UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2014 |
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or |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from____ to____ |
Commission File Number: 001-33864
________________________________
CARDTRONICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
76-0681190 |
(State or other jurisdiction of |
(I.R.S. Employer |
incorporation or organization) |
Identification No.) |
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3250 Briarpark Drive, Suite 400 |
77042 |
Houston, TX |
(Zip Code) |
(Address of principal executive offices) |
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Registrant's telephone number, including area code: (832) 308-4000
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer'' and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Common Stock, par value: $0.0001 per share. Shares outstanding on July 25, 2014: 44,472,002
CARDTRONICS, INC. |
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TABLE OF CONTENTS |
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
1 |
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Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013 |
1 |
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Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 |
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3 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 |
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5 |
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31 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
32 |
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Item 3. |
51 |
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Item 4. |
53 |
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PART II. OTHER INFORMATION |
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Item 1. |
54 |
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Item 1A. |
54 |
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Item 2. |
54 |
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Item 6. |
54 |
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55 |
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When we refer to “us,” “we,” “our,” or “ours,” we are describing Cardtronics, Inc. and/or our subsidiaries. |
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PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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CONSOLIDATED BALANCE SHEETS |
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(In thousands, excluding share and per share amounts) |
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June 30, 2014 |
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December 31, 2013 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
61,364 |
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$ |
86,939 |
Accounts and notes receivable, net of allowance of $807 and $571 as of June 30, 2014 and December 31, 2013, respectively |
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62,866 |
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58,274 |
Inventory, net |
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6,919 |
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5,302 |
Restricted cash |
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27,545 |
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14,896 |
Current portion of deferred tax asset, net |
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20,397 |
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21,202 |
Prepaid expenses, deferred costs, and other current assets |
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30,229 |
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20,159 |
Total current assets |
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209,320 |
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206,772 |
Property and equipment, net |
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284,167 |
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270,966 |
Intangible assets, net |
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145,254 |
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155,276 |
Goodwill |
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412,964 |
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404,491 |
Deferred tax asset, net |
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12,119 |
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9,680 |
Prepaid expenses, deferred costs, and other noncurrent assets |
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7,716 |
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9,018 |
Total assets |
$ |
1,071,540 |
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$ |
1,056,203 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
$ |
615 |
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$ |
1,289 |
Current portion of other long-term liabilities |
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36,555 |
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35,597 |
Accounts payable |
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21,199 |
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38,981 |
Accrued liabilities |
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150,124 |
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137,776 |
Current portion of deferred tax liability, net |
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— |
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1,152 |
Total current liabilities |
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208,493 |
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214,795 |
Long-term liabilities: |
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Long-term debt |
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473,613 |
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489,225 |
Asset retirement obligations |
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64,881 |
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60,665 |
Deferred tax liability, net |
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5,555 |
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5,668 |
Other long-term liabilities |
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42,392 |
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38,736 |
Total liabilities |
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794,934 |
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809,089 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Common stock, $0.0001 par value; 125,000,000 shares authorized; 51,477,361 and 51,207,849 shares issued as of June 30, 2014 and December 31, 2013, respectively; 44,472,905 and 44,375,952 shares outstanding as of June 30, 2014 and December 31, 2013, respectively |
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5 |
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5 |
Additional paid-in capital |
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339,842 |
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330,862 |
Accumulated other comprehensive loss, net |
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(69,165) |
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(72,954) |
Retained earnings |
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105,230 |
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81,677 |
Treasury stock: 7,004,456 and 6,831,897 shares at cost as of June 30, 2014 and December 31, 2013, respectively |
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(96,824) |
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(90,679) |
Total parent stockholders’ equity |
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279,088 |
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248,911 |
Noncontrolling interests |
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(2,482) |
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(1,797) |
Total stockholders’ equity |
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276,606 |
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247,114 |
Total liabilities and stockholders’ equity |
$ |
1,071,540 |
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$ |
1,056,203 |
The accompanying notes are an integral part of these consolidated financial statements. |
1
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CONSOLIDATED STATEMENTS OF OPERATIONS |
(In thousands, excluding share and per share amounts) |
(Unaudited) |
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues: |
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ATM operating revenues |
$ |
252,052 |
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$ |
203,599 |
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$ |
490,191 |
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$ |
396,959 |
ATM product sales and other revenues |
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7,977 |
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4,385 |
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14,910 |
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8,763 |
Total revenues |
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260,029 |
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207,984 |
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505,101 |
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405,722 |
Cost of revenues: |
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Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets shown separately below. See Note 1) |
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163,380 |
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133,482 |
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323,139 |
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263,042 |
Cost of ATM product sales and other revenues |
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7,754 |
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4,228 |
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14,564 |
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8,357 |
Total cost of revenues |
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171,134 |
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137,710 |
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337,703 |
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271,399 |
Gross profit |
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88,895 |
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70,274 |
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167,398 |
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134,323 |
Operating expenses: |
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Selling, general, and administrative expenses |
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27,926 |
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18,932 |
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52,453 |
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37,921 |
Acquisition-related expenses |
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7,642 |
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1,184 |
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10,729 |
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4,006 |
Depreciation and accretion expense |
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19,597 |
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15,881 |
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37,943 |
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32,166 |
Amortization of intangible assets |
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8,465 |
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6,081 |
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16,682 |
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11,829 |
Loss on disposal of assets |
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316 |
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157 |
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584 |
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360 |
Total operating expenses |
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63,946 |
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42,235 |
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118,391 |
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86,282 |
Income from operations |
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24,949 |
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28,039 |
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49,007 |
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48,041 |
Other expense (income): |
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Interest expense, net |
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5,328 |
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5,059 |
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10,744 |
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10,125 |
Amortization of deferred financing costs and note discount |
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2,762 |
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231 |
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5,447 |
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460 |
Redemption costs for early extinguishment of debt |
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699 |
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— |
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1,353 |
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— |
Other income |
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(5,261) |
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(2,050) |
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(5,230) |
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(2,471) |
Total other expense |
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3,528 |
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3,240 |
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12,314 |
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8,114 |
Income before income taxes |
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21,421 |
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24,799 |
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36,693 |
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39,927 |
Income tax expense |
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8,015 |
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10,034 |
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13,788 |
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16,014 |
Net income |
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13,406 |
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14,765 |
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22,905 |
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23,913 |
Net loss attributable to noncontrolling interests |
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(583) |
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(562) |
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(649) |
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(844) |
Net income attributable to controlling interests and available to common stockholders |
$ |
13,989 |
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$ |
15,327 |
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$ |
23,554 |
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$ |
24,757 |
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Net income per common share – basic |
$ |
0.31 |
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$ |
0.34 |
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$ |
0.53 |
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$ |
0.54 |
Net income per common share – diluted |
$ |
0.31 |
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$ |
0.33 |
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$ |
0.52 |
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$ |
0.54 |
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Weighted average shares outstanding – basic |
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44,324,747 |
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44,394,230 |
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44,270,363 |
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44,321,069 |
Weighted average shares outstanding – diluted |
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44,830,978 |
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44,615,021 |
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44,800,298 |
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44,547,851 |
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The accompanying notes are an integral part of these consolidated financial statements. |
2
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Net income |
$ |
13,406 |
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$ |
14,765 |
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$ |
22,905 |
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$ |
23,913 |
Unrealized gains (losses) on interest rate swap contracts, net of deferred income tax expense (benefit) of $(1,012) and $10,545 for the three months ended June 30, 2014 and 2013, respectively, and $(93) and $13,981 for the six months ended June 30, 2014 and 2013, respectively |
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(1,566) |
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17,548 |
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(380) |
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23,251 |
Foreign currency translation adjustments |
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3,429 |
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(497) |
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4,169 |
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(4,537) |
Other comprehensive income |
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1,863 |
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17,051 |
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3,789 |
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18,714 |
Total comprehensive income |
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15,269 |
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31,816 |
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26,694 |
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42,627 |
Less: comprehensive loss attributable to noncontrolling interests |
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(586) |
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(597) |
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(664) |
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(819) |
Comprehensive income attributable to controlling interests |
$ |
15,855 |
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$ |
32,413 |
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$ |
27,358 |
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$ |
43,446 |
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The accompanying notes are an integral part of these consolidated financial statements. |
3
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Six Months Ended June 30, |
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2014 |
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2013 |
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Cash flows from operating activities: |
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Net income |
$ |
22,905 |
$ |
23,913 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, accretion, and amortization of intangible assets |
54,625 | 43,995 | ||||
Amortization of deferred financing costs and note discount |
5,447 | 460 | ||||
Stock-based compensation expense |
6,917 | 5,744 | ||||
Deferred income taxes |
(2,734) | 3,584 | ||||
Loss on disposal of assets |
584 | 360 | ||||
Other reserves and non-cash items |
1,693 | 2,689 | ||||
Changes in assets and liabilities: |
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Increase in accounts and note receivable, net |
(5,308) | (3,538) | ||||
(Increase) decrease in prepaid, deferred costs, and other current assets |
(8,131) | 9,945 | ||||
Increase in inventory |
(2,510) | (1,649) | ||||
Decrease (increase) in other assets |
3,460 | (1,327) | ||||
(Decrease) increase in accounts payable |
(16,322) | 2,398 | ||||
Decrease in accrued liabilities |
(2,623) | (1,532) | ||||
Decrease in other liabilities |
(1,132) | (4,688) | ||||
Net cash provided by operating activities |
56,871 | 80,354 | ||||
Cash flows from investing activities: |
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Additions to property and equipment |
(41,753) | (26,422) | ||||
Payments for exclusive license agreements, site acquisition costs, and other intangible assets |
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(3,433) | ||||
Acquisitions, net of cash acquired |
(8,805) | (29,610) | ||||
Net cash used in investing activities |
(50,558) | (59,465) | ||||
Cash flows from financing activities: |
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Proceeds from borrowings of long-term debt |
- |
85,600 | ||||
Repayments of long-term debt and capital leases |
(22,991) | (104,846) | ||||
Repayments of borrowings under bank overdraft facility, net |
(1,534) |
— |
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Debt issuance, modification and redemption costs |
(2,676) |
— |
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Payment of contingent consideration |
(518) | (750) | ||||
Proceeds from exercises of stock options |
141 | 459 | ||||
Excess tax benefit from stock-based compensation expense |
1,998 | 10,832 | ||||
Repurchase of capital stock |
(6,145) | (3,821) | ||||
Net cash used in financing activities |
(31,725) | (12,526) | ||||
Effect of exchange rate changes on cash |
(163) | 117 | ||||
Net (decrease) increase in cash and cash equivalents |
(25,575) | 8,480 | ||||
Cash and cash equivalents as of beginning of period |
86,939 | 13,861 | ||||
Cash and cash equivalents as of end of period |
$ |
61,364 |
$ |
22,341 | ||
Supplemental disclosure of cash flow information: |
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Cash paid for interest, including interest on capital leases |
$ |
11,645 |
$ |
10,132 | ||
Cash paid for income taxes |
$ |
18,114 |
$ |
2,550 | ||
The accompanying notes are an integral part of these consolidated financial statements. |
4
CARDTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General and Basis of Presentation
General
Cardtronics, Inc., along with its wholly- and majority-owned subsidiaries (collectively, the "Company") provides convenient consumer financial services through its network of automated teller machines ("ATMs") and multi-function financial services kiosks. As of June 30, 2014, the Company provided services to over 83,600 devices across its portfolio, which included approximately 66,500 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 12,000 devices throughout the United Kingdom ("U.K."), approximately 900 devices throughout Germany, approximately 2,000 devices throughout Canada, and approximately 2,200 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 83,600 devices are approximately 14,700 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 Citibank, N.A., JPMorgan Chase Bank, N.A., Sovereign Bank, N.A., PNC Bank, N.A., Frost Bank, The Bank of Nova Scotia (“Scotiabank”) in Canada, Mexico, and Puerto Rico, and Grupo Financiero Banorte, S.A. de C.V. in Mexico. As of June 30, 2014, approximately 21,300 of the Company’s devices were under contract with financial institutions to place their logos on those machines, and to provide convenient surcharge-free access for their banking customers.
The Company also owns and operates the Allpoint network (“Allpoint”), the largest surcharge-free ATM network within the U.S. (based on the number of participating ATMs). Allpoint, which has more than 56,100 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 the Company’s ATMs in the U.S., U.K., and Mexico, and approximately a quarter of the Company’s ATMs in Canada. Allpoint also works with financial institutions that manage stored-value debit card programs on behalf of corporate entities and governmental agencies, including general purpose, payroll and electronic benefits transfer (“EBT”) cards. Under these programs, the issuing financial institutions pay Allpoint a fee per issued stored-value card or per transaction in return for allowing the users of those cards surcharge-free access to Allpoint’s participating ATM network.
Finally, the Company owns and operates an electronic funds transfer (“EFT”) transaction processing platform that provides transaction processing services to its network of ATMs and financial services kiosks as well as other ATMs under managed services arrangements.
Basis of Presentation
This Quarterly Report on Form 10-Q (this "Form 10-Q") has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial information. Because this is an interim period filing presented using a condensed format, it does not include all of the disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP"), although the Company believes that the disclosures are adequate to make the information not misleading. You should read this Form 10-Q along with the Company's Annual Report on Form 10-K for the year ended December 31, 2013 (the "2013 Form 10-K"), which includes a summary of the Company's significant accounting policies and other disclosures.
The financial statements as of June 30, 2014 and for the three and six months ended June 30, 2014 and 2013 are unaudited. The Consolidated Balance Sheet as of December 31, 2013 was derived from the audited balance sheet filed in the 2013 Form 10-K. In management's opinion, all normal recurring adjustments necessary for a fair presentation of the Company's interim and prior period results have been made. Certain balances have been reclassified in the December 31, 2013 audited financial statements to present information consistently between periods. During the three and six months ended June 30, 2014, the Company changed its accounting policy related to the presentation of certain upfront merchant payments by reclassifying such payments from Intangible Assets to the Other Assets line item on the consolidated balance sheet. Prior period amounts have been reclassified to conform to this presentation. The results of operations for the three and six months ended June 30, 2014 and 2013 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
5
The unaudited interim consolidated financial statements include the accounts of Cardtronics, Inc. and it’s wholly and majority-owned subsidiaries. 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, S.A. de C.V. (“Cardtronics Mexico”), this entity is reflected as a consolidated subsidiary in the accompanying consolidated financial statements, with the remaining ownership interests not held by the Company being reflected as noncontrolling interests.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could be material to the financial statements.
Cost of ATM Operating Revenues and Gross Profit Presentation
The Company presents Cost of ATM operating revenues and Gross profit within its Consolidated Statements of Operations exclusive of depreciation, accretion, and amortization of intangible assets related to ATMs and ATM-related assets. The following table sets forth the amounts excluded from Cost of ATM operating revenues and Gross profit for the periods indicated:
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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(In thousands) |
||||||||||
Depreciation and accretion expenses related to ATMs and ATM-related assets |
|
$ |
16,266 |
|
$ |
13,858 |
|
$ |
31,855 |
|
$ |
28,136 |
Amortization of intangible assets |
|
|
8,465 |
|
|
6,081 |
|
|
16,682 |
|
|
11,829 |
Total depreciation, accretion, and amortization of intangible assets excluded from Cost of ATM operating revenues and Gross profit |
|
$ |
24,731 |
|
$ |
19,939 |
|
$ |
48,537 |
|
$ |
39,965 |
(2) Acquisitions
Acquisition of the Cardpoint ATM Portfolio
On August 7, 2013, the Company completed the acquisition of Cardpoint Limited (“Cardpoint”) for approximately £105.4 million ($161.8 million) in cash. As a result of the Cardpoint acquisition, the Company significantly increased the size of its European operations by adding approximately 7,100 ATMs in the U.K. and approximately 800 ATMs in Germany, substantially all of which were owned by Cardpoint. The Company has preliminarily allocated purchase consideration to the assets acquired and expects to complete its purchase accounting for this acquisition during the third quarter of 2014.
Pro Forma Results of Operations
The following table presents the unaudited pro forma combined results of operations of the Company and the acquired Cardpoint portfolios for the three and six months ended June 30, 2013, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, 2013 |
|
June 30, 2013 |
||||||||
|
|
As Reported |
|
Pro Forma |
|
As Reported |
|
Pro Forma |
||||
|
|
(In thousands, excluding per share amounts) |
||||||||||
Total revenues |
|
$ |
207,984 |
|
$ |
233,920 |
|
$ |
405,722 |
|
$ |
457,594 |
Net income attributable to controlling interests and available to common stockholders |
|
|
15,327 |
|
|
16,094 |
|
|
24,757 |
|
|
25,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic |
|
$ |
0.34 |
|
$ |
0.35 |
|
$ |
0.54 |
|
$ |
0.56 |
Earnings per share – diluted |
|
$ |
0.33 |
|
$ |
0.35 |
|
$ |
0.54 |
|
$ |
0.55 |
6
The unaudited pro forma financial results do not reflect the impact of other acquisitions consummated by the Company during 2013 and 2014, as the impact would not be material to its condensed consolidated results of operations. The unaudited pro forma financial results assume that the Cardpoint acquisition occurred on January 1, 2013, and are not necessarily indicative of the actual results that would have occurred had those transactions been completed on that date. Furthermore, it does not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated operations.
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 three and six months ended June 30, 2014.
(3) Stock-Based Compensation
The Company calculates the fair value of stock-based awards granted to employees and directors on the date of grant and recognizes the calculated fair value, net of estimated forfeitures, as compensation expense over the requisite service periods of the related awards. The following table reflects the total stock-based compensation expense amounts included in the Company's Consolidated Statements of Operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
(In thousands) |
||||||||||
Cost of ATM operating revenues |
|
$ |
353 |
|
$ |
207 |
|
$ |
567 |
|
$ |
412 |
Selling, general, and administrative expenses |
|
|
3,346 |
|
|
2,372 |
|
|
6,350 |
|
|
5,332 |
Total stock-based compensation expense |
|
$ |
3,699 |
|
$ |
2,579 |
|
$ |
6,917 |
|
$ |
5,744 |
All grants during the periods above were made under the Company's Amended and Restated 2007 Stock Incentive Plan (the "2007 Stock Incentive Plan").
Restricted Stock Awards. The number of the Company's outstanding Restricted Stock Awards (“RSAs”) as of June 30, 2014, and changes during the six months ended June 30, 2014, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Grant Date Fair Value |
||
RSAs outstanding as of January 1, 2014 |
|
|
375,498 |
|
$ |
18.42 |
Granted |
|
|
— |
|
$ |
— |
Vested |
|
|
(218,999) |
|
$ |
14.00 |
Forfeited |
|
|
(15,664) |
|
$ |
27.28 |
RSAs outstanding as of June 30, 2014 |
|
|
140,835 |
|
$ |
24.32 |
As of June 30, 2014, the unrecognized compensation expense associated with all outstanding RSAs was approximately $2.1 million, which will be recognized on a straight-line basis over a remaining weighted-average vesting period of approximately 2.1 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 a service-based vesting schedule only (“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 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 the LTIP, with or without performance-based vesting requirements, in accordance with the terms of the 2007 Stock Incentive Plan.
7
The number of the Company's non-vested RSUs as of June 30, 2014, and changes during the six months ended June 30, 2014, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Units |
|
Weighted Average Grant Date Fair Value |
||
Non-vested RSUs as of January 1, 2014 |
|
|
733,235 |
|
$ |
25.26 |
Granted |
|
|
398,697 |
|
$ |
31.75 |
Vested |
|
|
(253,412) |
|
$ |
21.72 |
Forfeited |
|
|
(46,187) |
|
$ |
26.16 |
Non-vested RSUs as of June 30, 2014 |
|
|
832,333 |
|
$ |
29.40 |
The above table only includes earned RSUs; therefore, the Performance-RSUs granted in 2014 but not yet earned are not included, but the Time-RSUs are included as granted.
As of June 30, 2014, the unrecognized compensation expense associated with earned RSUs was approximately $12.4 million, which will be recognized using a graded vesting schedule for Performance-RSUs and a straight-line vesting schedule for Time-RSUs, over a remaining weighted-average vesting period of approximately 2.28 years.
Options. The number of the Company's outstanding stock options as of June 30, 2014, and changes during the six months ended June 30, 2014, are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Exercise Price |
||
Options outstanding as of January 1, 2014 |
|
|
280,175 |
|
$ |
9.66 |
Exercised |
|
|
(16,100) |
|
$ |
8.71 |
Forfeited |
|
|
— |
|
$ |
— |
Options outstanding as of June 30, 2014 |
|
|
264,075 |
|
$ |
9.71 |
|
|
|
|
|
|
|
Options vested and exercisable as of June 30, 2014 |
|
|
264,075 |
|
$ |
9.71 |
As of June 30, 2014, the Company had no unrecognized compensation expense associated with outstanding options.
(4) Earnings per Share
The Company reports its earnings per share under the two-class method. Under this method, potentially dilutive securities are excluded from the calculation of diluted earnings per share (as well as their related impact on the net income available to common stockholders) when their impact on net income available to common stockholders is anti-dilutive. Potentially dilutive securities for the three and six months ended June 30, 2014 and 2013 included all outstanding stock options and shares of restricted stock, which were included in the calculation of diluted earnings per share for these periods. The potentially dilutive effect of outstanding warrants and the underlying shares exercisable under the Company’s convertible notes were excluded from diluted shares outstanding because the exercise price exceeded the average market price of the Company’s common stock. The effect of the note hedge the Company purchased to offset the underlying conversion option embedded in its convertible notes was also excluded, as the effect is anti-dilutive.
Additionally, the shares of restricted stock issued by the Company under RSAs have a non-forfeitable right to cash dividends, if and when declared by the Company. Accordingly, restricted shares issued under RSAs are considered to be participating securities and, as such, the Company has allocated the undistributed earnings for the three and six months ended June 30, 2014 and 2013 among the Company's outstanding shares of common stock and issued but unvested restricted shares, as follows:
8
Earnings per Share (in thousands, excluding share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014 |
|
Three Months Ended June 30, 2013 |
||||||||||||||
|
|
Income |
|
Weighted Average Shares Outstanding |
|
Earnings Per Share |
|
Income |
|
Weighted Average Shares Outstanding |
|
Earnings Per Share |
||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling interests and available to common stockholders |
$ |
13,989 |
$ |
15,327 | ||||||||||||||
Less: Undistributed earnings allocated to unvested RSAs |
(49) | (448) | ||||||||||||||||
Net income available to common stockholders |
|
$ |
13,940 |
|
|
44,324,747 |
|
$ |
0.31 |
|
$ |
14,879 |
|
|
44,394,230 |
|
$ |
0.34 |
Diluted: |
||||||||||||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Undistributed earnings allocated to restricted shares |
$ |
49 |
$ |
448 | ||||||||||||||
Stock options added to the denominator under the treasury stock method |
125,207 | 220,791 | ||||||||||||||||
RSUs added to the denominator under the treasury stock method |
381,024 |
— |
||||||||||||||||
Less: Undistributed earnings reallocated to RSAs |
|
|
(49) |
|
|
|
|
|
|
|
|
(445) |
|
|
|
|
|
|
Net income available to common stockholders and assumed conversions |
|
$ |
13,940 |
|
|
44,830,978 |
|
$ |
0.31 |
|
$ |
14,882 |
|
|
44,615,021 |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
Six Months Ended June 30, 2013 |
||||||||||||||
|
|
Income |
|
Weighted Average Shares Outstanding |
|
Earnings Per Share |
|
Income |
|
Weighted Average Shares Outstanding |
|
Earnings Per Share |
||||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to controlling interests and available to common stockholders |
|
$ |
23,554 |
|
|
|
|
|
|
|
$ |
24,757 |
|
|
|
|
|
|
Less: Undistributed earnings allocated to unvested restricted shares |
|
|
(102) |
|
|
|
|
|
|
|
|
(666) |
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
23,452 |
|
|
44,270,363 |
|
$ |
0.53 |
|
$ |
24,091 |
|
|
44,321,069 |
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Undistributed earnings allocated to restricted shares |
|
$ |
102 |
|
|
|
|
|
|
|
$ |
666 |
|
|
|
|
|
|
Stock options added to the denominator under the treasury stock method |
|
|
|
|
|
130,562 |
|
|
|
|
|
|
|
|
226,782 |
|
|
|
RSUs added to the denominator under the treasury stock method |
|
|
|
|
|
399,373 |
|
|
|
|
|
|
|
|
— |
|
|
|
Less: Undistributed earnings reallocated to restricted shares |
|
|
(100) |
|
|
|
|
|
|
|
|
(662) |
|
|
|
|
|
|
Net income available to common stockholders and assumed conversions |
|
$ |
23,454 |
|
|
44,800,298 |
|
$ |
0.52 |
|
$ |
24,095 |
|
|
44,547,851 |
|
$ |
0.54 |
The computation of diluted earnings per share excluded potentially dilutive common shares related to restricted stock of 61,031 and 80,298 shares for the three and six months ended June 30, 2014, respectively, and 454,918 and 466,152 shares for the three and six months ended June 30, 2013, respectively, because the effect of including these shares in the computation would have been anti-dilutive.
9
(5) Accumulated Other Comprehensive Loss, Net
Accumulated other comprehensive loss, net is displayed as a separate component of Stockholders' equity in the accompanying Consolidated Balance Sheets. The following tables present the changes in the balances of each component of accumulated other comprehensive loss, net for the three and six months ended June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
Unrealized (losses) gains on interest rate swap contracts |
|
Total |
|||
|
|
(In thousands) |
|||||||
Total accumulated other comprehensive loss, net as of April 1, 2014 |
|
$ |
(17,696) |
|
$ |
(53,332) |
(1) |
$ |
(71,028) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification |
|
|
3,429 |
|
|
(10,420) |
(2) |
|
(6,991) |
Amounts reclassified from accumulated other comprehensive loss, net |
|
|
— |
|
|
8,854 |
(2) |
|
8,854 |
Net current period other comprehensive income (loss) |
|
|
3,429 |
|
|
(1,566) |
|
|
1,863 |
Total accumulated other comprehensive loss, net as of June 30, 2014 |
|
$ |
(14,267) |
|
$ |
(54,898) |
(1) |
$ |
(69,165) |
(1) |
Net of deferred income tax benefit of $10,922 and $9,910 as of June 30, 2014 and April 1, 2014, respectively. |
(2) |
Net of deferred income tax (benefit) expense of $(6,734) and $5,722 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
Unrealized (losses) gains on interest rate swap contracts |
|
Total |
|||
|
|
(In thousands) |
|||||||
Total accumulated other comprehensive loss, net as of January 1, 2014 |
|
$ |
(18,436) |
|
$ |
(54,518) |
(1) |
$ |
(72,954) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification |
|
|
4,169 |
|
|
(17,972) |
(2) |
|
(13,803) |
Amounts reclassified from accumulated other comprehensive loss, net |
|
|
— |
|
|
17,592 |
(2) |
|
17,592 |
Net current period other comprehensive income (loss) |
|
|
4,169 |
|
|
(380) |
|
|
3,789 |
Total accumulated other comprehensive loss, net as of June 30, 2014 |
|
$ |
(14,267) |
|
$ |
(54,898) |
(1) |
$ |
(69,165) |
____________
(1) |
Net of deferred income tax benefit of $10,922 and $10,829 as of June 30, 2014 and January 1, 2014, respectively. |
(2) |
Net of deferred income tax (benefit) expense of $(4,398) and $4,305 for Other Comprehensive Income (Loss) before reclassification and amounts reclassified from accumulated other comprehensive loss, net, respectively. See Note 11, Derivative Financial Instruments. |
The Company records unrealized gains and losses related to its interest rate swaps net of estimated taxes in the Accumulated other comprehensive loss, net line item within Stockholders' equity in the accompanying Consolidated Balance Sheets since it is more likely than not that the Company will be able to realize the benefits associated with its net deferred tax asset positions in the future.
The 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.
10
(6) Intangible Assets
Intangible Assets with Indefinite Lives
The following table presents the net carrying amount of the Company's intangible assets with indefinite lives as well as the changes in the net carrying amounts for the six months ended June 30, 2014, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
||||||||||
|
|
U.S. |
|
Europe (1) |
|
Other International (2) |
|
Total |
||||
|
|
(In thousands) |
||||||||||
Balance as of January 1, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance |
|
$ |
288,439 |
|
$ |
162,763 |
|
$ |
3,292 |
|
$ |
454,494 |
Accumulated impairment loss |
|
|
— |
|
|
(50,003) |
|
|
— |
|
|
(50,003) |
|
|
$ |
288,439 |
|
$ |
112,760 |
|
$ |
3,292 |
|
$ |
404,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
6,623 |
|
|
— |
|
|
— |
|
|
6,623 |
Purchase price adjustments |
|
|
(1,174) |
|
|
(509) |
|
|
— |
|
|
(1,683) |
Foreign currency translation adjustments |
|
|
— |
|
|
3,528 |
|
|
5 |
|
|
3,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance |
|
$ |
293,888 |
|
$ |
165,782 |
|
$ |
3,297 |
|
$ |
462,967 |
Accumulated impairment loss |
|
|
— |
|
|
(50,003) |
|
|
— |
|
|
(50,003) |
|
|
$ |
293,888 |
|
$ |
115,779 |
|
$ |
3,297 |
|
$ |
412,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
____________
(1) |
The Europe segment is comprised of the Company’s operations in the U.K. and Germany. |
(2) |
The Other International segment is comprised of the Company’s operations in Mexico and Canada. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name: indefinite-lived |
|||||||
|
|
U.S. |
|
Europe |
|
Total |
|||
|
|
(In thousands) |
|||||||
Balance as of January 1, 2014: |
|
$ |
200 |
|
$ |
560 |
|
$ |
760 |
Foreign currency translation adjustments |
|
|
— |
|
|
18 |
|
|
18 |
Balance as of June 30, 2014 |
|
$ |
200 |
|
$ |
578 |
|
$ |
778 |
Intangible Assets with Definite Lives
The following is a summary of the Company's intangible assets that were subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||||||||||||||
Gross |
Net |
Gross |
Net |
|||||||||||||||
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
Accumulated |
|
Carrying |
||||||
|
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
||||||
|
|
(In thousands) |
|
(In thousands) |
||||||||||||||
Customer and branding contracts/relationships |
|
$ |
298,145 |
|
$ |
(178,105) |
|
$ |
120,040 |
|
$ |
291,392 |
|
$ |
(162,775) |
|
$ |
128,617 |
Deferred financing costs |
|
|
15,965 |
|
|
(6,192) |
|
|
9,773 |
|
|
15,038 |
|
|
(5,466) |
|
|
9,572 |
Non-compete agreements |
|
|
4,186 |
|
|
(3,167) |
|
|
1,019 |
|
|
4,075 |
|
|
(2,437) |
|
|
1,638 |
Technology |
|
|
2,836 |
|
|
(1,455) |
|
|
1,381 |
|
|
2,827 |
|
|
(775) |
|
|
2,052 |
Trade name: definite-lived |
|
|
13,514 |
|
|
(1,251) |
|
|
12,263 |
|
|
13,164 |
|
|
(527) |
|
|
12,637 |
Total |
|
$ |
334,646 |
|
$ |
(190,170) |
|
$ |
144,476 |
|
$ |
326,496 |
|
$ |
(171,980) |
|
$ |
154,516 |
11
(7) Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||
|
|
(In thousands) |
||||
Accrued merchant fees |
|
$ |
43,504 |
|
$ |
32,619 |
Accrued merchant settlement amounts |
|
|
31,422 |
|
|
17,365 |
Accrued maintenance fees |
|
|
9,916 |
|
|
5,186 |
Accrued cash rental and management fees |
|
|
9,658 |
|
|
4,570 |
Accrued compensation |
|
|
9,516 |
|
|
12,501 |
Accrued taxes |
|
|
8,079 |
|
|
23,033 |
Accrued armored fees |
|
|
5,452 |
|
|
5,271 |
Accrued interest expense |
|
|
5,287 |
|
|
6,140 |
Accrued purchases |
|
|
3,802 |
|
|
2,392 |
Accrued interest rate swap payments |
|
|
2,917 |
|
|
2,211 |
Accrued processing costs |
|
|
890 |
|
|
939 |
Accrued ATM telecommunications costs |
|
|
609 |
|
|
1,682 |
Other accrued expenses |
|
|
19,072 |
|
|
23,867 |
Total |
|
$ |
150,124 |
|
$ |
137,776 |
(8) Long-Term Debt
The Company's long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||
|
|
(In thousands) |
||||
8.25% Senior subordinated notes due September 2018 |
|
$ |
179,442 |
|
$ |
200,000 |
1.00% Convertible senior notes due December 2020, net of discount |
|
|
220,950 |
|
|
216,635 |
Revolving credit facility, including swing-line credit facility (weighted-average combined interest rate of 2.2% and 2.5% as of June 30, 2014 and December 31, 2013, respectively) |
|
|
73,220 |
|
|
72,547 |
Equipment financing notes |
|
|
616 |
|
|
1,332 |
Total |
|
|
474,228 |
|
|
490,514 |
Less: current portion |
|
|
615 |
|
|
1,289 |
Total long-term debt, excluding current portion |
|
$ |
473,613 |
|
$ |
489,225 |
Revolving Credit Facility
On April 24, 2014, the Company entered into an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement provides for a $375 million revolving credit facility (the “Revolving Credit Facility”) and includes an accordion feature that will allow us to increase the available borrowings under the Revolving Credit Facility to $500 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 million for letters of credit, a sub- limit of up to $25 million for swingline loans and a sub-limit of up to the equivalent amount of $125 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 our most recent Total Net Leverage Ratio (as defined in the Credit Agreement). 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 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 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 our obligations under the Revolving Credit Facility. There are currently no restrictions on the ability of our subsidiaries to declare and pay dividends to us.
The primary restrictive covenants within the credit agreement governing our revolving credit facility include (1) limitations on the amount of senior secured net debt and total net debt that we can have outstanding at any given point in time and (2) the maintenance of a set ratio of earnings to fixed charges, as computed quarterly on a trailing 12-month basis, adjusted for the pro forma effect of acquisitions. 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 the total net leverage ratio is less than 3.0 to 1.0 at the time such restricted payment is made.
12
As of June 30, 2014, the Company was in compliance with all applicable covenants and ratios under the Credit Agreement.
As of June 30, 2014, $73.2 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 June 30, 2014, the Company’s available borrowing capacity under the Revolving Credit Facility totaled approximately $299.7 million.
$200.0 Million 8.25% Senior Subordinated Notes Due 2018
The $200.0 million 8.25% senior subordinated notes due September 2018 (the "2018 Notes"), which are guaranteed by all of the Company's domestic subsidiaries, contain no maintenance covenants and only limited incurrence covenants, under which the Company has considerable flexibility. Interest under the 2018 Notes is paid semi-annually in arrears on March 1st and September 1st of each year. As of June 30, 2014, the Company was in compliance with all applicable covenants required under the 2018 Notes.
During the six months ended June 30, 2014, the Company repurchased $20.6 million of the 2018 Notes in the open market. In connection with the repurchase, the Company recorded a $0.4 million pre-tax charge to write off a portion of the unamortized deferred financing costs associated with the repurchased 2018 Notes, which is 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 $1.4 million pre-tax charge related to the premium paid for the repurchase, which is included in the Redemption costs for early extinguishment of debt line item in the accompanying Consolidated Statements of Operations.
$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 the amount paid to repurchase its outstanding common stock concurrently with the offering. The Company used a portion of the net proceeds from the offering to pay 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, concurrently 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, beginning on June 1, 2014. Under U.S. GAAP, certain convertible debt instruments that may be settled in cash (or other assets) upon conversion are required to be separately accounted for as liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company, with assistance from a valuation professional, determined that the fair value of the debt component was $215.8 million and the fair value of the embedded option was $71.7 million as of the issuance date. Under U.S. GAAP, 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 corresponds 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 June 30, 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 June 30, 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.
13
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 for the three and six months ended June 30, 2014, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||
|
|
June 30, |
||||
|
|
2014 |
|
2013 |
||
|
|
(In thousands) |
||||
Cash interest per contractual coupon rate |
|
$ |
719 |
|
$ |
— |
Amortization of note discount |
|
|
2,167 |
|
|
— |
Amortization of deferred financing costs |
|
|
129 |
|
|
— |
Total interest expense related to Convertible Notes |
|
$ |
3,015 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
June 30, |
||||
|
|
2014 |
|
2013 |
||
|
|
(In thousands) |
||||
Cash interest per contractual coupon rate |
|
$ |
1,438 |
|
$ |
— |
Amortization of note discount |
4,315 |
— |
||||
Amortization of deferred financing costs |
|
|
254 |
|
|
— |
Total interest expense related to Convertible Notes |
|
$ |
6,007 |
|
$ |
— |
The carrying value of the Convertible Notes consisted of the following as of June 30, 2014 and December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||
|
|
(In thousands) |
||||
Principal balance |
|
$ |
287,500 |
|
$ |
287,500 |
Discount, net of accumulated amortization |
|
|
(66,550) |
|
|
(70,865) |
Net carrying amount of Convertible Notes |
|
$ |
220,950 |
|
$ |
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 will be required to issue additional shares of its common stock to the warrant holders. The amounts allocated to both the note hedge and warrants were recorded in equity, within the Additional paid-in capital line item.
Other Borrowing Facilities
Cardtronics Mexico equipment financing agreements. Between 2007 and 2010, Cardtronics Mexico entered into several separate five-year equipment financing agreements with a single lender, of which four agreements have outstanding balances as of June 30, 2014. These agreements, which are denominated in pesos and bear interest at an average fixed rate of 9.79%, were utilized for the purchase of ATMs to support growth in the Company’s Mexico operations. As of June 30, 2014, approximately $8.0 million pesos ($0.6 million U.S.) were outstanding under the agreements. Pursuant to the terms of the loan agreements, the Company has issued guarantees for 51.0% of the obligations under these agreements (consistent with its ownership percentage in Cardtronics Mexico). As of June 30, 2014, the total amount of these guarantees was $4.1 million pesos ($0.3 million U.S.).
14
Cardtronics U.K. overdraft facility. Cardtronics U.K. has a £1.0 million overdraft facility. This overdraft facility, which bears interest at 1.0% over the Bank of England’s base rate (0.5% as of June 30, 2014) and is secured by a letter of credit posted under our revolving credit facility, is utilized for general corporate purposes for our U.K. operations. The letter of credit the Company has posted that is associated with this overdraft facility reduces the available borrowing capacity under its corporate revolving credit facility discussed above. As of June 30, 2014, there were no amounts outstanding under the overdraft facility.
(9) Asset Retirement Obligations
Asset retirement obligations consist primarily of costs to deinstall the Company's ATMs and costs to restore the ATM sites to their original condition, which are estimated based on current market rates. In most cases, the Company is contractually required to perform this deinstallation and restoration work. For each group of ATMs, the Company has recognized the fair value of the asset retirement obligation as a liability on its balance sheet and capitalized that cost as part of the cost basis of the related asset. The related assets are depreciated on a straight-line basis over five years, which is the estimated average time period that an ATM is installed in a location before being deinstalled, and the related liabilities are accreted to their full value over the same period of time.
The following table is a summary of the changes in the Company's asset retirement obligation liability for the six months ended June 30, 2014 (in thousands):
Asset retirement obligation as of January 1, 2014 |
$ |
63,831 | |
Additional obligations |
3,083 | ||
Accretion expense |
1,694 | ||
Payments |
(1,750) | ||
Foreign currency translation adjustments |
1,225 | ||
Total Asset retirement obligation as of June 30, 2014 |
68,083 | ||
Less: current portion |
3,202 | ||
Asset retirement obligation, excluding current portion |
$ |
64,881 |
See Note 12, Fair Value Measurements for additional disclosures on the Company's asset retirement obligations with respect to its fair value measurements.
(10) Other Liabilities
Other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||
|
|
(In thousands) |
||||
Current Portion of Other Long-Term Liabilities: |
|
|
|
|
|
|
Interest rate swaps |
|
$ |
31,087 |
|
$ |
31,069 |
Obligations associated with unfavorable contracts |
|
|
521 |
|
|
— |
Deferred revenue |
|
|
1,690 |
|
|
1,315 |
Asset retirement obligations |
|
|
3,202 |
|
|
3,166 |
Other |
|
|
55 |
|
|
47 |
Total |
|
$ |
36,555 |
|
$ |
35,597 |
|
|
|
|
|
|
|
Other Long-Term Liabilities: |
|
|
|
|
|
|
Interest rate swaps |
|
$ |
34,729 |
|
$ |
34,509 |
Obligations associated with unfavorable contracts |
|
|
2,186 |
|
|
— |
Deferred revenue |
|
|
879 |
|
|
962 |
Other |
|
|
4,598 |
|
|
3,265 |
Total |
|
$ |
42,392 |
|
$ |
38,736 |
15
(11) Derivative Financial Instruments
Cash Flow Hedging Strategy
The Company is exposed to certain risks relating to its ongoing business operations, including interest rate risk associated with its vault cash rental obligations and, to a lesser extent, borrowings under its revolving credit facility. The Company is also exposed to foreign currency exchange rate risk with respect to its investments in its foreign subsidiaries. While the Company does not currently utilize derivative instruments to hedge its foreign currency exchange rate risk, it does utilize interest rate swap contracts to manage the interest rate risk associated with its vault cash rental obligations in the U.S. The Company does not currently utilize any derivative instruments to manage the interest rate risk associated with its vault cash rental obligations in U.K., Mexico, Canada, or Germany, nor does it utilize derivative instruments to manage the interest rate risk associated with borrowings outstanding under its revolving credit facility.
The interest rate swap contracts entered into with respect to the Company's vault cash rental obligations serve to mitigate the Company's exposure to interest rate risk by converting a portion of the Company's monthly floating rate vault cash rental obligations to a fixed rate. The Company has contracts in varying notional amounts through December 31, 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 |
Weighted Average Fixed Rate |
Term |
|||||
(In millions) |
|||||||
$ |
1,250 |
2.98 |
% |
July 1, 2014 – December 31, 2014 |
|||
$ |
1,300 |
2.84 |
% |
January 1, 2015 – December 31, 2015 |
|||
$ |
1,300 |
2.74 |
% |
January 1, 2016 – December 31, 2016 |
|||
$ |
1,000 |
2.53 |
% |
January 1, 2017 – December 31, 2017 |
|||
$ |
750 |
2.54 |
% |
January 1, 2018 – December 31, 2018 |
Accounting Policy
The Company recognizes all of its derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. The accounting for changes in the fair value (e.g., gains or losses) of those derivative instruments depends on (1) whether these instruments have been designated (and qualify) as part of a hedging relationship and (2) the type of hedging relationship actually designated. For derivative instruments that are designated and qualify as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a cash flow hedge, a fair value hedge, or a hedge of a net investment in a foreign operation.
The Company has designated 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.
16
Tabular Disclosures
The following tables depict the effects of the use of the Company's derivative contracts on its Consolidated Balance Sheets and Consolidated Statements of Operations.
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||||||
Liability Derivative Instruments |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
||
|
|
(In thousands) |
|
(In thousands) |
||||||
Derivatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
Interest rate swap contracts |
|
Current portion of other long-term liabilities |
|
$ |
31,087 |
|
Current portion of other long-term liabilities |
|
$ |
31,069 |
Interest rate swap contracts |
|
Other long-term liabilities |
|
|
34,729 |
|
Other long-term liabilities |
|
|
34,509 |
Total Derivatives |
|
|
|
$ |
65,816 |
|
|
|
$ |
65,578 |
Statements of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||||
Derivatives in Cash Flow Hedging Relationship |
|
Amount of (Loss) Gain Recognized in OCI on Derivative Instruments (Effective Portion) |
|
Location of Loss Reclassed from Accumulated OCI Into Income (Effective Portion) |
|
Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |
||||||||
|
|
2014 |
|
2013 |
|
|
|
2014 |
|
2013 |
||||
|
|
(In thousands) |
|
|
|
(In thousands) |
||||||||
Interest rate swap contracts |
|
$ |
(10,420) |
|
$ |
11,119 |
|
Cost of ATM operating revenues |
|
$ |
(8,854) |
|
$ |
(6,429) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||
Derivatives in Cash Flow Hedging Relationship |
|
Amount of (Loss) Gain Recognized in OCI on Derivative Instruments (Effective Portion) |
|
Location of Loss Reclassed from Accumulated OCI Into Income (Effective Portion) |
|
Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion) |
||||||||
|
|
2014 |
|
2013 |
|
|
|
2014 |
|
2013 |
||||
|
|
(In thousands) |
|
|
|
(In thousands) |
||||||||
Interest rate swap contracts |
|
$ |
(17,972) |
|
$ |
10,492 |
|
Cost of ATM operating revenues |
|
$ |
(17,592) |
|
$ |
(12,759) |
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 June 30, 2014, the Company expected to reclassify $31.1 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 12, Fair Value Measurements for additional disclosures on the Company's interest rate swap contracts in respect to its fair value measurements.
17
(12) Fair Value Measurements
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2014 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2014 |
||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
|
|
(In thousands) |
||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities associated with interest rate swaps |
|
$ |
65,816 |
|
$ |
— |
|
$ |
65,816 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013 |
||||||||||
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
||||
|
|
(In thousands) |
||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities associated with interest rate swaps |
|
$ |
65,578 |
|
$ |
— |
|
$ |
65,578 |
|
$ |
— |
Acquisition-related contingent consideration |
|
|
575 |
|
|
— |
|
|
— |
|
|
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 on a non-recurring basis using Level 3 inputs, and are only reevaluated periodically based on current fair value. Amounts added to the asset retirement obligation liability during the six months ended June 30, 2014 and 2013 totaled $3.1 million and $1.7 million, respectively.
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 $65.8 million as of June 30, 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 11, 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. As of June 30, 2014, there were no significant acquisition-related contingent consideration liabilities outstanding.
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 June 30, 2014, the fair value of the Company's 2018 Notes and the Convertible Notes (see Note 8, Long-Term Debt) totaled $188.8 million and $263.8 million, respectively, based on the quoted market price (Level 1 input) for these notes as of that date.
18
(13) Commitments and Contingencies
Legal Matters
National Federation of the Blind. Through its acquisition of the E*Trade ATM portfolio, the Company became the sole defendant in the June 2003 lawsuit filed by the National Federation of the Blind, the Commonwealth of Massachusetts, et. al. and certain individuals representing a class of similarly situated persons (the "Plaintiffs") against E*Trade Access, Inc., et al. in the U.S. District Court for the District of Massachusetts (“Massachusetts District Court”): Civil Action No. 03-11206-NMG (the “Lawsuit”). The Plaintiffs sought to require, among other things, that ATMs deployed by E*Trade be voice-guided. In December 2007, the Company and Plaintiffs entered into a settlement agreement (as modified in November 2010, the "Settlement Agreement"). In 2011, the Plaintiffs filed a motion of contempt with the Massachusetts District Court alleging that the Company had failed to fully comply with the requirements of the Settlement Agreement. On December 15, 2011, the Massachusetts District Court issued an order that required the Company to bring all of its ATMs in compliance with the terms of the Settlement Agreement by March 15, 2012. In August 2012, the Plaintiffs filed their second motion of contempt, which alleged, among other things, that the Company had failed to meet the Massachusetts District Court’s deadline and sought a fine of $50 per ATM for each month that the Massachusetts District Court determined the Company was not in compliance.
In March 2013, the Massachusetts District Court issued an order that stated that sanctions would be imposed, but did not specify what violations had occurred. In April 2013, the Massachusetts District Court appointed a Special Master to determine how many of the Company’s ATMs were not in compliance with the Settlement Agreement as of March 15, 2012 and to determine an appropriate sanction or fine, if any, for such non-compliance. Since his appointment, the Special Master has met numerous times with all the parties, reviewed all matters thought relevant by him and in December 2013, filed under seal his Report and Recommendation with the Court. The Special Master is currently conducting negotiations among the parties to determine if an amended and restated settlement agreement can be agreed upon by the parties to resolve all outstanding issues. The Company does not expect the outcome of this matter to have a material adverse effect upon its financial condition or results of operations.
Automated Transactions. On August 16, 2010, a lawsuit was filed in the U.S. District Court for the District of Delaware (the “District Court”) entitled Automated Transactions LLC (“ATL”) v. IYG Holding Co., et al. 10 Civ. 0691 (D. Del.) (the "2010 Lawsuit"). The 2010 Lawsuit names the Company's wholly-owned subsidiary, Cardtronics USA, Inc. (“Cardtronics USA”), as one of the defendants. The 2010 Lawsuit alleges that Cardtronics USA and the other defendants infringed upon seven of the plaintiff's patents by providing retail transactions to consumers through their ATMs. The plaintiff, ATL, is seeking a permanent injunction, damages, treble damages and costs, including attorney's fees and expenses. ATL is a non-practicing entity that has initiated dozens of similar lawsuits across the nation. The allegations raised by the plaintiff in this suit are similar to the allegations made by the same plaintiff in an earlier suit (the "2006 Lawsuit") in the same District Court against us and other defendants, which prior allegations were rejected by the both District Court and the U.S. Court of Appeals. Additionally, in January 2011, the U.S. Patent and Trademark Office Board of Patent Appeals and Interferences rejected on grounds of obviousness all claims relating to the underlying parent patent in both the 2006 and 2010 Lawsuits
Notwithstanding these prior adverse decisions, ATL has continued initiating new patent infringement lawsuits across the country against primarily small financial institutions. Upon motion by us and other similarly situated defendants, many of these cases have been consolidated in the same district court which rendered the adverse ruling in the 2006 Lawsuit against ATL. The Company has always maintained that these ATL lawsuits have no merit, primarily because the asserted child patents have patent claims or limitations previously held invalid or not infringed by the U.S. Court of Appeals. In June 2014, ATL unilaterally and without notice to us, filed a motion to dismiss with prejudice to its right to sue us with respect to the claims asserted in the above cases. Concurrently, ATL also filed a covenant not to sue us or the other defendants. We have objected to ATL’s actions for several reasons, including our contention that their proposed covenant not to sue is too narrow. In any event, the Company continues to believe that the remaining lawsuits will not have a material impact on its financial condition or results of operations and the Company will continue to vigorously defend its position.
In addition to the above legal proceedings, 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 of these legal proceedings, individually or collectively, to have a material adverse impact on the Company’s financial condition or results of operations. Additionally, the Company currently expenses all legal costs as they are incurred.
Other Commitments
Asset Retirement Obligations. The Company's asset retirement obligations consist primarily of deinstallation costs of the ATM and costs to restore the ATM site to its original condition. In most cases, the Company is legally required to perform this deinstallation and restoration work. The Company had $68.1 million accrued for these liabilities as of June 30, 2014. For additional information, see Note 9, Asset Retirement Obligations.
19
(14) Income Taxes
Income tax expense based on the Company's income before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
||||
|
|
(In thousands) |
|
(In thousands) |
|
||||||||
Income tax expense |
|
$ |
8,015 |
|
$ |
10,034 |
|
$ |
13,788 |
|
$ |
16,014 |
|
Effective tax rate |
|
|
37.4 |
% |
|
40.5 |
% |
|
37.6 |
% |
|
40.1 |
% |
The decrease in income tax expense and effective tax rate for the three and six months ended June 30, 2014 when compared to the same period in 2013 was primarily attributable to the change in the mix of earnings across jurisdictions. The Company continues to maintain valuation allowances for its local net deferred tax asset positions for certain of its entities in the U.K. and Mexico, as the Company currently believes that it is more likely than not that these tax assets will not be realized.
The deferred taxes associated with the Company's unrealized gains and losses on derivative instruments have been reflected within the accumulated other comprehensive loss balance in the accompanying Consolidated Balance Sheets.
20
(15) Segment Information
As of June 30, 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. 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 of intangible assets 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.
Below is a reconciliation of Adjusted EBITDA to net income attributable to controlling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
(In thousands) |
|
(In thousands) |
||||||||
Adjusted EBITDA |
|
$ |
64,853 |
|
$ |
53,936 |
|
$ |
121,733 |
|
$ |
102,462 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets |
|
|
316 |
|
|
157 |
|
|
584 |
|
|
360 |
Other income (1) |
|
|
(5,261) |
|
|
(2,050) |
|
|
(5,230) |
|
|
(2,471) |
Noncontrolling interests |
|
|
(391) |
|
|
(536) |
|
|
(764) |
|
|
(955) |
Stock-based compensation expense (2) |
|
|
3,692 |
|
|
2,568 |
|
|
6,903 |
|
|
5,725 |
Acquisition-related expenses |
|
|
7,642 |
|
|
1,184 |
|
|
10,729 |
|
|
4,006 |
Other adjustments to selling, general, and administrative expenses (3) |
|
|
— |
|
|
— |
|
|
— |
|
|
446 |
EBITDA |
|
$ |
58,855 |
|
$ |
52,613 |
|
$ |
109,511 |
|
$ |
95,351 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net, including amortization of deferred financing costs and note discount, and redemption cost for early extinguishment of debt |
|
|
8,789 |
|
|
5,290 |
|
|
17,544 |
|
|
10,585 |
Income tax expense |
|
|
8,015 |
|
|
10,034 |
|
|
13,788 |
|
|
16,014 |
Depreciation and accretion expense |
|
|
19,597 |
|
|
15,881 |
|
|
37,943 |
|
|
32,166 |
Amortization of intangible assets |
|
|
8,465 |
|
|
6,081 |
|
|
16,682 |
|
|
11,829 |
Net income attributable to controlling interests and available to common stockholders |
|
$ |
13,989 |
|
$ |
15,327 |
|
$ |
23,554 |
|
$ |
24,757 |
____________
(1) |
2014 amounts include non-recurring settlement gain of $4.8 million. |
(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) |
Adjustment relates to severance-related costs associated with the management of the Company’s U.K. operations. |
21
The following tables reflect certain financial information for each of the Company's reporting segments for the three and six months ended June 30, 2014 and 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenue from external customers |
|
$ |
179,101 |
|
$ |
70,878 |
|
$ |
10,050 |
|
$ |
— |
|
$ |
260,029 |
Intersegment revenues |
|
|
1,816 |
|
|
378 |
|
|
18 |
|
|
(2,212) |
|
|
— |
Cost of revenues |
|
|
115,025 |
|
|
49,638 |
|
|
8,664 |
|
|
(2,193) |
|
|
171,134 |
Selling, general, and administrative expenses |
|
|
21,976 |
|
|
5,169 |
|
|
781 |
|
|
— |
|
|
27,926 |
Acquisition-related expenses |
|
|
664 |
|
|
6,978 |
|
|
— |
|
|
— |
|
|
7,642 |
Loss on disposal of assets |
|
|
261 |
|
|
12 |
|
|
43 |
|
|
— |
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
47,602 |
|
|
16,451 |
|
|
819 |
|
|
(19) |
|
|
64,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense |
|
|
10,785 |
|
|
7,751 |
|
|
1,075 |
|
|
(14) |
|
|
19,597 |
Amortization of intangible assets |
|
|
5,642 |
|
|
2,651 |
|
|
172 |
|
|
— |
|
|
8,465 |
Interest expense, net, including amortization of deferred financing costs and note discount |
|
|
7,514 |
|
|
508 |
|
|
68 |
|
|
— |
|
|
8,090 |
Redemption costs for early extinguishment of debt |
|
|
699 |
|
|
— |
|
|
— |
|
|
— |
|
|
699 |
Income tax expense (benefit) |
|
|
8,524 |
|
|
(509) |
|
|
— |
|
|
— |
|
|
8,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1) |
|
$ |
13,622 |
|
$ |
10,242 |
|
$ |
1,195 |
|
$ |
(18) |
|
$ |
25,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenue from external customers |
|
$ |
164,191 |
|
$ |
32,628 |
|
$ |
11,165 |
|
$ |
— |
|
$ |
207,984 |
Intersegment revenues |
|
|
1,816 |
|
|
— |
|
|
15 |
|
|
(1,831) |
|
|
— |
Cost of revenues |
|
|
105,242 |
|
|
24,618 |
|
|
9,672 |
|
|
(1,822) |
|
|
137,710 |
Selling, general, and administrative expenses |
|
|
15,838 |
|
|
2,232 |
|
|
862 |
|
|
— |
|
|
18,932 |
Acquisition-related expenses |
|
|
1,177 |
|
|
— |
|
|
7 |
|
|
— |
|
|
1,184 |
Loss (gain) on disposal of assets |
|
|
120 |
|
|
(12) |
|
|
49 |
|
|
— |
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
47,484 |
|
|
5,777 |
|
|
684 |
|
|
(9) |
|
|
53,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense |
|
|
10,197 |
|
|
4,510 |
|
|
1,189 |
|
|
(15) |
|
|
15,881 |
Amortization of intangible assets |
|
|
5,330 |
|
|
573 |
|
|
178 |
|
|
— |
|
|
6,081 |
Interest expense, net, including amortization of deferred financing costs |
|
|
5,014 |
|
|
183 |
|
|
93 |
|
|
— |
|
|
5,290 |
Income tax expense |
|
|
10,034 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1) |
|
$ |
8,777 |
|
$ |
4,842 |
|
$ |
308 |
|
$ |
(9) |
|
$ |
13,918 |
____________
(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. |
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenue from external customers |
|
$ |
351,293 |
|
$ |
134,922 |
|
$ |
18,886 |
|
$ |
— |
|
$ |
505,101 |
Intersegment revenues |
|
|
3,644 |
|
|
751 |
|
|
34 |
|
|
(4,429) |
|
|
— |
Cost of revenues |
|
|
228,590 |
|
|
97,758 |
|
|
15,763 |
|
|
(4,408) |
|
|
337,703 |
Selling, general, and administrative expenses |
|
|
41,139 |
|
|
9,761 |
|
|
1,553 |
|
|
— |
|
|
52,453 |
Acquisition-related expenses |
|
|
819 |
|
|
9,910 |
|
|
— |
|
|
— |
|
|
10,729 |
Loss on disposal of assets |
|
|
511 |
|
|
12 |
|
|
61 |
|
|
— |
|
|
584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
92,097 |
|
|
28,155 |
|
|
1,502 |
|
|
(21) |
|
|
121,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense |
|
|
21,636 |
|
|
14,272 |
|
|
2,063 |
|
|
(28) |
|
|
37,943 |
Amortization of intangible assets |
|
|
11,053 |
|
|
5,287 |
|
|
342 |
|
|
— |
|
|
16,682 |
Interest expense, net, including amortization of deferred financing costs and note discount |
|
|
15,072 |
|
|
990 |
|
|
129 |
|
|
— |
|
|
16,191 |
Redemption costs for early extinguishment of debt |
|
|
1,353 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,353 |
Income tax expense (benefit) |
|
|
14,329 |
|
|
(541) |
|
|
— |
|
|
— |
|
|
13,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1) |
|
$ |
21,484 |
|
$ |
18,847 |
|
$ |
1,442 |
|
$ |
(20) |
|
$ |
41,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenue from external customers |
|
$ |
321,347 |
|
$ |
62,127 |
|
$ |
22,248 |
|
$ |
— |
|
$ |
405,722 |
Intersegment revenues |
|
|
3,653 |
|
|
— |
|
|
32 |
|
|
(3,685) |
|
|
— |
Cost of revenues |
|
|
208,107 |
|
|
48,038 |
|
|
18,910 |
|
|
(3,656) |
|
|
271,399 |
Selling, general, and administrative expenses |
|
|
31,821 |
|
|
4,358 |
|
|
1,742 |
|
|
— |
|
|
37,921 |
Acquisition-related expenses |
|
|
3,977 |
|
|
— |
|
|
29 |
|
|
— |
|
|
4,006 |
Loss (gain) on disposal of assets |
|
|
303 |
|
|
(5) |
|
|
62 |
|
|
— |
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
90,777 |
|
|
10,176 |
|
|
1,538 |
|
|
(29) |
|
|
102,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense |
|
|
20,275 |
|
|
9,586 |
|
|
2,356 |
|
|
(51) |
|
|
32,166 |
Amortization of intangible assets |
|
|
10,548 |
|
|
927 |
|
|
354 |
|
|
— |
|
|
11,829 |
Interest expense, net, including amortization of deferred financing costs |
|
|
10,054 |
|
|
356 |
|
|
175 |
|
|
— |
|
|
10,585 |
Income tax expense |
|
|
16,014 |
|
|
— |
|
|
— |
|
|
— |
|
|
16,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1) |
|
$ |
20,688 |
|
$ |
8,736 |
|
$ |
441 |
|
$ |
(10) |
|
$ |
29,855 |
____________
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
December 31, 2013 |
||
|
|
(In thousands) |
||||
United States |
|
$ |
944,072 |
|
$ |
931,396 |
Europe |
|
|
364,012 |
|
|
341,618 |
Other International |
|
|
28,998 |
|
|
26,452 |
Eliminations |
|
|
(265,542) |
|
|
(243,263) |
Total |
|
$ |
1,071,540 |
|
$ |
1,056,203 |
23
(16) Supplemental Guarantor Financial Information
The Company's 2018 Notes are fully and unconditionally guaranteed, subject to certain customary release provisions, on a joint and several basis by all of the Company's 100% owned domestic subsidiaries. The following information sets forth the Condensed Consolidating Statements of Operations and Cash Flows for the three and six months ended June 30, 2014 and 2013 and the condensed consolidating balance sheets as of June 30, 2014 and December 31, 2013 of (1) Cardtronics, Inc., the parent company and issuer of the 2018 Notes ("Parent"); (2) all of the Company's 100% owned domestic subsidiaries on a combined basis (collectively, the "Guarantors"); and (3) the Company's international subsidiaries on a combined basis (collectively, the "Non-Guarantors"):
Condensed Consolidating Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenues |
|
$ |
— |
|
$ |
180,917 |
|
$ |
81,324 |
|
$ |
(2,212) |
|
$ |
260,029 |
Operating costs and expenses |
|
|
3,769 |
|
|
150,584 |
|
|
82,934 |
|
|
(2,207) |
|
|
235,080 |
Operating (loss) income |
|
|
(3,769) |
|
|
30,333 |
|
|
(1,610) |
|
|
(5) |
|
|
24,949 |
Interest expense, net, including amortization of deferred financing costs and note discount |
|
|
5,445 |
|
|
2,069 |
|
|
576 |
|
|
— |
|
|
8,090 |
Redemption costs for early extinguishment of debt |
|
|
699 |
|
|
— |
|
|
— |
|
|
— |
|
|
699 |
Equity in (earnings) losses of subsidiaries |
|
|
(31,909) |
|
|
(297) |
|
|
— |
|
|
32,206 |
|
|
— |
Other expense (income), net |
|
|
1,691 |
|
|
(4,988) |
|
|
(1,935) |
|
|
(29) |
|
|
(5,261) |
Income (loss) before income taxes |
|
|
20,305 |
|
|
33,549 |
|
|
(251) |
|
|
(32,182) |
|
|
21,421 |
Income tax expense (benefit) |
|
|
6,923 |
|
|
1,601 |
|
|
(509) |
|
|
— |
|
|
8,015 |
Net income |
|
|
13,382 |
|
|
31,948 |
|
|
258 |
|
|
(32,182) |
|
|
13,406 |
Net loss attributable to noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
(583) |
|
|
(583) |
Net income attributable to controlling interests and available to common stockholders |
|
|
13,382 |
|
|
31,948 |
|
|
258 |
|
|
(31,599) |
|
|
13,989 |
Other comprehensive income (loss) attributable to controlling interests |
|
|
1,396 |
|
|
(2,469) |
|
|
2,936 |
|
|
3 |
|
|
1,866 |
Comprehensive income attributable to controlling interests |
|
$ |
14,778 |
|
$ |
29,479 |
|
$ |
3,194 |
|
$ |
(31,596) |
|
$ |
15,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenues |
|
$ |
— |
|
$ |
166,007 |
|
$ |
43,808 |
|
$ |
(1,831) |
|
$ |
207,984 |
Operating costs and expenses |
|
|
2,640 |
|
|
135,264 |
|
|
43,878 |
|
|
(1,837) |
|
|
179,945 |
Operating (loss) income |
|
|
(2,640) |
|
|
30,743 |
|
|
(70) |
|
|
6 |
|
|
28,039 |
Interest expense, net, including amortization of deferred financing costs |
|
|
2,027 |
|
|
2,987 |
|
|
276 |
|
|
— |
|
|
5,290 |
Equity in (earnings) losses of subsidiaries |
|
|
(28,694) |
|
|
(288) |
|
|
— |
|
|
28,982 |
|
|
— |
Other (income) expense, net |
|
|
— |
|
|
(2,853) |
|
|
803 |
|
|
— |
|
|
(2,050) |
Income (loss) before income taxes |
|
|
24,027 |
|
|
30,897 |
|
|
(1,149) |
|
|
(28,976) |
|
|
24,799 |
Income tax expense |
|
|
9,268 |
|
|
766 |
|
|
— |
|
|
— |
|
|
10,034 |
Net income (loss) |
|
|
14,759 |
|
|
30,131 |
|
|
(1,149) |
|
|
(28,976) |
|
|
14,765 |
Net loss attributable to noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
(562) |
|
|
(562) |
Net income (loss) attributable to controlling interests and available to common stockholders |
|
|
14,759 |
|
|
30,131 |
|
|
(1,149) |
|
|
(28,414) |
|
|
15,327 |
Other comprehensive (loss) income attributable to controlling interests |
|
|
(10,074) |
|
|
27,122 |
|
|
3 |
|
|
35 |
|
|
17,086 |
Comprehensive income (loss) attributable to controlling interests |
|
$ |
4,685 |
|
$ |
57,253 |
|
$ |
(1,146) |
|
$ |
(28,379) |
|
$ |
32,413 |
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenues |
|
$ |
— |
|
$ |
354,937 |
|
$ |
154,593 |
|
$ |
(4,429) |
|
$ |
505,101 |
Operating costs and expenses |
|
|
7,058 |
|
|
296,690 |
|
|
156,782 |
|
|
(4,436) |
|
|
456,094 |
Operating (loss) income |
|
|
(7,058) |
|
|
58,247 |
|
|
(2,189) |
|
|
7 |
|
|
49,007 |
Interest expense, net, including amortization of deferred financing costs and note discount |
|
|
8,893 |
|
|
6,179 |
|
|
1,119 |
|
|
— |
|
|
16,191 |
Redemption costs for early extinguishment of debt |
|
|
1,353 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,353 |
Equity in (earnings) losses of subsidiaries |
|
|
(53,839) |
|
|
(612) |
|
|
— |
|
|
54,451 |
|
|
— |
Other expense (income), net |
|
|
2,343 |
|
|
(4,763) |
|
|
(2,404) |
|
|
(406) |
|
|
(5,230) |
Income (loss) before income taxes |
|
|
34,192 |
|
|
57,443 |
|
|
(904) |
|
|
(54,038) |
|
|
36,693 |
Income tax expense (benefit) |
|
|
11,700 |
|
|
2,629 |
|
|
(541) |
|
|
— |
|
|
13,788 |
Net income (loss) |
|
|
22,492 |
|
|
54,814 |
|
|
(363) |
|
|
(54,038) |
|
|
22,905 |
Net loss attributable to noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
(649) |
|
|
(649) |
Net income (loss) attributable to controlling interests and available to common stockholders |
|
|
22,492 |
|
|
54,814 |
|
|
(363) |
|
|
(53,389) |
|
|
23,554 |
Other comprehensive income (loss) attributable to controlling interests |
|
|
397 |
|
|
(227) |
|
|
3,619 |
|
|
15 |
|
|
3,804 |
Comprehensive income attributable to controlling interests |
|
$ |
22,889 |
|
$ |
54,587 |
|
$ |
3,256 |
|
$ |
(53,374) |
|
$ |
27,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Revenues |
|
$ |
— |
|
$ |
325,000 |
|
$ |
84,407 |
|
$ |
(3,685) |
|
$ |
405,722 |
Operating costs and expenses |
|
|
5,870 |
|
|
269,161 |
|
|
86,357 |
|
|
(3,707) |
|
|
357,681 |
Operating (loss) income |
|
|
(5,870) |
|
|
55,839 |
|
|
(1,950) |
|
|
22 |
|
|
48,041 |
Interest expense, net, including amortization of deferred financing costs |
|
|
3,933 |
|
|
6,121 |
|
|
531 |
|
|
— |
|
|
10,585 |
Equity in (earnings) losses of subsidiaries |
|
|
(48,478) |
|
|
2,432 |
|
|
— |
|
|
46,046 |
|
|
— |
Other (income) expense, net |
|
|
— |
|
|
(4,406) |
|
|
1,935 |
|
|
— |
|
|
(2,471) |
Income (loss) before income taxes |
|
|
38,675 |
|
|
51,692 |
|
|
(4,416) |
|
|
(46,024) |
|
|
39,927 |
Income tax expense |
|
|
14,784 |
|
|
1,230 |
|
|
— |
|
|
— |
|
|
16,014 |
Net income (loss) |
|
|
23,891 |
|
|
50,462 |
|
|
(4,416) |
|
|
(46,024) |
|
|
23,913 |
Net loss attributable to noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
(844) |
|
|
(844) |
Net income (loss) attributable to controlling interests and available to common stockholders |
|
|
23,891 |
|
|
50,462 |
|
|
(4,416) |
|
|
(45,180) |
|
|
24,757 |
Other comprehensive (loss) income attributable to controlling interests |
|
|
(13,722) |
|
|
35,737 |
|
|
(3,301) |
|
|
(25) |
|
|
18,689 |
Comprehensive income (loss) attributable to controlling interests |
|
$ |
10,169 |
|
$ |
86,199 |
|
$ |
(7,717) |
|
$ |
(45,205) |
|
$ |
43,446 |
25
Condensed Consolidating Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6 |
|
$ |
49,598 |
|
$ |
11,760 |
|
$ |
— |
|
$ |
61,364 |
Accounts and notes receivable, net |
|
|
66,603 |
|
|
46,538 |
|
|
20,709 |
|
|
(70,984) |
|
|
62,866 |
Current portion of deferred tax asset, net |
|
|
15,673 |
|
|
1,915 |
|
|
2,809 |
|
|
— |
|
|
20,397 |
Other current assets |
|
|
471 |
|
|
23,158 |
|
|
41,345 |
|
|
(281) |
|
|
64,693 |
Total current assets |
|
|
82,753 |
|
|
121,209 |
|
|
76,623 |
|
|
(71,265) |
|
|
209,320 |
Property and equipment, net |
|
|
— |
|
|
170,259 |
|
|
114,518 |
|
|
(610) |
|
|
284,167 |
Intangible assets, net |
|
|
9,706 |
|
|
69,605 |
|
|
65,943 |
|
|
— |
|
|
145,254 |
Goodwill |
|
|
— |
|
|
293,888 |
|
|
119,076 |
|
|
— |
|
|
412,964 |
Investments in and advances to subsidiaries |
|
|
514,556 |
|
|
245,985 |
|
|
— |
|
|
(760,541) |
|
|
— |
Intercompany receivable |
|
|
154,041 |
|
|
100,553 |
|
|
— |
|
|
(254,594) |
|
|
— |
Deferred tax asset, net |
|
|
— |
|
|
— |
|
|
12,119 |
|
|
— |
|
|
12,119 |
Prepaid expenses, deferred costs, and other noncurrent assets |
|
|
— |
|
|
2,985 |
|
|
4,731 |
|
|
— |
|
|
7,716 |
Total assets |
|
$ |
761,056 |
|
$ |
1,004,484 |
|
$ |
393,010 |
|
$ |
(1,087,010) |
|
$ |
1,071,540 |
Liabilities and Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and notes payable |
|
$ |
— |
|
$ |
— |
|
$ |
615 |
|
$ |
— |
|
$ |
615 |
Current portion of other long-term liabilities |
|
|
— |
|
|
34,357 |
|
|
2,198 |
|
|
— |
|
|
36,555 |
Accounts payable and accrued liabilities |
|
|
8,282 |
|
|
151,636 |
|
|
82,767 |
|
|
(71,362) |
|
|
171,323 |
Current portion of deferred tax liability, net |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Total current liabilities |
|
|
8,282 |
|
|
185,993 |
|
|
85,580 |
|
|
(71,362) |
|
|
208,493 |
Long-term debt |
|
|
473,613 |
|
|
— |
|
|
— |
|
|
— |
|
|
473,613 |
Intercompany payable |
|
|
— |
|
|
190,234 |
|
|
117,232 |
|
|
(307,466) |
|
|
— |
Asset retirement obligations |
|
|
— |
|
|
22,615 |
|
|
42,266 |
|
|
— |
|
|
64,881 |
Deferred tax liability, net |
|
|
2,555 |
|
|
605 |
|
|
2,395 |
|
|
— |
|
|
5,555 |
Other long-term liabilities |
|
|
— |
|
|
39,925 |
|
|
2,467 |
|
|
— |
|
|
42,392 |
Total liabilities |
|
|
484,450 |
|
|
439,372 |
|
|
249,940 |
|
|
(378,828) |
|
|
794,934 |
Stockholders' equity |
|
|
276,606 |
|
|
565,112 |
|
|
143,070 |
|
|
(708,182) |
|
|
276,606 |
Total liabilities and stockholders' equity |
|
$ |
761,056 |
|
$ |
1,004,484 |
|
$ |
393,010 |
|
$ |
(1,087,010) |
|
$ |
1,071,540 |
26
Condensed Consolidating Balance Sheets — continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
412 |
|
$ |
73,379 |
|
$ |
13,148 |
|
$ |
— |
|
$ |
86,939 |
Accounts and notes receivable, net |
|
|
130,835 |
|
|
43,929 |
|
|
17,942 |
|
|
(134,432) |
|
|
58,274 |
Current portion of deferred tax asset, net |
|
|
15,735 |
|
|
1,915 |
|
|
3,552 |
|
|
— |
|
|
21,202 |
Other current assets |
|
|
917 |
|
|
11,580 |
|
|
27,948 |
|
|
(88) |
|
|
40,357 |
Total current assets |
|
|
147,899 |
|
|
130,803 |
|
|
62,590 |
|
|
(134,520) |
|
|
206,772 |
Property and equipment, net |
|
|
— |
|
|
166,909 |
|
|
104,488 |
|
|
(431) |
|
|
270,966 |
Intangible assets, net |
|
|
9,466 |
|
|
75,975 |
|
|
69,835 |
|
|
— |
|
|
155,276 |
Goodwill |
|
|
— |
|
|
288,439 |
|
|
116,052 |
|
|
— |
|
|
404,491 |
Investments in and advances to subsidiaries |
|
|
445,318 |
|
|
245,985 |
|
|
— |
|
|
(691,303) |
|
|
— |
Intercompany receivable |
|
|
150,890 |
|
|
43,965 |
|
|
— |
|
|
(194,855) |
|
|
— |
Deferred tax asset, net |
|
|
— |
|
|
— |
|
|
9,680 |
|
|
— |
|
|
9,680 |
Prepaid expenses, deferred costs, and other noncurrent assets |
|
|
— |
|
|
3,593 |
|
|
5,425 |
|
|
— |
|
|
9,018 |
Total assets |
|
$ |
753,573 |
|
$ |
955,669 |
|
$ |
368,070 |
|
$ |
(1,021,109) |
|
$ |
1,056,203 |
Liabilities and Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and notes payable |
|
$ |
— |
|
$ |
— |
|
$ |
1,289 |
|
$ |
— |
|
$ |
1,289 |
Current portion of other long-term liabilities |
|
|
— |
|
|
34,009 |
|
|
1,588 |
|
|
— |
|
|
35,597 |
Accounts payable and accrued liabilities |
|
|
12,953 |
|
|
213,128 |
|
|
84,705 |
|
|
(134,029) |
|
|
176,757 |
Current portion of deferred tax liability, net |
|
|
— |
|
|
— |
|
|
1,152 |
|
|
— |
|
|
1,152 |
Total current liabilities |
|
|
12,953 |
|
|
247,137 |
|
|
88,734 |
|
|
(134,029) |
|
|
214,795 |
Long-term debt |
|
|
489,182 |
|
|
3 |
|
|
40 |
|
|
— |
|
|
489,225 |
Intercompany payable |
|
|
— |
|
|
148,306 |
|
|
99,420 |
|
|
(247,726) |
|
|
— |
Asset retirement obligations |
|
|
— |
|
|
21,517 |
|
|
39,148 |
|
|
— |
|
|
60,665 |
Deferred tax liability, net |
|
|
4,324 |
|
|
526 |
|
|
818 |
|
|
— |
|
|
5,668 |
Other long-term liabilities |
|
|
— |
|
|
38,681 |
|
|
55 |
|
|
— |
|
|
38,736 |
Total liabilities |
|
|
506,459 |
|
|
456,170 |
|
|
228,215 |
|
|
(381,755) |
|
|
809,089 |
Stockholders' equity |
|
|
247,114 |
|
|
499,499 |
|
|
139,855 |
|
|
(639,354) |
|
|
247,114 |
Total liabilities and stockholders' equity |
|
$ |
753,573 |
|
$ |
955,669 |
|
$ |
368,070 |
|
$ |
(1,021,109) |
|
$ |
1,056,203 |
27
Condensed Consolidating Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Net cash provided by operating activities |
|
$ |
21,374 |
|
$ |
29,136 |
|
$ |
6,381 |
|
$ |
(20) |
|
$ |
56,871 |
Additions to property and equipment |
|
|
— |
|
|
(21,484) |
|
|
(20,269) |
|
|
— |
|
|
(41,753) |
Payments for exclusive license agreements, site acquisition costs, and other intangible assets |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Intercompany fixed asset mark-up |
|
|
— |
|
|
— |
|
|
(20) |
|
|
20 |
|
|
— |
Investment in subsidiary |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Funding of intercompany notes payable |
|
|
(16,951) |
|
|
— |
|
|
— |
|
|
16,951 |
|
|
— |
Payments received on intercompany notes payable |
|
|
24,114 |
|
|
— |
|
|
— |
|
|
(24,114) |
|
|
— |
Acquisitions, net of cash acquired |
|
|
— |
|
|
(8,805) |
|
|
— |
|
|
— |
|
|
(8,805) |
Net cash provided by (used in) investing activities |
|
|
7,163 |
|
|
(30,289) |
|
|
(20,289) |
|
|
(7,143) |
|
|
(50,558) |
Proceeds from borrowings of long-term debt |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Repayments of long-term debt and capital leases |
|
|
(22,261) |
|
|
(4) |
|
|
(726) |
|
|
— |
|
|
(22,991) |
Repayments of borrowings under bank overdraft facility, net |
|
|
— |
|
|
— |
|
|
(1,534) |
|
|
— |
|
|
(1,534) |
Proceeds from intercompany notes payable |
|
|
— |
|
|
— |
|
|
16,951 |
|
|
(16,951) |
|
|
— |
Repayments of intercompany notes payable |
|
|
— |
|
|
(22,422) |
|
|
(1,692) |
|
|
24,114 |
|
|
— |
Debt issuance and modification costs |
|
|
(2,676) |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,676) |
Payment of contingent consideration |
|
|
— |
|
|
(202) |
|
|
(316) |
|
|
— |
|
|
(518) |
Proceeds from exercises of stock options |
|
|
141 |
|
|
— |
|
|
— |
|
|
— |
|
|
141 |
Excess tax benefit from stock-based compensation expense |
|
|
1,998 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,998 |
Repurchase of capital stock |
|
|
(6,145) |
|
|
— |
|
|
— |
|
|
— |
|
|
(6,145) |
Issuance of capital stock |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Net cash (used in) provided by financing activities |
|
|
(28,943) |
|
|
(22,628) |
|
|
12,683 |
|
|
7,163 |
|
|
(31,725) |
Effect of exchange rate changes on cash |
|
|
— |
|
|
— |
|
|
(163) |
|
|
— |
|
|
(163) |
Net decrease in cash and cash equivalents |
|
|
(406) |
|
|
(23,781) |
|
|
(1,388) |
|
|
— |
|
|
(25,575) |
Cash and cash equivalents as of beginning of period |
|
|
412 |
|
|
73,379 |
|
|
13,148 |
|
|
— |
|
|
86,939 |
Cash and cash equivalents as of end of period |
|
$ |
6 |
|
$ |
49,598 |
|
$ |
11,760 |
|
$ |
— |
|
$ |
61,364 |
28
Condensed Consolidating Statements of Cash Flows — continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 |
|||||||||||||
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Eliminations |
|
Total |
|||||
|
|
(In thousands) |
|||||||||||||
Net cash (used in) provided by operating activities |
|
$ |
(11,095) |
|
$ |
87,426 |
|
$ |
4,033 |
|
$ |
(10) |
|
$ |
80,354 |
Additions to property and equipment |
|
|
— |
|
|
(19,632) |
|
|
(6,790) |
|
|
— |
|
|
(26,422) |
Payments for exclusive license agreements, site acquisition costs, and other intangible assets |
|
|
— |
|
|
(1,057) |
|
|
(2,376) |
|
|
— |
|
|
(3,433) |
Intercompany fixed asset mark-up |
|
|
— |
|
|
— |
|
|
(10) |
|
|
10 |
|
|
— |
Investment in subsidiary |
|
|
(13,327) |
|
|
— |
|
|
— |
|
|
13,327 |
|
|
— |
Funding of intercompany notes payable |
|
|
(66,456) |
|
|
(3,100) |
|
|
— |
|
|
69,556 |
|
|
— |
Payments received on intercompany notes payable |
|
|
101,924 |
|
|
— |
|
|
— |
|
|
(101,924) |
|
|
— |
Acquisitions, net of cash acquired |
|
|
— |
|
|
(17,066) |
|
|
(12,544) |
|
|
— |
|
|
(29,610) |
Net cash provided by (used in) investing activities |
|
|
22,141 |
|
|
(40,855) |
|
|
(21,720) |
|
|
(19,031) |
|
|
(59,465) |
Proceeds from borrowings of long-term debt |
|
|
85,600 |
|
|
— |
|
|
— |
|
|
— |
|
|
85,600 |
Repayments of long-term debt and capital leases |
|
|
(104,100) |
|
|
(5) |
|
|
(741) |
|
|
— |
|
|
(104,846) |
Repayments of borrowings under bank overdraft facility, net |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Proceeds from intercompany notes payable |
|
|
— |
|
|
63,604 |
|
|
5,952 |
|
|
(69,556) |
|
|
— |
Repayments of intercompany notes payable |
|
|
— |
|
|
(101,924) |
|
|
— |
|
|
101,924 |
|
|
— |
Debt issuance and modification costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Payment of contingent consideration |
|
|
— |
|
|
(750) |
|
|
— |
|
|
— |
|
|
(750) |
Proceeds from exercises of stock options |
|
|
459 |
|
|
— |
|
|
— |
|
|
— |
|
|
459 |
Excess tax benefit from stock-based compensation expense |
|
|
10,832 |
|
|
— |
|
|
— |
|
|
— |
|
|
10,832 |
Repurchase of capital stock |
|
|
(3,821) |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,821) |
Issuance of capital stock |
|
|
— |
|
|
— |
|
|
13,327 |
|
|
(13,327) |
|
|
— |
Net cash (used in) provided by financing activities |
|
|
(11,030) |
|
|
(39,075) |
|
|
18,538 |
|
|
19,041 |
|
|
(12,526) |
Effect of exchange rate changes on cash |
|
|
— |
|
|
— |
|
|
117 |
|
|
— |
|
|
117 |
Net increase in cash and cash equivalents |
|
|
16 |
|
|
7,496 |
|
|
968 |
|
|
— |
|
|
8,480 |
Cash and cash equivalents as of beginning of period |
|
|
5 |
|
|
10,674 |
|
|
3,182 |
|
|
— |
|
|
13,861 |
Cash and cash equivalents as of end of period |
|
$ |
21 |
|
$ |
18,170 |
|
$ |
4,150 |
|
$ |
— |
|
$ |
22,341 |
29
(17) New Accounting Pronouncements
In May 2014, Financial Accounting Standards Board (the “FASB”) issued updated Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. Under ASU 2014-09, the core principle is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods and services. ASU 2014-09 defines a five step process to achieve the core principle, which includes identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Further, an entity is required to disclose sufficient information to enable the user of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
(18) Subsequent Events
Acquisitions
On July 21, 2014, the Company announced a definitive agreement under which it will acquire the Welch ATM business for cash purchase consideration (paid at closing) of approximately $160.0 million. The transaction is subject to regulatory approvals established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as the satisfaction of other customary closing conditions. The Company anticipates completing this transaction during the three months ending September 30, 2014.
Tender Offer of 8.25% Senior Subordinated Notes Due 2018
On July 28, 2014, the Company announced that it had received tenders and consents from the holders of approximately $64.0 million in principal amount of the Company’s 8.25% senior subordinated notes due 2018 (the “2018 Notes”) pursuant to its previously announced cash tender offer for any and all of the outstanding $179.4 million principal amount of the notes.
Senior Debt Issuance
On July 28, 2014, the Company completed a private offering of $250.0 million of 5.125% senior notes due 2022. The majority of the net proceeds from this offering will fund the Company’s tender offer and retirement of the Company’s 2018 Notes. The remainder of the net proceeds will be used for general corporate purposes, including acquisitions.
30
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Form 10-Q may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements are based on our current expectations, beliefs, assumptions, or forecasts 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 currently anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
· |
our financial outlook and the financial outlook of the ATM industry; |
· |
our ability to respond to recent and future network and regulatory changes, including potential requirements surrounding Europay, MasterCard and Visa (“EMV”) security standards; |
· |
our ability to respond to potential reductions in the amount of net interchange fees that we receive from global and regional debit networks for transactions conducted on our ATMs due to pricing changes implemented by those networks as well as changes in how issuers route their ATM transactions over those networks; |
· |
our ability to renew and strengthen our existing customer relationships and add new customers; |
· |
our ability to pursue and successfully integrate acquisitions; |
· |
our ability to provide new ATM solutions to retailers and financial institutions; |
· |
our ATM vault cash rental needs, including potential liquidity issues with our vault cash providers and our ability to continue to secure vault cash rental agreements in the future; |
· |
our ability to successfully manage our existing international operations and to continue to expand internationally; |
· |
our ability to prevent thefts of cash and data security breaches; |
· |
our ability to manage the risks associated with our third-party service providers failing to perform their contractual obligations; |
· |
our ability to manage concentration risks with key customers, vendors, and service providers; |
· |
changes in interest rates and foreign currency rates; |
· |
our ability to successfully implement our corporate strategy; |
· |
our ability to compete successfully with new and existing competitors; |
· |
our ability to meet the service levels required by our service level agreements with our customers; |
· |
the additional risks we are exposed to in our U.K. armored transport business; and |
· |
our ability to retain our key employees. |
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (1) Part II, “Item 1A. Risk Factors” in this Form 10-Q and (2) Part I, “Item 1A. “Risk Factors” in the 2013 Form 10‑K.
Readers are cautioned not to place undue reliance on forward-looking statements contained in this document, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Cardtronics, Inc. provides convenient automated consumer financial services through its network of automated teller machines (“ATMs”) and multi-function financial services kiosks. As of June 30, 2014, we were the world’s largest retail ATM owner, providing services to over 83,600 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. 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 June 30, 2014 were approximately 14,700 ATMs to which we provided various forms of managed services. Under a managed services arrangement, retailers and financial institutions rely on us to handle some or all of the multiple elements that are required to operate and maintain 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 partner with leading national and regional financial institutions to brand certain of our ATMs and financial services kiosks within our network. As of June 30, 2014, approximately 21,300 of our ATMs were under contract with financial institutions to place their logos on those machines and to provide convenient surcharge-free access for their banking customers. In return for the branding that we provide, we generally receive monthly fees on a per ATM basis from the branding institution, while retaining our standard fee schedule for non-customers of the financial institutions who use the branded ATMs.
Additionally, we 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 more than 56,100 participating ATMs globally (including a majority of our ATMs in the U.S., U.K., Canada and Mexico), provides surcharge-free ATM access to customers of participating financial institutions, many of which lack a significant ATM network. In exchange for the surcharge-free access, member financial institutions pay us either a fixed monthly fee per cardholder or a set fee per transaction. 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, we 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 ATMs owned and operated by third parties. For additional discussion of our operations and the manner in which we derive revenues, please refer to our 2013 Form 10-K.
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 Allpoint and our bank branding programs, and made other strategic acquisitions and investments to expand and develop new product offerings and capabilities of our ATMs.
Since July 2011, we have completed acquisitions of the following: (1) seven domestic ATM operators, expanding our fleet in both multi-unit regional retail chains and individual merchant ATM locations in the U.S. by approximately 31,600 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) in August 2013, Cardpoint Limited (“Cardpoint”), an ATM service provider operating in the U.K. and Germany, 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 the above ATM acquisitions, we have also made strategic acquisitions to enhance our product offerings, including: (1) Locator Search in August 2011, a leading domestic 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) Complete Technical Services, Ltd. in January 2012, an ATM installation company in the U.K.; and (3) i-design group plc (“i-design”) in March 2013, a Scotland-based provider and developer of marketing and advertising software and services for ATM owners.
On July 21, 2014, we announced a definitive agreement to acquire the Welch ATM business for cash purchase consideration (to be paid at closing) of approximately $160.0 million. The completion of the transaction is subject to regulatory approvals established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as the satisfaction of other customary closing conditions. The Company anticipates that the transaction will be completed during the three months ending September 30, 2014. This acquisition will expand our U.S. ATM operations with national and regional merchants as well as with financial institutions.
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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 the Number of Deployed Devices with Existing and New Merchant Relationships. We believe that there are significant 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 position us to expand in 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 to grow 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 retailers where our ATMs are located. |
· |
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, providing 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 at our existing ATM locations today. 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 our Allpoint surcharge-free network, we are working on developing new initiatives aimed at driving incremental transactions at our existing ATM locations. Examples of this effort are our 2011 acquisition of Locator Search, which helps consumers find our ATMs, and our FeeAlert product, which enables financial institutions to help their customers save money by steering them toward nearby in-network ATMs and away from ATM fees. Additionally, we have existing programs and are working to develop 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 motivate customers to visit our ATMs within our existing retail footprint. Although we are still in the early stages of developing and implementing many of these programs, we believe that these programs, when properly structured, will benefit each party (i.e. the retailer, the financial institution, and the cardholder). As a result, we expect to gain additional transaction volumes through these efforts. |
· |
Develop and Provide Additional Services at our Existing ATMs. The number and types of services offered at ATMs continue to evolve over time. Certain ATM models are capable of providing numerous automated consumer financial services, including bill payments, check cashing, remote deposit capture, money transfer, and stored-value card reload services, and 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 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 both the U.S. and the U.K. Offering additional services like advertising at our devices, 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 continue to develop additional products and services that can be delivered through our existing ATM network. |
33
· |
Pursue Additional Managed Services Opportunities. Over the last several years, the number of ATMs that are operated under our managed services arrangements has significantly increased. Under this arrangement, retailers and financial institutions generally pay us a fixed management fee per cardholder or a set fee per transaction in exchange for us handling some or all of the operational aspects associated with operating and maintaining their ATM fleets. Surcharge and interchange fees are generally earned by the retailer or the financial institution. As a result, in this arrangement type, our revenues are partly protected from fluctuations in transaction levels of these machines and changes in network interchange rates. Additionally, in the U.K. where we have our own engineering, cash-in-transit (i.e., armored courier), and installation organizations, we believe that opportunities exist to offer some (or all) of these services on a managed services basis to both retailers and financial institutions. We plan to continue pursuing additional managed services opportunities with leading merchants and financial institutions in markets in which we operate. |
· |
Pursue Additional Acquisition Opportunities. We have historically grown through acquisitions and expect to continue to pursue select acquisition opportunities in the future. As noted in the Overview section above, we have completed several acquisitions since 2011 and expect to continue to pursue acquisition opportunities that we believe we can leverage to create long-term growth in shareholder value. |
· |
Pursue International Growth Opportunities. We have invested significant amounts of capital in the infrastructure of our U.K., Canada, and Mexico operations, and we plan to continue to grow our operations in these markets, as well as in the recently-entered German market, applying many of the aforementioned strategies. Additionally, we may expand our operations into other select international markets where we believe we can leverage our operational expertise, EFT transaction processing platform, and scale advantages. Our future international expansion, if any, will depend on a number of factors, including the estimated economic opportunity to us, the business and regulatory environment in the international market, our ability to identify suitable business partners in the market, and other risks associated with international expansion. |
Recent Events and Trends
Over the last several years, we have grown our business through a combination of organic growth through the strategies described above and with acquisitions. Since 2010, our compounded annual growth rate is 18%, which reflects a mix of growth from internal initiatives and acquisitions added. During the first half of 2014, our revenues grew by 25% over the prior year, reflecting approximately 17% growth from acquisitions and 8% organic growth.
Withdrawal Transaction and Revenue Trends – United States. For the three and six months ended June 30, 2014, total same-store cash withdrawal transactions conducted on our domestic ATMs increased by 0.5% and 0.4%, respectively, over the comparable periods in 2013. 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. The growth rate is impacted by a number of factors, including consumer behavior and preferences, economic factors, weather, and also company-specific initiatives, such as bank branding, growth in Allpoint (our surcharge free network), pricing and other products and services we may deploy. This growth rate has varied somewhat over recent years but has typically fallen within a range of flat up to 5%.
Over the last several years, some of the large U.S. banks serving the market for consumer banking services have begun to aggressively compete for market share, and part of their competitive strategy has been 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 large ATM placement opportunities. While a large owned-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 substantially lower cost than building their own ATM networks. 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 are opportunities for continued growth under these types of arrangements.
Withdrawal Transaction and Revenue Trends – United Kingdom. In recent periods, we have installed more free-to-use ATMs as opposed to surcharging “pay-to-use” ATMs in the U.K. As a result of this mix shift, our overall withdrawal transactions in the U.K. (excluding the effect of the Cardpoint acquisition) have increased. Although we earn less revenue per cash withdrawal transaction on a free-to-use machine, the increase in the number of transactions conducted on free-to-use machines has generally translated into higher overall revenues.
Financial Regulatory Reform – United Kingdom. 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 and its participants operating in the U.K. The ultimate impact of the establishment of the PSR will not be known until it is officially formed.
34
In July 2013, the European Commission put forward a new draft directive to regulate payment service providers operating in the European Union (“PSD2”). Broadly, PSD2 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. PSD2 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. PSD2 as currently drafted is 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. In parallel with PSD2, the European Commission has introduced a new Regulation (“MIF Regulation”) aimed at reducing the level of interchange fees charged by card schemes for Point-of-Sale (“ POS ”) transactions, as well as altering certain of the business rules contained in card scheme rulebooks. The fee caps in the MIF Regulation do not apply to cash withdrawal transactions at ATMs, but certain of the other provisions in the MIF Regulation could apply to ATM operators (although their precise effects are currently uncertain). The MIF Regulation is also currently in Committee stage at the European Parliament and therefore at this time we cannot predict its final form, effective date, nor to what extent, if any, such regulation will impact ATM operators.
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 “smart 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 implemented a liability shift in April 2013 from the issuers of these cards to the party that has not made the investment in EMV equipment (the acquirer) for fraudulent counterfeit International Maestro (MasterCard) cross-border transactions. While the majority of our U.S. ATMs are not currently EMV-compliant, this liability shift has not had a significant impact on our business or results, as Maestro transactions comprise less than 0.2% of our U.S. transaction volume. In response to the Maestro liability shift date of April 2013, we implemented additional fraud monitoring methods to minimize fraud losses and 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, increased fraudulent activity on ATMs in the future or the shifting of liability for fraudulent activity on all ATM transactions without EMV readers, or other business or regulatory factors could cause us to upgrade or replace a significant portion of our existing U.S. ATM fleet. We continue to closely monitor the migration toward the EMV standard, and all of our recent ATM deployments have been with ATMs that are EMV-ready. 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 EMV migration to have a significant impact on our future capital investments and results from operations. However, we currently estimate that the incremental potential cost to make our entire current Company-owned U.S. ATM fleet fully compliant with the EMV standard is approximately $30 million to $35 million, a portion of which will be 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. Furthermore, we could experience a higher rate of unit count attrition for our merchant-owned ATMs in the future as a result of certain merchants electing to not comply with this standard.
Capital Investments. In the next twelve to twenty-four months, we are expecting a somewhat higher rate of capital investment than our recent run-rate but do not expect that this temporary increased level of capital investment will continue past mid-2016. These expected temporary increases in capital spending levels are being driven by the upcoming EMV requirements discussed above, coupled with many other factors including: (1) our strategic initiatives to enhance the consumer experience at our ATMs and drive transaction growth; (2) increased demand from merchants and financial institutions for multi-function ATMs; (3) competition for new merchant and customer contracts and renewals of existing merchant contracts; (4) certain software and hardware enhancements required to facilitate our strategic initiatives and to continue running supported versions; and (5) other compliance related matters. As a result of the increased capital investments being planned, we are working to optimize our existing assets, but it is possible that as a result of this activity we could incur some asset write-offs or impairments and increased depreciation expense in the near term. However, we are expecting that the long-term revenue benefits of the investments will drive increased profitability in future periods and allow us to expand our position in the United States as the leading ATM operator of non-bank branch locations.
Restrictions on EBT Cards. In the U.S., recently released regulations at both the federal and state level prohibit the use of debit cards loaded with government benefit payments (commonly called “EBT cards”) from being used at ATMs established in certain locations, primarily casinos, liquor stores, and adult entertainment venues. Since we have not seen a significant use of EBT cards in such locations, we do not believe these restrictions will have any meaningful impact upon our revenues. However, if the scope and type of locations where EBT cards are prohibited were to expand, our transaction-based revenue may be adversely affected.
35
United Kingdom 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 our 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 September 2013, we received a listing of those proposed valuations on 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, we recorded an additional charge of $8.7 million in the third quarter of 2013 to account for not only 2013 taxes assessable but also an estimate for taxes assessable in previous years. We believe there are several strategies to mitigate these property tax assessments and we are currently in the process of implementing several of 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 into Germany. As noted in the Strategic Outlook section above, 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 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 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 Operations. In September 2012, we completed a required migration of our U.S. dollar-dispensing ATMs in Mexico so that we could continue to settle our U.S. dollar-denominated transactions through Promoción y Operación S.A. de C.V. This process change, combined with the overall recent downward trend in surcharge transactions in Mexico stemming from regulatory changes in 2010, has resulted in a reduction of the revenues and profits we earn from our ATMs in Mexico. Additionally, 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. 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. If the recent business performance trend was to continue and we are unable to capitalize on market opportunities in the near future, it is possible that we could incur asset write-offs, including fixed assets, goodwill and other assets, or incur accelerated depreciation expense on certain assets. However, we believe that there are several significant opportunities in this market to leverage our existing operations with both existing and new financial institution and retail customers. Despite some of the recent challenges of operating in this market, we currently believe that the aforementioned business opportunities are at advanced stages and would significantly improve profitability of our operations in this market within the next twelve months.
Convertible Note Offering. In November 2013, we completed an underwritten private placement of convertible senior notes (“Convertible Notes”), generating gross proceeds of $287.5 million. The Convertible Notes pay semi-annual interest at a rate of 1.0% per annum on the $287.5 million aggregate principal balance and mature in December 2020. We are required to settle the principal balance of the Convertible Notes in cash and/or stock upon conversion or maturity at our election.
Simultaneous with the issuance of the Convertible Notes, we entered into hedging transactions designed to offset dilution to our common stock in the event of a conversion under the Convertible Notes. The note hedge instruments (“Note Hedges”) have a strike price of $52.35 which is equal to the conversion rate under the Convertible Notes, are exercisable by us upon any conversion under the Convertible Notes, and expire in December 2020. We also sold warrants (“Warrants”) in our common stock with a strike price of $73.29. The net effect of the Note Hedges and Warrants was to raise the effective conversion price of the Convertible Notes to $73.29.
Senior Note Offering. In July 2014, we completed an underwritten private placement of senior notes (“New Senior Notes”), generating gross proceeds of $250.0 million. The New Senior Notes pay semi-annual interest at a fixed rate of 5.125% and mature in 2022.
Simultaneous with the New Senior Notes offering, we launched a tender offer (the “Tender Offer”) for approximately $179.4 million principal amount of our outstanding 8.25% senior subordinated notes (“Old Senior Notes”). For any Old Senior Notes not tendered to us, we intend to call and retire them shortly after the Tender Offer has expired. We expect to use proceeds from the New Senior Notes to fund the Tender Offer. The remaining proceeds from the New Senior Notes will be used for general corporate purposes and may be used to fund a portion of the Welch ATM acquisition (discussed above), which we expect to complete during the third quarter of 2014.
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 2013 and 2014, our overall results have not been significantly impacted. |
· |
Acquisitions. The results of operations for any acquired entities have been included in our consolidated results since the respective dates of acquisition. |
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 periods indicated. Percentages may not add due to rounding.
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues: |
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|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues |
|
96.9 |
% |
|
97.9 |
% |
|
97.0 |
% |
|
97.8 |
% |
ATM product sales and other revenues |
|
3.1 |
|
|
2.1 |
|
|
3.0 |
|
|
2.2 |
|
Total revenues |
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
|
100.0 |
|
Cost of revenues: |
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|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (excludes depreciation, accretion, and amortization of intangible assets shown separately below) (1) |
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62.8 |
|
|
64.2 |
|
|
64.0 |
|
|
64.8 |
|
Cost of ATM product sales and other revenues |
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3.0 |
|
|
2.0 |
|
|
2.9 |
|
|
2.1 |
|
Total cost of revenues |
|
65.8 |
|
|
66.2 |
|
|
66.9 |
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|
66.9 |
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Gross profit |
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34.2 |
|
|
33.8 |
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33.1 |
|
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33.1 |
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Operating expenses: |
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|
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Selling, general, and administrative expenses |
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10.7 |
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9.1 |
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10.4 |
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9.3 |
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Acquisition-related expenses |
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2.9 |
|
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0.6 |
|
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2.1 |
|
|
1.0 |
|
Depreciation and accretion expense |
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7.5 |
|
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7.6 |
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|
7.5 |
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7.9 |
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Amortization of intangible assets |
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3.3 |
|
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2.9 |
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3.3 |
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2.9 |
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Loss on disposal of assets |
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0.1 |
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0.1 |
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0.1 |
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|
0.1 |
|
Total operating expenses |
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24.6 |
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|
20.3 |
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23.4 |
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21.3 |
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Income from operations |
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9.6 |
|
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13.5 |
|
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9.7 |
|
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11.8 |
|
Other expense (income): |
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|
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|
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Interest expense, net |
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2.0 |
|
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2.4 |
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2.1 |
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2.5 |
|
Amortization of deferred financing costs and note discount |
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1.1 |
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0.1 |
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|
1.1 |
|
|
0.1 |
|
Redemption costs for early extinguishment of debt |
|
0.3 |
|
|
— |
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0.3 |
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— |
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Other income |
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(2.0) |
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(1.0) |
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(1.0) |
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(0.6) |
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Total other expense |
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1.4 |
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1.6 |
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2.4 |
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2.0 |
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Income before income taxes |
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8.2 |
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11.9 |
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7.3 |
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|
9.8 |
|
Income tax expense |
|
3.1 |
|
|
4.8 |
|
|
2.7 |
|
|
3.9 |
|
Net income |
|
5.2 |
|
|
7.1 |
|
|
4.5 |
|
|
5.9 |
|
Net loss attributable to noncontrolling interests |
|
(0.2) |
|
|
(0.3) |
|
|
(0.1) |
|
|
(0.2) |
|
Net income attributable to controlling interests and available to common stockholders |
|
5.4 |
% |
|
7.4 |
% |
|
4.7 |
% |
|
6.1 |
% |
_______________
(1) |
Excludes effects of depreciation, accretion, and amortization of intangible assets of $24.7 million and $19.9 million for the three months ended June 30, 2014 and 2013, respectively, and $ 48.5 million and $40.0 million for the six months ended June 30, 2014 and 2013, 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 9.5% and 9.6% for the three months ended June 30, 2014 and 2013, respectively and by 9.6% and 9.9% for the six months ended June 30, 2014 and 2013. |
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: |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Average number of transacting ATMs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States: Company-owned |
|
|
29,271 |
|
|
|
28,024 |
|
|
|
29,121 |
|
|
|
27,833 |
|
United Kingdom |
|
|
4,975 |
|
|
|
4,311 |
|
|
|
4,806 |
|
|
|
4,314 |
|
Mexico |
|
|
2,206 |
|
|
|
2,694 |
|
|
|
2,167 |
|
|
|
2,701 |
|
Canada |
|
|
1,690 |
|
|
|
1,593 |
|
|
|
1,660 |
|
|
|
1,570 |
|
Subtotal |
|
|
38,142 |
|
|
|
36,622 |
|
|
|
37,754 |
|
|
|
36,418 |
|
United States: Merchant-owned (1) |
|
|
19,032 |
|
|
|
20,991 |
|
|
|
18,731 |
|
|
|
20,607 |
|
Average number of transacting ATMs – ATM operations |
|
|
57,174 |
|
|
|
57,613 |
|
|
|
56,485 |
|
|
|
57,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States: Managed services - Turnkey |
|
|
2,080 |
|
|
|
2,204 |
|
|
|
2,107 |
|
|
|
2,210 |
|
United States: Managed services - Processing Plus (1) |
|
|
7,724 |
|
|
|
6,864 |
|
|
|
6,935 |
|
|
|
5,585 |
|
United Kingdom: Managed services |
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
Canada: Managed services |
|
|
274 |
|
|
|
318 |
|
|
|
270 |
|
|
|
310 |
|
Average number of transacting ATMs – Managed services |
|
|
10,099 |
|
|
|
9,407 |
|
|
|
9,333 |
|
|
|
8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average number of transacting ATMs |
|
|
67,273 |
|
|
|
67,020 |
|
|
|
65,818 |
|
|
|
65,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transactions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operations |
|
|
220,121 |
|
|
|
201,189 |
|
|
|
426,014 |
|
|
|
391,336 |
|
Managed services |
|
|
15,803 |
|
|
|
13,617 |
|
|
|
29,321 |
|
|
|
24,063 |
|
Total transactions |
|
|
235,924 |
|
|
|
214,806 |
|
|
|
455,335 |
|
|
|
415,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash withdrawal transactions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operations |
|
|
130,297 |
|
|
|
124,629 |
|
|
|
251,103 |
|
|
|
241,713 |
|
Managed services |
|
|
10,457 |
|
|
|
9,163 |
|
|
|
19,265 |
|
|
|
15,954 |
|
Total cash withdrawal transactions |
|
|
140,754 |
|
|
|
133,792 |
|
|
|
270,368 |
|
|
|
257,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per ATM per month amounts (excludes managed services): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash withdrawal transactions |
|
|
760 |
|
|
|
721 |
|
|
|
741 |
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues |
|
$ |
1,234 |
|
|
$ |
1,144 |
|
|
$ |
1,218 |
|
|
$ |
1,129 |
|
Cost of ATM operating revenues (2) |
|
|
810 |
|
|
|
745 |
|
|
|
810 |
|
|
|
744 |
|
ATM operating gross profit (2) (3) |
|
$ |
424 |
|
|
$ |
399 |
|
|
$ |
408 |
|
|
$ |
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (2) (3) |
|
|
34.4 |
% |
|
|
34.9 |
% |
|
|
33.5 |
% |
|
|
34.1 |
% |
____________
(1) |
Approximately 700 ATMs moved from the U.S.: Merchant-owned category to the U.S.: Managed services – Processing Plus category subsequent to June 30, 2013. |
(2) |
Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our consolidated statements of operations. |
(3) |
ATM operating gross profit and ATM operating gross profit margin are measures of profitability that are calculated based on only the revenues and expenses that relate to operating ATMs in our portfolio. Revenues and expenses relating to managed services and ATM equipment sales and other ATM-related services are not included. |
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 for comparative purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCLUDING ACQUISITIONS: |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
Average number of transacting ATMs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States: Company-owned |
|
|
29,806 |
|
|
|
28,024 |
|
|
|
29,656 |
|
|
|
27,833 |
|
United Kingdom |
|
|
11,891 |
|
|
|
4,311 |
|
|
|
11,770 |
|
|
|
4,314 |
|
Mexico |
|
|
2,206 |
|
|
|
2,694 |
|
|
|
2,167 |
|
|
|
2,701 |
|
Canada |
|
|
1,690 |
|
|
|
1,593 |
|
|
|
1,660 |
|
|
|
1,570 |
|
Germany |
|
|
874 |
|
|
|
— |
|
|
|
865 |
|
|
|
— |
|
Subtotal |
|
|
46,467 |
|
|
|
36,622 |
|
|
|
46,118 |
|
|
|
36,418 |
|
United States: Merchant-owned |
|
|
22,536 |
|
|
|
20,991 |
|
|
|
22,241 |
|
|
|
20,607 |
|
Average number of transacting ATMs – ATM operations |
|
|
69,003 |
|
|
|
57,613 |
|
|
|
68,359 |
|
|
|
57,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States: Managed services - Turnkey |
|
|
2,080 |
|
|
|
2,204 |
|
|
|
2,107 |
|
|
|
2,210 |
|
United States: Managed services - Processing Plus |
|
|
11,816 |
|
|
|
6,864 |
|
|
|
11,565 |
|
|
|
5,585 |
|
United Kingdom: Managed services |
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
|
|
21 |
|
Canada: Managed services |
|
|
274 |
|
|
|
318 |
|
|
|
270 |
|
|
|
310 |
|
Average number of transacting ATMs – Managed services |
|
|
14,191 |
|
|
|
9,407 |
|
|
|
13,963 |
|
|
|
8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average number of transacting ATMs |
|
|
83,194 |
|
|
|
67,020 |
|
|
|
82,322 |
|
|
|
65,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transactions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operations |
|
|
258,840 |
|
|
|
201,189 |
|
|
|
502,366 |
|
|
|
391,336 |
|
Managed services |
|
|
18,584 |
|
|
|
13,617 |
|
|
|
36,113 |
|
|
|
24,063 |
|
Total transactions |
|
|
277,424 |
|
|
|
214,806 |
|
|
|
538,479 |
|
|
|
415,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash withdrawal transactions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operations |
|
|
153,652 |
|
|
|
124,629 |
|
|
|
297,065 |
|
|
|
241,713 |
|
Managed services |
|
|
12,629 |
|
|
|
9,163 |
|
|
|
24,568 |
|
|
|
15,954 |
|
Total cash withdrawal transactions |
|
|
166,281 |
|
|
|
133,792 |
|
|
|
321,633 |
|
|
|
257,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per ATM per month amounts (excludes managed services): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash withdrawal transactions |
|
|
742 |
|
|
|
721 |
|
|
|
724 |
|
|
|
706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues |
|
$ |
1,185 |
|
|
$ |
1,144 |
|
|
$ |
1,163 |
|
|
$ |
1,129 |
|
Cost of ATM operating revenues (1) |
|
|
768 |
|
|
|
745 |
|
|
|
766 |
|
|
|
744 |
|
ATM operating gross profit (1) (2) |
|
$ |
417 |
|
|
$ |
399 |
|
|
$ |
397 |
|
|
$ |
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (1) (2) |
|
|
35.2 |
% |
|
|
34.9 |
% |
|
|
34.1 |
% |
|
|
34.1 |
% |
____________
(1) |
Amounts presented exclude the effect of depreciation, accretion, and amortization of intangible assets, which is presented separately in our consolidated statements of operations. |
(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
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
ATM operating revenues |
|
$ |
252,052 |
|
$ |
203,599 |
|
23.8 |
% |
|
$ |
490,191 |
|
$ |
396,959 |
|
23.5 |
% |
ATM product sales and other revenues |
|
|
7,977 |
|
|
4,385 |
|
81.9 |
% |
|
|
14,910 |
|
|
8,763 |
|
70.1 |
% |
Total revenues |
|
$ |
260,029 |
|
$ |
207,984 |
|
25.0 |
% |
|
$ |
505,101 |
|
$ |
405,722 |
|
24.5 |
% |
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
ATM operating revenues. ATM operating revenues generated during the three months ended June 30, 2014 increased $48.5 million, or 23.8%, from the three months ended June 30, 2013. Below is the detail, by segment, of the changes in the various components of ATM operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance: Three Months Ended June 30, 2013 to |
|||||||||||||
|
|
Three Months Ended June 30, 2014 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
Increase (decrease) |
|||||||||||||
|
|
(In thousands) |
|||||||||||||
Surcharge revenue |
|
$ |
3,475 |
|
$ |
20,929 |
|
$ |
(1,142) |
|
$ |
— |
|
$ |
23,262 |
Interchange revenue |
|
|
3,468 |
|
|
16,669 |
|
|
(209) |
|
|
— |
|
|
19,928 |
Bank branding and surcharge-free network revenues |
|
|
2,812 |
|
|
— |
|
|
62 |
|
|
(2) |
|
|
2,872 |
Managed services revenues |
|
|
361 |
|
|
5 |
|
|
12 |
|
|
— |
|
|
378 |
Other revenues |
|
|
1,073 |
|
|
840 |
|
|
(14) |
|
|
114 |
|
|
2,013 |
Total increase (decrease) in ATM operating revenues |
|
$ |
11,189 |
|
$ |
38,443 |
|
$ |
(1,291) |
|
$ |
112 |
|
$ |
48,453 |
United States. During the three months ended June 30, 2014, our U.S. operations experienced an $11.2 million, or 6.9%, increase in ATM operating revenues when compared to the same period in 2013. Acquisitions completed since the beginning of 2013 accounted for $3.9 million, or 2.4%, of this increase. The results of these acquired businesses (or a portion thereof) were included in the consolidated financial results for the three months ended June 30, 2014, but not in the comparable period in 2013. The remaining $7.3 million, or 4.5%, increase was due to growth achieved from a combination of revenue sources, including: (i) increased surcharge and interchange revenues primarily as a result of a higher machine count and total transaction count; (ii) 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 (iii) an increase in managed services revenue as a result of an increase in new contracts entered into under this arrangement type.
For additional information on recent trends that have impacted, and may continue to impact, the revenues generated by our U.S. operations, see Recent Events and Trends - Withdrawal Transaction and Revenue Trends – United States above.
Europe. Our European operations, which include our operations in the U.K. and Germany, experienced a $38.4 million, or 118.3%, increase in ATM operating revenues during the three months ended June 30, 2014 when compared to the same period in 2013. Approximately $30.5 million, or 93.9%, of the increase, was attributable to our acquisition of Cardpoint, which was completed in August 2013. Approximately $4.8 million, or 14.8%, of the increase was primarily driven by higher interchange revenues, 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 $3.1 million or approximately 9.6% of the increase from the prior year.
For additional information on recent trends that have impacted, and may continue to impact, the revenues generated by our U.K. operations, see Recent Events and Trends - Withdrawal Transaction and Revenue Trends – United Kingdom above.
Other International. ATM operating revenues generated by our other international segment, which includes our Mexico and Canadian operations, declined $1.3 million for the three months ended June 30, 2014, when compared to the same period in 2013. This decline was attributable to our Mexico operations, which generated $1.4 million less ATM operating revenues during the three months ended June 30, 2014 as compared to the same period in 2013 primarily due to an 18% lower average transacting machine count. The lower machine count was the result of an internal decision to remove a number of machines to improve profitability of the overall business. As a result of the lower transacting ATM count, our transactions in this market experienced a similar percentage decline, resulting in the reduced revenues. Foreign currency exchange rate movements did not have a material effect on the reported ATM operating revenues in this segment.
40
ATM product sales and other revenues. ATM product sales and other revenues for the three months ended June 30, 2014 totaled $8.0 million, representing an increase of $3.6 million from the same period in 2013. This increase was primarily attributable to higher equipment and value-added reseller (“VAR”) program sales to merchants and distributors during the period due to the continued replacement of certain ATMs that were not ADA-compliant and the replacement of older equipment with new EMV-compliant equipment. 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.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
ATM operating revenues. ATM operating revenues generated during the six months ended June 30, 2014 increased $93.2 million, or 23.5%, from the six months ended June 30, 2013. Below is the detail, by segment, of changes in the various components of ATM operating revenues:
Variance: Six Months Ended June 30, 2013 to |
|||||||||||||||
Six Months Ended June 30, 2014 |
|||||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
Increase (decrease) |
|||||||||||||
|
|
(In thousands) |
|||||||||||||
Surcharge revenue |
|
$ |
6,887 |
|
$ |
39,382 |
|
$ |
(3,395) |
|
$ |
— |
|
$ |
42,874 |
Interchange revenue |
|
|
7,927 |
|
|
31,086 |
|
|
(449) |
|
|
— |
|
|
38,564 |
Bank branding and surcharge-free network revenues |
|
|
5,892 |
|
|
— |
|
|
417 |
|
|
(2) |
|
|
6,307 |
Managed services revenues |
|
|
1,144 |
|
|
9 |
|
|
12 |
|
|
— |
|
|
1,165 |
Other revenues |
|
|
2,314 |
|
|
2,567 |
|
|
(130) |
|
|
(429) |
|
|
4,322 |
Total increase in ATM operating revenues |
|
$ |
24,164 |
|
$ |
73,044 |
|
$ |
(3,545) |
|
$ |
(431) |
|
$ |
93,232 |
United States. During the six months ended June 30, 2014, our U. S. operations experienced a $24.2 million, or 7.6%, increase in ATM operating revenues compared to the same period in 2013. Acquisitions completed since the beginning of 2013 accounted for $9.0 million, or 2.8%, of the increase. The results of these acquired businesses (or a portion thereof) were included in the consolidated financial results for the six months ended June 30, 2014, but not in the comparable period in 2013. The remaining $15.2 million, or 4.8%, increase was primarily due to the following; (i) increased surcharge and interchange revenues primarily as a result of a higher machine count; (ii) 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 (iii) an increase in managed services revenue as a result of an increase in new contracts entered into under this arrangement type. The increase in other revenues in the U.S. is primarily from intercompany transaction processing services to foreign subsidiaries, which is eliminated in consolidation.
Europe. Our European operations also contributed to the higher ATM operating revenues for the six months ended June 30, 2014, which increased by $73.0 million, or 117.5%, from the six months ended June 30, 2013. As was the case with the three month period, an increase of $57.1 million, or 91.9%, was attributable to our acquisition of Cardpoint, which were completed in March 2013 and August 2013, respectively. Approximately $10.9 million, or 17.5%, increase was driven by higher interchange revenues, primarily as a result of growth in the number of total ATMs in our U.K. business. Foreign currency exchange rate movements accounted for approximately $ 5.0 million or 8.1% of the year over year increase.
Other International. ATM operating revenues generated by our other international segment, which includes our Mexico and Canadian operations, declined $3.5 million for the six months ended June 30, 2014, when compared to the same period in 2013. This decline was primarily attributable to our Mexico operations, which generated $3.0 million less ATM operating revenues during the six months ended June 30, 2014, than the same period in 2013, primarily due to a 20% lower average transacting machine count. The lower machine count was the result of an internal decision to remove a number of machines to improve profitability of the overall business. As a result of the lower transacting ATM count, our transactions in this market experienced a similar percentage decline, resulting in the reduced revenues. Foreign currency exchange rate movements did not have a material effect on the reported ATM operating revenues in this segment.
ATM product sales and other revenues. ATM product sales and other revenues for the six months ended June 30, 2014, totaled $14.9 million, representing an increase of $6.1 million from the same period in 2013. This increase was primarily attributable to higher equipment and value-added reseller (“VAR”) program sales to merchants and distributors during the period due to the continued replacement of certain ATMs that were not ADA-compliant and the replacement of older equipment with new EMV-compliant equipment. 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.
41
Cost of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) |
|
$ |
163,380 |
|
$ |
133,482 |
|
22.4 |
% |
|
$ |
323,139 |
|
$ |
263,042 |
|
22.8 |
% |
Cost of ATM product sales and other revenues |
|
|
7,754 |
|
|
4,228 |
|
83.4 |
% |
|
|
14,564 |
|
|
8,357 |
|
74.3 |
% |
Total cost of revenues (exclusive of depreciation, accretion, and amortization of intangible assets) |
|
$ |
171,134 |
|
$ |
137,710 |
|
24.3 |
% |
|
$ |
337,703 |
|
$ |
271,399 |
|
24.4 |
% |
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangibles assets) for the three months ended June 30, 2014 increased $29.9 million when compared to the same period in 2013. The following is a detail, by segment, of changes in the various components of the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance: Three Months Ended June 30, 2013 to |
|||||||||||||
|
|
Three Months Ended June 30, 2014 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
Increase (decrease) |
|||||||||||||
|
|
(In thousands) |
|||||||||||||
Merchant commissions |
|
$ |
3,612 |
|
$ |
11,146 |
|
$ |
(431) |
|
$ |
— |
|
$ |
14,327 |
Vault cash rental |
|
|
2,664 |
|
|
985 |
|
|
(20) |
|
|
— |
|
|
3,629 |
Other costs of cash |
|
|
(760) |
|
|
3,740 |
|
|
(238) |
|
|
— |
|
|
2,742 |
Repairs and maintenance |
|
|
(56) |
|
|
1,355 |
|
|
172 |
|
|
— |
|
|
1,471 |
Communications |
|
|
191 |
|
|
640 |
|
|
(77) |
|
|
10 |
|
|
764 |
Transaction processing |
|
|
(132) |
|
|
842 |
|
|
(196) |
|
|
313 |
|
|
827 |
Stock-based compensation |
|
|
148 |
|
|
— |
|
|
— |
|
|
— |
|
|
148 |
Other expenses |
|
|
513 |
|
|
5,999 |
|
|
(311) |
|
|
(211) |
|
|
5,990 |
Total increase (decrease) in cost of ATM operating revenues |
|
$ |
6,180 |
|
$ |
24,707 |
|
$ |
(1,101) |
|
$ |
112 |
|
$ |
29,898 |
United States. During the three months ended June 30, 2014, our U.S. operations experienced a $6.2 million, or 6.1% increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2013, of which approximately $2.6 million was attributable to the acquisitions completed in 2013 and 2014. The remaining increase primarily resulted from higher transaction volumes and ATM unit growth driven by organic revenue growth, as well as other expenses from higher employee costs. Additionally, the increase in vault cash rental cost is attributable to higher interest rate swap expense associated with cash flow hedges that became effective on January 1, 2014.
Europe. During the three months ended June 30, 2014, our European operations experienced a $24.7 million, or 100.3% increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2013, of which approximately $17.7 million was a result of the acquisitions completed in 2013. The remaining increase was the result of the increased number of transactions conducted on our machines in the European market as well as higher charges recorded in 2014 to accrue for estimated business rates (property taxes), which historically had not been as significant. For further details on this matter, see Recent Events and Trends – United Kingdom Property Taxes.
Other International. The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) from our Other International operations decreased by $1.1 million during the three months ended June 30, 2014, when compared to the same period in 2013. This decline was primarily the result of the 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.
42
Cost of ATM product sales and other revenues. The cost of ATM product sales and other revenues increased by $3.5 million during the three months ended June 30, 2014, when compared to the same period in 2013. This increase is consistent with the increase in related revenues, as discussed above, and is primarily related to increased equipment and VAR sales activity.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets). The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) for the six months ended June 30, 2014, increased $60.1 million when compared to the same period in 2013. Below is a detail, by segment, of changes in the various components of the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance: Six Months Ended June 30, 2013 to |
|||||||||||||
|
|
Six Months Ended June 30, 2014 |
|||||||||||||
|
|
U.S. |
|
Europe |
|
Other International |
|
Eliminations |
|
Total |
|||||
|
|
Increase (decrease) |
|||||||||||||
|
|
(In thousands) |
|||||||||||||
Merchant commissions |
|
$ |
8,094 |
|
$ |
21,550 |
|
$ |
(1,178) |
|
$ |
— |
|
$ |
28,466 |
Vault cash rental |
|
|
5,050 |
|
|
1,451 |
|
|
(108) |
|
|
— |
|
|
6,393 |
Other costs of cash |
|
|
(901) |
|
|
6,689 |
|
|
(1,614) |
|
|
— |
|
|
4,174 |
Repairs and maintenance |
|
|
918 |
|
|
3,372 |
|
|
598 |
|
|
— |
|
|
4,888 |
Communications |
|
|
(190) |
|
|
2,102 |
|
|
(123) |
|
|
27 |
|
|
1,816 |
Transaction processing |
|
|
146 |
|
|
2,652 |
|
|
(268) |
|
|
126 |
|
|
2,656 |
Stock-based compensation |
|
|
155 |
|
|
— |
|
|
— |
|
|
— |
|
|
155 |
Other expenses |
|
|
1,346 |
|
|
11,320 |
|
|
(534) |
|
|
(583) |
|
|
11,549 |
Total increase in cost of ATM operating revenues |
|
$ |
14,618 |
|
$ |
49,136 |
|
$ |
(3,227) |
|
$ |
(430) |
|
$ |
60,097 |
United States. During the six months ended June 30, 2014, our U.S. operations incurred an $14.6 million, or 7.3% increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2013, of which approximately $6.0 million was attributable to the acquisitions completed in 2013 and 2014. The remaining increase primarily resulted from higher transaction volumes and ATM unit growth driven by organic revenue growth, as well as other expenses from higher employee costs. Additionally, the increase in vault cash rental cost is attributable to higher interest rate swap expense associated with cash flow hedges that became effective on January 1, 2014.
Europe. During the six months ended June 30, 2014, our European operations experienced a $49.1 million, or 102.3% increase in the cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) when compared to the same period in 2013, of which approximately $34.5 million was a result of the acquisitions completed in 2013. The remaining increase was the result of the higher ATM count in the U.K. as well as higher charges recorded in 2014 to accrue for estimated business rates (property taxes), which historically had not been as significant. For further details on this matter, see Recent Events and Trends – United Kingdom Property Taxes.
Other International. The cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization of intangible assets) from our Other International operations decreased by $3.2 million during the six months ended June 30, 2014, when compared to the same period in 2013. This decline was primarily the result of the 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.
Cost of ATM product sales and other revenues. The cost of ATM product sales and other revenues increased by $6.2 million during the six months ended June 30, 2014, when compared to the same period in 2013. This increase is consistent with the increase in related revenues, as discussed above, and is primarily related to increased equipment and VAR sales activity.
43
Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
ATM operating gross profit margin: |
|
|
|
|
|
|
|
|
|
|
|
|
Exclusive of depreciation, accretion, and amortization of intangible assets. |
|
35.2 |
% |
|
34.4 |
% |
|
34.1 |
% |
|
33.7 |
% |
Inclusive of depreciation, accretion, and amortization of intangible assets |
|
25.4 |
% |
|
24.6 |
% |
|
24.2 |
% |
|
23.7 |
% |
ATM product sales and other revenues gross profit margin |
|
2.8 |
% |
|
3.6 |
% |
|
2.3 |
% |
|
4.6 |
% |
Total gross profit margin: |
|
|
|
|
|
|
|
|
|
|
|
|
Exclusive of depreciation, accretion, and amortization of intangible assets. |
|
34.2 |
% |
|
33.8 |
% |
|
33.1 |
% |
|
33.1 |
% |
Inclusive of depreciation, accretion, and amortization of intangible assets |
|
24.7 |
% |
|
24.2 |
% |
|
23.5 |
% |
|
23.3 |
% |
ATM operating gross profit margin. For the three and six months ended June 30, 2014, our ATM operating gross profit margin exclusive of depreciation, accretion, and amortization of intangible assets increased slightly when compared to the same periods in 2013. The increase is primarily as a result of our revenue growth and higher incoming margins on the recently acquired businesses.
ATM product sales and other revenues gross profit margin. For the three and six months ended June 30, 2014, our gross profit margin on ATM product sales and other revenues declined by 0.8 and 2.3 percentage points, respectively, primarily as a result of increased expenses related to higher service revenues which are lower margin than our other ATM product sales.
Selling, General, and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Selling, general, and administrative expenses |
|
$ |
24,580 |
|
$ |
16,560 |
|
48.4 |
% |
|
$ |
46,103 |
|
$ |
32,589 |
|
41.5 |
% |
Stock-based compensation |
|
|
3,346 |
|
|
2,372 |
|
41.1 |
% |
|
|
6,350 |
|
|
5,332 |
|
19.1 |
% |
Acquisition-related expenses |
|
|
7,642 |
|
|
1,184 |
|
545.4 |
% |
|
|
10,729 |
|
|
4,006 |
|
167.8 |
% |
Total selling, general, and administrative expenses |
|
$ |
35,568 |
|
$ |
20,116 |
|
76.8 |
% |
|
$ |
63,182 |
|
$ |
41,927 |
|
50.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
9.5 |
% |
|
8.0 |
% |
|
|
|
|
9.1 |
% |
|
8.0 |
% |
|
|
Stock-based compensation |
|
|
1.3 |
% |
|
1.1 |
% |
|
|
|
|
1.3 |
% |
|
1.3 |
% |
|
|
Acquisition-related expenses |
|
|
2.9 |
% |
|
0.6 |
% |
|
|
|
|
2.1 |
% |
|
1.0 |
% |
|
|
Total selling, general, and administrative expenses |
|
|
13.7 |
% |
|
9.7 |
% |
|
|
|
|
12.5 |
% |
|
10.3 |
% |
|
|
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 $8.0 million, or 48.4% and $13.5 million, or 41.5% for the three and six months ended June 30, 2014, when compared to the same periods in 2013. This increase was due to the following: (i) higher payroll-related costs compared to the same periods in 2013 due to increased headcount, including employees added from the acquisitions completed since the beginning of 2013; (ii) increased incentive-based compensation; (iii) increased office and facilities costs, a portion of which is attributable to the acquisitions completed since the beginning of 2013; (iv) higher marketing and professional expenses; and (v) increased costs related to strengthening our information technology and product development organizations.
Stock-based compensation. The $1.0 million increase in stock-based compensation expense for both the three and six months ended June 30, 2014, was mostly attributable to the increase employee headcount. For additional details on equity awards, see Item 1. Financial Information, Note 3, Stock-Based Compensation.
44
Acquisition-related expenses. Acquisition-related expenses increased $6.5 million, or 545.4% and $6.7 million, or 167.8% for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase is primarily attributable to certain nonrecurring integration and transition-related costs associated with our 2013 acquisitions, including the recognition of a liability of approximately $3.1 million for the estimated remaining lease payments associated with facilities no longer expected to yield an economic benefit in future periods and other costs related to recently completed and pending acquisitions.
Depreciation and Accretion Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Depreciation expense |
|
$ |
18,716 |
|
$ |
15,271 |
|
22.6 |
% |
|
$ |
36,249 |
|
$ |
30,896 |
|
17.3 |
% |
Accretion expense |
|
|
881 |
|
|
610 |
|
44.4 |
% |
|
|
1,694 |
|
|
1,270 |
|
33.4 |
% |
Depreciation and accretion expense |
|
$ |
19,597 |
|
$ |
15,881 |
|
23.4 |
% |
|
$ |
37,943 |
|
$ |
32,166 |
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
7.2 |
% |
|
7.3 |
% |
|
|
|
|
7.2 |
% |
|
7.6 |
% |
|
|
Accretion expense |
|
|
0.3 |
% |
|
0.3 |
% |
|
|
|
|
0.3 |
% |
|
0.3 |
% |
|
|
Depreciation and accretion expense |
|
|
7.5 |
% |
|
7.6 |
% |
|
|
|
|
7.5 |
% |
|
7.9 |
% |
|
|
For the three and six months ended June 30, 2014, depreciation expense increased $3.4, million or 22.6% and $5.4 million, or 17.3% when compared to the same periods in 2013 primarily as a result of the deployment of additional Company-owned ATMs over the past year as a result of our organic ATM unit growth and the ATMs acquired through various acquisitions in 2013 and 2014.
For the three and six months ended June 30, 2014, accretion expense increased $0.3 million, or 44.4% and $0.4 million, or 33.4% when compared to the same periods in 2013. The increase is due to our continued revenue growth, 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 refurbish, the ATMs at certain merchant locations. Accretion expense represents the increase of this liability from the original discounted net present value to the amount we ultimately expect to incur.
Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Amortization of intangible assets |
|
$ |
8,465 |
|
$ |
6,081 |
|
39.2 |
% |
|
$ |
16,682 |
|
$ |
11,829 |
|
41.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues |
|
|
3.3 |
% |
|
2.9 |
% |
|
|
|
|
3.3 |
% |
|
2.9 |
% |
|
|
Amortization of intangible assets relates primarily to merchant contracts and relationships recorded in connection with purchase price accounting valuations for completed acquisitions. The increase of $2.4 million, or 39.2% and $4.9 million, or 41.0% in amortization of intangible assets during the three and six months ended June 30, 2014 when compared to the same periods in 2013 was primarily due to the addition of intangible assets from the acquisitions completed since the beginning of 2013.
Interest Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Interest expense, net |
|
$ |
5,328 |
|
$ |
5,059 |
|
5.3 |
% |
|
$ |
10,744 |
|
$ |
10,125 |
|
6.1 |
% |
Amortization of deferred financing costs and note discount |
|
|
2,762 |
|
|
231 |
|
1,095.7 |
% |
|
|
5,447 |
|
|
460 |
|
1,084.1 |
% |
Total interest expense, net |
|
$ |
8,090 |
|
$ |
5,290 |
|
52.9 |
% |
|
$ |
16,191 |
|
$ |
10,585 |
|
53.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues |
|
|
3.1 |
% |
|
2.5 |
% |
|
|
|
|
3.2 |
% |
|
2.6 |
% |
|
|
Interest expense, net. Interest expense, net increased $0.3 million, or 5.3% and $0.7 million, or 6.1% during the three and six months ended June 30, 2014, when compared to the same period in 2013. This increase was primarily as a result of higher debt outstanding due to the Cardpoint acquisition completed in August 2013. For additional details, see Item 1. Financial Information, Note 8, Long-Term Debt.
45
Amortization of deferred financing costs and note discount. Amortization of deferred financing costs and note discount increased $2.5 million and $5.0 million during the three and six months ended June 30, 2014, over the same periods in 2013, primarily as a result of our issuance of $287.5 million of Convertible Notes in November 2013. As the Convertible Notes contain an embedded option feature, we attributed $71.7 million of the proceeds 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 drove the majority of the year-over-year increase in this expense. We also incurred $5.2 million in fees in conjunction with the issuance of the Convertible Notes, which are being amortized over the life of the Convertible Notes. Also contributing to the increase in the amortization of deferred financing costs during the current year were the modifications made to our $375.0 million revolving credit facility in August 2013, the costs of which are being amortized over the life of the revolver. In April 2014, we amended and restated our existing credit agreement and incurred approximately $1.0 million in fees which will be 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 $250.0 million in senior notes. Going forward, we expect the amortization of deferred financing costs line item (which includes the note discount) to be higher as compared to prior periods, a result of the recent amendment and restatement of our credit agreement and new senior note issuance.
Other Income (Expense)
The increase in other income in the three and six months ended June 30, 2014 compared to the same periods in the prior year is primarily the result of a non-recurring gain as a result of a favorable settlement of a lawsuit during the quarter ended June 30, 2014.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||||||||||||
|
|
2014 |
|
2013 |
|
% Change |
|
2014 |
|
2013 |
|
% Change |
||||||
|
|
(In thousands) |
|
|
|
|
(In thousands) |
|
|
|
||||||||
Income tax expense |
|
$ |
8,015 |
|
$ |
10,034 |
|
(20.1) |
% |
|
$ |
13,788 |
|
$ |
16,014 |
|
(13.9) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
37.4 |
% |
|
40.5 |
% |
|
|
|
|
37.6 |
% |
|
40.1 |
% |
|
|
The decrease in income tax expense is primarily related to lower income before income taxes in the three and six months ended June 30, 2014 when compared to the same period in 2013. The decrease in the effective tax rate is primarily attributable to the change in the mix of earnings across jurisdictions. We continue to maintain valuation allowances for our local net deferred tax asset positions for certain of our entities in the U.K. and Mexico, as we currently believe that it is more likely than not that these tax assets will not be realized.
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 non-recurring 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, 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. The Company uses these non-GAAP financial measures in managing and measuring the performance of its business, including setting and measuring incentive based compensation for management.
Adjusted EBITDA excludes depreciation, accretion, and amortization of intangible assets as these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures, and the method by which the assets were acquired. Adjusted EBITDA also excludes 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 noncontrolling interest. Adjusted Net Income represents net income computed in accordance with GAAP, before amortization of intangible assets, 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 quarter ended June 30, 2014, and 35% for the quarter ended June 30, 2013, with certain adjustments for noncontrolling interests. 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.
46
A reconciliation of EBITDA, Adjusted EBITDA, 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:
Reconciliation of Net Income Attributable to Controlling Interests to EBITDA, Adjusted EBITDA, and Adjusted Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
(In thousands, except share and per share amounts) |
||||||||||
Net income attributable to controlling interests and available to common stockholders |
|
$ |
13,989 |
|
$ |
15,327 |
|
$ |
23,554 |
|
$ |
24,757 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
5,328 |
|
|
5,059 |
|
|
10,744 |
|
|
10,125 |
Amortization of deferred financing costs and note discount |
|
|
2,762 |
|
|
231 |
|
|
5,447 |
|
|
460 |
Redemption costs for early extinguishment of debt |
|
|
699 |
|
|
— |
|
|
1,353 |
|
|
— |
Income tax expense |
|
|
8,015 |
|
|
10,034 |
|
|
13,788 |
|
|
16,014 |
Depreciation and accretion expense |
|
|
19,597 |
|
|
15,881 |
|
|
37,943 |
|
|
32,166 |
Amortization of intangible assets |
|
|
8,465 |
|
|
6,081 |
|
|
16,682 |
|
|
11,829 |
EBITDA |
|
$ |
58,855 |
|
$ |
52,613 |
|
$ |
109,511 |
|
$ |
95,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets |
|
|
316 |
|
|
157 |
|
|
584 |
|
|
360 |
Other income (1) |
|
|
(5,261) |
|
|
(2,050) |
|
|
(5,230) |
|
|
(2,471) |
Noncontrolling interests (2) |
|
|
(391) |
|
|
(536) |
|
|
(764) |
|
|
(955) |
Stock-based compensation expense (3) |
|
|
3,692 |
|
|
2,568 |
|
|
6,903 |
|
|
5,725 |
Acquisition-related expenses (4) |
|
|
7,642 |
|
|
1,184 |
|
|
10,729 |
|
|
4,006 |
Other adjustments to selling, general, and administrative expenses |
|
|
— |
|
|
— |
|
|
— |
|
|
446 |
Adjusted EBITDA |
|
$ |
64,853 |
|
$ |
53,936 |
|
$ |
121,733 |
|
$ |
102,462 |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net (3) |
|
|
5,320 |
|
|
5,031 |
|
|
10,722 |
|
|
10,069 |
Depreciation and accretion expense (3) |
|
|
19,234 |
|
|
15,459 |
|
|
37,236 |
|
|
31,328 |
Adjusted pre-tax income |
|
|
40,299 |
|
|
33,446 |
|
|
73,775 |
|
|
61,065 |
Income tax expense (5) |
|
|
12,895 |
|
|
11,706 |
|
|
23,607 |
|
|
21,373 |
Adjusted Net Income |
|
$ |
27,404 |
|
$ |
21,740 |
|
$ |
50,168 |
|
$ |
39,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income per share |
|
$ |
0.62 |
|
$ |
0.49 |
|
$ |
1.13 |
|
$ |
0.90 |
Adjusted Net Income per diluted share |
|
$ |
0.61 |
|
$ |
0.49 |
|
$ |
1.12 |
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
|
44,324,747 |
|
|
44,394,230 |
|
|
44,270,363 |
|
|
44,321,069 |
Weighted average shares outstanding - diluted |
|
|
44,830,978 |
|
|
44,615,021 |
|
|
44,800,298 |
|
|
44,547,851 |
_______________
(1) |
2014 amounts include non-recurring settlement gain of $4.8 million. |
(2) |
Noncontrolling interests adjustment made such that Adjusted EBITDA includes only the Company’s 51% ownership interest in the Adjusted EBITDA of its Mexico subsidiary. |
(3) |
Amounts exclude 49% of the expenses incurred by the Company’s Mexico subsidiary as such amounts are allocable to the noncontrolling interest stockholders. |
(4) |
Acquisition-related expenses include nonrecurring costs incurred for professional and legal fees and certain transition and integration-related costs, including contract termination costs, related to acquisitions. |
(5) |
Calculated using the Company’s estimated long-term, cross-jurisdictional effective cash tax rate of 32% for the six months ended June 30, 2014 and 35% through June, 30, 2013. The change in the estimated non-GAAP tax rate is attributable to an increased portion of the Company’s consolidated earnings occurring in lower tax rate jurisdictions.
47
|
Calculation of Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
June 30, |
|
June 30, |
||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
||||
|
|
(In thousands) |
||||||||||
Cash provided by operating activities |
|
$ |
42,352 |
|
$ |
38,974 |
|
$ |
56,871 |
|
$ |
80,354 |
Payments for capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities, excluding acquisitions |
|
|
(25,041) |
|
|
(13,918) |
|
|
(41,753) |
|
|
(29,855) |
Free cash flow |
|
$ |
17,311 |
|
$ |
25,056 |
|
$ |
15,118 |
|
$ |
50,499 |
_______________
(1) |
Free cash flow for the six months ended June 30, 2013 included the collection of a $13.4 million insurance receivable. |
Liquidity and Capital Resources
Overview
As of June 30, 2014, we had $61.4 million in cash and cash equivalents on hand and $474.2 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 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 bank credit facilities 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.
Operating Activities
Net cash provided by operating activities totaled $56.9 million for the six months ended June 30, 2014 as compared to $80.4 million during the same period in 2013. The year over year decrease in net cash provided by operating activities is attributable to the collection of a $13.4 million insurance receivable in the first quarter of 2013 and certain working capital increases that are not expected to continue.
Investing Activities
Net cash used in investing activities totaled $50.6 million for the six months ended June 30, 2014, compared to $59.5 million during the same period in 2013. The decrease in net cash used in investing activities is primarily the result of increased capital additions due to organic growth projects, offset with a decrease in acquisition expenditures in 2014.
Anticipated Future Capital Expenditures. We currently anticipate that the majority of our capital expenditures for the foreseeable future will be driven by organic growth projects, including the purchase of ATMs for existing as well as new ATM management agreements and various compliance requirements as discussed in Recent Events and Trends – Capital Investments. We currently expect that our capital expenditures for the remainder of 2014 will total approximately $64 million, the majority of which will be utilized to purchase additional ATMs for our Company-owned accounts, to deploy ATMs at new merchant locations, for technology upgrades and compliance purposes and to enhance our existing devices with additional functionalities. We expect such expenditures to be funded primarily through cash generated from our operations. In addition, we will continue to evaluate selected acquisition opportunities that complement our existing ATM network. We believe that significant expansion opportunities continue to exist in all of our current markets, as well as in other international markets, and we will continue to pursue those opportunities as they arise. Such acquisition opportunities, individually or in the aggregate, could be material and may be funded by additional borrowings under our revolving credit facility or other financing sources that may be available to us.
48
Welch ATM Acquisition. On July 21, 2014, we announced a definitive agreement to acquire the Welch ATM business for cash purchase consideration (to be paid at closing) of approximately $160.0 million. The completion of the transaction is subject to regulatory approvals established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as the satisfaction of other customary closing conditions. The Company anticipates that the transaction will be completed during the third quarter of 2014.
Financing Activities
Net cash used in financing activities totaled $31.7 million and $12.5 million for the six months ended June 30, 2014 2013 respectively. During the six months ended June 30, 2014, we repurchased $20.6 million of outstanding senior subordinated notes and repurchased $6.1 million in capital stock associated with the surrender of shares by employees to satisfy their personal income tax obligations.
Financing Facilities
As of June 30, 2014, we had approximately $474.2 million in outstanding long-term debt, which was primarily comprised of: (1) $287.5 million of convertible notes of which $221.0 million was recorded on our balance sheet net of the unamortized note discount, (2) $179.4 million of 8.25% senior subordinated notes due September 2018, (3) $73.2 million in borrowings under our revolving credit facility, and (4) $0.6 million in notes payable outstanding under equipment financing lines of Cardtronics Mexico.
Revolving Credit Facility. As of June 30, 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. The revolving credit facility has an expiration date of April 2019.
Borrowings under our revolving credit facility accrue interest at a variable rate based upon our Total Net Leverage Ratio (as defined in the credit agreement) and the Alternate Base Rate (as defined in the credit agreement) or the Adjusted LIBO Rate (as defined in the credit agreement) at our option. Additionally, we are required to pay a commitment fee on the unused portion of the revolving credit facility. 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 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 our obligations under the revolving credit facility. There are currently no restrictions on the ability of our wholly-owned subsidiaries to declare and pay dividends directly to us.
The primary restrictive covenants within the credit agreement governing our revolving credit facility include (1) limitations on the amount of senior secured net debt and total net debt that we can have outstanding at any given point in time and (2) the maintenance of a set ratio of earnings to fixed charges, as computed quarterly on a trailing 12-month basis, adjusted for the pro forma effect of acquisitions. 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 the total net leverage ratio is less than 3.0 to 1.0 at the time such restricted payment is made.
As of June 30, 2014, the weighted average interest rate on our outstanding revolving credit facility borrowings was approximately 2.2%. Additionally, as of June 30, 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 June 30, 2014, we had approximately $299.7 million in available borrowing capacity under the $375.0 million revolving credit facility.
Convertible Notes. 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 Part I. Financial Information, Item 1. Notes to Consolidated Financial Statements, Note 8. Long-Term Debt.
Senior Subordinated Notes due 2018. In August 2010, we issued $200.0 million of notes due 2018 (“2018 Notes”). The 2018 Notes are subordinate to borrowings made under the revolving credit facility and carry an 8.25% senior subordinated coupon. Interest is paid semi-annually in arrears on March 1st and September 1st of each year. The 2018 Notes, which are guaranteed by all of our 100% owned domestic subsidiaries, contain no maintenance covenants and only limited incurrence covenants, under which we have considerable flexibility. Pursuant to the terms of the indenture, we are limited on the amount of restricted payments including dividends that we can make. These limitations are generally governed by a fixed charge ratio incurrence test and an overall restricted payments basket. During the six months ended June 30, 2014, we made open market repurchases for $20.6 million of the principal amount of these the 2018 Notes and subsequently cancelled the acquired notes. In July 2014, we announced a tender offer for the remainder of our outstanding 2018 Notes ($179.4 million) to
49
be funded with proceeds from a new senior note issuance (see further discussion in the paragraph that follows). For any 2018 Notes not tendered, we intend to call any remaining notes outstanding during the third quarter such that all remaining 2018 will be fully retired.
Senior Notes due 2022. In July 2014, we completed a private offering of $250.0 million of 5.125% senior notes due 2022. The majority of the net proceeds from this offering will fund the Company’s pending tender offer and consent solicitation of the Company’s 8.25% senior subordinated notes due 2018. The remainder of the net proceeds will be used for general corporate purposes, including acquisitions.
As of June 30, 2014, we were in compliance with all applicable covenants required under the 2018 Notes.
Other Borrowing Facilities
· |
Cardtronics Mexico equipment financing agreements. Between 2007 and 2010, Cardtronics Mexico entered into several separate five-year equipment financing agreements with a single lender, of which four agreements have remaining balances as of June 30, 2014. These agreements, which are denominated in pesos and bear interest at an average fixed rate of 9.79%, were utilized for the purchase of ATMs to support the growth in our Mexico operations. As of June 30, 2014, approximately $8.0 million pesos ($0.6 million U.S.) were outstanding under the agreements, with any future borrowings to be individually negotiated between the lender and Cardtronics Mexico. Pursuant to the terms of the loan agreements, we have issued guarantees for 51.0% of the obligations under these agreements (consistent with our ownership percentage in Cardtronics Mexico). As of June 30, 2014, the total amount of these guarantees was $4.1 million pesos ($0.3 million U.S.). |
· |
Cardtronics U.K. overdraft facility. Cardtronics U.K. has a £1.0 million overdraft facility. This overdraft facility, which bears interest at 1.0% over the Bank of England’s base rate (0.5% as of June 30, 2014) and is secured by a letter of credit posted under our revolving credit facility, is utilized for general corporate purposes for our U.K. operations. The letter of credit we have posted that is associated with this overdraft facility reduces the available borrowing capacity under our corporate revolving credit facility discussed above. As of June 30, 2014, there were no amounts outstanding under the overdraft facility. |
New Accounting Standards
See Part I Financial Information, Item 1. Notes to Consolidated Financial Statements, Note 17 New Accounting Pronouncements.
50
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in the 2013 Form 10-K.
We are exposed to a variety of market risks, including interest rate risk and foreign currency exchange rate risk. The following quantitative and qualitative information is provided about financial instruments to which we were a party at June 30, 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 U.S., the U.K., Germany, Mexico, and Canada. In the U.S. and the U.K., we pay a monthly fee to our vault cash providers on the average amount of vault cash outstanding under a formula based on the relevant interest rate measures in effect for each operation.
As a result of the significant sensitivity surrounding the vault cash rental expense for our U.S. and U.K. operations, 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 |
Weighted Average Fixed Rate |
Term |
|||||
(In millions) |
|||||||
$ |
1,250 |
2.98 |
% |
July 1, 2014 – December 31, 2014 |
|||
$ |
1,300 |
2.84 |
% |
January 1, 2015 – December 31, 2015 |
|||
$ |
1,300 |
2.74 |
% |
January 1, 2016 – December 31, 2016 |
|||
$ |
1,000 |
2.53 |
% |
January 1, 2017 – December 31, 2017 |
|||
$ |
750 |
2.54 |
% |
January 1, 2018 – December 31, 2018 |
51
The following table presents a hypothetical sensitivity analysis of our annual vault cash rental expense based on our average outstanding vault cash balances for the quarter ended June 30, 2014, (as we are invoiced monthly by the vault cash provider based on average balance outstanding) and assuming a 100 basis point increase in interest rates:
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|
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|
|
|
|
|
|
Average Vault Cash Balance for the Quarter Ended June 30, 2014 |
|
Additional Interest Incurred on 100 Basis Point Increase (Excluding Impact of Interest Rate Swaps) |
|
Additional Interest Incurred on 100 Basis Point Increase (Including Impact of All Interest Rate Swaps Currently under Contract) |
||||||||||||
|
(Functional |
|
|
|
|
(Functional |
|
|
|
|
(Functional |
|
|
|
|||
|
currency) |
|
(U.S. dollars) |
|
currency) |
|
(U.S. dollars) |
|
currency) |
|
(U.S. dollars) |
||||||
|
(In millions) |
|
(In millions) |
|
(In millions) |
||||||||||||
United States |
$ |
1,833.4 |
|
$ |
1,833.4 |
|
$ |
18.3 |
|
$ |
18.3 |
|
$ |
5.8 |
|
$ |
5.8 |
United Kingdom |
£ |
460.1 |
|
|
774.1 |
|
£ |
4.6 |
|
|
7.7 |
|
£ |
4.6 |
|
|
7.7 |
Germany |
€ |
45.0 |
|
|
61.7 |
|
€ |
0.5 |
|
|
0.6 |
|
€ |
0.5 |
|
|
0.6 |
Mexico |
p$ |
96.9 |
|
|
7.5 |
|
p$ |
1.0 |
|
|
0.1 |
|
p$ |
1.0 |
|
|
0.1 |
Canada |
c$ |
77.3 |
|
|
70.8 |
|
c$ |
0.8 |
|
|
0.7 |
|
c$ |
0.8 |
|
|
0.7 |
Total |
|
|
|
$ |
2,747.5 |
|
|
|
|
$ |
27.4 |
|
|
|
|
$ |
14.9 |
The table above does not reflect our ability to contractually pass on higher vault cash interest expense to certain of our merchants and financial institution partners, a portion of whom we have contractual rights to adjust payments to and from in the event of higher vault cash interest rates. 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 prior is considered for determining the interchange rate (e.g. interest rates and other costs from 2012 are considered for determining the 2014 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, and we may continue to seek ways to mitigate our exposure to floating interest rates by engaging in additional interest rate swaps in the future.
As of June 30, 2014, we had a net liability of $65.8 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. Due to our determination that net deferred tax assets are realizable in the future, 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.
As of June 30, 2014, we did not have any outstanding derivative financial instruments to hedge our variable interest rate exposure in the U.K., Mexico, Germany or Canada. However, we may enter into derivative financial instruments in the future to hedge our interest rate exposure in those markets.
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 $73.2 million outstanding under our revolving credit facility as of June 30, 2014, an increase of 100 basis points in the underlying interest rate would have had a $0.4 million impact on our interest expense in the six months 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, 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. and the U.K.
52
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 June 30, 2014, this accumulated translation loss totaled approximately $14.3 million compared to approximately $18.4 million 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 three months ended June 30, 2014 compared to the prior year period. A sensitivity analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10% against the British pound, Euro, Canadian dollar or Mexican peso the effect upon our consolidated operating income would have been immaterial for the six months ended June 30, 2014.
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. As of June 30, 2014, the intercompany payable balance from our U.K. operations to our U.S. parent company denominated in U.S. dollars totaled $102.4 million, of which $95.7 million was deemed to be short-term in nature. 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 June 30, 2014, the effect upon our Consolidated Statements of Operations would be approximately $9.5 million. However, we manage the majority of this risk by borrowing in British pounds through the third-party credit facility in our U.S. operations. This structure effectively manages our 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.
We do not hold derivative commodity instruments, and all of our cash and cash equivalents are held in money market and checking funds.
Item 4. Controls and Procedures
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2014 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our system of internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
53
PART II. OTHER INFORMATION
For a description of our material pending legal and regulatory proceedings and settlements, see Part I. Financial Information, Item 1. Notes to Consolidated Financial Statements, Note 13, Commitments and Contingencies.
The known material risks we face are described in our 2013 Form 10-K under Part I, Item 1A, Risk Factors. There have been no material changes in our risk factors since that report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table provides information about purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the three months ended June 30, 2014:
Total Number of Shares |
Approximate Dollar Value |
||||||||||||
Total Number of |
Average Price |
Purchased as Part of a Publicly |
that may Yet be Purchased |
||||||||||
Period |
Shares Purchased (1) |
Paid Per Share (2) |
Announced Plan or Program |
Under the Plan or Program (3) |
|||||||||
April 1 – 30, 2014 |
149 |
$ |
36.72 |
— |
$ |
— |
|||||||
May 1 – 31, 2014 |
578 |
$ |
31.35 |
— |
$ |
— |
|||||||
June 1 – 30, 2014 |
1,540 |
$ |
31.01 |
— |
$ |
— |
_________
(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. |
(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. |
The exhibits required to be filed or furnished pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Index to Exhibits accompanying this Form 10-Q.
54
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
CARDTRONICS, INC. |
|
|
July 30, 2014 |
/s/ J. Chris Brewster |
J. Chris Brewster |
|
Chief Financial Officer |
|
(Duly Authorized Officer and Principal Financial Officer) |
|
|
|
July 30, 2014 |
/s/ E. Brad Conrad |
E. Brad Conrad |
|
Chief Accounting Officer |
|
(Duly Authorized Officer and Principal Accounting Officer) |
55
Each exhibit identified below is part of this Form 10-Q.
|
|
|
|
|
|
Exhibit Number |
|
Description |
3.1 |
|
Fourth Amended and Restated Certificate of Incorporation of Cardtronics, Inc. (incorporated herein by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Cardtronics, Inc. on May 23, 2014, SEC File No. 001-33864). |
3.2 |
|
Fourth Amended and Restated Bylaws of Cardtronics, Inc. (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K/A filed by Cardtronics, Inc. on May 23, 2014, SEC File No. 001-33864). |
10.1† |
|
Cardtronics, Inc. 2014 Annual Pool Allocation Plan (incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by Cardtronics, Inc. on April 2, 2014, SEC File No. 001-33864). |
10.2† |
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). |
|
10.3† |
|
Cardtronics, Inc. Long Term Incentive plan (incorporated herein by reference to Exhibit 99.3 of the Current Report on Form 8-K filed by Cardtronics, Inc. on April 2, 2014, SEC File No. 001-33864). |
10.4† |
|
Second Amended and Restated 2007 Stock Incentive Plan (incorporated herein by reference to Appendix C of the Definitive Proxy Statement filed by Cardtronics, Inc. on April 10, 2014, SEC File No. 001-33864) |
10.5* |
|
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. |
31.1* |
|
Certification of the Chief Executive Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2* |
|
Certification of the Chief Financial Officer of Cardtronics, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1** |
|
Certification of the Chief Executive Officer and Chief Financial Officer of Cardtronics, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS* |
|
XBRL Instance Document |
101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document |
* Filed herewith.
† Management contract or compensatory plan or arrangement.
** Furnished herewith.
56
Confidential Treatment has been requested for the redacted portions of this agreement. The redactions are indicated with six asterisks (******). A complete version of this agreement has been filed separately with the Securities and Exchange Commission
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
April 24, 2014
among
CARDTRONICS, INC.
The Guarantors Party Hereto,
The Lenders Party Hereto,
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
*****
JPMORGAN SECURITIES LLC
and
MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED,
as Joint Bookrunners and Co-Lead Arrangers
TABLE OF CONTENTS |
|
|
Page |
ARTICLE I Definitions |
1 |
Section 1.01 Defined Terms |
1 |
Section 1.02 Classification of Loans and Borrowings |
25 |
Section 1.03 Terms Generally |
25 |
Section 1.04 Accounting Terms; GAAP |
26 |
ARTICLE II The Credits |
26 |
Section 2.01 Commitments |
26 |
Section 2.02 Loans and Borrowings |
27 |
Section 2.03 Requests for Borrowings |
28 |
Section 2.04 Swingline Loans |
28 |
Section 2.05 Letters of Credit |
30 |
Section 2.06 Funding of Borrowings |
34 |
Section 2.07 Interest Elections |
35 |
Section 2.08 Termination and Reduction of Commitments |
36 |
Section 2.09 Repayment of Loans; Evidence of Debt |
37 |
Section 2.10 Prepayment of Loans |
37 |
Section 2.11 Fees |
38 |
Section 2.12 Interest |
39 |
Section 2.13 Alternate Rate of Interest |
40 |
Section 2.14 Increased Costs |
40 |
Section 2.15 Break Funding Payments |
42 |
Section 2.16 Taxes |
42 |
Section 2.17 Payments; Generally; Pro Rata Treatment; Sharing of Set-offs |
46 |
Section 2.18 Mitigation Obligations; Replacement of Lenders |
48 |
Section 2.19 Increase of Commitments |
49 |
Section 2.20 Defaulting Lenders |
50 |
ARTICLE III Representations and Warranties |
52 |
Section 3.01 Organization |
52 |
Section 3.02 Authority Relative to this Agreement |
53 |
Section 3.03 No Violation |
53 |
Section 3.04 Financial Statements |
54 |
Section 3.05 No Undisclosed Liabilities |
54 |
Section 3.06 Litigation |
54 |
Section 3.07 Compliance with Law |
54 |
Section 3.08 Properties |
54 |
Section 3.09 Intellectual Property |
55 |
Section 3.10 Taxes |
55 |
Section 3.11 Environmental Compliance |
55 |
Section 3.12 Labor Matters |
56 |
(1)
Section 3.13 Investment Company Status |
57 |
Section 3.14 Insurance |
57 |
Section 3.15 Solvency |
57 |
Section 3.16 ERISA |
57 |
Section 3.17 Disclosure |
57 |
Section 3.18 Margin Stock |
57 |
Section 3.19 Anti-Corruption Laws and Sanctions |
58 |
ARTICLE IV Conditions |
58 |
Section 4.01 Effective Date |
58 |
Section 4.02 Each Credit Event |
59 |
ARTICLE V Affirmative Covenants |
60 |
Section 5.01 Financial Statements |
60 |
Section 5.02 Notices of Material Events |
62 |
Section 5.03 Existence; Conduct of Business |
63 |
Section 5.04 Payment of Obligations |
63 |
Section 5.05 Maintenance of Properties; Insurance |
63 |
Section 5.06 Books and Records; Inspection Rights |
63 |
Section 5.07 Compliance with Laws |
63 |
Section 5.08 Use of Proceeds and Letters of Credit |
64 |
Section 5.09 Additional Guarantees and Security Documents |
64 |
Section 5.10 Compliance with ERISA |
66 |
Section 5.11 Compliance With Agreements |
66 |
Section 5.12 Compliance with Environmental Laws; Environmental Reports |
66 |
Section 5.13 Maintain Business |
67 |
Section 5.14 Further Assurances |
67 |
ARTICLE VI Negative Covenants |
67 |
Section 6.01 Indebtedness |
67 |
Section 6.02 Liens |
68 |
Section 6.03 Fundamental Changes |
69 |
Section 6.04 Asset Sales |
70 |
Section 6.05 Investments |
71 |
Section 6.06 Swap Agreements |
71 |
Section 6.07 Restricted Payments |
72 |
Section 6.08 Prepayments of Indebtedness |
72 |
Section 6.09 Transactions with Affiliates |
73 |
Section 6.10 Restrictive Agreements |
73 |
Section 6.11 Business Acquisitions |
74 |
Section 6.12 Constitutive Documents |
74 |
Section 6.13 Capital Expenditures |
74 |
Section 6.14 Amendment of Existing Indebtedness |
75 |
Section 6.15 Changes in Fiscal Year |
75 |
Section 6.16 Senior Secured Net Leverage Ratio |
75 |
Section 6.17 Total Net Leverage Ratio |
75 |
Section 6.18 Fixed Charge Coverage Ratio |
75 |
(2)
ARTICLE VII Events of Default and Remedies |
75 |
Section 7.01 Events of Default |
75 |
Section 7.02 Cash Collateral |
78 |
ARTICLE VIII The Administrative Agent |
78 |
ARTICLE IX Guarantee |
80 |
Section 9.01 The Guarantee |
80 |
Section 9.02 Guaranty Unconditional |
80 |
Section 9.03 Discharge Only upon Payment in Full; Reinstatement In Certain Circumstances |
81 |
Section 9.04 Waiver by Each Guarantor |
81 |
Section 9.05 Subrogation |
82 |
Section 9.06 Stay of Acceleration |
82 |
Section 9.07 Limit of Liability |
82 |
Section 9.08 Release upon Sale |
82 |
Section 9.09 Benefit to Guarantor |
82 |
Section 9.10 Keepwell |
82 |
ARTICLE X Miscellaneous |
83 |
Section 10.01 Notices |
83 |
Section 10.02 Waivers; Amendments |
85 |
Section 10.03 Expenses; Indemnity; Damage Waiver |
86 |
Section 10.04 Successors and Assigns |
88 |
Section 10.05 Survival |
91 |
Section 10.06 Counterparts; Integration; Effectiveness |
92 |
Section 10.07 Severability |
92 |
Section 10.08 Right of Setoff |
92 |
Section 10.09 Governing Law; Jurisdiction; Consent to Service of Process |
92 |
Section 10.10 WAIVER OF JURY TRIAL |
93 |
Section 10.11 Headings |
94 |
Section 10.12 Confidentiality |
94 |
Section 10.13 Interest Rate Limitation |
95 |
Section 10.14 USA Patriot Act |
95 |
Section 10.15 Amendment and Restatement |
95 |
(3)
|
|
|
|
|
|
SCHEDULES: |
|
|
Schedule 2.01 |
-- |
Commitments |
Schedule 2.05 |
-- |
Existing Letters of Credit |
Schedule 3.01 |
-- |
Organization |
Schedule 3.03 |
-- |
No Violations |
Schedule 3.05 |
-- |
No Undisclosed Liabilities |
Schedule 3.07 |
-- |
Compliance with Law |
Schedule 3.09 |
-- |
Intellectual Property |
Schedule 3.11 |
-- |
Environmental Compliance |
Schedule 6.01 |
-- |
Existing Indebtedness |
Schedule 6.02 |
-- |
Existing Liens |
Schedule 6.05 |
-- |
Existing Investments |
Schedule 6.10 |
-- |
Restrictive Agreements |
|
|
|
|
|
|
EXHIBITS: |
|
|
Exhibit 1.1A |
-- |
Form of Addendum |
Exhibit 1.1B |
-- |
Form of Assignment and Assumption |
Exhibit 1.1C |
-- |
Form of New Lender Agreement |
Exhibit 2.03 |
-- |
Form of Borrowing Request |
Exhibit 2.07 |
-- |
Form of Interest Election Request |
Exhibit 2.16 |
-- |
Forms of U.S. Tax Compliance Certificate |
Exhibit 5.01(c) |
-- |
Form of Compliance Certificate |
(4)
AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”) dated as of April 24, 2014 (the “Effective Date”), among Cardtronics, Inc., a Delaware corporation (the “Borrower”), the Guarantors party hereto, the Lenders party hereto, 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.
PRELIMINARY STATEMENT:
WHEREAS, the Borrower is party to that certain Credit Agreement dated July 15, 2010 (as amended, the “Existing Credit Agreement”) among the Borrower, the lenders party thereto, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent for such lenders, and J.P. Morgan Europe Limited, as alternative currency agent; and
WHEREAS, the Borrower, the Guarantors, the Administrative Agent, the Alternative Currency Agent and the Lenders mutually desire to amend and restate the Existing Credit Agreement in its entirety;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein, the Borrower, the Guarantors, the Administrative Agent, the Alternative Currency Agent and the Lenders agree that the Existing Credit Agreement is amended and restated in its entirety as follows:
ARTICLE I
Definitions
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
“Addendum” means (a) an agreement in the form of Exhibit 1.1A(i) pursuant to which the Borrower or a Guarantor pledges its Equity Interests in a Subsidiary to the Administrative Agent and such Subsidiary becomes a Guarantor or (b) an agreement in the form of Exhibit 1.1A(ii) pursuant to which the Borrower pledges its Equity Interests in a Subsidiary to the Administrative Agent, in each case, pursuant to Section 5.09.
“Adjusted LIBO Rate” means, with respect to any Eurodollar and Alternative Currency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
1
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agreement” has the meaning set forth in the introductory paragraph hereof.
“Alternate Base Rate” means, for any day, a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for an interest period of one month plus 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively.
“Alternative Currency” means (a) Pounds Sterling, (b) Euros and (c) a currency, in the case of any Loan, that is readily available in the amount required and freely convertible into Dollars on the Quotation Day for such Loan and the date such Loan is to be advanced and, in the case of any Letter of Credit, in which the Issuing Bank has agreed to issue Letters of Credit, in each case, as such currency has been approved by the Administrative Agent and each Lender with an Alternative Currency Sublimit as a portion of its Commitment.
“Alternative Currency Agent” means J.P. Morgan Europe Limited in London, an Affiliate of the Administrative Agent, acting at the request of the Administrative Agent.
“Alternative Currency Borrowing” means a Borrowing comprised of one or more Alternative Currency Loans.
“Alternative Currency Loan” means a Loan requested in an Alternative Currency.
“Alternative Currency Sublimit” means the Equivalent Amount of $125,000,000.
“Anti-Corruption Laws” means all laws, rules and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Applicable Margin” means, on any day, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Total Net Leverage Ratio for the most recently ended trailing four-quarter period with respect to which the Borrower is required to have delivered the financial statements pursuant to Section 5.01 hereof (as such Total Net Leverage Ratio is calculated on Exhibit C of the Compliance Certificate delivered under Section 5.01(c) by the Borrower in connection with such financial statement):
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Each change in the Applicable Margin shall take effect on each date on which such financial statements and Compliance Certificate are required to be delivered pursuant to Section 5.01, commencing with the date on which such financials statements and Compliance Certificate are required to be delivered for the four-quarter period ending June 30, 2014. Notwithstanding the foregoing, for the period from the Effective Date through the date the financial statements and
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Compliance Certificate are required to be delivered pursuant to Section 5.01 for the fiscal quarter ended June 30, 2014, the Applicable Margin shall be determined at Level III. In the event that any financial statement delivered pursuant to Section 5.01 is shown to be inaccurate when delivered (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an “Applicable Period”) than the Applicable Margin applied for such Applicable Period, and only in such case, then the Borrower shall immediately (i) deliver to the Administrative Agent corrected financial statements for such Applicable Period, (ii) determine the Applicable Margin for such Applicable Period based upon the corrected financial statements, and (iii) immediately pay to the Administrative Agent the accrued additional interest owing as a result of such increased Applicable Margin for such Applicable Period, which payment shall be promptly applied by the Administrative Agent in accordance with Section 2.17. This provision is in addition to the rights of the Administrative Agent and the Lenders with respect to Section 2.12(e) and their other respective rights under this Agreement. If the Borrower fails to deliver the financial statements and corresponding Compliance Certificate to the Administrative Agent at the time required pursuant to Section 5.01, then effective as of the date such financial statements and corresponding Compliance Certificate were required to be delivered pursuant to Section 5.01, the Applicable Margin shall be determined at Level I and shall remain at such level until the date such financial statements and corresponding Compliance Certificate are so delivered by the Borrower. In the event that any such financial statement, if corrected, would have led to the application of a lower Applicable Margin for the Applicable Period than the Applicable Margin applied for such Applicable Period, the Administrative Agent shall, at the request of the Borrower, send out a single notice to the Lenders requesting refund to the Administrative Agent of any overpayment of interest relating thereto. The Administrative Agent shall promptly remit any amounts received to the Borrower.
“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitment; provided that in the case of Section 2.20 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitment) represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Credit Exposure, giving effect to any Lender’s status as a Defaulting Lender at the time of determination.
“Arrangers” means, collectively, J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
“Asset Sale” means the sale, transfer, lease or disposition by the Borrower or any Restricted Subsidiary of (a) any of the Equity Interest in any Restricted Subsidiary, (b) substantially all of the assets of any division, business unit or line of business of the Borrower or any Restricted Subsidiary, or (c) any other assets (whether tangible or intangible) of the Borrower or any Restricted Subsidiary including, without limitation, any accounts receivable.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent (which acceptance may not be unreasonably withheld or delayed), in the form of Exhibit 1.1B or any other form approved by the Administrative Agent.
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“ATM Equipment” means automated teller machines and related equipment.
“Availability Period” means the period from and including the Effective Date to but excluding the earlier of the Termination Date and the date of termination of all of the Commitments as set forth herein.
“Bank Products” means each and any of the following bank services provided to any Obligor by a Lender or any of its Affiliates: (a) commercial credit cards, (b) commercial checking accounts, (c) stored value cards and (d) treasury management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, overdraft and interstate depository network services); provided that Bank Products shall specifically exclude services and fees in respect of vault cash or cash for use in ATM Equipment.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business or assets appointed for it, including the Federal Deposit Insurance Corporation or any state or federal regulatory authority acting in such capacity, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person or any direct or indirect parent company thereof by a Governmental Authority or instrumentality thereof, provided, further, that such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means has the meaning given in the preamble hereto.
“Borrowing” means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit 2.03 or such other form reasonably acceptable to the Administrative Agent.
“Business Acquisition” means (a) an Investment by the Borrower or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Subsidiary or shall be merged into or consolidated with the Borrower or any Restricted Subsidiary or (b) an acquisition by the Borrower or any Restricted Subsidiary of the property and assets of any Person (other than a Subsidiary) that constitutes substantially all of the assets of such Person or any division or other business unit of such Person.
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“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City, New York or Houston, Texas are authorized or required by Law to remain closed; provided that, when used in connection with a Eurodollar Loan or an Alternative Currency Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in Dollar deposits or Alternative Currencies or the principal financial center of the country in which payment or purchase of such Alternative Currency can be made in the London interbank market is not open (and, if the Borrowings which are the subject of a borrowing, draw, payment, reimbursement or rate selection are denominated in Euros, the term “Business Day” shall also exclude any day that is not a TARGET Day.
“Call Spread Counterparties” means one or more financial institutions selected by the Borrower.
“Capital Expenditures” means expenditures in respect of fixed or capital assets, including the capital portion of the lease payments made in respect of Capital Lease Obligations in each case which are required to be capitalized on a balance sheet prepared in accordance with GAAP, but excluding expenditures for the repair or replacement of any fixed or capital assets which were destroyed, damaged, lost or stolen, in whole or in part, to the extent financed by the proceeds of an insurance policy; provided that, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the amount of Capital Expenditures attributed to such Restricted Subsidiary shall be the Owned Percentage of the amount that would otherwise be included in the absence of this proviso.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Cash Interest Expense” means, for any period, for the Borrower and the Restricted Subsidiaries, all cash interest payments made during such period (including the portion of rents payable under Capital Lease Obligations allocable to interest); provided that, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the amount of Cash Interest Expense attributed to such Restricted Subsidiary shall be the Owned Percentage of the amount that would otherwise be included in the absence of this proviso.
“CFC” means a “controlled foreign corporation” as defined in Section 957 of the Code.
“CFC Holding Company” means a Domestic Subsidiary, owned directly by the Borrower or another Domestic Subsidiary, substantially all of the assets of which consist of Equity Interests in, or Indebtedness of, one or more CFCs held directly or indirectly by such Domestic Subsidiary.
“Change in Control” means (a) any Person or group (within the meaning of Rule 13d-5 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 as in effect on the date hereof) shall become the beneficial owner (as defined in Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 as in effect on the date
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hereof) of issued and outstanding Equity Interests of the Borrower representing more than 50% of the aggregate voting power in elections for directors of the Borrower on a fully diluted basis; or (b) a majority of the members of the board of directors of the Borrower shall cease to be either (i) Persons who were members of the board of directors on the Effective Date or (ii) Persons who became members of such board of directors after the Effective Date and whose election or nomination was approved by a vote or consent of the majority of the members of the board of directors that are either described in clause (i) above or who were elected under this clause (ii).
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of Law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, regulations, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” means all of the property described in the Security Agreement serving as security for the Loans.
“Commitment” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Sections 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 2.19 or Section 10.04. The initial amount of each Lender’s Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders’ Commitments is $375,000,000.
“Commitment Fee Rate” means, on any day, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Total Net Leverage Ratio for the most recently ended trailing four-quarter period with respect to which the Borrower is required to have delivered the financial statements pursuant to Section 5.01 hereof (as such Total Net Leverage Ratio is calculated on Exhibit C of the Compliance Certificate delivered under Section 5.01(c) by the Borrower in connection with such financial statement):
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Each change in the Commitment Fee Rate shall take effect on each date on which such financial statements and Compliance Certificate are required to be delivered pursuant to Section 5.01, commencing with the date on which such financials statements and Compliance Certificate are required to be delivered for the four-quarter period ending June 30, 2014. Notwithstanding the foregoing, for the period from the Effective Date through the date the financial statements and Compliance Certificate are required to be delivered pursuant to Section 5.01 for the fiscal quarter ended June 30, 2014, the Commitment Fee Rate shall be determined at Level III. In the event any financial statement delivered pursuant to Section 5.01 is shown to be inaccurate when delivered (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to a higher Commitment Fee Rate for any period (an “Applicable Commitment Fee Period”) than the Commitment Fee Rate applied for such Applicable Commitment Fee Period, and only in such case, then the Borrower shall immediately (i) deliver to the Administrative Agent corrected financial statements for such Applicable Commitment Fee Period, (ii) determine the Commitment Fee Rate for such Applicable Commitment Fee Period based on the corrected financial statements, and (iii) immediately pay to the Administrative Agent the additional accrued commitment fees owing as a result of such increased Commitment Fee Rate for such Applicable Commitment Fee Period, which payment shall be promptly applied in accordance with Section 2.11. This provision is in addition to the rights of the Administrative Agent and Lenders with respect to Section 2.12(e) and their other respective rights under this Agreement. If the Borrower fails to deliver the financial statements and corresponding Compliance Certificate to the Administrative Agent at the time required pursuant to Section 5.01, then effective as of the date such financial statements and corresponding Compliance Certificate were required to be delivered pursuant to Section 5.01, the Commitment Fee Rate shall be determined at Level I and shall remain at such level until the date such financial statements and corresponding Compliance Certificate are so delivered by the Borrower. In the event that any such financial statement, if corrected, would have led to the application of a lower Commitment Fee Rate for the Applicable Commitment Fee Period than the Commitment Fee Rate applied for such Applicable Commitment Fee Period, the Administrative Agent shall, at the request of the Borrower, send out a single notice to the Lenders requesting refund to the Administrative Agent of any overpayment of commitment fees relating thereto. The Administrative Agent shall promptly remit any amounts received to the Borrower.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” has the meaning assigned to such term in Section 5.01(c).
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Adjusted EBITDA” means, for any period, for the Borrower and the Restricted Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period, plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Expense for such period, (ii) the provision for Federal, state, local and foreign income taxes payable during such period, (iii) depreciation, accretion and amortization expense and (iv) other extraordinary, non-cash and non-recurring expenses
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reducing such Consolidated Net Income, provided that any such non-recurring expenses shall not exceed $10,000,000 in any fiscal year, and minus (b) to the extent included in calculating such Consolidated Net Income, all non-cash items increasing Consolidated Net Income for such period; provided that, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the amount included in the calculation of Consolidated Adjusted EBITDA in respect of any such items or components thereof shall be the Owned Percentage of the amount that would otherwise be included in the absence of this proviso.
“Consolidated Adjusted Pro Forma EBITDA” means, for any period, for the Borrower and the Restricted Subsidiaries on a consolidated basis, Consolidated Adjusted EBITDA for such period, adjusted to include the Consolidated Adjusted EBITDA attributable to Business Acquisitions made in accordance with Section 6.11 during such period as if such Business Acquisition occurred on the first day of such period, including adjustments attributable to such Business Acquisitions so long as such adjustments (a) have been certified by a Financial Officer of the Borrower as having been prepared in good faith based upon reasonable assumptions, (b) are expected to occur within ninety (90) days of the date such Business Acquisition is consummated, (c) are permitted or required under Regulation S-X of the SEC and (d) do not exceed $5,000,000 in the aggregate in any twelve month period.
“Consolidated Funded Indebtedness” means, as of the date of determination, for the Borrower and the Restricted Subsidiaries on a consolidated basis, all Indebtedness evidenced by a note, bond, debenture or similar items with regularly scheduled interest payments and a maturity date; provided that, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the amount of Indebtedness attributed to such Restricted Subsidiary shall be the Owned Percentage of the amount that would otherwise be included in the absence of this proviso, unless the Borrower or any Restricted Subsidiary that is a Wholly-Owned Subsidiary guaranties a greater percentage than the Owned Percentage, in which case the amount included in respect of such Indebtedness shall be the percentage so guarantied.
“Consolidated Interest Expense” means, for any Person, determined on a consolidated basis, the sum of all interest on Indebtedness paid or payable (including the portion of rents payable under Capital Lease Obligations allocable to interest) plus all original issue discounts and other interest expense associated with Indebtedness amortized or required to be amortized in accordance with GAAP.
“Consolidated Net Income” means, for any period, for the Borrower and the Restricted Subsidiaries on a consolidated basis, the net income or loss of the Borrower and the Restricted Subsidiaries for such period determined in accordance with GAAP.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Convertible Senior Notes” means the Borrower’s 1.00% Convertible Senior Notes in the principal amount of $287,500,000 due 2020.
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“Credit Party” means the Administrative Agent, the Alternative Currency Agent, the Issuing Lender, the Swingline Lender or any other Lender.
“Default” means any event or condition that constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Default Rate” means (a) with respect to principal payments on the Loans, the rate otherwise applicable to such Loans plus 2%, and (b) with respect to all other amounts, the rate otherwise applicable to ABR Loans plus 2%.
“Defaulting Lender” means, subject to Section 2.20(b), any Lender that (a) has failed within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swingline Loans or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that a condition precedent to funding specifically identified (and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend to comply with any of its funding obligations under this Agreement (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent specifically identified and including the particular default, if any, to funding a Loan under this Agreement cannot be satisfied), (c) has failed, within three Business Days after written request by a Credit Party or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, become the subject of a Bankruptcy Event. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.20(b)) upon delivery of written notice of such determination to the Borrower and each Credit Party.
“Dollars” or “$” refers to lawful money of the United States of America.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States, any State thereof or the District of Columbia, other than such a Subsidiary that is (i) a CFC Holding Company, or (ii) owned directly or indirectly by a CFC.
“Effective Date” has the meaning given in the preamble hereto.
“EMU” means the economic and monetary union in accordance with the Treaty of Rome 1957, as amended by the Single European Act 1986, the Maastricht Treaty of 1992 and the Amsterdam Treaty of 1998.
“Environmental Laws” means all Laws issued or promulgated by any Governmental Authority, relating in any way to the protection of the environment, preservation or reclamation
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of natural resources or the management, release or threatened release of any Hazardous Material or to health and safety matters.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Restricted Subsidiary directly or indirectly resulting from or based upon (a) violation of any applicable Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials performed in violation of applicable Environmental Laws, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“Equivalent Amount” means, on any day, with respect to any Alternative Currency, the amount of an Alternative Currency into which an amount of Dollars may be converted, or the amount of an Alternative Currency may be converted based on the rate at which such Alternative Currency may be exchanged into Dollars, as set forth at approximately 11:00 a.m., London time, on such date on the Reuters World Currency Page for such Alternative Currency. In the event that such rate does not appear on any Reuters World Currency Page, the Equivalent Amount with respect to such Alternative Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be reasonably selected by the Administrative Agent or, after consultation with the Borrower, in the event no such service is selected, such Equivalent Amount shall instead be calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange on the Administrative Agent for such Alternative Currency on the London market at 11:00 a.m., London time, on such date for the purchase of Dollars with such Alternative Currency, for delivery two Business Days later; provided, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent, after consultation with the Borrower, may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether
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or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
“Euro” and “Euros” mean the currency of the participating member states of the EMU.
“Eurodollar”, when used in reference to any Loan or Borrowing in Dollars, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
“Event of Default” has the meaning assigned to such term in Section 7.01.
“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the guarantee of such Guarantor or the grant of such security interest becomes effective with respect to such Swap Obligation. If a Swap Obligation arising under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such guarantee or security interest is or becomes illegal.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.18(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.16, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such
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Recipient’s failure to comply with Section 2.16(g) and (d) any U.S. federal withholding Taxes imposed under FATCA.
“Existing Credit Agreement” has the meaning given in the preamble hereto.
“Existing Indebtedness” means Indebtedness existing on the date hereof and set forth in Schedule 6.01.
“Existing Letters of Credit” shall mean the letters of credit set forth on Schedule 2.05.
“Existing Senior Notes” means the Borrower’s 8.25% Senior Subordinated Notes due 2018.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to such intergovernmental agreement.
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
“Fee Letter” means the letter agreement dated March 20, 2014, by and among the Borrower, the Administrative Agent and the other parties thereto pertaining to certain fees payable in connection with this Agreement.
“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.
“First-Tier Foreign Subsidiary” means any Foreign Subsidiary the Equity Interests of which are owned directly by the Borrower or a Domestic Subsidiary.
“Fixed Charge Coverage Ratio” means, as of the end of each fiscal quarter, the ratio of (a) the sum of (i) Consolidated Adjusted Pro Forma EBITDA for the four quarter period then ended, minus (ii) Capital Expenditures of the Borrower and the Restricted Subsidiaries for such period, minus (iii) cash Taxes paid by the Borrower and the Restricted Subsidiaries during such period, to (b) Cash Interest Expense.
“Foreign Lender” means any Lender that is not a U.S. Person.
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“Foreign Subsidiary” means (a) any Subsidiary that is not a U.S. Person and (b) any Subsidiary that is wholly owned by any such Subsidiary described in clause (a).
“Fronting Exposure” means, at any time there is a Defaulting Lender, (a) with respect to the Issuing Lender, such Defaulting Lender’s Applicable Percentage of the outstanding LC Exposure with respect to Letters of Credit issued by the Issuing Lender other than LC Exposure as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or cash collateralized in accordance with the terms of Section 2.05(j), and (b) with respect to any Swingline Lender, such Defaulting Lender’s Applicable Percentage of outstanding Swingline Loans made by such Swingline Lender other than Swingline Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders.
“GAAP” means generally accepted accounting principles in the United States of America.
“Governmental Approval” means (a) any authorization, consent, approval, license, waiver, or exemption, by or with or (b) any required filing or registration by or with, or any other action or deemed action by or on behalf of, any Governmental Authority.
“Governmental Authority” means the government of the United States of America or any other nation or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided, that the term guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
“Guarantees” means the guarantees issued pursuant to this Agreement as contained in Article IX hereof.
“Guarantor” means, subject to Section 9.08, each Person listed on the signature pages hereof as a Guarantor and each Person that becomes a Guarantor hereafter pursuant to Section 5.09.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
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distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature to the extent any of the foregoing are present in quantities or concentrations prohibited under the Environmental Laws but does not include normal quantities of any material present or used in the ordinary course of business, including, without limitation, materials such as substances and materials used in the operation or maintenance of ATM Equipment, office or cleaning supplies, typical building and maintenance materials and employee and invitee vehicles and vehicle fuels.
“Immaterial Domestic Subsidiary” means any Domestic Subsidiary that is not a Material Domestic Subsidiary.
“Increasing Lender” has the meaning assigned to such term in Section 2.19.
“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services, (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) the principal portion of all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor; provided that, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the amount of Indebtedness attributed to such Restricted Subsidiary shall be the Owned Percentage of the amount that would otherwise be included in the absence of this proviso, unless the Borrower or any Restricted Subsidiary that is a Wholly-Owned Subsidiary guaranties a greater percentage than the Owned Percentage, in which case the amount included in respect of such Indebtedness shall be the percentage so guarantied.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Obligor under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Interest Election Request” means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.07 and substantially in the form attached hereto as Exhibit 2.07 or such other form reasonably acceptable to the Administrative Agent.
“Interest Payment Date” means (a) with respect to any ABR Loan (other than a Swingline Loan), the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan or Alternative Currency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing or
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Alternative Currency Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and (c) with respect to any Swingline Loan, the day that such Loan is required to be repaid pursuant to Section 2.04.
“Interest Period” means with respect to any Eurodollar Borrowing and any Alternative Currency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each relevant Lender, twelve months) thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the relevant rate applicable to Alternative Currency Loans) determined by the Alternative Currency Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the applicable rate (for the longest period for which the applicable rate is available for the applicable currency) that is shorter than the relevant Interest Period and (b) the applicable rate applicable to Alternative Currency Loans for the shortest period (for which such rate is available for the applicable currency) that exceeds the relevant Interest Period, in each case, on the Quotation Day for such Interest Period and at 11:00 a.m. London time. When determining the rate for a period which is less than the shortest period for which the relevant rate applicable to Alternative Currency Loans is available, the applicable rate for purposes of clause (a) above shall be deemed to be the overnight screen rate where “overnight screen rate” means, in relation to any currency, the overnight rate for such currency determined by the Alternative Currency Agent from such service as the Alternative Currency Agent may select.
“Investment” means any investment in any Person, whether by means of a purchase of Equity Interests or debt securities, capital contribution, loan, time deposit or other similar investments (but not including any demand deposit).
“IRS” means the United States Internal Revenue Service.
“Issuing Lender” means JPMorgan Chase Bank, N.A., in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i), and JPMorgan Chase Bank, N.A., in its capacity as issuer of the Existing Letters of Credit. The Issuing Lender may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Lender, in which case the term “Issuing Lender” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
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“Law” means all laws, statutes, treaties, ordinances, codes, acts, rules, regulations and Orders of all Governmental Authorities, whether now or hereafter in effect.
“LC Disbursement” means a payment made by the Issuing Lender pursuant to a Letter of Credit.
“LC Exposure” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower or converted into a Revolving Loan pursuant to Section 2.05(e) at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.
“Lender Swap Agreement” means any Swap Agreement between the Borrower or any Restricted Subsidiary and any Lender or any Affiliate of any Lender which is in existence on the Effective Date or which is entered into while such Person is a Lender or an Affiliate of a Lender even if such Person ceases to be a Lender or an Affiliate of a Lender after entering into such Swap Agreement.
“Lenders” means the Persons listed on Schedule 2.01 as Lenders and any other Person that shall have become a Lender hereto pursuant to an Assignment and Assumption, but in any event, excluding any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.
“Letter of Credit” means any letter of credit issued pursuant to this Agreement.
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on, in the case of Dollars, Reuters Screen LIBOR 01 Page and, in the case of any Alternative Currency, the appropriate page of such service which displays the London interbank offered rates as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for deposits in such Alternative Currency (or, in each case, on any successor or substitute page of such service, or any successor to or substitute for such service, providing rate quotations comparable to those currently provided on such page of such service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in the relevant currency in the London interbank market) at approximately 11:00 a.m., London time, two (2) Business Days prior to (or, in the case of Loans denominated in Pounds Sterling, on the day of) the commencement of such Interest Period, as the rate for deposits in the relevant currency with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which deposits in the relevant currency in an Equivalent Amount of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period.
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, charge or security interest in, on or of such asset to secure or provide for the
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payment of any obligation of any Person, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Loan Documents” means this Agreement, and any applications for Letters of Credit and reimbursement agreements relating thereto, the Security Documents and the Fee Letter.
“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.
“Majority Lenders” means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50.0% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. The Revolving Credit Exposure of any Defaulting Lender shall be disregarded in determining the Majority Lenders at any time.
“Material Adverse Effect” means a circumstance or condition affecting the business, assets, operations, properties or financial condition of the Borrower and the Restricted Subsidiaries, taken as a whole, that would, individually or in the aggregate, materially adversely affect (i) the ability of the Obligors, taken as a whole, to pay the Obligations under the Loan Documents or (ii) the rights and remedies of the Administrative Agent and the Lenders under the Loan Documents.
“Material Domestic Subsidiary” means a Wholly-Owned Subsidiary of the Borrower that (i) is a Domestic Subsidiary and (ii) either generates 5% or more of the consolidated gross revenues of the Borrower and its Subsidiaries on a consolidated basis or holds assets that constitute 5% or more of all assets of the Borrower and its Subsidiaries on a consolidated basis.
“Material Indebtedness” means Indebtedness, or obligations in respect of one or more Swap Agreements, of any one or more of the Borrower and the Restricted Subsidiaries in an aggregate principal amount exceeding $20,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of the Borrower or any Restricted Subsidiary in respect of any Swap Agreement at any time shall be the Swap Termination Value.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“New Lender” has the meaning assigned such term in Section 2.19.
“New Lender Agreement” means a New Lender Agreement entered into by a New Lender in accordance with Section 2.19 and accepted by the Administrative Agent in the form of Exhibit 1.1C, or any other form approved by Administrative Agent.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
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“Obligations” means, without duplication, (a) all principal, interest (including post-petition interest), fees, reimbursements, indemnifications, and other amounts now or hereafter owed by the Borrower or any of the Guarantors to the Lenders, the Swingline Lender, the Issuing Lender, the Alternative Currency Agent or the Administrative Agent under this Agreement and the Loan Documents, including, such obligations with respect to Letters of Credit, and any increases, extensions, and rearrangements of those obligations under any amendments, supplements, and other modifications of the documents and agreements creating those obligations, (b) all obligations of the Borrower, any Guarantor or any Restricted Subsidiary in respect of any Lender Swap Agreement and (c) all obligations of the Borrower or any Guarantor in respect of Bank Products; provided that the Obligations shall specifically exclude the Excluded Swap Obligations.
“Obligors” means the Borrower and each Guarantor.
“Order” means an order, writ, judgment, award, injunction, decree, ruling or decision of any Governmental Authority or arbitrator, to the extent the Borrower has submitted a claim to, or is bound by the decision of, binding arbitration.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.18(b)).
“Overnight LIBO Rate” means the rate of interest per annum (rounded upwards, if necessary, to the next 1/16th of 1%) at which overnight deposits in the applicable Alternative Currency (as the case may be) in an amount approximately equal to the amount with respect to which such rate is being determined would be offered for such day by a branch or affiliate of the Alternative Currency Agent in the London interbank market for such currency to major banks in the London interbank market.
“Owned Percentage” means, in the case of any Restricted Subsidiary that is not a Wholly-Owned Subsidiary, the percentage of Equity Interests therein owned directly or indirectly by the Borrower or any Restricted Subsidiary.
“Participant” has the meaning set forth in Section 10.04.
“Participant Register” has the meaning set forth in Section 10.04.
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“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Permitted Bond Hedge Transaction(s)” means the bond hedge or capped call options purchased by the Borrower from the Call Spread Counterparties to hedge the Borrower’s payment and/or delivery obligations due upon conversion of the Convertible Senior Notes.
“Permitted Encumbrances” means:
(a)Liens imposed by law for Taxes that are not yet due or are being contested in compliance with Section 5.04;
(b)carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s and other like Liens imposed by law or by contract provided such contract does not grant Liens in any property other than such property covered by Liens imposed by operation of law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04;
(c)Liens arising in the ordinary course of business associated with workers’ compensation, unemployment insurance and other social security laws or regulations;
(d)deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e)Liens of financial institutions on accounts or deposits maintained therein to the extent arising by operation of law or within the documentation establishing said account to the extent same secure charges, fees and expenses owing or potentially owing to said institution;
(f)judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Section 7.01; and
(g)easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Restricted Subsidiary.
“Permitted Indebtedness” means Indebtedness that the Obligors and their respective Restrictive Subsidiaries are permitted to create, incur, assume or permit to exist pursuant to Section 6.01.
“Permitted Investments” means:
(a)direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
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(b)investments in commercial paper maturing within 270 days from the date of acquisition thereof and issued by any Lender, any Affiliate of a Lender or any commercial banking institution or corporation rated at least P-1 by Moody’s or A-1 by S&P;
(c)investments in certificates of deposit, banker’s acceptances and time deposits maturing within 270 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any Lender or any other commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000;
(d)fully collateralized repurchase agreements for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above;
(e)money market funds that (i) comply with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moody’s or which hold investments substantially of the type described in clauses (a) through (d) above, and (iii) have portfolio assets of at least $2,000,000,000; and
(f)any Permitted Bond Hedge Transaction(s).
“Permitted Liens” means Liens that the Obligors and their respective Restricted Subsidiaries are permitted to create, incur, assume or permit to exist pursuant to Section 6.02.
“Permitted Warrant Transaction(s)” means one or more net share or cash settled warrants sold by the Borrower to the Call Spread Counterparties, concurrently with the purchase by the Borrower of the Permitted Bond Hedge Transactions, to offset the cost to the Borrower of the Permitted Bond Hedge Transactions.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Pounds Sterling” means the lawful money of the United Kingdom of Great Britain and Northern Ireland.
“Prime Rate” means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its office in New York City, New York; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
“Qualified ECP Guarantor” has the meaning set forth in Section 9.10.
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“Quotation Day” means, in relation to any period for which an interest rate is to be determined:
(a)(if the Alternative Currency is Pounds Sterling) the first day of that period;
(b)(if the Alternative Currency is Euro) two (2) TARGET Days before the first day of that period; or
(c)(for any other Alternative Currency) two (2) Business Days before the first day of that period,
unless market practice differs in the London interbank market for an Alternative Currency, in which case the Quotation Day for that currency will be determined by the Administrative Agent in accordance with market practice in the London interbank market (and if quotations would normally be given by leading banks in the London interbank market on more than one day, the Quotation Day will be the last of those days).
“Ratification Agreement” means that certain document executed by the Obligors as of the date hereof that ratifies the Security Agreement.
“Recipient” means (a) the Administrative Agent, (b) the Alternative Currency Agent, (c) any Lender and (d) the Issuing Lender, as applicable.
“Register” has the meaning set forth in Section 10.04.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.
“Response” means (a) “response” as such term is defined in CERCLA, 42 U.S.C. §9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to (i) clean up, remove, treat, abate, or in any other way address any Hazardous Material in the environment; (ii) prevent the release or threatened release of any Hazardous Material; or (iii) perform studies and investigations in connection with, or as a precondition to, clause (i) or (ii) above.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower or any Restricted Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any Restricted Subsidiary or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any Restricted Subsidiary; provided that the term “Restricted Payment” shall not include any dividend or distribution payable solely in Equity Interests of such Person or warrants, options or other rights to purchase such Equity Interests so long as such warrants, options or other rights do not have mandatory repayment or redemption rights.
“Restricted Subsidiary” means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.
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“Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure and Swingline Exposure at such time.
“Revolving Loan” means a Loan made pursuant to Section 2.01.
“S&P” means Standard & Poor’s Rating Services, a division of the McGraw Hill Companies, Inc.
“Sanctioned Country” means, at any time, a country or territory which is the subject or target of any Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of The Treasury, the U.S. Department of State, or by the United Nations Security Council, the European Union or any EU member state, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.
“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.
“Security Agreement” shall mean the Security and Pledge Agreement executed in connection with the Existing Credit Agreement, dated July 15, 2010, among the Obligors and the Administrative Agent, as amended, modified, supplemented or restated from time to time.
“Security Documents” means the Security Agreement, the Ratification Agreements, each Addendum, and each other security document or pledge agreement delivered in accordance with applicable local or foreign law to grant a valid, perfected security interest in any property, and all UCC or other financing statements or instruments of perfection required by this Agreement, any security agreement or mortgage to be filed with respect to the security interests in property and fixtures created pursuant to the Security Agreement or any mortgage and any other document or instrument utilized to pledge as collateral for the Obligations any property of whatever kind or nature.
“Senior Note Indenture” means the Indentures relating to the Existing Senior Notes, including all supplements, amendments or modifications thereto permitted hereunder.
“Senior Secured Net Leverage Ratio” means, as of the end of any fiscal quarter, the ratio of (a) the sum of (i) Consolidated Funded Indebtedness as of such date minus (ii) unsecured Indebtedness minus (iii) Unencumbered Balance Sheet Cash as of such date to (b) Consolidated Adjusted Pro Forma EBITDA for the four quarter period then ended.
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental
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reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentage shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held (whether directly or indirectly).
“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that, no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower and its Subsidiaries shall be a Swap Agreement.
“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Swap Termination Value” means, in respect of one or more Swap Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Agreements, as determined by the counterparties to such Swap Agreements.
“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time.
“Swingline Lender” means, (a) with respect to Swingline Loans made in Dollars, JPMorgan Chase Bank, N.A., in its capacity as lender of such Swingline Loans hereunder and (b) with respect to Swingline Loans made in Alternative Currencies, JPMorgan Europe Limited, in its capacity as lender of such Swingline Loans hereunder.
“Swingline Loan” means a Loan made pursuant to Section 2.04.
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“Swingline Rate” means (i) for Swingline Loans in Dollars, a rate per annum equal to the Alternate Base Rate plus the Applicable ABR Margin and (ii) for Swingline Loans in Alternative Currencies, the Overnight LIBO Rate plus the Applicable Margin.
“TARGET Day” means any day on which the Trans-European Automatic Real-time Gross Settlement Express Transfer payment system is open for the settlement of payments in Euros.
“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Termination Date” means the fifth (5th) anniversary of the Effective Date.
“Total Net Leverage Ratio” means, as of the date of determination, the ratio of (a) Consolidated Funded Indebtedness as of such date minus Unencumbered Balance Sheet Cash as of such date to (b) Consolidated Adjusted Pro Forma EBITDA for the most recently completed four quarter period.
“Transactions” means the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
“Unencumbered Balance Sheet Cash” means, as of the last day of the most recently ended fiscal quarter, the balance of unencumbered balance sheet cash (excluding any vault cash or cash for use in ATM Equipment) of each Obligor in excess of $15,000,000 for the quarter of determination.
“Unrestricted Subsidiary” means (i) any Subsidiary that at the time of determination shall have been designated as an Unrestricted Subsidiary by the Borrower in the manner provided below (and shall not have been subsequently designated or deemed to have been designated as a Restricted Subsidiary) and (ii) any Subsidiary of an Unrestricted Subsidiary. Subject to Section 5.09(b), the Borrower may from time to time designate any Subsidiary (other than a Subsidiary that, immediately after such designation, shall hold any Indebtedness or Equity Interest in the Borrower or any Restricted Subsidiary) as an Unrestricted Subsidiary, and may designate any Unrestricted Subsidiary as a Restricted Subsidiary, so long as, immediately after giving effect to such designation, no Default shall have occurred and be continuing. Any designation by the Borrower pursuant to this definition shall be made in an officer’s certificate delivered to the Administrative Agent and containing a certification that such designation is in compliance with the terms of this definition.
“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
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“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.16(g)(ii)(B)(iii).
“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding Equity Interests (other than directors’ qualifying shares mandated by applicable law), on a fully diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or by the Borrower and one or more of the Wholly-Owned Subsidiaries.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Withholding Agent” means any Obligor and the Administrative Agent.
Section 1.02 Classification of Loans and Borrowings.
For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Revolving Borrowing”).
Section 1.03 Terms Generally.
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
Section 1.04 Accounting Terms; GAAP.
Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative
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Agent notifies the Borrower that the Majority Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. References to quarters and months with respect to compliance with financial covenants and financial reporting obligations of the Borrower shall be fiscal quarters and fiscal months, except where otherwise indicated.
ARTICLE II
The Credits
Section 2.01 Commitments.
(a) Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans in Dollars to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
(b) Notwithstanding paragraph (a) above, Revolving Loans may, at the option of the Borrower, be requested in, converted into or issued, as applicable, in one or more of the Alternative Currencies in an amount that will not result in (i) the Revolving Credit Exposure denominated in Alternative Currencies exceeding the Alternative Currency Sublimit or (ii) such Lender’s Revolving Credit Exposure denominated in Alternative Currencies exceeding such Lender’s Commitment in Alternative Currencies, in each case, calculated as of the date the Loans are requested. If so requested, only those Lenders designated on Schedule 2.01 as having Commitments in an Alternative Currency shall participate in making such Revolving Loans, notwithstanding that this results in such Lenders having amounts owing by the Borrower on a non pro rata basis. Following the advance of a Revolving Loan in an Alternative Currency, the provisions of Section 2.02(e) shall apply to subsequent Revolving Loans.
Section 2.02 Loans and Borrowings.
(a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.
(b) Subject to Section 2.13, each Borrowing requested in Dollars shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Borrowing requested in an Alternative Currency shall be comprised entirely of Alternative Currency Loans. Each Lender may make any Eurodollar Loan or Alternative Currency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
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(c) At the commencement of each Interest Period for any Eurodollar Borrowing or Alternative Currency Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $100,000 or the Equivalent Amount in an Alternative Currency and not less than $1,000,000 or the Equivalent Amount in an Alternative Currency. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000; provided that (i) an ABR Revolving Borrowing may be in an aggregate amount that is equal to (A) the entire unused balance of the total Commitments, (B) that which is required to repay a Swingline Loan in Dollars, or (C) that which is required to finance the reimbursement of an LC Disbursement in Dollars as contemplated by Section 2.05(e) and (ii) an Alternative Currency Loan may be in an aggregate amount that is equal to (A) that which is required to repay a Swingline Loan in such Alternative Currency or (B) that which is required to finance the reimbursement of an LC Disbursement in such Alternative Currency as contemplated by Section 2.05(e). Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of twelve (12) Eurodollar Borrowings and more than eight (8) Alternative Currency Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date.
(a) If a Revolving Loan is made in an Alternative Currency, subsequent Revolving Loans requested in, or converted into, Dollars shall be advanced first by Lenders that do not have Commitments in an Alternative Currency until such time as the amount owing to each of the Lenders under the Revolving Loans is equal to its Applicable Percentage of the aggregate Commitments. |
Section 2.03 Requests for Borrowings.
To request a Revolving Loan, the Borrower shall provide notice (a) in the case of a Eurodollar Borrowing, by telephone to the Administrative Agent not later than 12:00 p.m., Houston, Texas time, three (3) Business Days before the date of the proposed Borrowing, (b) in the case of an ABR Borrowing, by telephone to the Administrative Agent not later than 12:00 p.m., Houston, Texas time, on the date of the proposed Borrowing or (c) in the case of any Alternative Currency Borrowing, in writing to the Alternative Currency Agent not later than 12:00 p.m., London time, three (3) Business Days before the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing, a Eurodollar Borrowing or an Alternative Currency Borrowing, in which case the Borrower shall designate an Alternative Currency;
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(iv) in the case of a Eurodollar Borrowing or an Alternative Currency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v) the location and number of the Borrower’s account to which funds are to be disbursed.
If no election as to the Type of Borrowing is specified for Dollar denominated Loans, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing or Alternative Currency Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
Section 2.04 Swingline Loans.
(a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans in Dollars or any Alternative Currency to the Borrower from time to time during the Availability Period in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $25,000,000, (ii) the total Revolving Credit Exposures exceeding the total Commitments or (iii) the total Revolving Credit Exposures denominated in Alternative Currencies exceeding the Alternative Currency Sublimit, in each case, calculated as of the date the Loans are requested; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. Each Swingline Loan shall be in an amount that is not less than $100,000 or the Equivalent Amount in an Alternative Currency.
(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than (i) 3:00 p.m., Houston, Texas time, on the day of a proposed Swingline Loan in Dollars or (ii) 11:00 a.m., London time, on the day of a proposed Swingline Loan in an Alternative Currency. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day), the amount of the requested Swingline Loan and the requested Alternative Currency, if such Swingline Loan is to be made in an Alternative Currency. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower to such account or accounts of the Borrower designated by the Borrower in its Borrowing Request (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e), by remittance to the Issuing Lender) by (i) 3:30 p.m., Houston, Texas time, on the requested date of any Swingline Loan in Dollars or (ii) 2:00 p.m., London time, on the requested date of any Swingline Loan in an Alternative Currency.
(c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., Houston, Texas time, on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such
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notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender’s Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Applicable Percentage of such Swingline Loan or Loans. Such payments by the Lenders shall be made in the same currency as such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or an Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid by the Swingline Lender or to the Administrative Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof.
Section 2.05 Letters of Credit.
(a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit in Dollars or any Alternative Currency for its own account or the account of any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent and the Issuing Lender at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Lender relating to any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Administrative Agent and the Issuing Lender at least three Business Days (or such shorter period acceptable to the Issuing Lender) in advance of the requested date of issuance, amendment, renewal or extension, a notice requesting the issuance of a Letter of Credit, or
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identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof, the requested Alternative Currency, if such Letter of Credit is to be issued in an Alternative Currency, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Lender, the Borrower also shall submit a letter of credit application on the standard form of the Issuing Lender in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $30,000,000, (ii) the total Revolving Credit Exposures shall not exceed the total Commitments and (iii) the total Revolving Credit Exposure denominated in Alternative Currencies shall not exceed the Alternative Currency Sublimit, in each case, calculated as of the date such Letter of Credit is requested.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Termination Date; provided, however, that any Letter of Credit with a one-year tenor may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (ii) above).
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender, or the Lenders, the Issuing Lender hereby grants to each Lender, and each Lender hereby acquires from the Issuing Lender, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Lender, such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Lender and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Such payments shall be made in the same currency in which such Letter of Credit was issued. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or an Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Lender shall make any LC Disbursement in respect of a Letter of Credit for the Borrower’s own account or the account of any of its Subsidiaries, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to, and in the same currency as, such LC Disbursement not later than (i) in the case of an LC Disbursement in Dollars, 12:00 noon, Houston, Texas time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior
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to 9:00 a.m., Houston, Texas time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, Houston, Texas time, on the Business Day immediately following the day that the Borrower receives such notice or (ii) in the case of an LC Disbursement in an Alternative Currency, not later than 1:00 p.m., London time, on the Business Day immediately following the day that the Borrower received such notice; provided that, (A) in the case of an LC Disbursement in Dollars, if such LC Disbursement is not less than $100,000, the Borrower may, subject to the conditions to borrowing set forth herein, request, in accordance with Section 2.03 or 2.04, that such payment be financed with an ABR Revolving Borrowing or a Swingline Loan in the amount of such payment and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan and (B) in the case of an LC Disbursement in an Alternative Currency, if such LC Disbursement is not less than the Equivalent Amount of $100,000, the Borrower may, subject to the conditions to borrowing set forth herein, request, in accordance with Section 2.03 or 2.04, that such payment be financed with an Alternative Currency Borrowing or Swingline Loan in the amount of such payment and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Alternative Currency Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Lender the amounts so received by it from the Lenders. Such payments by the Lenders shall be made in the currency of the applicable LC Disbursement. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Lender for any LC Disbursement (other than the funding of an ABR Revolving Loan, an Alternative Currency Loan or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders, the Issuing
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Lender, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; provided that the foregoing shall not be construed to excuse the Issuing Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable Law) suffered by the Borrower or any of its Subsidiaries that are caused by (a) the Issuing Lender’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, or (b) the Issuing Lender’s gross negligence, willful misconduct or bad faith. The parties hereto expressly agree that, in the absence of gross negligence, willful misconduct or bad faith on the part of the Issuing Lender (as finally determined by a court of competent jurisdiction), the Issuing Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof (except with respect to gross negligence, willful misconduct and bad faith in which case the immediately prior sentence will apply), the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Lender shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Lender shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Lender has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Lender and the Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Lender shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Revolving Loans in the case of an LC Disbursement in Dollars and at the rate per annum then applicable to Alternative Currency Loans in the case of an LC Disbursement in an Alternative Currency; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (d) of this Section, then Section 2.12(e) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Lender except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Lender shall be for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Lender. The Issuing Lender may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing
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Lender and the successor Issuing Lender. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Lender. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Lender pursuant to Section 2.11(b). From and after the effective date of any such replacement, (i) the successor Issuing Lender shall have all the rights and obligations of the Issuing Lender under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Lender” shall be deemed to refer to such successor or to any previous Issuing Lender or to such successor and all previous Issuing Lenders, as the context shall require. After the replacement of an Issuing Lender hereunder, the replaced Issuing Lender shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent, the Majority Lenders (or, if the maturity of the Loans has been accelerated, the Lenders with LC Exposure representing greater than 50% of the total LC Exposure demanding the deposit of cash collateral pursuant to this paragraph), the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to, and in the same currencies as, the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Section 7.01. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and discretion of the Administrative Agent (but, if so made, shall be limited to overnight bank loans or investments generally comparable to those described in clauses (a) through (e) of Permitted Investments) and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Lender for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.
(k) Existing Letters of Credit. The Existing Letters of Credit shall be Letters of Credit hereunder for all purposes.
Section 2.06 Funding of Borrowings.
(a) Each Lender shall make each Eurodollar or ABR Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m.,
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Houston, Texas time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the proposed Lenders and shall make each Alternative Currency Loan to be made by it hereunder on the dates thereof by wire transfer of immediately available funds by 2:00 p.m., London time, to the account of the Alternative Currency Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to such account or accounts of the Borrower designated by the Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans, Alternative Currency Loans or Swingline Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the Issuing Lender.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon plus any customary charges paid by the Alternative Currency Agent to its correspondent bank, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.
Section 2.07 Interest Elections.
(a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing or an Alternative Currency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing or an Alternative Currency Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent or the Alternative Currency Agent, as applicable, of such election by telephone in the case of the Administrative Agent and in writing in the case of the Alternative Currency Agent by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be
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irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent or the Alternative Currency Agent, as applicable, of a written Interest Election Request signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing, a Eurodollar Borrowing or an Alternative Currency Borrowing, in which case the Borrower shall designate an Alternative Currency; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing or an Alternative Currency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurodollar Borrowing or an Alternative Currency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. If the Borrower fails to deliver an Interest Election Request with respect to an Alternative Currency Borrowing at least three Business Days prior to the end of the Interest Period applicable thereto, then the Loans comprising such Borrowing shall be payable at the end of such Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Majority Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing or an Alternative Currency Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
Section 2.08 Termination and Reduction of Commitments.
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(a) Unless previously terminated, the Commitments shall terminate on the Termination Date.
(b) The Borrower may at any time terminate or from time to time reduce the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $100,000 and not less than $1,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the Revolving Credit Exposures would exceed the total Commitments or the Revolving Credit Exposures denominated in Alternative Currencies would exceed the Alternative Currency Sublimit.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
Section 2.09 Repayment of Loans; Evidence of Debt.
The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Termination Date, and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the Termination Date; provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding.
(a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(b) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(c) The entries made in the accounts maintained pursuant to paragraph (a) or (b) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement, and provided further, that to the extent there is any inconsistency between the accounts maintained pursuant to paragraph (a) or (b) of this Section and the entries in the Register maintained by the Administrative Agent pursuant to Section 10.04(b)(iv), the entries in the Register shall control.
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(d) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the payee named therein.
Section 2.10 Prepayment of Loans.
(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing selected by the Borrower in whole or in part, subject to prior notice in accordance with paragraph (d) of this Section.
(b) In the event Borrowings are funded in excess of the applicable amounts permitted under Section 2.01, the Borrower shall, within 3 Business Days, do one or both of the following: (i) prepay Borrowings or (ii) cash collateralize LC Exposure in accordance with Section 2.05(j), in each case, in an amount equal to such excess.
(c) Each prepayment pursuant to Section 2.10 shall be applied to reduce pro rata all Loans comprising the designated Borrowing being prepaid.
(d) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., Houston, Texas time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., Houston, Texas time, on the date of prepayment, (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, Houston, Texas time, on the date of prepayment or (iv) in the case of prepayment of an Alternative Currency Loan, not later than 11:00 a.m. London time, three (3) Business Days before the date of prepayment and shall provide written notice thereof to the Alternative Currency Agent at the same time. Each such notice shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12 and any amounts required to be paid under Section 2.15.
Section 2.11 Fees.
(a) The Borrower shall pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Commitment Fee Rate on the daily amount of the unused Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year during the Availability Period and on the date on which the Commitments terminate,
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commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of calculating the unused Commitment of each Lender, Swingline Loans made by or deemed made or attributable to such Lender shall not count as usage.
(b) The Borrower shall pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which fee shall accrue at the same Applicable Margin used to determine the interest rate applicable to Eurodollar Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender’s Commitment terminates and the date on which it ceases to have any LC Exposure and (ii) to the Issuing Lender a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, but in no event less than $500, as well as the Issuing Lender’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year during the Availability Period shall be payable on the third Business Day following such last day of such months, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Lender pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(c) The Borrower shall pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times specified in the Fee Letter, or otherwise separately agreed upon, between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Lender in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
Section 2.12 Interest.
(a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Margin.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
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(c) Each Swingline Loan shall bear interest at a rate per annum equal to the Swingline Rate.
(d) The Loans comprising each Alternative Currency Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(e) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, such overdue amount shall bear interest at the Default Rate.
(f) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (e) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(g) All interest hereunder shall be computed on the basis of a year of 360 days, except that (i) interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and (ii) interest computed with respect to an Alternative Currency Loan comprised of Pounds Sterling shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
Section 2.13 Alternate Rate of Interest.
If prior to the commencement of any Interest Period for a Eurodollar Borrowing or an Alternative Currency Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Majority Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no
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longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing or an Alternative Currency Borrowing, as applicable, shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing, and if any Borrowing Request requests an Alternative Currency Borrowing, such Borrowing shall be made as a Borrowing bearing interest at the Interpolated Rate; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted.
Section 2.14 Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Lender;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the Issuing Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, Issuing Lender or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, Issuing Lender or other Recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, Issuing Lender or other Recipient, the Borrower will pay to such Lender, Issuing Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, Issuing Lender or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or Issuing Lender determines that any Change in Law affecting such Lender or Issuing Lender or any lending office of such Lender or such Lender’s or Issuing Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s or Issuing Lender’s capital or on the capital of such Lender’s or Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit or Swingline Loans held by, such Lender, or the Letters of Credit issued by the Issuing Lender, to a level below that which such Lender or Issuing
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Lender or such Lender’s or Issuing Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or Issuing Lender’s policies and the policies of such Lender’s or Issuing Lender’s holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or Issuing Lender or such Lender’s or Issuing Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender or the Issuing Lender setting forth the amount or amounts necessary to compensate such Lender or the Issuing Lender or its respective holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Lender, as the case may be, the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or Issuing Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or Issuing Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or Issuing Lender pursuant to this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender or Issuing Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s or Issuing Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof); provided further that no Lender shall seek compensation from the Borrower unless such Lender is actively seeking compensation from other similarly situated borrowers as well.
Section 2.15 Break Funding Payments.
In the event of (a) the payment by an Obligor of any principal of any Eurodollar Loan or Alternative Currency Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan or Alternative Currency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, or continue any Eurodollar Loan or Alternative Currency Loan on the date specified in any notice delivered pursuant hereto, or (d) the assignment of any Eurodollar Loan or Alternative Currency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event (but excluding any anticipated lost profits). In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar market. A
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certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
Section 2.16 Taxes.
(a) Defined Terms. For purposes of this Section 2.16, the term “Lender” includes the Issuing Lender and the term “applicable law” includes FATCA.
(b) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Obligor under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Obligor shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(c) Payment of Other Taxes by the Borrower. The Obligors shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d) Indemnification by the Borrower. The Obligors shall jointly and severally indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. Notwithstanding the preceding sentence, the Borrower shall not be required to indemnify a Recipient pursuant to this Section 2.16(d) for any Indemnified Taxes unless such Recipient (or the Administrative Agent on such Recipient’s behalf) notifies the Borrower of the indemnification claim for such Indemnified Taxes no later than 180 days after the earlier of (i) the date on which the relevant Governmental Authority makes written demand upon such Recipient for payment of such Indemnified Taxes, and (ii) the date on which such Recipient has made payment of such Indemnified Taxes to the relevant Governmental Authority (except that, if the Indemnified Taxes imposed or asserted giving rise to such claims are retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof). A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
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(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Obligor has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Obligors to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.04(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Evidence of Payments. As soon as practicable after any payment of Taxes by any Obligor to a Governmental Authority pursuant to this Section 2.16, such Obligor shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(g) Status of Lenders. (i)Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.16(g)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
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(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(i) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN (or applicable successor form) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN (or applicable successor form) establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(ii) executed originals of IRS Form W-8ECI;
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit 2.16-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN (or applicable successor form); or
(iv) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W‑8ECI, IRS Form W-8BEN (or applicable successor form), a U.S. Tax Compliance Certificate substantially in the form of Exhibit 2.16-2 or Exhibit 2.16-3, IRS Form W‑9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit 2.16-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax,
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duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Recipient under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Recipient were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Recipient shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Recipient has complied with such Recipient’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.16 (including by the payment of additional amounts pursuant to this Section 2.16), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i) Survival. Each party’s obligations under this Section 2.16 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the
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replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
Section 2.17 Payments; Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) The Borrower shall make each payment required to be made by it hereunder on Loans denominated in Dollars (whether of principal, interest, fees or reimbursement of LC Disbursements in Dollars, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 2:00 p.m., Houston, Texas time, on the date when due in Dollars, in immediately available funds, without set-off or counterclaim. The Borrower shall make each payment required to be made by it hereunder on Loans denominated in an Alternative Currency (whether of principal, interest, fees or reimbursements of LC Disbursements in an Alternative Currency, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) on the date when due in the applicable Alternative Currency, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All payments in Dollars shall be made to the Administrative Agent at its offices at 712 Main Street, Houston, Texas, except payments to be made directly to the Issuing Lender or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be made directly to the Persons entitled thereto. All payments in Alternative Currencies shall be made to the Alternative Currency Agent at the place designated by the Alternative Currency Agent in its notice therefor, except payments to be made directly to the Issuing Lender or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be made directly to the Persons entitled thereto. The Administrative Agent or the Alternative Currency Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.
(b) If at any time insufficient funds are received by and available to the Administrative Agent or the Alternative Currency Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the
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Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lender hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Lender, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Lender, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the Issuing Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b) or 2.17(d) or 10.03(c), then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender for the benefit of the Administrative Agent, the Swingline Lender or the Issuing Lender to satisfy such Lender’s obligations under such Section until all such unsatisfied obligations are fully paid, and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender under any such Section; in the case of each of (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.
Section 2.18 Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be,
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in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower shall pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender becomes a Defaulting Lender, or any Lender suspends its obligation to fund Eurocurrency Loans pursuant to Section 2.13, or any Lender refuses to consent to an amendment, modification or waiver of this Agreement that requires consent of 100% of the Lenders pursuant to Section 10.02 hereof, then the Borrower may, at its sole expense, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and if a Commitment is being assigned, the Issuing Lender), which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment is expected to result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 2.19 Increase of Commitments.
Provided there exists no Event of Default, the Borrower may, during the period beginning on the Effective Date to and including the date that is six months prior to the Termination Date, by written notice to the Administrative Agent executed by the Borrower and one or more financial institutions (any such financial institution referred to in this Section being called an “Increasing Lender”), which may include any Lender, cause the Commitments to be extended by the Increasing Lenders (or cause the Commitments of the Increasing Lenders to be increased, as the case may be) in an amount for each Increasing Lender set forth in such notice; provided, that (i) each extension of new Commitments or increase in existing Commitments pursuant to this paragraph shall result in the aggregate Commitments being increased by no less than $25,000,000, (ii) no extension of new Commitments or increase in existing Commitments pursuant to this paragraph may result in the aggregate Commitments exceeding $500,000,000, (iii) each Increasing Lender, if not already a Lender hereunder (any such Increasing Lender, a “New Lender”), shall be subject to the approval of the Administrative Agent (which approval shall not be unreasonably withheld), (iv) each New Lender shall become a party to this Agreement by completing and delivering to the Administrative Agent a duly executed New Lender Agreement and (v) an in no event shall any existing Lender be required to increase its Commitment. New Commitments and increases in Commitments shall become effective on the
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date specified in the applicable notices delivered pursuant to this paragraph. Upon the effectiveness of any New Lender Agreement to which any New Lender is a party, (i) such New Lender shall thereafter be deemed to be a party to this Agreement and shall be entitled to all rights, benefits and privileges accorded a Lender hereunder and subject to all obligations of a Lender hereunder and (ii) Schedule 2.01 shall be deemed to have been amended to reflect the Commitment of such New Lender as provided in such New Lender Agreement. Upon the effectiveness of any increase pursuant to this Section 2.19 in the Commitment of a Lender already a party hereto, Schedule 2.01 shall be deemed to have been amended to reflect the increased Commitment of such Lender. Notwithstanding the foregoing, no increase in the aggregate Commitments (or in the Commitment of any Lender) shall become effective under this Section 2.19 unless, on the date of such increase, the Administrative Agent shall have received a certificate, dated as of the effective date of such increase and executed by a Financial Officer, to the effect that the conditions set forth in paragraphs (a), (b) and (d) of Section 4.02 shall be satisfied (with all references in such paragraphs to a Borrowing being deemed to be references to such increase and attaching resolutions of the Borrower approving such increase). Following any extension of a new Commitment or increase of a Lender’s Commitment pursuant to this paragraph, any Loans outstanding prior to the effectiveness of such increase or extension shall continue to be outstanding until the ends of the respective Interests Periods applicable thereto, and shall then be repaid and, if the Borrower shall so elect, refinanced with new Loans made pursuant to Section 2.01(a) ratably in accordance with the Commitments in effect following such extension or increase.
Section 2.20 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Majority Lenders.
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 2,17 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the Issuing Lender or Swingline Lender hereunder; third, to cash collateralize the Issuing Lender’s Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.05(j); fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y)
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cash collateralize the Issuing Lenders’ future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.05(j); sixth, to the payment of any amounts owing to the Lenders, the Issuing Lenders or Swingline Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the Issuing Lenders or Swingline Lenders against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LC Disbursements owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LC Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in LC Exposure and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments without giving effect to Section 2.20(a)(iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section 2.20(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees. (A)No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) Each Defaulting Lender shall be entitled to receive participation fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Applicable Percentage of the stated amount of Letters of Credit for which it has provided cash collateral pursuant to Section 2.05(j).
(C) With respect to any participation fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in LC Exposure or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Lender and Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such Issuing Lender’s or Swingline Lender’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
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(iv) Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in LC Exposure and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Percentages (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that (x) the conditions set forth in Section 4.02 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Administrative Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment or the Revolving Credit Exposure of any Non-Defaulting Lender denominated in Alternative Currencies to exceed such Non-Defaulting Lender’s Commitment in Alternative Currencies, calculated at the time of such reallocation. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swingline Loans. If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first, prepay Swingline Loans in an amount equal to the Swingline Lenders’ Fronting Exposure and (y) second, cash collateralize the Issuing Lenders’ Fronting Exposure in accordance with the procedures set forth in Section 2.05(j).
(b) Defaulting Lender Cure. If the Borrower, the Administrative Agent and each Swingline Lender and Issuing Lender agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with the Commitments (without giving effect to Section 2.20(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(c) New Swingline Loans/Letters of Credit. So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loans unless it is satisfied that it will have no Fronting Exposure after giving effect to such Swingline Loan and (ii) the Issuing Lender shall not be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto.
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ARTICLE III
Representations and Warranties
The Borrower, for itself and for each Restricted Subsidiary, and each Guarantor, for itself, represent and warrant to the Lenders that:
Section 3.01 Organization.
Each of the Borrower and the Restricted Subsidiaries on the date this representation is made or deemed to be made (i) to the extent applicable, is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization, (ii) has the requisite power and authority to conduct its business in each jurisdiction as it is presently being conducted, and (iii) to the extent applicable, is duly qualified or licensed to conduct business and is in good standing in each such jurisdiction. As of the Effective Date, other than those jurisdictions listed on Schedule 3.01, there are no jurisdictions in which the Borrower’s or any Restricted Subsidiary’s failure to be qualified or be in good standing, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. As of the Effective Date, no proceeding to dissolve any Obligor is pending or, to the Borrower’s knowledge, threatened.
Section 3.02 Authority Relative to this Agreement.
Each of the Obligors has the power and authority to execute and deliver this Agreement and the other Loan Documents to which it is a party and to perform its obligations hereunder and thereunder. The Transactions have been duly authorized by all necessary corporate, partnership or limited liability company action on the part of each Obligor that is a party thereto. This Agreement and the other Loan Documents have been duly and validly executed and delivered by each Obligor party thereto and constitute the legal, valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting creditors’ rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at Law or in equity).
Section 3.03 No Violation.
Except as set forth in Schedule 3.03, the Transactions will not:
(a) result in a breach of the articles or certificate of incorporation, bylaws, partnership agreement or limited liability company agreement of the Borrower or any Restricted Subsidiary or any resolution currently in effect adopted by the Board of Directors, shareholders, partners, members or managers of the Borrower or any Restricted Subsidiary;
(b) result in the imposition of any Lien on any of the Equity Interests of the Borrower or any Restricted Subsidiary or any of their respective assets other than the Liens created under the Loan Documents;
(c) result in, or constitute an event that, with the passage of time or giving of notice or both, would be, a breach, violation or default (or give rise to any right of termination, cancellation, prepayment or acceleration) under (i) any agreement evidencing Indebtedness or
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any other material agreement to which the Borrower or any Restricted Subsidiary is a party or by which its properties or assets may be bound or (ii) any Governmental Approval held by, or relating to the business of, the Borrower or any Restricted Subsidiary;
(d) require the Borrower or any Restricted Subsidiary to obtain any consent, waiver, approval, exemption, authorization or other action of, or make any filing with or give any notice to, any Person except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect or assign Liens created under the Loan Documents, (iii) filings required under applicable securities Laws, (iv) such as are required regardless of whether this Agreement is entered into by the Borrower or any Restricted Subsidiary, or (v) those which, if not made or obtained, could not reasonably be expected to have a Material Adverse Effect; or
(e) violate any Law or Order applicable to the Borrower or any Restricted Subsidiary or by which their respective properties or assets may be bound.
Section 3.04 Financial Statements.
The Borrower has previously furnished to the Administrative Agent the audited consolidated balance sheets of the Borrower and its Subsidiaries as of December 31, 2013, and the related consolidated statements of operation, cash flows and changes in shareholders’ equity for the fiscal year then ended, the notes accompanying such financial statements, and the report of KPMG LLP. Such financial statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of their respective dates and the results of operations and cash flows of the Borrower and its Subsidiaries for the periods ended on such dates in accordance with GAAP for the periods covered thereby, subject, in the case of interim financial statements, to normal year-end adjustments, reclassifications and absence of footnotes. Since December 31, 2013, there has been no change that could reasonably be expected to have a Material Adverse Effect.
Section 3.05 No Undisclosed Liabilities.
Except as set forth in Schedule 3.05 or as disclosed to the Administrative Agent and each Lender in accordance with Section 5.02(b), neither the Borrower nor any Restricted Subsidiary has any material liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise) except for (i) liabilities or obligations referred to, reflected or reserved against in the financial statements most recently delivered by the Borrower pursuant to Section 4.01(g) or Section 5.01, as applicable, (ii) current liabilities incurred in the ordinary course of business since the date of such financial statements, (iii) liabilities or obligations that are not required to be included in financial statements prepared in accordance with GAAP, (iv) liabilities or obligations arising under Governmental Approvals or contracts to which the Borrower or any Restricted Subsidiary is a party or otherwise subject, and (v) other Permitted Indebtedness.
Section 3.06 Litigation.
Except as disclosed to the Administrative Agent and each Lender in accordance with Section 5.02(c), the Borrower’s most recent form 10-K and form 10-Q filed with the SEC describe each action, suit or proceeding pending before any Governmental Authority or arbitration panel, or to the knowledge of the Borrower or any Restricted Subsidiary, threatened,
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(a) involving the Transactions, or (b) against the Borrower or any Restricted Subsidiary regarding the business or assets owned or used by the Borrower or any Restricted Subsidiary that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 3.07 Compliance with Law.
Except as set forth in Schedule 3.07, (i) each of the Borrower and the Restricted Subsidiaries is in compliance with each Law that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets except where the failure to be in compliance, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; and (ii) as of the Effective Date, neither the Borrower nor any Restricted Subsidiary has received any notice of, nor does any of them have knowledge of, the assertion by any Governmental Authority or other Person of any such violation.
Section 3.08 Properties.
Each of the Borrower and the Restricted Subsidiaries owns (with good and defensible title in the case of real property, subject only to the matters permitted by the following sentence), or have valid leasehold interests in, all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) material to its business, except for minor irregularities or deficiencies in title that, individually or in the aggregate, do not interfere with its ability to conduct its business as currently conducted. All such properties and assets are free and clear of all Liens except Permitted Liens and are not, in the case of real property, subject to any rights of way, building use restrictions, exceptions, variances, reservations, or limitations of any nature which would materially interfere with an Obligor’s ability to conduct its business as currently conducted. The properties of the Borrower and the Restricted Subsidiaries, taken as a whole, as to tangible, personal property, are in good operating order, condition and repair (ordinary wear and tear excepted).
Section 3.09 Intellectual Property.
(a) As of the Effective Date, none of the patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, service marks, and copyrights owned by the Borrower or any Restricted Subsidiary (the “Intellectual Property”) has been declared invalid or is the subject of a pending or, to the knowledge of the Borrower or any Restricted Subsidiary, threatened action for cancellation or a declaration of invalidity, and there is no pending judicial proceeding involving any claim, and neither the Borrower nor any Restricted Subsidiary has received any written notice or claim of any infringement, misuse or misappropriation by the Borrower or any Restricted Subsidiary of any patent, trademark, trade name, copyright, license or similar intellectual property right owned by any third party, except as described in Schedule 3.09.
(b) To the knowledge of the Borrower and the Restricted Subsidiaries, except as set forth in Schedule 3.09, the conduct by the Borrower and the Restricted Subsidiaries of their respective businesses as presently conducted does not conflict with, infringe on, or otherwise violate any copyright, trade secret, or patent rights of any Person except where such conflict, infringement or violation could not reasonably be expected to have a Material Adverse Effect.
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Section 3.10 Taxes.
The Borrower and the Restricted Subsidiaries have filed all Federal, state and other tax returns and reports required to be filed, and have paid all Federal, state and other Taxes imposed upon them or their properties, income or assets otherwise due and payable, except (a) where the failure to file such tax returns or pay such Taxes could not be reasonably expected to have a Material Adverse Effect or (b) to the extent such Taxes are being actively contested by the Borrower or any Restricted Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.
Section 3.11 Environmental Compliance.
Except as set forth in Schedule 3.11,
(a) neither the Borrower nor any Restricted Subsidiary is in violation of any Environmental Law or is subject to any Environmental Liability, except to the extent such violation or such liability, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect;
(b) neither the Borrower nor any Restricted Subsidiary has received any written notice of any claim with respect to any Environmental Liability which claims are currently outstanding or know of any basis for any Environmental Liability, except to the extent such liability, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect;
(c) neither the Borrower nor any Restricted Subsidiary has arranged for the disposal of Hazardous Material at a site listed for investigation or clean-up by any Governmental Authority or in violation of any Environmental Law except to the extent such disposal, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect;
(d) there is no proceeding pending against the Borrower or any Restricted Subsidiary by any Governmental Authority with respect to the presence of any Hazardous Material on or release of any Hazardous Material from any real property owned or operated at any time by the Borrower or any Restricted Subsidiary or otherwise used in connection with their respective businesses, except to the extent that if such proceeding were determined adversely to the Borrower or any Restricted Subsidiary, such determination, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect;
(e) neither the Borrower nor any Restricted Subsidiary has knowledge that any Hazardous Material has been or is currently being generated, processed, stored or released (or is subject to a threatened release) from, on or under any real property owned or operated by the Borrower or any Restricted Subsidiary, or otherwise used in connection with their respective businesses in a quantity or concentration that would require remedial action under any Environmental Law if reported to or discovered by the relevant Governmental Authority except to the extent such remedial action, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and
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(f) to the knowledge of the Borrower and the Restricted Subsidiaries, there is no underground storage tank located at any real property owned or operated by the Borrower or any Restricted Subsidiary, except to the extent that the presence of such tank, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
Section 3.12 Labor Matters.
As of the Effective Date, there are no strikes, lockouts or slowdowns against the Borrower or any Restricted Subsidiary pending or, to the knowledge of the Borrower or any Restricted Subsidiary, threatened. The hours worked by and payments made to employees of the Borrower and the Restricted Subsidiaries have not been in violation of the Fair Labor Standards Act or any other Law dealing with such matters except to the extent such violation, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. All payments due from the Borrower or any Restricted Subsidiary, or for which any claim may be made against any of them, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or any Restricted Subsidiary except to the extent that the nonpayment of such, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. The consummation of the Transactions to occur on the Effective Date and the borrowing of Loans, use of proceeds thereof and issuance of Letters of Credit hereunder after the Effective Date will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Restricted Subsidiary is bound.
Section 3.13 Investment Company Status.
Neither the Borrower nor any Restricted Subsidiary is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.
Section 3.14 Insurance.
Insurance maintained in accordance with Section 5.05 is in full force and effect.
Section 3.15 Solvency.
Immediately after the consummation of the Transactions to occur on the Effective Date, and immediately following the making of each Loan and after giving effect to the application of the proceeds of each Loan, (a) the fair value of the assets of the Borrower and the Restricted Subsidiaries on a going concern basis and on a consolidated basis, is greater than the total amount of debts and other liabilities of the Borrower and the Restricted Subsidiaries, on a consolidated basis; (b) the present fair saleable value of the assets of the Borrower and the Restricted Subsidiaries on a going concern basis and on a consolidated basis is not less than the amount that could reasonably be expected to be required to pay the probable liability of their debts and other liabilities, on a consolidated basis, as they become absolute and matured; (c) the Borrower and the Restricted Subsidiaries, on a consolidated basis, are able to pay their debts and liabilities as they become absolute and mature; and (d) the Borrower and the Restricted Subsidiaries are not engaged in, and are not about to be engaged in, business or a transaction for which the Borrower’s and the Restricted Subsidiaries’ assets, on a consolidated basis, would
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constitute unreasonably small capital. For purposes of this Section 3.15, (a) “fair value” shall mean the amount at which the assets of an entity would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having knowledge of the relevant facts, neither being under any compulsion to act, with equity to both; and (b) “present fair saleable value” shall mean the amount that may be realized within a reasonable time, considered to be six months to one year, either through collection or sale at the regular market value, conceiving the latter as the amount which could be obtained for such properties within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions.
Section 3.16 ERISA.
No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect.
Section 3.17 Disclosure.
None of the other reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information and forward-looking statements, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
Section 3.18 Margin Stock.
No part of any Borrowing or any Swingline Loan shall be used at any time, to purchase or carry margin stock (within the meaning of Regulation U) in violation of Regulation U or to extend credit to others for the purpose of purchasing or carrying any margin stock in violation of Regulation U. Neither the Borrower nor any Restricted Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purposes of purchasing or carrying any such margin stock. No part of the proceeds of any Borrowing will be used for any purpose which violates, or which is inconsistent with, any regulations promulgated by the Board.
Section 3.19 Anti-Corruption Laws and Sanctions.
The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Borrower, its Subsidiaries and their respective officers and employees and, to the knowledge of the Borrower, its directors and agents (acting in such agent’s capacity as agent for the Obligors), are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower, any Subsidiary or any of their respective directors, officers or employees, or (b) to the knowledge of Borrower, any agent of the Borrower or any Subsidiary
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acting in its capacity as agent for the Obligors in connection with the credit facility established hereby, is a Sanctioned Person. No Borrowing or Letter of Credit, use of proceeds or other transaction contemplated by this Agreement will violate Anti-Corruption Laws or applicable Sanctions.
ARTICLE IV
Conditions
Section 4.01 Effective Date
The effectiveness of this Agreement is subject to the conditions precedent that each of the following conditions is satisfied (or waived in accordance with Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy or other electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received the Ratification Agreement executed by the parties thereto.
(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing, to the extent applicable, of each Obligor and each Restricted Subsidiary, the authorization of the Transactions to occur on the Effective Date, the authority of each natural Person executing any of the Loan Documents on behalf of any Obligor and any other legal matters relating to the Obligors, this Agreement or the Transactions to occur on the Effective Date, all in form and substance reasonably satisfactory to the Administrative Agent.
(d) Each Lender requesting a promissory note evidencing Loans made by such Lender shall have received from the Borrower a promissory note payable to such Lender in a form approved by the Administrative Agent in its reasonable discretion.
(e) The Lenders, the Administrative Agent and the Arrangers shall have received all fees and other amounts due and payable on or prior to the Effective Date, including reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.
(f) The Administrative Agent shall have received a certificate from the Borrower confirming receipt of all material governmental and third party approvals, if any, necessary in connection with the financing contemplated hereby.
(g) The Lenders shall have received audited consolidated financial statements of the Borrower for the fiscal year ended December 31, 2013.
(h) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Vinson
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& Elkins LLP, counsel for the Borrower, in form and substance reasonably satisfactory to the Administrative Agent.
(i) The Administrative Agent shall have received reports of UCC, tax and judgment Lien searches conducted by a reputable search firm with respect to each of the Borrower and the Restricted Subsidiaries from their respective jurisdiction of formation and such reports shall not disclose any Liens other than Permitted Liens.
(j) To the extent not previously delivered pursuant to the Existing Credit Agreement, all membership and stock certificates of each Subsidiary of the Borrower described on Annex 3 to the Security Agreement shall have been delivered to Administrative Agent together with related stock and membership powers executed in blank by the Borrower.
(k) The Administrative Agent shall have received evidence of insurance coverage of the Borrower and the Restricted Subsidiaries, which coverage shall be consistent with the requirements set forth in Section 5.05 and shall name the Administrative Agent as an additional insured and as a loss payee on the liability and casualty insurance policies.
(l) The Administrative Agent and the Lenders shall have received all documentation and other information reasonably requested by them under applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, and their respective internal policies.
Section 4.02 Each Credit Event
The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Lender to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower and the Restricted Subsidiaries set forth in this Agreement or any other Loan Document shall be deemed to have been made as a part of said request for each Borrowing and shall be true and correct in all material respects on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable; provided, that to the extent such representations and warranties were made as of a specific date, the same shall be required to have been true and correct in all material respects as of such specific date; provided further, in either case, to the extent any such representation or warranty is qualified by Material Adverse Effect or materiality qualifier, such representation or warranty shall be true and correct in all respects.
(b) No Material Adverse Effect shall have occurred;
(c) The Administrative Agent shall have received a Borrowing Request as required by Section 2.03 or the Administrative Agent and the Issuing Lender shall have received a request for the issuance of a Letter of Credit as required by Section 2.05(b); and
(d) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall have occurred and be continuing.
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Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b), and (d) of this Section 4.02.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower, for itself and each Restricted Subsidiary, and each Guarantor, for itself, covenant and agree with the Lenders that:
Section 5.01 Financial Statements
The Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet and related statements of operations, shareholders’ equity and cash flows as of the end of and for such year of the Borrower, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification, or exception as to the scope of such audit by reason of any limitation which is imposed by the Borrower) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within 45 days after the end of the first three fiscal quarters of each fiscal year of the Borrower, the consolidated balance sheet and related statements of operations, shareholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year for the Borrower, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end adjustments, reclassifications and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower substantially in the form attached hereto as Exhibit 5.01(c) (“Compliance Certificate”) and (i) certifying that the representations and warranties of the Borrower and the Restricted Subsidiaries contained in Article III and the Security Documents were true and correct in all material respects when made, and are repeated at and as of the date of such Compliance Certificate and are true and correct in all material respects at and as of such date, except for such representations and warranties as are by their express terms limited to a specific date, (ii) certifying that, since the later of the Effective Date or the most recent Compliance Certificate, no change has occurred in the business, financial condition or results of operations of the Borrower or any Restricted Subsidiary which could reasonably be expected to have a Material Adverse Effect, (iii) certifying as to whether a Default has occurred
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and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (iv) setting forth reasonably detailed calculations demonstrating compliance with Sections 6.16, 6.17 and 6.18, (v) certifying compliance with Section 5.09(b), (c) and (d), or, with respect to the certification to be made under Section 5.09(d), if such certification cannot be made at the time such Compliance Certificate is to be delivered, Borrower shall describe the actions that the Borrower proposes to take in order to comply with Section 5.09(d) within the time period set forth therein, (vi) containing any notification by the Borrower of the elimination of the effect of any change in GAAP in accordance with Section 1.04, (vii) setting forth a comparison of the Consolidated Adjusted Pro Forma EBITDA as shown on most recent Compliance Certificate to the Consolidated Adjusted EBITDA for the same period, and (viii) including a reasonably detailed description of any adjustments attributable to Business Acquisitions as described in the definition of Consolidated Adjusted Pro Forma EBITDA which are included by the Borrower in its calculation of Consolidated Adjusted Pro Forma EBITDA for the period covered by such Compliance Certificate;
(d) promptly upon receipt of any written complaint, order, citation, notice or other written communication from any Person with respect to, or upon the Borrower or any of its Subsidiaries obtaining knowledge of, (i) the existence or alleged existence of a violation of any applicable Environmental Law or any Environmental Liability in connection with any property now or previously owned, leased or operated by the Borrower or any Restricted Subsidiary, (ii) any release of Hazardous Materials on such property or any part thereof in a quantity that is reportable under any applicable Environmental Law, and (iii) any pending or threatened proceeding for the termination, suspension or non-renewal of any permit required under any applicable Environmental Law, in each case under clause (i), (ii) or (iii) above, in which there is a reasonable likelihood of an adverse decision or determination that could reasonably be expected to result in a Material Adverse Effect, a certificate of a Financial Officer of the Borrower, setting forth the details of such matter and the actions, if any, that the Borrower or such Restricted Subsidiary is required or proposes to take;
(e) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Restricted Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request;
(f) promptly following any request therefor, such information evidencing any adjustments attributable to Business Acquisitions as described in the definition of Consolidated Adjusted Pro Forma EBITDA and included in a Compliance Certificate delivered pursuant to clause (c) above;
(g) within 90 days after the end of each fiscal year, copies of certificates evidencing or other evidence of all material insurance coverage maintained by the Borrower and the Restricted Subsidiaries; and
(h) within 90 days after the end of each fiscal year, an annual budget of the Borrower and the Restricted Subsidiaries for the following fiscal year.
Documents required to be delivered pursuant to Section 5.01(a) and (b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered
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electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrower’s website on the Internet; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent). Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide paper or electronic copies of the Compliance Certificates required by Section 5.01(c) to the Administrative Agent. Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Section 5.02 Notices of Material Events
The Borrower will furnish to the Administrative Agent and each Lender promptly and, in any event, within five Business Days after acquiring knowledge thereof, written notice of the following:
(a) the occurrence of any Event of Default and the action that the Borrower or any Restricted Subsidiary is taking or proposes to take with respect thereto;
(b) the incurrence of any material liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) by the Borrower or any Restricted Subsidiary, other than such liabilities and obligations referenced in clauses (i) through (v) of Section 3.05;
(c) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Restricted Subsidiary or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect or that in any manner questions the validity of the Loan Documents;
(d) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in unfunded liability of any Obligor resulting in a Material Adverse Effect; and
(e) the date on which failure to comply with the limitations described in Section 5.09(d) first becomes known to any Financial Officer.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
Section 5.03 Existence; Conduct of Business
Each Obligor shall and shall cause each Restricted Subsidiary to do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business except
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to the extent failure to maintain or preserve could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03 or any other transaction permitted under this Agreement.
Section 5.04 Payment of Obligations
Each Obligor shall and shall cause each Restricted Subsidiary to pay its obligations, including liabilities for Taxes before the same shall become delinquent or in default, except (a) past due Taxes for which no fine, penalty, interest, late charge or loss has been assessed, (b) where the validity or amount thereof is being contested in good faith by appropriate proceedings, and such Obligor or Restricted Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) where the failure to make payment could not reasonably be expected to result in a Material Adverse Effect.
Section 5.05 Maintenance of Properties; Insurance
Each Obligor shall and shall cause each Restricted Subsidiary to (a) keep and maintain all property material to the conduct of the business of the Obligors and the Restricted Subsidiaries, taken as a whole, in good working order and condition, ordinary wear and tear excepted, and (b) subject to Section 5.14, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.
Section 5.06 Books and Records; Inspection Rights
Each Obligor shall and shall cause each Restricted Subsidiary to keep proper, complete and consistent books of record that are true and correct in all material respects with respect to such Person’s operations, affairs, and financial condition. Each Obligor shall and shall cause each Restricted Subsidiary to permit any representatives designated by the Administrative Agent, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested (provided that in the absence of an Event of Default, the representatives of the Administrative Agent shall not visit or inspect such properties more often than once per calendar year), subject in each case, to any restrictions or confidentiality agreements existing in favor of third parties.
Section 5.07 Compliance with Laws
Each Obligor shall and shall cause each Restricted Subsidiary to comply with all Laws (excluding Laws referenced in Sections 5.10 and 5.12, which compliance shall be governed by such Sections) and Orders applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
Section 5.08 Use of Proceeds and Letters of Credit
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The proceeds of the Loans and Letters of Credit will be used only to (i) pay the fees, expenses and other transaction costs of the Transactions and (ii) fund working capital needs and general corporate purposes of the Borrower and the Restricted Subsidiaries, including the making of Business Acquisitions and other acquisitions of property. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (C) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
Section 5.09 Additional Guarantees and Security Documents.
(a) The Borrower at all times shall cause all Material Domestic Subsidiaries that are Restricted Subsidiaries to be Guarantors.
(b) If as of the end of any fiscal quarter, (i) the aggregate consolidated revenues of the Unrestricted Subsidiaries exceed ten percent (10%) of the aggregate total consolidated revenue of the Borrower and all of its Subsidiaries for the most recently ended period of four (4) fiscal quarters or (ii) the book value of the aggregate consolidated assets of the Unrestricted Subsidiaries exceeds ten percent (10%) of the book value of the aggregate total consolidated assets of the Borrower and all of its Subsidiaries for the most recently ended period of four (4) fiscal quarters, the Borrower shall promptly cause one or more of said Unrestricted Subsidiaries to be designated as a Restricted Subsidiary, such that, after giving effect to such designation, both the aggregate consolidated revenues and the book value of the aggregate consolidated assets of all Unrestricted Subsidiaries are less than ten percent (10%) of the total consolidated revenue and total book value of the consolidated assets of the Borrower and all of its Subsidiaries. In addition, (i) to the extent that such new Restricted Subsidiary is a Material Domestic Subsidiary, the Borrower or any Guarantor, as applicable, shall cause such new Restricted Subsidiary to execute an Addendum and deliver to the Administrative Agent such other documents relating to such new Restricted Subsidiary as the Administrative Agent shall reasonably request and (ii) to the extent that such new Restricted Subsidiary is a First-Tier Foreign Subsidiary or a CFC Holding Company, (A) the Borrower or Guarantor, as applicable, shall execute an Addendum and shall deliver to the Administrative Agent such other documents relating to such new First-Tier Foreign Subsidiary or CFC Holding Company as the Administrative Agent shall reasonably request that are necessary to pledge 66% of the Equity Interests of such new First-Tier Foreign Subsidiary or CFC Holding Company and (B) for the avoidance of doubt, no Equity Interests of a Foreign Subsidiary that is not a First-Tier Foreign Subsidiary shall be pledged.
(c) If as of the end of any fiscal quarter, (i) the aggregate consolidated revenues of Immaterial Domestic Subsidiaries that are not Guarantors exceed ten percent (10%) of the aggregate total consolidated revenue of the Borrower and all of its Subsidiaries for the most recently ended period of four (4) fiscal quarters or (ii) the book value of the aggregate consolidated assets of the Immaterial Domestic Subsidiaries that are not Guarantors exceeds ten
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percent (10%) of the book value of the aggregate total consolidated assets of the Borrower and all of its Subsidiaries for the most recently ended period of four (4) fiscal quarters, the Borrower or any Restricted Subsidiary, as applicable, shall promptly cause one or more of said Immaterial Domestic Subsidiaries to execute an Addendum and deliver to the Administrative Agent such other documents relating to such Immaterial Domestic Subsidiary as the Administrative Agent shall reasonably request, such that, after giving effect to such Addendum, both the aggregate consolidated revenues and the book value of the aggregate consolidated assets of all Immaterial Domestic Subsidiaries that are not Guarantors are less than ten percent (10%) of the total consolidated revenue and total book value of the consolidated assets of the Borrower and all of its Subsidiaries. In addition, any such Immaterial Domestic Subsidiary that becomes a Guarantor shall also be designated as a Restricted Subsidiary, to the extent not already a Restricted Subsidiary.
(d) If as of the end of any fiscal quarter, (i) the aggregate Consolidated Adjusted EBITDA attributable to Restricted Subsidiaries that are not Guarantors exceeds forty percent (40%) of the Consolidated Adjusted EBITDA of the Borrower and all Restricted Subsidiaries or (ii) the book value of aggregate consolidated assets of the Restricted Subsidiaries that are not Guarantors exceeds forty percent (40%) of the aggregate total consolidated assets of the Borrower and all Restricted Subsidiaries, in each case, for the most recently ended period of four (4) fiscal quarters, the Borrower shall, on or before the date that is one hundred twenty (120) days after the earlier to occur of (x) the date on which failure to comply with the foregoing limitations first becomes known to any Financial Officer or (y) the date on which the Borrower delivers the Compliance Certificate for such fiscal quarter, demonstrate compliance with the foregoing restrictions. For the avoidance of doubt, no Default or Event of Default shall be deemed to exist during the pendency of such one hundred twenty (120)-day period.
(e) Within 30 days after the Borrower acquires or creates a new Subsidiary, the Borrower shall notify the Administrative Agent and shall provide the constituent documents for such new Subsidiary, and (i) to the extent that such Subsidiary is a Material Domestic Subsidiary that is a Restricted Subsidiary or to the extent such Subsidiary would otherwise be required to be a Guarantor under clause (b) or (c) above, the Borrower or any Subsidiary, as applicable, shall cause such new Subsidiary to execute an Addendum and deliver to the Administrative Agent such other documents relating to such new Subsidiary as the Administrative Agent shall reasonably request in order to comply with the requirements of this Section and (ii) to the extent that such Subsidiary is not a Material Domestic Subsidiary that is a Restricted Subsidiary, the Borrower shall or shall cause its Subsidiaries to execute an Addendum and deliver to the Administrative Agent such other documents relating to such new Subsidiary as the Administrative Agent shall reasonably request, including any documents necessary to pledge all of the capital stock or other Equity Interests in all Restricted Subsidiaries; provided, in the case of a Restricted Subsidiary that is a Foreign Subsidiary or a CFC Holding Company, (i) only 66% of the capital stock or Equity Interests of a Foreign Subsidiary that is a First-Tier Foreign Subsidiary shall be pledged and (ii) only 66% of the capital stock or Equity Interests of a CFC Holding Company shall be pledged, and (iii) none of the capital stock or Equity Interests of any Foreign Subsidiary that is not First-Tier Foreign Subsidiary shall be pledged.
(f) At any time, the Borrower may, in its sole discretion, elect to cause one or more Restricted Subsidiaries that are not then Guarantors to become Obligors by notifying the Administrative Agent of such election and causing such Restricted Subsidiary to execute an
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Addendum and deliver such Addendum to the Administrative Agent together with such other documents relating to such new Obligor as the Administrative Agent shall reasonably request.
Section 5.10 Compliance with ERISA
In addition to and without limiting the generality of Section 5.07, each Obligor shall and shall cause each Restricted Subsidiary to (a) comply in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all employee benefit plans (as defined in ERISA) except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (b) not take any action or fail to take action the result of which could be (i) a liability to the PBGC (other than liability for PBGC premiums) or (ii) a past due liability to any Multiemployer Plan, except to the extent such liability could not reasonably be expected to result in a Material Adverse Effect, (c) not participate in any prohibited transaction that could result in any civil penalty under ERISA or any tax under the Code, except to the extent such penalty or tax could not reasonably be expected to result in a Material Adverse Effect, (d) operate each employee benefit plan in such a manner that could not reasonably be expected to result in the incurrence of any material tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code except to the extent such tax liability or liability to any qualified beneficiary could not reasonably be expected to have a Material Adverse Effect and (e) furnish to the Administrative Agent upon the Administrative Agent’s request such additional information about any employee benefit plan as may be reasonably requested by the Administrative Agent.
Section 5.11 Compliance With Agreements
Each Obligor shall and shall cause each Restricted Subsidiary to comply in all respects with each material contract or agreement to which it is a party, except where the failure to so comply could not reasonably be expected to result in a Material Adverse Effect; provided that such Obligor or Restricted Subsidiary may contest any such contract or agreement or any portion thereof in good faith through applicable proceedings so long as adequate reserves are maintained in accordance with GAAP.
Section 5.12 Compliance with Environmental Laws; Environmental Reports
Each Obligor shall and shall cause each Restricted Subsidiary to (i) comply with all Environmental Laws applicable to its operations and real property except to the extent that the failure to comply could not reasonably be expected to result in a Material Adverse Effect; (ii) obtain and renew all Governmental Approvals required under Environmental Laws applicable to its operations and real property except to the extent that the failure to obtain or renew such approvals could not reasonably be expected to result in a Material Adverse Effect; and (iii) conduct any Response in accordance with Environmental Laws except to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect; provided that neither such Obligor nor any Restricted Subsidiary shall be required to undertake any Response to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.
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Section 5.13 Maintain Business
Each Obligor shall and shall cause each Restricted Subsidiary to continue to engage primarily in the business or businesses being conducted on the Effective Date and other reasonable expansions and extensions of such business.
Section 5.14 Further Assurances
Each Obligor shall and shall cause each Restricted Subsidiary to execute, acknowledge and deliver, at its own cost and expense, all such further acts, documents and assurances as may from time to time be reasonably necessary or as the Majority Lenders may from time to time reasonably request in order to carry out the intent and purposes of the Loan Documents, including all such actions to establish, preserve, protect and (to the extent required under the Security Documents or as otherwise provided in this Agreement) perfect the estate, right, title and interest of the Lenders, or the Administrative Agent for the benefit of the Lenders, to the Collateral (including Collateral acquired after the date hereof).
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower, for itself and each Restricted Subsidiary, and each Guarantor, for itself, covenant and agree with the Administrative Agent and the Lenders that:
Section 6.01 Indebtedness.
None of the Obligors or any Restricted Subsidiary will create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness created hereunder or under any of the Loan Documents;
(b) Existing Indebtedness and any Indebtedness incurred in connection with the refinancing thereof, so long as (i) the principal amount of such Indebtedness does not increase, (ii) such Indebtedness does not have a maturity date shorter than six (6) months following the Termination Date and (iii) such Indebtedness has covenants, taken as a whole, that are no more restrictive than the terms of the Loan Documents in any material respects;
(c) Indebtedness incurred to finance the acquisition, construction or improvement of any assets by an Obligor or any Restricted Subsidiary that is a Domestic Subsidiary, including Capital Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets by an Obligor or any Restricted Subsidiary that is a Domestic Subsidiary or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any of such Indebtedness that do not increase the outstanding principal amount thereof; provided that the aggregate principal amount of Indebtedness outstanding under this clause (c) shall not exceed $25,000,000 at any time;
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(d) Indebtedness incurred to finance the acquisition, construction or improvement of any assets by any Restricted Subsidiary that is a Foreign Subsidiary, including Capital Lease Obligations, and any Indebtedness assumed in connection with the acquisition of any such assets by any Restricted Subsidiary that is a Foreign Subsidiary or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any of such Indebtedness that do not increase the outstanding principal amount thereof; provided that the aggregate principal amount of Indebtedness outstanding under this clause (d) shall not exceed $25,000,000 at any time;
(e) Indebtedness (i) owed by one Obligor to another Obligor, (ii) owed by an Obligor to any Restricted Subsidiary that is not an Obligor or (iii) owed by a Restricted Subsidiary that is not an Obligor to an Obligor provided that the aggregate amount of Indebtedness outstanding pursuant to this clause (iii) shall not exceed $50,000,000, at any time, when combined with amounts outstanding under Section 6.05(e), without duplication;
(f) Indebtedness of any Restricted Subsidiary in existence on the date on which such Restricted Subsidiary is acquired by the Borrower (but not incurred or created in connection with such acquisition); provided (i) neither the Borrower nor any other Restricted Subsidiary has any obligation with respect to such Indebtedness, (ii) none of the properties of the Borrower or any other Restricted Subsidiary is bound with respect to such Indebtedness and (iii) the aggregate principal amount of all Indebtedness outstanding under this clause (f) shall not exceed $10,000,000 at any time;
(g) Indebtedness in respect of endorsements of negotiable instruments for collection in the ordinary course of business;
(h) Indebtedness associated with accounts payable incurred in the ordinary course of business that are not more than ninety (90) days past due or which are being actively contested by the Borrower or the applicable Restricted Subsidiary in good faith and by appropriate action and for which adequate reserves have been maintained in accordance with GAAP;
(i) Indebtedness constituting Investments permitted by clauses (f) and (h) of Section 6.05;
(j) Indebtedness incurred pursuant to Swap Agreements permitted by Section 6.06;
(k) other Indebtedness in an aggregate amount not to exceed $50,000,000 outstanding at any time;
(l) guarantees of Indebtedness permitted by clauses (c), (d), (j) and (k) of this Section; and
(m) other unsecured Indebtedness so long as the Total Net Leverage Ratio at the time of incurrence of such Indebtedness, and after giving pro forma effect thereto, is less than 3.5 to 1.0; provided, the proceeds of any such newly incurred Indebtedness shall not be included in the calculation of the Total Net Leverage Ratio for purposes of determining pro forma compliance with such ratio (it being understood that this proviso shall not exclude Unencumbered Balance Sheet Cash that is not attributable to such newly incurred Indebtedness).
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Section 6.02 Liens
None of the Obligors or any Restricted Subsidiary will create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) Liens created by the Security Documents;
(c) any Lien on any property or asset of the Borrower or any Restricted Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that (i) such Lien shall not apply to any property or asset of the Borrower or any Restricted Subsidiary other than such property or asset to which such Lien applies on the Effective Date and (ii) such Lien shall secure only those obligations which it secures on the date hereof and extensions, renewals and replacements thereof in accordance with Section 6.01;
(d) Liens on assets acquired, constructed or improved by the Borrower or any Restricted Subsidiary; provided that (i) such Liens secure Indebtedness permitted by clause (c) or (d) of Section 6.01, (ii) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such assets and (iv) such Liens shall not apply to any other property or assets of the Borrower or any Restricted Subsidiary other than the proceeds of, and insurance proceeds related to, such assets;
(e) Liens on assets of any Restricted Subsidiary in existence on the date such Restricted Subsidiary is acquired by the Borrower (but not created in connection with such acquisition) securing Indebtedness permitted under Section 6.01(f); provided that (i) such Lien shall not apply to any property of asset of the Borrower or any other Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date of such acquisition;
(f) Liens on the assets of any Restricted Subsidiary that is a Foreign Subsidiary securing Indebtedness of such Restricted Subsidiary permitted under Section 6.01(j); and
(g) Liens on cash securing obligations of the Borrower to providers of vault services with respect to such cash.
Section 6.03 Fundamental Changes
None of the Obligors or any Restricted Subsidiary will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default or Event of Default shall have occurred and be continuing and, if such transaction involves the Borrower, the Borrower shall survive such transaction:
(a) any Restricted Subsidiary may merge into or consolidate with the Borrower;
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(b) any Restricted Subsidiary that is a Wholly-Owned Subsidiary may merge into or consolidate with any other Restricted Subsidiary that is a Wholly-Owned Subsidiary; provided that if such transaction involves an Obligor, the Obligor survives such transaction;
(c) any Restricted Subsidiary may merge into or consolidate with any other Person so long as either (i) such Restricted Subsidiary is the surviving entity of such merger or consolidation or (ii) if such Restricted Subsidiary is not the surviving entity, the surviving entity and/or the Borrower, as applicable, complies with the provisions of Section 5.09(e) within thirty (30) days of such merger or consolidation;
(d) any Obligor or any Restricted Subsidiary that is not an Obligor may change its jurisdiction of organization so long as, in the case of an Obligor, it complies with Section 6.12 hereof;
(e) any Restricted Subsidiary that is not an Obligor may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and could not be reasonably expected to result in a Materially Adverse Effect; and
(f) any Unrestricted Subsidiary may merge into or consolidate with any Obligor or any Restricted Subsidiary that is not an Obligor so long as (i) such Obligor or such Restricted Subsidiary that is not an Obligor is the surviving entity of such merger or consolidation and (ii) the Borrower provides an officer’s certificate to the Administrative Agent, executed by a Financial Officer of the Borrower, certifying that, after giving effect to such merger or consolidation, the Borrower is in pro forma compliance with Sections 6.16, 6.17 and 6.18.
Section 6.04 Asset Sales
None of the Obligors or any Restricted Subsidiary will make any Asset Sale except, if at the time thereof and immediately after giving effect thereto, with respect to clause (a), no Default or Event of Default shall have occurred and be continuing:
(a) the Borrower or any Restricted Subsidiary may make any Asset Sale, including sale-leaseback transactions, if (i) the consideration therefor is not less than the fair market value of the related asset and (ii) after giving effect thereto, the aggregate book value of the assets disposed of in all Asset Sales (other than Asset Sales permitted under the other clauses of this Section 6.04) during the term of this Agreement would not exceed twenty-five percent (25%) of the book value of the total assets of the Borrower and its Subsidiaries on a consolidated basis as of the time such Asset Sale is consummated, which amount shall be diminished by the aggregate book value of all prior Asset Sales made during the term of this Agreement pursuant to this clause (a);
(b) (i) any Obligor may sell, transfer, lease or otherwise dispose of its assets to another Obligor, and (ii) any Restricted Subsidiary that is not an Obligor may sell, transfer, lease or otherwise dispose of its assets to any Obligor or any other Restricted Subsidiary;
(c) sales, exchanges and transfers consisting of Investments permitted by Section 6.05;
(d) sales, exchanges and transfers of inventory in the ordinary course of business;
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(e) sales, exchanges and transfers of equipment and other property which is replaced by equipment or property of at least comparable value and use or which is discontinued, obsolete, worn out or no longer used or useful to such Person’s business, all in the ordinary course of business;
(f) sales, exchanges and transfers of chattel paper to third parties pursuant to arm’s-length transaction for fair value in the ordinary course of business;
(g) leases entered into by any Obligor with any Restricted Subsidiary that is not an Obligor to lease assets to such Restricted Subsidiary that is not an Obligor so long as (i) the fair market value of the assets leased under this clause (g) shall not exceed $80,000,000 at any time and (ii) such leases are at prices and on terms and conditions not less favorable to such Obligor than could be obtained on an arm’s-length basis from unrelated third parties; and
(h) leases or financing contracts entered into with third parties to lease or finance such third parties’ purchase of ATM Equipment.
Section 6.05 Investments
None of the Obligors or any Restricted Subsidiary will make an Investment in any other Person, except:
(a) Permitted Investments;
(b) Business Acquisitions permitted by Section 6.11;
(c) Investments listed on Schedule 6.05;
(d) Investments by an Obligor in any other Obligor;
(e) Investments by an Obligor in any Restricted Subsidiary that is not an Obligor; provided that the aggregate amount of Investments outstanding pursuant to this clause (e) shall not exceed $50,000,000 at any time when combined with amounts outstanding under Section 6.01(e)(iii), without duplication;
(f) Investments arising out of loans and advances for expenses, travel per diem and similar items in the ordinary course of business to directors, officers and employees in an aggregate amount not to exceed $2,000,000 at any time;
(g) shares of stock, obligations or other securities received in the settlement of claims arising in the ordinary course of business;
(h) Investments by any Restricted Subsidiary that is not an Obligor in (i) any Obligor or (ii) any other Restricted Subsidiary that is not an Obligor;
(i) Investments not otherwise permitted under this Section 6.05 in an aggregate amount not to exceed $30,000,000 at any time; and
(j) Guarantees permitted by Section 6.01.
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Section 6.06 Swap Agreements
None of the Obligors nor any Restricted Subsidiary will enter into any Swap Agreement, except (a) Swap Agreements entered into to hedge or manage the interest rate exposure associated with vault cash procurement, any debt securities, debt facilities or leases (existed or forecasted) of the Borrower or any Restricted Subsidiary, (b) any Permitted Bond Hedge Transaction(s), (c) any Permitted Warrant Transaction(s), (d) Swap Agreements for foreign exchange or currency exchange management or (e) Swap Agreements to hedge or manage any exposure that the Borrower or any Restricted Subsidiary may have to counterparties under other Swap Agreements such that, in each case, such Swap Agreements are entered into in the ordinary course of business and the combination of such Swap Agreements, taken as a whole, is for risk management purposes and not speculative.
Section 6.07 Restricted Payments
None of the Obligors nor any Restricted Subsidiary will declare or make, or agree to pay or make, any Restricted Payment, except:
(a) (i) Restricted Payments by the Borrower in any amount so long as at the time of such Restricted Payment, and after giving pro forma effect thereto, (A) no Event of Default exists and (B) the Total Net Leverage Ratio is less than 3.0 to 1.0 and (ii) Restricted Payments by the Borrower up to an aggregate amount of $30,000,000 in any fiscal year if at the time of such Restricted Payment, and after giving pro forma effect thereto, (A) no Event of Default exists and (B) the Total Net Leverage Ratio is greater than 3.0 to 1.0, but less than 4.0 to 1.0.
(b) dividends or distributions on Equity Interests of Restricted Subsidiaries ratably with respect to such Equity Interests;
(c) payments of dividends and distributions made with shares or units of capital stock of the Borrower;
(d) redemptions of capital stock of employees, directors or officers of the Borrower so long as (i) the amount of such redemption, when combined with all other redemptions made under this clause (d) in the same calendar year, does not exceed $20,000,000 and (ii) the Borrower demonstrates pro forma compliance with Sections 6.16, 6.17 and 6.18;
(e) the payment by the Borrower of the purchase price for any Permitted Bond Hedge Transaction(s);
(f) the receipt of cash and/shares of common stock of the Borrower upon exercise and settlement or termination of any Permitted Bond Hedge Transaction(s);
(g) the payment and/or delivery of cash or common stock of the Borrower, as the case may be, by the Borrower upon exercise and settlement, termination or redemption of any Permitted Warrant Transaction(s); and
(h) the payment and/or delivery of cash or common stock of the Borrower, as the case may be, by the Borrower in satisfaction of the Borrower’s obligations in respect of the Convertible Senior Notes whether upon conversion of such securities, upon a fundamental
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change (or similar event, however so defined by the terms of such securities), upon repurchase of such securities, at maturity of such securities or otherwise.
Section 6.08 Prepayments of Indebtedness
The Borrower will not voluntarily prepay or redeem any Indebtedness, except:
(a) prepayments of Indebtedness created under the Loan Documents in accordance with this Agreement;
(b) refinancings of Permitted Indebtedness to the extent such refinancing is permitted by Section 6.01 of this Agreement;
(c) the payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness to the extent such sale or transfer is permitted by this Agreement;
(d) voluntary prepayments and redemptions made with shares of capital stock of the Borrower and proceeds of offerings of capital stock of the Borrower;
(e) voluntary prepayments and redemptions constituting calls, tenders or open market purchases of the Existing Senior Notes with an aggregate par value not to exceed $200,000,000;
(f) voluntary prepayments of Indebtedness permitted by Section 6.01(e); and
(g) voluntary prepayments and redemptions, other than those made under the other clauses of this Section, so long as at the time of such prepayment or redemption and after giving pro forma effect thereto, no Event of Default shall exist and the Senior Secured Net Leverage Ratio shall not exceed 2.0 to 1.0.
For the avoidance of doubt, neither of the payment of cash nor the delivery of common stock by the Borrower upon conversion of the Convertible Senior Notes shall be prohibited by this Section 6.08.
Section 6.09 Transactions with Affiliates
None of the Obligors nor any Restricted Subsidiary will sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with any of its Affiliates, except (a) at prices and on terms and conditions not less favorable to the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties, (b) any Restricted Payment permitted by Section 6.07, (c) any transaction between or among Obligors, (d) any transaction between or among Restricted Subsidiaries that are not Obligors and (e) Investments permitted by Section 6.05.
Section 6.10 Restrictive Agreements
None of the Obligors nor any Restricted Subsidiary will, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes
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any condition upon (a) the ability of any Obligor or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, (b) the ability of any Obligor or any Restricted Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock, (c) the ability of any Obligor or any Restricted Subsidiary to make or repay loans or advances to any Obligor or (d) the ability of any Obligor or any Restricted Subsidiary to guarantee Indebtedness of any Obligor; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by Law or by this Agreement or by Swap Agreements entered into by Restricted Subsidiaries that are Foreign Subsidiaries and secured as permitted by Section 6.02(f), (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary of the Borrower pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement, including, without limitation, secured Indebtedness permitted by Section 6.01(f), provided that such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof or encumbrances on the property that is the subject thereof.
Section 6.11 Business Acquisitions
None of the Obligors nor any Restricted Subsidiary will make any Business Acquisitions except that an Obligor or any Restricted Subsidiary shall be permitted to make Business Acquisitions provided that (a) no Event of Default shall exist before or immediately after giving effect to such Business Acquisition, (b) if the Total Net Leverage Ratio at the time of such Business Acquisition, and after giving pro forma effect thereto, is equal to or greater than 3.0 to 1.0, the consideration for such Business Acquisition, when combined with the aggregate consideration (excluding any Equity Interests) for all other Business Acquisitions made when the pro forma Total Net Leverage Ratio was equal to or greater than 3.0 to 1.0, shall not exceed $100,000,000 during the term of this Agreement, (c) the Borrower shall be in pro forma compliance with Sections 6.16, 6.17 and 6.18 and (d) if the cash consideration for such Business Acquisition is equal to or greater than $50,000,000, the Borrower shall have given the Administrative Agent at least ten (10) days prior written notice of such Business Acquisition together with an officer’s certificate executed by a Financial Officer of the Borrower, certifying as to compliance with the requirements of this Section and containing calculations demonstrating compliance with clauses (b), to the extent applicable, and (c) of this Section; provided that the proceeds received by an Obligor from unrelated third parties pursuant to Assets Sales permitted under Section 6.04 which Asset Sales consist of substantially all of the assets of any division, business unit or line of business of the Borrower or any Restricted Subsidiary shall be netted against any amounts reducing such maximum amount. The consummation of each Business Acquisition shall be deemed to be a representation and warranty by the Borrower that all conditions thereto have been satisfied and that same is permitted under the terms of this Agreement, which representation and warranty shall be deemed to be a representation and warranty for all purposes hereunder.
Section 6.12 Constitutive Documents
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None of the Obligors nor any Restricted Subsidiary will amend its charter or by-laws or other constitutive documents in any manner which could reasonably be expected to have a Material Adverse Effect on the rights of the Lenders under this Agreement or their ability to enforce the same; provided, however, the Obligors or any Restricted Subsidiary shall be permitted after the date hereof to amend its constitutive documents for the purpose of (a) changing its jurisdiction of organization so long as the Administrative Agent is given thirty (30) Business Days prior written notice of such change and (b) effecting any transaction permitted under the terms of this Agreement.
Section 6.13 Capital Expenditures
None of the Obligors nor any Restricted Subsidiary will make any Capital Expenditures; provided that an Obligor or any Restricted Subsidiary shall be permitted to make Capital Expenditures so long as at the time of, and after giving pro forma effect to, such Capital Expenditure, the Borrower is in compliance with Section 6.18.
Section 6.14 Amendment of Existing Indebtedness
The Borrower will not amend any term of any document evidencing Existing Indebtedness, if (a) the effect thereof would be to shorten the maturity or average life thereof or increase the amount of any payment of principal thereof or increase the rate or shorten any period for payment of interest thereon or (b) such action would add any covenant or event of default which is more onerous than those contained therein on the Effective Date, provided that the foregoing shall not prohibit (i) the execution of supplemental indentures associated with the incurrence of additional Existing Senior Notes to the extent permitted by Section 6.01 or (ii) the execution of supplemental indentures to add guarantors if required by the terms of the Senior Note Indenture provided the Borrower and such Person comply with Section 5.09.
Section 6.15 Changes in Fiscal Year
The Borrower shall not change the end of its fiscal year to a date other than December 31 of each year.
Section 6.16 Senior Secured Net Leverage Ratio
The Borrower shall not, as of the last day of any fiscal quarter, permit the Senior Secured Net Leverage Ratio to exceed 2.25 to 1.0.
Section 6.17 Total Net Leverage Ratio
The Borrower shall not, as of the last day of any fiscal quarter, permit the Total Net Leverage Ratio to exceed 4.0 to 1.0.
Section 6.18 Fixed Charge Coverage Ratio
The Borrower shall not, as of the last day of any fiscal quarter, permit the Fixed Charge Coverage Ratio to be less than 1.50 to 1.0.
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ARTICLE VII
Events of Default and Remedies
Section 7.01 Events of Default
If any of the following events (“Events of Default”) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or other amount (other than an amount referred to in clause (a) of this Section 7.01) payable under this Agreement or the other Loan Documents which amount has been invoiced, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Restricted Subsidiary in or in connection with this Agreement, any Loan Document or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect when made or deemed made in any material respect;
(d) the Borrower or any Restricted Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the Borrower’s existence), 5.08, 5.09(d) or in Article VI;
(e) the Borrower or any Restricted Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clauses (a), (b) or (d) of this Article) or in any other Loan Document, and such failure shall continue unremedied for a period of 30 days following the earlier of (i) the date on which such failure first became known to any Financial Officer of the Borrower or (ii) notice of such failure from the Administrative Agent;
(f) the Borrower or any Restricted Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days;
(g) any event or condition occurs (i) that results in any Material Indebtedness becoming due prior to its scheduled maturity or (ii) that requires the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to (w) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, (x) the occurrence of a fundamental change (or similar event, however so defined) as such term is defined in the Convertible Senior Notes or the exercise of any put right in connection with such fundamental change by holders of the Convertible Senior Notes, (y) the occurrence of any event or condition that permits the
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conversion, whether into cash, shares of Borrower common stock, or a combination thereof, of the Convertible Senior Notes and (z) any conversion, whether into cash, shares of Borrower common stock, or a combination thereof, of the Convertible Senior Notes by the holders thereof;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Restricted Subsidiary or their debts, or of a substantial part of their assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Restricted Subsidiary or for a substantial part of any of their assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Restricted Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Section 7.01, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Restricted Subsidiary or for a substantial part of any of their assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
(j) the Borrower or any Restricted Subsidiary shall become unable, admit in writing its inability, or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money that is not covered by insurance in an aggregate amount in excess of $20,000,000 shall be rendered against the Borrower or any Restricted Subsidiary or any combination thereof and the same shall remain undischarged or unstayed for a period of 60 consecutive days during which execution shall not be effectively stayed, or any attachment or levy shall be entered upon any assets of Borrower or such Restricted Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, when taken together with all other ERISA Events that have occurred and are continuing, could reasonably be expected to result in a Material Adverse Effect;
(m) a proceeding shall be commenced by the Borrower or any Restricted Subsidiary seeking to establish the invalidity or unenforceability of any Loan Document (exclusive of questions of interpretation thereof), or any Obligor shall repudiate or deny that it has any liability or obligation for the payment of principal or interest or other obligations purported to be created under any Loan Document;
(n) any Lien created by any of the Security Documents shall at any time fail to constitute a valid and (to the extent required by the Security Documents or as otherwise permitted under this Agreement) perfected Lien on any material portion of the Collateral purported to be subject thereto, securing the obligations purported to be secured thereby, with the
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priority required by the Loan Documents, or any Obligor shall so assert in writing, in each case other than as a result of action or inaction of the Administrative Agent or any Lender; or
(o) a Change in Control occurs;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Section 7.01), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Majority Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event described in clause (h) or (i) of this Section 7.01, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest notice of acceleration or the intent to accelerate or any other notice of any kind, all of which are hereby waived by the Borrower, (iii) increase the rate charged on all Loans to the Default Rate (after the acceleration thereof), and (iv) exercise any or all of the remedies available to it under any of the Loan Documents, at Law or in equity (including, without limitation, conducting a foreclosure sale of any of the Collateral).
Section 7.02 Cash Collateral
In addition to the remedies contained in Section 7.01, upon the occurrence and continuance of any Event of Default, the Borrower shall pay to the Administrative Agent in such amounts and at such times as contemplated by Section 2.05(j).
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Lender hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
The Lender serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the
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foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as directed by the Majority Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Majority Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Lender and the Borrower. Upon any such resignation, the Majority Lenders shall have the right, with the approval of Borrower, which shall not be unreasonably withheld,
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conditioned or delayed, and shall not be required during the existence of an Event of Default, to appoint a successor. If no successor shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Lender, appoint a successor Administrative Agent which shall be a bank with an office in Houston, Texas, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Guarantee
Section 9.01 The Guarantee
Each Guarantor hereby jointly, severally, unconditionally and irrevocably guarantees the full and punctual payment when due (whether at stated maturity, upon acceleration or otherwise) of the principal of and interest on each Loan, and the full and punctual payment of all other Obligations. Upon failure by the Borrower, any Guarantor or any Restricted Subsidiary to pay punctually any such Obligations, each Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in this Agreement or the other Loan Documents. This Guarantee is a guaranty of payment and not of collection. Neither the Lenders nor any other Person to whom the Obligations are owed shall be required to exhaust any right or remedy or take any action against the Borrower, the Guarantors or any other Person or any Collateral. Each Guarantor agrees that, as between the Guarantor and the Lenders and any other Person to whom the Obligations are owed, the Obligations may be declared to be due and payable for the purposes of this Guarantee notwithstanding any stay, injunction or other prohibition which may prevent, delay or vitiate any declaration as regards the Borrower and that in the event of a declaration or attempted declaration, the Obligations shall immediately become due and payable by each Guarantor for the purposes of this Guaranty.
Section 9.02 Guaranty Unconditional
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The obligations of each Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in respect of any Obligations, by operation of law or otherwise other than the full payment thereof;
(b) any modification, amendment or waiver of or supplement to the Loan Documents or any Lender Swap Agreements;
(c) any release, impairment, non-perfection or invalidity of any direct or indirect security for any Obligations;
(d) any change in the corporate existence, structure or ownership of the Borrower or any other Guarantor or any Restricted Subsidiary, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower, any other Guarantor, any Restricted Subsidiary or their respective assets or any resulting release or discharge of any Obligation;
(e) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Borrower, any other Guarantor, any Restricted Subsidiary, the Administrative Agent, any Lender or any other Person, whether in connection herewith or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;
(f) any invalidity or unenforceability relating to or against the Borrower, any other Guarantor or any Restricted Subsidiary for any reason of the Loan Documents, any Lender Swap Agreement or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower or any other Guarantor of the principal of or interest on any Loan or any other amount payable by the Borrower or any other Guarantor or any Restricted Subsidiary under the Loan Documents or any Lender Swap Agreement; or
(g) any other act or omission to act or delay of any kind by the Borrower, any other Guarantor, any Restricted Subsidiary, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the Guarantor’s obligations hereunder.
Furthermore, notwithstanding that the Borrower may not be obligated to the Administrative Agent and/or the Lenders for interest and/or attorneys’ fees and expenses on, or in connection with, any Obligations from and after the Petition Date (as hereinafter defined) as a result of the provisions of the federal bankruptcy law or otherwise, Obligations for which the Guarantors shall be obligated shall include interest accruing on the Obligations at the Default Rate from and after the date on which the Borrower files for protection under the federal bankruptcy laws or from and after the date on which an involuntary proceeding is filed against the Borrower under the federal bankruptcy laws (herein collectively referred to as the “Petition Date”) and all reasonable attorneys’ fees and expenses incurred by the Administrative Agent and the Lenders from and after the Petition Date in connection with the Obligations.
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Section 9.03 Discharge Only upon Payment in Full; Reinstatement In Certain Circumstances
Each Guarantor’s obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Loans and all other amounts payable by the Obligors under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Loan or any other amount payable by the Obligors under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Obligor or otherwise, each Guarantor’s obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. The Guarantors jointly and severally agree to indemnify each Lender on demand for all reasonable costs and expenses (including reasonable fees of counsel) incurred by such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law, other than any costs or expenses resulting from the bad faith, gross negligence or willful misconduct of such Lender.
Section 9.04 Waiver by Each Guarantor
Each Guarantor irrevocably waives acceptance hereof, diligence, presentment, demand, protest notice of acceleration or the intent to accelerate and any other notice not provided for in this Article other than to the extent expressly provided for in favor of the Guarantors in any of the Loan Documents, as well as any requirement that at any time any action be taken by any Person against the Borrower or any other Guarantor or any other Person.
Section 9.05 Subrogation
Each Guarantor shall be subrogated to all rights of the Lenders, the Administrative Agent and the holders of the Loans against the Borrower in respect of any amounts paid by such Guarantor pursuant to the provisions of this Article IX; provided that such Guarantor shall not be entitled to enforce or to receive any payments arising out of or based upon such right of subrogation until the principal of and interest on the Loans and all other sums at any time payable by the Borrower under the Loan Documents shall have been paid in full. If any amount is paid to any Guarantor on account of subrogation rights under this Guaranty at any time when all the Obligations have not been indefeasibly paid in full, the amount shall be held in trust for the benefit of the Lenders and shall be promptly paid to the Administrative Agent to be credited and applied to the Obligations, whether matured or unmatured or absolute or contingent, in accordance with the terms of this Agreement.
Section 9.06 Stay of Acceleration
If acceleration of the time for payment of any amount payable by any Obligor under the Loan Documents is stayed upon insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by each Guarantor hereunder forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Lenders specified in Article X of this Agreement.
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Section 9.07 Limit of Liability
The obligations of each Guarantor hereunder shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any applicable state law.
Section 9.08 Release upon Sale
Upon any sale of any Guarantor permitted by this Agreement, such Guarantor (a) be released from its obligations as a Guarantor hereunder, (b) all Liens securing such Guaranty shall automatically be terminated and released and (c) the Administrative Agent will, at the expense of said Guarantor, execute and deliver such documents as are reasonably necessary to evidence said releases and terminations, following written request from the Borrower and receipt by the Administrative Agent of a certificate from the Borrower certifying no Default or Event of Default exists.
Section 9.09 Benefit to Guarantor
Each Guarantor acknowledges that the Loans made to the Borrower may be, in part, re-loaned to, or used for the benefit of, such Guarantor and its Affiliates, that each Guarantor, because of the utilization of the proceeds of the Loans, will receive a direct benefit from the Loans and that, without the Loans, such Guarantor would not be able to continue its operations and carry on its business as presently conducted.
Section 9.10 Keepwell
Each Qualified ECP Guarantor (as hereinafter defined) hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Obligor to honor all of its obligations under the Guarantees in respect of Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 9.10 for the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 9.10, or otherwise under the Guarantees, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations of each Qualified ECP Guarantor under this Section shall remain in full force and effect until termination of the Guarantees as described in Section 9.03 hereof. Each Qualified ECP Guarantor intends that this Section 9.10 constitute, and this Section 9.10 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Obligor for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act. As used herein, “Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Obligor that has total assets exceeding $10,000,000 at the time the relevant guarantee or grant of the relevant security interest becomes effective with respect to such Swap Obligation or such other Person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another Person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
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ARTICLE X
Miscellaneous
Section 10.01 Notices.
(a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(i) if to the Borrower, to: |
3250 Briarpark Drive, Suite 400
Houston, Texas77042
Attention: Todd Ruden
Telecopy No.: (832) 308-4750
Telephone No. (for confirmation): (832) 308-4150
with a copy to:
Vinson & Elkins LLP
First City Tower
1001 Fannin, Suite 2500
Houston, Texas77002
Attention: Brian Moss
Telecopy No.: (713) 615-5845
Telephone No. (for confirmation): (713) 758-3370
(ii) if to a Guarantor, to it in care of the Borrower; |
(iii) if to the Administrative Agent, to |
JPMorgan Chase Bank, N.A.
Loan and Agency Service Group
Yuvette Owens
10 South Dearborn, Floor 97
Chicago, IL 60603-2300
Telecopy No: 888-303-9732
Telephone No. (for confirmation): 312-385-7021
Email: jpm.agency. servicing.1@jpmchase.com
with a copy to:
Andrews Kurth LLP
600 Travis, Suite 4200
Houston, Texas 77002
Attention: Martha (“Marty”) Smith DeBusk
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Telecopy No.: (713) 238-7202
Telephone No. (for confirmation): (713) 220-4372
(iv) if to the Alternative Currency Agent, to |
J.P. Morgan Europe Limited
25 Bank Street
Canary Wharf
London E14 5JP
Attn: Loans Agency
Telecopy No. 44 207 777 2360
(v) if to the Issuing Lender, to |
JPMorgan Chase Bank, N.A.
Loan and Agency Service Group
Sudeep Kalakkar
Sarjapur Outer Ring Road, Vathur Hobli, Floor 04
Bangalore, 560 087, India
Telephone No. (for confirmation): 91-80-66766154 ext 66154
Email: Chicago.lc.agency.closing.team@jpmchase.com
(vi) if to the Swingline Lender, to |
JPMorgan Chase Bank, N.A.
Loan and Agency Service Group
Yuvette Owens
10 South Dearborn, Floor 97
Chicago, IL 60603-2300
Telecopy No: 888-303-9732
Telephone No. (for confirmation): 312-385-7021
Email: jpm.agency. servicing.1@jpmchase.com
(vii) if to any other Lender, to it at its address (or telecopy number) |
set forth in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other
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communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
Section 10.02 Waivers; Amendments.
(a) No failure or delay by the Administrative Agent, the Issuing Lender or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Lender and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower or Guarantors therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or the Issuing Lender may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Majority Lenders or by the Borrower and the Administrative Agent with the consent of the Majority Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any provisions of Section 2.20 or the definition of “Defaulting Lender”, without the written consent of each Lender, (vi) change any of the provisions of this Section 10.02(b) or the definition of “Majority Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender, (vii) release all or a material portion of the Collateral without the written consent of each Lender, provided, that nothing herein shall prohibit the Administrative Agent from releasing any Collateral, or require the consent of the other Lenders for such release, in respect of items sold, leased, transferred or otherwise disposed of to the extent such transaction is permitted hereunder, or (viii) release all or substantially all of the Guarantees (other than in connection with any transactions permitted by this Agreement) without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Alternative Currency Agent, the Issuing Lender or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, the Alternative Currency Agent, the Issuing Lender or the Swingline Lender, as the case may be.
Section 10.03 Expenses; Indemnity; Damage Waiver.
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(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel and consultants for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, due diligence undertaken by the Administrative Agent with respect to the financing contemplated by this Agreement, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the Transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Issuing Lender or any Lender for fees, charges and disbursements of one primary law firm as counsel, local counsel as needed and consultants for the Administrative Agent, the Issuing Lender or any Lender and all other reasonable out-of-pocket expenses of the Administrative Agent, the Issuing Lender or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement during the existence of a Default or an Event of Default (whether or not any waiver or forbearance has been granted in respect thereof), including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, THE ISSUING LENDER, AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR ANY OTHER TRANSACTIONS CONTEMPLATED HEREBY, (II) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (IV) ANY ACTUAL CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO AND REGARDLESS OF WHETHER SUCH CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING IS BROUGHT BY THE BORROWER OR ANY GUARANTOR, THEIR RESPECTIVE EQUITY
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HOLDERS, THEIR RESPECTIVE AFFILIATES, THEIR RESPECTIVE CREDITORS OR ANY OTHER PERSON; AND WHETHER OR NOT CAUSED BY THE ORDINARY, SOLE OR CONTRIBUTORY NEGLIGENCE OF ANY INDEMNITEE, PROVIDED FURTHER THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. THIS SECTION 10.03(b) SHALL NOT APPLY WITH RESPECT TO TAXES OTHER THAN ANY TAXES THAT REPRESENT LOSSES, CLAIMS, DAMAGES, ETC. ARISING FROM ANY NON-TAX CLAIM.
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Issuing Lender or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Lender or the Swingline Lender, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Lender or the Swingline Lender in its capacity as such. For purposes hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the total Revolving Credit Exposure and unused Commitments at the time.
(d) To the extent permitted by applicable Law, no party hereto shall assert, and each party hereto hereby waives, any claim against any other party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable no later than ten (10) Business Days from written demand therefor.
Section 10.04 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Lender that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void), and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 10.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Lender that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Lender and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
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(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to an Affiliate of a Lender or if any Event of Default has occurred and is continuing; provided further that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five Business Days after having received written notice thereof; and
(B) the Administrative Agent, the Issuing Lender and the Swingline Lender;
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 and after giving effect to such assignment, the assigning Lender Commitment or Loans shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent or unless the assignment is of 100% of the assigning Lender’s Commitment and Loans, provided that no such consent of the Borrower shall be required if an Event of Default under clause (a), (b), (h) or (i) of Section 7.01 has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500;
(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may include material non-public information about the Borrower or Guarantors and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with such assignee’s compliance procedures and applicable law, including Federal and state securities laws;
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(E) prior to any assignment to an assignee that is not a Lender, the Lender making such an assignment shall first offer the assignment to the other Lenders who shall have five (5) Business Days to purchase the assignment on the same terms as are proposed to such non-Lender assignee;
(F) no such assignment shall be made to (i) a natural Person, (ii) the Borrower or any of the Borrower’s Affiliates or Subsidiaries or (iii) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (iii); and
(G) notwithstanding the foregoing, any assignee must have the ability to fund Alternative Currencies with respect to which there are outstanding Loans and all Alternative Currencies described in (a) and (b) of the definition of Alternative Currency.
Section 10.04(b)(ii)(B) shall not be construed to prohibit assignment of a proportionate part of all the assigning Lender’s rights and obligations in respect of one Class of Commitments or Loans.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Lender and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Issuing Lender and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative
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Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c) (i) Any Lender may, without the consent of, or notice to, the Administrative Agent, the Issuing Lender or the Swingline Lender, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such participations must be approved by the Borrower so long as no Event of Default has occurred and is continuing, such approval not to be unreasonably withheld, (B) such Lender’s obligations under this Agreement shall remain unchanged, (C) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (D) such Lender shall notify the Administrative Agent in writing immediately upon any such participation, and (E) the Borrower, the Administrative Agent, the Issuing Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(g) as though it were a Lender.
(iii) Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or
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other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 10.05 Survival.
All covenants, agreements, representations and warranties made by the Borrower and each Guarantor herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Lender or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the Transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
Section 10.06 Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts and may be delivered in original or facsimile form (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other
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electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
Section 10.07 Severability.
Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 10.08 Right of Setoff.
Each Lender and each of its Affiliates is hereby authorized at any time that an Event of Default shall have occurred and is continuing, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower or any Guarantor against any and all of the obligations of the Borrower and each Guarantor now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
Section 10.09 Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement and the Loan Documents shall be construed in accordance with and governed by the Law of the State of New York without regard to any choice-of-law provisions that would require the application of the Law of another jurisdiction provided, to the extent any of the Security Documents recite that they are governed by the Law of another jurisdiction, or any action or event taken thereunder (such as foreclosure of any Collateral) requires application of or compliance with the Law of another jurisdiction, such provisions and concepts shall be controlling.
(b) The Borrower and Guarantors hereby irrevocably and unconditionally submit, for itself and its property, to the nonexclusive jurisdiction of the District Courts of the State of New York sitting in New York City and of the United States District Court sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State Court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, the Issuing Lender or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or Guarantors or their properties in the courts of any jurisdiction.
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(c) The Borrower and Guarantors hereby irrevocably and unconditionally waive, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
Section 10.01 WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.11 Headings.
Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
Section 10.12 Confidentiality.
Each of the Administrative Agent, the Issuing Lender and the Lenders agrees to maintain the confidentiality of the Information (as defined below) and use such Information solely in connection with the consideration, administration, documentation, implementation, syndication or negotiation of the Transactions, except that Information may be disclosed (a) to its Related Parties who need to know the Information in order to consider, administer, document, implement, syndicate or negotiate the terms of the Transactions (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in,
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or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations under the Loan Documents, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section by any party hereto or (ii) becomes available to the Administrative Agent, the Issuing Lender or any Lender on a nonconfidential basis from a source other than the Borrower, any of its Subsidiaries, any of its Foreign Subsidiaries, or any of its Affiliates. Notwithstanding the foregoing, none of the Lenders, the Administrative Agent or the Alternative Currency Agent shall (i) use the Information in connection with the performance by the Administrative Agent of services for other companies or (ii) furnish any Information to other companies. For the purposes of this Section, “Information” means (a) all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, the Issuing Lender or any Lender on a non-confidential basis prior to disclosure by the Borrower, any of its Subsidiaries, any of its Foreign Subsidiaries, any of its Affiliates or any Related Party of the foregoing and (b) the details of this Agreement, including the size of the facility or the pricing of this facility, to the extent that a third party could identify the Borrower as an Obligor hereunder. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. If the Administrative Agent, the Issuing Lender or any Lender is requested or required, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, to disclose any or all of the Information, the Administrative Agent, the Issuing Lender or such Lender will provide the Borrower with prompt notice of such event (to the extent that such notice does not contravene any applicable law or similar regulation) so that the Borrower may seek a protective order or other appropriate remedy or waive compliance with the applicable provisions of this Agreement by the Administrative Agent, the Issuing Lender or such Lender. If the Borrower determines to seek such protective order or other remedy, the Administrative Agent, the Issuing Lender or such Lender will cooperate with the Borrower in seeking such protective order or other remedy. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, nothing in this Agreement shall (a) restrict the Administrative Agent, the Issuing Lender or any Lender from providing information to any bank regulatory authority or any other regulatory or governmental authority, including the Board and its supervisory staff; (b) require or permit the Administrative Agent, the Issuing Lender or any Lender to disclose to the Borrower that any information will be or was provided to the Board or any of its supervisory staff; or (c) require or permit the Administrative Agent, the Issuing Lender or any Lender to inform the Borrower of a current or upcoming Board examination or any nonpublic Board supervisory initiative or action.
Section 10.13 Interest Rate Limitation.
Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan or reimbursement obligation, together with all fees, charges and other amounts that are treated as interest on such Loan or reimbursement obligation under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan or
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reimbursement obligation in accordance with applicable law, the rate of interest payable in respect of such Loan or reimbursement obligation hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan or reimbursement obligation but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans, reimbursement obligations or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
Section 10.14 USA Patriot Act.
Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.
Section 10.15 Amendment and Restatement.
Upon the Effective Date, the Existing Credit Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (a) this Agreement, any notes and the other Loan Documents executed and delivered herewith do not constitute a novation or termination of the “Obligations” as defined in the Existing Credit Agreement as in effect prior to the Effective Date and (b) such “Obligations” are in all respects continuing only with the terms thereof being modified as provided in this Agreement.
[END OF TEXT]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
BORROWER: |
CARDTRONICS, INC., |
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a Delaware corporation |
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By: |
/s/ Todd Ruden |
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Todd Ruden |
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Senior Vice President – Planning & Treasurer |
GUARANTOR: |
CARDTRONICS HOLDINGS, LLC, |
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a Delaware limited liability company |
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By: |
/s/ Michael E. Keller |
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Michael E. Keller |
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Secretary |
GUARANTOR: |
CARDTRONICS USA, INC., |
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a Delaware corporation |
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By: |
/s/ Todd Ruden |
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Todd Ruden |
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Senior Vice President – Planning & Treasurer |
GUARANTOR: |
ATM NATIONAL, LLC, |
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a Delaware limited liability company |
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By: |
/s/ Michael E. Keller |
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Michael E. Keller |
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Secretary |
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JPMORGAN CHASE BANK, N.A., individually and as Administrative Agent, Issuing Lender and Swingline Lender |
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By: |
/s/ John Kushnerick |
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Name: |
John Kushnerick |
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Title: |
Vice President |
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J.P. MORGAN EUROPE LIMITED, as Alternative Currency Agent |
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By: |
/s/ Belinda Lucas |
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Name: |
Belinda Lucas |
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Title: |
Associate |
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BANK OF AMERICA, N.A., as a Lender |
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By: |
/s/ Julie Castano |
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Name: |
Julie Castano |
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Title: |
SVP |
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WELLS FARGO BANK, N.A., as a Lender |
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By: |
/s/ Joanna Mitchell |
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Name: |
Joanna Mitchell |
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Title: |
Senior Vice President |
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COMPASS BANK, as a Lender |
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By: |
/s/ Collis Sanders |
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Name: |
Collis Sanders |
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Title: |
Executive Vice President |
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AMEGY BANK NATIONAL ASSOCIATION, as a Lender |
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By: |
/s/ Kelly Nash |
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Name: |
Kelly Nash |
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Title: |
Vice President |
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SUNTRUST BANK, as a Lender |
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By: |
/s/ Hays Wood |
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Name: |
Hays Wood |
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Title: |
Vice President |
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CAPITAL ONE, N.A., as a Lender |
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By: |
/s/ Yasmin Elkhatib |
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Name: |
Yasmin Elkhatib |
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Title: |
Vice President |
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BRANCH BANKING AND TRUST COMPANY, as a Lender |
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By: |
/s/ Matt McCain |
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Name: |
Matt McCain |
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Title: |
Senior Vice President |
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HSBC BANK USA, N.A., as a Lender |
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By: |
/s/ Sarah S. Knudsen |
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Name: |
Sarah S. Knudsen |
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Title: |
Vice President |
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BARCLAYS BANK PLC, as a Lender |
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By: |
/s/ Nicki Thomson |
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Name: |
Nicki Thomson |
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Title: |
Head of Business Services |
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SCOTIABANC Inc., as a Lender |
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By: |
/s/ J.F. Todd |
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Name: |
J.F. Todd |
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Title: |
Managing Director |
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FROST BANK, as a Lender |
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By: |
/s/ Michelle Huth |
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Name: |
Michelle Huth |
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Title: |
Market President |
ARTICLE I |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CARDTRONICS, INC.
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14 (A) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Steven A. Rathgaber, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Cardtronics, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 30, 2014 |
/s/ Steven A. Rathgaber |
|
Steven A. Rathgaber |
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CARDTRONICS, INC.
PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, J. Chris Brewster, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Cardtronics, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 30, 2014 |
/s/ J. Chris Brewster |
|
J. Chris Brewster |
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Cardtronics, Inc. (“Cardtronics”) for the period ended June 30, 2014 as filed with the Securities and Exchange Commission (the “SEC”) on the date hereof (the “Report”), the undersigned each hereby certifies, pursuant to 18 U.S.C. §1350 as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cardtronics. |
Date: July 30, 2014 |
/s/ Steven A. Rathgaber |
|
Steven A. Rathgaber |
|
Chief Executive Officer |
Date: July 30, 2014 |
/s/ J. Chris Brewster |
|
J. Chris Brewster |
|
Chief Financial Officer |
Income Taxes (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2014
|
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Income Taxes [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components Of Income Tax Expense |
|
Intangible Assets (Schedule Of Goodwill And Net Carrying Amount Of Intangible Assets With Indefinite Lives) (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | 6 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2014
|
Jun. 30, 2014
Trade Name [Member]
|
Jun. 30, 2014
U.S. [Member]
|
Jun. 30, 2014
U.S. [Member]
Trade Name [Member]
|
Dec. 31, 2013
U.S. [Member]
Trade Name [Member]
|
Jun. 30, 2014
Europe [Member]
|
Jun. 30, 2014
Europe [Member]
Trade Name [Member]
|
Jun. 30, 2014
Other International [Member]
|
|||||||
Indefinite-lived Intangible Assets by Segment [Line Items] | ||||||||||||||
Goodwill gross, beginning balance | $ 454,494 | $ 288,439 | $ 162,763 | [1] | $ 3,292 | [2] | ||||||||
Accumulated impairment loss, beginning balance | (50,003) | (50,003) | [1] | |||||||||||
Goodwill net, beginning balance | 404,491 | 288,439 | 112,760 | [1] | 3,292 | [2] | ||||||||
Acquisitions | 6,623 | 6,623 | ||||||||||||
Purchase price adjustments | (1,683) | (1,174) | (509) | [1] | ||||||||||
Foreign currency translation adjustments | 3,533 | 3,528 | [1] | 5 | [2] | |||||||||
Goodwill gross, ending balance | 462,967 | 293,888 | 165,782 | [1] | 3,297 | [2] | ||||||||
Accumulated impairment loss, ending balance | (50,003) | (50,003) | [1] | |||||||||||
Goodwill net, ending balance | 412,964 | 293,888 | 115,779 | [1] | 3,297 | [2] | ||||||||
Indefinite lived intangible asset, Beginning balance | 760 | 200 | 200 | 560 | ||||||||||
Indefinite lived intangible asset, foreign currency translation adjustments | 18 | 18 | ||||||||||||
Indefinite lived intangible asset, Ending balance | $ 778 | $ 200 | $ 200 | $ 578 | ||||||||||
|
Stock-Based Compensation (Stock-Based Compensation, RSAs) (Details) (Restricted Stock Awards [Member], USD $)
|
6 Months Ended |
---|---|
Jun. 30, 2014
|
|
Restricted Stock Awards [Member]
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Number of Shares, Restricted Stock outstanding, Beginning Balance | 375,498 |
Weighted Average Grant Date Fair Value, Beginning Balance | $ 18.42 |
Number of Shares, Vested | (218,999) |
Weighted Average Grant Date Fair Value, Vested | $ 14.00 |
Number of Shares, Forfeited | (15,664) |
Weighted Average Grant Date Fair Value, Forfeited | $ 27.28 |
Number of Shares, Restricted Stock outstanding, Ending Balance | 140,835 |
Weighted Average Grant Date Fair Value, Ending Balance | $ 24.32 |
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