various times through December 2017. However, each provider has the right to
demand the return of all or any portion of its cash at any time upon the occurrence of certain events beyond our control, including certain
bankruptcy events of us or our subsidiaries, or a breach of the terms of our cash provider agreements. Other key terms of our agreements
include the requirement that the cash providers provide written notice of their intent not to renew. Such notice provisions typically require a
minimum of 180 to 360 days’ notice prior to the actual termination date. If such notice is not received, then the contracts will typically
automatically renew for an additional one-year period. Additionally, our contract with one of our vault cash providers contains a provision
that allows the provider to modify the pricing terms contained within the agreement at any time with 60 days prior written notice. However,
in the event both parties do not agree to the pricing modifications, then either party may provide 180 days prior written notice of its intent to
terminate.
If our vault cash providers were to demand return of their cash or terminate their arrangements with us and remove their cash from our
devices, or if they fail to provide us with cash as and when we need it for our operations, our ability to operate our devices would be
jeopardized, and we would need to locate alternative sources of vault cash. In the event this was to happen, the terms and conditions of the
new or renewed agreements could potentially be less favorable to us, which would negatively impact our results of operations. Furthermore,
restrictions on our access to cash to fill our devices could severely restrict our ability to keep our devices operating, and could subject us to
performance penalties under our contracts with our customers.
We rely on EFT network providers, transaction processors, armored courier providers, and maintenance providers to provide services
to our ATMs. If some of these providers that service a significant number of our ATMs fail or otherwise cease or no longer agree to
provide their services, we could suffer a temporary loss of transaction revenues, incur significant costs or suffer the permanent loss of any
contract with a merchant or financial institution affected by such disruption in service.
We rely on EFT network providers and have agreements with various transaction processors, armored courier providers, and
maintenance providers. These providers enable us to provide card authorization, data capture, settlement, cash management and delivery, and
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maintenance services to our ATMs. Typically, these agreements are for periods of two or three years each. If we improperly manage the
renewal or replacement of any expiring vendor contracts, or a key vendor fails or otherwise ceases to provide the services for which we have
contracted and disruption of service to our ATMs occurs, our relationship with those merchants and financial institutions affected by the
disrupted ATM service could suffer.
While we have more than one provider for each of the critical services that we rely on third-parties to perform, certain of these providers
currently provide services to or for a significant number of our ATMs. Although we believe we would be able to transition these services to
alternative service providers, this could be a time-consuming and costly process. In the event one of such service providers was unable to
deliver services to us, we could suffer a significant disruption in our business, which could result in a material adverse impact to our financial
results. Furthermore, any disruptions in service in any of our markets, whether caused by us or by third-party providers, may result in a loss
of revenues under certain of our contractual arrangements that contain minimum service-level requirements.
If we, our transaction processors, our EFT networks or other service providers experience system failures, the products and services
we provide could be delayed or interrupted, which would harm our business.
Our ability to provide reliable service largely depends on the efficient and uninterrupted operations of our EFT transaction processing
platform, third-party transaction processors, telecommunications network systems, and other service providers. Accordingly, any significant
interruptions could severely harm our business and reputation and result in a loss of revenues. Additionally, if any interruption is caused by
us, especially in those situations in which we serve as the primary transaction processor, such interruption could result in the loss of the
affected merchants and financial institutions, or damage our relationships with them. Our systems and operations and those of our transaction
processors and our EFT network and other service providers could be exposed to damage or interruption from fire, natural disaster, unlawful
acts, terrorist attacks, power loss, telecommunications failure, unauthorized entry, and computer viruses, among other things. We cannot be
certain that any measures we and our service providers have taken to prevent system failures will be successful or that we will not experience
service interruptions.
Our armored transport business exposes us to additional risks beyond those currently experienced by us in the ownership and
operation of ATMs.
During 2008, we commenced our own armored courier operation in the U.K. which delivers cash to and collects residual cash from our
ATMs in that market. Our acquisition of Sunwin in November of 2014 further expanded our armored courier operations in the U.K. As of
December 31, 2014, we were providing armored courier services to over 9,500 of our ATMs in that market and we currently intend to further
expand that operation to service additional ATMs. As a result of the acquisition of Sunwin, we now provide expanded cash transportation
services for third-party customers. The armored transport business exposes us to significant risks, including the potential for cash-in-transit
losses, employee theft, as well as claims for personal injury, wrongful death, worker's compensation, punitive damages, and general liability.
While we seek to maintain appropriate levels of insurance to adequately protect us from these risks, there can be no assurance that we will
avoid significant future claims or adverse publicity related thereto. Furthermore, there can be no assurance that our insurance coverage will be
adequate to cover potential liabilities or that insurance coverage will remain available at costs that are acceptable to us. The availability of
quality and reliable insurance coverage is an important factor in our ability to successfully operate this aspect of our operations. A loss claim
for which insurance coverage is denied or that is in excess of our insurance coverage could have a material adverse effect on our business,
financial condition and results of operations.
Operational failures in our EFT transaction processing facilities could harm our business and our relationships with our merchant
and financial institution customers.
An operational failure in our EFT transaction processing facilities could harm our business and damage our relationships with our
merchant and financial institution customers. Damage or destruction that interrupts our transaction processing services could also cause us to
incur substantial additional expense to repair or replace damaged equipment. We have installed back-up systems and procedures to prevent or
react to such disruptions. However, a prolonged interruption of our services or network that extends for more than several hours (i.e., where
our backup systems are not able to recover) could result in data loss or a reduction in revenues as our devices would be unable to process
transactions. In addition, a significant interruption of service could have a negative impact on our reputation and could cause our present and
potential merchant and financial institution customers to choose alternative service providers, as well as subject us to fines or penalties related
to contractual service agreements.
Errors or omissions in the settlement of merchant funds could damage our relationships with our merchant customers and expose us
to liability.
We are responsible for maintaining accurate bank account information for certain of our merchant customers and accurate settlements of
funds into these accounts based on the underlying transaction activity. This process relies on precise and authorized maintenance of electronic
records. Although we have controls in place to help ensure the safety and accuracy of our records, errors or unauthorized changes to these
records could result in the erroneous or fraudulent movement of funds, thus damaging our relationships with our merchant customers and
exposing us to liability.
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Changes in interest rates could increase our operating costs by increasing interest expense under our credit facilities and our vault
cash rental costs.
Interest on amounts borrowed under our revolving credit facility is based on a floating interest rate, and our vault cash rental expense is
based primarily on floating interest rates. As a result, our interest expense and cash management costs are sensitive to changes in interest
rates. We pay rental fees on the average amount of vault cash outstanding in our ATMs under floating rate formulas based on a spread above
various LIBOR rates in the U.S., U.K., and Germany. In Mexico, we pay a monthly rental fee to one of our vault cash providers under a
formula based on the Interbank Equilibrium Interest Rate (commonly referred to as the “TIIE”) and in Canada, the rate is based on the
Bankers Acceptance Rate. Although we currently hedge a portion of our vault cash interest rate risk related to our operations in the U.S.
through December 31, 2018 by using interest rate swap agreements, we may not be able to enter into similar arrangements for similar
amounts in the future. Furthermore, we have not currently entered into any derivative financial instruments to hedge our variable interest rate
exposure in our international subsidiaries. Any significant future increases in interest rates could have a negative impact on our earnings and
cash flow by increasing our operating costs and expenses. For additional information, see Part II, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk, Interest Rate Risk.
We maintain a significant amount of cash within our Company-owned devices, which is subject to potential loss due to theft or other
events, including natural disasters.
For the quarter ended December 31, 2014, there was an average of approximately $3.0 billion in vault cash held in our domestic and
international ATMs. Any loss of cash from our ATMs is generally our responsibility. We typically require that our service providers, who
either transport the cash or otherwise have access to the ATM safe, maintain adequate insurance coverage in the event cash losses occur as a
result of theft, misconduct, or negligence on the part of such providers. Cash losses at the ATM occur in a variety of ways, such as natural
disaster (hurricanes, tornadoes, etc.), fires, vandalism, and physical removal of the entire ATM, defeating the interior safe or by
compromising the ATM’s technology components. Because our ATMs are often installed at retail sites, they face exposure to attempts of
theft and vandalism. Thefts of cash may be the result of an individual acting alone or as a part of a crime group. In recent periods, we have
seen an increase in theft of cash from our ATMs across the geographic regions in which we operate. For instance, during the fourth quarter
of 2013, in response to increased physical ATM theft attempts and lower profitability on certain ATMs in Mexico, we took a number of
ATMs out of service for a period of time to enhance some security features. While we maintain insurance policies to cover a significant
portion of any losses that may occur that are not covered by the insurance policies maintained by our service providers, such insurance
coverage is subject to deductibles, exclusions and limitations that may leave us bearing some or all of those losses.
Any increase in the frequency and/or amounts of theft and other losses could negatively impact our operating results by causing higher
deductible payments and increased insurance premiums. Additionally, any damage sustained to our merchant customers’ store locations in
connection with any ATM-related thefts, if extensive and frequent enough in nature, could negatively impact our relationships with those
merchants and impair our ability to deploy additional ATMs in those existing or new locations of those merchants. Certain merchants have
requested, and could request in the future, that we remove ATMs from store locations that have suffered damage as a result of ATM-related
thefts, thus negatively impacting our financial results. Finally, we have in the past, and may in the future, voluntarily remove cash from
certain ATMs on a temporary or permanent basis to mitigate further losses arising from theft or vandalism. Depending on the magnitude and
duration of any cash removal, our revenues and profits could be materially and adversely affected.
The election of our merchant customers to not participate in our surcharge-free network offerings could impact the effectiveness of
our offerings, which would negatively impact our financial results.
Financial institutions that are members of the Allpoint network pay a fee in exchange for allowing their cardholders to use selected
Company-owned and/or managed ATMs on a surcharge-free basis. The success of the Allpoint network is dependent upon the participation
by our merchant customers in that network. In the event a significant number of our merchants elect not to participate in that network, the
benefits and effectiveness of the network would be diminished, thus potentially causing some of the participating financial institutions to not
renew their agreements with us, and thereby negatively impacting our financial results.
We may be unable to integrate our future acquisitions in an efficient manner and inefficiencies would increase our cost of operations
and reduce our profitability.
We have been an active business acquirer both in the U.S. and internationally, and expect to continue to be active in the future. The
acquisition and integration of businesses involves a number of risks. The core risks are in the areas of valuation (negotiating a fair price for
the business based on inherently limited due diligence) and integration (managing the complex process of integrating the acquired company’s
personnel, products, processes, technology, and other assets so as to realize the projected value of the acquired company and the synergies
projected to be realized in connection with the acquisition).
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our
combined businesses and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties
encountered in connection with acquisitions and the integration of the companies’ operations could have an adverse effect on our business,
results of operations, financial condition or prospects.
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In addition, acquired businesses may not achieve anticipated revenues, earnings or cash flows. Any shortfall in anticipated revenues,
earnings, or cash flows could require us to write down the carrying value of the intangible assets associated with any acquired company,
which would adversely affect our reported earnings.
Since May 2001, we have acquired 26 ATM portfolios, a surcharge-free ATM network, a technology product offering that complements
our surcharge-free offering, an ATM installation company in the U.K., a Scotland-based provider and developer of marketing and advertising
software and services for ATM owners, and a U.K.-based provider of secure cash logistics, ATM maintenance, and manned guarding
services. We have made acquisitions to obtain the assets of deployed ATM networks and the related businesses and their infrastructure, as
well as for strategic reasons to enhance the capability of our ATMs and expand our service offerings. We currently anticipate that our future
acquisitions, if any, will likely reflect a mix of asset acquisitions and acquisitions of businesses, with each acquisition having its own set of
unique characteristics. In the future, we may acquire businesses outside of our traditional areas, which could introduce new risks and
uncertainties. To the extent that we elect to acquire an existing company or the operations, technology, and the personnel of the company, we
may assume some or all of the liabilities associated with the acquired company and face new and added challenges integrating such
acquisition into our operations.
We completed three business acquisitions in 2014, five business acquisitions in 2013, and three business acquisitions in 2012. Any
inability on our part to effectively manage the acquisition integration process could limit our ability to successfully grow the revenue and
profitability of our business.
Our international operations, including any future international operations, involve special risks and may not be successful, which
would result in a reduction of our gross and net profits.
As of December 31, 2014, approximately 17% of our devices were located in the U.K., Germany, Mexico, and Canada. Those devices
contributed 27% of our gross profits (exclusive of depreciation, accretion, and amortization) for the year ended December 31, 2014. We
expect to continue to expand in the countries in which we currently operate, and potentially into other countries as opportunities arise.
However, our international operations are subject to certain inherent risks, including:
exposure to currency fluctuations, including the risk that our future reported operating results could be negatively impacted by
unfavorable movements in the functional currencies of our international operations relative to the U.S. dollar, which represents our
consolidated reporting currency;
difficulties in complying with the different laws and regulations in each country and jurisdiction in which we operate, including
unique labor and reporting laws;
unexpected changes in laws, regulations, and policies of foreign governments or other regulatory bodies, including changes that
could potentially disallow surcharging or that could result in a reduction in the amount of interchange or other transaction-based fees
that we receive;
unanticipated political and social instability that may be experienced;
rising crime rates in certain of the areas we operate in, including increased incidents of crimes on our ATMs and against store
personnel where our ATMs are located;
difficulties in staffing and managing foreign operations, including hiring and retaining skilled workers in those countries in which
we operate;
decreased ATM usage related to decreased travel and tourism in the markets that we operate in, such as our ATMs in Mexico that
are located in tourist destinations; and
potential adverse tax consequences, including restrictions on the repatriation of foreign earnings.
Any of these factors could reduce the profitability and revenues derived from our international operations and international expansion.
For example, in 2013, as a result of a change in approach by the U.K. governmental entity that oversees property tax valuations and
assessments, we recorded additional estimated property tax expense of $8.7 million related to some of our ATM sites, most of which related
to periods prior to 2013, even though we previously had no obligation to report or remit such taxes.
We derive a significant portion of our revenues and profits from branding relationships with financial institutions. A decline in these
revenues as a result of changes in financial institution demand for this service may have a significant negative impact to our results.
In 2014, we received notice from one of our largest branding partners, Chase, of their intention not to renew or extend a number of ATM
branding contracts with us. To the extent we are unable to find alternate branding partners for these locations or additional financial
institutions do not renew their contracts with us, and we are unable to rebrand those locations, a decline in our branded ATM locations could
have a significant impact to our financial results.
During the financial crisis of 2008 and 2009, an unprecedented amount of consolidation unfolded within the U.S. banking industry. For
example, Washington Mutual, which had over 950 ATMs branded with us, was acquired by JPMorgan Chase, an existing branding customer
of ours, in 2008. In 2009, Sovereign Bank, which currently has over 1,150 ATMs branded with us, was acquired by Banco Santander, one of
the largest banks in Europe. Although our branding contracts were largely unaffected by these transactions, we cannot provide assurance that
they will remain unaffected by future consolidations that may occur within the banking industry, and in particular, with our branding partners.
18
If we experience impairments of our goodwill or other intangible assets, we will be required to record a charge to earnings, which
may be significant.
We have a large amount of goodwill and other intangible assets and are required to perform periodic assessments for any possible
impairment for accounting purposes. As of December 31, 2014, we had goodwill and other intangible assets of $689.5 million, or 55% of our
total assets. During the year ended December 31, 2014, we added $200.1 million in goodwill and intangible assets associated with the
acquisition of three businesses in the year. We periodically evaluate the recoverability and the amortization period of our intangible assets
under accounting principles generally accepted in the U.S. (“U.S. GAAP”). Some of the factors that we consider to be important in assessing
whether or not impairment exists include the performance of the related assets relative to the expected historical or projected future operating
results, significant changes in the manner of our use of the assets or the strategy for our overall business, and significant negative industry or
economic trends. These factors and assumptions, and any changes in them, could result in an impairment of our goodwill and other intangible
assets. In the event we determine our goodwill or amortizable intangible assets are impaired, we may be required to record a significant
charge to earnings in our financial statements, which would negatively impact our results of operations and that impact could be material. For
example, during the year ended December 31, 2008, we recorded a $50.0 million goodwill impairment charge related to our U.K. operations.
Other impairment charges in the future may also adversely affect our results of operations.
We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business,
remain in compliance with debt covenants, and make payments on our indebtedness.
As of December 31, 2014, our outstanding indebtedness was $612.7 million, which represents 68.1% of our total book capitalization of
$899.2 million. Our substantial indebtedness could have important consequences. For example, it could:
make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the
obligations of any of our debt instruments, including financial and other restrictive covenants, could result in an event of default
under the indentures governing our senior subordinated notes and the agreements governing our other indebtedness;
require us to dedicate a substantial portion of our cash flow in the future to pay principal and interest on our debt, which will reduce
the funds available for working capital, capital expenditures, acquisitions, and other general corporate purposes;
limit our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
make us more vulnerable to adverse changes in general economic, industry and competitive conditions, and adverse changes in
government regulation; and
limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, debt service requirements,
execution of our growth strategy, research and development costs, or other purposes.
Any of these factors could materially and adversely affect our business and results of operations. If we do not have sufficient earnings to
service our debt, we may be required to refinance all or part of our existing debt, sell assets, borrow more money, or sell securities, none of
which we can guarantee we will be able to do.
The terms of our credit agreement and the indentures governing our senior notes may restrict our current and future operations,
particularly our ability to respond to changes in our business or to take certain actions.
Our credit agreement and the indentures governing our senior notes include a number of covenants that, among other items, restrict or
limit our ability to:
sell or transfer property or assets;
pay dividends on or redeem or repurchase stock;
merge into or consolidate with any third-party;
create, incur, assume, or guarantee additional indebtedness;
create certain liens;
make investments;
engage in transactions with affiliates;
issue or sell preferred stock of restricted subsidiaries; and
enter into sale and leaseback transactions.
In addition, we are required by our credit agreement to adhere to certain covenants and maintain specified financial ratios. While we
currently have the ability to borrow the full amount available under our credit agreement, as a result of these ratios, we may be limited in the
manner in which we conduct our business in the future and may be unable to engage in favorable business activities or finance our future
operations or capital needs. Accordingly, these restrictions may limit our ability to successfully operate our business and prevent us from
fulfilling our debt obligations. A failure to comply with the covenants or financial ratios could result in an event of default. In the event of a
default under our credit agreement, the lenders could exercise a number of remedies, some of which could result in an event of default under
the indentures governing the senior notes. An acceleration of indebtedness under our credit agreement would also likely result in an event of
default under the terms of any other financing arrangement we have outstanding at the time. If any or all of our debt were to be accelerated,
19
we cannot assure you that our assets would be sufficient to repay our indebtedness in full. If we are unable to repay any amounts outstanding
under our bank credit facility when due, the lenders will have the right to proceed against the collateral securing our indebtedness. For
additional information about our credit agreement and indentures, see Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources — Financing Facilities.
The fundamental change and make-whole fundamental change provisions associated with our convertible notes may delay or prevent
an otherwise beneficial takeover attempt of us.
The fundamental change purchase rights, which will allow holders of our convertible notes to require us to purchase all or a portion of
their notes upon the occurrence of a fundamental change, and the provisions requiring an increase to the conversion rate for conversions in
connection with certain other circumstances may delay or prevent a takeover of us or the removal of current management that might
otherwise be beneficial to investors.
We may not have the ability to raise the funds necessary to pay the amount of cash due upon conversion of the convertible notes, if
relevant, or upon the occurrence of a fundamental change as described in our convertible indentures, and our debt may contain
limitations on our ability to pay cash upon conversion or required purchase of the convertible notes.
Upon the occurrence of a fundamental change, holders of our convertible notes may require us to purchase, for cash, all or a portion of
their convertible notes at a fundamental change purchase price specified within the convertible note indentures. There can be no assurance
that we will have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change purchase price if holders
submit their convertible notes for purchase by us upon the occurrence of a fundamental change or to pay the amount of cash (if any) due if
holders surrender their convertible notes for conversion. In addition, the occurrence of a fundamental change may cause an event of default
under agreements governing our or our subsidiaries’ indebtedness. Agreements governing any future debt may also restrict our ability to
make any of the required cash payments even if we have sufficient funds to make them. Furthermore, our ability to purchase the convertible
notes or to pay cash (if any) due upon the conversion of the convertible notes may be limited by law or regulatory authority. In addition, if
we fail to purchase the convertible notes or to pay the amount of cash (if any) due upon conversion of the convertible notes, we will be in
default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements
governing our other indebtedness, which in turn may result in the acceleration of other indebtedness we may then have. If the repayment of
the other indebtedness were to be accelerated, we may not have sufficient funds to repay that indebtedness and to purchase the convertible
notes or to pay the amount of cash (if any) due upon conversion.
Noncompliance with established EFT network rules and regulations could expose us to fines and penalties and could negatively
impact our results of operations. Additionally, new EFT network rules and regulations could require us to expend significant amounts of
capital to remain in compliance with such rules and regulations.
Our transactions are routed over various EFT networks to obtain authorization for cash disbursements and to provide account balances.
These networks include Star, Pulse, NYCE, Cirrus (MasterCard), and Plus (Visa) in the U.S.; LINK in the U.K.; Promoción y Operación S.A.
de C.V. (“PROSA-RED”) in Mexico; Interac in Canada; and Girocard in Germany. EFT networks set the interchange fees that they charge to
the financial institutions, as well as the amounts paid to us. Additionally, EFT networks, including MasterCard and Visa, establish rules and
regulations that ATM providers, including ourselves, must comply with in order for member cardholders to use those ATMs. Failure to
comply with such rules and regulations could expose us to penalties and/or fines, which could negatively impact our financial results. For
example, in the U.K. and Canada, MasterCard and Visa require compliance with the EMV security standard. This standard provides for the
security and processing of information contained on microchips imbedded in certain debit and credit cards, known as “smart cards.”
In 2012, MasterCard announced plans for a liability shift from the issuers of EMV-enabled cards to the party that has not made the
investment in EMV equipment (acquirer) for fraudulent counterfeit card Maestro cross-border transactions in the U.S. 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, we 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% of our U.S. transaction volume. As of the Maestro liability shift date, we have implemented
additional fraud monitoring methods to minimize fraud losses. To date, we have seen minimal fraud losses. 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 in the
U.S. MasterCard has also announced that a liability shift for its domestic ATM transactions on EMV-issued cards will occur in October
2016. 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. 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 financial results and capital expenditure
requirements. We have already 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 million to $50 million, a portion of which was incurred during 2014. With the increased capital investments
required as a direct result of EMV, our depreciation expense may increase in the future. Additionally, there is a possibility that we could incur
20
asset write-offs or accelerated depreciation expense on certain ATM units. We also may experience a higher rate of unit count attrition for our
merchant-owned ATMs in the future as a result of this standard.
The majority of the electronic debit networks over which our transactions are conducted require sponsorship by a bank, and the loss
of any of our sponsors may cause disruptions to our operations.
In each of the geographic segments in which we operate, bank sponsorship is required in order to process transactions over certain
networks. In the U.S., our largest geographic segment by revenues, bank sponsorship is required on the significant majority of our
transactions and we primarily rely on one sponsor bank for access to the applicable networks, and, in lesser part, on two other sponsor banks.
In our U.K. segment, only international transactions require bank sponsorship. In Mexico, all ATM transactions require bank sponsorship,
which is currently provided by our banking partners in the country. In Canada and Germany, bank sponsorships are also required and are
obtained through our relationships with third-party processors. If our current sponsor banks decide to no longer provide this service, or are no
longer financially capable of providing this service as may be determined by certain networks, it may be difficult to find an adequate
replacement at a cost similar to what we incur today, or potentially, we could incur a temporary service disruption for certain transactions in
the event we lose or do not retain bank sponsorship, which may negatively impact our profitability.
If we lose key personnel or are unable to attract additional qualified personnel as we grow, our business could be adversely affected.
We are dependent upon the ability and experience of a number of key personnel who have substantial experience with our operations, the
rapidly changing automated consumer financial services industry, and the geographical segments in which we operate. It is possible that the
loss of the services of one or a combination of several of our senior executives would have an adverse effect on our operations. Our success
also depends on our ability to continue to attract, manage, and retain other qualified management, as well as technical and operational
personnel as we grow. We may not be able to continue to attract and retain such personnel in the future, which could adversely impact our
business.
We are subject to laws and regulations worldwide, changes to which could increase our costs and individually or in the aggregate
adversely affect our business.
We currently conduct a portion of our business outside the U.S. Thus, we are subject to a number of laws and regulations which affect
our international operations in a number of areas. These foreign laws and regulations affect our business including, but not limited to, areas of
labor, advertising, consumer protection, real estate, billing, e-commerce, promotions, quality of services, intellectual property ownership and
infringement, tax, import and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy
requirements, anti-competition, environmental, health, and safety.
Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from
jurisdiction to jurisdiction, further increasing the cost of compliance and doing business. Any such costs, which may rise in the future as a
result of changes in these laws and regulations or in their interpretation could have a material adverse effect on our business, financial
condition and results of operations. We have implemented policies and procedures designed to ensure compliance with applicable laws and
regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations or our policies
and procedures.
We operate in several jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and
other similar anti-corruption laws.
Our business operations in countries outside the U.S. are subject to anti-corruption laws and regulations, including restrictions imposed
by the U.S. Foreign Corrupt Practices Act (“FCPA”). The FCPA and similar anti-corruption laws in other jurisdictions, such as the U.K.
Bribery Act, generally prohibit companies and their intermediaries from paying or promising to pay government officials, political parties, or
political party officials for the purpose of obtaining, retaining, influencing, or directing business. We operate in parts of the world that have
experienced governmental corruption to some degree and, in certain circumstances, compliance with anti-corruption laws may conflict with
local customs and practices.
Our employees and agents may interact with government officials on our behalf, including interactions necessary to obtain licenses and
other regulatory approvals necessary to operate our business, import or export equipment and resolve tax disputes. These interactions create a
risk that actions may occur that could violate the FCPA or other similar laws.
Although we have implemented policies and procedures designed to ensure compliance with local laws and regulations as well as U.S.
laws and regulations, including the FCPA, there can be no assurance that all of our employees, consultants, contractors and agents will abide
by our policies. If we are found to be liable for violations of the FCPA or similar anti-corruption laws in international jurisdictions, either due
to our own acts or out of inadvertence, or due to the acts or inadvertence of others, we could suffer from criminal or civil penalties which
could have a material and adverse effect on our business, results of operations, financial condition, and cash flows.
21
Risks associated with our common stock
Our operating results have fluctuated historically and could continue to fluctuate in the future, which could affect our ability to
maintain our current market position or expand.
Our operating results have fluctuated in the past and may continue to fluctuate in the future as a result of a variety of factors, many of
which are beyond our control, including the following:
changes in general economic conditions and specific market conditions in the ATM and financial services industries;
changes in payment trends and offerings in the markets in which we operate;
changes in consumers’ preferences for cash as a payment vehicle;
competition from other companies providing the same or similar services that we offer;
the timing and magnitude of operating expenses, capital expenditures, and expenses related to the expansion of sales, marketing, and
operations, including as a result of acquisitions, if any;
the timing and magnitude of any impairment charges that may materialize over time relating to our goodwill, intangible assets or
long-lived assets;
changes in the general level of interest rates in the markets in which we operate;
changes in regulatory requirements associated with the ATM and financial services industries;
changes in the mix of our current services;
changes in the financial condition and credit risk of our customers; and
changes in the financial condition and operational execution of our key vendors and service providers.
Any of the foregoing factors could have a material adverse effect on our business, results of operations, and financial condition. Although
we have experienced revenue growth in recent years, this growth rate is not necessarily indicative of future operating results. A relatively
large portion of our expenses are fixed in the short-term, particularly with respect to personnel expenses, depreciation and amortization
expenses, and interest expense. Therefore, our results of operations are particularly sensitive to fluctuations in revenues. As such,
comparisons to prior periods should not be relied upon as indications of our future performance.
We may issue additional shares of our common stock or instruments convertible into shares of our common stock, which may
materially and adversely affect the market price of our common stock and the trading price of our convertible notes.
We may conduct future offerings of our common stock, preferred stock or other securities convertible into our common stock to fund
acquisitions, finance operations or for general corporate purposes. In addition, we may also issue common stock under our equity awards
programs. The market price of shares of our common stock or the trading price of the convertible notes could decrease significantly if we
conduct such future offerings, if any of our existing stockholders sells a substantial amount of our common stock or if the market perceives
that such offerings or sales may occur. Moreover, any issuance of additional common stock will dilute the ownership interest of our existing
common stockholders, and may adversely affect the ability of holders of the notes to participate in any appreciation of our common stock.
The accounting method for convertible debt securities that may be settled in cash could have a material effect on our reported
financial results.
Under U.S. GAAP, an entity must separately account for the debt component and the embedded conversion option of convertible debt
instruments that may be settled entirely or partially in cash upon conversion, such as our convertible notes, in a manner that reflects the
issuer’s economic interest cost. The effect of the accounting treatment for such instruments is that the value of such embedded conversion
option is treated as an original issue discount for purposes of accounting for the debt component of the convertible notes, and that original
issue discount is amortized into interest expense over the term of the convertible notes using an effective yield method. As a result, we were
initially required to record a greater amount of non-cash interest expense as a result of the amortization of the original issue discount to the
convertible notes’ face amount over the term of the notes and as a result of the amortization of the debt issuance costs. Accordingly, we will
report lower net income in our financial results because of the recognition of both the current period’s amortization of the debt discount and
the convertible notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common
stock and the trading price of the convertible notes.
Under certain circumstances, convertible debt instruments that may be settled entirely or partially in cash are evaluated for their impact on
earnings per share utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not
included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal
amount. Under the treasury stock method, for diluted earnings per share purposes, the notes are accounted for as if the number of shares of
common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be certain
that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury
stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share could be adversely
affected.
22
In addition, if the conditional conversion feature of the notes is triggered, even if holders do not elect to convert their notes, we could be
required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-
term liability, which would result in a material reduction of our net working capital.
23
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located at 3250 Briarpark Drive, Suite 400, Houston, Texas 77042, and our telephone number is
(832) 308-4000. We lease approximately 62,249 square feet of space under our Houston headquarters office leases. In addition, we lease
approximately 44,258 square feet of office and warehouse space in north Houston. Furthermore, we lease approximately 26,751 square feet in
Frisco, Texas, where we manage our EFT transaction processing operations. We also lease spaces in Whippany, New Jersey; Minnetonka,
Minnesota; Portland, Oregon; Rohnert Park, California; Chandler, Arizona; Peoria, Illinois and St. Louis, Missouri, where we maintain
several regional offices. Finally, we lease office space in Bethesda, Maryland, where we manage our Allpoint network operations.
In addition to our domestic office space, we lease office and storage spaces in the foreign countries in which we operate. In the U.K., we
lease office spaces in Hatfield, England, for our ATM operations and in Dundee, Scotland, for our i-design operations. Additionally, we lease
spaces in various locations throughout the U.K. to support our cash-in-transit operations and other business activities. In Mexico, we lease
office and warehouse space in Mexico City. In Canada, we lease office space in Lethbridge, Alberta and Ottawa, Ontario. In Germany, we
lease office space in Trier.
Our facilities are leased pursuant to operating leases for various terms and we believe they are adequate for our current use. We believe
that our leases are at competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon expiration of
our current lease terms.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal and regulatory proceedings and settlements, see Part II, Item 8. Financial Statements and
Supplementary Data, Note 17, Commitments and Contingencies – Legal Matters.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
24
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock trades on The NASDAQ Global Select Market under the symbol “CATM.” As of February 20, 2015, there were
46 stockholders of record of our common stock, excluding an indeterminate number of beneficial holders whose shares may be held of record
at brokerage and clearing agencies.
Quarterly Stock Prices. The following table reflects the quarterly high and low sales prices for our common stock as reported on The
NASDAQ Stock Market LLC:
1
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
$
High
40.00
39.42
39.41
44.00
44.46
38.16
30.00
28.46
$
$
Low
33.04
31.38
28.03
36.97
35.46
27.36
26.29
23.13
Dividend Information. We have historically not paid, nor do we anticipate paying, dividends with respect to our common stock. For
information on restrictions on our ability to pay dividends, see Item 8. Financial Statements and Supplementary Data, Note 10, Long-Term
Debt and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
Resources — Financing Facilities.
Stock Performance Graph. The following graph compares the five-year total return to holders of Cardtronics Inc.'s common stock, the
NASDAQ Composite index (the “Index”), and a customized peer group of 14 companies that includes: (i) ACI Worldwide, Inc. (ACIW), (ii)
Acxiom Corporation (ACXM), (iii) CSG Systems International, Inc. (CSGS), (iv) Earthlink Inc. (ELNK), (v) Euronet Worldwide, Inc.
(EEFT), (vi) Fair Isaac Corp. (FICO), (vii) Global Cash Access Holdings, Inc. (GCA), (viii) Global Payments, Inc. (GPN), (ix) Jack Henry &
Associates, Inc. (JKHY), (x) NeuStar, Inc. (NSR), (xi) Outerwall, Inc. (OUTR), (xii) Sapient Corp. (SAPE), (xiii) SS&C Technologies
Holdings, Inc. (SSNC), and (xiv) WEX, Inc. (WEX) (collectively, the “Peer Group”). We selected the Peer Group companies because they
are publicly traded companies that: (i) have the same Global Industry Classification Standard classification, (ii) generate a similar amount of
revenues, (iii) have similar market values, and (iv) provide services that are similar to the services we provide.
The performance graph was prepared based on the following assumptions: (i) $100 was invested in our common stock, in our Peer Group
and the Index on December 31, 2009; (ii) investments in the Peer Group were weighted based on the returns of each individual company
within the group according to their market capitalization at the beginning of the period; and (iii) dividends were reinvested on the relevant
payment dates. The stock price performance included in this graph is historical and not necessarily indicative of future stock price
performance.
The following graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such
information be incorporated by reference into any future filing under the Securities Act of 1933 or the Exchange Act, each as amended,
except to the extent that we specifically incorporate it by reference into such filing.
25
12/09
12/10
12/11
12/12
12/13
12/14
Cardtronics Inc.
NASDAQ Composite
Peer Group
$ 100.00
$ 100.00
$ 100.00
$ 160.04
$ 117.61
$ 114.36
$ 244.67
$ 118.70
$ 119.79
$ 214.65
$ 139.00
$ 141.15
$ 392.86
$ 196.83
$ 211.94
$ 348.82
$ 223.74
$ 220.12
26
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 quarter ended December 31, 2014:
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
Period
to Section 12 of the Exchange
October 1 – 31, 2014
Act during the three months
November 1 – 30, 2014
ended September 30, 2013:3
December 1 – 31, 2014
Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan or
Program
Paid Per Share (2)
$
$
$
Shares Purchased (1)
—
38.30
38.50
—
9,467
2,841
—
—
—
Total Number of
Average Price
Approximate Dollar
Value that may Yet
be Purchased Under
the Plan or
Program (3)
$
$
$
—
—
—
_________
(1) Represents shares surrendered to us by participants in our 2007 Stock Incentive Plan to settle the participants’ personal tax liabilities that resulted from
the lapsing of restrictions on shares awarded to the participants under the 2007 Stock Incentive Plan.
(2) The price paid per share was based on the average high and low trading prices of our common stock on the dates on which we repurchased shares from
the participants under our 2007 Stock Incentive Plan or in the open market.
(3)
In connection with the lapsing of the forfeiture restrictions on restricted shares granted by us under our 2007 Stock Incentive 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.
Unregistered Sales of Equity Securities. None that have not previously been reported on a current report on Form 8-K.
27
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data derived from our consolidated financial statements. As a result of acquisitions of
businesses during the years presented below, our financial results are not comparable in all periods. Additionally, these selected historical
results are not necessarily indicative of results to be expected in the future.
2014
For the Years Ended December 31,
2012
(In thousands, except share and per share information and number of ATMs)
2013
2011
2010
Consolidated Statements of Operations Data:
Revenues and Income:
Total revenues
Income from operations (1)
Net income (2)
Net income attributable to controlling interests and
available to common stockholders (2)
Per Share Data:
Basic net income per common share (2)
Diluted net income per common share (2)
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
Consolidated Balance Sheets Data:
Total cash and cash equivalents
Total assets
Total long-term debt and capital lease obligations,
including current portion (3)
Total stockholders’ equity
Consolidated Statements of Cash Flows Data:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Operating Data (Unaudited):
Total number of ATMs (at period end):
ATM operations
Managed services
Total number of ATMs (at period end)
Total transactions (excluding managed services)
Total cash withdrawal transactions (excluding managed
services)
____________
$
1,054,821
104,639
35,194
$
876,486
82,601
20,647
$
780,449
90,507
43,262
$
624,576
77,275
70,146
$
532,078
66,263
41,133
37,140
23,816
43,591
70,233
40,959
$
$
0.83
0.82
44,338,408
44,867,304
$
$
0.52
0.52
44,371,313
44,577,635
0.97
$
$
0.96
43,469,175
43,875,332
1.60
$
$
1.58
42,201,491
42,886,780
0.98
$
$
0.96
40,347,194
41,059,381
$
31,875
1,255,790
$
86,939
1,056,203
$
13,861
768,892
$
5,576
712,801
$
3,189
455,315
612,697
286,535
490,514
247,114
354,819
148,804
370,949
113,145
254,833
44,254
$
188,553
(336,881)
99,248
$
183,557
(266,740)
154,988
$
136,388
(113,764)
(14,084)
$
113,325
(234,454)
123,532
$
105,168
(50,652)
(62,150)
78,217
31,989
110,206
66,984
13,610
80,594
56,395
6,365
62,760
48,105
4,781
52,886
33,116
3,854
36,970
1,040,241
860,062
704,809
516,564
413,780
617,419
521,282
443,312
318,615
253,890
(1) The year ended December 31, 2013 includes $8.7 million in nonrecurring property tax expense related to a change in assessment methodology in
the U.K. Additionally, $18.1 and $15.4 million in acquisition-related costs were included in the results for the years ended December 31, 2014 and
2013, respectively
(2) The year ended December 31, 2013 includes $13.8 million in income tax expense related to the restructuring of our U.K. business. The years ended
December 31, 2011, and 2010 include $37.0, and $27.2 million, respectively, in income tax benefits. The income tax benefit in 2011 related to a
tax reporting change that was implemented in our U.K. operations, and the benefit in 2010 related to the reversal of previously-established
valuation allowances on our domestic deferred tax assets. Additionally, 2010 includes a pre-tax charge of approximately $14.5 million related to
certain charges associated with the refinancing of our outstanding debt obligations.
(3) Our long-term debt as of December 31, 2014 consists of outstanding borrowings under our revolving credit facility, our senior fixed rate notes, and
our convertible notes that were issued in November 2013. The convertible notes are shown on our Consolidated Balance Sheet at a carrying value
of $225.4 million as of December 31, 2014, which represents the principal balance of $287.5 million less the unamortized discount of $62.1
million.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are
based on management’s current expectations, estimates, and projections about our business and operations. Our actual results may differ
materially from those currently anticipated and expressed in such forward-looking statements. Known material factors that could cause our
actual results to differ from those in the forward-looking statements are those we discuss under Part I, Item 1A. Risk Factors. Additionally,
you should read the following discussion together with the financial statements and the related notes included in Item 8. Financial Statements
and Supplementary Data.
Our discussion and analysis includes the following topics:
Strategic Outlook
Developing Trends in the ATM and Financial Services Industry
Recent Events
Components of Revenues, Cost of Revenues, and Expenses
Results of Operations
Non-GAAP Financial Measures
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
New Accounting Pronouncements Issued but Not Yet Adopted
Commitments and Contingencies
Strategic Outlook
Over the past several years, we have expanded our operations both domestically and internationally through acquisitions, continued to
deploy ATMs in high-traffic locations under contracts with well-known retailers, expanded our relationships with leading financial
institutions through growth of our Allpoint surcharge-free ATM network and bank branding programs, and made strategic acquisitions and
investments to expand new product offerings and capabilities of our ATMs.
We have completed several acquisitions since 2011, including the acquisitions of: (1) eight domestic ATM operators, expanding our fleet
in both multi-unit regional retail chains and individual merchant ATM locations in the U.S. by approximately 57,950 ATMs, (2) two
Canadian ATM operators for a total of approximately 1,400 ATMs, which allowed us to enter into and expand our international presence in
Canada, and (3) Cardpoint in August 2013, which further expanded our U.K. ATM operations by approximately 7,100 ATMs and also
allowed us to enter into the German market with approximately 800 ATMs. In addition to ATM acquisitions, we have also made strategic
acquisitions including (1) 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,
(2) 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 (3) Sunwin in 2014, a U.K. based provider of secure cash logistics, ATM maintenance, and other
services.
While we will continue to explore potential acquisition opportunities in the future as a way to grow our business, we also expect to
continue launching new products and services that will allow us to further leverage our existing ATM and financial services kiosk network.
In particular, we see opportunities to expand our operations through the following:
increase our number of deployed devices with existing as well as new merchant relationships
expand our relationships with leading financial institutions
work with non-traditional financial institutions and card issuers to further leverage our extensive ATM and financial services kiosk
network
increase transaction levels at our existing locations
develop and provide additional services at our existing ATMs
pursue additional managed services opportunities
pursue international growth opportunities
29
For additional discussion of each of our strategic points above, see Part I, Item 1. Business – Our Strategy.
Developing Trends in the ATM and Financial Services Industry
Increase in Surcharge-Free Offerings. Many U.S. retail banks are aggressively competing 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. While owning 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 ATMs and
participation in surcharge-free networks allow financial institutions to rapidly increase surcharge-free ATM access for their customers at
substantially lower cost than building their own ATM networks. These factors have led to an increase in bank branding and participation in
surcharge-free networks, and we believe that there will be continued growth in such arrangements.
Increase in Usage of Stored-Value Prepaid Debit Cards. In the U.S., we have seen a proliferation in the issuance and acceptance of
stored-value prepaid debit cards as a means for consumers to access their cash and make routine retail purchases. Based on published studies,
the value loaded on stored-value prepaid cards such as open loop network-branded money and financial services cards, payroll and benefit
cards and social security cards, is expected to increase in the next few years.
We believe that our network of ATMs and financial services kiosks, located in well-known retail establishments throughout the U.S.,
provides a convenient and cost-effective way for holders of such cards to access their cash and potentially conduct other financial services
transactions. Furthermore, through our Allpoint network, we partner with financial institutions that issue and sponsor stored-value prepaid
debit card programs on behalf of corporate entities and governmental organizations, and we are able to provide holders of such cards
convenient, surcharge-free access to their cash. We believe that the number of prepaid cards being issued and in circulation has increased
significantly over the last couple of years and represents a significant portion of the year-over-year withdrawal transaction count gains that we
have seen in the U.S.
Growth in Other Automated Consumer Financial Services. Approximately 75% of all ATM transactions in the U.S. are cash
withdrawals, with the remainder representing other basic banking functions such as balance inquiries, transfers, and deposits. We believe that
there are opportunities for a large non-bank ATM operator to provide additional financial services to customers, such as check cashing,
remote deposit capture, money transfer, bill payment services, and stored-value card reload services through self-service kiosks. These
additional consumer financial services could result in additional revenue streams for us and could ultimately result in increased profitability.
However, it would require additional capital expenditures on our part to offer these services more broadly than we currently do.
Managed Services. While many banks own significant networks of ATMs that serve as extensions of their branch networks and increase
the level of service offered to their customers, large ATM networks are costly to operate and typically do not provide significant revenue for
banks and smaller financial institutions. Similarly, there are retailers that own their own network of ATMs for added services to their
customers. Operating a network of ATMs is not a core competency for the majority of banks or other financial institutions and for retailers;
therefore, we 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 operational costs while extending their customer service. Additionally, 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.
Growth in International Markets. In most regions of the world, ATMs are less common than in the U.S. We believe the ATM industry
will grow faster in certain international markets, as the number of ATMs per capita in those markets increases and begins to approach the
levels in the U.S. and, the U.K. In addition, there has been a trend toward growth of non-branch ATMs in the other international markets we
operate in, including Germany, which we entered into during 2013 through the Cardpoint acquisition.
United Kingdom. The U.K. is the largest ATM market in Europe. According to LINK (which connects the ATM networks of all
U.K. ATM operators), approximately 69,100 ATMs were deployed in the U.K. as of September 2014, of which approximately
34,800 were operated by non-banks. Similar to the U.S., electronic payment alternatives have gained popularity in the U.K. in recent
years. However, cash is still the primary payment method preferred by consumers, representing approximately 60% of spontaneous
payments above £1.00 according to the UK Payments Council’s UK Consumer Payments 2014 publication. Due to the maturing of
the ATM market, we have seen both the number of ATM deployments and withdrawals slow in recent years, and there has been a
shift from pay-to-use ATMs to free-to-use ATMs. We significantly expanded in the U.K. during 2013 through the acquisition of
Cardpoint and in 2014 through the acquisition of Sunwin and a new ATM operating agreement with Co-op Food. We expect to
further expand our operations in this market through new locations with existing merchant customers along with new merchants with
whom we may acquire relationships and other growth strategies.
Germany. We entered the German market in August 2013 through our acquisition of Cardpoint. The German ATM market is highly
fragmented and may be under-deployed, based on its population’s high use of cash relative to other markets in which we operate,
such as the U.S. and U.K. There are approximately 58,500 ATMs in Germany that are largely deployed in bank branch locations.
This fragmented and potentially under-deployed market dynamic is attractive to us, and as a result, we believe there are a number of
30
opportunities for growth in this market. Girocard, which is the interbank network that connects the ATM network of German ATMs
and banks, enabled surcharging in early 2011.
Mexico. According to the Central Bank of Mexico, as of September 2013 (latest statistics date), Mexico had approximately 40,100
ATMs operating throughout the country, most of which were owned by national and regional banks. Due to a series of governmental
and networks regulations over the past few years that have been mostly detrimental to us, along with increased theft attempts on our
ATMs in this market, we have slowed our expansion in this market in recent years. However, we continue to pursue opportunities to
grow profitably with large retailers and financial institutions in the region on a selective basis.
Canada. We entered the Canadian market in October 2011 through a small acquisition, and further expanded our presence in the
country through another small acquisition in December 2012. We expect to continue to grow our number of ATM locations in this
market and plan to leverage our U.S. operations to support our anticipated growth in this market. We believe that we can leverage
our existing relationships with merchant retailers with whom we have significant existing relationships in place in the U.S. to service
their Canadian operations, such as our expansion with 7-Eleven Canada during 2012. Furthermore, in 2012, we established a
relationship with Scotiabank to provide vault cash in Canada, as well as brand the ATMs in 7-Eleven locations with their logo. In
2014, we further expanded our Canadian business with new retail sites and a branding relationship with CIBC. As we expand our
footprint in Canada, we plan to seek additional partnerships with financial institutions to implement bank branding and other
financial services, similar to our bank branding and surcharge-free strategy in the U.S.
Increases in Surcharge Rates. As financial institutions in the U.S. increase the surcharge rates charged to non-customers for the use of
their ATMs, it enables us to increase the surcharge rates charged on our ATMs in selected markets and with certain merchant customers as
well. We also believe that higher surcharge rates in the market make our surcharge-free offerings more attractive to consumers and other
financial institutions. In 2009 and 2010, we saw broad increases in surcharge rates in the industry. Over the last few years, we have seen a
slowing of surcharge rate increases and expect to see more modest increases in surcharge rates in the near future.
Decrease in Interchange Rates. The interchange rates paid to independent ATM deployers, such as ourselves, are in some cases set by
the various EFT networks over which the underlying transactions are routed. In recent years, several networks in the U.S. have not only
reduced the per transaction interchange paid to ATM deployers for transactions routed through their networks, but have also increased the
fees they charge ATM deployers to have access to their networks. These access fees are referred to as “acquirer fees.” As a result of these
actions, we have experienced a decrease in the net interchange rate we receive on transactions performed at our ATMs. During the second
quarter of 2012, a major global network reduced the interchange it pays to ATM deployers and also increased the acquirer fees paid by ATM
deployers. This network action also prompted some financial institutions to shift their transaction volume to lower interchange rate networks,
further reducing our interchange revenues. If financial institutions move to take further advantage of lower interchange rates, or if networks
reduce the interchange rates they currently pay to ATM deployers or increase their network fees, our future revenues and gross profits would
be negatively impacted. We have taken measures to mitigate our exposure to interchange rate reductions by networks, including, but not
limited to: (1) where possible, routing transactions through a preferred network such as the Allpoint network, where we have influence over
the per transaction rate; (2) negotiating directly with our financial institution partners for contractual interchange rates on transactions
involving their customers; and (3) developing contractual protection from such rate changes in our agreements with merchants and financial
institution partners. As of December 31, 2014, approximately 5% of our total ATM operating revenues were subject to pricing changes by
U.S. networks over which we currently have limited influence or have limited ability to offset against fees we pay to merchants in the event
of a rate decrease.
Interchange rates in the U.K., are set by LINK, the U.K.’s primary ATM debit network. LINK sets the interchange rates in the U.K.
annually using a cost-based methodology that incorporates interest rates and other ATM service costs from two years back (i.e., interest rates
and other costs from 2013 are considered for determining the 2015 interchange rate). In addition to LINK transactions, certain card issuers in
the U.K. have issued cards that are not affiliated with the LINK network, and instead carry the Visa or MasterCard network brands.
Transactions conducted on our ATMs from these cards, which currently represent less than 2% of our annual withdrawal transactions in the
U.K., receive interchange fees that are set by Visa or MasterCard, respectively. The interchange rates set by Visa and MasterCard have
historically been less than the rates that have been established by LINK. Accordingly, if any major financial institutions in the U.K. were to
decide to leave the LINK network in favor of Visa or MasterCard, such a move could further reduce the interchange revenues that we receive
from the related withdrawal transactions conducted on our ATMs in that market.
Recent Events
Withdrawal Transaction and Revenue Trends – U. S. For the year ended December 31, 2014, total same-store cash withdrawal
transactions conducted on our domestic ATMs increased by 0.3% over the prior year. We define same-store ATMs as all ATMs that were
continuously transacting for both the current period and the comparable period in the prior year to ensure the exclusion of any new growth or
mid-month installations. We believe that the small increase in same-store transactions during the year was impacted by several factors,
including: (1) a continued shift in the mix of withdrawal transactions being conducted on our domestic network of ATMs (i.e., more
surcharge-free and less surcharge-based withdrawal transactions) resulting from the continued evolution and growth of our surcharge-free
product offerings; and (2) the continued growth in the use of network-branded stored-value cards by employers and governmental agencies
for payroll and benefit-related payments. We believe these factors have been partially offset by banks, in some cases, charging their
31
customers for using ATMs not belonging to them. We expect to continue to see a flat or low single-digit rate of increase in the number of
cash withdrawal transactions being conducted on our domestic ATMs on a same-store basis in the near future.
Many banks are reducing the number of branches they operate to reduce their operating costs, giving rise to a desire for more robust
automated banking solutions, such as ATMs. Over the last several years, some of the largest U.S. banks serving the 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 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 surcharge-free ATM access for their customers at a substantially lower cost than building 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 operational 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, Chase, of their intention not to renew or extend a number of ATM
branding contracts with us. While we expect this action to have a moderate 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 are in advanced discussions with multiple financial institutions to replace the branding on a significant number of the ATMs previously
branded by Chase.
Withdrawal Transaction and Revenue Trends – U.K. In recent periods, we have installed more free-to-use ATMs as opposed to
surcharging pay-to-use ATMs in the U.K. 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 has generally translated into higher overall
revenues. In 2014, our overall same-store transaction growth rate in the U.K. was -2.0%.
Financial Regulatory Reform in the U.S. The Dodd-Frank Act, which contains broad measures aimed at overhauling financial regulations
within the U.S., was signed into law on July 21, 2010. Among many other things, the Dodd-Frank Act includes provisions that (1) have
resulted in the creation of a new Bureau of Consumer Financial Protection, (2) limit the activities that banking entities may engage in, and (3)
give the Federal Reserve the authority to regulate interchange transaction fees charged by EFT networks for electronic POS debit
transactions. ATM debit transactions were determined not to be subject to regulation under the Dodd-Frank Act. As a result of the Dodd-
Frank Act, we have seen networks and banks take different actions to attempt to mitigate reductions to fees that they previously earned on
certain transaction types, such as POS debit interchange. As potentially an indirect consequence, certain networks over which our ATM
transactions are routed have reduced the net interchange paid to us. Other possible longer-term impacts of this broad legislation are unknown
to us at this time, but we have seen certain actions taken by banks that indicate debit cards are no longer considered as an attractive form of
payment as they previously had been.
Europay, MasterCard, Visa (“EMV”). 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,
Mexico, and Canada, and our ATMs in those markets are in compliance. In the U.S., MasterCard 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) for fraudulent counterfeit card Maestro
cross-border transactions. 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, we 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% 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. 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. MasterCard has also announced that liability shift for its domestic ATM transactions on EMV-
issued cards will occur in October 2016. 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. 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 financial
results and capital expenditure requirements. We have already 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 million to $50 million, a portion of which was incurred during 2014. With the
increased capital investments required as a direct result of EMV, our depreciation expense may 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 also may experience a higher
32
rate of unit count attrition for our merchant-owned ATMs in the future as a result of this standard; however, we are currently developing
programs to make EMV upgrades attractive to merchants that own their own ATMs.
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 ultimate impact of the establishment of the PSR will not be known until it is officially formed in April
2015.
In July 2013, the European Commission put forward a new draft directive (the “draft Directive”) to regulate payment service providers
operating in the European Union (“PSD2”). Broadly, PSD2 seeks to harmonize rules for the licensing of payment institutions and introduces
certain common rules affecting all payment service providers (“PSPs”) throughout the European Union. The draft Directive sets out the rights
and obligations of payment service users and PSPs together with transparency and security requirements to facilitate safe, efficient payment
transactions. Whereas the current Payment Services Directive exempts independent ATM deployers, PSD2 (as currently drafted) will apply
to businesses of this nature. The draft Directive is currently still in Committee stage in the European Parliament and has not yet been properly
considered by the Council. We anticipate that the draft Directive will not be finalized until 2015 and that it will take up to an additional two
years for member states to transpose it into domestic law. For additional information on regulatory risks in the U.K., see Item 1A. Risk
Factors.
U.K. Property Taxes. In the U.K., there is no requirement for property owners to declare ownership and valuation to taxing authorities
for property tax purposes (referred to as “business rates” in the U.K.). Rather, the U.K. government sets the valuations on all the assessable
properties that it is aware of and distributes the results to the various local government councils, who then may or may not send property tax
bills to property owners at their discretion. Through mid-2013, we had only received tax bills for a portion of the ATMs in the U.K. and these
amounts were not significant in the past. In May 2013, we received a notice from the U.K. governmental agency in charge of property taxes
stating that it had obtained location and transaction count data for all ATMs in the U.K., and that it was in the process of creating or updating
the valuations on many U.K. ATMs across the industry. In 2013, we received listings of proposed valuations for our ATMs, which indicated
an annual incremental assessment of approximately £1.8 million ($2.9 million), net of amounts that may be contractually recovered from
merchants and potential reductions resulting from successfully challenging the assessments with the U.K. government and local authorities.
Under U.K. law, these taxes may be payable retroactive to April 2010 or to the date of first occupancy, whichever is later. As a result, we
believe that it is probable that we will be assessed on significantly more ATMs than in the past, and as a result, during 2013 we recorded an
additional expense of $8.7 million through the Cost of ATM operating revenues line item on our Consolidated Statement of Operations to
account for not only current year taxes assessable but also an estimate for taxes assessable relating to previous years. We believe there are
several strategies to mitigate these property tax assessments and we have been engaged in and plan to continue to aggressively pursue these
strategies, to not only reduce the retroactive portion of such assessments, but to also minimize the potential ongoing impact of this change in
approach by the U.K. taxing authorities.
Expansion in Germany. As noted above in Developing Trends in the ATM and Financial Services Industry – Growth in International
Markets, we entered the German market in August 2013 through our acquisition of Cardpoint. The German ATM market is highly
fragmented and may be under-deployed based on its population’s extensive use of cash relative to other markets in which we operate, such as
the U.S. and U.K. There are approximately 58,500 ATMs in Germany that are largely deployed in bank branch locations. This fragmented
and potentially under-deployed market dynamic is attractive to us, and as a result, we believe there are a number of opportunities for growth
in this market and we plan to pursue many of them.
Mexico Business. A number of market forces have resulted in a reduction of the revenues and profits we earn from our ATMs in Mexico.
As a result, we have reduced our ATM deployments in Mexico in recent years and we continue to evaluate each ATM’s revenue and profit
contributions to our Mexico operations. During the fourth quarter of 2013, in response to increased physical ATM theft attempts and lower
profitability on certain ATMs in Mexico, we took a number of ATMs out of service for a period of time to enhance some security features. In
spite of some of the recent challenges of operating in this market, we believe long-term opportunities remain to operate a profitable operation
in this market.
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 between 2011 and 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. We expect that our reported results during 2015 will be moderately adversely
impacted by a strengthened U.S. dollar.
Acquisitions. 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.
33
Components of Revenues, Cost of Revenues, and Expenses
Revenues
We derive our revenues primarily from providing ATM and automated consumer financial services bank branding, surcharge-free
network offerings, and sales and services of ATM equipment. We currently classify revenues into two primary categories: (1) ATM operating
revenues and (2) ATM product sales and other revenues.
ATM Operating Revenues. We present revenues from ATM and automated consumer financial services, branding arrangements,
surcharge-free network offerings and managed services as “ATM operating revenues” in our Consolidated Statements of Operations. These
revenues include the fees we earn per transaction on our ATMs, fees we generate from bank branding arrangements and our surcharge-free
network offerings, fees we earn on managed services arrangements, and fees earned from providing certain ATM management services. Our
revenues from ATM services have increased in recent years due to the acquisitions we have completed, by unit expansion with our customer
base, acquisition of new merchant relationships, expansion of our bank branding programs, and the growth of our Allpoint network.
ATM operating revenues primarily consist of the four following components: (1) surcharge revenue, (2) interchange revenue,
(3) branding and surcharge-free network revenue, and (4) managed services revenue.
Surcharge revenue. A surcharge fee represents a convenience fee paid by the cardholder for making a cash withdrawal from an
ATM. Surcharge fees often vary by the type of arrangement under which we place our ATMs and can vary widely based on the
location of the ATM and the nature of the contracts negotiated with our merchants. Surcharge fees per surcharge-bearing transaction
will vary depending upon the competitive landscape for surcharge fees at newly-deployed ATMs, the roll-out of additional branding
arrangements, and future negotiations with existing merchant partners. For those ATMs that we own or operate that participate in
surcharge-free networks, we do not receive surcharge fees related to withdrawal transactions from cardholders who are participants
of such networks; rather we receive interchange and branding or surcharge-free network revenues, which are further discussed
below. For certain ATMs owned and primarily operated by the merchant, we do not receive any portion of the surcharge but rather
the entire fee is earned by the merchant. In the U.K., ATM operators must either operate ATMs on a free-to-use (surcharge-free) or
on a pay-to-use (surcharging) basis. On free-to-use ATMs in the U.K., we only earn interchange revenue on withdrawal and other
transactions, such as balance inquiries, that are paid to us by the customer’s financial institution through the ATM network in the
U.K. On our pay-to-use ATMs, we only earn a surcharge fee on withdrawal transactions and no interchange is paid to us by the
cardholder’s financial institution, except for non-cash withdrawal transactions such as balance inquiries for which interchange is
paid to us by the cardholder’s financial institution. In Germany, we collect a surcharge fee on withdrawal transactions but do not
receive any interchange revenue. In Mexico, domestic surcharge fees are generally similar to those charged in the U.S., except for
machines that dispense U.S. dollars, where we charge an additional foreign currency convenience fee. Finally, in Canada, surcharge
fees are comparable to those charged in the U.S., and we also earn an interchange fee that is paid to us by the cardholder’s financial
institution.
Interchange revenue. An interchange fee is a fee paid by the cardholder’s financial institution for its customer’s use of an ATM
owned by another operator and for the EFT network charges to transmit data between the ATM and the cardholder’s financial
institution. We typically receive a majority of the interchange fee paid by the cardholder’s financial institution, with the remaining
portion being retained by the EFT network. In the U.S., interchange fees are earned not only on cash withdrawal transactions but on
any ATM transaction, including balance inquiries, transfers, and surcharge-free transactions. In the U.K., interchange fees are earned
on all ATM transactions other than pay-to-use cash withdrawals. LINK sets the interchange rates for most ATM transactions in the
U.K. annually by using a cost-based methodology that, among other costs, factors in the interest rates and cash costs from two years
back (i.e., interest rates and other costs from 2013 are considered for determining the 2015 interchange rate). In Germany, there is no
interchange mechanism and our primary revenue source is convenience fees paid by ATM users. Currently, we do not receive
interchange revenue from domestic transactions in Mexico due to rules promulgated by the Central Bank of Mexico, which became
effective in May 2010. In Canada, interchange fees are determined by Interac (the interbank network in Canada), and have remained
at a constant rate over the past few years.
Branding and surcharge-free network revenue. Under a bank branding agreement, ATMs that are owned and operated by us are
branded with the logo of the branding financial institution. Cardholders of the branding institution can use those machines without
paying a surcharge, and in exchange for the value associated with displaying the brand and providing surcharge-free access to their
cardholders, the financial institution typically pays us a monthly per-ATM fee. Historically, this type of branding arrangement has
resulted in an increase in transaction levels at branded ATMs, as existing customers continue to use the ATMs and cardholders of
the branding financial institution are attracted by the service. Additionally, although we forego the surcharge fee on transactions by
the branding institution’s customers, we continue to earn interchange fees on those transactions along with the monthly branding fee,
and typically enjoy an increase in surcharge-bearing transactions from users who are not customers of the branding institution as a
result of having a financial institution brand on the ATMs. Based on these factors, we believe a branding arrangement can
substantially increase the profitability of an ATM versus operating the same machine without a brand. Fees paid for branding vary
widely within our industry, as well as within our own operations, depending on the ATM location, financial institutions operating in
34
the area, and other factors. Regardless, we typically set branding fees at levels that more than offset our anticipated lost surcharge
revenue.
Under the Allpoint network, financial institutions that are members of the network pay us either a fixed monthly fee per cardholder or a
set fee per transaction in exchange for us providing their cardholders with surcharge-free access to many of our ATMs. These fees are meant
to compensate us for the loss of surcharge revenues. Although we forego surcharge revenues on those transactions, we do continue to earn
interchange revenues. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of themselves,
corporate entities and governmental agencies, including general purpose, payroll, and EBT cards. Under these programs, the issuing financial
institutions pay Allpoint either a per transaction fee or a fee per issued stored-value card in return for allowing the users of those cards
surcharge-free access to the Allpoint network.
In addition to Allpoint, the ATMs that we operate in 7-Eleven stores, as well as select other merchant locations, participate in the Co-op
network, the nation’s largest surcharge-free network devoted exclusively to credit unions.
Managed services revenue. Under a managed service arrangement, we offer ATM-related services depending on the needs of our
customers, including monitoring, maintenance, cash management, cash delivery, customer service, transaction processing, and other
services. Our customers, who include retailers and financial institutions, may also at times request that we own the ATM fleets.
Under a managed services arrangement, all of the transaction-based surcharge and interchange fees are earned by our customer,
whereas we typically receive a fixed management fee per ATM and/or a set fee per transaction for the services we provide. This
arrangement allows our customers to have greater flexibility to control the profitability per ATM by managing the surcharge fee
levels. Currently, we offer managed services in the U.S., U.K., and Canada, and plan to grow this arrangement both domestically
and internationally in the future.
In addition to the above, we also earn ATM operating revenues from the provision of other financial services transactions at certain
financial services kiosks that, in addition to standard ATM services, offer bill payment, check cashing, remote deposit capture, and money
transfer services.
The following table presents the components of our total ATM operating revenues for the years indicated:
Surcharge revenue
Interchange revenue
Bank branding and surcharge-free network revenues
Other ATM operating revenues, including managed services
Total ATM operating revenues
2014
45.3 %
33.9
15.5
5.3
100.0 %
2013
46.0 %
32.6
16.6
4.8
100.0 %
2012
47.2 %
32.5
16.1
4.2
100.0 %
ATM Product Sales and Other Revenues. We present revenues from the sale of ATMs and other non-transaction-based revenues as “ATM
product sales and other revenues” in our Consolidated Statements of Operations. These revenues consist primarily of sales of ATMs and
related equipment to merchants operating under merchant-owned arrangements, as well as sales under our value-added reseller (“VAR”)
program with NCR. Under our VAR program, we primarily sell ATMs to associate VARs who in turn resell the ATMs to various financial
institutions throughout the U.S. in territories authorized by the equipment manufacturer. We expect to continue to derive a portion of our
revenues from sales of ATMs in the future. Additionally, effective with the completion of the Sunwin acquisition in November 2014,
revenues earned from this business related to the provision of cash delivery and ATM maintenance services to third-party customers are now
presented within this revenue category.
Cost of Revenues
Our cost of revenues primarily consists of those costs directly associated with transactions completed on our network of ATMs and
financial services kiosks. These costs include merchant commissions, vault cash rental expense, other cost of cash, repairs and maintenance
expense, communications expense, transaction processing fees, and direct operations expense. To a lesser extent, cost of revenues also
includes those costs associated with the sales of ATMs. The following is a description of our primary cost of revenues categories:
Merchant Commissions. We pay our merchants a fee for allowing us an exclusive right to place our ATM at their location and that
fee amount depends on a variety of factors, including the type of arrangement under which the device is placed, the type of location,
and the number of transactions on that device. For the year ended December 31, 2014, merchant commissions represented 31.4% of
our ATM operating revenues.
Vault Cash Rental Expense. We pay a fee to our vault cash providers for renting the cash that is maintained in our devices. As the
fees we pay under our contracts with our vault cash providers are based on market rates of interest, changes in interest rates affect
our cost of cash. In order to limit our exposure to increases in interest rates, we have entered into a number of interest rate swaps on
varying amounts of our current and anticipated outstanding cash balances in our domestic operations through 2018. For the year
35
ended December 31, 2014, vault cash rental expense, inclusive of our interest rate swap expense, represented 6.2% of our ATM
operating revenues.
Other Costs of Cash. Other costs of cash includes all costs associated with the provision of cash for our devices except for rental
expense, including armored courier services, insurance, cash reconciliation, associated wire fees, and other costs. For the year ended
December 31, 2014, other costs of cash represented 8.3% of our ATM operating revenues.
Repairs and Maintenance. Depending on the type of arrangement with the merchant, we may be responsible for first and/or second
line maintenance for the device. We typically use third-parties with national operations to provide these services, except for in the
U.K. where we maintain an engineer team to service most of our ATMs in that market and those costs are included in the Other
Expenses line described below. For the year ended December 31, 2014, repairs and maintenance expense represented 6.3% of our
ATM operating revenues.
Communications. Under our Company-owned arrangements, we are responsible for expenses associated with providing
telecommunications capabilities to the devices, allowing them to connect with the applicable EFT network.
Transaction Processing. We maintain our own EFT transaction processing platform, through which the majority of our ATMs are
driven and monitored. We also utilize third-party processors to gateway transactions to the EFT networks for authorization by the
cardholders’ financial institutions and to settle transactions. As a result of acquisitions completed in the last few years, we have
inherited transaction processing contracts with certain third-party providers that have varying lengths of remaining contractual terms.
Over the next couple of years, we expect to convert the majority of ATMs currently operating under these contracts to our own EFT
transaction processing platform.
Other Expenses. Other expenses primarily consist of direct operations expenses, which are costs associated with managing our
network, including expenses for monitoring the devices, program managers, technicians, cash ordering and forecasting personnel,
and customer service representatives.
Cost of ATM Product Sales. In connection with the sale of equipment to merchants and distributors, we incur costs associated with
purchasing equipment from manufacturers, as well as delivery and installation expenses. Additionally, it includes costs related to our
armored courier operation and maintenance operations in the U.K.
We define variable costs as those that vary based on transaction levels. The majority of merchant commissions, vault cash rental expense,
and other costs of cash fall under this category. The other categories of cost of revenues are mostly fixed in nature, meaning that any
significant decrease in transaction volumes would lead to a decrease in the profitability of our operations, unless there was an offsetting
increase in per-transaction revenues or decrease in our fixed costs. Although the majority of our operating costs are variable in nature, an
increase in transaction volumes may lead to an increase in the profitability of our operations due to the economies of scale obtained through
increased leveraging of our fixed costs and incremental preferential pricing obtained from our vendors. We exclude depreciation, accretion,
and amortization of ATMs and ATM-related assets from our cost of ATM revenues.
The profitability of any particular location, and of our entire ATM and financial services kiosk operation, is driven by a combination of
surcharge, interchange, branding and surcharge-free network revenues, and managed services revenues, as well as the level of our related
costs. Accordingly, material changes in our surcharge or interchange revenues may be offset and in some cases more than offset by branding
revenues, surcharge-free network fees, managed services revenues or other ancillary revenues, or by changes in our cost structure.
Other Operating Expenses
Our other operating expenses include selling, general and administrative expenses related to salaries, benefits, advertising and marketing,
professional services, and overhead. Acquisition-related costs, depreciation and accretion of the ATMs, ATM-related assets, and other assets
that we own, amortization of our acquired merchant contracts, and other amortizable intangible assets are also components of our other
operating expenses. We depreciate our capital equipment on a straight-line basis over the estimated life of such equipment and amortize the
value of acquired intangible assets over the estimated lives of such assets.
36
Results of Operations
The following table sets forth line items from our Consolidated Statements of Operations as a percentage of total revenues for the years
indicated. Percentages may not add due to rounding.
Revenues:
ATM operating revenues
ATM product sales and other revenues
Total revenues
Cost of revenues:
Cost of ATM operating revenues (excludes depreciation, accretion, and
amortization of intangible assets shown separately below) (1)
Cost of ATM product sales and other revenues
Total cost of revenues
Gross profit
Operating expenses:
Selling, general, and administrative expenses (2)
Acquisition-related expenses (3)
Depreciation and accretion expense
Amortization of intangible assets
Loss on disposal of assets
Total operating expenses
Income from operations
Other expense (income):
Interest expense, net
Amortization of deferred financing costs and note discount
Redemption costs for early extinguishment of debt
Other income
Total other expense
2014
2013
2012
95.5 %
4.5
100.0
97.5 %
2.5
100.0
95.3 %
4.7
100.0
62.5
4.2
66.7
33.3
10.8
1.7
7.2
3.4
0.3
23.3
9.9
65.5
2.4
67.9
32.1
9.7
1.8
7.8
3.1
0.3
22.7
9.4
64.4
4.3
68.7
31.3
8.4
0.4
7.9
2.8
0.2
19.7
11.6
2.0
1.2
0.9
(0.2)
3.9
6.0
2.7
3.3
(0.2)
2.4
0.2
—
(0.4)
2.3
7.1
4.8
2.4
(0.4)
2.7
0.1
—
(0.2)
2.6
9.0
3.5
5.5
—
Income before income taxes
Income tax expense (4)
Net income
Net loss attributable to noncontrolling interests
Net income attributable to controlling interests and available to common
stockholders
_______________
(1) Excludes effects of depreciation, accretion, and amortization of intangible assets of $99.5 million, $87.2 million and $74.7 million for the years ended
December 31, 2014, 2013, and 2012, respectively. The inclusion of this depreciation, accretion, and amortization of intangible assets in Cost of ATM
operating revenues would have increased our Cost of ATM operating revenues as a percentage of total revenues by 9.4%, 9.9%, and 9.6% for the years
ended December 31, 2014, 2013, and 2012, respectively.
3.5 %
2.7 %
5.6 %
(2)
Includes stock-based compensation expense of $15.2 million, $11.4 million, and $10.2 million for the years ended December 31, 2014, 2013, and 2012,
respectively. The years ended December 31, 2013 and 2012 includes the effect of $0.5 million and $1.0 million, respectively, in severance costs
associated with management of our U.K. operations.
(3) Acquisition-related expenses include nonrecurring costs incurred for legal and professional fees and certain nonrecurring transition and integration-
related costs, including contract termination costs, related to acquisitions.
(4) The year ended December 31, 2013 includes $13.8 in income tax expense associated with restructuring our U.K. operations.
37
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:
Average number of transacting ATMs:
United States: Company - owned
United Kingdom
Mexico
Canada
Germany
Subtotal
United States: Merchant - owned
Average number of transacting ATMs - ATM operations
United States: Managed services - Turnkey
United States: Managed services - Processing Plus
United Kingdom: Managed services
Canada: Managed services
Average number of transacting ATMs - Managed services
Total average number of transacting ATMs
Total transactions (in thousands):
ATM operations
Managed services
Total transactions
Total cash withdrawal transactions (in thousands):
ATM operations
Managed services
Total cash withdrawal transactions
Per ATM per month amounts (excludes managed services):
Cash withdrawal transactions
ATM operating revenues
Cost of ATM operating revenues (1)
ATM operating gross profit (1)(2)
$
$
Years Ended December 31,
2014
2013
29,630
8,036
2,153
1,650
344
41,813
19,184
60,997
2,128
9,281
21
535
11,965
72,962
933,509
68,130
1,001,639
551,973
45,539
597,512
754
1,207
794
413
28,333
7,450
2,533
1,600
365
40,281
21,072
61,353
2,191
8,220
21
306
10,738
72,091
860,062
60,027
920,089
521,282
40,223
561,505
708
1,127
744
383
$
$
ATM operating gross profit margin (1)(2)
____________
(1) Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our consolidated
statements of operations. Additionally, excludes the effect of $8.7 million of nonrecurring expense related to U.K. retroactive property taxes on certain
ATM locations in the U.K in the year ended December 31, 2013.
34.0 %
34.2 %
(2) 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.
38
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:
INCLUDING ACQUISITIONS:
Average number of transacting ATMs:
United States: Company - owned
United Kingdom
Mexico
Canada
Germany
Subtotal
United States: Merchant - owned
Average number of transacting ATMs - ATM operations
United States: Managed services - Turnkey
United States: Managed services - Processing Plus
United Kingdom: Managed services
Canada: Managed services
Average number of transacting ATMs - Managed services
Total average number of transacting ATMs
Total transactions (in thousands):
ATM operations
Managed services
Total transactions
Total cash withdrawal transactions (in thousands):
ATM operations
Managed services
Total cash withdrawal transactions
Per ATM per month amounts (excludes managed services):
Cash withdrawal transactions
ATM operating revenues
Cost of ATM operating revenues (1)
ATM operating gross profit (1)(2)
$
$
Years Ended December 31,
2014
2013
32,330
12,098
2,153
1,650
878
49,109
22,590
71,699
2,128
17,057
21
535
19,741
91,440
1,040,241
87,338
1,127,579
617,419
59,938
677,357
718
1,136
743
393
28,333
7,450
2,533
1,600
365
40,281
21,072
61,353
2,191
8,220
21
306
10,738
72,091
860,062
60,027
920,089
521,282
40,223
561,505
708
1,127
744
383
$
$
ATM operating gross profit margin (1)(2)
____________
(1) Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our consolidated
statements of operations. Additionally, excludes the effect of $8.7 million of nonrecurring expense related to U.K. retroactive property taxes on certain
ATM locations in the U.K in the year ended December 31, 2013.
34.6 %
34.0 %
(2) 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.
39
Analysis of Results of Operations
Revenues
2014
ATM operating revenues
ATM product sales and other revenues
Total revenues
$
$
1,007,765
47,056
1,054,821
% Change
% Change
For the Years Ended December 31,
2013
(In thousands, excluding percentages)
18.0 % $
111.1 %
20.3 % $
854,196
22,290
876,486
14.9 % $
(39.4) %
12.3 % $
2012
743,662
36,787
780,449
ATM operating revenues. ATM operating revenues generated during December 31, 2014 and 2013 increased $153.6 million and
$110.5 million, respectively, from the prior years. Below is the detail, by segment, of changes in the various components of ATM operating
revenues:
U.S.
Europe
International Eliminations
Total
2013 to 2014 Variance
Other
Increase (decrease)
(In thousands)
Surcharge revenues
Interchange revenues
Bank branding and surcharge-free network
revenues
Managed services revenues
Other revenues
Total increase (decrease) in ATM operating
revenues
$
17,935 $
15,507
47,924 $
48,940
(2,644) $
(973)
— $
—
13,698
2,143
5,459
—
12
4,111
735
1,872
(145)
(26)
—
(979)
63,215
63,474
14,407
4,027
8,446
$
54,742 $
100,987 $
(1,155) $
(1,005) $
153,569
U.S.
Europe
International Eliminations
Total
2012 to 2013 Variance
Other
Increase (decrease)
(In thousands)
Surcharge revenues
Interchange revenues
Bank branding and surcharge-free network
$
revenues
Managed services revenues
Other revenues
Total increase in ATM operating revenues
$
11,987
8,195
20,520
4,302
7,685
52,689
$
30,765
25,618
$
(880)
2,841
$
— $
—
41,872
36,654
—
2,311
(3)
4,564
60,944
$
—
(163)
4,109
$
(55)
—
(7,153)
(7,208) $
22,776
4,299
4,933
110,534
$
United States. During the years ended December 31, 2014 and 2013, our U.S. operations experienced an increase in ATM operating
revenues when compared to the prior years, driven in part by contributions from acquired businesses which accounted for approximately
$25.4 million and $11.8 million of the increase for 2014 and 2013, respectively. In 2014, the remaining increase was due to growth achieved
from a combination of revenue sources, including: (1) increased surcharge revenue primarily as a result of a higher machine count and total
transaction count; (2) an increase in bank branding and surcharge-free network revenues that resulted from the continued growth of
participating banks and other financial institutions in our bank branding program and our Allpoint network; and (3) an increase in managed
services revenue as a result of increasing the number of customers operating under this contract arrangement. In 2013, the remaining increase
was due to growth achieved from a combination of revenue sources, including: (1) increased surcharge and interchange revenues primarily as
a result of a higher machine count and total transaction count; (2) an increase in bank branding and surcharge-free network revenues that
resulted from the continued growth of participating banks and other financial institutions in our bank branding program and our Allpoint
network; and (3) an increase in managed services revenue as a result of increasing the number of customers operating under this contract
arrangement.
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 - Withdrawal Transaction and Revenue Trends – U.S. above.
40
Europe. During the year ended December 31, 2014, our Europe segment, which includes both the U.K. and Germany, experienced an
increase of approximately $101.0 million in ATM operating revenues when compared to the prior year. In 2014, approximately $69.2 million
of the increase was attributable to the contribution of the acquisition of Cardpoint, which was completed in August 2013. The remaining
increase was primarily driven by higher interchange revenues, mainly as a result of an increase in the number of total ATMs in our U.K.
business. Foreign currency exchange rate movements accounted for approximately $12.6 million of the increase. In 2013, approximately
$49.3 million of the increase was attributable to the contribution of the acquisition of Cardpoint (and to a lesser extent, i-design) completed
during the year. The remaining increase was primarily driven by higher interchange revenues as a result of higher transactions primarily as a
result of unit growth and higher non-monetary transactions on our ATMs in the U.K. during 2013 over 2012, partially offset by slightly lower
interchange rates.
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 - Withdrawal Transaction and Revenue Trends – U.K. above.
Other International. During the year ended December 31, 2014, our Other International segment, which includes our Mexico and
Canadian operations, experienced a decrease in ATM operating revenues of $1.2 million when compared to the prior year. This decrease was
primarily attributable to our Mexico operations, which generated $3.0 million less in ATM operating revenues when compared to the prior
year, primarily due to a lower average machine count throughout the year. The lower machine count was the result of an internal decision to
remove a number of machines to improve profitability of the overall business. The decrease in Mexico was mostly offset by an increase in
our Canadian operations, which generated $1.8 million more in ATM operating revenues compared to the prior year, primarily due to an
increase in machine count as a result of growth with new merchants and financial institutions. During the year ended December 31, 2013,
our Other International segment experienced an increase in ATM operating revenues of $4.1 million when compared to the prior year.
Contributions from acquisitions completed during this period accounted for $2.5 million of the increase while the remaining increase was
attributable to our Canadian operations with the addition of a significant new merchant contract during 2012. Lower ATM operating revenues
from our Mexico operations partially offset the increases in 2013 as a result of lower transaction volumes and a reduced transacting ATM
count during the fourth quarter of 2013.
ATM product sales and other revenues. During the year ended December 31, 2014, ATM product sales and other revenues experienced
an increase of $24.8 million when compared to prior year. This increase was attributable to higher ATM equipment sales to merchants and
distributors and our acquisition of Sunwin during the fourth quarter of 2014, which contributed approximately $13.3 million of the increase.
During the year ended December 31, 2013, ATM product sales and other revenues experienced a decrease of $14.5 million when compared to
the prior year. This decrease was primarily due to lower equipment sales to merchants and distributors due to a lower demand for new ATMs
because of regulations under the ADA that became effective during the first quarter of 2012, which drove increased demand in 2012 but did
not carry through in 2013.
Cost of Revenues
2014
% Change
For the Years Ended December 31,
2013
(In thousands, excluding percentages)
% Change
2012
Cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization of
intangible assets)
Cost of ATM product sales and other revenues
Total cost of revenues (exclusive of depreciation,
accretion, and amortization of intangibles assets)
$
659,350
44,698
14.9 % $
109.6 %
573,959
21,328
14.2 % $
(36.2) %
502,682
33,405
$
704,048
18.3 % $
595,287
11.0 % $
536,087
Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). During the years ended
December 31, 2014 and 2013, the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible
assets) increased $85.4 million and $71.3 million, respectively, when compared to the prior years. 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):
41
2013 to 2014 Variance
Other
U.S.
Europe
International Eliminations
Total
$
$
18,650
10,757
1,237
(38)
539
244
362
3,567
$
Increase (decrease)
(In thousands)
(1,020)
78
(1,454)
917
(59)
(495)
—
(775)
28,503 $
2,614
5,143
5,387
2,470
2,719
—
7,477
— $
—
—
—
41
(242)
—
(1,231)
46,133
13,449
4,926
6,266
2,991
2,226
362
9,038
in cost of ATM
$
35,318
$
54,313 $
(2,808)
$
(1,432) $
85,391
Merchant commissions
Vault cash rental expense
Other costs of cash
Repairs and maintenance
Communications
Transaction processing
Stock-based compensation
Other expenses
Total
operating revenues
increase (decrease)
U.S.
Europe
International Eliminations
Total
2012 to 2013 Variance
Other
$
Merchant commissions
Vault cash rental expense
Other costs of cash
Repairs and maintenance
Communications
Transaction processing
Stock-based compensation
Other expenses
Total increase in cost of ATM operating revenues $
9,178
(792)
4,560
1,068
(1,258)
597
(19)
4,371
17,705
$
Increase (decrease)
(In thousands)
$
$
15,866
432
4,641
2,342
2,736
4,074
2,797
458
905
1,037
453
468
—
—
— $
—
—
—
(237)
(893)
—
17,764
47,855
$
784
6,902
$
(55)
(1,185)
$
$
27,841
98
10,106
4,447
1,694
4,246
(19)
22,864
71,277
United States. During the years ended December 31, 2014 and 2013, cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization of intangible assets) increased $35.3 million and $17.7 million, respectively, when compared to the prior years,
primarily as a result of higher ATM operating revenues. Increased costs related to businesses acquired during the periods contributed
approximately $16.0 million and $4.8 million to the increases in 2014 and 2013, respectively. The remaining increases in 2014 are primarily
the result of higher vault cash rental expense associated with a higher level of interest rate swaps outstanding in 2014 which drove increased
expense of approximately $10.7 million. Higher transaction volumes and organic revenue growth, mostly as a result of ATM unit growth
drove the remainder of the increase. The cost increases in 2013 that were not driven by acquisitions are primarily the result of higher
transaction volumes and organic revenue growth mostly as a result of ATM unit growth. Vault cash rental expense decreased during 2013
compared to 2012 due to more efficient vault cash forecasting, which translated to generally lower daily vault cash balances outstanding.
Communications expense decreased as a result of more favorable pricing compared to the prior year.
Europe. During the years ended December 31, 2014 and 2013, cost of ATM operating revenues (exclusive of depreciation, accretion, and
amortization of intangible assets) increased $54.3 and $47.9 million, respectively, when compared to the prior years. Our 2014 and 2013
acquisitions contributed approximately $45.5 million to the increase in cost of ATM operating revenues over 2013. The remaining increase in
2014 was primarily attributable to organic growth in revenues. Our 2013 acquisitions contributed approximately $33.2 million to the increase
in cost of ATM operating revenues in 2013 over 2012. The Other expenses category for 2013 was higher primarily due to $8.7 million in
nonrecurring expenses related to retroactive property taxes assessed on certain ATMs in the U.K.
Other International. During the year ended December 31, 2014, the cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization of intangible assets) decreased $2.8 million when compared to the prior year, primarily the result of a lower
average number of transacting ATMs in Mexico, as described above, which resulted in reduced transaction levels and operating costs on our
ATMs in that market. The decrease in Mexico was offset by an increase in our Canadian operations, primarily due to an increase in machine
count over the prior year. During the year ended December 31, 2013, the cost of ATM operating revenues (exclusive of depreciation,
42
accretion, and amortization of intangible assets) experienced an increase of approximately $6.9 million when compared to the prior year,
primarily due to the revenue growth of our Canadian operations, as described above.
Cost of ATM product sales and other revenues. During the year ended December 31, 2014, the cost of ATM product sales and other
revenues increased $23.4 million when compared to the prior year. This increase is consistent with the increase in related revenue, as
discussed above, and is primarily related to increased cost of sales associated with equipment sales and cost of sales related to the Sunwin
acquisition. During the year ended December 31, 2013, cost of ATM product sales and other revenues decreased $12.1 million when
compared to the prior year, which is consistent with the decrease in related revenue, as discussed above, and is primarily related to decreased
equipment sales activity in this year.
Gross Profit Margin
ATM operating gross profit margin:
Exclusive of depreciation, accretion, and amortization of
intangible assets
Inclusive of depreciation, accretion, and amortization of intangible
assets
ATM product sales and other revenues gross profit margin
Total gross profit margin:
Exclusive of depreciation, accretion, and amortization of
intangible assets
Inclusive of depreciation, accretion, and amortization of intangible
assets
For the Years Ended December 31,
2013
2012
2014
34.6 %
24.7 %
5.0 %
33.3 %
23.8 %
32.8 %
22.6 %
4.3 %
32.1 %
22.1 %
32.4 %
22.4 %
9.2 %
31.3 %
21.7 %
ATM operating gross profit margin. Our ATM operating gross profit margin (exclusive of depreciation, accretion, and amortization of
intangible assets) increased by 180 basis points between 2013 and 2014. Additionally, our ATM operating gross profit margin (inclusive of
depreciation, accretion, and amortization of intangible assets) increased by 210 basis points between 2013 and 2014. The margin increase in
2014 over 2013 is primarily a result of our revenue growth, reduced operating costs in our U.K. business in 2014 as a percentage of revenues
driven by acquisition synergy benefits realized, and an $8.7 million charge related to retroactive business rates (property taxes) in the U.K.
recorded in 2013 that did not reoccur in 2014. Our ATM operating gross profit margin (both exclusive and inclusive of depreciation,
accretion, and amortization of intangible assets) was relatively consistent from 2012 to 2013, in spite of the $8.7 million charge related to
retroactive business rates (property taxes) in the U.K, recorded in 2013. Absent the retroactive business rates, our gross profit margins would
have been up over 100 basis points from 2012 to 2013, driven by our revenue growth. We expect that our gross profit margin for 2015 will be
relatively consistent with 2014.
ATM product sales and other revenues gross profit margin. Our gross profit margin on ATM product sales and other revenues increased
by 70 basis points between 2013 and 2014 and is primarily a result of the Sunwin acquisition which was completed in the fourth quarter of
2014. Sunwin has a slightly higher gross margin than the base product sales and other category. The margin decrease in 2013 over 2012 was
primarily a result of lower VAR equipment sales, which have higher margins compared to other ATM product sales.
Selling, General, and Administrative Expenses
2014
Selling, general, and administrative expenses
Stock-based compensation
Acquisition-related expenses
Total selling, general, and administrative expenses $
$
98,241
15,229
18,050
131,520
% Change
For the Years Ended December 31,
% Change
2013
(In thousands, excluding percentages)
34.2 % $
33.4 %
17.2 %
31.5 % $
73,179
11,413
15,400
99,992
32.2 % $
12.1 %
362.2 %
45.2 % $
Percentage of total revenues:
Selling, general, and administrative expenses
Stock-based compensation
Acquisition-related expenses
Total selling, general, and administrative expenses
8.3 %
1.3 %
1.8 %
11.4 %
9.3 %
1.4 %
1.7 %
12.5 %
43
2012
55,345
10,180
3,332
68,857
7.1 %
1.3 %
0.4 %
8.8 %
Selling, general, and administrative expenses (“SG&A expenses”), excluding stock-based compensation and acquisition-related
expenses. SG&A expenses, excluding stock-based compensation and acquisition-related expenses, increased $25.1 million and $17.8 million
for the years ended December 31, 2014 and 2013, respectively, when compared to the prior years. The increase during the year ended
December 31, 2014 was primarily due to higher payroll-related costs compared to 2013 due to increased headcount, including employees
added from the acquisitions completed during 2014 and 2013 and increased costs related to strengthening our information technology and
product development organizations. The increase during the year ended December 31, 2013 was due to higher payroll-related costs
compared 2012 due to increased headcount, including employees added from the acquisitions completed between the periods and higher
marketing and professional expenses.
Stock-based compensation. Stock-based compensation increased $3.8 million during the year ended December 31, 2014 compared to
2013 primarily due to an increase in employee count. Stock-based compensation also increased during the year ended December 31, 2013
compared to 2012 due to restricted stock grants to new employees and the issuance of restricted stock units to employees under our Long
Term Incentive Plan (“LTIP”). For additional details on equity awards, see Item 8. Financial Statements and Supplementary Data, Note 3,
Stock-Based Compensation.
Acquisition-related expenses. Acquisition-related expenses consist of the following major components: (1) legal and professional costs
incurred to complete acquisitions; (2) certain nonrecurring integration and transition-related costs; (3) contract termination costs for certain
acquired businesses; and (4) other costs. During 2014, we completed two significant acquisitions – Welch in the U.S. and Sunwin in the
U.K., both of which drove a significant amount of acquisition-related expenses. During 2013, we completed several acquisitions, including
Cardpoint, based in the U.K., which drove the majority of acquisition-related expenses in that period.
Depreciation and Accretion Expense
Depreciation expense
Accretion expense
Depreciation and accretion expense
Percentage of total revenues:
Depreciation expense
Accretion expense
Depreciation and accretion expense
For the Years Ended December 31,
2014
$
$
73,063
2,559
75,622
% Change
% Change
2013
(In thousands, excluding percentages)
65,703
11.2 % $
2,777
(7.9) %
68,480
10.4 % $
11.6 %
6.7 %
11.4 %
2012
$
$
58,897
2,602
61,499
6.9 %
0.2 %
7.2 %
7.5 %
0.3 %
7.8 %
7.5 %
0.3 %
7.9 %
Depreciation expense. Depreciation expense increased during the year ended December 31, 2014 compared to 2013 primarily as a result
of the deployment of additional Company-owned ATMs as a result of our organic ATM unit growth and the ATMs acquired through various
acquisitions during 2013 and 2014. Depreciation expense also increased during the year ended December 31, 2013 compared to 2012
primarily as a result of the deployment of additional Company-owned ATMs as a result of our organic ATM unit growth, acquisitions
completed in 2013 and new ATMs purchased to replace older non-ADA-compliant ATMs, and ATMs acquired through various acquisitions.
Accretion expense. Accretion expense decreased slightly during the year ended December 31, 2014 compared to 2013 primarily due to a
change in accounting estimate regarding our future costs associated with asset retirement obligations. Accretion expense increased during the
year ended December 31, 2013 compared to 2012 due to establishing additional asset retirement obligations in connection with newly
deployed ATMs and acquired ATMs. When we install our 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
Amortization expense
2014
$
35,768
For the Years Ended December 31,
% Change
2013
(In thousands, excluding percentages)
27,336
30.8 % $
% Change
25.9 %
2012
$
21,712
Percentage of total revenues
3.4 %
3.1 %
2.8 %
Amortization of intangible assets relates primarily to merchant contracts and relationships recorded in connection with purchase price
accounting valuations for completed acquisitions. The increases in amortization of intangible assets during the past two years compared to
prior years were due to the addition of intangible assets from the acquisitions completed during the respective periods.
44
Loss on Disposal of Assets
Loss on disposal of assets
$
3,224
2014
For the Years Ended December 31,
% Change
2013
(In thousands, excluding percentages)
15.6 % $
2,790
% Change
56.1 %
2012
$
1,787
Percentage of total revenues
0.3 %
0.3 %
0.2 %
Loss on disposal of assets increased during the year ended December 31, 2014 compared to 2013 primarily as a result of certain ATMs
that were removed that were not fully depreciated and were determined unlikely to be redeployed. Loss on disposal of assets increased
during the year ended December 31, 2013 compared to 2012 primarily as a result of de-installing certain underperforming ATMs in Mexico.
Interest Expense, Net
2014
Interest expense, net
Amortization of deferred financing costs and
note discount
Total interest expense, net
$
20,776
13,036
33,812
$
For the Years Ended December 31,
% Change
2013
(In thousands, excluding percentages)
21,155
(1.8) % $
% Change
— %
2012
$
21,161
575.1 %
46.5 % $
1,931
23,086
115.5 %
4.7 %
896
22,057
$
Percentage of total revenues
3.2 %
2.6 %
2.8 %
Interest expense, net. Interest expense, net, decreased for the year ended December 31, 2014 when compared to 2013 as a 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. Interest expense, net, remained consistent for the year ended December 31, 2013
when compared to 2012 as a result of similar average outstanding debt balances during the years.
Amortization of deferred financing costs and note discount. Amortization of deferred financing costs and note discount during the year
ended December 31, 2014 was higher compared to 2013 primarily as a result of our issuance of $287.5 million of Convertible Notes (the
“Convertible Notes”) in November 2013. As the Convertible Notes contain an embedded option feature, we attributed $71.7 million of the
proceeds from these Convertible Notes to additional paid-in capital at the time of funding. This resulted in an effective note discount, which
is being accreted over the term of the Convertible Notes, and this discount accretion on the notes drove the majority of the year-over-year
increase in this expense. We also incurred $4.9 million in fees in conjunction with the issuance of the Convertible Notes, which are being
amortized over the life of the Convertible Notes. In April 2014, we also amended and restated our existing credit agreement and incurred
approximately $1.0 million in fees which are being amortized over the term of the revolving credit facility, which runs through April 2019.
Additionally, in July 2014 we incurred additional financing costs of approximately $4.1 million associated with the issuance of our 2022
Notes and this amount is being amortized over the life of the 2022 Notes. Finally, we also recorded a $3.9 million pre-tax charge during the
year ended December 31, 2014 to write off the unamortized deferred financing costs associated with our 2018 Notes, which were retired
during 2014. Amortization of deferred financing costs and note discount during the year ended December 31, 2013 was higher compared to
2012 due to the amortization of deferred financing costs and note discount related to the Convertible Notes.
For additional information, see Item 8. Financial Statements and Supplementary Data, Note 10, Long-Term Debt.
Redemption Costs for Early Extinguishment of Debt
In connection with the early extinguishment of the 2018 Notes, we recorded a $9.1 million pre-tax charge related to the premium paid for
the redemption, which is included in the Redemption costs for early extinguishment of debt line item in the accompanying Consolidated
Statements of Operations in the year ended December 31, 2014.
45
Income Tax Expense
Income tax expense
Effective tax rate
For the Years Ended December 31,
2014
$
28,174
% Change
2013
(In thousands, excluding percentages)
42,018
(32.9) % $
% Change
55.6 %
2012
$
27,009
44.5 %
67.1 %
38.4 %
Income tax expense for the year ended December 31, 2014 relates primarily to consolidated income generated from the Company’s U.S.
operations. The decrease in income tax expense, compared to the prior year, is primarily related to a $13.8 million charge recorded during
the year ended December 31, 2013 related to a write-off of deferred tax assets that were no longer realizable as a result of an internal
restructuring in that period.
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 Net Income, Adjusted Gross Profit Margin, and Free Cash Flow are non-GAAP financial measures provided as
a complement to results prepared in accordance with U.S. GAAP and may not be comparable to similarly-titled measures reported by other
companies.
Adjusted EBITDA excludes depreciation, accretion, and amortization expense 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 acquisition-related expenses, certain other non-operating and nonrecurring costs, loss
on disposal of assets, our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures, and
an adjustment for non-controlling interest. Adjusted Net Income represents net income computed in accordance with GAAP, before
amortization expense, loss on disposal of assets, stock-based compensation expense, certain other expense (income) amounts, nonrecurring
expenses, and acquisition-related expenses, and using an assumed tax rate of 32% for the twelve months ended December 31, 2014, 35%
through June 30, 2013 and 33.5% from July 1, 2013 through December 31, 2013, with certain adjustments for non-controlling interests.
Adjusted Gross Profit Margin is calculated excluding certain nonrecurring costs from the cost of ATM operating revenues. Adjusted
EBITDA %, Adjusted Pre-tax %, and Adjusted Net Income % are calculated by taking the respective non-GAAP financial measures over
GAAP total revenues. Adjusted Net Income per diluted share is calculated by dividing Adjusted Net Income by average weighted 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 measure of Free Cash Flow 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 statement data prepared in accordance with
U.S. GAAP.
A reconciliation of EBITDA, Adjusted EBITDA, Adjusted Gross Profit Margin, 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:
46
Reconciliation of Net Income Attributable to Controlling Interests to EBITDA, Adjusted EBITDA, and Adjusted Net Income
Net income attributable to controlling interests
Adjustments:
Interest expense, net
Amortization of deferred financing costs and note discount
Redemption costs for early extinguishment of debt
Income tax expense
Depreciation and accretion expense
Amortization of intangible assets
EBITDA
Add back:
Loss on disposal of assets
Other income
Noncontrolling interests (1)
Stock-based compensation expense (2)
Acquisition-related expenses (3)
Other adjustments to cost of ATM operating revenues (4)
Other adjustments to selling, general, and administrative expenses (5)
Adjusted EBITDA
Less:
Interest expense, net (2)
Depreciation and accretion expense (2)
Adjusted pre-tax income
Income tax expense (6)
Adjusted Net Income
Adjusted Net Income per share
Adjusted Net Income per diluted share
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
____________
For the Years Ended December 31,
2013
2012
2014
(In thousands, except share and per share amounts)
$
37,140
$
23,816
$
43,591
20,776
13,036
9,075
28,174
75,622
35,768
219,591
3,224
(1,616)
(1,745)
16,432
18,050
—
—
253,936
20,745
74,314
158,877
50,840
108,037
2.44
2.41
$
$
$
$
$
21,155
1,931
—
42,018
68,480
27,336
184,736
2,790
(3,150)
(2,399)
12,290
15,400
8,670
505
218,842
21,057
66,857
130,928
44,777
86,151
1.94
1.93
$
$
$
$
$
21,161
896
—
27,009
61,499
21,712
175,868
1,787
(1,830)
(1,668)
11,072
3,332
—
972
189,533
20,990
59,983
108,560
37,996
70,564
1.62
1.61
44,338,408
44,867,304
44,371,313
44,577,635
43,469,175
43,875,332
$
$
$
$
$
(1) Noncontrolling interests adjustment made such that Adjusted EBITDA includes only our 51% ownership interest in the Adjusted EBITDA of our
Mexico subsidiary.
(2) Amounts exclude 49% of the expenses incurred by our Mexico subsidiary as such amounts are allocable to the noncontrolling interest stockholders.
(3) Acquisition-related expenses include nonrecurring costs incurred for professional and legal fees and certain transition and integration-related costs,
including contract termination costs and facility exit costs, related to acquisitions.
(4) Adjustment to cost of ATM operating revenues for the year ended December 31, 2013 is related to the nonrecurring charge for retroactive property
taxes on certain ATM locations in the U.K.
(5) Adjustment to selling, general, and administrative expenses in 2013 represents nonrecurring severance related costs associated with management of
our U.K. operation.
(6) Calculated using our estimated long-term, cross-jurisdictional effective cash tax rate of 32% for the year ended December 31, 2014, 35% through
June 30, 2013 and 33.5% from July 1 through December 31, 2013.
47
Reconciliation of Adjusted Gross Profit Margin
Total revenues
Total cost of revenues (1)
Gross profit
Gross profit margin
Total revenues
Total cost of revenues (1)
Gross profit
Gross profit margin
____________
As reported
(GAAP)
For the Year Ended December 31, 2014
Adjustments
(In thousands)
Adjusted
(Non-GAAP)
1,054,821
704,048
350,773
33.3%
$
$
—
—
—
$
$
1,054,821
704,048
350,773
33.3%
As reported
(GAAP)
For the Year Ended December 31, 2013
Adjustments
(In thousands)
Adjusted
(Non-GAAP)
876,486
595,287
281,199
32.1%
$
$
—
(8,670)
8,670
$
$
876,486
586,617
289,869
33.1%
$
$
$
$
(1) Adjustment to cost of ATM operating revenues is related to the nonrecurring charge for retroactive property taxes on certain ATM locations in the
U.K
Calculation of Free Cash Flow
Cash provided by operating activities
Payments for capital expenditures:
Cash used in investing activities, excluding acquisitions
Free cash flow
Liquidity and Capital Resources
Overview
2014
Years Ended December 31,
2013
188,553
(In thousands)
$
183,557
(109,909)
78,644
$
(77,153)
106,404
$
$
$
$
2012
136,388
(92,803)
43,585
As of December 31, 2014, we had $31.9 million in cash and cash equivalents on hand and $612.7 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. Furthermore, we have historically used cash 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 our ongoing capital expenditure program. 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 in 2014 and beyond, we expect to repay the amounts outstanding under our revolving credit facility absent any acquisitions. See
additional discussion under Financing Facilities below.
48
Operating Activities
Net cash provided by operating activities totaled $188.6 million, $183.6 million, and $136.4 million during the years ended December
31, 2014, 2013, and 2012, respectively. The slight increase from 2013 to 2014 was attributable to increased income from operations, partly
offset by higher amounts paid for cash taxes during 2014. The increase from 2012 to 2013 was related to a combination of growth in income
from operations excluding non-cash items such as stock-based compensation, depreciation, and amortization of intangible assets and net
decreases in various working capital accounts.
Investing Activities
Net cash used in investing activities totaled $336.9 million, $266.7 million, and $113.8 million for the years ended December 31, 2014,
2013, and 2012. The increase from 2013 to 2014 was primarily the result of the cash paid, net of cash acquired, for the acquisitions completed
during the year and higher capital expenditures. The increase from 2012 to 2013 was primarily the result of the cash paid, net of cash
acquired, for the acquisitions completed during the year, partially offset by lower capital expenditures.
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 – Europay, MasterCard, Visa (“EMV”). We expect that our capital
expenditures for 2015 will total approximately $140 million to $150 million, the majority of which is expected to be utilized to purchase
additional ATMs for our existing merchant account base and new merchant locations we expect to gain during 2015. Additionally, we
anticipate spending a portion of our estimated capital expenditures on technology upgrades, compliance and capability enhancements to our
existing devices. We expect such expenditures to be funded primarily through cash generated from our operations and borrowings under our
revolving credit facility.
Acquisitions. We continue to evaluate 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 borrowing under our revolving credit facility or other financial sources that may be available to us.
Financing Activities
Net cash provided by (used in) financing activities totaled $99.2 million, $155.0 million, and $(14.1) million for the years ended
December 31, 2014, 2013, and 2012, respectively. The net cash inflow during the year ended December 31, 2014 was primarily related to the
net cash proceeds received from our 2022 Notes and additional borrowings on our revolving credit facility, partly offset by the retirement of
our 2018 Notes. The net cash provided during the year ended December 31, 2013 was primarily due to the $254.2 million net proceeds
received from our issuance of the Convertible Notes.
Financing Facilities
As of December 31, 2014, we had approximately $612.7 million in outstanding long-term debt, which was primarily comprised of: (1)
$287.5 million of the Convertible Notes of which $225.4 million was recorded on our balance sheet net of the unamortized note discount, (2)
$250.0 million of the 2022 Notes, and (3) $137.3 million in borrowings under our revolving credit facility.
Revolving Credit Facility. As of December 31, 2014, 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 to up to $500.0 million under certain conditions and subject to additional commitments from the lender group. In addition,
the revolving credit facility includes a sub-limit of up to $30.0 million for letters of credit, a sub-limit of up to $25.0 million for swingline
loans and a sub-limit of up to the equivalent amount of $125.0 million for loans in currencies other than U.S. Dollars. The revolving credit
facility has a termination date of April 2019.
Borrowings (not including swingline loans and alternative currency loans) under the revolving credit facility accrue interest at 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 bear
interest at the Alternate Base Rate plus a margin as described above. The alternative currency loans bear interest at the Adjusted LIBO Rate
for the relevant currency as described above. Substantially all of our domestic assets, including the stock of our wholly-owned domestic
subsidiaries and 66% 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. Additionally, no more than 40% of our Consolidated Adjusted EBITDA (as defined in
the Credit Agreement) or the book value of the aggregate consolidated assets may be attributable to restricted subsidiaries that are not
guarantors under the Credit Agreement. There are currently no restrictions on the ability of our subsidiaries to declare and pay dividends to
us.
49
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 revolving credit facility 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 more than 1.50 to 1. 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 has occurred and is continuing and our total net leverage ratio is less than 3.0 to 1.0 at
the time such restricted payment is made.
As of December 31, 2014, the weighted-average interest rate on our outstanding revolving credit facility borrowings was approximately
2.2%. Additionally, as of December 31, 2014, we were in compliance with all the covenants contained within the facility and would continue
to be in compliance even in the event of substantially higher borrowings or substantially lower earnings.
As of December 31, 2014, we had approximately $235.6 million in available borrowing capacity under the $375.0 million revolving
credit facility.
$200.0 Million 8.25% Senior Subordinated Notes due 2018. During the year ended December 31, 2014, we repurchased $20.6 million of
the 2018 Notes in the open market. In addition, we received tenders and consents from the holders of $64.0 million of the 2018 Notes
pursuant to a cash tender offer. Pursuant to the terms of the 2018 Notes, we redeemed the remaining $115.4 million of the 2018 Notes
outstanding on September 2, 2014 at a price of 104.125% and effectively retired all of the outstanding 2018 Notes.
In connection with the retirement of the 2018 Notes, we recorded a $3.9 million pre-tax charge during the year ended December 31, 2014
to write off the unamortized deferred financing costs associated with the 2018 Notes, which are included in the Amortization of deferred
financing costs and note discount line item in the accompanying Consolidated Statements of Operations. Additionally, we recorded a $9.1
million pre-tax charge related to the premium paid for the redemption, which is included in the Redemption costs for early extinguishment of
debt line item in the accompanying Consolidated Statements of Operations in the year ended December 31, 2014.
$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 8. Financial Statements and Supplementary Data, Note 10. Long-Term Debt.
$250.0 Million 5.125% Senior Notes due 2022. On July 28, 2014, 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. As of December 31, 2 014, we
were in compliance with all applicable covenants required under the 2022 Notes.
Effects of Inflation
Our monetary assets, consisting primarily of cash and receivables, are not significantly affected by inflation. Our non-monetary assets,
consisting primarily of tangible and intangible assets, are not affected by inflation. We believe that replacement costs of equipment, furniture,
and leasehold improvements will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for
employee compensation and telecommunications, which may not be readily recoverable in the price of services offered by us.
50
Contractual Obligations
The following table reflects our significant contractual obligations and other commercial commitments as of December 31, 2014:
2015
2016
2017
Payments Due by Period
2018
(In thousands)
2019
Thereafter
Total
35 $
18,713
6,663
5,990
20,913
52,314 $
— $
18,713
5,187
4,661
1,350
29,911 $
— $
— $
137,292 $
18,713
3,668
2,684
1,350
26,415 $
18,713
2,820
2,030
432
23,995 $
16,696
1,184
823
—
155,995 $
537,500 $
35,734
2,429
285
—
575,948 $
674,827
127,282
21,951
16,473
24,045
864,578
Long-term debt obligations:
$
Principal (1)
Interest (2)
Operating leases
Merchant space leases
Other (3)
Total contractual obligations $
____________
(1)
(2)
(3)
Represents the $250.0 million face value of our senior notes, $287.5 million face value of our convertible notes, and $137.3 million outstanding under
our revolving credit facility.
Represents the estimated interest payments associated with our long-term debt outstanding as of December 31, 2014, assuming current interest rates
and consistent amount of debt outstanding over the periods presented in the table above.
Represents commitment to purchase $13.8 million of ATMs and equipment for our U.S. segment and $6.3 million of ATMs and equipment for our
Europe segment, and $4.0 million of minimum service requirements for certain gateway and processing fees.
Critical Accounting Policies and Estimates
Our consolidated financial statements included in this 2014 Form 10-K have been prepared in accordance with U.S. GAAP, which
require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, thus
impacting our reported results of operations and financial position. The critical accounting policies and estimates described in this section are
those that are most important to the depiction of our financial condition and results of operations and the application of which requires
management’s most subjective judgments in making estimates about the effect of matters that are inherently uncertain. We describe our
significant accounting policies more fully in Item 8. Financial Statements and Supplementary Data, Note 1, Basis of Presentation and
Summary of Significant Accounting Policies.
Goodwill and Intangible Assets. We have accounted for our acquisitions as business combinations in accordance with U.S. GAAP.
Accordingly, the amounts paid for acquisitions have been allocated to the assets acquired and liabilities assumed based on their respective fair
values as of each acquisition date. Intangible assets that met the criteria established by U.S. GAAP for recognition apart from goodwill
included the acquired ATM operating agreements and related customer relationships, branding agreements, technology, trade names, and the
non-compete agreements entered into in connection with certain acquisitions. The excess of the cost of the above acquisitions over the net of
the amounts assigned to the tangible and intangible assets acquired and liabilities assumed is reflected as goodwill in our consolidated
financial statements.
Goodwill and other intangible assets that have indefinite useful lives are not amortized, but instead are tested at least annually for
impairment, and intangible assets that have finite useful lives are amortized over their estimated useful lives. We follow the specific guidance
provided in U.S. GAAP for testing goodwill and other non-amortized intangible assets for impairment. Although we adopted the guidance
that allows companies to first make qualitative assessments to determine whether it is more likely than not that the asset is impaired, we
continue to perform quantitative assessments. The guidance requires management to make certain estimates and assumptions in order to
allocate goodwill to reporting units and to determine the fair value of a reporting unit’s net assets and liabilities, including, among other
things, an assessment of market condition, projected cash flows, interest rates, and growth rates, which could significantly impact the reported
value of goodwill and other intangible assets. Furthermore, this requirement exposes us to the possibility that changes in market conditions
could result in potentially significant impairment charges in the future. We have determined the reporting units based on whether the
components within our geographical segments were managed separately from the rest of the segment and if discrete financials were available
for that component. For the year ended December 31, 2014, we performed our annual goodwill impairment test for five separate reporting
units: (1) our domestic reporting segment; (2) the acquired ATM operations in the U.K. from Bank Machine and Cardpoint; (3) the acquired
CCS Mexico (subsequently renamed to Cardtronics Mexico) operations; (4) the acquired Canadian operations (Mr. Cash, subsequently
renamed to Cardtronics Canada); and (5) the acquired German operations from Cardpoint.
We evaluate the recoverability of our goodwill and non-amortized intangible assets by estimating the future discounted cash flows of the
reporting units to which the goodwill and non-amortized intangible assets relate. We use discount rates corresponding to our cost of capital,
risk-adjusted as appropriate, to determine the discounted cash flows, and consider current and anticipated business trends, prospects, and
51
other market and economic conditions when performing our evaluations. These evaluations are performed on an annual basis at a minimum,
or more frequently based on the occurrence of events that might indicate a potential impairment. Examples of events that might indicate
impairment include, but are not limited to, the loss of a significant contract, a material change in the terms or conditions of a significant
contract or significant decreases in revenues associated with a contract or business.
Valuation of Long-lived Assets. We place significant value on the installed ATMs that we own and manage in merchant locations and the
related acquired merchant contracts/relationships. Long-lived assets, such as property and equipment and intangible assets subject to
amortization, are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. We test our acquired merchant contract/relationship intangible assets for impairment quarterly,
along with the related ATMs, on an individual contract/relationship basis for our significant acquired contracts/relationships, and on a pooled
or portfolio basis (by acquisition) for all other acquired contracts/relationships.
In determining whether a particular merchant contract/relationship is significant enough to warrant a separate identifiable intangible
asset, we analyze a number of relevant factors, including: (1) estimates of the historical cash flows generated by such contract/relationship
prior to its acquisition; (2) estimates regarding our ability to increase the contract/relationship’s cash flows subsequent to the acquisition
through a combination of lower operating costs, the deployment of additional ATMs, and the generation of incremental revenues from
increased surcharges and/or new bank branding arrangements; and (3) estimates regarding our ability to renew such contract/relationship
beyond its originally scheduled termination date. An individual contract/relationship, and the related ATMs, could be impaired if the
contract/relationship is terminated sooner than originally anticipated, or if there is a decline in the number of transactions related to such
contract/relationship without a corresponding increase in the amount of revenue collected per transaction. A portfolio of purchased contract
intangibles, including the related ATMs, could be impaired if the contract attrition rate is materially more than the rate used to estimate the
portfolio’s initial value, or if there is a decline in the number of transactions associated with such portfolio without a corresponding increase
in the revenue collected per transaction. Whenever events or changes in circumstances indicate that a merchant contract/relationship
intangible asset may be impaired, we evaluate the recoverability of the intangible asset, and the related ATMs, by measuring the related
carrying amounts against the estimated undiscounted future cash flows associated with the related contract or portfolio of contracts. Should
the sum of the expected future net cash flows be less than the carrying values of the tangible and intangible assets being evaluated, an
impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying values of the ATMs and
intangible assets exceeded the calculated fair value.
Income Taxes. Income tax provisions are based on taxes payable or refundable for the current year and deferred taxes on temporary
differences between the amount of taxable income and income before taxes and between the tax basis of assets and liabilities and their
reported amounts in our financial statements. We include deferred tax assets and liabilities in our financial statements at currently enacted
income tax rates. As changes in tax laws or rates are enacted, we adjust our deferred tax assets and liabilities our through income tax
provision.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during
the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment. In the event we do not believe we will be able to utilize the
related tax benefits associated with deferred tax assets, we record valuation allowances to reserve for the assets.
Asset Retirement Obligations. We estimate the fair value of future retirement obligations associated with our ATMs, including costs
associated with deinstalling the ATMs and, in some cases, refurbishing the related merchant locations. Such estimates are based on a number
of assumptions, including (1) the types of ATMs that are installed, (2) the relative mix where those ATMs are installed (i.e., whether such
ATMs are located in single-merchant locations or in locations associated with large, geographically-dispersed retail chains), and (3) whether
we will ultimately be required to refurbish the merchant store locations upon the removal of the related ATMs. Additionally, we are required
to make estimates regarding the timing of when such retirement obligations will be incurred. We utilize a pooled approach in calculating and
managing our retirement obligations, as opposed to a specific machine-by-machine approach, by pooling the retirement obligation of assets
based on the estimated deinstallation dates. We periodically review the reasonableness of the retirement obligations balance by obtaining the
current machine count and updated estimates to deinstall such machines.
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred and can be reasonably
estimated. Such asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset and depreciated over the
asset’s estimated useful life. Fair value estimates of liabilities for asset retirement obligations generally involve discounted future cash flows.
Periodic accretion of such liabilities due to the passage of time is recorded as an operating expense in the accompanying consolidated
financial statements. Upon settlement of the liability, we recognize a gain or loss for any difference between the settlement amount and the
liability recorded.
Share-Based Compensation. We calculate the fair value of stock-based instruments awarded to employees and directors on the date of
grant and recognize the calculated fair value, net of estimated forfeitures, as compensation expense over the requisite service periods of the
related awards. In determining the fair value of our share-based awards, we are required to make certain assumptions and estimates, including
(1) the number of awards that may ultimately be granted to and forfeited by the recipients, (2) the expected term of the underlying awards,
52
and (3) the future volatility associated with the price of our common stock. Such estimates, and the basis for our conclusions regarding such
estimates for the year ended December 31, 2014, are outlined in detail in Item 8, Financial Statements and Supplementary Data, Note 3,
Stock-Based Compensation.
Derivative Financial Instruments. We recognize all of our derivative instruments as either assets or liabilities in our 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 such instruments have been designated (and qualify) as part of a hedging relationship, and (2) on the type of hedging relationship
actually designated. For derivative instruments that are designated and qualify as hedging instruments, we designate 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. These
instruments 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. As of December 31, 2014, all of our derivatives were designated as cash flow hedges, and, accordingly, changes in the fair values of
such derivatives have been reflected in the accumulated other comprehensive loss line in the accompanying Consolidated Balance Sheet. See
Item 8. Financial Statements and Supplementary Data, Note 15, Derivative Financial Instruments for more details on our derivative financial
instrument transactions.
Convertible Notes. We are party to various derivative instruments related to the issuance of our Convertible Notes. As of December 31,
2014 all of our derivative instruments related to the Convertible Notes qualified for classification within stockholders’ equity. We are
required, however, for the remaining term of the Convertible Notes, to assess whether we continue to meet the stockholders’ equity
classification requirements and if in any future period we fail to satisfy those requirements we would need to reclassify these instruments out
of stockholders’ equity and record them as a derivative asset or liability, at which point we would be required to record any changes in fair
value through earnings. See Item 8. Financial Statements and Supplementary Data, Note 10, Long-Term Debt for more details on our
Convertible Notes.
New Accounting Pronouncements Issued but Not Yet Adopted
For recent accounting pronouncements not yet adopted during 2014, see Item 8. Financial Statements and Supplementary Data,
Note 1(u), Recent Accounting Pronouncements Not Yet Adopted.
Commitments and Contingencies
We are subject to various legal proceedings and claims arising in the ordinary course of business. We do not expect that the outcome in
any of these legal proceedings, individually or collectively, will have a material adverse effect on our financial condition, results of
operations or cash flows. See Item 8. Financial Statements and Supplementary Data, Note 17, Commitments and Contingencies for additional
details regarding our commitments and contingencies.
53
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosures about Market Risk
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 December 31, 2014, 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 we operate in. 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 LIBOR 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. 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
(In millions)
$ 1,300
$ 1,300
$ 1,000
$ 750
Weighted Average Fixed Rate
Term
2.84 %
2.74 %
2.53 %
2.54 %
January 1, 2015 – December 31, 2015
January 1, 2016 – December 31, 2016
January 1, 2017 – December 31, 2017
January 1, 2018 – December 31, 2018
The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in the U.S. based on our average
outstanding vault cash balances for the quarter ended December 31, 2014 and assuming a 100 basis point increase in interest rates:
Summary of interest rate exposure on vault cash outstanding in the U.S. (in millions):
Vault cash balance
Interest rate swap fixed notional amount
Residual unhedged vault cash balance
Additional annual interest incurred on 100 basis point increase
$
$
$
1,926
(1,300)
626
6.3
We also have terms in certain of our U.S. 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 have such protection in place on
approximately $250 million of vault cash as of December 31, 2014. Such protection will serve to reduce but not eliminate the exposure
calculated above.
The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense in the U.K. based on our average
outstanding vault cash balances for the quarter ended December 31, 2014 and assuming a 100 basis point increase in interest rates:
54
Summary of interest rate exposure on vault cash outstanding in the U.K. (in millions):
Vault cash balance
Interest rate swap fixed notional amount
Residual unhedged vault cash balance
Additional annual interest incurred on 100 basis point increase
$
$
$
911
—
911
9.1
Our sensitivity to changes in interest rates in the U.K. is somewhat mitigated by the interchange rate setting methodology that impacts
the majority of our U.K. interchange revenue. Effectively, the interest rates and cash costs from two years back are considered for
determining the interchange rate (i.e., interest rates and other costs from 2013 are considered for determining the 2015 interchange rate). 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 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 by engaging in
derivative instruments in the future.
As of December 31, 2014, we had not entered into any derivative financial instruments to hedge our variable interest rate exposure in
Mexico, Germany or Canada, as we do not deem it to be cost effective to engage in such a hedging program. However, we may enter into
derivative financial instruments in the future to hedge our interest rate exposure in those markets. The following table presents a hypothetical
sensitivity analysis of our annual vault cash rental expense in Mexico, Germany and Canada based on our average outstanding vault cash
balances for the quarter ended December 31, 2014 and assuming a 100 basis point increase in interest rates:
Summary of interest rate exposure on vault cash outstanding in all other jurisdictions (in millions):
Vault cash balance
Interest rate swap fixed notional amount
Residual unhedged vault cash balance
Additional annual interest incurred on 100 basis point increase
$
$
$
161
—
161
1.6
As of December 31, 2014, we had a net liability of $55.0 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, changes in the fair values of the swaps have been reported in accumulated
other comprehensive loss, net line item in the accompanying Consolidated Balance Sheets. We record the unrealized loss amounts related to
our 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.
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 $137.3 million outstanding under our revolving credit facility as of December 31, 2014,
an increase of 100 basis points in the underlying interest rate would have had a $1.4 million impact on our interest expense in the year then
ended. However, there is no guarantee that we will not borrow additional amounts under our revolving credit facility in the future, and, in the
event we borrow amounts and 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 borrowings, 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 to be
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., as noted above, we may not be able to enter into similar 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 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.
55
Foreign Currency Exchange Rate Risk
As a result of our operations in the U.K., Germany, 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, 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 December 31, 2014, this accumulated translation loss totaled approximately $34.7 million
compared to approximately $18.4 million loss as of December 31, 2013.
Our consolidated financial results were not materially impacted by the change in value of the British pound, Euro, Mexican peso, or
Canadian dollar relative to the U.S. dollar during the year ended December 31, 2014 compared to the prior year. A sensitivity analysis
indicates that, if the U.S. dollar uniformly strengthened or weakened 10% against the British pound, the effect upon our reported operating
income for the year ended December 31, 2014 would have been approximately $0.1 million; likewise, a sensitivity analysis indicates that if
the U.S. dollar uniformly strengthened or weakened 10% against the Euro for the year ended December 31, 2014, the effect upon our reported
operating income would have been approximately $0.6 million; similarly, a sensitivity analysis indicates that if the U.S. dollar uniformly
strengthened or weakened 10% against the Mexican peso for the year ended December 31, 2014, the effect upon our reported operating
income would have been approximately $0.4 million; and finally, a sensitivity analysis indicates that if the U.S. dollar uniformly strengthened
or weakened 10% against the Canadian dollar for the year ended December 31, 2014, the effect upon our reported operating income would
have been approximately $0.2 million. At this time, we have not deemed it to be cost effective to engage in a program of hedging the effect of
foreign currency fluctuations on our operating results using derivative financial instruments.
Certain intercompany balances between our U.S. parent company and our U.K. operations are designated as short-term in nature, and the
changes in these balances are translated in our Consolidated Statements of Operations. As a result, we are exposed to foreign currency
exchange risk as it relates to these intercompany balances, most of which is offset by third-party borrowings denominated in British pounds
under our revolving credit facility in the U.S. This structure effectively manages the foreign currency exposure of these short-term designated
intercompany balances as currency gains or losses in the intercompany borrowings are largely offset by currency gains or losses on our third-
party borrowings. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10% against the British pound,
based on the intercompany payable balance as of December 31, 2014, the net effect upon our Consolidated Statements of Operations would
be approximately $1.3 million.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
2. Acquisitions
3. Stock-Based Compensation
4. Earnings per Share
5. Related Party Transactions
6. Property and Equipment, Net
7. Intangible Assets
8. Prepaid Expenses and Other Assets
9. Accrued Liabilities
10. Long-Term Debt
11. Asset Retirement Obligations
12. Other Liabilities
13. Stockholders' Equity
14. Employee Benefits
15. Derivative Financial Instruments
16. Fair Value Measurements
17. Commitments and Contingencies
18. Income Taxes
19. Concentration Risk
20. Segment Information
21. Supplemental Selected Quarterly Financial Information (Unaudited)
Page
58
60
61
62
63
64
65
65
71
73
75
76
77
77
79
79
80
83
84
84
85
85
87
88
89
92
92
96
57
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cardtronics, Inc.:
We have audited Cardtronics, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in the
Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Cardtronics Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Cardtronics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December
31, 2014, based on the criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Cardtronics, Inc. acquired Welch ATM (“Welch”) and Sunwin Services Group (“Sunwin”) during 2014, and management excluded from
its assessment of the effectiveness of Cardtronics, Inc.’s internal control over financial reporting as of December 31, 2014, Welch and
Sunwin’s internal control over financial reporting associated with 18% of total gross assets (of which 9% represents goodwill and intangibles
included within the scope of the assessment) and total revenues of 3% included in the consolidated financial statements of Cardtronics Inc. as
of and for the year ended December 31, 2014. Our audit of internal control over financial reporting of Cardtronics, Inc. also excluded an
evaluation of the internal control over financial reporting of Welch and Sunwin.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Cardtronics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements
of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2014, and our report dated February 24, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
February 24, 2015
58
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Cardtronics, Inc.:
We have audited the accompanying consolidated balance sheets of Cardtronics, Inc. and subsidiaries as of December 31, 2014 and 2013,
and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Cardtronics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Cardtronics, Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control –
Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated February 24, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
This report contains an explanatory paragraph that states Cardtronics, Inc. acquired Welch ATM (“Welch”) and Sunwin Services Group
(“Sunwin”) during 2014, and management excluded from its assessment of the effectiveness of Cardtronics, Inc.’s internal control over
financial reporting as of December 31, 2014, Welch and Sunwin’s internal control over financial reporting associated with 18% of total gross
assets (of which 9% represents goodwill and intangibles included within the scope of the assessment) and total revenues of 3% included in
the consolidated financial statements of Cardtronics, Inc. as of and for the year ended December 31, 2014. Our audit of internal control over
financial reporting of Cardtronics, Inc. also excluded an evaluation of the internal control over financial reporting of Welch and Sunwin.
/s/ KPMG LLP
Houston, Texas
February 24, 2015
59
CARDTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, excluding share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts and notes receivable, net of allowance of $1,082 and $571 as of December 31,
2014 and December 31, 2013, respectively
Inventory, net
Restricted cash
Current portion of deferred tax asset, net
Prepaid expenses, deferred costs, and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax asset, net
Prepaid expenses, deferred costs, and other noncurrent assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Current portion of other long-term liabilities
Accounts payable
Accrued liabilities
Current portion of deferred tax liability, net
Total current liabilities
Long-term liabilities:
Long-term debt
Asset retirement obligations
Deferred tax liability, net
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value; 125,000,000 shares authorized; 51,596,360 and
51,207,849 shares issued as of December 31, 2014 and December 31, 2013, respectively;
44,562,122 and 44,375,952 shares outstanding as of December 31, 2014 and December 31,
2013, respectively
Additional paid-in capital
Accumulated other comprehensive loss, net
Retained earnings
Treasury stock; 7,034,238 and 6,831,897 shares at cost as of December 31, 2014 and
December 31, 2013, respectively
Total parent stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31, 2014
December 31, 2013
$
31,875
$
86,939
80,321
5,971
20,427
24,303
34,508
197,405
335,795
177,540
511,963
10,487
22,600
1,255,790
35
34,937
35,984
179,966
—
250,922
612,662
52,039
15,916
37,716
969,255
$
$
58,274
5,302
14,896
21,202
20,159
206,772
270,966
155,276
404,491
9,680
9,018
1,056,203
1,289
35,597
38,981
137,776
1,152
214,795
489,225
60,665
5,668
38,736
809,089
5
352,166
(83,007)
118,817
(97,835)
290,146
(3,611)
286,535
1,255,790
$
5
330,862
(72,954)
81,677
(90,679)
248,911
(1,797)
247,114
1,056,203
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
60
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, excluding share and per share amounts)
Revenues:
ATM operating revenues
ATM product sales and other revenues
Total revenues
Cost of revenues:
Cost of ATM operating revenues (excludes depreciation, accretion, and
amortization of intangible assets shown separately below. See Note 1)
Cost of ATM product sales and other revenues
Total cost of revenues
Gross profit
Operating expenses:
Selling, general, and administrative expenses
Acquisition-related expenses
Depreciation and accretion expense
Amortization of intangible assets
Loss on disposal of assets
Total operating expenses
Income from operations
Other expense (income):
Interest expense, net
Amortization of deferred financing costs and note discount
Redemption costs for early extinguishment of debt
Other income, net
Total other expense
Income before income taxes
Income tax expense
Net income
Net loss attributable to noncontrolling interests
Net income attributable to controlling interests and available to common
stockholders
Net income per common share – basic
Net income per common share – diluted
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
2014
Year Ended December 31,
2013
2012
$
1,007,765 $
47,056
1,054,821
854,196 $
22,290
876,486
743,662
36,787
780,449
659,350
44,698
704,048
350,773
113,470
18,050
75,622
35,768
3,224
246,134
104,639
20,776
13,036
9,075
(1,616)
41,271
63,368
28,174
35,194
(1,946)
573,959
21,328
595,287
281,199
84,592
15,400
68,480
27,336
2,790
198,598
82,601
21,155
1,931
—
(3,150)
19,936
62,665
42,018
20,647
(3,169)
502,682
33,405
536,087
244,362
65,525
3,332
61,499
21,712
1,787
153,855
90,507
21,161
896
—
(1,821)
20,236
70,271
27,009
43,262
(329)
$
$
$
37,140
$
23,816
$
43,591
0.83
0.82
$
$
0.52
0.52
$
$
0.97
0.96
44,338,408
44,867,304
44,371,313
44,577,635
43,469,175
43,875,332
The accompanying notes are an integral part of these consolidated financial statements.
61
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
2014
Year Ended December 31,
2013
2012
Net income
$
35,194
$
20,647
$
43,262
Unrealized gains (losses) on interest rate swap contracts, net of income tax
expense (benefit) of $4,128, $16,584, and $(14,811) for the years ended
December 31, 2014, 2013, and 2012, respectively
Foreign currency translation adjustments
Other comprehensive (loss) income
Total comprehensive income
Less: comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to controlling interests
$
6,220
(16,273)
(10,053)
25,141
(1,987)
27,128
$
25,933
6,198
32,131
52,778
(3,134)
55,912
$
(23,684)
2,501
(21,183)
22,079
(220)
22,299
The accompanying notes are an integral part of these consolidated financial statements.
62
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares Amounts
Retained
Earnings
Treasury
Stock
Non-
controlling
Interests
Total
(83,902) $
14,270 $ (53,500) $
1,557 $ 113,145
Balance, January 1, 2012:
Issuance of common stock for stock-
based compensation, net of forfeitures
Repurchase of common stock
Stock-based compensation charges
Unrealized losses on interest rate
swaps, net of income tax benefit of
$14,811
Net income attributable to controlling
interests
Net loss attributable to noncontrolling
interests
Foreign currency translation
adjustments
Balance, December 31, 2012:
Issuance of common stock for stock-
based compensation, net of forfeitures
Repurchase of common stock
Stock-based compensation charges
Excess tax benefit from stock-based
compensation expense
Equity portion of convertible senior
notes, note hedges, and warrants, net of
deferred tax assets of $995 and deferred
financing costs of $1,671
Unrealized gains on interest rate swaps,
net of income tax expense of $16,584
Net income attributable to controlling
interests
Net loss attributable to noncontrolling
interests
Foreign currency translation
adjustments
Balance, December 31, 2013:
Issuance of common stock for stock-
based compensation, net of forfeitures
Repurchase of common stock
Stock-based compensation charges
Excess tax benefit from stock-based
compensation expense
Financing costs related to equity
portion of convertible senior notes, note
hedges, and warrants
Unrealized gains on interest rate swaps,
net of income tax expense of $4,128
Net income attributable to controlling
interests
Net loss attributable to noncontrolling
interests
Foreign currency translation
adjustments
Balance, December 31, 2014:
43,999 $
818
(176)
-
-
-
-
-
44,641 $
566
(831)
-
-
-
-
-
-
44,376 $
370
(184)
-
-
-
-
-
-
-
44,562 $
Additional
Paid-In
Capital
4 $ 234,716 $
Accumulated
Other
Comprehensive
Loss, Net
1
-
-
7,124
-
11,116
-
-
-
-
-
-
-
-
-
(23,684)
-
-
-
5 $ 252,956 $
-
2,501
(105,085) $
-
-
-
2,625
-
12,303
-
-
24,007
-
-
-
-
-
-
38,971
-
-
-
-
-
-
25,933
-
-
-
5 $ 330,862 $
-
6,198
(72,954) $
-
-
-
-
-
-
-
-
810
-
16,245
4,739
(490)
-
-
-
-
-
-
-
-
6,220
-
-
-
5 $ 352,166 $
-
(16,273)
(83,007) $
57,861 $ (58,270) $
-
(4,770)
-
-
-
-
7,125
(4,770)
11,116
-
-
-
-
-
(23,684)
-
43,591
(329)
(329)
109
2,610
1,337 $ 148,804
-
(32,409)
-
-
-
-
2,625
(32,409)
12,303
-
-
24,007
-
-
-
-
38,971
-
25,933
-
23,816
-
(3,169)
(3,169)
35
6,233
(1,797) $ 247,114
-
-
-
-
810
(7,156)
16,245
4,739
-
(490)
-
6,220
-
37,140
-
(7,156)
-
-
-
-
-
-
-
-
-
43,591
-
-
-
-
-
-
-
-
23,816
-
-
-
-
-
-
-
-
37,140
-
-
-
(1,946)
(1,946)
118,817 $ (97,835) $
-
132
(16,141)
(3,611) $ 286,535
81,677 $ (90,679) $
-
The accompanying notes are an integral part of these consolidated financial statements.
63
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
Depreciation, accretion, and amortization of intangible assets
Amortization of deferred financing costs and note discount
Stock-based compensation expense
Deferred income taxes
Loss on disposal of assets
Other reserves and non-cash items
Redemption cost for early extinguishment of debt
Changes in assets and liabilities:
Increase in accounts and notes receivable, net
(Increase) decrease in prepaid, deferred costs, and other current assets
Increase in inventory
(Increase) decrease in other assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued liabilities
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property and equipment
Payments for exclusive license agreements, site acquisition costs, and other
intangible assets
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of senior notes
Proceeds from issuance of convertible notes
Repayments of senior subordinated notes
Proceeds from borrowings under revolving credit facility
Repayments of borrowings under revolving credit facility and other notes
Repayments of borrowings under bank overdraft facility, net
Proceeds from issuance of warrants
Purchase of convertible note hedges
Debt issuance, modification and redemption costs
Payment of contingent consideration
Proceeds from exercises of stock options
Excess tax benefit from stock-based compensation expense
Repurchase of capital stock
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents as of beginning of period
Cash and cash equivalents as of end of period
Supplemental disclosure of cash flow information:
Cash paid for interest, including interest on capital leases
Cash paid for income taxes
$
$
$
2014
Year Ended December 31,
2013
2012
35,194 $
20,647 $
43,262
111,390
13,036
16,502
3,038
3,224
5,188
9,075
(12,224)
(7,578)
(2,399)
(4,175)
(4,940)
20,100
3,122
188,553
95,816
1,931
12,324
8,533
2,790
4,812
—
(11,087)
15,504
(1,943)
(1,503)
12,804
29,722
(6,793)
183,557
83,211
896
11,110
25,694
1,787
1,786
—
(3,564)
(18,922)
(2,436)
18,487
(12,409)
(6,203)
(6,311)
136,388
(108,000)
(71,562)
(89,579)
(1,909)
(226,972)
(336,881)
250,000
—
(200,000)
127,657
(61,539)
—
—
—
(14,746)
(517)
810
4,739
(7,156)
99,248
(5,984)
(55,064)
(5,591)
(189,587)
(266,740)
—
287,500
—
311,277
(397,667)
—
40,509
(72,565)
(7,540)
(750)
2,626
24,007
(32,409)
154,988
1,273
73,078
86,939
31,875 $
13,861
86,939 $
(3,224)
(20,961)
(113,764)
—
—
—
245,100
(261,596)
(162)
—
—
—
—
7,344
—
(4,770)
(14,084)
(255)
8,285
5,576
13,861
21,094 $
26,014 $
20,831 $
4,031 $
21,250
3,049
The accompanying notes are an integral part of these consolidated financial statements.
64
CARDTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation and Summary of Significant Accounting Policies
(a) Description of Business
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
December 31, 2014, the Company provided services to approximately 110,200 devices across its portfolio, which included approximately
91,850 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 12,900 devices throughout the United Kingdom ("U.K."), approximately 900 devices throughout Germany,
approximately 2,500 devices throughout Canada, and approximately 2,050 devices throughout Mexico. In the U.S., certain of the Company’s
devices are multi-function financial services kiosks that, in addition to traditional ATM functions such as cash dispensing and bank account
balance inquiries, perform other consumer financial services, including bill payments, check cashing, remote deposit capture (which is
deposit taking at ATMs using electronic imaging), and money transfers. Also included in the total count of 110,200 devices are
approximately 32,000 devices for which the Company provides various forms of managed services solutions, which may include services
such as transaction processing, monitoring, maintenance, cash management, 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 December 31, 2014, approximately 22,800 of the Company’s ATMs were under contract with financial institutions to place
their logos on the machines and to provide convenient surcharge-free access for their banking customers.
The Company also owns and operates the Allpoint network (“Allpoint”), the largest surcharge-free ATM network within the U.S. (based
on the number of participating ATMs). The Allpoint network, which approximately 55,000 participating ATMs globally, provides surcharge-
free ATM access to customers of participating financial institutions that may lack a significant ATM network in exchange for either a fixed
monthly fee per cardholder or a set fee per transaction that is paid by the financial institutions who are members of the network. The Allpoint
network includes a majority of the Company’s ATMs in the U.S., a portion of the Company’s ATMs in the U.K. and 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.
(b) Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company. All material intercompany accounts and transactions have
been eliminated in consolidation. Because the Company owns a majority (51.0%) interest in, and realizes a majority of the earnings and/or
losses of, 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.
In management’s opinion, all adjustments necessary for a fair presentation of the Company’s current and prior period results have been
made. Certain balances have been reclassified in the December 31, 2013 audited financial statements to present information consistently
between periods. During the year ended December 31, 2014, the Company changed its accounting policy related to the presentation of certain
upfront merchant payments by reclassifying such payments from Intangible assets, net to the Prepaid expenses, deferred costs, and other
noncurrent assets line item on the Consolidated Balance Sheet. Prior period amounts have been reclassified to conform to this 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 during the years ended December 31, 2014, 2013, and 2012:
65
Depreciation and accretion expenses related to ATMs and ATM-related assets
Amortization of intangible assets
Total depreciation, accretion, and amortization of intangible assets excluded from
Cost of ATM operating revenues and Gross profit
(c) Use of Estimates in the Preparation of Financial Statements
2014
$
63,711
35,768
2013
(In thousands)
$
59,841
27,336
2012
$
53,028
21,712
$
99,479
$
87,177
$
74,740
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States
(“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 period. Significant items subject to such estimates include the carrying amount of intangibles, goodwill, asset retirement
obligations, contingencies, and valuation allowances for receivables, inventories, and deferred income tax assets. Additionally, the Company
is required to make estimates and assumptions related to the valuation of its derivative instruments and stock-based compensation. Actual
results can, and often do, differ from those assumed in the Company’s estimates.
(d) Cash and Cash Equivalents
For purposes of reporting financial condition and cash flows, cash and cash equivalents include cash in bank and short-term deposit sweep
accounts. Additionally, the Company maintains cash on deposit with banks that is pledged for a particular use or restricted to support a
potential liability. These balances are classified as restricted cash in current or noncurrent assets on the Company’s Consolidated Balance
Sheets based on when the Company expects this cash to be used. There was $20.4 million and $14.9 million of restricted cash in current
assets as of December 31, 2014 and 2013, respectively. Current restricted cash consisted of amounts collected on behalf of, but not yet
remitted to, certain of the Company’s merchant customers or third-party service providers.
(e) Cash Management Program
The Company relies on agreements with various banks, such as Bank of America, N.A. (“Bank of America”) and Wells Fargo, N.A.
(“Wells Fargo”), to provide the cash that it uses in its devices in which the merchants do not provide their own cash. The Company pays a fee
for its usage of this vault cash based on the total amount of cash outstanding at any given time, as well as fees related to the bundling and
preparation of such cash prior to it being loaded in the devices. At all times, beneficial ownership of the cash is retained by the cash
providers, and the Company has no access or right to the cash except for those ATMs that are serviced by the Company’s wholly-owned
armored courier operations in the U.K. While the armored courier operations have physical access to the cash loaded in those machines,
beneficial ownership of that cash remains with the cash provider at all times. The Company’s vault cash agreements expire at various times
through December 2017. (See Note 19, Concentration Risk for additional information on the concentration risk associated with the
Company’s vault cash arrangements.) Based on the foregoing, the ATM vault cash, and the related obligations, are not reflected in the
accompanying Consolidated Financial Statements. The average amount of cash in the Company’s devices for the quarters ended December
31, 2014 and 2013 was approximately $3.0 billion and $2.7 billion, respectively.
(f) Accounts Receivable, net of Allowance for Doubtful Accounts
Accounts receivable are comprised of amounts due from the Company’s clearing and settlement banks for transaction revenues earned on
transactions processed during the month ending on the balance sheet date, as well as receivables from bank branding and network branding
customers, and for equipment sales and service. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts represents the Company’s best estimate of the amount of probable credit losses on the Company’s existing
accounts receivable. The Company reviews its allowance for doubtful accounts monthly and determines the allowance based on an analysis
of its past due accounts. All balances over 90 days past due are reviewed individually for collectability. Account balances are charged off
against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
(g) Inventory
Inventory consists principally of used ATMs, ATM spare parts, and ATM supplies and is stated at the lower of cost or market. Cost is
determined using the average cost method. The following table is a breakdown of the Company’s primary inventory components as of
December 31, 2014 and 2013:
66
ATMs
ATM parts and supplies
Total
Less: Inventory reserves
Inventory, net
(h) Property and Equipment, Net
2014
2013
(In thousands)
$
$
2,046
5,012
7,058
(1,087)
5,971
$
$
2,022
4,013
6,035
(733)
5,302
Property and equipment are stated at cost, and depreciation is calculated using the straight-line method over estimated useful lives ranging
from three to ten years. Most new ATMs are depreciated over eight years and most refurbished ATMs and installation-related costs are
depreciated over five years, all on a straight-line basis. Leasehold improvements and property acquired under capital leases are amortized
over the useful life of the asset or the lease term, whichever is shorter. Also included in property and equipment are new ATMs and/or
financial services kiosks and the associated equipment the Company has acquired for future installation. These devices are held as
“deployments in process” and are not depreciated until actually installed. Significant refurbishment costs that extend the useful life of an
asset, or enhance its functionality are capitalized and depreciated over the estimated remaining life of the improved asset. Property and
equipment are reviewed for impairment at least annually and additionally whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable.
Maintenance on the Company’s devices is typically performed by third-parties and is generally incurred as a fixed fee per month per
device, except for in the U.K. where maintenance is primarily performed by in-house technicians. In both cases, amounts incurred for
maintenance are expensed as incurred.
Also included within property and equipment are costs associated with internally-developed products. The Company capitalizes certain
internal costs associated with developing new or enhanced products and technology that are expected to benefit multiple future periods
through enhanced revenues and/or cost savings and efficiencies. Internally developed projects are placed into service and depreciation is
commenced once the products are completed and become operational. These projects generally are depreciated over estimated useful lives of
three to five years on a straight-line basis. During 2014, the Company capitalized internal development costs of approximately $3.6 million.
Depreciation expense for property and equipment for the years ended December 31, 2014, 2013, and 2012 was $73.1 million,
$65.7 million, and $58.9 million, respectively. As of December 31, 2014, the Company did not have any material capital leases outstanding.
See Note 1(l), Asset Retirement Obligations, for additional information on asset retirement obligations associated with the Company’s
devices.
(i) Intangible Assets Other Than Goodwill
The Company’s intangible assets include merchant contracts/relationships and branding agreements acquired in connection with
acquisitions of ATM and kiosk-related assets (i.e., the right to receive future cash flows related to transactions occurring at these merchant
locations), exclusive license agreements and site acquisition costs (i.e., the right to be the exclusive ATM or kiosk service provider, at
specific locations, for the time period under contract with a merchant customer), technology, non-compete agreements, deferred financing
costs relating to the Company’s credit agreements (see Note 10, Long-Term Debt), and trade names acquired.
The estimated fair value of the merchant contracts/relationships within each acquired portfolio is determined based on the estimated net
cash flows and useful lives of the underlying contracts/relationships, including expected renewals. The merchant contracts/relationships
comprising each acquired portfolio are typically homogenous in nature with respect to the underlying contractual terms and conditions.
Accordingly, the Company generally pools such acquired merchant contracts/relationships into a single intangible asset, by acquired
portfolio, for purposes of computing the related amortization expense. The Company amortizes such intangible assets on a straight-line basis
over the estimated useful lives of the portfolios to which the assets relate. Because the net cash flows associated with the Company’s acquired
merchant contracts/relationships have historically increased subsequent to the acquisition date, the use of a straight-line method of
amortization effectively results in an accelerated amortization schedule. The estimated useful life of each portfolio is determined based on the
weighted-average lives of the expected cash flows associated with the underlying merchant contracts/relationships comprising the portfolio,
and takes into consideration expected renewal rates and the terms and significance of the underlying contracts/relationships themselves. Costs
incurred by the Company to renew or extend the term of an existing contract are expensed as incurred, except for any direct payments made
to the merchants, which are set up as new intangible assets (exclusive license agreements). Certain acquired merchant contracts/relationships
may have unique attributes, such as significant contractual terms or value, and in such cases, the Company will separately account for these
contracts in order to better assess the value and estimated useful lives of the underlying merchant relationships.
67
The Company tests its acquired merchant contract/relationship intangible assets for impairment, along with the related devices, on an
individual contract/relationship basis for the Company’s significant acquired contracts/relationships, and on a pooled or portfolio basis (by
acquisition) for all other acquired contracts/relationships. If, subsequent to the acquisition date, circumstances indicate that a shorter
estimated useful life is warranted for an acquired portfolio or an individual customer relationship as a result of changes in the expected future
cash flows associated with the individual contracts/relationships comprising that portfolio or relationship, then that portfolio’s remaining
estimated useful life and related amortization expense are adjusted accordingly on a prospective basis.
Whenever events or changes in circumstances indicate that a merchant contract/relationship intangible asset may be impaired, the
Company evaluates the recoverability of the intangible asset, and the related devices, by measuring the related carrying amounts against the
estimated undiscounted future cash flows associated with the related contract or portfolio of contracts. Should the sum of the expected future
net cash flows be less than the carrying values of the tangible and intangible assets being evaluated, an impairment loss would be recognized.
The impairment loss would be calculated as the amount by which the carrying values of the tangible and intangible assets exceeded the
calculated fair value.
No impairment of indefinite-live intangible assets was identified during the years ended December 31, 2014 and 2013. Additional
information regarding the Company’s intangible assets is included in Note 7, Intangible Assets.
(j) Goodwill
Goodwill resulting from a business combination is not amortized but is tested for impairment at least annually and more frequently if
conditions warrant. Under U.S. GAAP, goodwill should be tested for impairment at the reporting unit level, which in the Company’s case
involves five separate reporting units: (i) the Company’s domestic reporting segment; (ii) the acquired ATM operations in the U.K. from
Bank Machine, Cardpoint and Sunwin Services Group (“Sunwin”); (iii) the acquired CCS Mexico (subsequently renamed to Cardtronics
Mexico) operations; (iv) the acquired Canadian operations (subsequently renamed Cardtronics Canada); and (v) the acquired German
operations from Cardpoint. For each reporting unit, the carrying amount of the net assets associated with the applicable reporting unit is
compared to the estimated fair value of such reporting unit as of the testing date (i.e., December 31, 2014). When estimating fair values of a
reporting unit for its goodwill impairment test, the Company utilizes a combination of the income approach and market approach, which
incorporates both management’s views and those of the market. The income approach provides an estimated fair value based on each
reporting unit’s anticipated cash flows, which have been discounted using a weighted-average cost of capital rate for each reporting unit. The
market approach provides an estimated fair value based on the Company’s market capitalization that is computed using the market price of its
common stock and the number of shares outstanding as of the impairment test date. The sum of the estimated fair values for each reporting
unit, as computed using the income approach, is then compared to the fair value of the Company as a whole, as determined based on the
market approach. If such amounts are consistent, the estimated fair values for each reporting unit, as derived from the income approach, are
utilized.
All of the assumptions utilized in estimating the fair value of the Company’s reporting units and performing the goodwill impairment test
are inherently uncertain and require significant judgment on the part of management. The primary assumptions used in the income approach
are estimated cash flows, the weighted average cost of capital for each reporting unit, and valuation multiples assigned to the earnings before
interest expense, income taxes, depreciation and accretion expense, and amortization expense (“EBITDA”) of each reporting unit in order to
assess the terminal value for each reporting unit. Estimated cash flows are primarily based on the Company’s projected revenues, operating
costs, and capital expenditures and are discounted based on comparable industry average rates for the weighted-average cost of capital for
each reporting unit. The Company utilized discount rates based on weighted-average cost of capital amounts ranging from 10% to 12% when
estimating the fair values of its reporting units as of December 31, 2014 and 2013. With respect to the EBITDA multiples utilized in
assessing the terminal value of each of its reporting units, the Company utilized its current multiple, but also evaluated it to current and
historical valuation multiples assigned to a number of its industry peer group companies for reasonableness.
Based on the results of the impairment analysis, the Company determined that no impairment of goodwill existed as of December 31,
2014 and 2013, and the fair values of its reporting units were in excess of the carrying values of such reporting units.
(k) Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes, which are based on
temporary differences between the amount of taxable income and income before provision for income taxes and between the tax basis of
assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated
financial statements at current income tax rates. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. As the ultimate realization of deferred tax assets is dependent
on the generation of future taxable income during the periods in which those temporary differences become deductible, the Company
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. In the event the Company does not believe it is more-likely-than-not that it will be able to utilize the related tax benefits
associated with deferred tax assets, valuation allowances will be recorded to reserve for the assets.
68
(l) Asset Retirement Obligations
The Company estimates the fair value of future retirement costs associated with its ATMs and recognizes this amount as a liability on a
pooled basis based on estimated deinstallation dates in the period in which it is incurred, and when it can be reasonably estimated. The
Company’s estimates of fair value involve discounted future cash flows. The Company capitalizes the initial estimated fair value amount as
an asset and depreciates the amount over its estimated useful life. Subsequent to recognizing the initial liability, the Company recognizes an
ongoing expense for changes in such liabilities due to the passage of time (i.e., accretion expense), which is recorded in the Depreciation and
accretion expense line in the accompanying Consolidated Financial Statements. As the liability is not revalued on a recurring basis, it is
periodically reevaluated based on current cost estimate and contract information. Upon settlement of the liability, the Company recognizes a
gain or loss for any difference between the settlement amount and the liability recorded. Additional information regarding the Company’s
asset retirement obligations is included in Note 11, Asset Retirement Obligations.
(m) Revenue Recognition
ATM operating revenues. Substantially all of the Company’s revenues are generated from ATM and kiosk operating and transaction-based
fees, which are reflected as “ATM operating revenues” in the accompanying Consolidated Statements of Operations. ATM operating
revenues primarily include the following:
Surcharge and interchange revenues, which are recognized daily as the underlying transactions are processed.
Bank branding revenues, which are generated by the Company’s bank branding arrangements, under which financial institutions
generally pay a fixed monthly fee per device to the Company to place their brand name on selected ATMs and multi-function kiosks
within the Company’s portfolio. In return for such fees, the branding institution’s customers can use those branded devices without
paying a surcharge fee. The monthly per device branding fees are recognized as revenues on a monthly basis as earned, and a portion of
the arrangements are subject to escalation clauses within the agreements. In addition to the monthly branding fees, the Company may
also receive a one-time set-up fee per device. This set-up fee is separate from the recurring, monthly branding fees and is meant to
compensate the Company for the burden incurred related to the initial set-up of a branded device versus the on-going monthly services
provided for the actual branding. The Company has deferred these set-up fees (as well as the corresponding costs associated with the
initial set-up) and is recognizing such amounts as revenue (and expense) over the terms of the underlying bank branding agreements on
a straight-line basis.
Surcharge-free network revenues, which are generated by the operations of Allpoint, the Company’s surcharge-free network. The
Company allows cardholders of financial institutions that participate in Allpoint to utilize the Company’s network of devices on a
surcharge-free basis. In return, the participating financial institutions pay a fixed fee per month per cardholder or a fee per transaction to
the Company. These surcharge-free network fees are recognized as revenues on a monthly basis as earned.
Managed services revenues, which the Company typically receives a fixed management fee and may be supplemented by certain
additional fees based on transaction volume. While the management fee and any additional fees are recognized as revenue on a
monthly basis as earned, the surcharge and interchange fees generated by the ATM under the managed services agreement are earned by
the Company’s customer, and therefore, are not recorded as revenue of the Company.
Other revenues, which includes maintenance fees; fees from other consumer financial services offerings such as check-cashing, remote
deposit capture and bill pay services; and upfront payments. With respect to maintenance services, the Company typically charges a
fixed fee per month per device to its subscribing customers and outsources the fulfillment of those maintenance services to a third-party
service provider for a corresponding fixed fee per month per device. Accordingly, the Company recognizes such service agreement
revenues and the related expenses on a monthly basis as earned. With respect to its automated consumer financial services offerings, the
Company typically recognizes the revenues as the services are provided and the revenues earned. In addition to the transaction-based
fees, the Company may also receive upfront payments from third-party service providers associated with providing certain of these
services, which are deferred and recognized as revenue over the underlying contractual period.
ATM equipment sales. The Company also generates revenues from the sale of ATMs to merchants and certain equipment resellers. Such
amounts are reflected as “ATM product sales and other revenues” in the accompanying Consolidated Statements of Operations. Revenues
related to the sale of ATMs to merchants are recognized when the equipment is delivered to the customer and the Company has completed all
required installation and set-up procedures. With respect to the sale of ATMs to associate value-added resellers (“VARs”), the Company
recognizes and invoices revenues related to such sales when the equipment is shipped from the manufacturer to the associate VAR. The
Company typically extends 30-day terms and receives payment directly from the associate VAR irrespective of the ultimate sale to a third-
party.
ATM services. Effective with the Sunwin acquisition in November 2014, the Company also generates revenues from the sale of services
to retailers, including the provision of cash delivery and maintenance services. Revenues from this business activity are included within the
69
“ATM product sales and other revenues” category in the accompanying Consolidated Statements of Operations. The Company recognizes
and invoices revenues related to these services when the service has been performed.
Merchant-owned arrangements. In connection with the Company’s merchant-owned ATM operating/processing arrangements, the
Company typically pays all or a sizable portion of the transaction fees that it collects to the merchant as payment for providing, placing, and
maintaining the ATM unit. Pursuant to the guidance in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC”) 605-45-45, Revenue Recognition – Principal Agent Considerations – Other Presentation Matters, the Company has
assessed whether to record such payments as a reduction of associated ATM transaction revenues or a cost of revenues. Specifically, if the
Company acts as the principal and is the primary obligor in the ATM transactions, provides the processing for the ATM transactions, has
significant influence over pricing, and has the risks and rewards of ownership, including a variable earnings component and the risk of loss
for collection, the Company recognizes the surcharge and interchange fees on a gross basis and does not reduce its reported revenues for
payments made to the various merchants and retail establishments where the ATM units are housed. As a result, for agreements under which
the Company acts as the principal, the Company records the total amounts earned from the underlying ATM transactions as ATM operating
revenues and records the related merchant commissions as a cost of ATM operating revenues. However, for those agreements in which the
Company does not meet the criteria to qualify as the principal agent in the transaction, the Company does not record the related surcharge and
interchange revenue as the rights associated with this revenue stream inure to the benefit of the merchant.
(n) Stock-Based Compensation
The Company calculates the fair value of stock-based instruments awarded to employees on the date of grant and recognizes the
calculated fair value as compensation cost over the requisite service period. For additional information on the Company’s stock-based
compensation, see Note 3, Stock-Based Compensation.
(o) Derivative Financial Instruments
The Company utilizes derivative financial instruments to hedge its exposure to changing interest rates related to the Company’s ATM and
kiosk cash management activities. The Company does not enter into derivative transactions for speculative or trading purposes, although
circumstances may subsequently change the designation of its derivatives to economic hedges.
The Company records derivative instruments at fair value on its Consolidated Balance Sheets. These derivatives, which consist of interest
rate swaps, are valued using pricing models based on significant other observable inputs (Level 2 inputs under the fair value hierarchy
prescribed by U.S. GAAP), while taking into account the nonperformance risk of the counterparty. The majority of the Company’s derivative
transactions have been accounted for as cash flow hedges and, accordingly, changes in the fair values of such derivatives have been reflected
in the Accumulated other comprehensive loss, net line in the accompanying Consolidated Balance Sheets to the extent that the hedging
relationships are determined to be effective, and then recognized in earnings when the hedged transactions occur. For additional information
on the Company’s derivative financial instruments, see Note 15, Derivative Financial Instruments.
In connection with the issuance of the $250.0 million of 1.00% convertible senior notes due December 2020, 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. For additional information on the Company’s convertible note hedges and warrant transactions, see Note
10, Long-Term Debt.
(p) Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. U.S. GAAP does not require the disclosure of the fair value of lease financing arrangements
and non-financial instruments, including intangible assets such as goodwill and the Company’s merchant contracts/relationships. See Note 16,
Fair Value Measurements for the Company’s fair value evaluation of its financial instruments.
(q) Foreign Currency Translation
The Company is exposed to foreign currency translation risk with respect to its international operations. The functional currencies for
these businesses are their respective local currencies. Accordingly, results of operations of the Company’s international subsidiaries are
translated into U.S. dollars using average exchange rates in effect during the periods in which those results are generated. Furthermore, the
Company’s foreign operations’ assets and liabilities are translated into U.S. dollars using the exchange rate in effect as of each balance sheet
reporting date. The resulting translation adjustments have been included in Accumulated other comprehensive loss, net in the accompanying
Consolidated Balance Sheets.
The Company currently believes that the unremitted earnings of all of its international subsidiaries will be reinvested in the corresponding
country of origin 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 those subsidiaries or on the foreign currency translation adjustment amounts.
70
(r) Treasury Stock
Treasury stock is recorded at cost and carried as a reduction to stockholders’ equity until retired or reissued.
(s) Advertising Costs
Advertising costs are expensed as incurred and totaled $5.4 million, $4.4 million, and $3.0 million during the years ended December 31,
2014, 2013, and 2012, respectively, and are included in the line item Selling, general, and administrative expenses in the accompanying
Consolidated Statements of Operations.
(t) Working Capital Deficit
The Company’s surcharge and interchange revenues are typically collected in cash on a daily basis or within a short period of time
subsequent to the end of each month. However, the Company typically pays its vendors on 30 day terms and is not required to pay certain of
its merchants until 20 days after the end of each calendar month. As a result, the Company will typically utilize the excess cash flow
generated from such timing differences to fund its capital expenditure needs or to repay amounts outstanding under its revolving line of credit
(which, when drawn upon, is reflected as a long-term liability in the accompanying Consolidated Balance Sheets). Accordingly, this
utilization will often cause the Company’s balance sheet to reflect a working capital deficit position. The Company considers such a
presentation to be a normal part of its ongoing operations.
(u) Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the
revenue recognition requirements in ASC 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. ASU 2014-09
is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, using one
of two retrospective application methods. Early application is not permitted. We are currently evaluating the effect that the adoption of this
ASU will have on our financial statements.
(2) Acquisitions
Acquisition of the Cardpoint ATM Portfolio
On August 7, 2013, Cardtronics Europe Limited (“Cardtronics Europe”), a newly formed wholly-owned subsidiary of the Company,
entered into, and consummated the transactions contemplated by, the Share Sale and Purchase Agreement (the “Purchase Agreement”)
including the purchase of all of the outstanding shares issued by Cardpoint Limited (“Cardpoint”) from Payzone Ventures Limited (the
“Seller”) and the individuals named as warrantors in the Purchase Agreement.
Pursuant to the Purchase Agreement, Cardtronics Europe acquired all of the outstanding shares issued by Cardpoint for purchase
consideration of £100.0 million ($153.5 million) in cash, which included the aggregate amount required to be paid (including principal and
interest) in order to fully discharge all of Cardpoint’s outstanding indebtedness to the Seller at closing. The total amount paid for the
acquisition was approximately £105.4 million ($161.8 million) at closing, which was financed through borrowings under the Company’s
amended revolving credit facility.
As a result of the Cardpoint acquisition, the Company significantly increased the size of its European operations. Cardpoint operated
approximately 7,100 ATMs in the U.K. and approximately 800 ATMs in Germany as of the acquisition date, substantially all of which were
owned by Cardpoint.
The results of operations of the acquired Cardpoint portfolio were included in the Company's Consolidated Statement of Operations
subsequent to the August 7, 2013 acquisition date. Revenue and loss from operations of $46.3 million and $1.7 million, respectively, were
included in the year ended December 31, 2013. The loss from operations for the year ended December 31, 2013 included approximately $5.8
million in acquisition-related expenses incurred related to this acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The total
purchase consideration was allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their
respective fair values at the date of acquisition. This allocation resulted in goodwill of approximately $78.7 million, all of which has been
assigned to the Company's Europe reporting segment, which now includes operations from both the U.K. and Germany. The recognized
goodwill is primarily attributable to expected revenue and cost synergies from the acquisition. None of the goodwill or intangible asset
71
amounts are expected to be deductible for income tax purposes; however, the Company acquired significant tax assets in the form of
accumulated net operating loss carryforwards and capital allowances, which the Company expects to utilize.
Cash and cash equivalents
Accounts and notes receivable
Inventory
Restricted cash
Prepaid expenses, deferred costs, and other current assets
Property and equipment
Deferred tax assets
Intangible assets
Goodwill
Total assets acquired
Accounts payable
Accrued liabilities
Deferred revenue
Asset retirement obligations
Deferred tax liabilities
Total liabilities assumed
Net assets acquired
$
(In thousands)
4,782
619
863
7,522
6,665
29,500
28,434
59,673
78,727
216,785
6,052
25,368
56
9,868
13,613
54,957
$
161,828
The fair values of intangible assets acquired have been estimated by utilizing a discounted cash flow approach, with the assistance of an
independent appraisal firm. The intangible assets acquired as part of the Cardpoint acquisition are being amortized on a straight-line basis,
and at the date of acquisition the fair values consisted of the following:
Customer contracts
Trade name
Non-compete agreements
Total
Pro Forma Results of Operations
Fair Values
Useful Lives
Weighted Average Period
Before Next Renewal
$
$
50,291
9,096
286
59,673
(In thousands)
7 years
15 years
1 year
3.9 years
N/A
N/A
The following table presents the unaudited pro forma combined results of operations of the Company and the acquired Cardpoint portfolio
for the years ended December 31, 2013 and 2012, after giving effect to certain pro forma adjustments including: (i) amortization of acquired
intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property and equipment, and (iii)
interest expense adjustment for historical long-term debt of Cardpoint that was repaid and interest expense on additional borrowings by the
Company to fund the acquisition.
2013
As Reported
Pro Forma
(unaudited)
2012
As Reported
Pro Forma
(unaudited)
Total revenues
Net income attributable to controlling interests and available to
common stockholders
Earnings per share – basic
Earnings per share – diluted
$
$
$
(In thousands, excluding per share amounts)
$
938,962
780,449
$
$
876,486
883,350
23,816
24,220
43,591
42,670
0.52
0.52
$
$
0.53
0.53
$
$
0.97
0.96
$
$
0.95
0.94
The unaudited pro forma financial results do not reflect the impact of other acquisitions consummated by the Company during the years
ended December 31, 2013 and 2014. The unaudited pro forma financial results assume that the Cardpoint acquisition occurred on January 1,
2012, 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
72
operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated
operations.
Other Acquisitions
On February 6, 2014, the Company acquired the majority of the assets of Automated Financial, LLC (“Automated Financial”), an
Arizona-based provider of ATM services to approximately 2,100 ATMs consisting primarily of merchant-owned ATMs. The Automated
Financial acquisition did not have a material effect on the Company's consolidated results of operations during the year ended December 31,
2014.
On October 6, 2014, the Company completed the acquisition of Welch ATM (“Welch”), an Illinois-based provider of ATM services to
approximately 26,000 ATMs. The total purchase consideration was approximately $159.4 million, which included cash of $154.0 million
and deferred purchase consideration of $5.4 million. As a result of the acquisition, the Company added over 3,600 Company-owned ATMs
across 47 states, with the majority of the machines located in high-traffic convenience store locations. In addition, many of the Welch ATMs
are under contract with financial institutions to carry their brand and logo on the ATM, which has further enhanced the Company's surcharge-
free product offerings.
The total purchase consideration was preliminarily allocated to the assets acquired and liabilities assumed, including identifiable tangible
and intangible assets, based on their respective fair values at the date of acquisition. The preliminary fair values of the intangible assets
acquired included customer relationships valued at $52.5 million, estimated utilizing a discounted cash flow approach, with the assistance of
an independent appraisal firm. The preliminary fair values of the tangible assets acquired included property, plant, and equipment valued at
$11.0 million, estimated utilizing the market and cost approaches. The preliminary purchase price allocation resulted in goodwill of
approximately $102.4 million, all of which has been assigned to the Company's U.S. reporting segment. The recognized goodwill is primarily
attributable to expected synergies. All of the goodwill and intangible asset amounts are expected to be deductible for income tax purposes.
On November 3, 2014, the Company completed the acquisition of Sunwin, a subsidiary of the Co-operative Group (“Co-op”) for
aggregate cash consideration of approximately £41.5 million or approximately $66.4 million. As of the end of 2014, approximately £13.25
million of the £41.5 million had not yet been paid, but is anticipated to be paid in early 2015 upon the completion of certain events. Sunwin’s
primary business is providing secure cash logistics and ATM maintenance services to ATMs and guarding services to retail locations. The
Company also acquired approximately 1,950 ATMs from Co-op Bank and secured an exclusive ATM operating agreement to operate ATMs
at Co-op Food locations. The Company has accounted for these transactions as if they were all related due to the timing of the transactions
being completed and the dependency of the transactions to each other.
As of December 31, 2014, the Company had not yet completed its purchase accounting for these transactions because the final appraisals
of acquired intangible assets have not yet been completed. The Company expects to complete the purchase accounting within the first six
months of 2015 as it completes its final review of the valuations of the various components involved in the transactions.
(3) Stock-Based Compensation
As noted in Note 1(n), 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:
Cost of ATM operating revenues
Selling, general, and administrative expenses
Total stock-based compensation expense
2014
2013
(In thousands)
2012
$
$
1,273
15,229
16,502
$
$
911
11,413
12,324
$
$
930
10,180
11,110
The increase in stock-based compensation expense each year was due to additional expense recognition from the additional grants made
during the periods. All grants during the periods above were made under the Company's Amended and Restated 2007 Stock Incentive Plan
(the "2007 Plan"), which is further discussed below.
Stock-Based Compensation Plans. The Company currently has two long-term incentive plans - the 2007 Plan and the 2001 Stock
Incentive Plan (the “2001 Plan”). The purpose of each of these plans is to provide members of the Company’s Board of Directors and
employees of the Company and its affiliates additional incentive and reward opportunities designed to enhance the profitable growth of the
Company and its affiliates. Equity grants awarded under these plans generally vest in various increments over four years based on continued
employment. The Company handles stock option exercises and other stock grants through the issuance of new common shares.
2007 Plan. The 2007 Plan provides for the granting of incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code, options that do not constitute incentive stock options, Restricted Stock Awards (“RSAs”), phantom stock awards, Restricted
Stock Unites (“RSUs”), bonus stock awards, performance awards, and annual incentive awards. The number of shares of common stock that
73
may be issued under the 2007 Plan may not exceed 9,679,393 shares. The shares issued under the 2007 Plan are subject to further adjustment
to reflect stock dividends, stock splits, recapitalizations, and similar changes in the Company’s capital structure. As of December 31, 2014,
416,500 options and 4,516,800 shares of restricted stock awards and units, net of cancellations, had been granted under the 2007 Plan, and
options to purchase 247,625 shares of common stock have been exercised.
2001 Plan. No further awards were granted during 2014 under the Company’s 2001 Plan, as a result of the 2007 Plan adoption. As of
December 31, 2014, options to purchase an aggregate of 6,438,172 shares of common stock (net of options cancelled) had been granted
pursuant to the 2001 Plan, all of which the Company considered as non-qualified stock options, and options to purchase 6,177,704 shares of
common stock had been exercised.
Restricted Stock Awards. The number of the Company's outstanding Restricted Stock Awards (“RSAs”) as of December 31, 2014, and
changes during the year ended December 31, 2014, are presented below:
RSAs outstanding as of January 1, 2014
Granted
Vested
Forfeited
RSAs outstanding as of December 31, 2014
Number of Shares
375,498
—
(274,056)
(18,414)
83,028
Weighted Average
Grant Date Fair
Value
$
$
$
$
$
18.42
—
15.22
27.16
27.06
The majority of RSAs granted vest ratably over a four-year service period, and had a weighted average grant date fair value of $26.86 and
$28.30 for the years ended 2013 and 2012, respectively. No RSAs were granted in 2014. The total fair value of RSAs that vested during the
years ended December 31, 2014, 2013, and 2012 was $10.8 million, $8.1 million and $15.1 million, respectively. Compensation expense
associated with RSAs totaled approximately $1.9 million, $4.1 million, and $5.5 million during 2014, 2013, and 2012, respectively, and
based upon management’s estimates of forfeitures, there was approximately $1.4 million of unrecognized compensation cost associated with
these RSAs as of December 31, 2014, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of
approximately 1.8 years.
Restricted Stock Units. In the first quarter of each year since 2011, the Company granted restricted stock units (“RSUs”) under its Long
Term Incentive Plan ("LTIP"), which is an annual equity award program under the 2007 Stock Incentive 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. Starting with the
grants made in 2013, a portion of the awards have only a service-based vesting schedule (“Time-RSUs”), for which the associated expense is
recognized ratably over four years. Performance-RSUs and Time-RSUs are convertible into the Company’s common stock after the passage
of the vesting periods, which are 24, 36, and 48 months from January 31 of the grant year, at the rate of 50%, 25%, and 25%, respectively.
Performance-RSUs will be earned only if the Company achieves certain performance levels. Although the Performance-RSUs are not
considered to be earned and outstanding until at least the minimum performance metrics are met, the Company recognizes the related
compensation expense over the requisite service period (or to an employee’s qualified retirement date, if earlier) using a graded vesting
methodology. RSUs are also granted outside of LTIPs, with or without performance-based vesting requirements.
The number of the Company's non-vested RSUs as of December 31, 2014, and changes during the year ended December 31, 2014, are
presented below:
Non-vested RSUs as of January 1, 2014
Granted
Vested
Forfeited
Non-vested RSUs as of December 31, 2014
Number of Shares
733,235
412,668
(295,419)
(63,687)
786,797
Weighted Average
Grant Date Fair
Value
$
$
$
$
$
25.26
31.87
23.48
27.99
29.17
The above table only includes RSUs not subject to performance conditions; therefore, the Performance-RSUs granted in 2014 but not yet
earned are not included. The number of Performance-RSUs granted in 2014 at target, net of forfeitures, was 206,587 shares with a grant date
fair value of $38.40 per unit. The weighted average grant date fair value of the RSUs granted was $31.87, $31.72 and $21.73 for the years
74
ended December 31, 2014, 2013, and 2012, respectively. The total fair value of RSUs that vested during the years ended December 31, 2014
and 2013 was approximately $6.9 and $7.1 million, respectively. No RSUs vested during the year ended December 31, 2012. Compensation
expense associated with all RSUs totaled approximately $14.6 million, $8.1 million, and $5.5 million during 2014, 2013, and 2012,
respectively. The unrecognized compensation expense associated with all RSU grants was $8.5 million as of December 31, 2014, which will
be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for Time-RSUs, over a remaining
weighted-average vesting period of approximately 2.2 years.
Options. The number of the Company's outstanding stock options as of December 31, 2014, and changes during the year ended
December 31, 2014, are presented below:
Options outstanding as of January 1, 2014
Exercised
Forfeited
Cancelled
Options outstanding as of December 31, 2014
Number of
Shares
Weighted
Average
Exercise Price
9.66
8.70
—
0.03
10.33
280,175 $
(93,092) $
— $
(3,716) $
183,367 $
Options vested and exercisable as of December 31, 2014
183,367 $
10.33
Aggregate
Intrinsic
Value (in
thousands)
Weighted
Average
Remaining
Contractual Term
$
$
5,177
2.04 years
5,177
2.04 years
Options exercised during the years ended December 31, 2014, 2013, and 2012 had a total intrinsic value of approximately $2.8 million,
$6.7 million, and $12.9 million, respectively, which resulted in estimated tax benefits to the Company of approximately $0.9 million,
$2.3 million, and $4.5 million, respectively. During 2012, the Company was in a net operating loss carryforward position; therefore, such
benefits were not reflected in the accompanying consolidated financial statements for that year. The cash received by the Company as a result
of option exercises was $0.8 million, $2.6 million, and $7.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.
Fair Value Assumptions. The Company utilizes the Black-Scholes option-pricing model to value options, which requires the input of
certain subjective assumptions, including the expected life of the options, a risk-free interest rate, a dividend rate, an estimated forfeiture rate,
and the future volatility of the Company’s common equity. These assumptions are based on management’s best estimate at the time of grant.
There have been no options granted since 2010.
As of December 31, 2014, the Company had no unrecognized compensation expense associated with outstanding options and all
remaining outstanding options became fully vested during 2014. Compensation expense recognized related to stock options totaled
approximately $0.01 million, $0.1 million, and $0.1 million for the years ended December 31, 2014, 2013, and 2012, respectively.
(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 years ended December 31,
2014, 2013, and 2012 included all outstanding stock options and shares of restricted stock, which were included in the calculation of diluted
earnings per share for these periods. The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the
Company’s convertible notes were excluded from diluted shares outstanding for the years ended December 31, 2014, 2013, and 2012 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.
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 years ended December 31, 2014, 2013, and 2012 among the Company's outstanding shares of common stock
and issued but unvested restricted shares, as follows:
75
Earnings per Share (in thousands, excluding share and per share amounts):
2014
Weighted
Average Shares
Outstanding
Earnings Per
Share
Income
Basic:
Net income attributable to controlling interests and available to common
stockholders
Less: Undistributed earnings allocated to unvested restricted shares
Net income available to common stockholders
Diluted:
Effect of dilutive securities:
Add: Undistributed earnings allocated to restricted shares
Stock options added to the denominator under the treasury stock method
RSUs added to the denominator under the treasury stock method
Less: Undistributed earnings reallocated to restricted shares
Net income available to common stockholders and assumed conversions
$
$
$
$
37,140
(126)
37,014
126
(125)
37,015
44,338,408
$
0.83
117,777
411,119
44,867,304
$
0.82
Basic:
Net income attributable to controlling interests and
available to common stockholders
Less: Undistributed earnings allocated to unvested
restricted shares
Income
$ 23,816
(672)
2013
Weighted
Average
Shares
Outstanding
Earnings
Per
Share
Income
2012
Weighted
Average
Shares
Outstanding
Earnings
Per
Share
$
43,591
(1,497)
Net income available to common stockholders
$ 23,144
44,371,313 $
0.52 $
42,094
43,469,175 $
0.97
Diluted:
Effect of dilutive securities:
Add: Undistributed earnings allocated to restricted
shares
Stock options added to the denominator under the
treasury stock method
Less: Undistributed earnings reallocated to restricted
shares
Net income available to common stockholders and
assumed conversions
$
672
(669)
$
1,497
206,322
406,157
(1,483)
$ 23,147
44,577,635 $
0.52 $
42,108
43,875,332 $
0.96
The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock of 59,301 shares,
516,127 shares, and 630,537 shares for the years ended December 31, 2014, 2013, and 2012, respectively, because the effect of including
these shares in the computation would have been anti-dilutive.
(5) Related Party Transactions
Board members. Dennis Lynch, a member of the Company’s Board of Directors, is a member of the Board of Directors for Fiserv, Inc.
(“Fiserv”). Additionally, Jorge Diaz, also a member of the Company’s Board of Directors, is the Division President and Chief Executive
Officer of Fiserv Output Solutions, a division of Fiserv. During the years ended December 31, 2014, 2013 and 2012, Fiserv provided the
Company with third-party services during the normal course of business, including transaction processing, network hosting, network
sponsorship, maintenance, cash management, and cash replenishment. The amounts paid to Fiserv for the years ended December 31, 2014,
2013, and 2012 were immaterial.
76
Bansi, an entity that owns a noncontrolling interest in the Company’s subsidiary, Cardtronics Mexico, provides various ATM
management services to Cardtronics Mexico in the normal course of business, including serving as one of the vault cash providers and bank
sponsors, as well as providing other miscellaneous services. The amounts paid to Bansi for the years ended December 31, 2014, 2013, and
2012 were immaterial.
(6) Property and Equipment, Net
The following is a summary of the components of property and equipment as of December 31, 2014 and 2013:
2014
2013
ATM equipment and related costs
Technology assets
Office furniture, fixtures, and other
Total
Less accumulated depreciation
Net property and equipment
$
$
(In thousands)
$
512,001
71,399
89,696
673,096
(337,301)
335,795
$
538,364
53,271
40,564
632,199
(361,233)
270,966
The property and equipment balances include deployments in process, as discussed in Note 1(h), Property and Equipment, Net, of
$16.4 million and $12.7 million as of December 31, 2014 and 2013, respectively.
(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 December 31, 2014
and 2013, as well as the changes in the net carrying amounts for the years ended December 31, 2014 and 2013 by segment:
Balance as of January 1, 2013:
Gross balance
Accumulated impairment loss
Acquisitions
Purchase price adjustments
Allocation adjustment
Foreign currency translation adjustments
Balance as of December 31, 2013:
Gross balance
Accumulated impairment loss
Acquisitions
Purchase price adjustments
Foreign currency translation adjustments
Balance as of December 31, 2014:
Gross balance
Accumulated impairment loss
Goodwill
U.S.
Europe (1)
Other
International (2)
Total
(In thousands)
268,454
—
268,454
$
$
64,142
(50,003)
14,139
$
$
3,103
—
3,103
$
$
13,316
29
6,640
—
97,929
—
(6,860)
7,552
288,439
—
288,439
$
$
162,763
(50,003)
112,760
$
$
108,932
(1,493)
—
15,461
(7,779)
(7,456)
—
141
220
(172)
3,292
—
3,292
—
—
(193)
$
$
335,699
(50,003)
285,696
111,245
170
—
7,380
454,494
(50,003)
404,491
124,393
(9,272)
(7,649)
395,878
—
395,878
$
$
162,989
(50,003)
112,986
$
$
3,099
—
3,099
$
$
561,966
(50,003)
511,963
$
$
$
$
$
$
77
Balance as of January 1, 2013
Acquisitions
Reclassification to definite-lived trade name
Foreign currency translation adjustments
Balance as of December 31, 2013
Foreign currency translation adjustments
Balance as of December 31, 2014
Intangible Assets with Definite Lives
U.S.
Trade Name: indefinite-lived
Europe
(In thousands)
Total
200
—
—
—
200
—
200
$
$
$
3,231
513
(3,298)
114
560
(32)
528
$
$
$
3,431
513
(3,298)
114
760
(32)
728
$
$
$
The following is a summary of the Company’s intangible assets that were subject to amortization:
December 31, 2014
December 31, 2013
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
(In thousands)
Net
Carrying
Amount
$
338,830
16,127
4,568
2,803
13,702
$
(186,185)
(5,851)
(3,374)
(2,025)
(1,783)
$
152,645
10,276
1,194
778
11,919
$
291,392
15,038
4,075
2,827
13,164
$
(162,775)
(5,466)
(2,437)
(775)
(527)
$
128,617
9,572
1,638
2,052
12,637
Customer and branding
contracts/relationships
Deferred financing costs
Non-compete agreements
Technology
Trade name: definite-lived
Total
$
376,030
$
(199,218)
$
176,812
$
326,496
$
(171,980)
$
154,516
The majority of the Company’s intangible assets with definite lives are being amortized over the assets’ estimated useful lives utilizing the
straight-line method. Estimated useful lives range from four to ten years for customer and branding contracts/relationships, two to ten years
for exclusive license agreements, one to five years for non-compete agreements, and one to fifteen years for finite-lived trade names.
Estimated useful life for acquired technology is three years. Deferred financing costs are amortized through interest expense over the
contractual term of the underlying borrowings utilizing the effective interest method. The Company periodically reviews the estimated useful
lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in a reduction in fair value or
a revision of those estimated useful lives.
Amortization of definite-lived intangible assets is recorded in the Amortization of intangible assets line item in the Consolidated
Statements of Operations, including any impairment charges, except for deferred financing costs and certain exclusive license agreements.
Amortization of deferred financing costs is recorded in the Consolidated Statements of Operations combined with amortization of note
discount. Certain exclusive license agreements that were effectively prepayments of merchant fees were amortized through the cost of ATM
operating revenues line item during the years ended December 31, 2014 and 2013, for $3.9 million and $4.0 million, respectively. The
Company recorded approximately $1.3 million in additional amortization expense during the year ended December 31, 2014 related to
impairment of a previously acquired merchant contract/relationship intangible asset associated with its U.S. reporting segment.
The components of intangible assets acquired during the year ended December 31, 2014 were as follows:
Customer and branding contracts/relationships
Non-compete agreements
Trade name: definite-lived
Total
Amount Acquired in
2014
Weighted Average
Amortization Period
(In thousands)
71,955
590
2,164
74,709
$
$
6.7 years
4.2 years
3.0 years
78
Estimated amortization for the Company’s intangible assets with definite lives for each of the next five years, and thereafter is as follows
(amounts in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
$
$
39,116
35,268
31,343
25,898
22,092
23,095
176,812
(8) Prepaid Expenses and Other Assets
The following is a summary of prepaid expenses, deferred costs, and other assets as of December 31, 2014 and 2013:
Prepaid Expenses, Deferred Costs, and Other Current Assets:
Prepaid expenses
Deferred costs and other current assets
Total
Prepaid Expenses, Deferred Costs, and Other Noncurrent Assets:
Prepaid expenses
Deferred costs
Other
Total
2014
2013
(In thousands)
$
$
$
$
27,406
7,102
34,508
21,158
738
704
22,600
$
$
$
$
12,412
7,747
20,159
7,892
776
350
9,018
As of December 31, 2014, the Company had recorded $13.4 million as prepaid merchant commissions related to the Co-op Food ATM
estate contract, which drove the majority of the year-over-year increase in the noncurrent prepaid expenses and other assets. This amount is
being amortized over the life of the contract and the expense is recorded within the Cost of ATM operating revenues line in the Consolidated
Statements of Operations.
(9) Accrued Liabilities
Accrued liabilities consisted of the following as of December 31, 2014 and 2013:
Accrued merchant fees
Deferred acquisition purchase price (1)
Accrued compensation
Accrued taxes
Accrued purchases
Accrued merchant settlement amounts
Accrued maintenance fees
Accrued cash rental and management fees
Accrued interest expense
Accrued armored fees
Accrued interest rate swap payments
Accrued ATM telecommunications costs
Accrued processing costs
Other accrued expenses
Total
2014
2013
(In thousands)
$
$
39,473
20,580
18,050
14,623
10,001
9,869
8,945
8,235
6,128
4,876
3,001
2,613
1,957
31,615
179,966
$
$
32,619
—
12,501
23,033
2,392
17,365
5,186
4,570
6,140
5,271
2,211
1,682
939
23,867
137,776
(1) This amount represents purchase price consideration on the Sunwin acquisition that will be paid in the first quarter of 2015.
79
(10) Long-Term Debt
The carrying value of the Company's long-term debt consisted of the following as of December 31, 2014 and 2013
Revolving credit facility, including swing-line credit facility (weighted-average
combined interest rate of 2.2% and 2.5% as of December 31, 2014 and 2013,
respectively)
8.25% Senior subordinated notes due September 2018
5.125% Senior notes due August 2022
1.00% Convertible senior notes due December 2020, net of discount
Equipment financing notes
Total long-term debt
Less: current portion
Total long-term debt, excluding current portion
Revolving Credit Facility
2014
2013
(In thousands)
$
$
137,292
—
250,000
225,370
35
612,697
35
612,662
$
$
72,547
200,000
—
216,635
1,332
490,514
1,289
489,225
On April 24, 2014, the Company entered into an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement
provides for a $375.0 million revolving credit facility and includes an accordion feature that will allow the Company to increase the available
borrowings under the revolving credit facility to $500.0 million, subject to the approval of one or more existing lenders or one or more
lenders that become party to the Credit Agreement. In addition, the revolving credit facility includes a sub-limit of up to $30.0 million for
letters of credit, a sub-limit of up to $25.0 million for swingline loans and a sub-limit of up to the equivalent amount of $125.0 million for
loans in currencies other than U.S. Dollars. The revolving credit facility has a termination date of April 2019.
Borrowings (not including swingline loans and alternative currency loans) under the revolving credit facility accrue interest at the
Company’s option at either the Alternate Base Rate (as defined in the Credit Agreement) or the Adjusted LIBO Rate (as defined in the Credit
Agreement) plus a margin depending on the Company’s most recent Total Net Leverage Ratio (as defined in the Credit Agreement). The
margin for Alternative Base Rate loans varies between 0% to 1.25% and the margin for Adjusted LIBO Rate loans varies between 1.00% to
2.25%. Swingline loans bear interest at the Alternate Base Rate plus a margin as described above. The alternative currency loans bear interest
at the Adjusted LIBO Rate for the relevant currency as described above. Substantially all of the Company’s domestic assets, including the
stock of its wholly-owned domestic subsidiaries and 66% of the stock of the Company’s first-tier foreign subsidiaries, are pledged as
collateral to secure borrowings made under the revolving credit facility. Furthermore, each of the Company’s material wholly-owned
domestic subsidiaries has guaranteed the full and punctual payment of the obligations under the revolving credit facility. Additionally, no
more than 40% of the Company’s Consolidated Adjusted EBITDA (as defined in the Credit Agreement) or the book value of the aggregate
consolidated assets may be attributable to restricted subsidiaries that are not guarantors under the Credit Agreement. There are currently no
restrictions on the ability of the Company’s subsidiaries to declare and pay dividends to the Company.
The Credit Agreement contains representations, warranties and covenants that are customary for similar credit arrangements, including,
among other things, covenants relating to (i) financial reporting and notification, (ii) payment of obligations, (iii) compliance with applicable
laws, and (iv) notification of certain events. Financial covenants in the revolving credit facility require the Company to maintain: (i) as of the
last day of any fiscal quarter, a Senior Secured Net Leverage Ratio (as defined in the Credit Agreement) of no more than 2.25 to 1.00; (ii) as
of the last day of any fiscal quarter, a Total Net Leverage Ratio of no more than 4.00 to 1.00; and (iii) as of the last day of any fiscal quarter, a
Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of no more than 1.50 to 1. Additionally, the Company is limited on the
amount of restricted payments, including dividends, which it can make pursuant to the terms of the Credit Agreement; however, the Company
may generally make restricted payments so long as no event of default has occurred and is continuing and the total net leverage ratio is less
than 3.0 to 1.0 at the time such restricted payment is made.
As of December 31, 2014, the Company was in compliance with all applicable covenants and ratios under the Credit Agreement.
As of December 31, 2014, $137.3 million was outstanding under the revolving credit facility. Additionally, the Company has posted a
$2.0 million letter of credit serving to secure the overdraft facility of its U.K. subsidiary (further discussed below) and a $0.1 million letter of
credit serving to secure a third-party processing contract in Canada. These letters of credit, which the applicable third-parties may draw upon
in the event the Company defaults on the related obligations, reduce the Company’s borrowing capacity under the revolving credit facility.
As of December 31, 2014, the Company’s available borrowing capacity under the revolving credit facility totaled approximately $235.6
million.
80
$200.0 Million 8.25% Senior Subordinated Notes Due 2018
During the year ended December 31, 2014, the Company repurchased $20.6 million of its 8.250% senior subordinated notes due 2018 (the
“2018 Notes”) in the open market. In addition, the Company received tenders and consents from the holders of $64.0 million of the 2018
Notes pursuant to a cash tender offer. Pursuant to the terms of the indenture governing the 2018 Notes, the Company redeemed the
remaining $115.4 million of 2018 Notes outstanding on September 2, 2014 at a price of 104.125% and effectively retired all of the
outstanding 2018 Notes.
In connection with the early extinguishment of the 2018 Notes, the Company recorded a $3.9 million pre-tax charge during the year ended
December 31, 2014 to write off the unamortized deferred financing costs associated with the 2018 Notes, which are included in the
Amortization of deferred financing costs and note discount line item in the accompanying Consolidated Statements of Operations.
Additionally, the Company recorded a $9.1 million pre-tax charge related to the premium paid for the redemption, which is included in the
Redemption costs for early extinguishment of debt line item in the accompanying Consolidated Statements of Operations in the year ended
December 31, 2014.
$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. The net proceeds from the 2022 Notes were
used to repurchase and redeem all of the outstanding 2018 Notes (as discussed above) and for general corporate purposes.
The 2022 Notes and Guarantees (as defined in the Indenture) rank (i) equally in right of payment with all of the Company’s and the
Guarantors’ existing and future senior indebtedness, (ii) effectively junior to secured debt to the extent of the collateral securing such debt,
including debt under the Company’s revolving credit facility and (iii) structurally junior to existing and future indebtedness of the Company’s
non-guarantor subsidiaries. The 2022 Notes and Guarantees rank senior in right of payment to any of the Company’s and the Guarantors’
existing and future subordinated indebtedness.
The 2022 Notes contain covenants that, among other things, limit the Company’s ability and the ability of certain of its restricted
subsidiaries to incur or guarantee additional indebtedness; make certain investments or pay dividends or distributions on the Company’s
capital stock or repurchase capital stock or make certain other restricted payments; consolidate or merge with or into other companies;
conduct asset sales; restrict dividends or other payments by restricted subsidiaries; engage in transactions with affiliates or related persons;
and create liens.
In accordance with Rule 3-10 of Regulation S-X, condensed consolidated financial statements of non-guarantors are not required. The
Company has no assets or operations independent of its subsidiaries. Obligations under its 2022 Notes are fully and unconditionally and
jointly and severally guaranteed on a senior unsecured basis by the Company’s current 100%-owned domestic subsidiaries and certain of the
Company’s future domestic subsidiaries, with the exception of the Company’s immaterial subsidiaries. There are no significant restrictions
on the ability of the Company to obtain funds from the Guarantors by dividend or loan. None of the Guarantors’ assets represent restricted
assets pursuant to Rule 4-08(e)(3) of Regulation S-X. The 2022 Notes include registration rights and as required under the terms of the Notes,
the Company intends to register these Notes prior to the first anniversary of their issuance.
The 2022 Notes are subject to certain automatic customary releases, including the sale, disposition, or transfer of the capital stock or
substantially all of the assets of a Guarantor, designation of a Guarantor as unrestricted in accordance with the Indenture, exercise of the legal
defeasance option or the covenant defeasance option, liquidation or dissolution of the Guarantor and a Guarantor ceasing to both guarantee
other Company debt and to be an obligor under the revolving credit facility. The Guarantors may not sell or otherwise dispose of all or
substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under
the Indenture.
$287.5 Million 1.00% Convertible Senior Notes Due 2020 and Related Equity Instruments
On November 19, 2013, the Company issued $250.0 million of 1.00% convertible senior notes due December 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 notes, up to an additional $37.5 million of Convertible Notes (the “Over-allotment Option”). The initial purchasers exercised
the Over-allotment Option on November 21, 2013. The Company received $254.2 million in net proceeds from the offering after deducting
underwriting fees paid to the initial purchasers and a repurchase of 665,994 shares of its outstanding common stock concurrent with the
offering. The Company used a portion of the net proceeds from the offering to fund the net cost of the convertible note hedge transaction, as
described below. The convertible note hedge and warrant transactions were entered into with the initial purchasers on November 19, 2013,
concurrent with the pricing of the Convertible Notes, and on November 21, 2013, concurrent with the exercise of the Over-allotment Option.
The Company pays interest semi-annually (payable in arrears) on June 1st and December 1st of each year. Under U.S. GAAP, certain
convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as
liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt
81
borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was
$215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date. The Company recognizes effective
interest expense on the debt component and that interest expense effectively accretes the debt component to the total principal amount due at
maturity of $287.5 million. The effective rate of interest to accrete the debt balance is approximately 5.26%, which corresponded to the
Company’s estimated conventional debt instrument borrowing rate at the date of issuance.
The Convertible Notes have an initial conversion price of $52.35 per share, which equals an initial conversion rate of 19.1022 shares of
common stock per $1,000 principal amount of notes, for a total of approximately 5.5 million shares of our common stock initially underlying
the debt. The conversion rate, however, is subject to adjustment under certain circumstances. Conversion can occur: (1) any time on or after
September 1, 2020; (2) after March 31, 2014, during any calendar quarter that follows a calendar quarter in which the price of the Company’s
common stock exceeds 135% of the conversion price for at least 20 days during the 30 consecutive trading-day period ending on the last
trading day of the quarter; (3) during the ten consecutive trading-day period following any five consecutive trading-day period in which the
trading price of the Convertible Notes is less than 98% of the closing price of the Company’s common stock multiplied by the applicable
conversion rate on each such trading day; (4) upon specified distributions to the Company’s shareholders upon recapitalizations,
reclassifications or changes in stock; and (5) upon a make-whole fundamental change. A fundamental change is defined as any one of the
following: (1) any person or group that acquires 50% or more of the total voting power of all classes of common equity that is entitled to vote
generally in the election of the Company’s directors; (2) the Company engages in any recapitalization, reclassification or changes of common
stock as a result of which the common stock would be converted into or exchanged for, stock, other securities, or other assets or property; (3)
the Company engages in any share exchange, consolidation or merger where the common stock is converted into cash, securities or other
property; (4) the Company engages in any sales, lease or other transfer of all or substantially all of the consolidated assets; or (5) the
Company’s stock is not listed for trading on any U.S. national securities exchange.
As of December 31, 2014, 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 December 31, 2014. 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:
Cash interest per contractual coupon rate
Amortization of note discount
Amortization of deferred financing costs
Total interest expense related to Convertible Notes
2014
2013
(In thousands)
2012
$
$
2,875
8,724
518
12,117
$
$
288
848
48
1,184
$
$
—
—
—
—
The carrying value of the Convertible Notes consisted of the following as of December 31, 2014 and 2013:
Principal balance
Discount, net of accumulated amortization
Net carrying amount of Convertible Notes
2014
2013
(In thousands)
287,500
(62,130)
225,370
$
$
287,500
(70,865)
216,635
$
$
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 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
82
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.
Debt Maturities
Aggregate maturities of the principal amounts of the Company’s long-term debt as of December 31, 2014, were as follows (in thousands)
for the years indicated:
2015
2016
2017
2018
2019
Thereafter
Total
$
$
35
—
—
—
137,292
537,500
674,827
(11) 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 similar ATM type, 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. As reflected in the
table below, during the year ended December 31, 2014, the Company revised its estimated future liabilities based on recent actual experience,
changes in certain company methods and other cost estimate changes. The changes in estimated future costs were recorded as a reduction in
the carrying amount of the remaining unamortized asset and will primarily reduce the Company’s depreciation and accretion expense
amounts prospectively. Where there was no net book value of related assets remaining, the Company reduced its depreciation and accretion
expense by approximately $1.0 million in 2014 related to this change in estimate. Additionally, as of December 31, 2014 and 2013, the
Company reclassified a portion of the estimated liabilities as current, which is included in the Current portion of other long-term liabilities
line item in the accompanying Consolidated Balance Sheets.
The following table is a summary of the changes in the Company’s asset retirement obligation liability for the years ended December 31,
2014 and 2013:
Asset retirement obligation as of beginning of period
Additional obligations
Estimated obligations assumed in acquisition
Purchase price adjustment
Accretion expense
Change in estimates
Payments
Foreign currency translation adjustments
Total asset retirement obligation at end of period
Less: current portion
Asset retirement obligation, excluding current portion
2014
2013
(In thousands)
$
$
63,831
8,373
6,097
(6,653)
2,559
(13,534)
(3,702)
(1,835)
55,136
3,097
52,039
$
$
44,696
6,399
18,494
—
2,777
(6,477)
(2,495)
437
63,831
3,166
60,665
See Note 16, Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair
value measurements.
83
(12) Other Liabilities
The following is a summary of the components of the Company’s other liabilities as of December 31, 2014 and 2013:
Current Portion of Other Long-Term Liabilities:
Interest rate swaps
Obligations associated with acquired unfavorable contracts
Deferred revenue
Asset retirement obligations
Other
Total
Other Long-Term Liabilities:
Interest rate swaps
Obligations associated with acquired unfavorable contracts
Deferred revenue
Other
Total
2014
2013
(In thousands)
29,147
284
1,731
3,097
678
34,937
25,847
2,271
935
8,663
37,716
$
$
$
$
31,069
—
1,315
3,166
47
35,597
34,509
—
962
3,265
38,736
$
$
$
$
Other long-term liabilities related to interest rate swaps decreased from December 31, 2013 to December 31, 2014 mostly as a result of
payments made on its outstanding swap agreements since December 31, 2013. See Note 15, Derivative Financial Instruments for additional
information on the Company's interest rate swaps.
(13) Stockholders’ Equity
Common and Preferred Stock. The Company is authorized to issue 125,000,000 shares of common stock, of which 44,562,122 and
44,375,952 shares were outstanding as of December 31, 2014 and 2013, respectively. Additionally, the Company is authorized to issue
10,000,000 shares of preferred stock, of which no shares were outstanding as of December 31, 2014 and 2013.
Additional Paid-In Capital. Included in the balance of Additional paid-in capital are amounts related to the Convertible Notes issued in
November 2013 and the related equity instruments. These amounts include: (1) the fair value of the embedded option of the Convertible
Notes for $62.1 million, (2) the amount paid to purchase the associated convertible note hedges for $72.6 million, (3) the amount received for
selling associated warrants for $40.5 million, and (4) $1.6 million in debt issuance costs allocated to the equity component of the convertible
note. See Note 10, Long-Term Debt for additional information on the Convertible Notes and the related equity instruments.
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 table presents the changes in the balances of each
component of accumulated other comprehensive loss, net for the years ended December 31, 2014, 2013 and 2012:
84
Total accumulated other comprehensive loss, net as of January 1, 2012
Other comprehensive income (loss) before reclassification
Amounts reclassified from accumulated other comprehensive loss, net
Total accumulated other comprehensive loss, net as of December 31, 2012
Other comprehensive income before reclassification
Amounts reclassified from accumulated other comprehensive loss, net
Total accumulated other comprehensive loss, net as of December 31, 2013
Other comprehensive loss before reclassification
Amounts reclassified from accumulated other comprehensive loss, net
Total accumulated other comprehensive loss, net as of December 31, 2014
___________
Foreign
currency
translation
adjustments
Unrealized (losses)
gains on interest
rate swap
contracts, net of
tax
$
$
$
(27,135) $
2,501
—
(24,634) $
6,198
—
(18,436) $
(16,273)
—
$
(34,709) $
(In thousands)
(56,767) (1) $
(49,485) (2)
25,801 (2)
(80,451) (1) $
62 (3)
25,871 (3)
(54,518) (1) $
(29,239) (4)
35,459 (4)
(48,298) (1) $
Total
(83,902)
(46,984)
25,801
(105,085)
6,260
25,871
(72,954)
(45,512)
35,459
(83,007)
(1) Net of deferred income tax benefit of $12,602 as of January 1, 2012, and $27,413, $10,829, and $6,701 as of December 31, 2012, 2013, and 2014,
respectively.
(2) Net of deferred income tax benefit of $30,946 for Other comprehensive income (loss) before reclassification and deferred income tax expense of $16,135
for Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the year ended December 31, 2012.
(3) Net of deferred income tax expense of $40 for Other comprehensive income before reclassification and deferred income tax expense of $16,544 for
Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the year ended December 31, 2013.
(4) Net of deferred income tax benefit of $19,405 for Other comprehensive loss before reclassification and deferred income tax expense of $23,533 for
Amounts reclassified from accumulated other comprehensive loss, net, respectively, for the year ended December 31, 2014.
The Company records unrealized gains and losses related to its interest rate swaps net of estimated taxes in the Accumulated other
comprehensive loss, net, line item within Stockholders' equity in the accompanying Consolidated Balance Sheets since it is more likely than
not that the Company will be able to realize the benefits associated with its net deferred tax asset positions in the future. The amounts
reclassified from Accumulated other comprehensive loss, net, are recognized in Cost of ATM operating revenues line item on the
accompanying Consolidated Statements of Operations.
The Company currently believes that the unremitted earnings of its foreign subsidiaries will be reinvested for an indefinite period of
time. Accordingly, no deferred taxes have been provided for the differences between the Company's book basis and underlying tax basis in
these subsidiaries or on the foreign currency translation adjustment amounts.
(14) Employee Benefits
The Company sponsors defined contribution retirement plans for its employees, the principal plan being the 401(k) plan which is offered
to its employees in the U.S. During 2014, the Company matched 100% of employee contributions up to 3% of the employee’s eligible
compensation. Employees immediately vest in their contributions while the Company’s matching contributions vest at a rate of 20% per year.
The Company also sponsors a similar plan for its employees in the U.K. The Company contributed $1.3 million, $0.7 million, and $0.6
million to the defined contribution benefit plans for the years ended December 31, 2014, 2013, and 2012, respectively.
(15) 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’s interest rate swap contracts to manage its vault cash rental
interest rate risk in the U.K. expired as of December 31, 2013. The Company does not currently utilize any derivative instruments to manage
the interest rate risk associated with its vault cash rental obligations 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.
85
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, 2018 for the Company's U.S. vault cash rental obligations. By
converting such amounts to a fixed rate, the impact of future interest rate changes (both favorable and unfavorable) on the Company's
monthly vault cash rental expense amounts has been reduced. The interest rate swap contracts typically involve the receipt of floating rate
amounts from the Company's counterparties that match, in all material respects, the floating rate amounts required to be paid by the Company
to its vault cash providers for the portions of the Company's outstanding vault cash obligations that have been hedged. In return, the
Company typically pays the interest rate swap counterparties a fixed rate amount per month based on the same notional amounts
outstanding. At no point is there an exchange of the underlying principal or notional amounts associated with the interest rate
swaps. Additionally, none of the Company's existing interest rate swap contracts contain credit-risk-related contingent features.
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.
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
(In millions)
$ 1,300
$ 1,300
$ 1,000
$ 750
Accounting Policy
Weighted Average Fixed Rate
Term
2.84 %
2.74 %
2.53 %
2.54 %
January 1, 2015 – December 31, 2015
January 1, 2016 – December 31, 2016
January 1, 2017 – December 31, 2017
January 1, 2018 – December 31, 2018
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 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 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.
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.
86
Balance Sheet Data
Liability Derivative Instruments:
Derivatives Designated as Hedging Instruments:
Interest rate swap contracts
Interest rate swap contracts
Total Derivatives
Statements of Operations Data
Derivatives in Cash Flow Hedging
Relationship
December 31, 2014
December 31, 2013
Balance Sheet
Location
Fair Value
Balance Sheet
Location
Fair Value
(In thousands)
Current portion of
other long-term
liabilities
Other long-term
liabilities
$
$
29,147
25,847
54,994
Current portion of
other long-term
liabilities
Other long-term
liabilities
$
$
31,069
34,509
65,578
Amount of (Loss) Gain
Recognized in OCI on
Derivative Instruments (net
of tax)
2014
2013
(In thousands)
Years Ended December 31,
Location of Loss
Reclassed from
Accumulated OCI
Into Income
Amount of Loss Reclassified
from Accumulated OCI into
Income (net of tax)
2013
2014
(In thousands)
Interest rate swap contracts
$
(29,239)
$
62
Cost of ATM
operating revenues
$
(35,459)
$
(25,871)
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 (income) line item of the Company's Consolidated Statements of Operations.
As of December 31, 2014, the Company expected to reclassify $29.1 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 16, Fair Value Measurements for additional disclosures on the Company's interest rate swap contracts in respect to its fair value
measurements.
(16) Fair Value Measurements
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2014 and
2013 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.
Liabilities
Liabilities associated with interest rate swaps
Acquisition-related contingent consideration
$
54,994
—
$
$
—
—
54,994
—
$
—
—
Fair Value Measurements at December 31, 2014
Total
Level 1
Level 2
Level 3
(In thousands)
87
Fair Value Measurements at December 31, 2013
Total
Level 1
Level 2
Level 3
(In thousands)
Liabilities
Liabilities associated with interest rate swaps
Acquisition-related contingent consideration
$
65,578
575
$
$
—
—
65,578
—
$
—
575
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 using Level 3 inputs, and are only reevaluated periodically based on estimated current fair value. Amounts added to the asset
retirement obligation liability during the years ended 2014, 2013 and 2012 totaled $14.5 million, $24.9 million, and $10.3 million,
respectively. The substantial increase in 2013 relates primarily to estimated liabilities assumed in conjunction with the Company’s acquisition
of Cardpoint in August 2013.
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.
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.
Interest rate swaps. The fair value of the Company's interest rate swaps was a liability of $55.0 million as of December 31, 2014. 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 15,
Derivative Financial Instruments for additional disclosures on the valuation process of this liability.
Acquisition-related contingent consideration. Liabilities from acquisition-related contingent consideration are estimated by the Company
using a discounted cash flow model. Acquisition-related contingent consideration liabilities are classified as Level 3 liabilities, because the
Company uses unobservable inputs to value them, based on its best estimate of operational results upon which the payment of these
obligations are contingent. Gains and losses related to the contingent consideration associated with acquisitions are included in other
(income) expenses in the Company’s consolidated statements of operations.
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 December 31, 2014, the fair
value of the Company's 2022 Notes and 2020 Convertible Notes (see Note 10, Long-Term Debt) totaled $245.0 million and $281.4 million,
respectively, based on the quoted market price (Level 1 input) for these notes as of that date.
(17) 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.
Operating Lease Obligations
The Company was a party to several operating leases as of December 31, 2014, primarily for office space and the rental of space at certain
merchant locations.
88
Future minimum lease payments under the Company’s operating and merchant space leases (with initial lease terms in excess of one year)
as of December 31, 2014 were as follows for each of the five years indicated and in the aggregate thereafter (amounts in thousands):
2015
2016
2017
2018
2019
Thereafter
Total minimum lease payments
$
$
12,653
9,848
6,352
4,850
2,007
2,714
38,424
Total rental expense under the Company’s operating leases, net of sublease income, was approximately $9.7 million, $7.2 million, and
$6.7 million for the years ended December 31, 2014, 2013, and 2012, respectively.
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 $55.1 million accrued for these liabilities as of December 31, 2014. For additional information, see Note 11, Asset
Retirement Obligations.
Purchase commitments. As of December 31, 2014, the Company had entered into an agreement to purchase $13.8 million of ATMs and
equipment for its U.S. segment and $6.3 million of ATMs and equipment for its Europe segment during 2015. Other material purchase
commitments as of December 31, 2014 included $4.0 million in minimum service requirements for certain gateway and processing fees over
the next four years for its U.S. segment.
(18) Income Taxes
Income tax expense based on the Company’s income before income taxes consisted of the following for the years ended December 31,
2014, 2013, and 2012:
Current:
U.S. federal
State and local
Foreign
Total current
Deferred:
U.S. federal
State and local
Foreign
Total deferred
Total income tax expense
2014
2013
(In thousands)
2012
19,033
3,554
2,549
25,136
1,639
795
604
3,038
28,174
$
$
$
$
26,766
5,503
1,216
33,485
11,648
(1,901)
(1,214)
8,533
42,018
$
$
$
$
503
812
—
1,315
24,005
1,749
(60)
25,694
27,009
$
$
$
$
89
Income tax expense (benefit) differs from amounts computed by applying the U.S. federal statutory tax rate to income before taxes as
follows for the years ended December 31, 2014, 2013, and 2012:
Income tax expense, at the statutory rate of 35.0%
Provision to return and deferred tax adjustments
State tax, net of federal benefit
Permanent adjustments
Foreign subsidiary tax rate differences
Impact of entity restructuring
Other
Subtotal
Change in valuation allowance
Total income tax expense
2014
2013
(In thousands)
2012
22,179
1,705
2,717
173
(985)
—
338
26,127
2,047
28,174
$
$
21,932
(1,637)
2,275
(115)
1,252
15,501
(6)
39,202
2,816
42,018
$
$
24,595
200
1,858
322
120
—
67
27,162
(153)
27,009
$
$
Income tax expense for the year ended December 31, 2014 relates primarily to consolidated income generated from the Company’s U.S.
operations. The decrease in income tax expense, compared to the prior year, is primarily related to a $13.8 million charge recorded during
the year ended December 31, 2013 related to deferred tax assets that were no longer realizable as a result of an internal restructuring in that
period.
The net current and noncurrent deferred tax assets and liabilities (by segment) as of December 31, 2014 and 2013 were as follows:
United States
Europe
2014
2013
2014
2013
Other International
2013
2014
Current deferred tax asset
Valuation allowance
Current deferred tax liability
Net current deferred tax asset
Noncurrent deferred tax asset
Valuation allowance
Noncurrent deferred tax liability
Net noncurrent deferred tax (liability)
asset
Net deferred tax asset (liability)
$
$
19,495
—
—
19,495
26,418
—
(39,653)
$
17,652
—
(2)
17,650
31,414
—
(36,264)
$
(In thousands)
4,727
—
—
4,727
36,652
(10,989)
(17,717)
3,576
(70)
(1,188)
2,318
24,487
(9,900)
(5,909)
$
225
(144)
—
81
4,288
(2,591)
(1,838)
$
171
(88)
—
83
3,945
(2,008)
(1,755)
(13,235)
6,260
$
(4,850)
12,800
7,946
12,673
$
8,678
10,996
$
$
$
(141)
(60)
$
182
265
90
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 2014 and 2013 were as follows:
Current deferred tax assets:
Reserve for receivables
Accrued liabilities and inventory reserves
Net operating loss carryforward
Unrealized losses on interest rate swap contracts
Other
Subtotal
Valuation allowance
Current deferred tax assets
Noncurrent deferred tax assets:
Net operating loss carryforward
Unrealized loss on interest rate swap contracts
Stock-based compensation
Asset retirement obligations
Tangible and intangible assets
Deferred revenue
Other
Subtotal
Valuation allowance
Noncurrent deferred tax assets
Current deferred tax liabilities:
Other
Current deferred tax liabilities
Noncurrent deferred tax liabilities:
Tangible and intangible assets
Asset retirement obligations
Noncurrent deferred tax liabilities
Net deferred tax asset
$
2014
2013
(In thousands)
$
267
6,746
4,566
11,365
1,503
24,447
(144)
24,303
15,326
10,078
8,057
2,757
26,107
497
4,536
67,358
(13,580)
53,778
—
—
(59,035)
(173)
(59,208)
258
5,069
3,614
12,197
261
21,399
(158)
21,241
17,350
13,548
6,111
2,434
15,970
798
3,635
59,846
(11,908)
47,938
(1,190)
(1,190)
(41,303)
(2,625)
(43,928)
$
18,873
$
24,061
We assess our 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 December 31, 2014, and the weight of all available evidence, we concluded that maintaining
the deferred tax asset valuation allowance for certain of our entities in the U.K. and Mexico was appropriate, as we currently believe that it is
more likely than not that these tax assets will not be realized. However, with increased recent profitability and increasing visibility into
projected profitability in the U.K., we believe it is possible that the valuation allowance associated with certain U.K. entities could be reduced
or removed in future periods.
The deferred tax benefits associated with the Company’s net unrealized losses on derivative instruments have been reflected within the
Accumulated other comprehensive loss, net, balance in the accompanying Consolidated Balance Sheets.
As of December 31, 2014, the Company had approximately $8.3 million in U.S. federal net operating loss carryforwards that will begin
expiring in 2021.
As of December 31, 2014, the Company had approximately $66.7 million in net operating loss carryforwards in the U.K. not subject to
expiration and $10.7 million in net operating loss carryforwards in Mexico that will begin expiring in 2016. The deferred tax benefits
associated with such carryforwards in Mexico and certain of the Company’s U.K. entities, to the extent they are not offset by deferred tax
liabilities, have been fully reserved for through a valuation allowance.
The Company currently believes that the unremitted earnings of its foreign subsidiaries will be reinvested in the corresponding country of
origin for an indefinite period of time. As of December 31, 2014, the unremitted earnings of these subsidiaries are not material.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. With few exceptions,
the Company is not subject to income tax examination by tax authorities for years before 2011.
91
(19) Concentration Risk
Significant Supplier. For the years ended December 31, 2014 and 2013, the Company’s U.S., U.K., and Canada operations purchased
equipment from one supplier that accounted for 61.6% and 63.5%, respectively, of the Company’s total ATM purchases for those years.
Significant Vendors. The Company obtains the cash to fill a substantial portion of its domestic Company-owned ATMs, and, in some
cases, merchant-owned and managed services ATMs, from Bank of America, Elan, and Wells Fargo. For the quarter ended December 31,
2014, the Company had an average of $1.9 billion in cash in its domestic ATMs, of which 30.4% was provided by Elan Financial Services;
30.3% was provided by Wells Fargo and 21.6% was provided by Bank of America. The Company’s existing vault cash rental agreements
expire at various times through December 2017. However, each provider has the right to demand the return of all or any portion of its cash at
any time upon the occurrence of certain events beyond the Company’s control, including certain bankruptcy events of the Company or its
subsidiaries, or a breach of the terms of the Company’s cash provider agreements. Other key terms of the agreements include the requirement
that the cash providers provide written notice of their intent not to renew. Such notice provisions typically require a minimum of 180 to 360
days’ notice prior to the actual termination date. If such notice is not received, then the contracts will typically automatically renew for an
additional one-year period. Additionally, the Company’s contract with one of its vault cash providers contains a provision that allows the
provider to modify the pricing terms contained within the agreement at any time with 60 days prior written notice. However, in the event
both parties do not agree to the pricing modifications, then either party may provide 180 days prior written notice of its intent to terminate. In
the U.K., the Company obtains the majority of its vault cash from Santander, for which the existing vault cash rental agreement expires in
December 2017.
In addition to the above, the Company had concentration risks in significant vendors for the provision of on-site maintenance services and
armored courier services in the U.S. for the years ended December 31, 2014 and 2013.
Significant Customers. For the years ended December 31, 2014 and 2013, the Company derived 31.4% and 40.8%, respectively, of its
unaudited pro forma revenues from ATMs placed at the locations of its five largest merchants. The Company’s top five merchants (based on
its total revenues) were 7-Eleven, Inc. (“7-Eleven”), CVS Caremark Corporation (“CVS”), Walgreen Co. (“Walgreens”), Speedway LLC
(“Speedway”), and The Pantry, Inc. (“Pantry”) for the year ended December 31, 2014 and were 7-Eleven, CVS, Walgreens, Speedway, and
Valero Energy Corporation for the year ended December 31, 2013. Unaudited pro forma revenues are the Company’s actual total revenues
for 2014 and the pro forma effect of the acquisitions completed in each period. 7-Eleven in the United States, which represents the single
largest merchant customer in the Company’s portfolio, 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. Accordingly, a significant percentage of the Company’s future
revenues and operating income will be dependent upon the successful continuation of its relationship with these merchants.
(20) Segment Information
As of December 31, 2014, the Company's operations consisted of its U.S., Europe, and Other International segments. The Company's
operations in Puerto Rico and the U.S. Virgin Islands are included in its U.S. segment. The Other International segment currently is
comprised of the Company’s operations in Mexico and Canada. During 2013, the U.K. segment was expanded and renamed the Europe
segment to include Germany, as a result of the Cardpoint acquisition. While each of these reporting segments provides similar kiosk-based
and/or ATM-related services, each segment is currently managed separately as they require different marketing and business strategies.
Management uses Adjusted EBITDA, along with other U.S. GAAP-based measures, to assess the operating results and effectiveness of its
segments. Management believes Adjusted EBITDA is a useful measure because it allows 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. The
Company excludes depreciation, accretion, and amortization expense as these amounts can vary substantially depending upon book values of
assets, capital structures and the method by which the assets were acquired. Additionally, Adjusted EBITDA does not reflect acquisition-
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.
Adjusted EBITDA, 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, management recognizes and considers the limitations of this measurement. Accordingly, Adjusted EBITDA is only one of the
measurements that management utilizes. Therefore, Adjusted EBITDA 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.
92
Below is a reconciliation of Adjusted EBITDA to net income attributable to controlling interests:
Adjusted EBITDA
Less:
Loss on disposal of assets
Other income
Noncontrolling interests (1)
Stock-based compensation expense (2)
Acquisition-related expenses (3)
Other adjustments to cost of ATM operating revenues (4)
Other adjustments to selling, general, and administrative
expenses (5)
EBITDA
Less:
Interest expense, net, including amortization of deferred
financing costs and note discount (2)
Redemption costs for early extinguishment of debt
Income tax expense
Depreciation and accretion expense (2)
Amortization of intangible assets
Net income attributable to controlling interests and available
to common stockholders
____________
2014
For the Years Ended December 31,
2013
(In thousands)
2012
$
253,936
$
218,842
$
189,533
3,224
(1,616)
(1,745)
16,432
18,050
—
2,790
(3,150)
(2,399)
12,290
15,400
8,670
1,787
(1,830)
(1,668)
11,072
3,332
—
$
—
219,591
$
505
184,736
$
972
175,868
33,812
9,075
28,174
75,622
35,768
23,086
—
42,018
68,480
27,336
22,057
—
27,009
61,499
21,712
$
37,140
$
23,816
$
43,591
(1) Noncontrolling interests adjustment made such that Adjusted EBITDA includes only the Company’s 51% ownership interest in the Adjusted EBITDA of its Mexico
subsidiary.
(2) Amounts exclude 49% of the expenses incurred by the Company’s Mexico subsidiary as such amounts are allocable to the noncontrolling interest stockholders
(3) Acquisition-related expenses include nonrecurring costs incurred for professional and legal fees and certain transition and integration-related costs, including contract
termination costs and facility exit costs, related to acquisitions.
(4) Adjustment to cost of ATM operating revenues for the year ended December 31, 2013 is related to a nonrecurring charge for retroactive property taxes on certain
ATM locations in the U.K
(5) Adjustment to selling, general, and administrative expenses in 2013 represents nonrecurring severance related costs associated with management of the Company’s
U.K. operation.
93
The following tables reflect certain financial information for each of the Company's reporting segments for the years ended December 31,
2014, 2013, and 2012:
For the Year Ended December 31, 2014
Other
International
(In thousands)
Europe
Eliminations
Revenue from external customers
Intersegment revenues
Cost of revenues
Selling, general, and administrative expenses
Acquisition-related expenses
Loss on disposal of assets
$
U.S.
722,051
9,567
474,000
88,553
3,336
1,840
$
$
292,157
1,509
207,213
21,795
14,714
1,086
Adjusted EBITDA
185,510
64,618
Depreciation and accretion expense
Amortization of intangible assets
Interest expense, net, including amortization of
deferred financing costs and note discount
Income tax expense
43,872
24,649
32,101
25,020
27,546
10,449
1,491
2,485
40,613
81
34,012
3,122
—
298
3,791
4,259
670
220
669
$
$
—
(11,157)
(11,177)
—
—
—
17
(55)
—
—
—
Total
1,054,821
—
704,048
113,470
18,050
3,224
253,936
75,622
35,768
33,812
28,174
Capital expenditures (1)
$
57,434
$
46,252
$
6,243
$
(20)
$
109,909
Revenue from external customers
Intersegment revenues
Cost of revenues
Selling, general, and administrative expenses
Acquisition-related expenses
Loss (gain) on disposal of assets
$
$
U.S.
657,390
8,319
426,635
67,890
8,036
1,626
Europe
Eliminations
For the Year Ended December 31, 2013
Other
International
(In thousands)
40,648
$
56
36,122
3,127
31
1,287
178,448
407
140,812
13,575
7,333
(123)
$
—
(8,782)
(8,282)
—
—
—
$
Total
876,486
—
595,287
84,592
15,400
2,790
Adjusted EBITDA
183,498
33,580
Depreciation and accretion expense
Amortization of intangible assets
Interest expense, net, including amortization of
deferred financing costs
Income tax expense (benefit)
41,530
21,101
21,494
42,017
22,448
5,541
1,262
(190)
2,261
4,582
694
330
191
(497)
218,842
(80)
—
—
—
68,480
27,336
23,086
42,018
Capital expenditures (1)
$
53,023
$
21,745
$
2,434
$
(49)
$
77,153
94
Revenue from external customers
Intersegment revenues
Cost of revenues
Selling, general, and administrative expenses
Acquisition-related expenses
Loss on disposal of assets
$
$
U.S.
626,241
10,087
423,813
54,635
3,207
1,716
Europe
Eliminations
For the Year Ended December 31, 2012
Other
International
(In thousands)
36,394
$
89
28,909
2,970
5
10
117,814
—
93,030
7,491
120
61
—
(10,176)
(9,665)
429
—
—
$
$
Total
780,449
—
536,087
65,525
3,332
1,787
Adjusted EBITDA
168,915
18,256
Depreciation and accretion expense
Amortization of intangible assets
Interest expense, net, including amortization of
deferred financing costs
Income tax expense (benefit)
37,831
20,088
21,005
27,069
19,894
1,437
647
—
3,303
3,768
187
405
(60)
(941)
189,533
6
—
—
—
61,499
21,712
22,057
27,009
Capital expenditures (1)
_________
$
62,496
$
21,839
$
8,851
$
(383)
$
92,803
(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 Other International segment) are reflected gross of any noncontrolling interest
amounts.
Identifiable Assets:
United States
Europe
Other International
Eliminations
Total
December 31, 2014
December 31, 2013
(In thousands)
December 31, 2012
$
$
1,127,692
403,838
28,571
(304,311)
1,255,790
$
$
931,396
341,618
26,452
(243,263)
1,056,203
$
$
714,110
108,894
30,066
(84,178)
768,892
95
(21) Supplemental Selected Quarterly Financial Information (Unaudited)
Financial information by quarter is summarized below for the years ended December 31, 2014 and 2013.
2014
Total Revenues
Gross profit (1)
Net income
Net income attributable to controlling interests and
available to common stockholders
Basic net income per common share
Diluted net income per common share
2013
Total revenues
Gross profit (2)
Net income (loss)
Net income (loss) attributable to controlling
interests and available to common stockholders
Basic net income (loss) per common share
Diluted net income (loss) per common share
____________
March 31
June 30
Quarter Ended
September 30 December 31
Total
(In thousands, except per share amounts)
$
$
$
$
$
$
245,072
78,503
9,499
9,565
0.22
0.21
197,738
64,049
9,148
9,430
0.21
0.21
$
$
$
$
$
$
260,029
88,895
13,406
13,989
0.31
0.31
207,984
70,274
14,765
15,327
0.34
0.33
$
$
$
$
$
$
265,847
89,669
7,593
8,064
0.18
0.18
228,819
68,550
(8,982)
(8,408)
(0.19)
(0.19)
$
$
$
$
$
$
283,873
93,706
4,696
$
1,054,821
350,773
35,194
5,522
0.12
0.12
241,945
78,326
5,716
7,467
0.16
0.16
$
$
$
$
$
37,140
0.83
0.82
876,486
281,199
20,647
23,816
0.52
0.52
(1)
(2)
Excludes $23.8 million, $24.7 million, $23.9 million and $27.1 million of depreciation, accretion, and amortization of intangible assets for the
quarters ended March 31, June 30, September 30, and December 31, respectively.
Excludes $20.0 million, $19.9 million, $22.8 million and $24.5 million of depreciation, accretion, and amortization of intangible assets for the
quarters ended March 31, June 30, September 30, and December 31, respectively.
96
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements on any matters of accounting principles or financial statement disclosure between us and
our independent registered public accountants.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under 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 2014 Form 10-K. 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
December 31, 2014 at the reasonable assurance level.
Changes in Internal Controls 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 quarter ended December 31, 2014 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed by
management, under the supervision of our principal executive officer and principal financial officer, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our
management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
The scope of management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2014
includes our consolidated subsidiaries, except for the acquisitions of Welch and Sunwin during 2014. Welch and Sunwin’s internal control
over financial reporting was associated with 18% of total gross assets (of which 9% represents goodwill and intangibles included within the
scope of the assessment) and total revenues of 3% included in the consolidated financial statements of Cardtronics Inc. as of and for the year
ended December 31, 2014.
Our management, under the supervision and with the participation of our principal executive officer and principal financial officer,
assessed the effectiveness of our internal control over financial reporting as of December 31, 2014 based on the framework in Internal
Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on our evaluation under the framework in Internal Control — Integrated Framework (1992), our management concluded that our internal
control over financial reporting was effective as of December 31, 2014.
Attestation Report of the Independent Registered Public Accounting Firm
Our internal control over financial reporting as of December 31, 2014 has been audited by KPMG LLP, an independent registered public
accounting firm that audited our consolidated financial statements included in this 2014 Form 10-K, as stated in their attestation report which
is included on page 58.
97
ITEM 9B. OTHER INFORMATION
None.
98
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Code of Ethics
PART III
We have adopted a Code of Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer,
and persons performing similar functions. A copy of the Code of Ethics is available on our website at http://www.cardtronics.com, and you
may also request a copy of the Code of Ethics at no cost, by writing or telephoning us at the following: Cardtronics, Inc., Attention: Chief
Financial Officer, 3250 Briarpark Drive, Suite 400, Houston, Texas 77042, (832) 308-4000. We intend to disclose any amendments to or
waivers of the Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and persons
performing similar functions on our website at http://www.cardtronics.com promptly following the date of any such amendment or waiver.
Pursuant to General Instruction G of Form 10-K, we incorporate by reference the remaining information required by this Item 10 from the
information to be disclosed in our definitive proxy statement for our 2015 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item 11 the information to be disclosed in our
definitive proxy statement for our 2015 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item 12 the information to be disclosed in our
definitive proxy statement for our 2015 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item 13 the information to be disclosed in our
definitive proxy statement for our 2015 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item 14 the information to be disclosed in our
definitive proxy statement for our 2015 Annual Meeting of Stockholders.
99
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2014 and 2013
Consolidated Statements of Operations for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2014, 2013, and 2012
Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013, and 2012
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page
58
60
61
62
63
64
65
All schedules are omitted because they are either not applicable or required information is shown in the financial statements or notes
thereto.
3. Index to Exhibits
The exhibits required to be filed pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Index to Exhibits
accompanying this 2014 Form 10-K.
100
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Houston, State of Texas, on February 24, 2015.
SIGNATURES
CARDTRONICS, INC.
/s/ Steven A. Rathgaber
Steven A. Rathgaber
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant in the capacities indicated on February 24, 2015.
Signature
/s/ Steven A. Rathgaber
Steven A. Rathgaber
/s/ J. Chris Brewster
J. Chris Brewster
/s/ E. Brad Conrad
E. Brad Conrad
/s/ Dennis F. Lynch
Dennis F. Lynch
/s/ Tim Arnoult
Tim Arnoult
/s/ Juli Spottiswood
Juli Spottiswood
/s/ Jorge M. Diaz
Jorge M. Diaz
/s/ G. Patrick Phillips
G. Patrick Phillips
/s/ Mark Rossi
Mark Rossi
/s/ Julie Gardner
Julie Gardner
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
101
Exhibit Number
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
EXHIBIT INDEX
Description
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).
Fourth Amended and Restated Bylaws of Cardtronics, Inc. (incorporated herein by reference to Exhibit 10.1 of the
Current Report on Form 8-K/A filed by Cardtronics, Inc. on May 23, 2014, SEC File No. 001-33864).
Registration Rights Agreement, dated as of July 28, 2014, by and among Cardtronics, Inc., the subsidiary
guarantors named therein and Merrill Lynch, Pierce, Fenner and Smith Incorporated, as representative of the
initial purchasers named therein (incorporated herein by reference to Exhibit 4.3 of the Current Report on Form 8-
K filed by Cardtronics, Inc. on July 30, 2014, SEC File No. 001-33864).
Form of 5.125% Senior Note due 2022 (incorporated herein by reference to Exhibit 4.2 (included in Exhibit 4.1)
of the Current Report on Form 8-K filed by Cardtronics, Inc. on July 30, 2014, SEC File No. 001-33864).
Indenture, dated as of July 28, 2014, by and among Cardtronics, Inc., the subsidiary guarantors named therein and
Wells Fargo Bank, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Current
Report on Form 8-K filed by Cardtronics, Inc. on July 30, 2014, SEC File No. 001-33864).
Indenture, dated as of November 25, 2014, by and among Cardtronics, Inc. and Wells Fargo Bank, National
Association, as trustee (incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K filed
by Cardtronics, Inc. on November 26, 2013, File No. 001-33864).
Form of 1.00 % Convertible Senior Notes due 2020 (incorporated herein by reference to Exhibit A of Exhibit 4.1
the Current Report on Form 8-K filed by Cardtronics, Inc. on November 26, 2013, File No. 001-33864).
Purchase Agreement, dated July 21, 2014, by and among WSILC, L.L.C., RTW ATM, LLC, C.O.D., LLC and
WG ATM, LLC and their Members and Cardtronics USA, Inc. (incorporated herein by reference to Exhibit 10.3
of the Quarterly Report on Form 10-Q, filed by Cardtronics, Inc. on October 29, 2014, Registration No. 001-
33864).
Amended and Restated Credit Agreement, dated April 24, 2014, by and between Cardtronics, Inc., the Guarantors
party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, J.P. Morgan
Europe Limited, as Alternative Currency Agent, Bank of America, N.A., as Syndication Agent and Wells Fargo
Bank, N.A. as Documentation Agent (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on
Form 10-Q filed by Cardtronics, Inc. on October 29, 2014, File No. 001-33864).
First Amendment to Amended and Restated Credit Agreement, dated July 11, 2014, by and between Cardtronics,
Inc., the Guarantors party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q filed by
Cardtronics, Inc. on October 29, 2014, File No. 001-33864).
Placement Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and 7-Eleven, Inc.
(incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed by Cardtronics, Inc.
on November 9, 2007, Registration No. 333-113470).
10.5
Purchase and Sale Agreement, dated as of July 20, 2007, by and between Cardtronics, LP and 7-Eleven, Inc.
10.6
10.7
(incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on
July 26, 2007, Registration No. 333-113470).
ATM Cash Services Agreement between Bank of America and Cardtronics, LP, dated effective as of August 2,
2004 (incorporated herein by reference to Exhibit 10.1 of the Amendment No. 2 to Registration Statement on
Form S-4/A filed by Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Amendment No. 1 to ATM Cash Services Agreement, dated August 2, 2004 (incorporated herein by reference to
Exhibit 10.25 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by Cardtronics, Inc. on
August 25, 2006, Registration No. 333-131199).
10.8
Amendment No. 2 to ATM Cash Services Agreement, dated February 9, 2006 (incorporated herein by reference to
10.9
Exhibit 10.26 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by Cardtronics, Inc. on
August 25, 2006, Registration No. 333-131199).
Amendment No. 3 to ATM Cash Services Agreement, dated February 21, 2007, by and between Cardtronics, LP
and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.6 of the Quarterly Report on Form 10-
Q filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
10.10
Amendment No. 4 to ATM Cash Services Agreement, dated March 23, 2009, by and between Cardtronics USA,
Inc. and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.7 of the Quarterly Report on Form
10-Q filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
10.11
Amendment No. 5 to ATM Cash Services Agreement, dated April 13, 2010, by and between Cardtronics USA,
Inc. and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.8 of the Quarterly Report on Form
10-Q filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
10.12
Amendment No. 6 to ATM Cash Services Agreement, dated September 22, 2011, by and between Cardtronics
102
USA, Inc. and Bank of America, N.A. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report
on Form 10-Q filed by Cardtronics, Inc. on November 7, 2011, File No. 001-33864).
10.13
Vault Cash Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and Wells Fargo, N.A.
(incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, by Cardtronics, Inc. filed
on November 9, 2007, File No. 113470).
10.14
First Amendment to Contract Cash Solutions Agreement, dated February 28, 2009, by and between Cardtronics
10.15
10.16
USA, Inc., Cardtronics, Inc., and Wells Fargo Bank, N.A. (incorporated herein by reference to Exhibit 10.3 of the
Quarterly Report on Form 10-Q, filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
Second Amendment to Contract Cash Solutions Agreement, dated July 19, 2009, by and between Cardtronics
USA, Inc. and Wells Fargo, N.A. (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on
Form 10-Q, filed by Cardtronics, Inc. on August 7, 2009, File No. 001-33864).
Third Amendment to Contract Cash Solutions Agreement, dated September 1, 2009, by and between Cardtronics
USA, Inc., Cardtronics, Inc., and Wells Fargo Bank, N.A. (incorporated herein by reference to Exhibit 10.4 of the
Quarterly Report on Form 10-Q, filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
10.17
Fourth Amendment to Contract Cash Solutions Agreement, dated July 15, 2010, by and between Cardtronics
USA, Inc., Cardtronics, Inc., and Wells Fargo Bank, N.A. (incorporated herein by reference to Exhibit 10.5 of the
Quarterly Report on Form 10-Q, filed by Cardtronics, Inc. on August 6, 2010, File No. 001-33864).
10.18
Fifth Amendment to Contract Cash Solutions Agreement, dated March 10, 2011, by and between Cardtronics
10.19
USA, Inc., Cardtronics, Inc., and Wells Fargo Bank, N.A. (incorporated herein by reference to Exhibit 10.18 of
the Annual Report on Form 10-K, filed by Cardtronics, Inc. on February 21, 2013, Registration No. 001-33864).
Temporary Increase in Maximum Available Amount among Cardtronics Inc., Cardtronics USA, Inc. (successor by
conversion to Cardtronics LP) and Wells Fargo Bank, National Association dated as of August 22, 2011.
(incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q, filed by Cardtronics, Inc.
on November 7, 2011, File No. 001-33864).
10.20
Sixth Amendment to Contract Cash Solutions Agreement, dated March 1, 2012, by and between Cardtronics
10.21
USA, Inc., Cardtronics, Inc., and Wells Fargo Bank, N.A. (incorporated herein by reference to Exhibit 10.20 of
the Annual Report on Form 10-K, filed by Cardtronics, Inc. on February 21, 2013, Registration No. 001-33864).
Base Bond Hedge Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and Bank of
America, N.A. (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed by
Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.22
Base Bond Hedge Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and JPMorgan
10.23
Chase Bank, National Association, London Branch (incorporated herein by reference to Exhibit 10.2 of the
Current Report on Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
Base Bond Hedge Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and Wells
Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.3 of the Current Report on
Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.24
Base Warrant Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and Bank of
10.25
10.26
10.27
America, N.A. (incorporated herein by reference to Exhibit 10.4 of the Current Report on Form 8-K, filed by
Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
Base Warrant Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and JPMorgan
Chase Bank, National Association, London Branch (incorporated herein by reference to Exhibit 10.5 of the
Current Report on Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
Base Warrant Confirmation dated as of November 19, 2013, by and between Cardtronics, Inc. and Wells Fargo
Bank, National Association (incorporated herein by reference to Exhibit 10.6 of the Current Report on Form 8-K,
filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
Additional Bond Hedge Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and Bank
of America, N.A. (incorporated herein by reference to Exhibit 10.7 of the Current Report on Form 8-K, filed by
Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.28
Additional Bond Hedge Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and
JPMorgan Chase Bank, National Association, London Branch (incorporated herein by reference to Exhibit 10.8 of
the Current Report on Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.29
Additional Bond Hedge Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and
10.30
Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.9 of the Current Report
on Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
Additional Warrant Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and Bank of
America, N.A. (incorporated herein by reference to Exhibit 10.10 of the Current Report on Form 8-K, filed by
Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.31
Additional Warrant Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and
JPMorgan Chase Bank, National Association, London Branch (incorporated herein by reference to Exhibit 10.11
of the Current Report on Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-
33864).
10.32
Additional Warrant Confirmation dated as of November 21, 2013, by and between Cardtronics, Inc. and Wells
103
Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.12 of the Current Report on
Form 8-K, filed by Cardtronics, Inc. on November 22, 2013, Registration No. 001-33864).
10.33†
Form of Director Indemnification Agreement entered into by and between Cardtronics, Inc. and each of its
10.34†
directors, dated as of February 10, 2005 (incorporated herein by reference to Exhibit 10.24 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).
2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of June 4, 2001 (incorporated herein by
reference to Exhibit 10.21 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20,
2006, Registration No. 333-131199).
10.35†
Amendment No. 1 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of January 30,
10.36†
2004 (incorporated herein by reference to Exhibit 10.22 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).
Amendment No. 2 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of June 23,
2004 (incorporated herein by reference to Exhibit 10.23 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).
10.37†
Amendment No. 3 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of May 9, 2006
10.38†
10.39†
(incorporated herein by reference to Exhibit 10.38 of Post-effective Amendment No. 1 to the Registration
Statement on Form S-1, filed by Cardtronics, Inc. on December 10, 2007, Registration No. 333-145929).
Amendment No. 4 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of August 22,
2007 (incorporated herein by reference to Exhibit 10.39 of Post-effective Amendment No. 1 to the Registration
Statement on Form S-1, filed by Cardtronics, Inc. on December 10, 2007, Registration No. 333-145929).
Amendment No. 5 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of November 26,
2007 (incorporated herein by reference to Exhibit 10.40 of Post-effective Amendment No. 1 to the Registration
Statement on Form S-1, filed by Cardtronics, Inc. on December 10, 2007, Registration No. 333-145929).
10.40†
Cardtronics, Inc. Amended and Restated 2007 Stock Incentive Plan (incorporated herein by reference to Appendix
10.41†
Second Amended and Restated 2007 Stock Incentive Plan (incorporated herein by reference to Appendix C of
B of Cardtronics, Inc.’s Definitive Proxy Statement filed on April 30, 2010, File No. 001-33864).
Cardtronics, Inc.’s Definitive Proxy Statement filed on April 10, 2014).
10.42†
Cardtronics, Inc. Annual Executive Cash Incentive Plan (incorporated herein by reference to Exhibit 99.2 of the
Current Report on Form 8-K filed by Cardtronics, Inc. on April 2, 2014, SEC File No. 001-33864).
10.43†
Form of Non-statutory Stock Option Agreement (incorporated herein by reference to Exhibit 10.40 of the Annual
10.44†
Form of Restricted Stock Agreement (incorporated herein by reference to Exhibit 10.41 of the Annual Report on
Report on Form 10-K, filed by Cardtronics, Inc. on March 13, 2009, Registration No. 001-33864).
Form 10-K, filed by Cardtronics, Inc. on March 13, 2009, Registration No. 001-33864).
10.45†
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 of the Current Report
on Form 8-K, filed by Cardtronics, Inc. on April 4, 2013, Registration No. 001-33864).
10.46†
Form of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.1 of the Current Report
10.47†
Cardtronics, Inc. 2011 Long Term Incentive Plan, dated January 31, 2011 (incorporated herein by reference to
on Form 8-K, filed by Cardtronics, Inc. on January 24, 2011, Registration No. 001-33864).
Exhibit 10.1 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on February 1, 2011, Registration No.
001-33864).
10.48†
Cardtronics, Inc. 2012 Long Term Incentive Plan, dated January 31, 2012 (incorporated herein by reference to
10.49†
10.50†
Exhibit 10.34 of the Annual Report on Form 10-K, filed by Cardtronics, Inc. on February 21, 2013, Registration
No. 001-33864).
Cardtronics, Inc. 2013 Long Term Incentive Plan, dated March 29, 2013 (incorporated herein by reference to
Exhibit 99.3 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on April 2, 2014, Registration No. 001-
33864).
Cardtronics, Inc. 2014 Long Term Incentive Plan, dated March 29, 2014 (incorporated herein by reference to
Exhibit 10.1 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on April 4, 2013, Registration No. 001-
33864).
10.51†
Form of Employment Agreement (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form
8-K, filed by Cardtronics, Inc. on June 25, 2008, Registration No. 001-33864).
10.52†
Form of Employment Agreement (Form A) (incorporated herein by reference to Exhibit 10.36 of the Annual
10.53†
10.54†
10.55†
Report on Form 10-K, filed by Cardtronics, Inc. on February 21, 2013, Registration No. 001-33864).
Employment Agreement by and between Cardtronics USA Inc., Cardtronics, Inc. and Steven A. Rathgaber, dated
effective as of February 1, 2010 (incorporated herein by reference to Exhibit 10.48 of the Annual Report on Form
10-K, filed by Cardtronics, Inc. on March 4, 2010, Registration No. 001-33864).
Employment Agreement by and between Cardtronics USA Inc. and P. Michael McCarthy, dated effective as of
May 13, 2013 (incorporated herein by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q, filed by
Cardtronics, Inc. on July 31, 2013, Registration No. 001-33864).
Employment Agreement by and between Cardtronics USA Inc., Cardtronics, Inc. and David Dove, dated effective
as of September 3, 2013 (incorporated herein by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q,
filed by Cardtronics, Inc. on November 4, 2013, Registration No. 001-33864).
104
10.56*†
Employment Agreement by and between Cardtronics USA Inc. and Jonathan Simpson-Dent, dated effective as of
August 7, 2013.
10.57†
10.58*†
10.59†
12.1*
14.1
Restricted Stock Unit Agreement by and between Cardtronics, Inc. and David Dove, dated effective September 1,
2013 (incorporated herein by reference to Exhibit 10.57 of the Annual Report on Form 10-K, filed by Cardtronics,
Inc. on February 18, 2014, Registration No. 001-33864)
Summary of Non-Employee Director Compensation.
Cardtronics, Inc. 2014 Annual Bonus Pool Allocation Plan (incorporated herein by reference to Exhibit 99.1 of the
Current Report on Form 8-K, filed by Cardtronics, Inc. on July 15, 2014, File No. 001-33864).
Computation of Ratio of Earnings to Fixed Charges.
Cardtronics, Inc. Code of Business Conduct and Ethics Approved by the Board of Directors on January 21, 2011
(incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K/A, filed by Cardtronics, Inc.
on January 26, 2011, Registration No. 001-33864).
14.2
Cardtronics, Inc. Financial Code of Ethics Amended and Restated by the Audit Committee on January 21, 2011
(incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K/A, filed by Cardtronics, Inc.
on January 26, 2011, Registration No. 001-33864).
Subsidiaries of Cardtronics, Inc.
Consent of Independent Registered Public Accounting Firm KPMG LLP.
Certification of the Chief Executive Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act
21.1*
23.1*
31.1*
31.2*
32.1**
Certification of the Chief Executive Officer and Chief Financial Officer of Cardtronics, Inc. pursuant to Section
of 2002.
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
101.DEF*
906 of the Sarbanes-Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
__________
*
Filed herewith.
**
†
Furnished herewith.
Management contract or compensatory plan or arrangement.
105
Corporate Headquarters
Cardtronics, Inc.
3250 Briarpark Drive, Suite 400
Houston, TX 77042
800.786.9666
www.cardtronics.com
Stock Listing
Cardtronics, Inc. common stock is listed on the NASDAQ
Global Market Exchange and trades under the ticker
symbol CATM.
Investor Contact
Phillip Chin, EVP Corporate Development
& Investor Relations
832-308-4975
ir@cardtronics.com
Notice of Annual Meeting
The Annual Meeting of Shareholders will be held
at 5:00 p.m. CDT on May 13th, 2015 at Cardtronics’
headquarters: 3250 Briarpark Drive, Suite 400, Houston,
TX 77042
Transfer Agent
Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
800.767.3330
Cautionary Note Regarding Forward-Looking
Statements
Except for the historical information and discussions
contained herein, statements contained in this annual
report may constitute “forward-looking statements”
within the meaning of the Private Securities Litigation
Reform Act of 1995. Achieving the results described
in these statements involves a number of risks,
uncertainties and other factors that could cause actual
results to differ materially, as discussed in Cardtronics’
filings with the Securities and Exchange Commission,
and in the attached Form 10-K.
©2015 Cardtronics, Inc.
CARDTRONICS3250 Briarpark Drive, Suite 400Houston, TX 77042800.786.9666cardtronics.com