2007 Annual Report and Form 10-K
Financial Self-Service Solutions Worldwide
Five - Year Highlights
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Total Revenue
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ATM Operating Revenue
in millions
Adjusted EBITDA*
in millions
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Average Transacting ATMs
actuals
Monthly Revenue per ATM
actuals
Total Transactions
in millions
*For details on the calculation of Adjusted EBITDA, please see the reconciliation included at the end of this annual report
ATM Footprint United States, United Kingdom, Mexico
Financial Self-Service for the World
Cardtronics is the world’s leading provider of financial self-service. In 2007 we placed
over $16 billion in the hands of consumers, conducted over $400 million worth of
advanced-function financial transactions, and expanded our surcharge-free access
and marketing services to over 1,200 banks and credit unions. We currently operate
over 32,000 financial kiosks throughout the United States, the United Kingdom, and
Mexico with additional international expansion on the horizon.
Augmenting our financial kiosk network, the largest in the world by a wide margin,
Cardtronics is quickly entering the electronic transaction processing business. Our
proprietary processing operation handled transactions for over 13,000 kiosks at
2007 year end, allowing us significantly better control over the user experience.
Furthermore, our processing capability allows us to layer emerging business
opportunities such as one-to-one marketing, multi-bank branding, and advertising
onto our extensive network. By the end of 2008 we expect to process transactions
in-house for our entire financial kiosk fleet.
Cardtronics is a company on the move. Utilizing our operational expertise, scale
advantages, back-end systems, retail and bank relationships, and management
team expertise, we continue to grow and evolve financial self-service solutions to
meet the needs of financial institutions, retailers, and both banked and unbanked
consumers across the street and around the world.
My Fellow Shareholders
It is with tremendous pride and excitement that I write
to you in what is our first annual report to public
shareholders. For Cardtronics, 2007 was a year of
significant expansion and accomplishment, and one
in which we continued to lay the groundwork for the
future growth and success of our business, the world’s
global leader in financial self-service.
A Little History
Cardtronics has been in the business of providing
consumers with reliable access to cash—quickly and
conveniently—for the past twelve years. An early
entrant in the U.S. off-premise ATM deployment space
in 1996, we increased the size of our ATM fleet nearly
eightfold, from 4,100 in 2001 to 32,300 machines
this past year.
Along the way we have established ourselves as one
of the most innovative owners and operators of
financial self-service kiosks in the world, partnering
with leading regional and national retailers whose
upscale, clean and friendly retail centers—with high
brand recognition and strong foot traffic—provide
optimal locations for millions of consumers to get
cash and perform other financial transactions.
Realizing early on the importance electronic payment
mechanisms such as credit and debit cards would
have on the U.S. retail payments landscape, we
reshaped our business from simply providing cash to
becoming the preferred provider of financial self-
service to consumers, retailers, and financial
institutions. Our domestic ATM bank branding
program, by far the most successful program of its
kind in the United States, and our industry-leading
surcharge-free ATM programs have enabled us to
maintain a significant competitive advantage over
other domestic ATM network providers. We have
further augmented our financial self-service
capabilities to provide image deposits, check cashing,
money transfer, bill payments, transaction processing,
and more.
Building on the experience gained from operating this
extensive domestic financial kiosk fleet, we expanded
our operations overseas in 2005, acquiring Bank
Machine, a leading ATM deployer in the United
Kingdom. In 2006 we further expanded our
international presence, acquiring a majority interest in
a small but growing ATM operator in Mexico.
Cardtronics Mexico is now the leading non-bank
deployer of ATMs in the country.
We currently generate revenues from four primary
sources:
- Surcharge fees paid by consumers who rely on
our ATMs for quick, convenient, and reliable
access to cash
- Interchange fees paid by the financial institutions
of those consumers
- Branding fees paid by financial institutions who
place their brands on our ATMs
- Fees paid by financial institutions who participate
in our surcharge-free ATM programs, including
our premier Allpoint® Network
Cardtronics’ ATM branding and surcharge-free
programs leverage our existing network infrastructure
and deployed capital to generate consistent recurring
revenues. Branding financial institutions pay a
monthly fee to display their brands on the exteriors of
our ATMs, on the ATM screens, and when available on
windows or exterior signage. Their cardholders receive
surcharge-free cash access at the branded ATMs,
effectively increasing the size of each branding
financial institution’s ATM network with minimal
expenditure of capital, time, operational, and human
resources.
Where We Are Today
Cardtronics enjoyed a tremendous year in 2007
during which we generated over $378 million in
revenue, an increase of nearly 29 percent over the
prior year. Significant 2007 accomplishments
included:
- Generating new ATM branding deals covering
1,900 domestic machines, including the
branding of over 700 ATMs in Walgreens®
and CVS/pharmacy® stores in Texas
- Acquiring the domestic financial services
business of 7-Eleven® including 2,200 Vcom®
multi-function kiosks and over 3,300 traditional
ATMs, representing our largest acquisition to
date based on purchase price
- Growing our overall ATM count through
acquisition and organic growth to over 32,300
machines, the largest in the world by a
considerable margin
- Raising $100 million through the sale of senior
subordinated notes
- Completing an initial public offering of
12,000,000 shares of our common stock
generating over $110 million in net proceeds
- Transitioning over 13,000 of our ATMs to our
in-house transaction processing network
- Accepting check deposits using electronic
imaging for credit union members of Financial
Services Center Cooperative (FSCC)
- Winning several important new ATM placement
contracts with nationally recognized retailers and
hospitality operators including Safeway®, Gaylord
Entertainment®, and General Electric Capital
Corporation
- Nearly doubling the ATM count in our
international operation, adding over 800 ATMs
in the United Kingdom and over 900 ATMs in
Mexico
Where We Are Going Tomorrow
With significant groundwork complete for the future
growth and success of our business, Cardtronics is
extremely well-positioned to benefit from several key
factors impacting our global society. The growing
consumer acceptance of self-service technologies,
the fiercely competitive landscape in the banking
industry, and the increase in prosperity around the
world are all positively impacting our opportunities
for growth in existing and new areas of our business.
As the world’s largest operator of ATMs, we know
more than a thing or two about how to operate a
geographically dispersed, highly reliable kiosk-based
network. Our expertise in deploying self-service
devices combined with our monitoring and customer
care operations, relationships with many of the
world’s most influential retailers, intelligent
deployment of capital, and flexible network driving
and processing capabilities allow us to benefit from
the world’s growing use of self-service technology.
We deploy the self-service kiosks and related systems
that are most needed by consumers and our retail
partners around the world.
An increasingly competitive banking marketplace has
provided Cardtronics with a powerful source of
recurring revenue through our ATM branding and
surcharge-free programs. Banks and credit unions
have been so impressed with our financial service
offerings that more than 10,000 of our ATMs are now
branded, and over 1,200 financial institutions
participate in our surcharge-free programs. With our
nationwide ATM network and dedicated, experienced
financial services team, we are helping financial
institutions of all sizes give their customers what they
want—convenient access to their money 24/7. And
our ability to accept image deposits of checks
provides us with another important service offering
and revenue driver.
While cash usage has stabilized at about one-third of
retail payments in the United States, cash remains
the dominant form of payment for the rest of the
world. With our already strong presence in the United
Kingdom and Mexico, we are well-positioned to
continue our international expansion into key regions
where cash usage is high, ATM penetration is low,
economics are strong, and transaction volumes are
large and growing.
Exciting Times
As the world’s leading provider of financial
self-service, these are exciting times for Cardtronics,
our employees, and our shareholders. Moving through
2008 and beyond, we will continue to leverage our
key strengths to expand profitably in our existing and
related business segments around the world.
- Jack M. Antonini, President and CEO
From Sea To Shining Sea
U.S. Operations
Cardtronics financial kiosks are available from sea to shining sea with a presence in
all 50 states and every major metropolitan area. We work diligently to secure retail
sites with the highest visibility and the highest traffic. In fact six of the 10 largest
retailers in the United States are customers of Cardtronics. We have robust
relationships with retailers under long-term contracts providing a strong base for
continued growth. Our domestic success relies on several factors:
- High traffic at leading retailers drives up transaction volumes
- Retailer growth generates significant new organic placement opportunities
- Opportunities exist for other kiosk deployments across our retail customers’
large store networks and
- Premium retail locations are desirable to financial institutions
During 2007 we saw significant growth for our domestic operations. Financial
institutions signed branding agreements covering over 1,900 Cardtronics ATMs in the
United States. We welcomed one of the largest food and drug retailers in North
America, Safeway®, to our retail portfolio under an eight-year agreement. And with
the acquisition of the financial services business of 7-Eleven®, we secured
approximately 5,500 high-traffic locations outfitted with a mix of traditional ATMs
and over 2,200 advanced-functionality kiosks.
As the world’s leading financial self-service kiosk operator, Cardtronics is
well-positioned for continued domestic growth through new kiosk placements with
existing retailers, through expansion of our customer base, and through the
development and growth of revenue opportunities that leverage our existing
infrastructure and relationships, such as recurring branding and surcharge-free
access fees paid by financial institutions, check cashing and bill payment fees paid
by consumers, and in the future, advertising placement fees.
Across the Pond
U.K. Operations
Cardtronics’ European subsidiary, Bank Machine, operates over 2,200 ATMs
throughout the United Kingdom, more than double the 1,000 machines in
operation when we acquired the business in mid-2005. Bank Machine, much
like Cardtronics in the United States, places a particular emphasis on service
quality and has become the region’s premier financial kiosk operator. Having
established a reputation for operational excellence, Bank Machine continues to
enjoy great success securing long-term agreements with many of the U.K.’s top
retailers. In 2007 Bank Machine added over 800 ATMs, increased overall
transactions by more than 63 percent, and signed its first ATM operating
contracts with financial institutions, the West Bromwich Building Society and
the Principality Building Society.
Bank Machine’s retail partners include SPAR, the largest convenience store
chain in the United Kingdom; Martin McColl®, operator of over 900 news stores
and 300 convenience stores; and IKEA®, the world’s largest furniture retailer.
Bank Machine’s recently added relationships include a long-term contract with
Punch Taverns®, owner/operator of more than 8,400 pubs in the United
Kingdom.
With high ATM usage in a cash-dominant society, the United Kingdom is fertile
territory for significant and aggressive growth. Cardtronics views growth in the
United Kingdom as a strategic priority and will continue to leverage existing
retail relationships to expand organically while securing new customers for
further expansion throughout the market.
South of the Border
Mexico Operations
Cardtronics Mexico, our subsidiary operating “south of the border” throughout
Mexico, owns or operates over 1,300 ATMs. Cardtronics’ financial kiosk estate
in Mexico has quadrupled since it was acquired in February 2006. In Mexico,
Cardtronics is focused on rapid, profitable growth in resort areas, border towns,
and the major metropolitan areas, and has quickly established itself as the
sixth largest ATM deployer in Mexico as of December 31, 2007.
Cardtronics entered the Mexico market in 2006 with a modest investment,
purchasing a controlling interest in an existing ATM deployer. This strategy
allowed us to quickly enter the emerging Mexico market and begin large-scale
deployments into the most profitable locations, a strategy that is readily
exportable to other attractive global markets where ATM penetration is
relatively low.
In Mexico, Cardtronics is replicating our proven process of developing long-term
relationships with large, well-known retailers for ATM placement. Primary retail
customers in the country include OXXO, Mexico’s largest convenience chain
with 5,700 stores; Corporativo Fragua, one of Mexico’s largest pharmacy
operators with around 500 locations; and 7-Eleven® Mexico, another major
player in Mexico’s convenience business with over 800 locations. These retail
clients continue to provide a readily available path for rapid organic growth.
Bank on Cardtronics
Financial Services
Integral to our strategy of providing convenient financial self-service to the
world, Cardtronics continues to establish strong relationships with banks and
credit unions who utilize our industry-leading ATM branding and surcharge-free
programs to better serve their customers. We count over 1,200 financial
institutions among our clients, including six of the 10 largest banks in the
United States by assets. We now operate more bank-branded ATMs than any
U.S. bank save one.
Through Cardtronics’ ATM branding program, financial institutions can quickly,
easily, and cost-effectively expand their physical presence by placing their
brands on Cardtronics-owned and operated ATMs. We customize our ATMs to
look and respond like any other ATM owned by the branding bank or credit
union. The branding financial institution’s customers receive surcharge-free
cash access while the financial institution builds a competitive advantage.
Complementing our unrivaled ATM branding program, we operate multiple
surcharge-free network programs including the industry’s largest, Allpoint®.
These surcharge-free programs allow even the smallest banks and credit
unions to offer customers a fee-free ATM network nearly double the size of the
largest bank-owned network in the United States.
We continue to aggressively expand our fast-growing branding and
surcharge-free programs producing long-term, low-cost recurring revenue
streams. And we are developing new financial service products, such as image
deposit and one-to-one marketing, leveraging our growing financial kiosk
network, processing capabilities, and banking industry expertise.
A World of Opportunity
International Growth
Financial self-service for the world: Both a statement of fact and a statement
of aspiration. With operations in three countries on two continents, Cardtronics
is already an experienced international operator and we expect to maximize
the value of that experience in the years ahead.
Our international expansion strategy has been to invest in existing ATM
deployers to quickly establish a market presence with strong leadership and
existing local operating expertise. We have then used these business bases to
rapidly expand in each market–our U.K. ATM portfolio more than doubled in
two and a half years while our Mexico ATM presence more than quadrupled in
less than two years.
Cardtronics is very experienced in the acquisition and integration of attractive
businesses having completed 15 acquisitions since 2001, both domestic and
international, covering a broad spectrum of size and complexity. With our
acquisitions expertise, in-house transaction processing capabilities, global
financial and retail relationships, existing international business experience in
established and emerging markets, and best-in-class operating capabilities, we
are poised to expand into the most attractive international markets where cash
dominates the payments landscape, ATM penetration is low, and attractive
acquisition targets are available.
The Future of Self-Service
Advanced -Functionality
As the world’s leading provider of financial self-service solutions, we do more
than just dispense cash through ATMs. Cardtronics’ advanced-functionality
kiosks provide consumers with the ability to deposit checks remotely through
image capture, cash payroll and government checks on the spot, pay bills
using cash or cards, and transfer money to nearly any point on the globe —
definitely not your average ATM.
We currently deploy our full financial self-service offering through Vcom®
advanced-functionality kiosks located in over 2,200 7-Eleven® convenience
stores. Through Vcom®, we offer banked and unbanked consumers the power
to conduct their financial business at the time and place that best meets their
needs 24 hours a day.
Our vision for the future is to leverage the systems, relationships, and expertise
developed with Vcom® to economically expand our financial service offerings,
as a whole or in component pieces, across our broad base of premier retail
clients. We will provide banks with a way to accept deposits remotely, provide
unbanked consumers with a way to cash checks and pay bills, and much more,
all generating new and emerging sources of revenue.
And with our proven ability to deploy and operate large-scale kiosk solutions,
Cardtronics is well-positioned to take advantage of emerging self-service
trends and opportunities beyond the financial service arena, with prepaid card
and phone top-ups, advertising and coupon distribution, physical ticket/product
sales, and more.
Walgreens® is a registered trademark of Walgreens, Co. CVS/pharmacy® is a registered trademark of CVS
Caremark. 7-Eleven® is a registered trademark of 7-Eleven, Inc. Vcom® is a registered trademark of Cardtronics,
Inc. Safeway® is a registered trademark of Safeway, Inc. Gaylord Entertainment® is a registered trademark of
Gaylord Entertainment, Co. Martin McColl® is a registered trademark of Martin McColl, Ltd. IKEA® is a registered
trademark of Inter IKEA Systems, Punch Taverns® is a registered trademark of Punch Taverns, plc
Financial Strategies and Objectives
Cardtronics’ business as a self-service kiosk operator requires capital. Our capital allocation and
financial structuring decisions are important components of our overall strategy. Key considerations
include:
- Growth goals: Excluding acquisitions, we seek to generate 15 percent or greater EBITDA growth
per annum.
- Recurring revenues: 96 percent of our revenues are generated from retail and financial
institution customers under long-term contracts, helping to lend stability and predictability to
our business. Cardtronics’ ATM placement contracts typically include initial terms of seven or
more years, and the revenue weighted average remaining life of our top 10 contracts was
approximately 8 years at the end of 2007. Our ATM branding contracts typically feature five-year
initial terms. We are able to use financial leverage prudently to increase equity returns due to
the recurring nature of our revenues founded on long-term contracts.
- Financial flexibility: Cardtronics maintains a $175 million revolving credit facility with a group of
eight banks. With significant borrowing capacity post-IPO and a young ATM fleet requiring
minimal maintenance capital spending, Cardtronics has the financial flexibility to fund its
strategic growth initiatives.
- Capital allocation methodology: Cardtronics creates a financial model for each significant
proposed capital expenditure using internal rate of return (IRR) as the primary criterion. We
typically look to fund projects with after-tax IRRs in excess of 20 percent.
- Leverage: Properly structured debt can be used in our financing mix to fund important strategic
initiatives. At the end of 2007, the majority of our debt financing was in the form of long-term,
fixed-rate bonds with minimal financial covenants and no near-term requirements for
amortization.
Executive Leadership
Cardtronics, Inc.
Jack Antonini, Chief Executive Officer
Jerry Garcia, Chief Information Officer
Chris Brewster, Chief Financial Officer
Tres Thompson, Chief Accounting Officer
Mike Clinard, Chief Operating Officer
Brian Archer, Executive Vice President, Sales
Rick Updyke, Chief Strategy & Development Officer
Jim Bettinger, Executive Vice President, Operations
Keith Myers, Chief Sales & Marketing Officer
Tony Horne, Executive Vice President, International
Ron Delnevo, Managing Director, Bank Machine
Thomas Upton, Executive Vice President, Acquisitions
Randy Rice, Executive Vice President, Risk Management
Board of Directors
Fred Lummis, Chairman of the Board
Robert Barone, Former Chief Operating Officer, Diebold
Jack Antonini, President and Chief Executive Officer
Jorge Diaz, Chief Executive Officer, Fiserv Solutions
Tim Arnoult, Former President of Global Treasury
Dennis Lynch, Former Chief Executive Officer, NYCE
Services, Bank of America
Michael Wilson, Managing Director, TA Associates
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
¥
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
n
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 333-113470
CARDTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
3110 Hayes Road, Suite 300
Houston, TX
(Address of principal executive offices)
76-0681190
(I.R.S. Employer
Identification No.)
77082
(Zip Code)
Registrant’s telephone number, including area code:
(281) 596-9988
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.0001 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes n
No ¥
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Act. Yes n
No ¥
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¥
No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer n Accelerated filer n
Smaller reporting company n
Non-accelerated filer ¥
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes n
No ¥
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference
to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal quarter:
The initial public offering of Cardtronics, Inc.’s common stock, par value of $0.0001, commenced trading on December 11,
2007. Prior to that date, there was no public market for the registrant’s common stock.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Shares outstanding on March 24, 2008: 38,651,914
Common Stock, par value $0.0001 per share.
Portions of our definitive proxy statement for the 2008 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
CARDTRONICS, INC.
TABLE OF CONTENTS
Cautionary Statement About Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Item 6.
Item 7.
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A(T). Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Item 7A.
Item 8.
Item 9.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
When we refer to “us,” “we,” “our,” “ours,” “the Company,” or “Cardtronics,” we are describing
Cardtronics, Inc. and/or our subsidiaries, unless the context indicates otherwise.
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These statements are identified by the use of
the words “project,” “believe,” “expect,” “anticipate,” “intend,” “contemplate,” “would,” “could,” “plan,”
and similar expressions that are intended to identify forward-looking statements, which are generally not
historical in nature. These forward-looking statements are based on our current expectations and beliefs
concerning future developments and their potential effect on us. While management believes that these
forward-looking statements are reasonable as and when made, there can be no assurance that future
developments affecting us will be those that we anticipate. All comments concerning our expectations for
future revenues and operating results are based on our estimates for our existing operations and do not include
the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and
uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ
materially from our historical experience and our present expectations or projections. Important factors that
could cause actual results to differ materially from those in the forward-looking statements include, but are
not limited to, those described in: (1) Part I, Item 1A. Risk Factors and elsewhere in this Form 10-K; (2) our
reports and registration statements filed or furnished from time to time with the Securities and Exchange
Commission (the “SEC”); and (3) other announcements we make from time to time.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of
the date of this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking
statements after the date they are made, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
Overview
Cardtronics, Inc. is a single-source provider of automated teller machine (“ATM”) solutions. We provide
ATM management and equipment-related services (typically under multi-year contracts) to large, nationally-
known retail merchants as well as smaller retailers and operators of facilities such as shopping malls and
airports. As of December 31, 2007, we operated over 32,300 ATMs throughout the United States, the United
Kingdom, and Mexico, making us the operator of the world’s largest network of ATMs. Additionally, as of
December 31, 2007, over 10,000 of our Company-owned ATMs (discussed below) are under contract with
well-known banks to place their logos on those machines, thus providing convenient surcharge-free access to
their customers. We also operate the Allpoint network, the largest surcharge-free ATM network within the
United States based on the number of participating ATMs. Allpoint provides surcharge-free ATM access to
customers of participating financial institutions that lack a significant ATM network.
We deploy and operate ATMs under two distinct arrangements with our merchant customers: Company-
owned and merchant-owned. Under Company-owned arrangements, we provide the ATM and are typically
responsible for all aspects of its operation, including transaction processing, procuring cash, supplies, and
telecommunications as well as routine and technical maintenance. Under merchant-owned arrangements, the
merchant owns the ATM and is usually responsible for providing cash and performing simple maintenance
tasks, while we provide more complex maintenance services, transaction processing, and connection to
electronic funds transfer (“EFT”) networks. As of December 31, 2007, approximately 64% of our ATMs were
Company-owned and 36% were merchant-owned. While we may continue to add merchant-owned ATMs to
our network as a result of acquisitions and internal sales efforts, our focus for internal growth remains on
expanding the number of Company-owned ATMs in our network due to the higher margins typically earned
and the additional revenue opportunities available to us under Company-owned arrangements.
Our revenue is recurring in nature and is primarily derived from ATM surcharge fees, which are paid by
cardholders, and interchange fees, which are paid by the cardholder’s financial institution for the use of the
applicable EFT network that transmits data between the ATM and the cardholder’s financial institution. We
1
generate additional revenue by branding our ATMs with signage from banks and other financial institutions,
resulting in surcharge-free access to our ATMs and added convenience for their customers and increased usage
of our ATMs. Our branding arrangements include relationships with leading national financial institutions,
including Citibank, N.A., HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., Sovereign Bank, and
Washington Mutual Bank. We also generate revenue by collecting fees from financial institutions that
participate in our surcharge-free networks, the largest of which is the Allpoint Network.
Organizational History
We were formed in 1989 and originally operated under the name of Cardpro, Inc. In June 2001, Cardpro,
Inc. was converted into a Delaware limited partnership and renamed Cardtronics, LP. Also in June 2001,
Cardtronics Group, Inc. was incorporated under the laws of the state of Delaware to act as a holding company,
with Cardtronics Group, Inc. indirectly owning 100% of the equity of Cardtronics, LP. In January 2004,
Cardtronics Group, Inc. changed its name to Cardtronics, Inc. In December 2007, we completed the initial
public offering of 12,000,000 shares of our common stock.
Since May 2001, we have acquired 14 networks of ATMs and one operator of a surcharge-free ATM
network, increasing the number of ATMs we operate from approximately 4,100 to over 32,300 as of
December 31, 2007. In June 2004, we acquired the ATM business of E*TRADE Access, Inc. (“E*TRADE
Access”) adding approximately 13,155 ATMs to our network. Additionally, we entered the international ATM
market through our acquisitions of Bank Machine (Acquisitions) Limited (“Bank Machine”) in May 2005 and
a majority ownership interest in CCS Mexico (which was subsequently renamed Cardtronics Mexico, S.A. de
C.V. (“Cardtronics Mexico”)) in February 2006, which expanded our operations into the United Kingdom and
Mexico, respectively. Finally, in July 2007, we acquired the financial services business of 7-Eleven, Inc. (the
“7-Eleven Financial Services Business”), which added over 3,500 ATMs and over 2,000 advanced-functionality
kiosks, referred to as “Vcom” units, to our portfolio. From 2001 to 2007, the total number of annual
transactions processed within our network increased from approximately 19.9 million to approximately
246.6 million.
Additional Company Information
General information about us can be found at http://www.cardtronics.com. We file annual, quarterly, and
other reports as well as other information with the SEC under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and amendments to those reports are available free of charge on our website as soon as
reasonably practicable after the reports are filed or furnished electronically with the SEC. You may also
request a copy of these filings at no cost by writing or telephoning us at the following address: Cardtronics,
Inc., Attention: Chief Financial Officer, 3110 Hayes Road, Suite 300, Houston, Texas 77082, (281) 596-9988.
Information on our website is not incorporated into this Annual Report on Form 10-K or our other securities
filings.
Our Strategy
Our strategy is to enhance our position as the leading owner and operator of ATMs in the United States,
to become a significant service provider to financial institutions, and to expand our network further into select
international markets. In order to execute this strategy, we will endeavor to:
Increase Penetration and ATM Count with Leading Merchants. We have two principal opportunities to
increase the number of ATM sites with our existing merchants: first, by deploying ATMs in our merchants’
existing locations that currently do not have, but where traffic volumes justify installing, an ATM; and second,
as our merchants open new locations, by installing ATMs in those locations. We believe our expertise, national
footprint, strong record of customer service with leading merchants, and significant scale position us to
successfully market to, and enter into long-term contracts with, additional leading national and regional
merchants.
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Capitalize on Existing Opportunities to Become a Significant Service Provider to Financial Institutions.
We believe we are well-positioned to work with financial institutions to fulfill many of their ATM
requirements. Our ATM services offered to financial institutions include branding our ATMs with their logos
and providing surcharge-free access to their customers, managing their off-premise ATMs (i.e., ATMs not
located in a bank branch) on an outsourced basis, or buying their off-premise ATMs in combination with
branding arrangements. In addition, we expect that our in-house processing capabilities will 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 should in turn serve to increase the types of
products and services that we will be able to offer to financial institutions.
Capitalize on Surcharge-Free Network Opportunities. We plan to continue pursuing opportunities with
respect to our surcharge-free networks, where financial institutions pay us to allow surcharge-free access to
our ATM network for their customers on a non-exclusive basis. We believe these surcharge-free arrangements
will enable us to increase transaction counts and profitability on our existing machines.
Pursue International Growth Opportunities. We have recently invested significant amounts of capital in
the infrastructure of our United Kingdom and Mexico operations, and we plan to continue to increase the
number of our Company-owned ATMs in these markets through machines deployed with our existing customer
base as well as through the addition of new merchant customers. Additionally, we plan to expand our
operations into selected international markets where we believe we can leverage our operational expertise and
scale advantages. In particular, we are targeting high growth, emerging markets where cash is the predominant
form of payment and where off-premise ATM penetration is relatively low, such as in the Central and Eastern
Europe, Central and South America, and Asia-Pacific regions.
Develop and Provide Selected Advanced-Functionality Services. ATMs have and continue to evolve in
terms of service offerings. Certain advanced ATM models are capable of providing check cashing, remote
deposit capture (which is deposit taking at off-premise ATMs using electronic imaging), money transfer, bill
payment services, and other kiosk-based financial services. Our Vcom units are also capable of providing these
services. We believe the advanced-functionality services offered by our Vcom units, and other machines we or
others may develop, provide additional growth opportunities as retailers and financial institutions seek to
provide additional convenient self-service financial services to their customers.
Our Products and Services
We typically provide our leading merchant customers with all of the services required to operate an ATM,
which include transaction processing, cash management, maintenance, and monitoring. We believe our
merchant customers value our high level of service, our 24-hour per day monitoring and accessibility, and that
our U.S. ATMs are on-line and able to serve customers an average of 98.5% of the time. In connection with
the operation of our ATMs and our customers’ ATMs, we generate revenue on a per-transaction basis from the
surcharge fees charged to cardholders for the convenience of using our ATMs and from interchange fees
charged to such cardholders’ financial institutions for processing the ATM transactions. The following table
provides detail relating to the number of ATMs we owned and operated under our various arrangements as of
December 31, 2007:
Number of ATMs at period end . . . . . . . . . . . . . . . . . .
Percent of total ATMs . . . . . . . . . . . . . . . . . . . . . . . . .
Average monthly withdrawal transactions per average
transacting ATM . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company-Owned Merchant-Owned
Total
20,732
64.1%
11,587
35.9%
32,319
100.0%
637
289
490
We generally operate our ATMs under multi-year contracts that provide a recurring and stable source of
transaction-based revenue and typically have an initial term of five to seven years. As of December 31, 2007,
our contracts with our top 10 merchant customers had a weighted average remaining life (based on pro forma
2007 revenues) of approximately eight years. This weighted average remaining life as of December 31, 2007
is higher than the five to seven year term of a typical contract as a result of our 10-year placement agreement
3
with 7-Eleven, Inc. entered into in conjunction with our acquisition of the 7-Eleven Financial Services
Business (the “7-Eleven ATM Transaction”) in July 2007.
Additionally, we enter into arrangements with financial institutions to brand certain of our Company-
owned ATMs. These “bank branding” arrangements allow a financial institution to expand its geographic
presence for a fraction of the cost of building a branch location and typically for less than the cost of placing
one of its own ATMs at that location. These types of arrangements allow a financial institution to rapidly
increase its number of branded ATM sites and improve its competitive position. Under such arrangements, the
branding institution’s customers are allowed to use the branded ATMs without paying a surcharge fee to us. In
return, we receive monthly fees on a per-ATM basis from the branding institution, while retaining our standard
fee schedule for other cardholders using the branded ATMs. In addition, we typically receive increased
interchange revenue as a result of increased usage of our ATMs by the branding institution’s customers and
others who prefer to use a bank-branded ATM. We intend to pursue additional bank branding arrangements as
part of our growth strategy. Prior to 2006, we had bank branding arrangements in place on less than 1,000 of
our Company-owned ATMs. However, as a result of our acquisition of the 7-Eleven Financial Services
Business, our increased sales efforts, and financial institutions realizing the significant benefits and opportuni-
ties afforded to them through bank branding programs, as of December 31, 2007, we had bank branding
arrangements in place with 21 domestic financial institutions, involving over 10,000 Company-owned ATMs.
In addition to our bank branding arrangements, we offer financial institutions another type of surcharge-
free program through our Allpoint and MasterCard» nationwide surcharge-free ATM networks. Under the
Allpoint network, which we acquired through our acquisition of ATM National, Inc. in December 2005,
financial institutions who are members of the network pay us a fixed monthly fee per cardholder in exchange
for us providing their cardholders with surcharge-free access to most of our domestic owned and/or operated
ATMs. Under the MasterCard network, which we implemented in September 2006, we provide surcharge-free
access to most of our domestic owned and/or managed ATMs to cardholders of financial institutions who
participate in the network and who utilize a MasterCard debit card. In return for providing this service, we
receive a fee from MasterCard for each surcharge-free withdrawal transaction conducted on our network. The
Allpoint and MasterCard networks offer attractive alternatives to financial institutions that lack their own
distributed ATM network. Finally, our Company-owned ATMs deployed under our placement agreement with
7-Eleven, Inc. participate in CO-OP», the nation’s largest surcharge-free network for credit unions, and are
included in our arrangement with Financial Services Center Cooperatives, Inc. (“FSCC”), a cooperative service
organization providing shared branching services for credit unions.
As we have found that the primary factor affecting transaction volumes at a given ATM is its location,
our strategy in deploying our ATMs, particularly those placed under Company-owned arrangements, is to
identify and deploy them at locations that provide high visibility and high transaction volume. Our experience
has demonstrated that the following locations often meet these criteria: convenience stores and combination
convenience stores and gas stations, grocery stores, airports, and major regional and national retail outlets. The
5,500 locations that we added to our portfolio as a result of the 7-Eleven ATM Transaction are prime examples
of the types of locations that we seek when deploying our ATMs. In addition to the 7-Eleven locations, we
have also entered into multi-year agreements with a number of other merchants, including Chevron, Costco,
CVS/Pharmacy, Duane Reade, ExxonMobil, Hess Corporation, Rite Aid, Safeway, Sunoco, Target, and
Walgreens in the United States; Alfred Jones, Martin McColl, McDonalds, The Noble Organisation, Odeon
Cinemas, Punch Taverns, Spar, Tates, and Vue Cinemas in the United Kingdom; and Cadena Comercial
OXXO S.A. de C.V. (“OXXO”) in Mexico. We believe that once a cardholder establishes a pattern of using a
particular ATM, the cardholder will generally continue to use that ATM.
Segment and Geographic Information
Prior to the 7-Eleven ATM Transaction, our operations consisted of our United States, United Kingdom,
and Mexico segments. As a result of the 7-Eleven ATM Transaction, we determined that the advanced-
functionality services provided through the acquired Vcom units exhibited different economic characteristics
than the traditional ATM services provided by our other three segments, in large part due to the anticipated
losses associated with providing such advanced-functionality services and the fact that these operations will be
4
managed separately until they can achieve break-even status. Accordingly, we have concluded that the Vcom
operations should be treated as a separate reporting segment (“Advanced Functionality”), at least until such
time that the operations achieve break-even status, which we currently expect to occur during the second half
of 2008.
Based on the foregoing, as of December 31, 2007, our operations consisted of our United States, United
Kingdom, Mexico, and Advanced Functionality segments. Our United States reporting segment now includes
the traditional ATM operations of the 7-Eleven Financial Services Business, including the traditional ATM
activities conducted on the Vcom units. 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.
A summary of our revenues from customers by geographic region is as follows (in thousands):
Year Ended December 31,
2006
2007
2005
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $310,078
63,389
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,831
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$250,425
42,157
1,023
$247,143
21,822
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $378,298
$293,605
$268,965
The net book value of our long-lived assets in our various geographic locations is as follows (in
thousands):
Location of property and equipment:
As of December 31,
2006
2007
2005
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $365,573
155,755
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,670
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$198,782
122,670
2,542
$210,115
101,558
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $529,998
$323,994
$311,673
For additional discussion of the segment revenue, profit information, and identifiable assets of our four
reporting segments, see Part II, Item 8. Financial Statements and Supplementary Data, Note 20. Additionally,
for a discussion on the risks associated with our international operations, see Item 1A. Risk Factors — Our
international operations involve special risks and may not be successful, which would result in a reduction of
our gross profits.
Sales and Marketing
Our sales and marketing team focuses principally on developing new relationships with national and
regional merchants as well as on building and maintaining relationships with our existing merchants. The team
is organized into groups that specialize in marketing to specific merchant industry segments, which allows us
to tailor our offering to the specific requirements of each merchant customer. In addition to the merchant-
focused sales and marketing group, we have a sales and marketing group that is focused on developing and
managing our relationships with financial institutions, as we look to expand the types of services that we offer
to such institutions.
In addition to targeting new business opportunities, our sales and marketing team supports our acquisition
initiatives by building and maintaining relationships with newly acquired merchants. We seek to identify
growth opportunities within each merchant account by analyzing the merchant’s sales at each of its locations,
foot traffic, and various demographic data to determine the best opportunities for new ATM placements. As of
December 31, 2007, our sales and marketing team was composed of approximately 50 employees, of which
those who are exclusively focused on sales typically receive a combination of incentive-based compensation
and a base salary.
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Technology
Our technology and operations platform consists of ATM equipment, ATM and internal network
infrastructure (including in-house ATM transaction processing capabilities), cash management, and customer
service. This platform is designed to provide our merchant customers with what we believe is a high quality
suite of services.
ATM Equipment.
In the United States and Mexico, we purchase ATMs from national manufacturers,
including NCR Corporation (“NCR”), Diebold, Incorporated (“Diebold”), Triton Systems of Delaware, Inc.
(“Triton”), and Wincor Nixdorf AG (“Wincor Nixdorf”), and place them in our merchant customers’ locations.
The portfolio of equipment we purchased in the 7-Eleven ATM Transaction is comprised of traditional ATMs
manufactured by NCR and Diebold and advanced-functionality Vcom units manufactured by NCR. The wide
range of advanced technology available from these ATM manufacturers provides our merchant customers with
advanced features and reliability through sophisticated diagnostics and self-testing routines. The different
machine types can all perform basic functions, such as dispensing cash and displaying account information.
However, some of our ATMs are modular and upgradeable so they can be adapted to provide additional
services in response to changing technology and consumer demand. For example, a portion of our ATMs can
be upgraded to accept deposits through the installation of additional hardware and software components.
We operate three basic types of ATMs in the United Kingdom: (1) “convenience,” which are internal to a
merchant’s premises; (2) “through the wall,” which are external to a merchant’s premises; and (3) “pods,” a
free-standing kiosk style ATM, also located external to a merchant’s premises. The ATMs we operate in the
United Kingdom are principally manufactured by NCR.
Transaction Processing. We place significant emphasis on providing quality service with a high level of
security and minimal interruption. We have carefully selected support vendors to optimize the performance of
our ATM network. In addition, our in-house transaction processing operations and our third-party transaction
processors provide sophisticated security analysis and monitoring 24 hours a day.
In late 2006, we implemented our own in-house transaction processing operation, which is based in
Frisco, Texas. This initiative enables us to monitor transactions on our ATMs and to control the flow and
content of information on the ATM screen. As of December 31, 2007, we had converted in excess of 13,000
of our ATMs over to our in-house transaction processing switch, and we currently expect this initiative to be
completed by December 31, 2008. As with our existing ATM network operation, we have carefully selected
support vendors to help ensure the security and continued performance of such operation.
In conjunction with the 7-Eleven ATM Transaction, we assumed a master ATM management agreement
with Fiserv, Inc. under which Fiserv provides a number of ATM-related services to the 7-Eleven ATMs,
including transaction processing, network hosting, network sponsorship, maintenance, cash management, and
cash replenishment. Additionally, similar to our in-house transaction processing operations, 7-Eleven had its
own processing operations that it used to process transactions for the Vcom units. In February 2008, we
successfully transitioned the Vcom units onto our in-house transaction processing platform.
Internal Systems. Our internal systems, including our in-house processing platform, include multiple
layers of security to help protect the systems from unauthorized access. Protection from external sources is
provided by the use of hardware and software-based security features that isolate our sensitive systems. We
also use commercially-available encryption technology to protect communications. On our internal network,
we employ user authentication and antivirus tools at multiple levels. These systems are protected by detailed
security rules to limit access to all critical systems. Our systems components are directly accessible by a
limited number of employees on a need-only basis. Our gateway connections to our EFT network service
providers provide us with real-time access to transaction details, such as cardholder verification, authorization,
and funds transfer. We have installed these communications circuits with backup connectivity to help protect
us from telecommunications problems in any particular circuit. We use commercially-available and custom
software that continuously monitors the performance of the ATMs in our network, including details of
transactions at each ATM and expenses relating to that ATM, such as fees payable to the merchant. This
software permits us to generate financial information for each ATM location, allowing us to monitor each
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location’s profitability. We analyze transaction volume and profitability data to determine whether to continue
operating at a given site, to determine how to price various operating arrangements with merchants and
branding arrangements, and to create a profile of successful ATM locations to assist us in deciding the best
locations for additional ATM deployments.
Cash Management. We have our own internal cash management department that utilizes data generated
by our cash providers, internally-generated data, and a proprietary methodology to confirm daily orders, audit
delivery of cash to armored couriers and ATMs, monitor cash balances for cash shortages, coordinate and
manage emergency cash orders, and audit costs from both armored couriers and cash providers.
Our cash management department uses commercially-available software and proprietary analytical models
to determine the necessary fill frequency and load amount for each ATM. We project cash requirements for
each ATM on a daily basis, taking into consideration its location, the day of the week, the timing of holidays
and events, and other factors. After receiving a cash order from us, the cash provider forwards the request to
its vault location nearest to the applicable ATM. Personnel at the vault location then arrange for the requested
amount of cash to be set aside and made available for the designated armored courier to access and
subsequently transport to the ATM.
Customer Service. We believe one of the factors that differentiates us from our competitors is our
customer service responsiveness and proactive approach to managing any ATM downtime. We use an advanced
software package that monitors the performance of our Company-owned ATMs 24 hours a day for service
interruptions and notifies our maintenance vendors for prompt dispatch of necessary service calls. The
traditional ATMs acquired in the 7-Eleven ATM Transaction continue to be monitored and serviced under the
Fiserv ATM management agreement. The Vcom units acquired continue to be monitored under a third-party
service agreement.
Finally, we use a commercially-available software package to maintain a database of transactions made
on and performance metrics for all of our ATM locations. This data is aggregated into individual merchant
customer profiles that are readily accessible by our customer service representatives and managers. We believe
our proprietary database enables us to provide superior quality and accessible and reliable customer support.
Primary Vendor Relationships
To maintain an efficient and flexible operating structure, we outsource certain aspects of our operations,
including transaction processing, cash management, and maintenance. Due to the large number of ATMs we
operate, we believe we have obtained favorable pricing terms from most of our major vendors. We contract for
the provision of the services described below in connection with our operations.
Transaction Processing. We contract with and pay fees to third parties who process transactions that
originate from our ATMs and are not processed directly through our own in-house processing switch. These
processors communicate with the cardholder’s financial institution through an EFT network to obtain
transaction authorization and settle transactions. These transaction processors include Star Systems, Fiserv,
RBSLynk (“Lynk”, a subsidiary of The Royal Bank of Scotland Group) and Elan Financial Services in the
United States, LINK and Euronet in the United Kingdom, and Promoción y Operación S.A. de C.V. (“PROSA-
RED”) in Mexico. Although the Company has recently moved towards in-house processing, such processing
efforts are primarily focused on controlling the flow and content of information on the ATM screen. As such,
we expect to continue to rely on third party service providers to handle our connections to the EFT networks
and to perform selected fund settlement and reconciliation processes.
Transactions originating on the traditional ATMs acquired in the 7-Eleven ATM Transaction will continue
to be processed under the ATM management agreement with Fiserv, who maintains relationships with the
major U.S. EFT networks, until that agreement expires in 2009, at which point we anticipate transitioning
those ATMs onto our in-house transaction processing platform.
EFT Network Services. Our transactions are routed over various EFT networks to obtain authorization
for cash disbursements and to provide account balances. These networks include Star, Pulse, NYCE, Cirrus,
and Plus in the United States; LINK in the United Kingdom; and PROSA-RED in Mexico. EFT networks set
7
the interchange fees that they charge to the financial institutions, as well as the amount paid to us. We attempt
to maximize the utility of our ATMs to cardholders by participating in as many EFT networks as practical.
ATM Equipment. As previously noted, we purchase substantially all of our ATMs from national
manufacturers, including NCR, Diebold, Triton, and Wincor Nixdorf. The large quantity of ATMs that we
purchase from these manufacturers enables us to receive favorable pricing and payment terms. In addition, we
maintain close working relationships with these manufacturers in the course of our business, allowing us to
stay informed regarding product updates and to minimize technical problems with purchased equipment. Under
our Company-owned arrangements, we deploy high quality, multi-function ATMs. Under our merchant-owned
arrangements, we deploy ATMs that are cost-effective and appropriate for the merchant.
Although we currently purchase a majority of our ATMs from NCR, we believe our relationships with
our other ATM suppliers are good and that we would be able to purchase the ATMs we require for our
Company-owned operations from other ATM manufacturers if we were no longer able to purchase ATMs from
NCR.
ATM Maintenance.
In the United States, we typically contract with third-party service providers for the
provision of on-site maintenance services. We have multi-year maintenance agreements with Diebold, NCR,
and Pendum in the United States. In the United Kingdom, maintenance services are provided by in-house
technicians. In Mexico, Diebold provides all maintenance services for our ATMs.
In connection with the 7-Eleven ATM Transaction, we assumed a number of multi-year, third-party
service contracts previously entered into by the 7-Eleven Financial Services Business. Historically, Fiserv has
contracted with NCR to provide on-site maintenance services to the acquired ATMs and Vcom units. We will
continue to operate under the current terms of these agreements until such time as they are renegotiated or
expire.
Cash Management. We obtain cash to fill our Company-owned, and in some cases merchant-owned,
ATMs under arrangements with our cash providers, which consist of Bank of America, N.A. (“Bank of
America”), Palm Desert National Bank (“PDNB”), and Wells Fargo, N.A. (“Wells Fargo”) in the United
States, Alliance & Leicester Commercial Bank (“ALCB”) in the United Kingdom, and Bansi, S.A. Institución
de Banca Multiple (“Bansi”), a regional bank in Mexico and a minority interest owner in Cardtronics Mexico,
in Mexico. In the United States and United Kingdom, we have generally paid a monthly fee on the average
amount outstanding to our primary vault cash providers under a formula based on the London Interbank
Offered Rate (“LIBOR”). However, for the ATMs and Vcom units acquired in the 7-Eleven ATM Transaction,
we pay a monthly fee for the vault cash utilized under a floating rate formula based on the federal funds
effective rate. In Mexico, we pay a monthly fee for this cash under a formula based on the Mexican Interbank
Rate. At all times, the cash legally belongs to the cash providers, and we have no access or right to the cash.
We also contract with third parties to provide us with cash management services, which include reporting,
armored courier coordination, cash ordering, cash insurance, reconciliation of ATM cash balances, ATM cash
level monitoring, and claims processing with armored couriers, financial institutions, and processors.
As of December 31, 2007, we had $850.4 million in cash in our domestic ATMs under these
arrangements, of which 51.9% was provided by Bank of America under a vault cash agreement that runs until
October 2009 and 47.0% was provided by Wells Fargo under a vault cash agreement that runs until July 2009.
In the United Kingdom, the balance of cash held in our ATMs as of December 31, 2007 was $196.8 million,
and in Mexico, our balance totaled $10.1 million as of December 31, 2007.
Cash Replenishment. We contract with armored courier services to transport and transfer cash to our
ATMs. We use leading armored couriers such as Brink’s Incorporated (“Brink’s”), Loomis, Fargo & Co., and
Pendum in the United States; and Loomis and Group 4 Securicor in the United Kingdom. Under these
arrangements, the armored couriers pick up the cash in bulk and, using instructions received from our cash
providers, prepare the cash for delivery to each ATM on the designated fill day. Following a predetermined
schedule, the armored couriers visit each location on the designated fill day, load cash into each ATM by
either adding additional cash into a cassette or by swapping out the remaining cash for a new fully loaded
cassette, and then balance the machine and provide cash reporting to the applicable cash provider. In Mexico,
8
we utilize a flexible replenishment schedule, which enables us to minimize our cash inventory by allowing the
ATM to be replenished on an “as needed” basis and not on a fixed recurring schedule. Cash needs are
forecasted in advance and the ATMs are closely monitored on a daily basis. Once a terminal is projected to
need cash within a specified number of days, the cash is procured and the armored vendor is scheduled so that
the terminal is loaded approximately one day prior to the day that it is expected to run out of cash. Our
primary armored courier service providers in Mexico are Compañia Mexicana de Servicio de Traslado de
Valores (Cometra) and Panamericano.
Merchant Customers
In each of our markets, we typically deploy our Company-owned ATMs under long-term contracts with
major national and regional merchants, including convenience stores, supermarkets, drug stores, and other
high-traffic locations. Our merchant-owned ATMs are typically deployed under arrangements with smaller
independent merchants.
The terms of our merchant contracts vary as a result of negotiations at the time of execution. In the case
of Company-owned ATMs, the contract terms vary, but typically include the following:
(cid:129) an initial term of five to seven years;
(cid:129) exclusive deployment of ATMs at locations where we install an ATM;
(cid:129) our right to increase surcharge fees;
(cid:129) our right to remove ATMs at underperforming locations without having to pay a termination fee;
(cid:129) in the United States, our right to terminate or remove ATMs or renegotiate the fees payable to the
merchant if surcharge fees are generally reduced or eliminated by law; and
(cid:129) provisions that make the merchant’s fee dependent on the number of ATM transactions.
Our contracts under merchant-owned arrangements typically include similar terms, as well as the
following additional terms:
(cid:129) in the United States, provisions prohibiting in-store check cashing by the merchant and, in the United
States and United Kingdom, the operation of any other cash-back devices;
(cid:129) provisions imposing an obligation on the merchant to operate the ATMs at any time its stores are open
for business; and
(cid:129) provisions, when possible, that require the assumption of our contract in the event a merchant sells its
stores.
Prior to the 7-Eleven ATM Transaction, no single merchant customer’s ATM locations generated fees that
accounted for more than 5.0% of our total revenues. As a result of the 7-Eleven ATM Transaction, 7-Eleven is
now the largest merchant customer in our portfolio, representing 33.0% and 35.8% of our total pro forma
revenues for the years ended December 31, 2007 and 2006, respectively. The underlying merchant agreement
with 7-Eleven has an initial term of 10 years from the effective date of the acquisition. In addition to 7-Eleven,
our next four largest merchant customers (based on revenues) are CVS, Walgreens, Target, and ExxonMobil,
and they collectively generated 12.4% and 10.2% of our total pro forma revenues for the years ended
December 31, 2007 and 2006, respectively.
Seasonality
In the United States and Mexico, our overall business is somewhat seasonal in nature with generally
fewer transactions occurring in the first quarter. We typically experience increased transaction levels during the
holiday buying season at our ATMs located in shopping malls and lower volumes in the months following the
holiday season. Similarly, we have seen increases in transaction volumes in the spring at our ATMs located
near popular spring-break destinations. Conversely, transaction volumes at our ATMs located in regions
affected by strong winter weather patterns typically decline as a result of decreases in the amount of consumer
9
traffic through the locations in which we operate our ATMs. These declines, however, have been offset
somewhat by increases in the number of our ATMs located in shopping malls and other retail locations that
benefit from increased consumer traffic during the holiday buying season. We expect these location-specific
and regional fluctuations in transaction volumes to continue in the future.
In the United Kingdom, seasonality in transaction patterns tends to be similar to the seasonal patterns in
the general retail market. Generally, the highest transaction volumes occur on weekend days and, thus, monthly
transaction volumes will fluctuate based on the number of weekend days in a given month. However, we, like
other independent ATM operators, experience a drop in the number of transactions we process during the
Christmas season due to consumers’ greater tendency to shop in the vicinity of free ATMs and our closure of
some of our ATM sites over the Christmas break. We expect these location-specific and regional fluctuations
in transaction volumes to continue in the future.
Competition
We compete with financial institutions and other independent ATM companies for additional ATM
placements, new merchant accounts, and acquisitions. Several of our competitors, namely national financial
institutions, are larger and more established than we are. While these entities may have fewer ATMs than we
do, they have greater financial and other resources than us. For example, our major domestic competitors
include banks such as Bank of America, US Bancorp, Wachovia, and PNC Corp. as well as independent ATM
operators such as ATM Express and Innovus. In the United Kingdom, we compete with several large non-bank
ATM operators, including Cardpoint (a wholly-owned subsidiary of Payzone), Notemachine, and Paypoint, as
well as banks such as the Royal Bank of Scotland, Barclays, and Lloyds, among others. In Mexico, we
compete primarily with national and regional financial institutions, including Banamex, Bancomer, and HSBC.
Although the independent ATM market is still relatively undeveloped in Mexico, we have recently seen a
number of small ATM operators initiate operations. These operators, which are typically known by the names
of their sponsoring banks, include Banco Inbursa, Afirme, and Bajio.
Despite the level of competition we face, many of our competitors have not historically had a singular
focus on ATM management. As a result, we believe our focus solely on ATM management and related
services gives us a significant competitive advantage. In addition, we believe the scale of our extensive ATM
network and our focus on customer service also provide significant competitive advantages.
Government and Industry Regulation
United States
Our principal business, ATM network ownership and operation, is not subject to significant government
regulation, though we are subject to certain industry regulations. Furthermore, various aspects of our business
are subject to state regulation. Our failure to comply with applicable laws and regulations could result in
restrictions on our ability to provide our products and services in such states, as well as the imposition of civil
fines.
Americans with Disabilities Act (“ADA”). The ADA currently prescribes provisions that ATMs be made
accessible to and independently usable by individuals who are visually-impaired. The Department of Justice
may adopt new accessibility guidelines under the ADA that will include provisions addressing ATMs and how
to make them more accessible to the disabled. Under the proposed guidelines that have been published for
comment but not yet adopted, ATM height and reach requirements would be shortened, keypads would be
required to be laid out in the manner of telephone keypads, and ATMs would be required to possess speech
capabilities, among other modifications. If adopted, these new guidelines would affect the manufacture of
ATM equipment going forward and could require us to retrofit ATMs in our network as those ATMs are
refurbished or updated for other purposes. Additionally, proposed Accessibility Guidelines under the ADA
would require voice-enabling technology for newly-installed ATMs and for ATMs that are otherwise retrofitted
or substantially modified. We are committed to ensuring that all of our ATMs comply with all applicable ADA
regulations, and, although these new rules have not yet been adopted by the Department of Justice, we made
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substantially all of our Company-owned ATMs voice-enabled in conjunction with our security upgrade efforts
in 2007.
Rehabilitation Act. On November 26, 2006, a U.S. District Court judge ruled that the United States’
currencies (as currently designed) violate the Rehabilitation Act, a law that prohibits discrimination in
government programs on the basis of disability, as the paper currencies issued by the U.S. are identical in size
and color, regardless of denomination. Under the current ruling, the U.S. Treasury Department has been
ordered to develop ways in which to differentiate paper currencies such that an individual who is visually-
impaired would be able to distinguish between the different denominations. In response to the November 26,
2006 ruling, the Department of Justice filed an appeal with the U.S. Court of Appeals for the District of
Columbia Circuit requesting that the decision be overturned on the grounds that varying the size of
denominations could cause significant burdens on the vending machine industry and cost the Bureau of
Engraving and Printing an initial investment of $178.0 million and up to $50.0 million in new printing plates.
While it is still uncertain at this time what the outcome of the appeals process will be, in the event the current
ruling is not overturned, participants in the ATM industry (including us) may be forced to incur significant
costs to upgrade current machines’ hardware and software components.
Encrypting Pin Pad and Triple-Data Encryption Standards. Data encryption makes ATMs more tamper-
resistant. Two of the more recently developed advanced data encryption methods are commonly referred to as
Encrypting Pin Pad (“EPP”) and the Triple Data Encryption Standard (“Triple-DES”). In 2005, we adopted a
policy that any new ATMs we acquire from a manufacturer must be both EPP and Triple-DES compliant. As
of December 31, 2007, we had substantially completed our Triple-DES upgrade efforts related to our
Company-owned and merchant-owned machines, and all of our Company-owned machines were EPP
compliant.
Surcharge Regulation. The imposition of surcharges is not currently subject to federal regulation. There
have been, however, various state and local efforts to ban or limit surcharges, generally as a result of activities
of consumer advocacy groups that believe that surcharges are unfair to cardholders. Generally, United States
federal courts have ruled against these efforts. We are not aware of any existing surcharging bans or limits
applicable to us in any of the jurisdictions in which we currently do business. Nevertheless, there can be no
assurance that surcharges will not be banned or limited in the cities and states where we operate. Such a ban
or limit would have a material adverse effect on us and other ATM operators.
EFT Network Regulations. EFT regional networks have adopted extensive regulations that are applicable
to various aspects of our operations and the operations of other ATM network operators. The Electronic
Fund Transfer Act, commonly known as Regulation E, is the major source of EFT network regulations. The
regulations promulgated under Regulation E establish the basic rights, liabilities, and responsibilities of
consumers who use EFT services and of financial institutions that offer these services. The services covered
include, among other services, ATM transactions. Generally, Regulation E requires us to provide notice of the
fee to be charged the consumer, establish limits on the consumer’s liability for unauthorized use of his card,
provide receipts to the consumer, and establish protest procedures for the consumer. We believe that we are in
material compliance with these regulations and, if any deficiencies were discovered, that we would be able to
correct them before they had a material adverse impact on our business.
United Kingdom
In the United Kingdom, MasterCard International has required compliance with an encryption standard
called Europay, MasterCard, Visa, or “EMV.” The EMV standard provides for the security and processing of
information contained on microchips imbedded in certain debit and credit cards, known as “smart cards.” As
of December 31, 2007, all of our ATMs in the United Kingdom were EMV compliant, except for ATM
transactions that are originated through MasterCard branded credit cards. We expect to achieve EMV
compliance for these cards by June 30, 2008. As a result of these compliance standards, our liability for
fraudulent transactions conducted on our ATMs in the United Kingdom should be substantially reduced.
Additionally, the Treasury Select Committee of the House of Commons heard evidence in 2005 from
interested parties with respect to surcharges in the ATM industry. This committee was formed to investigate
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public concerns regarding the ATM industry, including (1) adequacy of disclosure to ATM customers regarding
surcharges, (2) whether ATM providers should be required to provide free services in low-income areas, and
(3) whether to limit the level of surcharges. While the committee made numerous recommendations to
Parliament regarding the ATM industry, including that ATMs should be subject to the Banking Code (a
voluntary code of practice adopted by all financial institutions in the United Kingdom), the United Kingdom
government did not accept the committee’s recommendations. Despite its rejection of the committee’s
recommendations, the U.K. government did sponsor an ATM task force to look at social exclusion in relation
to ATM services. As a result of the task force’s findings, approximately 600 additional free-to-use ATMs (to
be provided by multiple ATM deployers) were required to be installed in low income areas throughout the
United Kingdom. While this is less than a 2% increase in free-to-use ATMs through the U.K., there is no
certainty that other similar proposals will not be made and accepted in the future.
Mexico
The ATM industry in Mexico has been historically operated by financial institutions. The Central Bank of
Mexico (“Banco de Mexico”) supervises and regulates ATM operations of both financial institutions and non-
bank ATM deployers. Although, Banco de Mexico’s regulations permit surcharge fees to be charged in ATM
transactions, it has not issued specific regulations for the provision of ATM services. In addition, in order for a
non-bank ATM deployer to provide ATM services in Mexico, the deployer must be affiliated with PROSA-
RED or E-Global, which are credit card and debit card proprietary networks that transmit information and
settle ATM transactions between its participants. As only financial institutions are allowed to be participants of
PROSA-RED or E-Global, Cardtronics Mexico entered into a joint venture with Bansi, who is a member of
PROSA-RED. As a financial institution, Bansi and all entities in which it participates, including Cardtronics
Mexico, are regulated by the Ministry of Finance and Public Credit (“Secretaria de Hacienda y Crédito
Público”) and supervised by the Banking and Securities Commission (“Comisión Nacional Bancaria y de
Valores”). Additionally, Cardtronics Mexico is subject to the provisions of the Ley del Banco de Mexico (Law
of Banco de Mexico), the Ley de Instituciones de Crédito (Mexican Banking Law), and the Ley para la
Transparencia y Ordenamiento de los Servicios Financieros (Law for the Transparency and Organization of
Financial Services).
Employees
As of December 31, 2007, we had approximately 400 employees, none which were represented by a
union or covered by a collective bargaining agreement. We believe that our relations with our employees are
good.
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ITEM 1A. RISK FACTORS
Risks Related to Our Business
We depend on ATM transaction fees for substantially all of our revenues, and our revenues would be
reduced by a decline in the usage of our ATMs or a decline in the number of ATMs that we operate.
Transaction fees charged to cardholders and their financial institutions for transactions processed on our
ATMs, including surcharge and interchange transaction fees, have historically accounted for most of our
revenues. We expect that ATM transaction fees, including fees we receive through our bank branding and
surcharge-free network offerings, will continue to account for a substantial majority of our revenues for the
foreseeable future. Consequently, our future operating results will depend on (i) the continued market
acceptance of our services in our target markets, (ii) maintaining the level of transaction fees we receive,
(iii) our ability to install, acquire, operate, and retain more ATMs, (iv) continued usage of our ATMs by
cardholders, and (v) our ability to continue to expand our surcharge-free offerings. Additionally, it is possible
that alternative technologies to our ATM services will be developed and implemented. If such alternatives are
successful, we will likely experience a decline in the usage of our ATMs. Moreover, surcharge fees are set by
negotiation between us and our merchant partners and could change over time. Further, growth in surcharge-
free ATM networks and widespread consumer bias toward such networks could adversely affect our revenues,
even though we maintain our own surcharge-free offerings.
We have also recently seen a decline in the average number of ATMs that we operate in the United
States. Such decline, which totaled approximately 1.6% during the year ended December 31, 2007, exclusive
of ATMs acquired in the 7-Eleven ATM Transaction, is primarily due to customer losses experienced in our
merchant-owned ATM business, offset somewhat by new Company-owned ATM locations that were deployed
during the year. The decline in ATMs on the merchant-owned side of the business totaled approximately 6.2%
during the year ended December 31, 2007, and was due primarily to (i) an internal initiative launched by us to
identify and eliminate certain underperforming accounts, (ii) increased competition from local and regional
independent ATM service organizations, and (iii) certain network security upgrade requirements.
We cannot assure you that our ATM transaction fees will not decline in the future. Accordingly, a decline
in usage of our ATMs by ATM cardholders or in the levels of fees received by us in connection with such
usage, or a decline in the number of ATMs that we operate, would have a negative impact on our revenues
and would limit our future growth.
In the United States, the proliferation of payment options other than cash, including credit cards, debit
cards, and stored-value cards, could result in a reduced need for cash in the marketplace and a resulting
decline in the usage of our ATMs.
The U.S. has seen a shift in consumer payment trends since the late 1990’s, with more customers now
opting for electronic forms of payment (e.g., credit cards and debit cards) for their in-store purchases over
traditional paper-based forms of payment (e.g., cash and checks). Additionally, certain merchants are now
offering free cash back at the point-of-sale for customers that utilize debit cards for their purchases, thus
providing an additional incentive for consumers to use such cards. According to the Study of Consumer
Payment Preferences for 2005/2006, as prepared by Dove Consulting and the American Bankers Association,
paper-based forms of payment declined from approximately 57% of all in-store payments made in 1999 to
44% in 2005. While most of the increase in electronic forms of payment during this period came at the
expense of traditional checks, the use of cash to fund in-store payments declined from 39% in 1999 to 33% in
2001. Although the use of cash has been relatively stable since that date (remaining at roughly 33% of all in-
store payments through 2005), continued growth in electronic payment methods (most notably debit cards and
stored-value cards) could result in a reduced need for cash in the marketplace and a resulting decline in the
usage of our ATMs.
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We have incurred substantial losses in the past and may continue to incur losses in the future.
We have incurred net losses in three of the past five years and incurred a net loss of $27.1 million for the
year ended December 31, 2007. As of December 31, 2007, we had an accumulated deficit of $30.4 million.
There can be no guarantee that we will achieve profitability in the future. If we achieve profitability, given the
competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase
such profitability on a quarterly or annual basis.
Interchange fees, which comprise a substantial portion of our ATM transaction revenues, may be lowered
at the discretion of the various EFT networks through which our ATM transactions are routed, thus
reducing our future revenues.
Interchange fees, which represented approximately 27.8% and 26.2% of our total pro forma ATM
operating revenues for the years ended December 31, 2007 and 2006, respectively, are set by the various EFT
networks through which our ATM transactions are routed. Accordingly, if such networks decided to lower the
interchange rates paid to us for ATM transactions routed through their networks, our future ATM transaction
revenues would decline.
We derive a substantial portion of our revenue from ATMs placed with a small number of merchants. If
one or more of our top merchants were to cease doing business with us, or to substantially reduce its
dealings with us, our revenues could decline.
For the years ended December 31, 2007 and 2006, we derived 45.4% and 46.0%, respectively, of our total
pro forma revenues from ATMs placed at the locations of our five largest merchants. For the year ended
December 31, 2007, our top five merchants (based on our total revenues) were 7-Eleven, CVS, Walgreens,
Target, and ExxonMobil. 7-Eleven, which represents the single largest merchant customer in our portfolio,
comprised 33.0% and 35.8% of our total pro forma revenues for the years ended December 31, 2007 and
2006, respectively. Accordingly, a significant percentage of our future revenues and operating income will be
dependent upon the successful continuation of our relationship with 7-Eleven and these other four merchants.
The loss of any of our largest merchants, or a decision by any one of them to reduce the number of our
ATMs placed in their locations, would decrease our revenues. These merchants may elect not to renew their
contracts when they expire. The contracts we have with our top five merchants, as outlined above, have
expiration dates of July 20, 2017; December 5, 2011; December 31, 2013; January 31, 2012; and December 31,
2013, respectively. Even if such contracts are renewed, the renewal terms may be less favorable to us than the
current contracts. If any of our five largest merchants fails to renew its contract upon expiration, or if the
renewal terms with any of them are less favorable to us than under our current contracts, it could result in a
decline in our revenues and gross profits.
A substantial portion of our future revenues and operating profits will be generated by the new 7-Eleven
merchant relationship. Accordingly, if 7-Eleven’s financial condition deteriorates in the future and it is
required to close some or all of its store locations, or if our ATM placement agreement with 7-Eleven
expires or is terminated, our future financial results would be significantly impaired.
7-Eleven is now the single largest merchant customer in our portfolio, representing 33.0% and 35.8% of
our total pro forma revenues for the years ended December 31, 2007 and 2006, respectively. Accordingly, a
significant percentage of our future revenues and operating income will be dependent upon the successful
continuation of our relationship with 7-Eleven. If 7-Eleven’s financial condition were to deteriorate in the
future and, as a result, it was required to close a significant number of its domestic store locations, our
financial results would be significantly impacted. Additionally, while the underlying ATM placement
agreement with 7-Eleven has an initial term of 10 years, we may not be successful in renewing such
agreement with 7-Eleven upon the end of that initial term, or such renewal may occur with terms and
conditions that are not as favorable to us as those contained in the current agreement. Furthermore, the ATM
placement agreement executed with 7-Eleven contains certain terms and conditions that, if we fail to meet
14
such terms and conditions, gives 7-Eleven the right to terminate the placement agreement or our exclusive
right to provide certain services.
We rely on EFT network providers, transaction processors, armored courier providers, and maintenance
providers; if they fail or no longer agree to provide their services, we could suffer a temporary loss of
transaction revenues or the permanent loss of any merchant contract affected by such disruption.
We rely on EFT network providers and have agreements with transaction processors, armored courier
providers, and maintenance providers and have more than one such provider in each of these key areas. These
providers enable us to provide card authorization, data capture, settlement, and ATM cash management and
maintenance services to the merchants we serve. Typically, these agreements are for periods of up to two or
three years each. If we improperly manage the renewal or replacement of any expiring vendor contract, or if
our multiple providers in any one key area failed to provide the services for which we have contracted and
disruption of service to our merchants occurs, our relationship with those merchants could suffer. For example,
during the fourth quarter of 2007, our results of operations were negatively impacted by a higher percentage of
downtime experienced by our ATMs in the United Kingdom as a result of certain third-party service-related
issues and, while we expect such service-related issues to be resolved during the 2008, it is likely that such
issues will continue to negatively impact the operating results of our United Kingdom operations in the near-
term. If such disruption of service is significant or continues longer than anticipated, our relationships with the
affected merchants could be negatively impacted. Furthermore, any disruptions in service in any of our
markets, whether caused by us or by third party providers, may result in a loss of revenues under certain of
our contractual arrangements that contain minimum service-level requirements.
If we, our transaction processors, our EFT networks or other service providers experience system failures,
the ATM products and services we provide could be delayed or interrupted, which would harm our
business.
Our ability to provide reliable service largely depends on the efficient and uninterrupted operations of our
in-house transaction processing platform, third-party transaction processors, telecommunications network
systems, and other service providers. Accordingly, any significant interruptions could severely harm our
business and reputation and result in a loss of revenue. Additionally, if any such interruption is caused by us,
especially in those situations in which we serve as the primary transaction processor, such interruption could
result in the loss of the affected merchants or damage our relationships with such merchants. Our systems and
operations and those of our transaction processors and our EFT network and other service providers could be
exposed to damage or interruption from fire, natural disaster, unlawful acts, terrorist attacks, power loss,
telecommunications failure, unauthorized entry, and computer viruses. We cannot be certain that any measures
we and our service providers have taken to prevent system failures will be successful or that we will not
experience service interruptions.
If not done properly, the transitioning of our ATMs from third-party processors to our own in-house
transaction processing platform could lead to service interruptions and/or the inaccurate settlement of
funds between the various parties to our ATM transactions, which would harm our business and our rela-
tionships with our merchants.
As of December 31, 2007, we had transitioned over 13,000 of our Company- and merchant-owned ATMs
from third-party processors to our own in-house transaction processing platform, and we expect to have the
remainder of the ATMs in our portfolio converted over by December 31, 2008. Historically, we had limited
experience in ATM transaction processing and, therefore, hired additional personnel with experience in running
an ATM transaction processing operation during 2006 and 2007, including personnel we hired in connection
with the 7-Eleven ATM Transaction. Because this is a relatively new business for us, there is an increased risk
that our processing conversion efforts will not be successful, thus resulting in service interruptions for our
merchants. Furthermore, if not performed properly, the processing of transactions conducted on our ATMs
could result in the inaccurate settlement of funds between the various parties to those transactions and expose
us to increased liability.
15
Security breaches could harm our business by compromising customer information and disrupting our
ATM transaction processing services, thus damaging our relationships with our merchant customers and
exposing us to liability.
As part of our ATM transaction processing services, we electronically process, store, and transmit
sensitive cardholder information utilizing our ATMs. In recent years, companies that process and maintain
such cardholder information have been specifically and increasingly targeted by sophisticated criminal
organizations in an effort to obtain such information and utilize it for fraudulent transactions. Unauthorized
access to our computer systems, or those of our third-party service providers, could result in the theft or
publication of such information or the deletion or modification of sensitive records, and could cause
interruptions in our operations. While such security risks are mitigated by the use of encryption techniques,
any inability to prevent security breaches could damage our relationships with our merchant customers and
expose us to liability.
Computer viruses could harm our business by disrupting our ATM transaction processing services, caus-
ing non-compliance with network rules and damaging our relationships with our merchant customers.
Computer viruses could infiltrate our systems, thus disrupting our delivery of services and making our
applications unavailable. Although we utilize several preventative and detective security controls in our
network, any inability to prevent computer viruses could damage our relationships with our merchant
customers and cause us to be in non-compliance with applicable network rules and regulations.
Operational failures in our ATM transaction processing facilities could harm our business and our rela-
tionships with our merchant customers.
An operational failure in our ATM transaction processing facilities could harm our business and damage
our relationships with our merchant customers. Damage or destruction that interrupts our ATM processing
services could damage our relationships with our merchant customers and could cause us to incur substantial
additional expense to repair or replace damaged equipment. We have installed back-up systems and procedures
to prevent or react to such disruptions. However, a prolonged interruption of our services or network that
extends for more than several hours (i.e., where our backup systems are not able to recover) could result in
data loss or a reduction in revenues as our ATMs would be unable to process transactions. In addition, a
significant interruption of service could have a negative impact on our reputation and could cause our present
and potential merchant customers to choose alternative ATM service providers.
Errors or omissions in the settlement of merchant funds could damage our relationships with our mer-
chant customers and expose us to liability.
We are responsible for maintaining accurate bank account information for our merchant customers and
accurate settlements of funds into these accounts based on the underlying transaction activity. This process
relies on accurate and authorized maintenance of electronic records. Although we have certain controls in
place to help ensure the safety and accuracy of our records, errors or unauthorized changes to these records
could result in the erroneous or fraudulent movement of funds, thus damaging our relationships with our
merchant customers and exposing us to liability.
We rely on third parties to provide us with the cash we require to operate many of our ATMs. If these
third parties were unable or unwilling to provide us with the necessary cash to operate our ATMs, we
would need to locate alternative sources of cash to operate our ATMs or we would not be able to operate
our business.
In the United States, we rely on agreements with Bank of America, PDNB, and Wells Fargo to provide us
with the cash that we use in approximately 18,000 of our domestic ATMs where cash is not provided by the
merchant (“vault cash”). In the United Kingdom, we rely on a vault cash agreement with ALCB to provide us
with the cash that we use in approximately 2,000 of our U.K. ATMs where cash is not provided by the
merchant. Finally, Bansi is our sole vault cash provider in Mexico and provides us with the cash that we use
16
in approximately 900 of our Mexico ATMs. As of December 31, 2007, the balance of vault cash held in our
U.S, U.K., and Mexican ATMs was approximately $850.4 million, $196.8 million, and $10.1 million,
respectively.
Under our vault cash agreements, we pay a vault cash rental fee based on the total amount of vault cash
that we are using at any given time. At all times during this process, legal and equitable title to the cash is
held by the cash providers, and we have no access or right to the cash. Each provider has the right to demand
the return of all or any portion of its cash at any time upon the occurrence of certain events beyond our
control, including certain bankruptcy events of us or our subsidiaries, or a breach of the terms of our cash
provider agreements. Our current agreements with Bank of America and Wells Fargo expire in October 2009
and July 2009, respectively. However, Bank of America can terminate its agreement with us upon 360 days
prior written notice, and Wells Fargo can terminate its agreement with us upon 180 days prior written notice.
Additionally, while our current agreement with ALCB does not expire until January 2009, it contains certain
provisions, which, if triggered, may allow ALCB to terminate its agreement with us and demand the return of
its cash upon 180 days prior written notice. We are working on extending our agreement with Bansi, which
currently expires in March 2009.
If our cash providers were to demand return of their cash or terminate their arrangements with us and
remove their cash from our ATMs, or if they were to fail to provide us with cash as and when we need it for
our ATM operations, our ability to operate these ATMs would be jeopardized, and we would need to locate
alternative sources of cash in order to operate these ATMs.
The recent deterioration experienced in global credit markets could have a negative impact on financial
institutions that we conduct business with.
We have a significant number of customer and vendor relationships with financial institutions in all of
our key markets, including relationships in which those financial institutions pay us for the right to place their
brands on our ATMs. Additionally, we rely on a select few financial institution partners to provide us with the
vast majority of the cash that we maintain in our Company-owned ATMs. While we have not experienced any
significant changes in our relationships with such financial institutions to date, and do not expect any
deterioration, the continued turmoil seen in the global credit markets could have a negative impact on those
financial institutions and our relationships. In particular, if the liquidity positions of the financial institutions
with whom we conduct business deteriorate significantly, such institutions may be unable to perform under
their existing agreements with us. In the case of our financial institution branding partners, we would likely be
required to find alternative financial institutions to brand the ATMs negatively impacted by any contractual
defaults that may result from a continued deterioration in global credit markets. If such defaults were to occur,
we can provide no guarantee that we would be successful in our efforts to identify new branding partners, or
that the underlying economics of any new branding arrangements would be consistent with our current
branding arrangements. Furthermore, the current credit environment may make it more difficult for us to
negotiate new branding arrangements with financial institutions, or to renew or extend existing branding
arrangements on terms and conditions that are acceptable to us. With respect to our vault cash providers,
reference is made to the risk factor included immediately above for the potential impact on our business if our
financial institution partners were no longer able to meet our ATM vault cash needs.
Changes in interest rates could increase our operating costs by increasing interest expense under our
credit facilities and our vault cash rental costs.
Interest on our outstanding indebtedness under our revolving and swing line credit facilities is based on
floating interest rates, and our vault cash rental expense is based on market rates of interest. As a result, our
interest expense and cash management costs are sensitive to changes in interest rates. Vault cash is the cash
we use in our machines in cases where cash is not provided by the merchant. We pay rental fees on the
average amount of vault cash outstanding in our ATMs under floating rate formulas based on the LIBOR to
Bank of America and PDNB in the U.S. and ALCB in the U.K., and based on the federal funds effective rate
to Wells Fargo in the U.S. Additionally, in Mexico, we pay a monthly rental fee to our vault cash provider
under a formula based on the Mexican Interbank Rate. Although we currently hedge a significant portion of
17
our vault cash interest rate risk related to our domestic operations through December 31, 2012, including a
portion of the vault cash associated with the 7-Eleven ATM Transaction, we may not be able to enter into
similar arrangements for similar amounts in the future. Furthermore, we have not currently entered into any
derivative financial instruments to hedge our variable interest rate exposure in the U.K. or Mexico. Any
significant future increases in interest rates could have a negative impact on our earnings and cash flow by
increasing our operating costs and expenses. See Part II, Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Disclosure about Market Risk; Interest Rate Risk.
We maintain a significant amount of cash within our Company-owned ATMs, which is subject to poten-
tial loss due to theft or other events, including natural disasters.
As of December 31, 2007, there was approximately $1.1 billion in vault cash held in our domestic and
international ATMs. Although legal and equitable title to such cash is held by the cash providers, any loss of
such cash from our ATMs through theft or other means is typically our responsibility. While we maintain
insurance to cover a significant portion of any losses that may be sustained by us as a result of such events,
we are still required to fund a portion of such losses through the payment of the related deductible amounts
under our insurance policies. Furthermore, any increase in the frequency and/or amounts of such thefts and
losses could negatively impact our operating results as a result of higher deductible payments and increased
insurance premiums. Additionally, any damage sustained to our merchant customers’ store locations in
connection with any ATM-related thefts, if extensive and frequent enough in nature, could negatively impact
our relationships with such merchants and impair our ability to deploy additional ATMs in those locations (or
new locations) with those merchants in the future. Finally, impacted merchants may request that we
permanently remove ATMs from store locations that have suffered damage as a result of any ATM-related
thefts, thus negatively impacting our financial results.
The ATM industry is highly competitive and such competition may increase, which may adversely affect
our profit margins.
The ATM business is and can be expected to remain highly competitive. While our principal competition
comes from national and regional financial institutions, we also compete with other independent ATM
companies in the United States and the United Kingdom. Several of our competitors, namely national financial
institutions, are larger, more established, and have greater financial and other resources than we do. Our
competitors could prevent us from obtaining or maintaining desirable locations for our ATMs, cause us to
reduce the surcharge revenue generated by transactions at our ATMs, or cause us to pay higher merchant fees,
thereby reducing our profits. In addition to our current competitors, additional competitors may enter the
market. We can offer no assurance that we will be able to compete effectively against these current and future
competitors. Increased competition could result in transaction fee reductions, reduced gross margins and loss
of market share.
In the United Kingdom, we face competition from several companies with operations larger than our
own. Many of these competitors have financial and other resources substantially greater than our U.K.
subsidiary.
The election of our merchant customers to not participate in our surcharge-free network offerings could
impact the networks’ effectiveness, which would negatively impact our financial results.
Financial institutions that are members of our Allpoint and MasterCard surcharge-free networks pay a fee
in exchange for allowing their cardholders to use selected Cardtronics owned and/or managed ATMs on a
surcharge-free basis. The success of these networks is dependent upon the participation by our merchant
customers in such networks. In the event a significant number of our merchants elect not to participate in such
networks, the benefits and effectiveness of the networks would be diminished, thus potentially causing some
of the participating financial institutions to not renew their agreements with us, and thereby negatively
impacting our financial results.
18
We may be unable to integrate our recent and future acquisitions in an efficient manner and inefficien-
cies would increase our cost of operations and reduce our profitability.
Our acquisitions involve certain inherent risks to our business, including the following:
(cid:129) the operations, technology, and personnel of any acquired companies may be difficult to integrate;
(cid:129) the allocation of management resources to consummate these transactions may disrupt our day-to-day
business; and
(cid:129) acquired networks may not achieve anticipated revenues, earnings or cash flow.
Such a shortfall could require us to write down the carrying value of the intangible assets associated with
any acquired company, which would adversely affect our reported earnings. Since April 2001, we have
acquired 14 ATM networks and one surcharge-free ATM network. Prior to our E*TRADE Access acquisition
in June 2004, we had acquired only the assets of deployed ATM networks, rather than businesses and their
related infrastructure. We currently anticipate that our future acquisitions will likely reflect a mix of asset
acquisitions and acquisitions of businesses, with each acquisition having its own set of unique characteristics.
To the extent that we elect to acquire an existing company or the operations, technology, and personnel of
another ATM provider, we may assume some or all of the liabilities associated with the acquired company and
face new and added challenges integrating such acquisition into our operations.
Any inability on our part to effectively manage our past or future growth could limit our ability to
successfully grow the revenue and profitability of our business.
Our international operations involve special risks and may not be successful, which would result in a
reduction of our gross profits.
As of December 31, 2007, approximately 10.8% of our ATMs were located in the United Kingdom and
Mexico. Those ATMs contributed the following to our gross profit measures for the year ended December 31,
2007:
(cid:129) 22.7% of our gross profits exclusive of depreciation, accretion, and amortization;
(cid:129) 18.5% of our pro forma gross profits exclusive of depreciation, accretion, and amortization;
(cid:129) 23.4% of our gross profits inclusive of depreciation, accretion, and amortization; and
(cid:129) 18.2% of our pro forma gross profits inclusive of depreciation, accretion, and amortization.
We expect to continue to expand in the U.K. and Mexico and potentially into other countries as
opportunities arise.
Our international operations are subject to certain inherent risks, including:
(cid:129) exposure to currency fluctuations, including the risk that our future reported operating results could be
negatively impacted by unfavorable movements in the functional currencies of our international
operations relative to the United States dollar, which represents our consolidated reporting currency;
(cid:129) difficulties in complying with the different laws and regulations in each country and jurisdiction in
which we operate, including unique labor and reporting laws;
(cid:129) unexpected changes in laws, regulations, and policies of foreign governments or other regulatory bodies,
including changes that could potentially disallow surcharging or that could result in a reduction in the
amount of interchange fees received per transaction;
(cid:129) difficulties in staffing and managing foreign operations, including hiring and retaining skilled workers
in those countries in which we operate; and
(cid:129) potentially adverse tax consequences, including restrictions on the repatriation of foreign earnings.
19
Any of these factors could reduce the profitability and revenues derived from our international operations
and international expansion.
Our proposed expansion efforts into new international markets involve unique risks and may not be
successful.
We currently plan to expand our operations internationally with a focus on high growth emerging
markets, such as those in the Central and Eastern Europe, Central and South America, and Asia-Pacific
regions. Because the off-premise ATM industry is relatively undeveloped in these emerging markets, we may
not be successful in these expansion efforts. In particular, many of these markets do not currently employ or
support an off-premise ATM surcharging model, meaning that we would have to rely on interchange fees as
our primary source of revenue. While we have had some success in deploying non-surcharging ATMs in
selected markets (most notably in the United Kingdom), such a model requires significant transaction volumes
to make it economically feasible to purchase and deploy ATMs. Furthermore, most of the ATMs in these
markets are owned and operated by financial institutions, thus increasing the risk that cardholders would be
unwilling to utilize an off-premise ATM with an unfamiliar brand. Finally, the regulatory environments in
many of these markets are evolving and unpredictable, thus increasing the risk that a particular deployment
model chosen at inception may not be economically viable in the future.
We operate in a changing and unpredictable regulatory environment. If we are subject to new legislation
regarding the operation of our ATMs, we could be required to make substantial expenditures to comply
with that legislation, which may reduce our net income and our profit margins.
With its initial roots in the banking industry, the U.S. ATM industry has always been regulated, if not by
individual states, then by the rules and regulations of the federal Electronic Funds Transfer Act, which
establishes the rights, liabilities, and responsibilities of participants in EFT systems. The vast majority of states
have few, if any, licensing requirements. However, legislation related to the U.S. ATM industry is periodically
proposed at the state and local level. To date, no such legislation has been enacted that materially adversely
affects our business. In the United Kingdom, the ATM industry is largely self-regulating. Most ATMs are part
of the LINK network and must operate under the network rules set forth by LINK, including complying with
rules regarding required signage and screen messages. Additionally, legislation is proposed from time-to-time
at the national level, though nothing to date has been enacted that materially affects our business.
Finally, the ATM industry in Mexico has been historically operated by financial institutions. Banco de
Mexico supervises and regulates ATM operations of both financial institutions and non-bank ATM deployers.
Although, Banco de Mexico’s regulations permit surcharge fees to be charged in ATM transactions, it has not
issued specific regulations for the provision of ATM services. In addition, in order for a non-bank ATM
deployer to provide ATM services in Mexico, the deployer must be affiliated with PROSA-RED or E-Global,
which are credit card and debit card proprietary networks that transmit information and settle ATM
transactions between its participants. As only financial institutions are allowed to be participants of PROSA-
RED or E-Global, Cardtronics Mexico entered into a joint venture with Bansi, who is a member of PROSA-
RED. As a financial institution, Bansi and all entities in which it participates, including Cardtronics Mexico,
are regulated by the Ministry of Finance and Public Credit (“Secretaria de Hacienda y Crédito Público”) and
supervised by the Banking and Securities Commission (“Comisión Nacional Bancaria y de Valores”).
Additionally, Cardtronics Mexico is subject to the provisions of the Ley del Banco de Mexico (Law of Banco
de Mexico), the Ley de Instituciones de Crédito (Mexican Banking Law), and the Ley para la Transparencia y
Ordenamiento de los Servicios Financieros (Law for the Transparency and Organization of Financial Services).
We will continue to monitor all such legislation and attempt, to the extent possible, to prevent the passage
of such laws that we believe are needlessly burdensome or unnecessary. If regulatory legislation is passed in
any of the jurisdictions in which we operate, we could be required to make substantial expenditures which
would reduce our net income.
20
The passing of legislation banning or limiting surcharge fees would severely impact our revenue.
Despite the nationwide acceptance of surcharge fees at ATMs, consumer activists have from time to time
attempted to impose local bans or limits on surcharge fees. Even in the few instances where these efforts have
passed the local governing body (such as with an ordinance adopted by the city of Santa Monica, California),
federal courts have overturned these local laws on federal preemption grounds. However, those efforts may
resurface and, should the federal courts abandon their adherence to the federal preemption doctrine, those
efforts could receive more favorable consideration than in the past. Any successful legislation banning or
limiting surcharge fees could result in a substantial loss of revenues and significantly curtail our ability to
continue our operations as currently configured.
In the United Kingdom, the Treasury Select Committee of the House of Commons published a report
regarding surcharges in the ATM industry in March 2005. This committee was formed to investigate public
concerns regarding the ATM industry, including (1) adequacy of disclosure to ATM customers regarding
surcharges, (2) whether ATM providers should be required to provide free services in low-income areas and
(3) whether to limit the level of surcharges. While the committee made numerous recommendations to
Parliament regarding the ATM industry, including that ATMs should be subject to the Banking Code (a
voluntary code of practice adopted by all financial institutions in the U.K.), the U.K. government did not
accept the committee’s recommendations. Despite the rejection of the committee’s recommendations, the U.K.
government did sponsor an ATM task force to look at social exclusion in relation to ATM services. As a result
of the task force’s findings, approximately 600 additional free-to-use ATMs (to be provided by multiple ATM
providers) were required to be installed in low income areas throughout the U.K. While this is less than a 2%
increase in free-to-use ATMs through the U.K., there is no certainty that other similar proposals will not be
made and accepted in the future. If the legislature or another body with regulatory authority in the U.K. were
to impose limits on the level of surcharges for ATM transactions, our revenue from operations in the U.K.
would be negatively impacted.
In Mexico, surcharging for off-premise ATMs was legalized in late 2003, but was not formally
implemented until July 2005. As such, the charging of fees to consumers to utilize off-premise ATMs is a
relatively new experience in Mexico. Accordingly, it is too soon to predict whether public concerns over
surcharging will surface in Mexico. However, if such concerns were to be raised, and if the applicable
legislative or regulatory bodies in Mexico decided to impose limits on the level of surcharges for ATM
transactions, our revenue from operations in Mexico would be negatively impacted.
The passing of legislation requiring modifications to be made to ATMs could severely impact our cash
flows.
Under a current ruling of the U.S. District Court, it was determined that the United States’ currencies (as
currently designed) violate the Rehabilitation Act, as the paper currencies issued by the U.S. are identical in
size and color, regardless of denomination. Under the ruling, the U.S. Treasury Department has been ordered
to develop ways in which to differentiate paper currency such that an individual who is visually-impaired
would be able to distinguish between the different denominations. While it is still uncertain at this time what
the outcome of the appeals process will be, in the event the current ruling is not overturned, participants in the
ATM industry (including us) could be forced to incur significant costs to upgrade current machines’ hardware
and software components. If required, such capital expenditures could limit our free cash such that we do not
have enough cash available for the execution of our growth strategy, research and development costs, or other
purposes.
The passing of anti-money laundering legislation could cause us to lose certain merchant accounts and
reduce our revenues.
Recent concerns by the U.S. federal government regarding the use of ATMs to launder money could lead
to the imposition of additional regulations on our sponsoring financial institutions and our merchant customers
regarding the source of cash loaded into their ATMs. In particular, such regulations could result in the
incurrence of additional costs by individual merchants who load their own cash, thereby making their ATMs
21
less profitable. Accordingly, some individual merchants may decide to discontinue their ATM operations, thus
reducing the number of merchant-owned accounts that we currently manage. If such a reduction were to occur,
we would see a corresponding decrease in our revenues.
In connection with the 7-Eleven ATM Transaction, we acquired advanced-functionality Vcom machines
with significant potential for providing new services. Failure to achieve market acceptance among users
could lead to continued losses from the Vcom Services, which could adversely affect our operating
results.
In the 7-Eleven ATM Transaction, we acquired approximately 5,500 ATM machines, including 2,000
advanced-functionality Vcom machines. The advanced functionalities provided by the Vcom machines include
check cashing, money transfer, remote deposit capture, and bill payment services (collectively, the “Vcom
Services”). Additional growth opportunities that we believe to be associated with the acquisition of Vcom
machines, including the expansion of such services to our existing ATMs, may be impaired if we cannot
achieve market acceptance among users of those services.
We have estimated that the Vcom Services generated an operating loss of $6.4 million for the year ended
December 31, 2007, and an operating profit of $11.4 million for the year ended December 31, 2006. However,
excluding upfront placement fees, which may not continue in the future, the Vcom Services generated
operating losses of $10.6 million and $6.6 million for the years ended December 31, 2007 and 2006,
respectively. For the period from our acquisition (July 20, 2007) through December 31, 2007, the Vcom
Services generated an operating loss of $5.0 million. By continuing to provide the Vcom Services, we
currently expect that we may incur up to $10.0 million in operating losses associated with such services for
the first 12-18 months subsequent to the 7-Eleven ATM Transaction. We plan to continue to operate the Vcom
units and restructure the Vcom operations to improve the financial results of such operations; however, we
may be unsuccessful in those efforts, and the future losses associated with the acquired Vcom operations could
be significantly higher than those currently estimated, which would negatively impact our future operating
results and financial condition. In addition, in the event we decide to terminate the Vcom Services, we may be
required to pay up to $1.2 million of contract termination payments, and may incur additional costs and
expenses, which could negatively impact our future operating results and financial condition. Finally, to the
extent we pursue future advanced-functionality services independent of our Vcom efforts, we can provide no
assurance that such efforts will be profitable.
We have identified material weaknesses in our internal control over financial reporting. These material
weaknesses, if not corrected, could affect the reliability of our financial statements and have other
adverse consequences.
Section 404 of the Sarbanes-Oxley Act of 2002, and the SEC rules with respect thereto, require
management of public companies to assess the effectiveness of their internal control over financial reporting
annually and to include in their Annual Reports on Form 10-K a management report on that assessment. To
that end, our management assessment as of December 31, 2007 has been reflected in Part II, Item 9A (T).
Controls and Procedures of this Annual Report on Form 10-K. Additionally, because we are currently a non-
accelerated filer, as defined by the SEC, we are not required to include an attestation report by our
independent registered public accounting firm on the effectiveness of our internal control over financial
reporting until we file our Annual Report on Form 10-K for the year ending December 31, 2008. Under
Section 404 and the SEC’s rules, a company cannot find that its internal control over financial reporting is
effective if any “material weaknesses” exist in its controls over financial reporting. A “material weakness” is a
control deficiency, or combination of control deficiencies in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of the annual or interim financial statements will
not be prevented or detected.
We have identified material weaknesses in our internal control over financial reporting as of December 31,
2007. We have taken, and will continue to take, actions to remediate the material weaknesses and improve the
effectiveness of our internal control over financial reporting; however, we cannot assure you that we will be
able to correct these material weaknesses by the end of 2008. Any failure in the effectiveness of internal
22
control over financial reporting, if it results in misstatements in our financial statements, could have a material
effect on financial reporting or cause us to fail to meet reporting obligations, and could negatively impact
investor perceptions.
Our operating results have fluctuated historically and could continue to fluctuate in the future, which
could affect our ability to maintain our current market position or expand.
Our operating results have fluctuated in the past and may continue to fluctuate in the future as a result of
a variety of factors, many of which are beyond our control, including the following:
(cid:129) changes in general economic conditions and specific market conditions in the ATM and financial
services industries;
(cid:129) changes in payment trends and offerings in the markets in which we operate;
(cid:129) competition from other companies providing the same or similar services that we offer;
(cid:129) the timing and magnitude of operating expenses, capital expenditures, and expenses related to the
expansion of sales, marketing, and operations, including as a result of acquisitions, if any;
(cid:129) the timing and magnitude of any impairment charges that may materialize over time relating to our
goodwill, intangible assets or long-lived assets;
(cid:129) changes in the general level of interest rates in the markets in which we operate;
(cid:129) changes in regulatory requirements associated with the ATM and financial services industries;
(cid:129) changes in the mix of our current services; and
(cid:129) changes in the financial condition and credit risk of our customers.
Any of the foregoing factors could have a material adverse effect on our business, results of operations,
and financial condition. Although we have experienced growth in revenues in recent quarters, this growth rate
is not necessarily indicative of future operating results. A relatively large portion of our expenses are fixed in
the short-term, particularly with respect to personnel expenses, depreciation and amortization expenses, and
interest expense. Therefore, our results of operations are particularly sensitive to fluctuations in revenues. As
such, comparisons to prior periods should not be relied upon as indications of our future performance.
If our goodwill or other intangible assets become impaired, we may be required to record a significant
charge to earnings.
We have a large amount of goodwill and other intangible assets and are required to perform periodic
assessments for any possible impairment for accounting purposes. As of December 31, 2007, we had goodwill
and other intangible assets of $366.1 million, or 61.9% of our total assets. We periodically evaluate the
recoverability and the amortization period of our intangible assets under accounting principles generally
accepted in the United States (“GAAP”). Some of the factors that we consider to be important in assessing
whether or not impairment exists include the performance of the related assets relative to the expected
historical or projected future operating results, significant changes in the manner of our use of the assets or the
strategy for our overall business, and significant negative industry or economic trends. These factors,
assumptions, and any changes in them could result in an impairment of our goodwill and other intangible
assets. In the event we determine our goodwill or amortizable intangible assets are impaired, we may be
required to record a significant charge to earnings in our financial statements, which would negatively impact
our results of operations and that impact could be material. For example, during the years ended December 31,
2007 and 2006, we recorded approximately $5.7 million and $2.8 million of impairment charges related to
certain previously-acquired merchant contracts. Other impairment charges in the future may also adversely
affect our results of operations.
23
We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to
operate our business, remain in compliance with debt covenants and make payments on our indebtedness.
As of December 31, 2007, we had outstanding indebtedness of approximately $310.7 million, which
represents approximately 74.4% of our total capitalization of $417.9 million. Our substantial indebtedness
could have important consequences to you. For example, it could:
(cid:129) make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure
to comply with the obligations of any of our debt instruments, including financial and other restrictive
covenants, could result in an event of default under the indentures governing our senior subordinated
notes and the agreements governing our other indebtedness;
(cid:129) require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt,
which will reduce the funds available for working capital, capital expenditures, acquisitions, and other
general corporate purposes;
(cid:129) limit our flexibility in planning for and reacting to changes in our business and in the industry in which
we operate;
(cid:129) make us more vulnerable to adverse changes in general economic, industry and competitive conditions,
and adverse changes in government regulation;
(cid:129) limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions,
debt service requirements, execution of our growth strategy, research and development costs, or other
purposes; and
(cid:129) place us at a disadvantage compared to our competitors who have less debt.
Any of these factors could materially and adversely affect our business and results of operations. If we do
not have sufficient earnings to service our debt, we may be required to refinance all or part of our existing
debt, sell assets, borrow more money or sell securities, none of which we can guarantee we will be able to do.
The terms of our credit agreement and the indentures governing our senior subordinated notes may
restrict our current and future operations, particularly our ability to respond to changes in our business
or to take certain actions.
Our credit agreement and the indentures governing our senior subordinated notes include a number of
covenants that, among other items, restrict our ability to:
(cid:129) sell or transfer property or assets;
(cid:129) pay dividends on or redeem or repurchase stock;
(cid:129) merge into or consolidate with any third party;
(cid:129) create, incur, assume or guarantee additional indebtedness;
(cid:129) create certain liens;
(cid:129) make investments;
(cid:129) engage in transactions with affiliates;
(cid:129) issue or sell preferred stock of restricted subsidiaries; and
(cid:129) enter into sale and leaseback transactions.
In addition, we are required by our credit agreement to maintain specified financial ratios and limit the
amount of capital expenditures incurred in any given 12-month period. As a result of these ratios and limits,
we are limited in the manner in which we conduct our business and may be unable to engage in favorable
business activities or finance future operations or capital needs. Accordingly, these restrictions may limit our
ability to successfully operate our business and prevent us from fulfilling our debt obligations. A failure to
comply with the covenants or financial ratios could result in an event of default. In the event of a default
24
under our credit agreement, the lenders could exercise a number of remedies, some of which could result in an
event of default under the indentures governing the senior subordinated notes. An acceleration of indebtedness
under our credit agreement would also likely result in an event of default under the terms of any other
financing arrangement we have outstanding at the time. If any or all of our debt were to be accelerated, there
can be no assurance that our assets would be sufficient to repay any such indebtedness in full. If we are unable
to repay outstanding borrowings under our bank credit facility when due the lenders will have the right to
proceed against the collateral securing such indebtedness. See Part II, Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financing
Facilities for an additional discussion of our financing instruments.
25
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal executive offices are located at 3110 Hayes Road, Suite 300, Houston, Texas 77082, and
our telephone number is (281) 596-9988. We lease approximately 26,000 square feet of space under our
Houston office lease. We lease an additional 15,000 square feet of office and warehouse space in buildings
adjacent to our principal offices. Furthermore, we lease approximately 15,000 square feet in Frisco, Texas,
where we manage our in-house transaction processing and our Advanced Functionality operations, and
2,500 square feet of office space in Bethesda, Maryland, where we manage our Allpoint surcharge-free
network operations.
In addition to our domestic office space, we lease approximately 6,200 square feet of office space in
Hatfield, Hertfordshire, England and approximately 2,400 square feet of office space in Mexico City, Mexico.
Our facilities are leased pursuant to operating leases for various terms. We believe that our leases are at
competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon
expiration of our current lease terms.
ITEM 3. LEGAL PROCEEDINGS
For a description of our material pending legal and regulatory proceedings and settlements, see Part II,
Item 8. Financial Statements and Supplementary Data, Note 16, Commitments and Contingencies — Legal and
Other Regulatory Matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 26, 2007, we obtained the unanimous written consent of a majority of our stockholders, in
lieu of a special meeting, for the following:
1. Approval of the adoption of the Company’s Third Amended and Restated Certification of
Incorporation;
2. Approval of the adoption of the Company’s Second Amended and Restated Bylaws;
3. Election of two Class I Directors of the Company, Robert Barone and Jorge M. Diaz, and three
Class III Directors of the Company, Jack Antonini, Fred Lummis, and Michael A.R. Wilson;
4. Approval of an amendment to the Company’s 2001 Stock Incentive Plan to increase the number of
shares reserved for issuance under the plan from 6,756,211 to 6,954,923 (on a post-split basis); and
5. Approval of the adoption of the Company’s Second Amendment to the First Amended and Restated
Investors Agreement.
26
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
In December 2007, we completed the initial public offering of our common stock, and our common stock
now trades on The Nasdaq Global Market under the symbol “CATM.” Prior to such time, our common stock
was privately held. As of March 24, 2008, there were 75 shareholders of record of our common stock.
Quarterly Stock Prices. The following table reflects the quarterly high and low sales prices for our
common Stock as reported on the Nasdaq Stock Market during the quarter ended December 31, 2007.
Quarter Ended
December 31,
2007
High. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.40
$ 8.33
Dividend Information. We have not historically paid, nor do we anticipate paying, dividends with
respect to our common stock. For information on restrictions regarding our ability to pay dividends, see Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and
Capital Resources — Financing Facilities — Revolving credit facility and Item 8. Financial Statements and
Supplementary Data, Note 13.
Equity Compensation Plans. See Part III, Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters for information regarding our equity compensation plans as of
December 31, 2007.
Uses of Proceeds from Initial Public Offering.
In connection with our initial public offering completed
on December 14, 2007, we issued 12,000,000 shares of common stock, par value $0.0001, to the public for
approximately $110.1 million, net of issuance costs and expenses. Total common shares outstanding immedi-
ately after the offering were 38,566,207 after taking into account the conversion of all Series B redeemable
convertible preferred stock into common shares and a 7.9485:1 stock split that occurred in conjunction with
the offering. We used the net proceeds from the offering to pay down debt previously outstanding under our
revolving credit facility (see Part II, Item 8. Financial Statements and Supplementary Data, Note 13).
Recent Sales of Unregistered Securities. During the year ended December 31, 2007, we issued
31,293 shares of our common stock to Ronald D. Coben in January 2007 upon the exercise of options held by
Mr. Coben for an aggregate price of $46,181. This transaction did not involve any underwriters or any public
offerings, and we believe that this transaction was exempt from registration requirements pursuant to
Section 3(a)(9) or Section 4(2) of the Securities Act of 1933, as amended, Regulation D promulgated
thereunder or Rule 701 of the Securities Act of 1933 pursuant to compensatory benefit plans and contracts
related to compensation as provided under Rule 701. The recipient of the securities in the transaction
represented his intention to acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed to the share certificates and
instruments issued in the transaction.
27
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data derived from our consolidated financial statements.
As a result of our acquisitions of the 7-Eleven Financial Services Business, Bank Machine, and E*TRADE
Access in July 2007, May 2005, and June 2004, respectively, our financial results for the years presented
below are not comparable. As a result, the selected financial data presented below should be read in
conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, and Item 8. Financial Statements and Supplementary Data. Additionally, these selected historical
results are not necessarily indicative of results to be expected in the future.
For the Year Ended December 31,
2005
(In thousands, except share and per share information and numbers of ATMs)
2003
2007
2006
2004
Consolidated Statements of Operations
Data:
Revenues and Income:
Total revenues . . . . . . . . . . . . . . . . . . . . . . $
Income from operations . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . .
Net (loss) income available to common
stockholders(1) . . . . . . . . . . . . . . . . . . . .
Per Share Data:
Basic earnings (loss) per common share . . . $
Diluted earnings (loss) per common share . . $
Basic weighted average shares
378,298 $
9,919
(27,090)
293,605 $
20,067
(531)
268,965 $
19,721
(2,418)
192,915 $
14,844
5,805
110,443
7,551
3,199
(63,362)
(796)
(3,813)
3,493
1,110
(4.11) $
(4.11) $
(0.06) $
(0.06) $
(0.27) $
(0.27) $
0.20 $
0.19 $
0.07
0.06
outstanding . . . . . . . . . . . . . . . . . . . . . .
15,423,744
13,904,505
14,040,353
17,795,073
16,521,361
Diluted weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . . . .
15,423,744
13,904,505
14,040,353
18,855,425
17,262,708
Consolidated Balance Sheets Data:
Total cash and cash equivalents . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt and capital lease
obligations, including current portion . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity (deficit) . . . . . . .
Consolidated Statements of Cash Flows
Data:
Cash flows from operating activities . . . . . . $
Cash flows from investing activities . . . . . .
Cash flows from financing activities . . . . . .
Operating Data (Unaudited):
Total number of ATMs (at period end) . . . .
Total transactions . . . . . . . . . . . . . . . . . . . .
Total withdrawal transactions . . . . . . . . . . .
13,439 $
591,285
2,718 $
1,699 $
1,412 $
367,756
343,751
197,667
310,744
—
107,111
252,895
76,594
(37,168)
247,624
76,329
(49,084)
128,541
23,634
(340)
5,554
65,295
31,371
21,322
(6,329)
55,462 $
(202,883)
158,155
25,446 $
(35,973)
11,192
33,227 $
20,466 $
(139,960)
107,214
(118,926)
94,318
21,629
(29,663)
10,404
32,319
246,595
166,248
25,259
172,808
125,078
26,208
156,851
118,960
24,581
111,577
86,821
12,021
64,605
49,859
(1) For the year ended December 31, 2007, net loss available to common stockholders reflects a $36.0 million
one-time, non-cash charge associated with the conversion of our Series B redeemable convertible preferred
stock into shares of common stock in conjunction with our initial public offering in December 2007. For
the years ended December 31, 2007, 2006, and 2005, the net loss available to common stockholders
reflects the accretion of issuance costs associated with the Series B redeemable convertible preferred stock.
For the years ended December 31, 2005, 2004, and 2003, net (loss) income available to common stock-
holders reflects non-cash dividends on our Series A preferred stock, which was redeemed in February
2005 in conjunction with the issuance of our Series B redeemable convertible preferred stock.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements that are based on management’s current expectations, estimates, and projections
about our business and operations. Our actual results may differ materially from those currently anticipated
and expressed in such forward-looking statements as a result of numerous factors, including those we discuss
under Part I, Item 1A. Risk Factors. Additionally, you should read the following discussion together with the
financial statements and the related notes included in Item 8. Financial Statements and Supplementary Data.
Our discussion and analysis includes the following:
(cid:129) Overview of Business
(cid:129) Developing Trends in the ATM Industry
(cid:129) Recent Events
(cid:129) Results of Operations
(cid:129) Liquidity and Capital Resources
(cid:129) Critical Accounting Policies and Estimates
(cid:129) New Accounting Pronouncements Issued but Not Yet Adopted
(cid:129) Commitments and Contingencies
We have also included a discussion of the 7-Eleven ATM Transaction and the related financing
transactions that occurred in 2007 in certain portions of the following sections in order to provide some detail
on the impact such transactions are expected to have on our results of operations and liquidity and capital
resource requirements. In some cases, certain unaudited pro forma financial and operational information has
been presented herein as if the 7-Eleven ATM Transaction occurred on January 1, 2006. Such unaudited pro
forma information is presented for illustrative purposes only and is not necessarily indicative of what our
actual financial or operational results would have been had the 7-Eleven ATM Transaction been consummated
on such date. Such unaudited pro forma information should be read in conjunction with our historical audited
financial statements, and accompanying notes thereto, included in Item 8. Financial Statements and Supple-
mentary Data.
Overview of Business
As of December 31, 2007, we operated a network of approximately 32,300 ATMs throughout the United
States, the United Kingdom, and Mexico. Our extensive ATM network is strengthened by multi-year
contractual relationships with a wide variety of nationally and internationally-known merchants pursuant to
which we operate ATMs in their locations. We deploy ATMs under two distinct arrangements with our
merchant partners: Company-owned and merchant-owned.
Company-owned Arrangements. Under a Company-owned arrangement, we own or lease the ATM and
are responsible for controlling substantially all aspects of its operation. These responsibilities include what we
refer to as first line maintenance, such as replacing paper, clearing paper or bill jams, resetting the ATM, any
telecommunications and power issues, or other maintenance activities that do not require a trained service
technician. We are also responsible for what we refer to as second line maintenance, which includes more
complex maintenance procedures that require trained service technicians and often involve replacing compo-
nent parts. In addition to first and second line maintenance, we are responsible for arranging for cash, cash
loading, supplies, transaction processing, telecommunications service, and all other services required for the
operation of the ATM, other than electricity. We typically pay a fee, either periodically, on a per-transaction
basis or a combination of both, to the merchant on whose premises the ATM is physically located. We operate
a limited number of our Company-owned ATMs on a merchant-assisted basis. In these arrangements, we own
29
the ATM and provide all transaction processing services, but the merchant generally is responsible for
providing and loading cash for the ATM and performing first line maintenance.
Typically, we deploy ATMs under Company-owned arrangements for our national and regional merchant
customers. Such customers include 7-Eleven, Chevron, Costco, CVS/Pharmacy, Duane Reade, ExxonMobil,
Hess Corporation, Rite Aid, Safeway, Sunoco, Target, and Walgreens in the United States; Alfred Jones,
Martin McColl, McDonalds, The Noble Organisation, Odeon Cinemas, Punch Taverns, Spar, Tates, and Vue
Cinemas in the United Kingdom; and OXXO in Mexico. Because Company-owned locations are controlled by
us (i.e., we control the uptime of the machines), are usually located in major national chains, and are thus
more likely candidates for additional sources of revenue such as bank branding, they generally offer higher
transaction volumes and greater profitability, which we consider necessary to justify the upfront capital cost of
installing such machines. As of December 31, 2007, we operated over 20,700 ATMs under Company-owned
arrangements.
Merchant-owned Arrangements. Under a merchant-owned arrangement, the merchant owns the ATM
and is responsible for its first-line maintenance and the majority of the operating costs; however, we generally
continue to provide all transaction processing services, second-line maintenance, 24-hour per day monitoring
and customer service, and, in some cases, retain responsibility for providing and loading cash. We typically
enter into merchant-owned arrangements with our smaller, independent merchant customers. In situations
where a merchant purchases an ATM from us, the merchant normally retains responsibility for providing cash
for the ATM. Because the merchant bears more of the costs associated with operating ATMs under this
arrangement, the merchant typically receives a higher fee on a per-transaction basis than is the case under a
Company-owned arrangement. In merchant-owned arrangements under which we have assumed responsibility
for providing and loading cash and/or second line maintenance, the merchant receives a smaller fee on a per-
transaction basis than in the typical merchant-owned arrangement. As of December 31, 2007, we operated
approximately 11,600 ATMs under merchant-owned arrangements.
In the future, we expect the percentage of our Company-owned and merchant-owned arrangements to
continue to fluctuate in response to the mix of ATMs we add through internal growth and acquisitions. While
we may continue to add merchant-owned ATMs to our network as a result of acquisitions and internal sales
efforts, our focus for internal growth will remain on expanding the number of Company-owned ATMs in our
network due to the higher margins typically earned and the additional revenue opportunities available to us
under Company-owned arrangements.
In-house Transaction Processing. We are in the process of converting our ATMs from various third
party transaction processing companies to our own in-house transaction processing platform, thus providing us
with the ability to control the processing of transactions conducted on our network of ATMs. We expect that
this will provide us with the ability to control the content of the information appearing on the screens of our
ATMs, which should in turn serve to increase the types of products and services that we will be able to offer
to financial institutions. For example, with the ability to control screen flow, we expect to be able to offer
customized branding solutions to financial institutions, including one-to-one marketing and advertising services
at the point of transaction. Additionally, we expect that this move will provide us with future operational cost
savings in terms of lower overall processing costs. During 2007, we incurred $2.4 million in costs associated
with our efforts to transition our current network of ATMs over to our in-house transaction processing switch,
and we currently expect to spend an additional $1.0 million during 2008 to complete this conversion.
As our in-house transaction processing efforts are focused on controlling the flow and content of
information on the ATM screen, we will continue to rely on third party service providers to handle the generic
back-end connections to the EFT networks and various fund settlement and reconciliation processes for our
Company-owned accounts. As of December 31, 2007, we had converted over 13,000 of our Company- and
merchant-owned ATMs from third party processors to our in-house transaction processing platform, and we
currently expect this initiative to be completed by December 31, 2008.
30
Components of Revenues, Cost of Revenues, and Expenses
Revenues
We derive our revenues primarily from providing ATM services and, to a lesser extent, from branding
arrangements, surcharge-free network offerings, sales of ATM equipment, and now, as a result of the 7-Eleven
ATM Transaction, the provision of advanced-functionality services conducted at our Vcom units. We have
historically classified revenues into two primary categories: ATM operating revenues and ATM product sales
and other revenues. However, as a result of the 7-Eleven ATM Transaction, we now have a separate category,
Vcom operating revenues, for the advanced-functionality services provided through the acquired Vcom units.
ATM Operating Revenues. We present revenues from ATM services, branding arrangements, and
surcharge-free network offerings as “ATM operating revenues” in our consolidated statements of operations.
These revenues include the fees we earn per transaction on our network, fees we generate from bank branding
arrangements and our surcharge-free networks, and fees earned from providing certain maintenance services.
Our revenues from ATM services have increased rapidly in recent years due to the acquisitions we completed
since 2001, as well as through internal expansion of our existing and acquired ATM networks. We expect that
our ATM operating revenues will significantly increase in 2008 as a result of the 7-Eleven ATM Transaction
and the deployment of additional Company-owned ATMs in the U.K. and Mexico.
ATM operating revenues primarily consist of the three following components: (1) surcharge revenue,
(2) interchange revenue, and (3) branding and surcharge-free network revenue.
(cid:129) Surcharge revenue. A surcharge fee represents a convenience fee paid by the cardholder for making a
cash withdrawal from an ATM. Surcharge fees often vary by the type of arrangement under which we
place our ATMs and can vary widely based on the location of the ATM and the nature of the contracts
negotiated with our merchants. In the future, we expect that surcharge fees per surcharge-bearing
transaction will vary depending upon negotiated surcharge fees at newly-deployed ATMs, the roll-out of
additional branding arrangements, and future negotiations with existing merchant partners, as well as
our ongoing efforts to improve profitability through improved pricing. For those ATMs that we own or
operate on surcharge-free networks, we do not receive surcharge fees related to withdrawal transactions
from cardholders who are participants of such networks, but rather we receive interchange and branding
revenues (as discussed below.) Surcharge fees in the United Kingdom are typically higher than the
surcharge fees charged in the United States. In Mexico, surcharge fees are generally less than those
charged in the United States.
(cid:129) Interchange revenue. An interchange fee is a fee paid by the cardholder’s financial institution for the
use of an ATM owned by another operator and the applicable EFT network that transmits data between
the ATM and the cardholder’s financial institution. We typically receive a majority of the interchange
fee paid by the cardholder’s financial institution, with the remaining portion being retained by the EFT
network. In the United States and Mexico, interchange fees are earned not only on cash withdrawal
transactions but on any ATM transaction, including balance inquiries, transfers, and surcharge-free
transactions. In the United Kingdom, interchange fees are earned on all ATM transactions other than
surcharge-bearing cash withdrawals. Interchange fees are set by the EFT networks and vary according
to EFT network arrangements with financial institutions, as well as the type of transaction. Such fees
are typically lower for balance inquiries and fund transfers and higher for withdrawal transactions.
(cid:129) Branding and surcharge-free network revenue. Under a bank branding agreement, ATMs that are
owned and operated by us are branded with the logo of and operated as if they were owned by the
branding financial institution. Customers of the branding institution can use those machines without
paying a surcharge, and, in exchange, the financial institution pays us a monthly per-machine fee for
such branding. Historically, this type of branding arrangement has resulted in an increase in transaction
levels at the branded ATMs, as existing customers continue to use the ATMs and new customers of the
branding financial institution are attracted by the surcharge-free service. Additionally, although we
forego the surcharge fee on ATM transactions by the branding institution’s customers, we continue to
earn interchange fees on those transactions along with the monthly branding fee, and typically enjoy an
31
increase in surcharge-bearing transactions from users who are not customers of the branding institution
as a result of having a bank brand on our ATMs. Overall, based on the above, we believe a branding
arrangement can substantially increase the profitability of an ATM versus operating the same machine
in an unbranded mode. Fees paid for branding an ATM vary widely within our industry, as well as
within our own operations. We expect that this variance in branding fees will continue in the future.
However, because our strategy is to set branding fees at levels well above that required to offset lost
surcharge revenue, we do not expect any such variance to cause a decrease in our total revenues.
A surcharge-free network is an arrangement where a financial institution’s customers are allowed
to use the majority of the ATMs in our network on a surcharge-free basis. We currently operate two
such networks: our nationwide surcharge-free Allpoint network, of which we are the owner and largest
member, and our MasterCard surcharge-free network. Under the Allpoint surcharge-free network, each
participating financial institution pays us a fixed fee per cardholder to participate in the network. Under
the MasterCard surcharge-free network, we receive a fee from MasterCard for each surcharge-free
withdrawal transaction conducted on our network. These fees are meant to compensate us for the loss
of surcharge revenues. Although we forego surcharge revenues on those transactions, we do continue to
earn interchange revenues. We believe that many of these surcharge-free transactions represent
withdrawal transactions from cardholders who have not previously utilized the underlying ATMs, and
these increased transaction counts more than offset the foregone surcharge. Consequently, we believe
that our surcharge-free network arrangements enable us to profitably operate in that portion of the
ATM transaction market that does not involve a surcharge.
In addition to our Allpoint and MasterCard networks, the ATMs and Vcom machines that we
acquired in the 7-Eleven ATM Transaction participate in the CO-OP» network, the nation’s largest
surcharge-free network devoted exclusively to credit unions. Additionally, the Vcom machines located
in 7-Eleven stores are under an arrangement with Financial Services Centers Cooperative, Inc.
(“FSCC”), a cooperative service organization that provides shared branching services for credit unions,
to provide virtual branching services through the Vcom machines for members of the FSCC network.
The following table sets forth, on a historical and pro forma basis, information on our surcharge,
interchange, branding and surcharge-free networks fees, and other revenues per withdrawal transaction for the
periods indicated. The pro forma information presented below assumes the 7-Eleven ATM Transaction
occurred effective January 1, 2006 but excludes any revenues and transactions associated with the Vcom
advanced-functionality services for such periods.
2007
2006
2005
Pro Forma
2007
Pro Forma
2006
Per withdrawal transaction(1):
Surcharge revenue(2). . . . . . . . . . . . . . . . . . . . . .
Interchange revenue(3) . . . . . . . . . . . . . . . . . . . .
Branding and surcharge-free network
revenue(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue(5) . . . . . . . . . . . . . . . . . . . . . . . . .
$1.36
0.59
$1.52
0.55
$1.52
0.56
0.21
0.03
0.13
0.05
0.06
0.04
$1.31
0.59
0.21
0.03
Total ATM operating revenues . . . . . . . . . . . .
$2.19
$2.25
$2.18
$2.14
$1.39
0.57
0.18
0.03
$2.17
(1) Amounts calculated based on total withdrawal transactions, including surcharge withdrawal transactions
and surcharge-free withdrawal transactions.
(2) Excluding surcharge-free withdrawal transactions, per transaction amounts would have been $1.88, $1.80,
and $1.70 for the years ended December 31, 2007, 2006, and 2005, respectively, and $1.86 and $1.76 for
the pro forma years ended December 31, 2007 and 2006, respectively.
(3) Amounts calculated based on total interchange revenues earned on all ATM transaction types, including
withdrawals, balance inquiries, transfers, and surcharge-free transactions.
32
(4) Amounts include all bank branding and surcharge-free network revenues, the majority of which are not
earned on a per-transaction basis.
(5) Amounts include other miscellaneous ATM operating revenues.
The following table breaks down, on a historical and pro forma basis, our total ATM operating revenues
into the various components for the years indicated:
2007
2006
2005
Pro Forma
2007
Pro Forma
2006
Surcharge revenue . . . . . . . . . . . . . . . . . . . . . . .
Interchange revenue . . . . . . . . . . . . . . . . . . . . . .
Branding and surcharge-free network revenue . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
62.0% 67.5% 69.9%
24.5
26.8
6.0
9.7
2.0
1.5
25.7
2.6
1.8
61.0%
27.8
10.0
1.2
64.2%
26.2
8.3
1.3
Total ATM operating revenues . . . . . . . . . . . .
100.0% 100.0% 100.0% 100.0%
100.0%
Vcom Operating Revenues. The 7-Eleven ATM Transaction provided us with approximately 2,000
advanced-functionality financial self-service kiosks referred to as “Vcom” terminals that, in addition to
standard ATM services, offer more sophisticated financial services, including check cashing, money transfer,
remote deposit capture, and bill payment services. The substantial majority of the historical revenues from the
Vcom Services consisted of upfront placement fees, which represented upfront payments from third-party
service providers associated with providing certain of the advanced-functionality services. Most of these fees
were payments received by 7-Eleven from a telecommunications provider. Such fees were amortized to
revenues over the underlying contractual period, and there are no more significant payments due to us under
these contracts. Therefore, in order for such placement fees to be received in the future, new contracts must be
negotiated, but such negotiation is not assured. Accordingly, the percentage of Vcom operating revenues
related to placement fees are expected to be considerably lower in the future.
ATM Product Sales and Other Revenues. We present revenues from the sale of ATMs and other non-
transaction based revenues as “ATM product sales and other revenues” in the accompanying consolidated
statements of operations. These revenues consist primarily of sales of ATMs and related equipment to
merchants operating under merchant-owned arrangements, as well as sales under our value-added reseller
(“VAR”) program with NCR. While we expect to continue to derive a portion of our revenues from direct
sales of ATMs in the future, we expect that this source of revenue will not comprise a substantial portion of
our total revenues in future periods.
Cost of Revenues
Our cost of revenues primarily consists of those costs directly associated with transactions completed on
our ATM network. These costs, which are incurred to handle transactions completed on both our ATM and
Vcom units, include merchant fees, processing fees, cost of cash, communications expense, repairs and
maintenance expense, and direct operations expense. To a lesser extent, cost of revenues also includes those
costs associated with the sales of ATMs. The following is a description of our primary cost categories:
Merchant Fees. We pay our merchants a fee that depends on a variety of factors, including the type of
arrangement under which the ATM is placed and the number of transactions at that ATM. For the year ended
December 31, 2007, merchant fees represented 36.5% of our ATM operating revenues.
Processing Fees. Although we are in the process of transitioning our Company-owned and merchant-
owned ATMs onto our in-house transaction processing platform, we continue to pay fees to third-party vendors
for processing transactions originated at ATMs in our network that have not been transitioned to our platform.
These vendors, which include Star Systems, Fiserv, Lynk, and Elan Financial Services in the United States,
LINK and Euronet in the United Kingdom, and PROSA-RED in Mexico, communicate with the cardholder’s
financial institution through EFT networks to gain transaction authorization and to settle transactions. As we
have converted most of our domestic Company-owned ATMs over to our own in-house transaction processing
platform, we expect to see a slight reduction in our overall processing costs on a go-forward basis. However,
33
the ATMs acquired in the 7-Eleven Transaction will not be converted over to our in-house processing platform
until 2010, as we have a contract with a third party to provide the transaction processing services for these
machines through December 2009. Finally, for the Vcom units acquired, we utilized the in-house transaction
processing platform historically utilized by 7-Eleven to process the transactions conducted on those Vcom
units during 2007. However, in February 2008, we successfully migrated the Vcom transaction processing
capabilities over to our in-house transaction processing platform.
Cost of Cash. Cost of cash includes all costs associated with the provision of cash for our ATMs,
including fees for the use of cash, armored courier services, insurance, cash reconciliation, associated wire
fees, and other costs. As the fees we pay under our contracts with our vault cash providers are based on
market rates of interest, changes in interest rates affect our cost of cash. In order to limit our exposure to
increases in interest rates, we have entered into a number of interest rate swaps on varying amounts of our
current and anticipated outstanding domestic ATM cash balances through 2010. For the year ended
December 31, 2007, cost of cash represented 19.0% of our ATM operating revenues.
Communications. Under our Company-owned arrangements, we are responsible for expenses associated
with providing telecommunications capabilities to the ATMs, allowing the ATMs to connect with the
applicable EFT network.
Repairs and Maintenance. Depending on the type of arrangement with the merchant, we may be
responsible for first and/or second line maintenance for the ATM. We typically use third parties with national
operations to provide these services. Our primary maintenance vendors are Diebold, NCR, and Pendum. For
the year ended December 31, 2007, repairs and maintenance expense represented 7.0% of our ATM operating
revenues.
Direct Operations. These expenses consist of costs associated with managing our ATM network,
including expenses for monitoring the ATMs, program managers, technicians, and customer service
representatives.
Cost of Equipment Revenue.
In connection with the sale of equipment to merchants and value-added
resellers, we incur costs associated with purchasing equipment from manufacturers, as well as delivery and
installation expenses.
We define variable costs as those incurred on a per transaction basis. Processing fees and the majority of
merchant fees fall under this category. Processing fees and merchant fees accounted for 52.2% of our cost of
ATM operating revenues (exclusive of depreciation, accretion, and amortization related to ATMs and ATM-
related assets) for the year ended December 31, 2007 (52.9% on a pro forma basis for the 7-Eleven ATM
Transaction). Therefore, we estimate that 47.8% (or 47.1% on a pro forma basis) of our cost of ATM operating
revenues is generally fixed in nature, meaning that any significant decrease in transaction volumes would lead
to a decrease in the profitability of our ATM service operations, unless there were an offsetting increase in
per-transaction revenues or decrease in our fixed costs. We currently exclude depreciation, accretion, and
amortization from ATMs and ATM-related assets from our cost of ATM revenues. However, the inclusion of
such costs would have increased the percentage of our cost of ATM operating revenues that we consider fixed
in nature by approximately 7.1% for the year ended December 31, 2007 (or 7.0% on a pro forma basis.)
The profitability of any particular ATM location, and of our entire ATM services operation, is driven by a
combination of surcharge, interchange, and branding and surcharge-free network revenues, as well as the level
of our related costs. Accordingly, material changes in our average surcharge fee or average interchange fee
may be offset by branding revenues, surcharge-free network fees, or other ancillary revenues, or by changes in
our cost structure. Because a variance in our average surcharge fee or our average interchange fee is not
necessarily indicative of a commensurate change in our profitability, you should consider these measures only
in the context of our overall financial results.
Indirect Operating Expenses
Our indirect operating expenses include general and administrative expenses related to administration,
salaries, benefits, advertising and marketing, depreciation and accretion of the ATMs, ATM-related assets, and
34
other assets that we own, amortization of our acquired merchant contracts and other amortizable intangible
assets, and interest expense related to borrowings under our revolving credit facility and our $300.0 million in
senior subordinated notes. We depreciate our capital equipment on a straight-line basis over the estimated life
of such equipment and amortize the value of acquired intangible assets over the estimated lives of such assets.
Developing Trends in the ATM Industry
Increase in Surcharge-Free Offerings. Many U.S. banks serving the market for consumer banking
services are aggressively competing for market share, and part of their competitive strategy is to increase their
number of customer touch points, including the establishment of an ATM network to provide convenient,
surcharge-free access to cash for their customers. While 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 U.S. ATM network. Bank branding of ATMs and participation in surcharge-free networks allows
financial institutions to rapidly increase surcharge-free ATM access for their customers at substantially less
cost than building their own ATM networks. These factors have led to an increase in bank branding and
participation in surcharge-free networks, and we believe that there will be continued growth in such
arrangements.
Growth in International Markets.
In most regions of the world, ATMs are less common than in the
United States. We believe the ATM industry will grow faster in international markets than in the U.S., as the
number of ATMs per capita in those markets increases and begins to approach the U.S. level. In addition,
there has been a trend towards growth of off-premise ATMs in several international markets, including the
United Kingdom and Mexico.
(cid:129) United Kingdom. The U.K. is the largest ATM market in Europe. Until the late 1990s, most U.K.
ATMs were installed at bank and building society branches. Non-bank operators began to deploy ATMs
in the United Kingdom in December 1998 when LINK (which connects the ATM networks of all U.K.
ATM operators) allowed them entry into its network via arrangements between non-bank operators and
U.K. financial institutions. We believe that non-bank ATM operators have benefited in recent years
from customer demand for more conveniently located cash machines, the emergence of internet banking
with no established point of presence, and the closure of bank branches due to consolidation. According
to LINK, a total of approximately 63,000 ATMs were deployed in the United Kingdom as of January
2008, of which approximately 26,000 were operated by non-banks. This has grown from approximately
36,700 total ATMs in the U.K. in 2001, with less than 7,000 operated by non-banks. Similar to the
U.S., electronic payment alternatives have gained popularity in the U.K. in recent years. However, cash
is still the primary payment method preferred by consumers, representing nearly two-thirds of total
transaction spending according to the APACS’ U.K. Payment Statistics 2007 publication. Furthermore,
annual ATM cash withdrawal transactions continue to remain strong in the U.K., reflecting consumers’
preference to utilize cash for their transaction spending.
(cid:129) Mexico. Historically, surcharge fees were not allowed pursuant to Mexican law. However, in July
2005, the Mexican government approved a measure that now allows ATM operators to charge a fee to
individuals withdrawing cash from their ATMs. As a result of the Mexican government allowing
surcharging and the relatively low level of penetration of ATMs in Mexico, we believe that there will
be significant growth in the number of ATMs owned in Mexico by non-banks. According to the Central
Bank of Mexico, as of December 2007, Mexico had approximately 29,000 ATMs operating throughout
the country, substantially all of which are owned by national and regional banks.
Growth of Advanced-Functionality Services. Approximately 75% of all ATM transactions in the United
States are cash withdrawals, with the remainder representing other basic banking functions such as balance
inquiries, transfers, and deposits. We believe that there are significant opportunities for a large non-bank ATM
operator to provide additional advanced-functionality services to customers, such as check cashing, remote
deposit capture, money transfer, and bill payment services, through self-service kiosks. These additional
services would result in additional revenues streams for a company and could ultimately result in increased
profitability.
35
Outsourcing by Banks and Other Financial Institutions. While many banks and other financial
institutions own significant networks of ATMs that serve as extensions of their branch networks and increase
the level of service offered to their customers, large ATM networks are costly to operate and typically do not
provide significant revenue for banks and other financial institutions. We believe there is an opportunity for
large non-bank ATM operators with lower costs and an established operating history to contract with financial
institutions to manage their ATM networks. Such an outsourcing arrangement could reduce a financial
institution’s operational costs while extending their customer service.
Recent Events
Financing Transactions. During 2007, we completed the following financing transactions:
(cid:129) Initial Public Offering. On December 14, 2007, we completed our initial public offering of
12,000,000 shares of common stock at a price of $10.00 per share. Total common shares outstanding
immediately after the offering were 38,566,207 after taking into account the conversion of all Series B
redeemable convertible preferred stock into common shares and a 7.9485:1 stock split that occurred in
conjunction with the offering. The net proceeds from the offering were approximately $110.1 million
and were used to pay down debt previously outstanding under our revolving credit facility.
(cid:129) Series B Redeemable Convertible Preferred Stock Conversion. In connection with our initial public
offering, all shares of our Series B redeemable convertible preferred stock converted into shares of our
common stock. Based on the $10.00 initial public offering price and the terms of our shareholders
agreement, the 894,568 shares held by certain funds controlled by TA Associates, Inc. (the “TA Funds”)
converted into 12,259,286 shares of common stock (on a split-adjusted basis). The remaining
35,221 shares of Series B redeemable convertible preferred stock not held by the TA Funds converted
into 279,955 shares of our common stock (on a split-adjusted basis). As a result of this conversion, no
shares of preferred stock were outstanding subsequent to the initial public offering, and we have no
immediate plans to issue any preferred stock. For additional information on the conversion of the
Series B shares controlled by the TA Funds, see Item 8. Financial Statements and Supplementary Data,
Note 14.
(cid:129) Senior Subordinated Notes Offering. On July 20, 2007, we sold $100.0 million of 9.25% senior
subordinated notes due 2013 — Series B (the “Series B Notes”) pursuant to Rule 144A of the Securities
Act of 1933 to help fund the 7-Eleven ATM Transaction. The form and terms of the Series B Notes are
substantially the same as the form and terms of the $200.0 million senior subordinated notes issued in
August 2005 (the “Series A Notes”), except that (i) the Series A Notes have been registered with the
Securities and Exchange Commission while the Series B Notes remain subject to transfer restrictions
until we complete an exchange offer, and (ii) the Series B Notes were issued with Original Issue
Discount and have an effective yield of 9.54%. Pursuant to the terms of the registration rights
agreement entered into in conjunction with the Series B Notes offering, we were required to file a
registration statement with the SEC within 240 days of the issuance of the Series B Notes with respect
to an offer to exchange each of the Series B Notes for a new issue of our debt securities registered
under the Securities Act with terms identical to those of the Series B Notes (except for the provisions
relating to the transfer restrictions and payment of additional interest) and use reasonable best efforts to
have the exchange offer become effective as soon as reasonably practicable after filing but in any event
no later than 360 days after the initial issuance date of the Series B Notes. On February 14, 2008, we
filed our initial registration statement on Form S-4 with the SEC. However, if we fail to satisfy our
registration obligations, we will be required, under certain circumstances, to pay additional interest to
the holders of the Series B Notes.
(cid:129) Revolving Credit Facility Modifications.
In July 2007, in conjunction with the 7-Eleven ATM
Transaction, we amended our revolving credit facility to, among other things, (i) increase the maximum
borrowing capacity under the revolver from $125.0 million to $175.0 million in order to partially
finance the acquisition and to provide additional financial flexibility, (ii) increase the amount of
“indebtedness” (as defined in the credit facility agreement) to allow for the new issuance of the notes
36
described above, (iii) extend the term of the facility from May 2010 to May 2012, (iv) increase the
amount of capital expenditures we could incur on a rolling 12-month basis from $60.0 million to a
maximum of $75.0 million, and (v) amend certain restrictive covenants contained within the facility. In
May 2007, we amended our revolving credit facility to modify, among other items, (i) the interest rate
spreads on outstanding borrowings and other pricing terms, and (ii) certain restrictive covenants
contained within the facility. Such modification will allow for reduced interest expense in future
periods, assuming a constant level of borrowing. Additionally, in March 2008, we further amended our
revolving credit facility to increase the amount of capital expenditures that we can incur on a rolling
12-month basis to $90.0 million.
7-Eleven ATM Transaction. On July 20, 2007, we purchased substantially all of the assets of the 7-
Eleven Financial Services Business for approximately $137.3 million in cash. Such amount included a
$1.3 million payment for estimated acquired working capital and approximately $1.0 million in other related
closing costs. This acquisition included approximately 5,500 ATMs located in 7-Eleven stores throughout the
United States, of which approximately 2,000 are advanced-functionality Vcom terminals. In connection with
the 7-Eleven ATM Transaction, we entered into a placement agreement that provides us with, subject to
certain conditions, a 10-year exclusive right to operate all ATMs and Vcom units in 7-Eleven locations
throughout the United States, including any new stores opened or acquired by 7-Eleven.
The operating results of our United States segment now include the results of the traditional ATM
operations of the 7-Eleven Financial Services Business, including the traditional ATM activities conducted on
the Vcom units. Additionally, as a result of the different functionality provided by the Vcom units, and the
expected continued near-term operating losses associated with providing the Vcom Services, such operations
have been identified as a separate reporting segment. Because of the significance of this acquisition, our
operating results for the year ended December 31, 2007 and our future operating results will not be
comparable to our historical results. In particular, while we expect our revenues and gross profits to increase
substantially as a result of the 7-Eleven ATM Transaction, such amounts will initially be substantially offset
by higher operating expense amounts, including higher selling, general, and administrative expenses associated
with running the combined operations. Depreciation, accretion, and amortization expense amounts will also
increase significantly as a result of the tangible and intangible assets recorded as part of the acquisition.
Historically, the Vcom Services have generated operating losses (excluding upfront placement fees, which
are unlikely to recur at such levels in the future). We estimate that such losses totaled $10.6 million and
$6.6 million for the years ended December 31, 2007 and 2006, respectively, including periods before and after
our acquisition of the 7-Eleven Financial Services Business. Subsequent to our acquisition of the 7-Eleven
Financial Services Business on July 20, 2007 and through December 31, 2007, the Vcom Services generated
an operating loss of $5.0 million, a level consistent with our expectations at closing. However, we are currently
working to restructure the Vcom Services to improve the underlying financial results of that portion of the
acquired business. In late 2007, we completed most of our cost reduction efforts, primarily through a
combination of contract renegotiations and by bringing a number of previously-outsourced functions in-house.
We estimate that these efforts will produce over $6.0 million in annual cost savings. In addition, we are in the
middle of a relocation project to concentrate our Vcom units in 15 domestic markets, which will allow us to
advertise the availability of the advanced-functionality services to consumers within those markets to increase
awareness. We expect that these efforts will result in an increased number of advanced-functionality
transactions being conducted on those machines. Finally, in terms of increasing our advanced-functionality
revenues, we have rolled-out the remote deposit capture function on all of our Vcom units. This remote
deposit capture function allows us to take deposits for customers of financial institutions and financial
institution networks, such as FSCC, that have contracted with us to provide such service to their customers. In
addition to our agreement with FSCC, we are also implementing two other remote deposit capture
arrangements that we expect to have in place in mid-2008. Despite these anticipated improvements, we
currently expect that the Vcom Services will continue to generate operating losses during 2008 and will not
achieve break-even results until the second half of the year.
Merchant-owned Account Attrition.
In general, we have experienced nominal turnover among our
customers with whom we enter into Company-owned arrangements and have been successful in negotiating
37
contract renewals with those customers. Conversely, we have historically experienced a higher turnover rate
among our smaller merchant-owned customers, with our domestic merchant-owned account base declining by
over 1,900 machines during 2006 and approximately 750 machines during 2007. While part of this attrition
was due to an internal initiative launched by us in 2006 to identify and either restructure or eliminate certain
underperforming merchant-owned accounts, an additional driver of this attrition was local and regional
independent ATM service organizations that are targeting our smaller merchant-owned accounts upon the
termination of the merchant’s contracts with us, or upon a change in the merchant’s ownership, which can be a
common occurrence. Accordingly, we launched an internal initiative to identify and retain those merchant-
owned accounts where we believed it made economic sense to do so. Our retention efforts to date have been
successful, as the attrition experienced in 2007 was significantly lower than that experienced in 2006. Despite
the decline in attrition levels, we still cannot predict whether such efforts will continue to be successful in
reducing the attrition rate. Furthermore, because of our efforts to eliminate certain underperforming accounts,
we may continue to experience a downward trend in our merchant-owned account base for the foreseeable
future. Finally, because the EFT networks required that all ATMs be Triple-DES compliant by the end of
2007, we anticipate that we will lose between 500 and 650 additional merchant-owned accounts during the
early part of 2008 as some merchants with low transacting ATMs decide to dispose of their ATMs rather than
incur the costs to upgrade or replace their existing machines.
Intangible Asset Impairments. During the year ended December 31, 2007, we recorded approximately
$5.7 million of impairment charges related to our intangible assets. Of this $5.7 million, $5.1 million related
to our merchant contract with Target that we acquired in 2004, as we concluded that the anticipated future
cash flows associated with that contract, absent any modifications to such contract, were likely to be
insufficient to support the related unamortized intangible and tangible asset values. We had been in discussions
with Target regarding additional services that could be offered under the existing contract to increase the
number of transactions conducted on, and cash flows generated by, the underlying ATMs. However, we were
unable to make any meaningful progress in this regard during the first nine months of 2007, and, based on
discussions that had been held with Target, we concluded that the likelihood of being able to provide such
additional services had decreased considerably. Furthermore, average monthly transaction volumes associated
with this particular contract continued to decrease in 2007 when compared to the same period last year.
Accordingly, we concluded that an impairment charge was warranted during the third quarter of 2007. The
impairment charge recorded served to write-off the remaining unamortized intangible asset associated with this
merchant contract. Despite the above, we are continuing to work with Target to restructure the terms of the
existing contract in an effort to improve the underlying cash flows associated with such contract and to offer
the additional services noted above, which we believe could significantly increase the future cash flows earned
under this contract.
Valuation Allowance. During the year ended December 31, 2007, we recorded $4.8 million in valuation
allowances to reserve for various deferred tax assets associated with our domestic operations, resulting in an
overall income tax expense of $4.6 million. Such adjustments were based, in part, on the expectation of
increased pre-tax book losses during the latter half of 2007, primarily as a result of the additional interest
expense amounts associated with the 7-Eleven ATM Transaction and the anticipated losses associated with the
acquired Vcom operations.
38
Results of Operations
The following table sets forth our statement of operations information as a percentage of total revenues
for the years indicated. Percentages may not add due to rounding.
Years Ended December 31,
2007
2005
2006
Revenues:
ATM operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vcom operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM product sales and other revenues. . . . . . . . . . . . . . . . . . . . . . . . . .
96.2% 95.7% 96.3%
—
0.3
4.3
3.4
—
3.7
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.0
100.0
100.0
Cost of revenues:
Cost of ATM operating revenues (exclusive of depreciation, accretion,
and amortization, shown separately below)(1) . . . . . . . . . . . . . . . . . . .
Cost of Vcom operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of ATM product sales and other revenues. . . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Selling, general, and administrative expenses . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72.8
1.6
3.2
77.5
22.5
7.8
7.1
5.0
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.8
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense:
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.6
8.2
(0.1)
0.4
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.6
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5.9)
1.2
71.5
—
3.9
75.4
24.6
7.4
6.3
4.1
17.8
6.8
8.5
(0.1)
(1.6)
6.8
—
0.2
74.3
—
3.6
77.9
22.1
6.6
4.8
3.3
14.8
7.3
8.3
—
0.4
8.7
(1.4)
(0.5)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7.2)% (0.2)% (0.9)%
(1) Excludes effects of depreciation, accretion, and amortization expense of $43.1 million, $29.2 million, and
$20.6 million for the years ended December 31, 2007, 2006, and 2005, respectively. The inclusion of this
depreciation, accretion, and amortization expense in “Cost of ATM operating revenues” would have
increased our Cost of ATM operating revenues as a percentage of total revenues by 11.4%, 9.9%, and
7.7% for the years ended December 31, 2007, 2006, and 2005, respectively.
(2) Includes pretax impairment charges of $5.7 million, $2.8 million, and $1.2 million for the years ended
December 31, 2007, 2006, and 2005, respectively.
39
Key Operating Metrics
We rely on certain key measures to gauge our operating performance, including total transactions, total
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 years indicated.
Average number of transacting ATMs:
United States: Company-owned . . . . . . . . . . . . . . . . . . . . . . . .
United States: Merchant-owned . . . . . . . . . . . . . . . . . . . . . . . .
United States: 7-Eleven Financial Services Business(1). . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total average number of transacting ATMs . . . . . . . . . . . . . .
Total transactions (in thousands) . . . . . . . . . . . . . . . . . . . . . . . .
Total withdrawal transactions (in thousands) . . . . . . . . . . . . . . .
Average monthly withdrawal transactions per average
2007
2006
2005
11,563
11,632
2,585
1,718
784
28,282
11,265
13,016
—
1,194
303
25,778
10,521
14,604
—
1,039
—
26,164
246,595
166,248
172,808
125,078
156,851
118,960
transacting ATM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
490
404
379
Per ATM per month:
ATM operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization)(2) . . . . . . . . . . . . . . . . . . . . . . . .
ATM operating gross profit(2)(3)
. . . . . . . . . . . . . . . . . . . . . . . . $
1,073
$
908
$
825
811
262
$
678
230
$
636
189
ATM operating gross profit margin (exclusive of depreciation,
accretion, and amortization)(4) . . . . . . . . . . . . . . . . . . . . . . . .
ATM operating gross profit margin (inclusive of depreciation,
accretion, and amortization)(5) . . . . . . . . . . . . . . . . . . . . . . . .
24.4%
25.3%
22.9%
12.5%
14.9%
14.9%
(1) The 2007 year-to-date average for the 7-Eleven Financial Services Business represents the 12-month aver-
age of ATMs and Vcom units under Cardtronics’ ownership. The low figure is due to the fact that Card-
tronics did not acquire the portfolio until July 20, 2007. The actual average number of transacting ATMs
from the acquisition date to December 31, 2007 was 5,602.
(2) Excludes effects of depreciation, accretion, and amortization expense of $43.1 million, $29.2 million, and
$20.6 million for the years ended December 31, 2007, 2006, and 2005, respectively. The inclusion of this
depreciation, accretion, and amortization expense in “Cost of ATM operating revenues” would have increased
our cost of ATM operating revenues per ATM per month and decreased our ATM operating gross profit per
ATM per month by $127, $94, and $66 for the years ended December 31, 2007, 2006, and 2005, respectively.
(3) ATM operating gross profit is a measure of profitability that uses only the revenue and expenses that
related to operating the ATMs. The revenue and expenses from ATM equipment sales, Vcom Services, and
other ATM-related services are not included.
(4) The decrease in ATM operating gross profit margins (exclusive of depreciation, accretion, and amortiza-
tion) in 2007 when compared to 2006 is primarily the result of higher vault cash costs and costs incurred
in connection with our Triple-DES upgrade and in-house processing conversion costs. The increase in
ATM operating gross profit margin (exclusive of depreciation, accretion, and amortization) in 2006 when
compared to 2005 is due to the increases in revenues associated with the Company’s bank and network
branding initiatives, increased surcharge rates in selected merchant retail locations, and higher gross profit
margins associated with our United Kingdom portfolio of ATMs (which was acquired in May 2005).
(5) The decrease in ATM operating gross profit margin (inclusive of depreciation, accretion, and amortization) in
2007 when compared to 2006 is primarily due to higher vault cash costs, the incremental costs incurred in con-
nection with our Triple-DES upgrade and in-house processing conversion efforts, higher depreciation and accre-
tion expense associated with recent ATM deployments in the United Kingdom and Mexico, which have yet to
40
achieve the higher consistent recurring transaction levels seen in our more mature ATMs, and $5.7 million of
incremental amortization expense related to intangible asset impairments recorded in 2007.
Revenues
2007
ATM operating revenues . . . . . . . . $364,071
Vcom operating revenues. . . . . . . .
1,251
ATM product sales and other
For the Years Ended December 31,
% Change
2006
2006 to 2007
(In thousands, excluding percentages)
29.6%
—
$258,979
—
2005
$280,985
—
revenues . . . . . . . . . . . . . . . . . .
12,976
Total revenues . . . . . . . . . . . . . . $378,298
12,620
$293,605
2.8%
28.8%
9,986
$268,965
% Change
2005 to 2006
8.5%
—
26.4%
9.2%
ATM operating revenues. ATM operating revenues generated during the years ended December 31,
2007 and 2006 increased $83.1 million and $22.0 million, respectively, over the immediately preceding year.
Below is a detail, by segment, of changes in the various components of ATM operating revenues for the
periods indicated:
U.S.
2007 to 2006 Variance
U.K.
Mexico
Increase (Decrease)
(In thousands)
Total
U.S.
2006 to 2005 Variance
U.K.
Mexico
Increase (Decrease)
(In thousands)
Total
Surcharge revenue . . . . . . . . . . . .
Interchange revenue . . . . . . . . . . .
Branding and surcharge-free
network revenue . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
Total increase . . . . . . . . . . . . . .
$19,813 $14,115 $1,921 $35,849 $(7,281) $15,510
4,815
20,206
(2,863)
28,828
1,442
7,180
$398 $ 8,627
2,340
388
18,579
(176)
—
4
2
—
18,581
(172)
$58,422 $21,299 $3,365 $83,086 $
—
9,987
986
60
829 $20,385
9,993
6
— 1,046
$792 $22,006
Year ended December 31, 2007 compared to year ended December 31, 2006
United States. During the year ended December 31, 2007, our United States operations experienced a
$58.4 million, or 24.5%, increase in ATM operating revenues over 2006. The majority of this increase was
attributable to the 7-Eleven ATM Transaction, as the acquired 7-Eleven Financial Services Business generated
$35.5 million, $22.7 million, and $6.9 million in incremental surcharge, interchange, and bank branding and
surcharge-free network fees, respectively, in the five and a half months during which we owned these
operations. Also contributing to the increase in ATM operating revenues were the branding activities of our
pre-existing domestic operations, which generated $11.7 million in incremental bank branding and surcharge-
free network fees in 2007 when compared to 2006. These incremental revenues were a result of additional
branding and surcharge-free network agreements entered into with financial institutions during 2006 and 2007.
The overall increase in ATM operating revenues from the acquired 7-Eleven Financial Services Business and
our pre-existing domestic branding and surcharge-free network operations were partially offset by lower surcharge
and interchange revenues associated with our pre-existing domestic operations. During 2007, surcharge and
interchange revenues from our merchant-owned base declined $11.6 million and $2.5 million, respectively,
compared to 2006, primarily as a result of the decline in the average number of transacting merchant-owned ATMs
in the United States, as discussed in — Recent Events — Merchant-owned Account Attrition above. Additionally,
surcharge revenues from our Company-owned base declined by $4.1 million during 2007, primarily as a result of a
shift in revenues from surcharge-based fees to surcharge-free branding and network fees due to the additional
branding and surcharge-free network arrangements entered into with financial institutions during 2006 and 2007.
United Kingdom. Our United Kingdom operations also contributed to the higher ATM operating
revenues for 2007, as the surcharge and interchange revenues earned in this segment during 2007 increased by
39.7% and 112.1%, respectively, over 2006. These incremental revenues were primarily driven by the increase
41
in the average number of transacting ATMs in the United Kingdom, which increased from 1,194 ATMs in
2006 to 1,718 ATMs in 2007, due to additional ATM deployments. However, such incremental revenues were
slightly lower than originally anticipated due to certain third-party service-related issues experienced by our
United Kingdom operations during the fourth quarter of 2007. Such issues, which were caused by the merger
of two of our third-party service providers, resulted in a higher percentage of downtime experienced by our
ATMs in this market during the fourth quarter of 2007. Although we expect such service-related issues to be
resolved during 2008, it is likely that such issues will continue to negatively impact the operating results of
our United Kingdom operations in the near-term. Despite this fact, we expect to continue to see an increase in
transaction-based revenues from our United Kingdom operations as transaction levels at recently-deployed
ATMs continue to mature and reach consistent monthly transaction levels. Finally, foreign currency exchange
rates also favorably impacted the revenues from our United Kingdom operations. Of the $21.3 million increase
in ATM operating revenues, $5.0 million resulted from favorable exchange rate movements in 2007 when
compared to 2006.
Mexico. Our Mexico operations further contributed to the increase in ATM operating revenues as a
result of the increase in the average number of transacting ATMs associated with these operations, which rose
from 303 during 2006 to 784 during 2007.
Year ended December 31, 2006 compared to year ended December 31, 2005
United States. During the year ended December 31, 2006, our United States operations experienced a
$0.8 million increase in ATM operating revenues over 2005. This increase was the result of the branding
activities of our pre-existing domestic operations, which generated $10.0 million in incremental bank branding
and surcharge-free network revenues in 2006 when compared to 2005. These incremental branding revenues
were a result of additional agreements entered into with financial institutions during 2006. Also contributing to
the increase in ATM operating revenues were higher surcharge and interchange revenues from our pre-existing
domestic Company-owned operations, which increased $2.3 million and $1.4 million, respectively, during
2006. The increased revenues from our bank branding, surcharge-free networks, and Company-owned ATM
base were offset by lower surcharge and interchange revenues associated with our pre-existing domestic
merchant-owned operations. During 2006, surcharge and interchange revenues from our merchant-owned base
declined roughly $9.6 million and $4.3 million, respectively, compared to 2005, primarily as a result of the
decline in the average number of transacting ATMs, as previously discussed.
United Kingdom. During 2006, our United Kingdom operations contributed $20.4 million in incremental
revenues over 2005, primarily due to the fact that the results for 2005 only reflected eight months’ worth of
operating results from the acquired Bank Machine operations. Also contributing to the higher revenues was the
increase in the average number of transacting ATMs, which grew from 1,039 ATMs in 2005 to 1,194 ATMs in
2006. Foreign currency exchange rates also favorably impacted the revenues from our Bank Machine
operations during 2006. Of the $20.4 million increase in ATM operating revenues, $1.6 million resulted from
favorable exchange rate movements in 2006 when compared to 2005.
Mexico. During 2006, our Mexico operations contributed $0.8 million in incremental revenues as a
result of our acquisition of a 51% interest in Cardtronics Mexico in February 2006.
Vcom operating revenues. We acquired our advanced-functionality (or Vcom) operations as a part of
the 7-Eleven ATM Transaction in July 2007. The Vcom operating revenues generated during 2007 were
primarily comprised of check cashing fees and certain placement fee revenues associated with agreements 7-
Eleven had previously entered into with Vcom Services providers. Although the revenues generated by our
Vcom operations during 2007 were nominal, we expect that revenues from these operations will increase
significantly as we continue with our efforts to restructure these operations. We are currently in the middle of
a relocation project to concentrate our Vcom units in 15 selected markets within the U.S. Such concentrations
will allow us to advertise the availability of the advanced-functionality services to consumers within those
markets to increase awareness, which we expect will result in an increased number of advanced-functionality
transactions being conducted on those machines.
42
ATM product sales and other revenues. ATM product sales and other revenues for the year ended
December 31, 2007 were slightly higher than those generated during 2006 due to higher value-added reseller
(“VAR”) program sales. During 2006, ATM product sales and other revenues were significantly higher (on a
percentage basis) than those generated during 2005 due to higher service call income resulting from Triple-
DES security upgrades performed in the United States, higher year-over-year equipment and VAR program
sales, and higher non-transaction based fees associated with our domestic network branding program.
Cost of Revenues
Cost of ATM operating revenues (exclusive
of depreciation, accretion, and
amortization) . . . . . . . . . . . . . . . . . . . . . .
Cost of Vcom operating revenues . . . . . . . . .
Cost of ATM product sales and other
2007
For the Years Ended December 31,
% Change
2006
2006 to 2007
2005
(In thousands, excluding percentages)
% Change
2005 to 2006
$275,286
6,065
$209,850
—
31.2%
—
$199,767
—
5.0%
—
revenues. . . . . . . . . . . . . . . . . . . . . . . . . .
11,942
11,443
4.4%
9,681
18.2%
Total cost of revenues (exclusive of
depreciation, accretion, and
amortization) . . . . . . . . . . . . . . . . . . . .
$293,293
$221,293
32.5%
$209,448
5.7%
Cost of ATM operating revenues (exclusive of depreciation, accretion, and amortization). The cost of
ATM operating revenues (exclusive of depreciation, accretion, and amortization) incurred during the years
ended December 31, 2007 and 2006 increased $65.4 million and $10.1 million, respectively, over the
immediately preceding year. 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) for the periods indicated:
U.S.
2007 to 2006 Variance
U.K.
Mexico
Increase (Decrease)
(In thousands)
Total
U.S.
2006 to 2005 Variance
U.K.
Mexico
Increase (Decrease)
(In thousands)
Total
Cost of cash . . . . . . . . . . . . . . . . .
Merchant commissions . . . . . . . . .
Repairs and maintenance . . . . . . . .
Direct operations . . . . . . . . . . . . . .
Communications . . . . . . . . . . . . . .
In-house processing conversion . . .
Processing fees . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . .
$17,582 $ 6,734 $ 826 $25,142 $ 1,582 $ 2,172
7,194
12,167
199
6,702
2,430
2,946
(276)
3,051
—
2,419
1,021
195
210
(302)
19,315
1,036
7,565
450
5,140
106
108
4,094
— 2,419
1,710
332
51
50
(6,185)
(638)
1,343
1,094
—
(791)
170
6,112
413
2,088
935
—
1,183
303
$ 88 $ 3,842
1,061
(393)
3,950
819
—
422
382
52
46
177
1
—
192
2
Total increase (decrease) . . . . . .
$44,760 $17,768 $2,908 $65,436 $(3,425) $12,950
$558 $10,083
Year ended December 31, 2007 compared to year ended December 31, 2006
United States. During 2007, the cost of ATM operating revenues (exclusive of depreciation, accretion,
and amortization) incurred by our United States operations increased $44.8 million over the cost incurred
during 2006. This increase was primarily the result of the 7-Eleven ATM Transaction, as the acquired 7-Eleven
Financial Services Business incurred $47.3 million of incremental expenses in the five and a half months
during which we owned these operations during 2007, including $24.0 million of merchant fees, $12.6 million
in costs of cash, $5.4 million of repairs and maintenance costs, $2.2 million in communication costs,
$1.6 million of processing fees, and $0.6 million in additional employee-related costs directly allocable to
these operations. The $47.3 million of incremental expenses generated by the ATM operations of the acquired
43
7-Eleven Financial Services Business is net of $3.7 million of amortization expense related to the liabilities
recorded to value certain unfavorable operating leases and an operating contract assumed as a part of the 7-
Eleven ATM Transaction. For additional details related to these liabilities, see Item 8. Financial Statements
and Supplementary Data, Note 2.
Also contributing to the increase were our pre-existing United States operations, which experienced
(i) $5.0 million of higher vault cash costs when compared to the same period in 2006 as a result of the higher
average per-transaction cash withdrawal amounts and higher overall vault cash balances in our bank-branded
ATMs, (ii) $2.4 million in incremental costs associated with our efforts to convert our ATMs to our in-house
transaction processing platform, and (iii) $2.3 million of additional employee-related costs directly allocable to
our pre-existing domestic operations as a result of our decision to hire additional personnel to focus on our
initiatives. Partially offsetting these increases in costs were lower merchant fees associated with our pre-
existing domestic operations, which decreased $11.8 million when compared to the same period in 2006 due
to the year-over-year decline in the number of domestic merchant-owned ATMs (as discussed in — Recent
Events — Merchant-owned Account Attrition above) and the related surcharge revenues, and lower processing
costs as a result of our conversion to our in-house processing platform.
United Kingdom. During the year ended December 31, 2007, our United Kingdom operations contrib-
uted to the increase in the cost of ATM operating revenues with such costs increasing $17.8 million over 2006.
These increases were due to higher costs of cash and merchant payments, as well as increased communications
and processing costs, which resulted from the increased number of ATMs operating in the United Kingdom
during 2007 when compared to the same period in 2006. We anticipate that these costs as a percentage of
revenues will decline as the transaction levels for recently-deployed ATMs continue to mature and reach
consistent monthly recurring transaction levels. Additionally, foreign currency exchange rates increased our
cost of ATM operating revenues from our United Kingdom operations, accounting for approximately
$3.6 million of the total $17.8 million increase in these costs during 2007.
Mexico. Our Mexico operations further contributed to the increase in the cost of ATM operating
revenues as a result of the increase in the average number of transacting ATMs associated with our Mexico
operations and the increased number of transactions conducted on our machines during 2007 compared to
2006.
Year ended December 31, 2006 compared to year ended December 31, 2005
United States. During the year ended December 31, 2006, our United States segment experienced a
$3.4 million decline in the cost of ATM operating revenues compared to 2005. This reduction in costs was
primarily due to the $9.3 million decline in merchant fees attributable to our merchant-owned base, which was
a result of the reduction in the number of average transacting merchant-owned ATMs in our portfolio and
consistent with the decline in surcharge revenues. Partially offsetting this decline was a $3.1 million increase
in merchant fees attributable to our Company-owned base, which was a result of the increase in the number of
Company-owned ATMs and consistent with the increase in surcharge revenues.
United Kingdom. During 2006, our Bank Machine operations experienced a $13.0 million increase in
the cost of ATM operating revenues compared to 2005. Such increase was partially attributable to the fact that
our 2005 results only reflected eight months’ worth of operating results from the acquired Bank Machine
operations. Also contributing to the increase was the higher average number of transacting ATMs in 2006,
which increased from 1,039 ATMs in 2005 to 1,194 ATMs in 2006, and resulted in higher merchant payments
and an increased cost of cash. Foreign currency exchange rates also impacted the expenses incurred by our
Bank Machine operations during 2006. Of the $13.0 million increase in cost of ATM operating revenues
during 2006, $1.0 million resulted from higher exchange rates during 2006 compared to 2005.
Mexico. During 2006, we incurred $0.6 million in incremental cost of ATM operating revenues as a
result of our acquisition of a 51% interest in Cardtronics Mexico in February 2006.
Cost of Vcom operating revenues. The cost of Vcom operating revenues incurred during 2007 was
primarily related to maintenance costs and the cost of cash related to the Vcom Services provided by our
44
advanced-functionality operations. We also incurred approximately $1.4 million in direct marketing expenses
during 2007 associated with certain promotional efforts to increase awareness of the Vcom Services, which
negatively impacted our 2007 results. Although we will continue to incur direct marketing expenses during
2008 associated with our promotional efforts, we anticipate that the total costs associated with the provision of
the Vcom Services will decrease in 2008, as we completed most of our cost reduction efforts during the latter
part of 2007. Such cost reductions are due to a combination of contract renegotiations and bringing a number
of previously-outsourced functions in-house, which we estimate will produce over $6.0 million in annual cost
savings.
Cost of ATM product sales and other revenue. The cost of ATM product sales and other revenues
increased by 4.4% during 2007. This increase was primarily due to higher year-over-year costs associated with
equipment sold under our VAR program with NCR, but was partially offset by lower costs associated with
ATM sales that resulted from a decline in equipment sales to independent merchants in 2007 as compared to
2006. During 2006, cost of ATM product sales and other revenues were significantly higher (on a percentage
basis) than those generated for the year ended December 31, 2005 due to higher service call levels associated
with Triple-DES security upgrades performed in the United States, higher year-over-year equipment and VAR
program sales, and higher non-transaction based fees associated with our domestic network branding program.
Gross Profit Margin
For the Years Ended
December 31,
2007
2006
2005
ATM operating gross profit margin:
Exclusive of depreciation, accretion, and amortization . . . . . . . . . . . . . . .
Inclusive of depreciation, accretion, and amortization . . . . . . . . . . . . . . . .
Vcom operating gross profit margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM product sales and other revenues gross profit margin . . . . . . . . . . . . . .
Total gross profit margin:
24.4% 25.3% 22.9%
12.5% 14.9% 14.9%
(384.8)% —
—
8.0% 9.3% 3.1%
Exclusive of depreciation, accretion, and amortization . . . . . . . . . . . . . . .
Inclusive of depreciation, accretion, and amortization . . . . . . . . . . . . . . . .
22.5% 24.6% 22.1%
11.1% 14.7% 14.5%
ATM operating gross profit margin
ATM operating gross profit margin (exclusive of depreciation, accretion, and amortization). For the year
ended December 31, 2007, ATM operating gross profit margin (exclusive of depreciation, accretion, and
amortization) decreased 0.9% when compared to 2006. Such decline was primarily due to the $2.4 million in
additional costs incurred in 2007 associated with our efforts to transition our domestic ATMs onto our in-
house transaction processing platform. While these costs are not expected to continue subsequent to the
completion of our conversion efforts, we anticipate that our gross margin (exclusive of depreciation, accretion,
and amortization) will continue to be negatively impacted by these costs during 2008 as we convert the
remainder of our Company-owned and merchant-owned ATMs to our processing platform. Our ATM operating
gross profit margins (exclusive of depreciation, accretion, and amortization) were further impacted by
$0.5 million in inventory reserves related to our Triple-DES upgrade efforts. As we have substantially
completed our Triple-DES upgrade efforts, we do not anticipate that we will incur similar costs in 2008.
Additionally, our 2007 ATM operating gross profit margins (exclusive of depreciation, accretion, and
amortization) were negatively impacted by the significant number of ATM deployments that occurred in our
United Kingdom operations during the latter half of 2007, as many of those ATMs were still in the process of
achieving consistent recurring monthly transaction levels during 2007. Furthermore, during the fourth quarter
of 2007, our ATM operating gross profit margins were negatively impacted by a higher percentage of
downtime experienced by our ATMs in the United Kingdom as a result of certain third-party service-related
issues. While we expect such service-related issues to be resolved during the 2008, it is likely that such issues
will continue to negatively impact the operating results of our United Kingdom operations in the near-term.
45
During 2006, ATM operating gross profit margin (exclusive of depreciation, accretion, and amortization)
increased 2.4% compared to the gross margin earned in 2005. Such increase was primarily due to a greater
percentage of our gross profit being generated by our United Kingdom operations, which typically earn higher
overall ATM operating margins than our United States ATM operations. Additionally, our 2006 results reflect
a full year’s worth of operating results from our United Kingdom operations compared to only eight months of
operating results reflected in 2005. Furthermore, the year-over-year increase in branding and surcharge-free
network revenues in the United States also contributed to the higher gross margin figure in 2006.
ATM operating gross profit margin (inclusive of depreciation, accretion, and amortization). During
2007, ATM operating gross profit margin (inclusive of depreciation, accretion, and amortization) decreased
2.4% compared to 2006. Such decline was the result of transition costs associated with our in-house processing
operations, inventory reserves related to our Triple-DES upgrade efforts, and the temporary decline in margins
associated with our United Kingdom operations, each of which are discussed in further detail above. Also
contributing to the declines in gross margins (inclusive of depreciation, accretion, and amortization) were
(i) the higher depreciation and accretion expense associated with recent ATM deployments, primarily in the
United Kingdom and Mexico, which have yet to achieve the higher consistent recurring transaction levels seen
in our more mature ATMs, (ii) the incremental depreciation, accretion, and amortization expense recorded as a
result of our July 2007 acquisition of the 7-Eleven Financial Services Business, and (iii) the incremental
amortization expense related to certain intangible asset impairments recorded in 2007. See — Depreciation
and Accretion Expense and — Amortization Expense below for additional discussions of the increases in
depreciation and accretion expense and amortization expense, respectively.
ATM product sales and other revenues gross profit margin. For the year ended December 31, 2007,
our ATM product sales and other revenues gross profit margin decreased 1.3%, primarily as a result of our
Triple-DES upgrade efforts. Because all ATMs operating on the EFT networks were required to be Triple-DES
compliant by the end of 2007, we have seen an increase in the number of ATM sales associated with the
Triple-DES upgrade process. However, in certain circumstances, we have sold the machines at little or, in
some cases, negative margins in exchange for renewals of the underlying ATM operating agreements. As a
result, gross margins associated with our ATM product sales and other activities were negatively impacted
during 2007. However, we anticipate that such margins will improve in 2008 now that the Triple-DES
compliance upgrade process is substantially completed.
For the year ended December 31, 2006, our ATM product sales and other gross margins were higher than
for the year ended December 31, 2005 due to certain non-transaction based services that are now being
provided as part of our network branding operations as well as higher equipment and VAR program sales.
46
Selling, General, and Administrative Expenses
For the Years Ended December 31,
2007
% Change
2006 to 2007
2006
(In thousands, excluding percentages)
2005
% Change
2005 to 2006
Selling, general, and administrative
expenses, excluding stock-based
compensation . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . .
Total selling, general, and
$28,394
963
$20,839
828
36.3%
16.3%
$15,664
2,201
33.0%
(62.4)%
administrative expenses . . . . . .
$29,357
$21,667
35.5%
$17,865
21.3%
Percentage of revenues:
Selling, general, and administrative
expenses, excluding stock-based
compensation . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . .
Total selling, general, and
administrative expenses . . . . . . . . . .
7.5%
0.3%
7.1%
0.3%
7.8%
7.4%
5.8%
0.8%
6.6%
Selling, general, and administrative expenses (“SG&A expenses”), excluding stock-based compensation.
For the year ended December 31, 2007, SG&A expenses, excluding stock-based compensation, increased
$7.6 million over 2006. This increase was primarily attributable to our United States operations, which
experienced an increase of $5.6 million, or 33.0%, in 2007 when compared to the same period in 2006,
primarily as a result of (i) a $3.0 million increase in employee-related costs, primarily on the sales and
marketing side of our business and the employees assumed in connection with the 7-Eleven ATM Transaction,
(ii) a $1.4 million increase in professional fees associated with our Sarbanes-Oxley Act of 2002 (“Sarbanes-
Oxley”) compliance efforts, and (iii) $0.7 million in increased legal costs associated with our National
Federation of the Blind and CGI, Inc. litigation settlements. Additionally, our United Kingdom and Mexico
operations had higher SG&A expenses during 2007, primarily due to additional employee-related costs to
support growth of these segments’ operations and, in the case of our United Kingdom operations, changes in
foreign currency exchange rates, which contributed approximately $0.4 million of this segment’s total
$1.3 million increase in SG&A expense, excluding stock-based compensation, over 2006.
During 2006, our SG&A expenses, excluding stock-based compensation, increased by 33.0% when
compared to 2005. Such increase was attributable to higher costs associated with our United States operations,
which increased $3.7 million, or 27.6%, primarily due to higher employee-related costs as well as higher
accounting, legal, and professional fees resulting from our past growth. In the United Kingdom, our SG&A
expenses increased $0.9 million when compared to the prior year due to the fact that the 2005 results included
only eight months of operating results from Bank Machine. However, such increases were somewhat offset by
certain cost savings measures that were implemented subsequent to the May 2005 acquisition date. Finally, our
Mexico operations, which were acquired in February 2006, contributed approximately $0.6 million to the year-
over-year variance.
While our SG&A expenses are expected to continue to increase on an absolute basis as a result of our
future growth initiatives and our acquisition of the 7-Eleven Financial Services Business, we expect that such
costs will begin to decrease as a percentage of our total revenues.
Stock-based compensation. Stock-based compensation expense for the year ended December 31, 2007
was slightly higher than for the year ended December 31, 2006 as a result of the additional option awards that
were granted during 2007. Stock-based compensation for 2006 decreased by 62.4% when compared to 2005,
primarily due to an additional $1.7 million in stock-based compensation recognized during 2005 related to the
repurchase of shares underlying certain employee stock options in connection with our Series B redeemable
convertible preferred stock financing transaction. Additionally, during the year ended December 31, 2006, we
adopted SFAS No. 123R, which requires us to record the grant date fair value of stock-based compensation
47
arrangements as compensation expense on a straight-line basis over the underlying service period of the related
award.
Depreciation and Accretion Expense
For the Years Ended December 31,
2007
Depreciation expense . . . . . . . . . . . . . . . $25,737
1,122
Accretion expense . . . . . . . . . . . . . . . . .
% Change
2006 to 2007
2005
2006
(In thousands, excluding percentages)
40.5% $11,949
1,002
312.5%
$18,323
272
% Change
2005 to 2006
53.3%
(72.9)%
Depreciation and accretion expense . . . $26,859
$18,595
44.4% $12,951
43.6%
Percentage of Revenues:
Depreciation expense . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . .
Total depreciation and accretion
expense . . . . . . . . . . . . . . . . . . . . . . .
6.8%
0.3%
6.2%
0.1%
7.1%
6.3%
4.4%
0.4%
4.8%
Depreciation expense. For the year ended December 31, 2007, depreciation expense increased by 40.5%
over 2006. This increase was primarily attributable to our United States operations, which recognized an
additional $4.1 million of depreciation during 2007, $2.8 million of which related to the ATMs, Vcom units,
and other assets acquired in the 7-Eleven ATM Transaction. Included within the $2.8 million is the
amortization of assets associated with the capital leases assumed in the 7-Eleven ATM Transaction. Also
contributing to the year-over-year increase was our United Kingdom and Mexico operations, which recognized
additional depreciation of $2.9 million and $0.4 million, respectively, during 2007 due to the deployment of
additional ATMs under Company-owned arrangements.
The 53.3% increase in depreciation in 2006 was primarily comprised of $4.1 million of incremental
depreciation related to our United States operations and $2.3 million of incremental depreciation related to our
United Kingdom operations. The increase in the United States was primarily due to the deployment of
additional ATMs under Company-owned arrangements during the latter part of 2005 and throughout 2006, the
majority of which were associated with our bank branding efforts. Additionally, the results for our U.S. oper-
ations reflected the acceleration of depreciation for certain ATMs that were deinstalled early as a result of
contract terminations and certain ATMs that were expected to be replaced sooner than originally anticipated as
part of our Triple-DES security upgrade process. The year-over-year increase in the United Kingdom was
driven by the 300 additional ATM deployments and the fact that the 2005 results only reflect eight months’
worth of results from the acquired Bank Machine operations.
Accretion expense. We account for our asset retirement obligations in accordance with SFAS No. 143,
Accounting for Asset Retirement Obligations, which requires that we estimate the fair value of future
retirement obligations associated with our ATMs, including the anticipated costs to deinstall, and in some
cases refurbish, 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.
The $0.9 million increase in accretion expense in 2007 when compared to 2006 and the $0.7 million
decrease in accretion expense in 2006 when compared to 2005 was primarily the result of $0.5 million of
excess accretion expense that was erroneously recorded in 2005. This amount was subsequently reversed in
2006, at which time we determined that the impact of recording the $0.5 million out-of-period adjustment in
2006 (as opposed to reducing the reported 2005 accretion expense amount) was immaterial to both reporting
periods pursuant to the provisions contained in SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality,
and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements. In forming this opinion, we considered the nature of the adjustment (non-
cash versus cash) and the relative size of the adjustment to certain financial statement line items, including
revenues, gross profits, and pre-tax income (or loss) amounts for each period, including the interim periods
contained within both years. Furthermore, we considered the impact of recording this adjustment in 2006 on
48
our previously reported earnings and losses for such periods and concluded that such adjustment did not
impact the trend of our previously reported earnings and losses.
Excluding the $0.5 million adjustment (discussed above), the increase in accretion expense in 2007 when
compared to 2006 was the result of the 5,500 ATMs and Vcom units acquired in the 7-Eleven ATM
Transaction and the deployment of approximately 1,800 additional ATMs by our United Kingdom and Mexico
operations during 2007. Additionally, excluding the $0.5 million adjustment, accretion expense in 2006
increased when compared to 2005, which primarily resulted from the 300 additional ATMs deployed in the
United Kingdom during 2006.
In the future, we expect that our depreciation and accretion expense will grow to reflect the increase in
the number of ATMs we own and deploy throughout our Company-owned portfolio. To that end, our
depreciation and accretion expense amount is expected to increase substantially as a result of the recently
completed 7-Eleven ATM Transaction.
Amortization Expense
Amortization expense . . . . . . . . . . . . . .
Percentage of revenues . . . . . . . . . . . . .
For the Years Ended December 31,
% Change
2005 to 2006
2006
(In thousands, excluding percentages)
$8,980
57.5%
2005
$11,983
% Change
2005 to 2006
33.4%
2007
$18,870
5.0%
4.1%
3.3%
Amortization expense is primarily comprised of the amortization of intangible merchant contracts and
relationships associated with our past acquisitions. During the year ended December 31, 2007, amortization
expense increased by $6.9 million when compared to the same period in 2006, primarily due to $5.7 million
of impairment charges recorded during 2007, of which $5.1 million related to the unamortized intangible asset
value associated with our merchant contract with Target that we acquired in 2004. We had been in discussions
with Target regarding additional services that could be offered under the existing contract to increase the
number of transactions conducted on, and cash flows generated by, the underlying ATMs. However, we were
unable to make any meaningful progress in this regard during the first nine months of 2007, and, based on
discussions that had been held with Target, concluded that the likelihood of being able to provide such
additional services had decreased considerably. Furthermore, average monthly transaction volumes associated
with this particular contract continued to decrease in 2007. Accordingly, we concluded that the impairment
charge was warranted during the third quarter of 2007. The impairment charge recorded served to write-off the
remaining unamortized intangible asset associated with this merchant contract. Despite the above, we are
continuing to work with Target to restructure the terms of the existing contract in an effort to improve the
underlying cash flows associated with such contract and to offer the additional services noted above, which we
believe could significantly increase the future cash flows earned under this contract.
Our acquisition of the 7-Eleven Financial Services Business further contributed to the increased
amortization, as we recognized $3.7 million in incremental amortization expense during the 2007 associated
with the intangible assets recorded as a part of our purchase price allocation. Excluding the asset impairments
recorded in 2007 (discussed above) and 2006 (discussed below) and the incremental amortization expense
recognized as a result of the 7-Eleven ATM Transaction, amortization expense for year ended December 31,
2007 was relatively consistent with the amount recorded in 2006.
For the year ended December 31, 2006, amortization expense increased by 33.4% when compared to
2005. Such increase was primarily driven by a $2.8 million impairment charge recorded during the first quarter
of 2006 related to the BAS Communications, Inc. (“BASC”) ATM portfolio, which resulted from a reduction
in anticipated future cash flows resulting primarily from a higher than planned attrition rate associated with
this acquired portfolio. Also contributing to the increase in 2006 was the fact that the 2005 amount only
reflects eight months’ worth of amortization expense from the Bank Machine acquisition, and only seven and
five months’ worth of amortization expense, respectively, related to the BASC and Neo Concepts, Inc.
acquisitions.
49
We expect that our future amortization expense will be substantially higher than our historical amounts,
as the $78.0 million of amortizable intangible assets acquired in the 7-Eleven ATM Transaction will be
amortized over the remaining terms of the underlying contracts at a rate of approximately $8.1 million per
year.
Interest Expense, net
For the Years Ended December 31,
Interest expense, net . . . . . . . . . . . . . .
Amortization and write-off of
financing costs and bond
discounts. . . . . . . . . . . . . . . . . . . . .
2007
$29,523
% Change
2006 to 2007
2006
(In thousands, excluding percentages)
$15,485
27.6%
2005
$23,143
% Change
2005 to 2006
49.5%
1,641
1,929
(14.9)%
6,941
(72.2)%
Total interest expense, net . . . . . . . .
$31,164
$25,072
24.3%
$22,426
11.8%
Percentage of revenues . . . . . . . . . . . .
8.2%
8.5%
8.3%
Interest expense, net. During 2007, interest expense, excluding the amortization and write-off of
financing costs and bond discount, increased by $6.4 million when compared to the same period in 2006. The
majority of the increase was due to our issuance of $100.0 million in Series B Notes in July 2007 to partially
finance the 7-Eleven ATM Transaction. This issuance resulted in $4.1 million of additional interest expense
during 2007, excluding the amortization of the related discount and deferred financing costs. Further
contributing to the year-over-year increases were higher average outstanding balances under our revolving
credit facility for the majority of 2007 when compared to 2006. While our borrowings under our revolving
credit facility were only $4.0 million as of December 31, 2007, this balance reflects the reduction in our
borrowings following our initial public offering in December 2007. The incremental borrowings under the
facility throughout 2007 were utilized to fund the remaining portion of the acquisition costs associated with
the 7-Eleven ATM Transaction as well as to fund certain working capital needs. Also contributing to the year-
over-year increase in interest expense was the overall increase in the level of floating interest rates paid under
our revolving credit facility.
For the year ended December 31, 2006, interest expense, excluding the amortization and write-off of
financing costs and bond discount, increased by $7.7 million when compared to 2005. Such increase was due
to (i) the additional borrowings made under our bank credit facilities in May 2005 to finance the Bank
Machine acquisition, and (ii) the incremental interest expense associated with our Series A Notes, which were
issued in August 2005. Further contributing to the increase in interest expense in 2006 was the increase in the
annual interest rate on the Series A Notes from 9.25% to 9.50% in June 2006, and from 9.50% to 9.75% in
September 2006, before reverting back to the stated rate of 9.25% in October 2006 upon the successful
completion of our exchange offer. Finally, the increase in interest expense for 2006 was also impacted by an
overall increase in the floating interest rates paid under our revolving credit facility.
Amortization and write-off of financing costs and bond discounts. During 2007 and 2006, expenses
related to the amortization and write-off of financing costs and bond discounts decreased $0.3 million and
$5.0 million, respectively, when compared to the expense amounts recorded in the immediately preceding year.
Such decreases were the result of approximately $0.5 million and $5.0 million of deferred financing costs that
were written off in 2006 and 2005, respectively, as a result of amendments made to our bank credit facility in
February 2006 and May 2005, as well as the repayment of our term loans in August 2005. Excluding the
write-off taken in 2006, the amortization of financing costs and bond discounts during 2007 increased slightly
as a result of the additional financing costs incurred in connection with the Series B Notes and amendments
made to our revolving credit facility in July 2007 as part of the 7-Eleven ATM Transaction.
In May 2007, we amended our revolving credit facility to, among other things, provide for a reduced
spread on the interest rate charged on amounts outstanding under the facility and to increase the amount of
capital expenditures that we can incur on an annual basis. Furthermore, as noted above, we utilized the net
50
proceeds received from our initial public offering to repay substantially all of our borrowings that were
previously outstanding under our revolving credit facility in December 2007. Despite this repayment and the
modification of the interest spread (which will serve to reduce slightly the amount of interest charged on
amounts outstanding under the facility), we expect that our overall interest expense amounts in 2008 will be
relatively consistent with that incurred during 2007 as a result of the issuance of the Series B Notes, which
will result in an additional $9.3 million in interest expense on an annual basis, in addition to the amortization
of the related discount and deferred financing costs. For additional information on our financing facilities and
anticipated capital expenditure needs, see — Liquidity and Capital Resources below.
Other (Income) Expense
2007
For the Years Ended December 31,
% Change
2006
2006 to 2007
(In thousands, excluding percentages)
2005
% Change
2005 to 2006
Minority interest . . . . . . . . . . . . . . . . . . . .
Other (income) expense . . . . . . . . . . . . . . .
$ (376)
1,585
$ (225)
(4,761)
67.1% $ 15
968
(133.3)%
(1,600.0)%
(591.8)%
Total other (income) expense . . . . . . . . .
$1,209
$(4,986)
(124.2)% $983
(607.2)%
Percentage of revenues. . . . . . . . . . . . . . . .
0.3%
(1.7)%
0.4%
For the year ended December 31, 2007, total other expense consisted primarily of $2.2 million in losses
on the disposal of fixed assets that were incurred in conjunction with the deinstallation of ATMs during the
period. These losses were partially offset by $0.6 million in gains on the sale of equity securities awarded to
us pursuant to the bankruptcy plan of reorganization of Winn-Dixie Stores, Inc., one of our merchant
customers.
During the year ended December 31, 2006, we recorded approximately $4.8 million in other income,
which was primarily attributable to the recognition of $4.8 million in other income primarily related to
settlement proceeds received from Winn-Dixie as part of that company’s successful emergence from
bankruptcy. Also contributing to the increase in 2006 was a $1.1 million contract termination payment that
was received from one of our customers in May 2006 and a $0.5 million payment received in August 2006
from one of our customers related to the sale of a number of its stores to another party. The above amounts
were partially offset by $1.6 million of losses related to the disposal of a number of ATMs.
Income Tax Expense (Benefit)
For the Years Ended December 31,
Income tax expense (benefit) . . . . . . . . $4,636
Effective tax rate . . . . . . . . . . . . . . . . .
$
(20.6)% (2,694.7)%
2007
% Change
2006 to 2007
2005
2006
(In thousands, excluding percentages)
$(1,270)
805.5%
34.4%
512
% Change
2005 to 2006
140.3%
Our income tax expense increased by $4.1 million during 2007 when compared to 2006. The increase
was primarily driven by the establishment of valuation allowances of $4.8 million, net of amounts provided
for current year benefits, associated with various domestic deferred tax assets due to uncertainties surrounding
our ability to utilize the related tax benefits in future periods. Additionally, we do not expect to record any
additional domestic federal or state income tax benefits in our financial statements until it is more likely than
not that such benefits will be utilized. Finally, due to the exclusion of certain deferred tax liability amounts
from our ongoing analysis of our domestic net deferred tax asset position, we will likely continue to record
additional valuation allowances for our domestic operations during 2008. Accordingly, our overall effective tax
rate will continue to be negative until we begin to report positive pre-tax book income on a consolidated basis.
In addition, the Company recorded a $0.2 million deferred tax benefit during 2007 related to a reduction
in the United Kingdom corporate statutory income tax rate from 30% to 28%. Such rate reduction, which will
become effective in 2008, was formally enacted in July 2007.
51
For the year ended December 31, 2006, we had income tax expense of $0.5 million compared to an
income tax benefit of $1.3 million in 2005. In 2006, our effective tax rate was unusually high due to our
consolidated breakeven results, certain non-deductible expenses, a contingent tax liability that was recorded in
2006 related to our United Kingdom operations, and the fact that we are providing a full valuation allowance
on all tax benefits associated with our Mexico operations.
Liquidity and Capital Resources
Overview
As of December 31, 2007, we had approximately $13.4 million in cash and cash equivalents on hand and
approximately $310.7 million in outstanding long-term debt, capital lease obligations, and notes payable.
Prior to December 2007, we had historically funded our operations primarily through cash flows from
operations, borrowings under our credit facilities, private placements of equity securities, and the sale of
bonds. However, in December 2007, we completed our initial public offering of 12,000,000 shares of our
common stock. (See — Financing Activities below for additional information on this offering.) We have
historically used cash to invest in additional operating 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 typically collect our cash on
a daily basis but 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 upfront cash flow to pay down
borrowings made under our revolving credit facility and to fund our ongoing capital expenditure program.
Accordingly, we will typically reflect a working capital deficit position and carry a small cash balance on our
books.
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 revenues generated from our operations and borrowings under our revolving credit
facility, to the extent needed.
Operating Activities
Net cash provided by operating activities was $55.5 million, $25.4 million, and $33.2 million for the
years ended December 31, 2007, 2006, and 2005, respectively. The increase in 2007, when compared to 2006,
was primarily attributable to the timing of changes in our working capital balances. Specifically, we settled
approximately $32.5 million less of payables and accrued liabilities during 2007 compared to 2006. The
decrease in 2006, when compared to 2005, was primarily attributable to the payment of approximately
$18.7 million in additional interest costs in 2006 related to our senior subordinated notes, which were issued
in August 2005, offset somewhat by the incremental operating cash flows generated by our United Kingdom
operations as well as our domestic bank and network branding arrangements.
Investing Activities
Net cash used in investing activities totaled $202.9 million, $36.0 million, and $140.0 million for the
years ended December 31, 2007, 2006, and 2005, respectively. The year-over-year increase was primarily
driven by our acquisition of the 7-Eleven Financial Services Business in July 2007 for $137.3 million. Also
contributing to the increase were additional ATM purchases, primarily in our United Kingdom and Mexico
segments, offset slightly by the receipt of $4.0 million in proceeds from the sale of our U.S. segment’s Winn-
Dixie equity securities during 2007. Finally, although not reflected in our 2007 statement of cash flows, we
received the benefit of the disbursement of approximately $5.7 million of funds under five financing facilities
entered into by our majority-owned Mexican subsidiary, Cardtronics Mexico, for the purchase of ATMs. Such
funds are not reflected in our consolidated statement of cash flows as they were not remitted by Cardtronics
Mexico but rather remitted by the finance company, on our behalf, directly to our vendors.
52
The significant year-over-year decrease from 2005 to 2006 was driven by the $105.8 million in cash that
was expended to fund the Bank Machine, BASC, and Neo Concepts, Inc. acquisitions during 2005. Such cash
was utilized to make capital expenditures related to those acquisitions, to install additional ATMs in
connection with acquired merchant relationships, and to deploy ATMs in additional locations of merchants
with which we had existing relationships.
Total capital expenditures, including exclusive license payments and site acquisition costs and purchases
of equipment to be leased, were $71.9 million, $36.1 million, and $31.9 million for the years ended
December 31, 2007, 2006, and 2005, respectively.
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 purchasing of
ATMs for existing as well as new ATM management agreements as opposed to acquisitions. However, we will
continue to pursue selected acquisition opportunities that complement our existing ATM network, some of
which could be material, such as the 7-Eleven ATM Transaction completed in July 2007. 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, either individually or in the aggregate, could be material.
We currently expect that our capital expenditures for 2008 will total approximately $50.0 million, net of
minority interest, the majority of which will be utilized to purchase additional ATMs for our Company-owned
accounts. We expect such expenditures to be funded with cash generated from our operations, supplemented
by borrowings under our revolving credit facility. To that end, we recently amended our revolving credit
facility in March 2008 to increase the amount of capital expenditures that we can incur on a rolling 12-month
basis to $90.0 million. This modification should provide us with the ability to incur the level of capital
expenditures that we currently deem necessary to support our ongoing operations and future growth initiatives.
As a result of the 7-Eleven ATM Transaction, we assumed responsibility for certain ATM operating lease
contracts that will expire at various times during the next three years, the majority of which will expire in
2009. Accordingly, at that time, we will be required to renew such lease contracts, enter into new lease
contracts, or purchase new or used ATMs to replace the leased equipment. If we decide to purchase new
ATMs and terminate the existing lease contracts at that time, we currently anticipate that we will incur
between $13.0 and $16.0 million in related capital expenditures. However, in the event we decide to purchase
the leased equipment at the end of the lease term rather than purchasing new ATMs, our expenditures would
be substantially less than the above estimated amounts. Additionally, we posted $7.5 million in letters of credit
under our revolving credit facility in favor of the lessors under these leases. See Item 8. Financial Statements
and Supplementary Data, Note 13 for additional details on these letters of credit.
Financing Activities
Net cash provided by financing activities was $158.2 million, $11.2 million, and $107.2 million for the
years ended December 31, 2007, 2006, and 2005, respectively. The increase in 2007 was primarily attributable
to our issuance of $100.0 million in senior subordinated debt due 2013 (the Series B Notes) and $42.7 million
of additional borrowings under our revolving credit facility in July 2007 to finance the 7-Eleven ATM
Transactions. Additionally, in December 2007, we completed our initial public offering of 12,000,000 shares
of common stock, which generated net proceeds of approximately $110.1 million that were used to pay down
debt previously outstanding under our revolving credit facility. Finally, although not reflected in our
2007 statement of cash flows, we received the benefit of the disbursement of $5.7 million of funds under five
financings facilities entered into by our Mexican operations. The $5.7 million is not reflected in our
consolidated statement of cash flows as the funds were not received by Cardtronics Mexico but rather were
remitted directly to our vendors by the finance company. The remittance of such funds served to purchase
ATMs.
In 2005, the majority of our cash provided by financing activities resulted from issuances of additional
long-term debt, offset somewhat in each period by our repayments of other long-term debt and capital leases.
Such borrowings were primarily made in connection with the previously discussed ATM portfolio acquisitions,
53
including the Bank Machine acquisition in 2005. Additionally, in 2005 we issued $75.0 million worth of
Series B redeemable convertible preferred stock to a new investor, TA Associates. The net proceeds from such
offering were utilized to redeem our existing Series A preferred stock, including all accrued and unpaid
dividends related thereto, and to redeem approximately 24% of our outstanding common stock and vested
options.
Financing Facilities
As of December 31, 2007, we had approximately $310.7 million in outstanding long-term debt, notes
payable, and capital lease obligations, which was comprised of (i) approximately $296.1 million (net of
discount of $3.9 million) of our Series A and Series B senior subordinated notes, (ii) approximately
$4.0 million in borrowings under our revolving credit facility, (iii) approximately $8.5 million in notes
payable, the majority of which was outstanding under equipment financing lines of our Mexico subsidiary, and
(iv) approximately $2.1 million in capital lease obligations.
Revolving credit facility. Borrowings under our revolving credit facility bear interest at a variable rate
based upon LIBOR, or prime rate, at our option. Additionally, we pay a commitment fee of 0.3% per annum
on the unused portion of the revolving credit facility. Substantially all of our assets, including the stock of our
wholly-owned domestic subsidiaries and 66% of the stock of our foreign subsidiaries, are pledged to secure
borrowings made under the revolving credit facility. Furthermore, each of our domestic subsidiaries has
guaranteed our obligations under such facility. There are currently no restrictions on the ability of our wholly-
owned subsidiaries to declare and pay dividends directly to us.
In 2007, we twice amended our revolving credit facility to, among other things, (i) modify the interest
rate spreads on outstanding borrowings and other pricing terms, (ii) increase the maximum borrowing capacity
under the revolver from $125.0 million to $175.0 million in order to partially finance the 7-Eleven ATM
Transaction and to provide additional financial flexibility, (iii) increase the amount of “indebtedness” (as
defined in the credit agreement) to allow for the issuance of our Series B Notes, (iv) extend the term of the
credit agreement from May 2010 to May 2012, (v) increase the amount of capital expenditures we could incur
on a rolling 12-month basis from $60.0 million to a maximum of $75.0 million, and (v) amend certain
restrictive covenants contained within the facility. Additionally, in March 2008, we further amended our
facility such that we may now incur up to $90 million in capital expenditures on a rolling 12-month basis. As
a result of these amendments, the primary restrictive covenants within the facility include (i) limitations on the
amount of senior debt that we can have outstanding at any given point in time, (ii) the maintenance of a set
ratio of earnings to fixed charges, as computed on a rolling 12-month basis, (iii) limitations on the amounts of
restricted payments that can be made in any given year, and (iv) limitations on the amount of capital
expenditures that we can incur on a rolling 12-month basis. Additionally, we are currently prohibited from
making any cash dividends pursuant to the terms of the facility.
At December 31, 2007, the weighted average interest rate on our outstanding facility borrowings was
approximately 8.3%. Additionally, as of December 31, 2007, we were in compliance with all covenants
contained within the facility and had the ability to borrow an additional $163.5 million under the facility based
on such covenants.
Other borrowing facilities
Bank Machine overdraft facility.
In addition to the above revolving credit facility, Bank Machine has a
£2.0 million unsecured overdraft facility that expires in July 2008. Such facility, which bears interest at 1.75%
over the bank’s base rate (5.5% as of December 31, 2007), is utilized for general corporate purposes for our
United Kingdom operations. As of December 31, 2007, the full amount of this overdraft facility had been
utilized to help fund certain working capital commitments and to post a £275,000 bond. Amounts outstanding
under the overdraft facility, other than those amounts utilized for posting bonds, are reflected in accounts
payable in our consolidated balance sheet, as such amounts are automatically repaid once cash deposits are
made to the underlying bank accounts.
54
Cardtronics Mexico equipment financing agreements. During 2006 and 2007, Cardtronics Mexico
entered into six separate five-year equipment financing agreements with a single lender. Such agreements,
which are denominated in Mexican pesos and bear interest at an average fixed rate of 10.96%, were utilized
for the purchase of additional ATMs to support our Mexico operations. As of December 31, 2007, $91.2 million
pesos ($8.4 million U.S.) were outstanding under the agreements in place at the time, with future borrowings
to be individually negotiated between the lender and Cardtronics. Pursuant to the terms of the loan agreement,
we have issued a guaranty for 51.0% of the obligations under this agreement (consistent with our ownership
percentage in Cardtronics Mexico.) As of December 31, 2007, the total amount of the guaranty was
$46.5 million pesos ($4.3 million U.S.).
Capital lease agreements.
In connection with the 7-Eleven ATM Transaction, we assumed certain
capital and operating lease obligations for approximately 2,000 ATMs. We posted $7.5 million in letters of
credit under our revolving credit facility in favor of the lessors under these assumed equipment leases. These
letters of credit reduce the available borrowing capacity under our revolving credit facility. As of December 31,
2007, the principal balance of our capital lease obligations totaled $2.1 million.
Effects of Inflation
Our monetary assets, consisting primarily of cash and receivables, are not significantly affected by
inflation. Our non-monetary assets, consisting primarily of tangible and intangible assets, are not affected by
inflation. We believe that replacement costs of equipment, furniture, and leasehold improvements will not
materially affect our operations. However, the rate of inflation affects our expenses, such as those for
employee compensation and telecommunications, which may not be readily recoverable in the price of services
offered by us.
Contractual Obligations
The following table and discussion reflect our significant contractual obligations and other commercial
commitments as of December 31, 2007:
2008
2009
Payments Due by Period
2012
2011
2010
Thereafter
Total
(In thousands)
Long-term financings:
Principal(1) . . . . . . . . . . . . . . . . .
Interest(2) . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . .
Merchant space leases . . . . . . . . . .
Capital leases(3) . . . . . . . . . . . . . . .
$
28,969
5,559
4,644
1,268
882 $ 1,735 $ 2,147 $ 2,372
28,375
828
1,369
—
28,622
1,332
1,425
240
28,840
5,430
2,261
799
$ 5,391 $300,000
27,750
27,943
3,161
766
1,101
1,272
—
—
$312,527
170,499
17,076
12,072
2,307
Total contractual obligations . . . . . .
$41,322 $39,065
$33,766
$32,944
$35,372 $332,012
$514,481
(1) Represents the $300.0 million face value of our Series A and Series B Notes, $4.0 million outstanding
under our revolving credit facility, $8.4 million outstanding under our Mexico equipment financing facili-
ties, and a fully-funded note issued in conjunction with the Bank Machine acquisition in 2005.
(2) Represents the estimated interest payments associated with our long-term debt outstanding as of Decem-
ber 31, 2007.
(3) Includes interest related to the capital lease obligations.
Critical Accounting Policies and Estimates
Our consolidated financial statements included in this Annual Report on Form 10-K have been prepared
in accordance with accounting principles generally accepted in the United States, which require that
management make numerous estimates and assumptions. Actual results could differ from those estimates and
assumptions, thus impacting our reported results of operations and financial position. The critical accounting
55
policies and estimates described in this section are those that are most important to the depiction of our
financial condition and results of operations and the application of which requires management’s most
subjective judgments in making estimates about the effect of matters that are inherently uncertain. We describe
our significant accounting policies more fully in Item 8. Financial Statements and Supplementary Data, Note 1.
Goodwill and Intangible Assets. We have accounted for the 7-Eleven ATM Transaction, as well as the
E*TRADE Access, Bank Machine, and ATM National, Inc. acquisitions as business combinations pursuant to
SFAS No. 141, Business Combinations. Additionally, we have applied the concepts of SFAS No. 141 to our
purchase of a majority interest in CCS Mexico (i.e., Cardtronics Mexico). Accordingly, the amounts paid for
such acquisitions have been allocated to the assets acquired and liabilities assumed based on their respective
fair values as of each acquisition date. Intangible assets that met the criteria established by SFAS No. 141 for
recognition apart from goodwill included the acquired ATM operating agreements and related customer
relationships, a branding agreement acquired in the 7-Eleven ATM Transaction, the Bank Machine and
Allpoint (via the ATM National, Inc. acquisition) trade names, and the non-compete agreements entered into
in connection with the CCS Mexico acquisition.
The excess of the cost of the aforementioned acquisitions over the net of the amounts assigned to the
tangible and intangible assets acquired and liabilities assumed has been reflected as goodwill in our
consolidated financial statements. As of December 31, 2007, our goodwill balance totaled $235.2 million,
$62.2 million of which related to our acquisition of the 7-Eleven Financial Services Business, $84.5 million of
which related to our acquisition of E*TRADE Access, and $84.1 million of which related to our acquisition of
Bank Machine. The remaining balance is comprised of goodwill related to our acquisition of ATM National
Inc. and our purchase of a majority interest in CCS Mexico. Intangible assets, net, totaled $130.9 million as of
December 31, 2007, and included the intangible assets described above, as well as deferred financing costs,
exclusive license agreements, and upfront merchant site acquisition costs.
SFAS No. 142, Goodwill and Other Intangible Assets, provides that goodwill and other intangible assets
that have indefinite useful lives will not be amortized, but instead must be tested at least annually for
impairment, and intangible assets that have finite useful lives should be amortized over their estimated useful
lives. SFAS No. 142 also provides specific guidance for testing goodwill and other non-amortized intangible
assets for impairment. SFAS No. 142 requires management to make certain estimates and assumptions in order
to allocate goodwill to reporting units and to determine the fair value of a reporting unit’s net assets and
liabilities, including, among other things, an assessment of market condition, projected cash flows, interest
rates, and growth rates, which could significantly impact the reported value of goodwill and other intangible
assets. Furthermore, SFAS No. 142 exposes us to the possibility that changes in market conditions could result
in potentially significant impairment charges in the future.
We evaluate the recoverability of our goodwill and non-amortized intangible assets by estimating the
future discounted cash flows of the reporting units to which the goodwill and non-amortized intangible assets
relate. We use discount rates corresponding to our cost of capital, risk adjusted as appropriate, to determine
such discounted cash flows, and consider current and anticipated business trends, prospects, and other market
and economic conditions when performing our evaluations. Such evaluations are performed at minimum on an
annual basis, or more frequently based on the occurrence of events that might indicate a potential impairment.
Such events include, but are not limited to, items such as the loss of a significant contract or a material change
in the terms or conditions of a significant contract.
Valuation of Long-lived Assets. We place significant value on the installed ATMs that we own and
manage in merchant locations and the related acquired merchant contracts/relationships. In accordance with
SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, long-lived assets, such as
property and equipment and purchased contract intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. We test our acquired merchant contract/relationship intangible assets for impairment, along
with the related ATMs, on an individual contract/relationship basis for our significant acquired contracts/
relationships, and on a pooled or portfolio basis (by acquisition) for all other acquired contracts/relationships.
In determining whether a particular merchant contract/relationship is significant enough to warrant a separate
56
identifiable intangible asset, we analyze a number of relevant factors, including (i) estimates of the historical
cash flows generated by such contract/relationship prior to its acquisition, (ii) estimates regarding our ability
to increase the contract/relationship’s cash flows subsequent to the acquisition through a combination of lower
operating costs, the deployment of additional ATMs, and the generation of incremental revenues from
increased surcharges and/or new branding arrangements, and (iii) estimates regarding our ability to renew such
contract/relationship beyond its originally scheduled termination date. An individual contract/relationship, and
the related ATMs, could be impaired if the contract/relationship is terminated sooner than originally
anticipated, or if there is a decline in the number of transactions related to such contract/relationship without a
corresponding increase in the amount of revenue collected per transaction. A portfolio of purchased contract
intangibles, including the related ATMs, could be impaired if the contract attrition rate is materially more than
the rate used to estimate the portfolio’s initial value, or if there is a decline in the number of transactions
associated with such portfolio without a corresponding increase in the revenue collected per transaction.
Whenever events or changes in circumstances indicate that a merchant contract/relationship intangible asset
may be impaired, we evaluate the recoverability of the intangible asset, and the related ATMs, by measuring
the related carrying amounts against the estimated undiscounted future cash flows associated with the related
contract or portfolio of contracts. Should the sum of the expected future net cash flows be less than the
carrying values of the tangible and intangible assets being evaluated, an impairment loss would be recognized.
The impairment loss would be calculated as the amount by which the carrying values of the ATMs and
intangible assets exceeded the calculated fair value. During the years ended December 31, 2007, 2006, and
2005, we recorded approximately $5.7 million, $2.8 million, and $1.2 million, respectively, in additional
amortization expense related to the impairment of certain previously acquired merchant contract/relationship
intangible assets associated with our U.S. reporting segment.
Income Taxes.
Income tax provisions are based on taxes payable or refundable for the current year and
deferred taxes on temporary differences between the amount of taxable income and income before income
taxes and between the tax basis of assets and liabilities and their reported amounts in our financial statements.
We include deferred tax assets and liabilities in our financial statements at currently enacted income tax rates.
As changes in tax laws or rates are enacted, we adjust our deferred tax assets and liabilities through income
tax provisions.
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent on the generation of future taxable income during the periods in which those temporary
differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In the event we do not believe we will
be able to utilize the related tax benefits associated with deferred tax assets, we record valuation allowances to
reserve for the assets. During the year ended December 31, 2007, we recorded $4.8 million in valuation
allowances to reserve for various deferred tax assets associated with our domestic operations, resulting in an
overall income tax expense of $4.6 million. Such adjustments were based, in part, on the expectation of
increased pre-tax book losses during the latter half of 2007, primarily as a result of the additional interest
expense amounts associated with the 7-Eleven ATM Transaction and the anticipated losses associated with the
acquired Vcom operations.
Asset Retirement Obligations. We account for our asset retirement obligations in accordance with
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires that we estimate the fair
value of future retirement obligations associated with our ATMs, including costs associated with deinstalling
the ATMs and, in some cases, refurbishing the related merchant locations. Such estimates are based on a
number of assumptions, including (i) the types of ATMs that are installed, (ii) the relative mix where those
ATMs are installed (i.e., whether such ATMs are located in single-merchant locations or in locations associated
with large, geographically dispersed retail chains), and (iii) whether we will ultimately be required to refurbish
the merchant store locations upon the removal of the related ATMs. Additionally, we are required to make
estimates regarding the timing of when such retirement obligations will be incurred.
The fair value of a liability for an asset retirement obligation is recognized in the period in which it is
incurred and can be reasonably estimated. Such asset retirement costs are capitalized as part of the carrying
57
amount of the related long-lived asset and depreciated over the asset’s estimated useful life. Fair value
estimates of liabilities for asset retirement obligations generally involve discounted future cash flows. Periodic
accretion of such liabilities due to the passage of time is recorded as an operating expense in the
accompanying consolidated financial statements. Upon settlement of the liability, we recognize a gain or loss
for any difference between the settlement amount and the liability recorded.
Share-based Compensation. We account for our share-based payments in accordance with
SFAS No. 123R, which requires that we record compensation expense for all share-based awards based on the
grant-date fair value of those awards. In determining the fair value of our share-based awards, we are required
to make certain assumptions and estimates, including (i) the number of awards that may ultimately be forfeited
by the recipients, (ii) the expected term of the underlying awards, and (iii) the future volatility associated with
the price of our common stock. Such estimates, and the basis for our conclusions regarding such estimates for
the year ended December 31, 2007, are outlined in detail in Item 8, Financial Statements and Supplementary
Data, Note 3.
New Accounting Pronouncements Issued but Not Yet Adopted
For information on new accounting pronouncements that had been issued as of December 31, 2007 but
not yet adopted by us, see Item 8. Financial Statement and Supplementary Data, Note 1(v).
Commitments and Contingencies
The Company is subject to various legal proceedings and claims arising in the ordinary course of
business. We do not expect that the outcome in any of these legal proceedings, individually or collectively,
will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
See Item 8. Financial Statement and Supplementary Data, Note 16, for additional details regarding our
commitments and contingencies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure about Market Risk
Interest Rate Risk
Vault cash rental expense. Because our ATM cash rental expense is based on market rates of interest, it
is sensitive to changes in the general level of interest rates in the United States, the United Kingdom, and
Mexico. In the United States, we pay a monthly fee on the average amount of vault cash outstanding under a
formula based either on LIBOR or the federal funds effective rate, depending on the vault cash provider. In
the United Kingdom, we pay a monthly fee to ALCB in the United Kingdom under a formula based on
LIBOR. In Mexico, we pay a monthly fee to our vault cash provider there under a formula based on the
Mexican Interbank Rate.
As a result of the significant sensitivity surrounding the vault cash interest expense for our U.S. operations,
we have entered into a number of interest rate swaps to fix the rate of interest we pay on a portion of our
current and anticipated outstanding domestic vault cash balances. The swaps in place as of December 31, 2007
serve to fix the interest rate paid on the following notional amounts for the periods identified:
Notional Amount
(In thousands)
$550,000
$450,000
$350,000
Weighted Average
Fixed Rate
Period
4.61%
4.68%
4.76%
58
January 1, 2008 — December 31, 2008
January 1, 2009 — December 31, 2009
January 1, 2010 — December 31, 2010
The following table presents a hypothetical sensitivity analysis of our vault cash interest expense based
on our outstanding vault cash balances as of December 31, 2007 and assuming a 100 basis point increase in
interest rates:
Vault Cash Balance as of
December 31, 2007
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
Interest Rate Swaps)
(Functional Currency)
(U.S. dollars)
(In millions)
(Functional Currency)
(U.S. dollars)
(In millions)
(Functional Currency)
(U.S. dollars)
(In millions)
United States . . . . .
United Kingdom . . .
Mexico . . . . . . . . .
Total . . . . . . . . . . .
$850.4
£ 98.1
p$110.1
$ 850.4
196.8
10.1
$1,057.3
$8.5
£1.0
p$1.0
$ 8.5
2.0
0.1
$10.6
$3.0
£1.0
p$1.0
$3.0
2.0
0.1
$5.1
As of December 31, 2007, we had a liability of $13.6 million recorded in our balance sheet related to our
interest rate swaps, which represented the fair value liability of such agreements based on third-party quotes
for similar instruments with the same terms and conditions, as such instruments are required to be carried at
fair value. These swaps have been classified as cash flow hedges pursuant to SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. Accordingly, changes in the fair values of such
swaps have been reported in accumulated other comprehensive income (loss) in the accompanying consoli-
dated balance sheets. As a result of our overall net loss position for tax purposes, we have not recorded any
deferred taxes on the loss amount related to these interest rate hedges as of December 31, 2007, as we do not
currently believe that we will be able to realize such benefits. As of December 31, 2006, the net accumulated
unrealized gain associated with our interest rate swaps totaled approximately $4.4 million, which was net of
taxes of $2.7 million.
Net amounts paid or received under such swaps are recorded as adjustments to our cost of ATM operating
revenues in the accompanying consolidated statements of operations. During the years ended December 31,
2007, 2006, and 2005, the gains or losses as a result of ineffectiveness associated with our existing interest
rate swaps were immaterial. We have not currently entered into any derivative financial instruments to hedge
our variable interest rate exposure in the United Kingdom or Mexico.
Interest expense. Our interest expense is also sensitive to changes in the general level of interest rates in
the United States, as our borrowings under our domestic revolving credit facility accrue interest at floating
rates. Based on the $4.0 million outstanding under the facility as of December 31, 2007, an increase of
100 basis points in the underlying interest rate would not have had a material impact on our interest expense;
however, there is no guarantee that we will not borrow additional amounts under the facility, and, in the event
we borrow additional amounts and interest rates significantly increased, we could be required to pay additional
interest and such interest could be material.
Outlook. We anticipate that the recent reductions in short-term interest rates in the United States will
serve to reduce the 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 through 2010, 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.
As a result of the recent decline in interest rates, we entered into additional interest rate swaps in March
2008 to limit our exposure to changing rates on additional amounts of our anticipated outstanding domestic
59
vault cash balances. The recently-executed swaps will serve to fix the interest-based rental rate paid on the
following notional amounts at the following weighted average rates for the periods identified:
Notional Amount
(In thousands)
$100,000
$200,000
$400,000
$200,000
Weighted
Average
Fixed Rate
2.58%
2.97%
3.72%
3.96%
Period
January 1, 2009 — December 31, 2009
January 1, 2010 — December 31, 2010
January 1, 2011 — December 31, 2011
January 1, 2012 — December 31, 2012
As is the case with our existing interest rate swaps, the interest rate swaps executed in March 2008 have
been designated as cash flow hedges pursuant to SFAS No. 133.
Other. While the carrying amount of our cash and cash equivalents and other current assets and
liabilities approximates fair value due to the relatively short maturities of these instruments, we are exposed to
changes in market values of our investments and long-term debt. As discussed above, the carrying amount of
our interest rate swaps approximates fair value as of December 31, 2007. In addition, the $4.0 million carrying
amount of borrowings outstanding under our revolving credit facility approximates fair value due to the fact
that such borrowings are subject to floating market interest rates. Conversely, the carrying amount of the
Company’s $300.0 million, fixed-rate, senior subordinated notes was $296.1 million as of December 31, 2007,
compared to a fair value of $292.5 million. The fair value of the Company’s senior subordinated notes as of
December 31, 2007 was based on the quoted market price for such notes.
Foreign Currency Exchange Risk
Due to our acquisition of Bank Machine in 2005 and our acquisition of a majority interest in Cardtronics
Mexico in 2006, we are exposed to market risk from changes in foreign currency exchange rates, specifically
with changes in the U.S. dollar relative to the British pound and Mexican peso. Our United Kingdom and
Mexico 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 operations of Bank Machine and Cardtronics Mexico
into U.S. dollars, with any corresponding translation gains or losses being recorded in other comprehensive
income (loss) in our consolidated financial statements. As of December 31, 2007, such translation gain totaled
approximately $9.1 million compared to a translation gain of approximately $6.7 million as of December 31,
2006.
Our results during 2007 were materially impacted by increases in the value of the British pound relative
to the U.S. Dollar. (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Results of Operations for additional details on the impact of changes in the foreign exchange
rate between the U.S. dollar and the British pound.) Additionally, as our Mexico operations expand, our future
results could be materially impacted by changes in the value of the Mexican peso relative to the U.S. dollar.
At this time, we have not deemed it to be cost effective to engage in a program of hedging the effect of
foreign currency fluctuations on our operating results using derivative financial instruments. A sensitivity
analysis indicates that, if the U.S. dollar uniformly strengthened or weakened 10% against the British pound,
the effect upon Bank Machine’s operating income for the year ended December 31, 2007 would have been an
unfavorable or favorable adjustment, respectively, of approximately $0.4 million. A similar sensitivity analysis
would have resulted in a $0.1 million adjustment to Cardtronics Mexico’s financial results for the year ended
December 31, 2007.
We do not hold derivative commodity instruments and all of our cash and cash equivalents are held in
money market and checking funds.
60
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 . . . . . .
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2007,
2006, and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2007,
2006, and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Basis of Presentation and Summary of Significant Accounting Policies. . . . . . . . . . . . . . . . . . . .
2. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Stock-based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. Prepaid Expenses, Deferred Costs, and Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Property and Equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9. Prepaid Expenses and Other Non-current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11. Asset Retirement Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Other Long-term Liabilities and Minority Interest in Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . .
13. Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14. Redeemable Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16. Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17. Derivative Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19. Concentration Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20. Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21. Supplemental Guarantor Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22. Supplemental Selected Quarterly Financial Information (Unaudited) . . . . . . . . . . . . . . . . . . . . . .
Page
62
63
64
65
66
67
68
68
78
84
88
89
90
91
91
93
93
94
95
96
98
99
99
102
103
106
106
110
116
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Cardtronics, Inc.:
We have audited the accompanying consolidated balance sheets of Cardtronics, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity
(deficit), comprehensive income (loss), and cash flows for the years in the three-year period ended
December 31, 2007. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Cardtronics, Inc. and subsidiaries as of December 31, 2007 and 2006, and
the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the Company
adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”, and effective January 1, 2006,
the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R,
“Share-Based Payment”.
Houston, Texas
March 28, 2008
/s/ KPMG LLP
62
CARDTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2006
2007
(In thousands, except
share and per share
amounts)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,439
Accounts and notes receivable, net of allowance of $560 and $427 as of December 31,
2007 and 2006, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash, short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses, deferred costs, and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,248
2,355
5,900
216
11,627
56,785
317
163,912
130,901
235,185
4,185
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $591,285
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current portion of long-term debt and notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
882
1,147
16,201
34,385
70,524
123,139
Long-term liabilities:
Long-term debt, net of related discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities and minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
307,733
982
11,480
17,448
23,392
484,174
$
2,718
14,891
4,444
883
273
15,178
38,387
34
86,668
67,763
169,563
5,341
$367,756
$
194
—
2,501
16,915
34,341
53,951
252,701
—
7,625
9,989
4,064
328,330
Series B redeemable preferred stock, $0.0001 par value; 10,000,000 shares authorized;
929,789 shares issued and outstanding as of December 31, 2006; liquidation value of
$78,000 as of December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
76,594
Stockholders’ equity (deficit):
Common stock, $0.0001 par value; 125,000,000 shares authorized; 43,571,956 and
19,032,715 shares issued as of December 31, 2007 and 2006; 38,566,207 and
13,995,673 shares outstanding at December 31, 2007 and 2006, respectively. . . . . . . . .
Subscriptions receivable (at face value) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock; 5,005,749 and 5,037,042 shares at cost at December 31, 2007 and 2006,
4
(229)
190,508
(4,518)
(30,433)
—
(324)
2,857
11,658
(3,092)
(48,221)
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
107,111
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $591,285
(48,267)
(37,168)
$367,756
See accompanying notes to consolidated financial statements.
63
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
2007
Year Ended December 31,
2006
(In thousands)
2005
Revenues:
ATM operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Vcom operating revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATM product sales and other revenues . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
364,071
1,251
12,976
378,298
$
280,985
—
12,620
293,605
$
258,979
—
9,986
268,965
Cost of revenues:
Cost of ATM operating revenues (includes stock-based
compensation of $87, $51, and $172 in 2007, 2006, and
2005, respectively. Excludes depreciation, accretion, and
amortization shown separately below. See Note 1) . . . . . . .
Cost of Vcom operating revenues. . . . . . . . . . . . . . . . . . . . . .
Cost of ATM product sales and other revenues . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
Operating expenses:
Selling, general, and administrative expenses (includes stock-
based compensation of $963, $828, and $2,201 in 2007,
2006, and 2005, respectively) . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense:
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of financing costs and bond
discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock conversion and accretion expense . . . . . . . . . . . .
275,286
6,065
11,942
293,293
85,005
29,357
26,859
18,870
75,086
9,919
209,850
—
11,443
221,293
72,312
21,667
18,595
11,983
52,245
20,067
199,767
—
9,681
209,448
59,517
17,865
12,951
8,980
39,796
19,721
29,523
23,143
15,485
1,641
(376)
1,585
32,373
(22,454)
4,636
(27,090)
36,272
1,929
(225)
(4,761)
20,086
(19)
512
(531)
265
(796)
(0.06)
$
$
6,941
15
968
23,409
(3,688)
(1,270)
(2,418)
1,395
(3,813)
(0.27)
$
$
Net loss available to common stockholders . . . . . . . . . . . . . . . . $
(63,362)
Net loss per common share:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(4.11)
Weighted average shares outstanding:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,423,744
13,904,505
14,040,353
See accompanying notes to consolidated financial statements.
64
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
CARDTRONICS, INC.
2007
Year Ended December 31,
2006
(In thousands)
2005
Common Stock, par value $0.0001 per share:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital stock issued in initial public offering . . . . . . . . . . . . . . . . . . . . . .
Capital stock issued in Series B preferred stock conversion . . . . . . . . . . . .
Stock split in conjunction with initial public offering . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subscriptions Receivable:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of subscriptions receivable through repurchases of capital
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
— $
1
2
1
4
$
— $
—
—
—
— $
—
—
—
—
—
(324)
$ (1,476)
$ (1,862)
—
95
1,152
—
—
386
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(229)
$
(324)
$ (1,476)
Additional Paid in Capital:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital stock issued in initial public offering, net of offering costs . . . . . .
Capital stock issued in Series B preferred stock conversion . . . . . . . . . . . .
Other issuance of capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series B preferred stock conversion (see Note 14) . . . . . . . . . . . . . . . . . . .
Series B preferred stock conversion charge (see Note 14) . . . . . . . . . . . . .
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,857
109,757
76,844
—
36,021
(36,021)
—
1,050
$ 2,033
—
—
(55)
—
—
—
879
$
—
—
—
1,590
—
—
(98)
541
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$190,508
$ 2,857
$ 2,033
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,658
(16,176)
$
(346)
12,004
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,518)
$ 11,658
$
$
886
(1,232)
(346)
Retained Earnings (Accumulated Deficit):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock issuance cost accretion . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (3,092)
—
(251)
—
(27,090)
$ (2,252)
—
(265)
(44)
(531)
$ 1,495
(1,063)
(234)
(32)
(2,418)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (30,433)
$ (3,092)
$ (2,252)
Treasury Stock:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (48,267)
46
—
$(47,043)
55
(1,279)
$
(859)
269
(46,453)
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (48,221)
$(48,267)
$(47,043)
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,111
$(37,168)
$(49,084)
See accompanying notes to consolidated financial statements.
65
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CARDTRONICS, INC.
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(27,090)
2007
Year Ended December 31,
2006
(In thousands)
$ (531)
2005
$(2,418)
Foreign currency translation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (losses) gains on interest rate cash flow hedges, net of taxes of
$0 in 2007, $258 in 2006, and $(2,469) in 2005 . . . . . . . . . . . . . . . . . .
Unrealized (realized) gains on available-for-sale securities, net of taxes of
$293 in 2007 and $(293) in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,415
12,202
(5,491)
(18,093)
(696)
4,259
(498)
498
—
Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(16,176)
12,004
(1,232)
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(43,266)
$11,473
$(3,650)
See accompanying notes to consolidated financial statements.
66
CARDTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2007
Year Ended December 31,
2006
(In thousands)
2005
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (27,090)
Adjustments to reconcile net loss to net cash provided by operating activities:
$
(531)
$
(2,418)
Depreciation, accretion, and amortization expense . . . . . . . . . . . . . . . . . . . . . . .
Amortization and write-off of financing costs and bond discount . . . . . . . . . . . . .
Stock-based compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash receipt of Winn-Dixie equity securities . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of Winn-Dixie equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reserves and non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in prepaid, deferred costs, and other current assets . . . . . . .
(Increase) decrease in inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in notes receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
45,729
1,641
1,050
4,525
—
(569)
(376)
2,235
1,217
(905)
630
3,412
20
(19,787)
15,995
22,726
5,009
55,462
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for exclusive license agreements and site acquisition costs . . . . . . . . . .
Additions to equipment to be leased to customers . . . . . . . . . . . . . . . . . . . . . . .
Principal payments received under direct financing leases . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of Winn-Dixie equity securities . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(68,320)
3
(2,993)
(548)
34
(135,009)
3,950
(202,883)
Cash flows from financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187,744
Repayments of long-term debt and capital leases . . . . . . . . . . . . . . . . . . . . . . . .
(140,765)
Proceeds from borrowing under bank overdraft facility, net . . . . . . . . . . . . . . . . .
642
Redemption of Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Issuance of capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111,363
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Issuance of Series B preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Minority interest shareholder capital contributions . . . . . . . . . . . . . . . . . . . . . . .
547
Repayment of subscriptions receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Equity offering costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(618)
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(853)
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . .
158,155
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,721
2,718
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,439
30,578
1,929
879
454
(3,394)
—
(225)
1,603
1,219
(4,105)
(3,783)
(694)
155
(1,718)
5,436
813
(3,170)
25,446
(32,537)
130
(3,357)
(197)
—
(12)
—
(35,973)
45,661
(37,503)
3,818
—
—
(50)
—
—
—
(18)
—
(716)
11,192
354
1,019
1,699
$ 2,718
21,931
6,941
541
(1,270)
—
—
15
1,036
363
2,176
378
1,060
439
(600)
(1,085)
7,190
(3,470)
33,227
(27,261)
78
(4,665)
—
—
(108,112)
—
(139,960)
478,009
(362,141)
—
(24,795)
89
(46,453)
73,297
—
386
(51)
—
(11,127)
107,214
(194)
287
1,412
1,699
$
Supplemental disclosure of cash flow information:
Cash paid for interest, including interest on capital leases. . . . . . . . . . . . . . . . . . . . $ 26,521
27
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
5,683
Fixed assets financed by direct debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$ 22,939
$
$
67
$
— $
$
8,359
92
—
See accompanying notes to consolidated financial statements.
67
CARDTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Summary of Significant Accounting Policies
(a) Description of Business
Cardtronics, Inc., along with its wholly- and majority-owned subsidiaries (collectively, the “Company” or
“Cardtronics”) owns and operates over 28,800 automated teller machines (“ATM”) in all 50 states, approxi-
mately 2,200 ATMs located throughout the United Kingdom, and approximately 1,300 ATMs located
throughout Mexico. The Company provides ATM management and equipment-related services (typically under
multi-year contracts) to large, nationally-known retail merchants as well as smaller retailers and operators of
facilities such as shopping malls and airports. Additionally, the Company operates the largest surcharge-free
network of ATMs within the United States (based on the number of participating ATMs) and works with
financial institutions to place their logos on the Company’s ATM machines, thus providing convenient
surcharge-free access to their customers.
Since May 2001, the Company has acquired 14 networks of ATMs and one operator of a surcharge-free
ATM network. Most recently, in July 2007, the Company acquired the financial services business of 7-Eleven,
Inc. (the “7-Eleven Financial Services Business”), which added over 3,500 ATMs and over 2,000 advanced-
functionality kiosks referred to as “Vcom” units to the Company’s portfolio. Through its acquisitions, the
Company increased the number of ATMs it operates from approximately 4,100 in May 2001 to over 32,300 as
of December 31, 2007.
(b) Basis of Presentation and Consolidation
The consolidated financial statements presented include the accounts of Cardtronics, Inc. and its wholly-
and majority-owned and controlled subsidiaries. Because the Company owns a majority (51.0%) interest in
and absorbs a majority of the losses or returns of Cardtronics Mexico, this entity is reflected as a consolidated
subsidiary in the accompanying consolidated financial statements, with the remaining ownership interest not
held by the Company being reflected as a minority interest. Additionally, the accompanying consolidated
financial statements include the accounts of ATM Ventures LLC, a limited liability company that the Company
controlled through a 50.0% ownership interest in such entity, until its dissolution in 2006. For 2005, the
remaining 50.0% ownership interest of ATM Ventures has been reflected as a minority interest. All material
intercompany accounts and transactions have been eliminated in consolidation.
Additionally, our financial statements for prior periods include certain reclassifications that were made to
conform to the current period presentation. Those reclassifications did not impact our reported net (loss)
income or stockholders’ equity (deficit).
In addition, the Company presents “Cost of ATM operating revenues” and “Gross profit” within its
consolidated financial statements exclusive of depreciation, accretion, and amortization expenses. The follow-
ing table sets forth the amounts excluded from cost of ATM operating revenues and gross profit during the
years ended December 31, 2007, 2006, and 2005:
Depreciation and accretion expenses related to ATMs and ATM-
related assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,277
18,870
$17,190
11,983
$11,639
8,980
Total depreciation, accretion, and amortization expenses excluded
from cost of ATM operating revenues and gross profit
. . . . . . . .
$43,147
$29,173
$20,619
2007
2006
(In thousands)
2005
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
(c) Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates include the carrying amount of intangibles, goodwill, asset
retirement obligations, and valuation allowances for receivables, inventories, and deferred income tax assets.
Actual results can, and often do, differ from those assumed in the Company’s estimates.
(d) Cash and Cash Equivalents
For purposes of reporting financial condition and cash flows, cash and cash equivalents include cash in
bank and short-term deposit sweep accounts.
We maintain cash on deposit with banks that is pledged for a particular use or restricted to support a
potential liability. We classify these balances as restricted cash in current or non-current assets on our
consolidated balance sheet based on when we expect this cash to be used. As of December 31, 2007 and 2006,
we had $5.9 million and $0.9 million, respectively, of restricted cash in current assets and $317,000 and
$34,000, respectively, in other non-current assets. Current restricted cash as of December 31, 2007 and 2006
was comprised of approximately $5.7 million and $0.7 million, respectively, in amounts collected on behalf of,
but not yet remitted to, certain of the Company’s merchant customers, and $0.2 million and $0.2 million,
respectively, in guarantees related to certain notes issued in connection with the Bank Machine acquisition
(see Note 2). Non-current restricted cash represents a certificate of deposit held at one of the banks utilized to
provide cash for the Company’s ATMs and funds held at one of the banks utilized by the Company in its
provision of advanced-functionality services through its Vcom units.
(e) ATM Cash Management Program
The Company relies on agreements with Bank of America, N.A. (“Bank of America”), Palm Desert
National Bank (“PDNB”), and Wells Fargo, National Association (“Wells Fargo”) to provide the cash that it
uses in its domestic ATMs in which the related merchants do not provide their own cash. Additionally, the
Company relies on Alliance & Leicester Commercial Bank (“ALCB”) in the United Kingdom and Bansi, S.A.
Institución de Banca Multiple (“Bansi”) in Mexico to provide it with its ATM cash needs. The Company pays
a fee for its usage of this cash based on the total amount of cash outstanding at any given time, as well as fees
related to the bundling and preparation of such cash prior to it being loaded in the ATMs. At all times during
its use, the cash remains the sole property of the cash providers, and the Company is unable to and prohibited
from obtaining access to such cash. Pursuant to the terms of the Company’s agreements with them, Bank of
America and Wells Fargo must provide 360 days and 180 days prior written notice, respectively, prior to
terminating the agreements and remove their cash from the ATMs. Under the other domestic agreement with
PDNB and the U.K. agreement with ALCB, both PDNB and ALCB have the right to demand the return of all
or any portion of their cash at any point in time upon the occurrence of certain events beyond the Company’s
control. In addition, Bansi has the right to terminate the agreement and demand the return of all or any portion
of their cash upon a breach of contract resulting from our actions (or lack thereof) if such breach is not cured
within 60 days. Based on the foregoing, such cash, and the related obligations, are not reflected in the
accompanying consolidated financial statements. The amount of cash in the Company’s ATMs was approxi-
mately $1.1 billion and $536.0 million as of December 31, 2007 and 2006, respectively.
(f) Accounts Receivable, including Allowance for Doubtful Accounts
Accounts receivable are primarily comprised of amounts due from the Company’s clearing and settlement
banks for ATM and Vcom transaction revenues earned on transactions processed during the month ending on
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
the balance sheet date. Trade accounts receivable are recorded at the invoiced amount and do not bear interest.
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in
the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts
monthly and determines the allowance based on an analysis of its past due accounts. All balances over 90 days
past due are reviewed individually for collectibility. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote. Amounts
charged to bad debt expense were nominal during each of the years ended December 31, 2007, 2006, and
2005.
(g)
Inventory
Inventory consists principally of used ATMs, ATM spare parts, and ATM supplies and is stated at the
lower of cost or market. Cost is determined using the average cost method. The following table is a breakdown
of the Company’s primary inventory components as of December 31, 2007 and 2006:
ATMs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 745
2,040
ATM parts and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,625
2,832
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,785
(430)
5,457
(1,013)
Net inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,355
$ 4,444
2007
2006
(In thousands)
(h) Property and Equipment, net
Property and equipment are stated at cost, and depreciation is calculated using the straight-line method
over estimated useful lives ranging from three to seven years. Leasehold improvements and property acquired
under capital leases are amortized over the useful life of the asset or the lease term, whichever is shorter. The
cost of property and equipment held under capital leases is equal to the lower of the net present value of the
minimum lease payments or the fair value of the leased property at the inception of the lease or the acquisition
date if the leases were assumed in an acquisition. Also included in property and equipment are new ATMs and
the associated equipment the Company has acquired for future installation. Such ATMs are held as
“deployments in process” and are not depreciated until actually installed. Depreciation expense for property
and equipment for the years ended December 31, 2007, 2006, and 2005 was $25.7 million, $18.3 million, and
$11.9 million, respectively. The $25.7 million in 2007 includes the amortization expense associated with the
assets associated with the capital leases assumed by the Company in its acquisition of the 7-Eleven Financial
Services Business (the “7-Eleven ATM Transaction”). See Note 1(l) regarding asset retirement obligations
associated with the Company’s ATMs.
Maintenance on the Company’s domestic and Mexico ATMs is typically performed by third parties and is
incurred as a fixed fee per month per ATM. Accordingly, such amounts are expensed as incurred. In the
United Kingdom, maintenance is performed by in-house technicians.
(i) Goodwill and Other Intangible Assets
The Company’s intangible assets include merchant contracts/relationships and a branding agreement
acquired in connection with acquisitions of ATM assets (i.e., the right to receive future cash flows related to
ATM transactions occurring at these merchant locations), exclusive license agreements (i.e., the right to be the
exclusive ATM service provider, at specific locations, for the time period under contract with a merchant
customer), non-compete agreements, deferred financing costs relating to the Company’s credit agreements
(Note 13) and the Bank Machine and Allpoint trade names acquired. Additionally, the Company has goodwill
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
related to the acquisitions of E*TRADE Access, Bank Machine, ATM National, Cardtronics Mexico, and 7-
Eleven Financial Services Business.
The estimated fair value of the merchant contracts/relationships within each acquired portfolio is
determined based on the estimated net cash flows and useful lives of the underlying contracts/relationships,
including expected renewals. The merchant contracts/relationships comprising each acquired portfolio are
typically homogenous in nature with respect to the underlying contractual terms and conditions. Accordingly,
the Company pools such acquired merchant contracts/relationships into a single intangible asset, by acquired
portfolio, for purposes of computing the related amortization expense. The Company amortizes such intangible
assets on a straight-line basis over the estimated useful lives of the portfolios to which the assets relate.
Because the net cash flows associated with the Company’s acquired merchant contracts/relationships have
historically increased subsequent to the acquisition date, the use of a straight-line method of amortization
effectively results in an accelerated amortization schedule. As such, the straight-line method of amortization
most closely approximates the pattern in which the economic benefits of the underlying assets are expected to
be realized. The estimated useful life of each portfolio is determined based on the weighted-average lives of
the expected cash flows associated with the underlying merchant contracts/relationships comprising the
portfolio, and takes into consideration expected renewal rates and the terms and significance of the underlying
contracts/relationships themselves. If, subsequent to the acquisition date, circumstances indicate that a shorter
estimated useful life is warranted for an acquired portfolio as a result of changes in the expected future cash
flows associated with the individual contracts/relationships comprising that portfolio, then that portfolio’s
remaining estimated useful life and related amortization expense are adjusted accordingly on a prospective
basis.
Goodwill and the acquired Bank Machine and Allpoint trade names are not amortized, but instead are
periodically tested for impairment, at least annually, and whenever an event occurs that indicates that an
impairment may have occurred. See Note 1(j) below for additional information on the Company’s impairment
testing of long-lived assets and goodwill.
(j)
Impairment of Long-Lived Assets and Goodwill
Long-lived assets. The Company places significant value on the installed ATMs that it owns and
manages in merchant locations as well as the related acquired merchant contracts/relationships and the
branding agreement acquired in the 7-Eleven ATM Transaction. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, long-
lived assets, such as property and equipment and purchased contract intangibles subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The Company tests its acquired merchant contract/relationship intangible
assets for impairment, along with the related ATMs, on an individual contract/relationship basis for the
Company’s significant acquired contracts/relationships, and on a pooled or portfolio basis (by acquisition) for
all other acquired contracts/relationships.
In determining whether a particular merchant contract/relationship is significant enough to warrant a
separate identifiable intangible asset, the Company analyzes a number of relevant factors, including (i) esti-
mates of the historical cash flows generated by such contract/relationship prior to its acquisition, (ii) estimates
regarding the Company’s ability to increase the contract/relationship’s cash flows subsequent to the acquisition
through a combination of lower operating costs, the deployment of additional ATMs, and the generation of
incremental revenues from increased surcharges and/or new branding arrangements, and (iii) estimates
regarding the Company’s ability to renew such contract/relationship beyond its originally scheduled termina-
tion date. An individual contract/relationship, and the related ATMs, could be impaired if the contract/
relationship is terminated sooner than originally anticipated, or if there is a decline in the number of
transactions related to such contract/relationship without a corresponding increase in the amount of revenue
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
collected per transaction (e.g., branding revenue). A portfolio of purchased contract intangibles, including the
related ATMs, could be impaired if the contract attrition rate is materially more than the rate used to estimate
the portfolio’s initial value, or if there is a decline in the number of transactions associated with such portfolio
without a corresponding increase in the revenue collected per transaction (e.g., branding revenue). Whenever
events or changes in circumstances indicate that a merchant contract/relationship intangible asset may be
impaired, the Company evaluates the recoverability of the intangible asset, and the related ATMs, by
measuring the related carrying amounts against the estimated undiscounted future cash flows associated with
the related contract or portfolio of contracts. Should the sum of the expected future net cash flows be less than
the carrying values of the tangible and intangible assets being evaluated, an impairment loss would be
recognized. The impairment loss would be calculated as the amount by which the carrying values of the ATMs
and intangible assets exceeded the calculated fair value. The Company recorded approximately $5.7 million,
$2.8 million, and $1.2 million in additional amortization expense during the years ended December 31, 2007,
2006, and 2005, respectively, related to the impairments of certain previously acquired merchant contract/
relationship intangible assets associated with our U.S. reporting segment.
Goodwill and other indefinite lived intangible assets. As of December 31, 2007, the Company had
$235.2 million in goodwill and $4.2 million of indefinite lived intangible assets reflected in its consolidated
balance sheet. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company reviews
the carrying amount of its goodwill and indefinite lived intangible assets for impairment at least annually and
more frequently if conditions warrant. Pursuant to SFAS No. 142, goodwill and indefinite lived intangible
assets should be tested for impairment at the reporting unit level, which in the Company’s case involves five
separate reporting units — (i) the Company’s domestic reporting segment; (ii) the acquired Bank Machine
operations; iii) the acquired CCS Mexico (subsequently renamed to Cardtronics Mexico) operations; (iv) the
acquired ATM National operations; and (v) the 7-Eleven Financial Services Business (see Note 2). For each
reporting unit, the carrying amount of the net assets associated with the applicable segment is compared to the
estimated fair value of such segment as of the testing date (i.e., December 31, 2007.) Based on the results of
those tests, the Company determined that no goodwill or other indefinite lived intangible asset impairments
existed as of December 31, 2007.
(k)
Income Taxes
The Company accounts for income taxes pursuant to the provisions of SFAS No. 109, Accounting for
Income Taxes, as interpreted by Financial Accounting Standards (“FASB”) Interpretation (“FIN”) No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. Provisions for
income taxes are based on taxes payable or refundable for the current year and deferred taxes, which are based
on temporary differences between the amount of taxable income and income before provision for income taxes
and between the tax basis of assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the consolidated financial statements at current income tax
rates. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. See Note 1(v) for additional information on the Company’s adoption of FIN No. 48.
(l) Asset Retirement Obligations
The Company accounts for its asset retirement obligations under SFAS No. 143, Accounting for Asset
Retirement Obligations. Under SFAS No. 143, the Company is required to estimate the fair value of future
retirement costs associated with its ATMs and recognize this amount as a liability in the period in which it is
incurred and can be reasonably estimated. The Company’s estimates of fair value involve discounted future
cash flows. Subsequent to recognizing the initial liability, the Company recognizes an ongoing expense for
changes in such liabilities due to the passage of time (i.e., accretion expense), which is recorded in the
depreciation and accretion expense line in the accompanying consolidated financial statements. Upon
settlement of the liability, the Company recognizes a gain or loss for any difference between the settlement
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
amount and the liability recorded. Additionally, the Company capitalizes the initial estimated fair value amount
as part of the carrying amount of the related long-lived asset and depreciates the amount over the asset’s
estimated useful life. Additional information regarding the Company’s asset retirement obligations is included
in Note 11.
(m) Revenue Recognition
ATM operating revenues. Substantially all of the Company’s revenues are generated from ATM
operating and transaction-based fees, which primarily include surcharge fees, interchange fees, bank branding
revenues, surcharge-free network fees, and other revenue items, including maintenance fees. Such amounts are
reflected as “ATM operating revenues” in the accompanying consolidated statements of operations. Surcharge
and interchange fees are recognized daily as the underlying ATM transactions are processed. Branding fees are
generated by the Company’s bank branding arrangements, under which financial institutions pay a fixed
monthly fee per ATM to the Company to put their brand name on selected ATMs within the Company’s ATM
portfolio. In return for such fees, the bank’s customers can use those branded ATMs without paying a
surcharge fee. Pursuant to the SEC’s SAB, Topic 13, Revenue Recognition, the monthly per ATM branding
fees, which are subject to escalation clauses within the agreements, are recognized as revenues on a straight-
line basis over the term of the agreement. In addition to the monthly branding fees, the Company also receives
a one-time set-up fee per ATM. This set-up fee is separate from the recurring, monthly branding fees and is
meant to compensate Cardtronics for the burden incurred related to the initial set-up of a branded ATM versus
the on-going monthly services provided for the actual branding. Pursuant to the guidance in Emerging Issues
Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, and SAB No. 104,
Revenue Recognition, the Company has deferred these set-up fees (as well as the corresponding costs
associated with the initial set-up) and is recognizing such amounts as revenue (and expense) over the terms of
the underlying bank branding agreements. With respect to the Company’s surcharge-free networks, the
Company allows cardholders of financial institutions that participate in the network to utilize the Company’s
ATMs on a surcharge-free basis. In return, the participating financial institutions typically pay a fixed fee per
month per cardholder to the Company. These surcharge-free network fees are recognized as revenues on a
monthly basis as earned. Finally, with respect to maintenance services, the Company typically charges a fixed
fee per month per ATM to its customers and outsources the fulfillment of those maintenance services to a
third-party service provider for a corresponding fixed fee per month per ATM. Accordingly, the Company
recognizes such service agreement revenues and the related expenses on a monthly basis, as earned.
ATM equipment sales. The Company also generates revenues from the sale of ATMs to merchants and
certain equipment resellers. Such amounts are reflected as “ATM product sales and other revenues” in the
accompanying consolidated statements of operations. Revenues related to the sale of ATMs to merchants are
recognized when the equipment is delivered to the customer and the Company has completed all required
installation and set-up procedures. With respect to the sale of ATMs to associate value-added resellers
(“VARs”), the Company recognizes and invoices revenues related to such sales when the equipment is shipped
from the manufacturer to the VAR. The Company typically extends 30-day terms and receives payment
directly from the VAR irrespective of the ultimate sale to a third party.
Merchant-owned arrangements.
In connection with the Company’s merchant-owned ATM operating/
processing arrangements, the Company typically pays the surcharge fees that it earns to the merchant as fees
for providing, placing, and maintaining the ATM unit. Pursuant to the guidance of EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products), the Company has recorded such payments as a cost of the associated revenues. In exchange for this
payment, the Company receives access to the merchants’ customers and the ability to earn the surcharge and
interchange fees from transactions that such customers conduct from using the ATM. The Company is able to
reasonably estimate the fair value of this benefit based on the typical surcharge rates charged for transactions
on all of its ATMs, including those not subject to these arrangements.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Further, the Company follows the guidance in EITF Issue 99-19, Reporting Revenue Gross as a Principal
versus Net as an Agent, for the majority of its merchant contracts. Specifically, as the Company acts as the
principal and is the primary obligor in the ATM transactions, provides the processing for the ATM
transactions, and has the risks and rewards of ownership, including the risk of loss for collection, the Company
recognizes the majority of its surcharge and interchange fees gross of any of the payments made to the various
merchants and retail establishments where the ATM units are housed. As a result, for agreements under which
the Company acts as the principal, the Company records the total amounts earned from the underlying ATM
transactions as ATM operating revenues and records the related merchant commissions as a cost of ATM
operating revenues.
Other.
In connection with certain bank branding arrangements, the Company is required to rebate a
portion of the interchange fees it receives above certain thresholds to the branding financial institutions, as
established in the underlying agreements. In contrast to the gross presentation of surcharge and interchange
fees remitted to merchants, the Company recognizes all of its interchange fees net of any such rebates.
Pursuant to the guidance of EITF No. 01-9 (referenced above), while the Company receives access to the
branding financial institution’s customers and the ability to earn interchange fees related to such transactions
conducted by those customers, the Company is unable to reasonably estimate the fair value of this benefit.
Thus, the Company recognizes such payments made to the branding financial institution as a reduction of
revenues versus a cost of the associated revenues.
(n) Stock-Based Compensation
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment
(“SFAS No. 123R”). SFAS No. 123R requires companies to calculate the fair value of stock-based instruments
awarded to employees on the date of grant and to recognize the calculated fair value as compensation cost
over the requisite service period. Because the Company historically utilized the minimum value method of
measuring equity share option values for pro forma disclosure purposes under SFAS No. 123, Accounting for
Stock-based Compensation, it adopted the provisions of SFAS No. 123R using the prospective transition
method. Accordingly, the Company recognizes compensation expense for the fair value of all new awards that
are granted and existing awards that are modified subsequent to December 31, 2005. For those awards issued
and still outstanding prior to December 31, 2005, the Company will continue to account for such awards
pursuant to Accounting Principles Board (“APB”) Opinion No. 25 and its related interpretive guidance. As a
result of its prospective adoption, the Company’s financial statements for all periods prior to January 1, 2006
do not reflect any adjustments resulting from the adoption of SFAS No. 123R, and the adoption did not result
in the recording of a cumulative effect of a change in accounting principle.
Had compensation cost for option grants under the Company’s stock incentive plan (see Note 3) been
determined based on the fair value method at the grant dates, as specified in SFAS No. 123, the Company’s
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
net earnings would have been reduced to the following pro forma amounts for the year ended December 31,
2005 (in thousands):
Net loss, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,418)
Add: Stock-based employee compensation expense included in reported net income, net of
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,492
Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,694)
Net loss, as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,620)
1,395
Net loss available to common stockholders, as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,015)
Loss per share:
Basic and diluted, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.27)
Basic and diluted, pro forma.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.29)
(o) Derivative Instruments
The Company utilizes derivative financial instruments to hedge its exposure to changing interest rates
related to the Company’s ATM cash management activities. The Company does not enter into derivative
transactions for speculative or trading purposes.
The Company accounts for its derivative financial instruments in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which requires derivative instruments to be
recorded at fair value in a company’s balance sheet. As of December 31, 2007, all of the Company’s
derivatives were considered to be cash flow hedges under SFAS No. 133 and, accordingly, changes in the fair
values of such derivatives have been reflected in the accumulated other comprehensive income (loss) account
in the accompanying consolidated balance sheet. See Note 17 for more details on the Company’s derivative
financial instrument transactions.
(p) Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires the disclosure of the
estimated fair value of the Company’s financial instruments. The fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale. SFAS No. 107 does not require the disclosure of the fair value of lease
financing arrangements and non-financial instruments, including intangible assets such as goodwill and the
Company’s merchant contracts/relationships.
The carrying amount of the Company’s cash and cash equivalents and other current assets and liabilities
approximates fair value due to the relatively short maturities of these instruments. The carrying amount of the
Company’s interest rate swaps (see Note 17), which was a liability of $13.6 million as of December 31, 2007,
represents the fair value of such agreements and is based on third-party quotes for similar instruments with the
same terms and conditions. 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 such borrowings are subject to
floating market interest rates. As of December 31, 2007, the fair value of the Company’s $300.0 million senior
subordinated notes (see Note 13) totaled $292.5 million. The fair values of these financial instruments were
based on the quoted market price for such notes as of year end.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
(q) Foreign Currency Translation
As a result of the Bank Machine acquisition in May 2005 and the Cardtronics Mexico acquisition in
February 2006, the Company is exposed to foreign currency translation risk. The functional currency for the
acquired Bank Machine and Cardtronics Mexico operations are the British pound and the Mexican peso,
respectively. Accordingly, results of operations of our U.K. and Mexico subsidiaries are translated into
U.S. dollars using average exchange rates in effect during the periods in which those results are generated.
Furthermore, the Company’s foreign operations’ assets and liabilities are translated into U.S. dollars using the
exchange rate in effect as of each balance sheet reporting date. The resulting translation adjustments have been
included in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.
The Company currently believes that the unremitted earnings of its United Kingdom and Mexico
subsidiaries will be reinvested in the corresponding country of origin for an indefinite period of time.
Accordingly, no deferred taxes have been provided for on the differences between the Company’s book basis
and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts.
(r) Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting comprehensive
income (loss) and its components in the financial statements. Accumulated other comprehensive income (loss)
is displayed as a separate component of stockholders’ equity (deficit) in the accompanying consolidated
balance sheets, and current period activity is reflected in the accompanying consolidated statements of
comprehensive income (loss). The Company’s comprehensive income (loss) is composed of (i) net loss;
(ii) foreign currency translation adjustments; (iii) unrealized gains (losses) associated with the Company’s
interest rate hedging activities; and (iv) unrealized gains on the Company’s available-for-sale securities as of
December 31, 2006.
The following table sets forth the components of accumulated other comprehensive income (loss), net of
tax where applicable, as of December 31, 2007 and 2006:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on interest rate swaps, net of taxes of $0 and
2007
2006
(In thousands)
$ 9,126
$ 6,711
$2.7 million as of December 31, 2007 and 2006, respectively . . . . . . . . . . .
(13,644)
4,449
Unrealized gains on available-for-sale securities, net of taxes of $0.3 million
as of December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
498
Total accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . .
$ (4,518)
$11,658
See Note 18 for additional information on the Company’s deferred taxes and related valuation allowances
associated with its interest rate swaps.
(s) Treasury Stock
Treasury stock is recorded at cost and carried as a component of stockholders’ equity (deficit) until
retired or reissued.
(t) Advertising Costs
Advertising costs are expensed as incurred and totaled $2.2 million, $0.8 million, and $0.9 million during
the years ended December 31, 2007, 2006, and 2005, respectively. The increase during 2007 was primarily the
result of the $1.4 million in costs incurred to promote the advanced-functionality services associated with the
acquired 7-Eleven Financial Services Business. For additional details on this acquisition, see Note 2.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
(u) Working Capital Deficit
The Company’s surcharge and interchange revenues are typically collected in cash on a daily basis or
within a short period of time subsequent to the end of each month. However, the Company typically pays its
vendors on 30 day terms and is not required to pay certain of its merchants until 20 days after the end of each
calendar month. As a result, the Company will typically utilize the excess cash flow generated from such
timing differences to fund its capital expenditure needs or to repay amounts outstanding under its revolving
line of credit (which is reflected as a long-term liability in the accompanying consolidated balance sheets).
Accordingly, this scenario will typically cause the Company’s balance sheet to reflect a working capital deficit
position. The Company considers such a presentation to be a normal part of its ongoing operations.
(v) New Accounting Pronouncements
The Company adopted the following accounting standard and interpretation effective January 1, 2007:
Accounting for Uncertainty in Income Taxes. FIN No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109, clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income
Taxes. The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken
or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. The Company applied the provisions of
FIN 48 to all tax positions upon its initial adoption effective January 1, 2007, and determined that no
cumulative effect adjustment was required as of such date. As of December 31, 2007, the Company had a
$0.2 million reserve for uncertain tax positions recorded pursuant to FIN 48.
Registration Payment Arrangements. FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
No. 00-19-2, Accounting for Registration Payment Arrangements, addresses an issuer’s accounting for
registration payment arrangements. Registration payment arrangements typically require the issuer of financial
instruments to file a registration statement for the resale of the financial instruments and for the registration
statement to be declared effective by the SEC within a specified period of time, or else the issuer is subject to
penalties, which may be significant. FSP EITF 00-19-2 specifies that the contingent obligation to make future
payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies. The
guidance contained in this standard amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended, and SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, as well as FIN 45, Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to include scope
exceptions for registration payment arrangements. FSP EITF 00-19-2 is effective immediately for registration
payment arrangements and the financial instruments subject to those arrangements that are entered into or
modified subsequent to the date of issuance of this standard. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance of this standard,
the guidance in the standard is effective for financial statements issued for fiscal years beginning after
December 15, 2006, and interim periods within those fiscal years. The Company’s adoption of this standard on
January 1, 2007 had no impact on its financial statements. The Company will continue to evaluate the impact
that the implementation of FSP EITF 00-19-2 may have on its financial statements as it relates to the
Company’s registration requirements associated with the $100.0 million of Series B Notes issued in July 2007.
As of December 31, 2007, the following accounting standards and interpretations had not yet been
adopted by the Company:
Fair Value Measurements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measure-
ments, which provides guidance on measuring the fair value of assets and liabilities in the financial statements.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
In February 2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157, which delays
the effective date for non-financial assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years
beginning after November 15, 2008. The Company will adopt the provisions of SFAS No. 157 for its financial
assets and liabilities and those items for which it has recognized or disclosed on a recurring basis effective
January 1, 2008, and does not expect that this adoption will have a material impact on the Company’s
financial statements. As provided by FSP No. 157-2, the Company has elected to defer the adoption of
SFAS No. 157 for certain of its non-financial assets and liabilities and is currently evaluating the impact, if
any, that this statement will have on its financial statements as it relates to its nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed on a non-recurring basis.
Fair Value Option.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which provides allows companies the option to measure certain
financial instruments and other items at fair value. The Company will adopt the provisions of this standard
effective January 1, 2008, and does not anticipate that it will have a material impact on its financial
statements.
Business Combinations.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations,
which provides revised guidance on the accounting for acquisitions of businesses. This standard changes the
current guidance to require that all acquired assets, liabilities, minority interest, and certain contingencies,
including contingent consideration, be measured at fair value, and certain other acquisition-related costs,
including costs of a plan to exit an activity or terminate and relocate employees, be expensed rather than
capitalized. SFAS No. 141R will apply to acquisitions that are effective after December 31, 2008, and
application of the standard to acquisitions prior to that date is not permitted. The Company will adopt the
provisions of SFAS No. 141R on January 1, 2009 and apply the requirements of the statement to business
combinations that occur subsequent to its adoption.
Noncontrolling Interests.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements — an amendment of ARB No. 51, which provides guidance on the
presentation of minority interest in the financial statements and the accounting for and reporting of transactions
between the reporting entity and the holders of such noncontrolling interest. This standard requires that
minority interest be presented as a separate component of equity rather than as a “mezzanine” item between
liabilities and equity and requires that minority interest be presented as a separate caption in the income
statement. In addition, this standard requires all transactions with minority interest holders, including the
issuance and repurchase of minority interests, be accounted for as equity transactions unless a change in
control of the subsidiary occurs. The provisions of SFAS No. 160 are to be applied prospectively with the
exception of reclassifying noncontrolling interests to equity and recasting consolidated net income (loss) to
include net income (loss) attributable to both the controlling and noncontrolling interests, which are required
to be adopted retrospectively. The Company will adopt the provisions SFAS No. 160 on January 1, 2009 and
is currently assessing the impact its adoption will have on the Company’s financial position and results of
operations.
(2) Acquisitions
Acquisition of 7-Eleven Financial Services Business
On July 20, 2007, the Company acquired substantially all of the assets of the 7-Eleven Financial Services
Business for approximately $137.3 million in cash. Such acquisition was made as the Company believed the
acquisition would provide it with substantial benefits and opportunities to execute its overall strategy, including
the addition of high-volume ATMs in prime retail locations, organic growth potential, branding and surcharge-
free network opportunities, and future outsourcing opportunities.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The 7-Eleven ATM Transaction included approximately 5,500 ATMs located in 7-Eleven, Inc. stores
throughout the United States, of which approximately 2,000 were advanced-functionality financial self-service
kiosks referred to as “Vcom” terminals that are capable of providing more sophisticated financial services,
such as check-cashing, remote deposit capture (which is deposit taking at off-premise ATMs using electronic
imaging), money transfer, bill payment services, and other kiosk-based financial services (collectively, the
“Vcom Services”). The Company funded the acquisition through the issuance of $100.0 million of
9.25% senior subordinated notes due 2013 — Series B (the “Series B Notes”) and additional borrowings under
its revolving credit facility, which was amended in connection with the acquisition. See Note 13 for additional
details on these financings. The accompanying consolidated financial statements of the Company include the
results of the operations of the 7-Eleven Financial Services Business for the period subsequent to July 19,
2007.
The Company has accounted for the 7-Eleven ATM Transaction as a business combination pursuant to
SFAS No. 141, Business Combinations. Accordingly, the Company has allocated the total purchase consider-
ation to the assets acquired and liabilities assumed based on their respective fair values as of the acquisition
date. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities
assumed as of the acquisition date (in thousands):
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surcharge and interchange receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,427
3,767
3,769
1,953
2,344
18,315
4,273
78,000
62,185
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176,033
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(688)
(9,743)
(1,326)
(7,777)
(1,378)
(17,809)
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,721)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $137,312
The purchase price allocation presented above resulted in a goodwill balance of approximately $62.2 mil-
lion, which is deductible for tax purposes. Additionally, the purchase price allocation resulted in approximately
$78.0 million in identifiable intangible assets subject to amortization, which consisted of $64.3 million
associated with the ten-year ATM operating agreement that was entered into with 7-Eleven in conjunction with
the acquisition and $13.7 million related to a branding contract acquired in the transaction. The $78.0 million
assigned to the acquired intangible assets was determined by utilizing a discounted cash flow approach. The
$64.3 million is being amortized on a straight-line basis over the 10-year term of the underlying ATM
operating agreement, while the $13.7 million is being amortized over the remaining life of the underlying
contract (8.4 years). Additionally, the Company recorded $19.5 million of other liabilities ($7.8 million in
current and $11.7 million in long-term) related to certain unfavorable equipment operating leases and an
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
operating contract assumed as part of the 7-Eleven ATM Transaction. These liabilities are being amortized
over the remaining terms of the underlying contracts and serve to reduce the corresponding ATM operating
expense amounts to the fair value of these services as of the date of the acquisition.
Pro Forma Results of Operations. The following table presents the unaudited pro forma combined
results of operations of the Company and the acquired 7-Eleven Financial Services Business for the years
ended December 31, 2007 and 2006, after giving effect to certain pro forma adjustments, including the effects
of the issuance of the Series B Notes and additional borrowings under its revolving credit facility, as amended
(Note 13). The unaudited pro forma financial results assume that both the 7-Eleven ATM Transaction and
related financing transactions occurred on January 1, 2006. This pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the actual results that would have occurred had
those transactions been consummated on such date. Furthermore, such pro forma results are not necessarily
indicative of the future results to be expected for the consolidated operations.
2007
2006(1)
(In thousands, excluding
per share amounts)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $465,808
19,364
Income from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(61,497)
Net (loss) income available to common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . .
(3.99)
Basic (loss) earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
$457,267
45,503
6,233
0.45
$
Diluted (loss) earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(3.99)
$
0.27
(1) Pro forma results for the year ended December 31, 2006 include approximately $18.0 million of placement
fee revenues associated with the Vcom operations of the 7-Eleven Financial Services Business, which are
not expected to recur in future periods.
Acquisition of CCS Mexico
In February 2006, the Company acquired a 51.0% ownership stake in CCS Mexico, an independent ATM
operator located in Mexico, for approximately $1.0 million in cash consideration and the assumption of
approximately $0.4 million in additional liabilities. Additionally, the Company incurred approximately
$0.3 million in transaction costs associated with this acquisition. CCS Mexico, which was renamed Cardtronics
Mexico upon the completion of the Company’s investment, currently operates over 1,300 surcharging ATMs in
selected retail locations throughout Mexico, and the Company anticipates placing additional surcharging ATMs
in other retail establishments throughout Mexico as those opportunities arise.
The Company allocated the total purchase consideration to the assets acquired and liabilities assumed
based on their respective fair values as of the acquisition date. Such allocation resulted in goodwill of
approximately $0.7 million. Such goodwill, which is not deductible for tax purposes, has been assigned to a
separate reporting unit representing the acquired CCS Mexico operations. Additionally, such allocation resulted
in approximately $0.4 million in identifiable intangible assets, including $0.3 million for certain acquired
customer contracts and $0.1 million related to non-compete agreements entered into with the minority interest
shareholders of Cardtronics Mexico.
Because the Company owns a majority interest in and absorbs a majority of the entity’s losses or returns,
Cardtronics Mexico is reflected as a consolidated subsidiary in the accompanying condensed consolidated
financial statements, with the remaining ownership interest not held by the Company being reflected as a
minority interest. See Note 12 for additional information regarding this minority interest.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Acquisition of Bank Machine (Acquisitions) Limited
On May 17, 2005, the Company purchased 100% of the outstanding shares of Bank Machine (Acquisi-
tions) Limited (“Bank Machine”). Such acquisition was made to provide the Company with an existing
platform from which it can expand its operations in the United Kingdom and other European markets.
The purchase price totaled approximately $95.0 million and consisted of $92.0 million in cash and the
issuance of 35,221 shares of the Company’s Series B redeemable convertible preferred stock, which was
valued by the Company at approximately $3.0 million. Additionally, the Company incurred approximately
$2.2 million in transaction costs associated with the acquisition.
Although the Bank Machine acquisition closed on May 17, 2005, the Company utilized May 1, 2005 as
the effective date of the acquisition for accounting purposes. Accordingly, the accompanying consolidated
financial statements of the Company include Bank Machine’s results of operations for the period subsequent to
April 30, 2005. Additionally, such results have been reduced by approximately $0.3 million, with such amount
representing the imputed interest costs associated with the acquired Bank Machine operations for the period
from May 1, 2005 through the actual closing date of May 17, 2005.
In connection with the acquisition, certain existing shareholders of Bank Machine agreed to defer receipt
of a portion of their cash consideration proceeds in return for the issuance of certain guaranteed notes payable
from Cardtronics Limited, the Company’s wholly-owned subsidiary holding company in the United Kingdom.
As part of the guarantee arrangement, the Company initially placed approximately $3.1 million of the cash
consideration paid as part of the acquisition in a bank account to serve as collateral for the guarantee. The
notes mature in May 2008, but may be repaid in part or in whole at any time at the option of each individual
note holder. Approximately $3.0 million of the notes were redeemed on March 15, 2006. The remaining cash
serving as collateral as of December 31, 2007 has been reflected in the “Restricted cash, short-term” line item
in the accompanying consolidated balance sheet. Additionally, the remaining obligations, which we expect to
be redeemed in 2008, have been reflected in the “Current portion of long-term debt and notes payable” line
item in the accompanying consolidated balance sheet. Interest expense on the notes accrues quarterly at the
same floating rate as that of the interest income associated with the related restricted cash account.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as
of the acquisition date (amounts in thousands). Pursuant to SFAS No. 141, Business Combinations, the total
purchase consideration has been allocated to the assets acquired and liabilities assumed, including identifiable
intangible assets, based on their respective fair values at the date of acquisition. Such allocation resulted in
approximately $77.3 million in goodwill, which is not expected to be deductible for income tax purposes.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Such goodwill amount has been assigned to a reporting unit comprised solely of the acquired Bank Machine
operations.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization (7 year weighted-average life) . . . . . . . . . . . . . .
Intangible assets not subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,400
407
82
4,936
12,590
6,812
3,682
77,269
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109,178
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,467)
(5,307)
(3,232)
(1,926)
(1,225)
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,157)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 95,021
Above amounts were converted from pound sterling to U.S. dollars at $1.8410, which represents the
exchange rate in effect as of the date of the acquisition.
As indicated in the table above, approximately $6.8 million was allocated to intangible assets subject to
amortization, which represents the estimated value associated with the acquired merchant contracts/relation-
ships associated with the Bank Machine ATM portfolio. Such amount was determined by utilizing a discounted
cash flow approach and is currently being amortized on a straight-line basis over an estimated useful life of
seven years, in accordance with the Company’s existing policy. The $3.7 million allocated to intangible assets
not subject to amortization represents the estimated value associated with the acquired Bank Machine trade
name, and was determined based on the relief from royalty valuation approach.
The above purchase price allocation reflects a change made during 2006 to record certain deferred tax
items related to the acquisition. Such change had the effect of increasing the recorded goodwill balance by
approximately $0.2 million.
Pro Forma Results of Operations. The following table presents the unaudited pro forma combined
results of operations of the Company and the acquired Bank Machine operations for the year ended
December 31, 2005, after giving effect to certain pro forma adjustments, including the effects of the issuance
of the Company’s senior subordinated notes in August 2005 (the “Series A Notes”) (Note 13) (amounts in
thousands, excluding per share amounts). Such unaudited pro forma financial results do not reflect the impact
of the smaller acquisitions consummated by the Company in 2005. The unaudited pro forma financial results
assume that the Bank Machine acquisition and the debt issuance occurred on January 1, 2005, and are not
necessarily indicative of the actual results that would have occurred had those transactions been consummated
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
on such date. Furthermore, such pro forma results are not necessarily indicative of the future results to be
expected for the consolidated operations.
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,149
21,083
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,557)
Net loss available to common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.18)
Basic and diluted loss per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other Acquisitions
On March 1, 2005, the Company acquired a portfolio of ATMs from BAS Communications, Inc.
(“BASC”) for approximately $8.2 million in cash. Such portfolio consisted of approximately 475 ATMs
located in independent grocery stores in and around the New York metropolitan area and the related contracts.
The purchase price was allocated $0.6 million to ATM equipment and $7.6 million to the acquired merchant
contracts/relationships. During the first quarter of 2006, the Company recorded a $2.8 million impairment of
the intangible asset representing the acquired merchant contract/relationships related to this portfolio. This
impairment was triggered by a reduction in the anticipated future cash flows resulting from a higher than
anticipated attrition rate associated with this acquired portfolio. The Company has subsequently shortened the
anticipated life associated with this portfolio to reflect the higher attrition rate. In 2007, the Company received
approximately $0.8 million in proceeds that were distributed from an escrow account established upon the
initial closing of this acquisition. Such proceeds were meant to compensate the Company for the attrition
issues encountered with the BASC portfolio subsequent to the acquisition date. The $0.8 million was utilized
to reduce the remaining carrying value of the intangible asset amount associated with this portfolio.
On April 21, 2005, the Company acquired a portfolio of approximately 330 ATMs and related contracts,
primarily at BP Amoco locations throughout the Midwest, for approximately $9.0 million in cash. The
purchase price was allocated $0.2 million to ATM equipment and $8.8 million to the acquired merchant
contracts/relationships.
On December 21, 2005, the Company acquired all of the outstanding shares of ATM National, Inc., the
owner and operator of a nationwide surcharge-free ATM network. The consideration for such acquisition
totaled $4.8 million, and was comprised of $2.6 million in cash, 167,800 shares of the Company’s common
stock, and the assumption of approximately $0.4 million in additional liabilities. Such consideration has been
allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their
respective fair values as of the acquisition date. Such allocation resulted in goodwill of approximately
$3.7 million, which was assigned to a separate reporting unit representing the acquired ATM National, Inc.
operations. Such goodwill is not expected to be deductible for income tax purposes. The following table
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date
(in thousands):
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets subject to amortization (8 year weighted-average life) . . . . . . . . . . . . . . .
Intangible assets not subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
142
546
6
14
3,000
200
11
3,684
7,603
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,710)
(1,113)
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,823)
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,780
As indicated in the above table, $3.0 million has been allocated to intangible assets subject to
amortization, which represents the estimated value of the customer contracts/relationships in place as of the
date of the acquisition. Such amount was determined by utilizing a discounted cash flow approach and is
being amortized on a straight-line basis over an estimated useful life of eight years, consistent with the
Company’s existing policy. The $0.2 million assigned to intangible assets not subject to amortization
represents the estimated value associated with the acquired Allpoint surcharge-free network trade name. Such
amount was determined based on the relief from royalty valuation approach.
(3) Stock-based Compensation
As noted in Note 1(n), the Company adopted SFAS No. 123R effective January 1, 2006. Under
SFAS No. 123R, the Company records the grant date fair value of share-based compensation arrangements, net
of estimated forfeitures, as compensation expense on a straight-line basis over the underlying service periods
of the related awards. Prior to the adoption of SFAS No. 123R, the Company utilized the intrinsic value
method of accounting for stock-based compensation awards in accordance with APB No. 25, which generally
resulted in no compensation expense for employee stock options issued with an exercise price greater than or
equal to the fair value of the Company’s common stock on the date of grant. Furthermore, the Company
historically utilized the minimum value method of measuring equity share option values for pro forma
disclosure purposes under SFAS No. 123. Accordingly, the Company adopted SFAS No. 123R on January 1,
2006, utilizing the prospective application method. Under the prospective application method, the fair value
approach outlined under SFAS No. 123R is applied only to new awards granted subsequent to December 31,
2005, and to existing awards only in the event that such awards are modified, repurchased or cancelled
subsequent to the SFAS No. 123R adoption date. Accordingly, the Company’s financial statements for all
periods prior to January 1, 2006 do not reflect any adjustments resulting from the adoption of SFAS No. 123R.
Additionally, the adoption of SFAS No. 123R did not result in the recording of a cumulative effect of a change
in accounting principle.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The following table reflects the total stock-based compensation expense amounts included in the
accompanying consolidated statements of operations:
Cost of ATM operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
$
87
963
2007
2006
(In thousands)
$ 51
828
2005
$ 172
2,201
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
$1,050
$879
$2,373
Stock-Based Compensation Plan
The Company currently has two long-term incentive plans — the 2007 Stock Inventive Plan (the “2007
Plan”) and the 2001 Stock Incentive Plan (the “2001 Plan”). The purpose of each of these plans is to provide
Directors and employees of the Company and its affiliates additional incentive and reward opportunities
designed to enhance the profitable growth of the Company and its affiliates. Additionally, equity grants
awarded under these plans generally vest ratably over four years based on continued employment and expire
ten years from the date of grant.
2007 Plan.
In August 2007, the Company’s Board of Directors and the stockholders of the Company
approved the 2007 Plan. The adoption, approval, and effectiveness of this plan was contingent upon the
successful completion of the Company’s initial public offering, which occurred in December 2007. The 2007
Plan provides for the granting of incentive stock options intended to qualify under Section 422 of the Code,
options that do not constitute incentive stock options, restricted stock awards, performance awards, phantom
stock awards, and bonus stock awards. The number of shares of common stock that may be issued under the
2007 Plan may not exceed 3,179,393 shares, subject to further adjustment to reflect stock dividends, stock
splits, recapitalizations and similar changes in the Company’s capital structure. As of December 31, 2007, no
options had been granted under the 2007 Plan.
2001 Plan.
In June 2001, the Company’s Board of Directors adopted the 2001 Plan. Various plan
amendments have been approved since that time, the most recent being in November 2007. As a result of the
adoption of the 2007 Plan, at the direction of the Board of Directors, no further awards will be granted under
the Company’s 2001 Stock Incentive Plan. As of December 31, 2007, options to purchase an aggregate of
6,915,082 shares of common stock (net of options cancelled) had been granted pursuant to the 2001 Plan, all
of which qualified as non-qualified stock options, and options to purchase 1,955,041 shares of common stock
had been exercised.
The Company handles stock option exercises and other stock grants first through the issuance of treasury
shares and then through the issuance of new common shares.
Stock Option Grants
The Company has historically used the Black-Scholes valuation model (and the minimum value
provisions) to determine the fair value of stock options granted for pro forma reporting purposes under
SFAS No. 123. The Company’s outstanding stock options generally vest annually over a four-year period from
the date of grant and expire 10 years after the date of grant.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The following table is a summary of the Company’s stock option transactions for the year ended
December 31, 2007:
Number of
Shares
Weighted Average
Exercise Price
Weighted Average
Contractual Term
(in years)
Aggregate
Intrinsic
Value
(In thousands)
Options outstanding as of January 1, 2007 . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,049,437
1,140,609
(31,293)
(198,712)
Options outstanding as of December 31,
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,960,041
Options exercisable as of December 31, 2007 . .
2,654,986
$ 6.64
$12.15
$ 1.48
$10.55
$ 7.78
$ 4.86
6.8
5.3
$14,636
$14,242
Options exercised during the years ended December 31, 2007 and 2006 had a total intrinsic value of
approximately $0.3 million and $0.4 million, respectively, which resulted in tax benefits to the Company of
approximately $0.1 million and $0.2 million, respectively. However, because the Company is currently in a net
operating loss position, such benefits have not been reflected in the accompanying consolidated financial
statements, as required by SFAS No. 123R. The cash received by the Company as a result of option exercises
was not material in either 2007 or 2006.
As indicated in the table above, the Company’s Board of Directors granted an additional 1,140,609 stock
options to certain employees during the year ended December 31, 2007. Such options were granted with a
weighted-average exercise price of $12.15 per share, which was equal to the estimated fair market values of
the Company’s common equity as of the dates of grant, and vest ratably over a four-year service period with a
10-year contractual term.
Fair Value Assumptions
In accordance with SFAS No. 123R, the Company estimates the fair value of its options by utilizing the
Black-Scholes option pricing model. Such model requires the input of certain subjective assumptions,
including the expected life of the options, a risk-free interest rate, a dividend rate, and the future volatility of
the Company’s common equity. Listed below are the assumptions utilized in the fair value calculations for
options issued during 2007 and 2006:
Weighted average estimated fair value per stock option granted . . . . .
Valuation assumptions:
2007
$4.02
2006
$4.24
Expected option term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.76% - 35.30% 34.50% - 35.90%
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.00%
4.74% - 4.85%
0.00%
3.68% - 4.94%
6.25
6.25
The expected option term of 6.25 years was determined based on the simplified method outlined in
SAB No. 107, as issued by the SEC. Such method is based on the vesting period and the contractual term for
each grant and is calculated by taking the average of the expiration date and the vesting period for each
vesting tranche. In the future, as information regarding post vesting termination becomes more available, the
Company will change this method of deriving the expected term. Such a change could impact the fair value of
options granted in the future. Due to the lack of historical data regarding exercise history, the Company will
continue to utilize the simplified method outlined in SAB No. 107, as permitted by SAB No. 110. The
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
estimated forfeiture rates utilized by the Company are based on the Company’s historical option forfeiture
rates and represent the Company’s best estimate of future forfeiture rates. In future periods, the Company will
monitor the level of actual forfeitures to determine if such estimate should be modified prospectively, as well
as adjusting the compensation expense previously recorded.
For the majority of 2007, the Company’s common stock was not publicly-traded and, therefore, the
expected volatility factors utilized were determined based on historical volatility rates obtained for certain
companies with publicly-traded equity that operate in the same or related businesses as that of the Company.
The volatility factors utilized represent the simple average of the historical daily volatility rates obtained for
each company within this designated peer group over multiple periods of time, up to and including a period of
time commensurate with the expected option term discussed above. The Company utilized this peer group
approach, as the historical transactions involving the Company’s private equity have been limited and
infrequent in nature. The Company believes that the historical peer group volatility rates utilized above are
reasonable estimates of the Company’s expected future volatility. As the Company only recently completed its
initial public offering and the Company has not granted any options since its initial public offering, there is
not adequate historical information to utilize in determining the volatility of its common stock. As a result, the
Company will continue to utilize the volatility factors based on its peer group until such time as adequate
historical information is available on its own common stock.
The expected dividend yield was assumed to be zero as the Company has not historically paid, and does
not anticipate paying, dividends with respect to its common equity. The risk-free interest rates reflect the rates
in effect as of the grant dates for U.S. treasury securities with a term similar to that of the expected option
term referenced above.
Non-vested Stock Options
The following table is a summary of the status of the Company’s non-vested stock options as of
December 31, 2007, and changes during the year ended December 31, 2007:
Number of
Shares Under
Outstanding
Options
Weighted
Average
Grant Date
Fair Value
Non-vested options as of January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,830,132
1,140,609
(665,686)
Non-vested options as of December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .
2,305,055
$2.27
$4.02
$1.76
$3.28
As of December 31, 2007, there was $4.7 million of total unrecognized compensation cost related to non-
vested share-based compensation arrangements granted under the Company’s stock option plan. That cost is
expected to be recognized on a straight-line basis over a remaining weighted-average vesting period of
approximately 2.9 years. The total fair value of options vested during the year ended December 31, 2007 was
$1.2 million. Compensation expense recognized related to stock options totaled approximately $1.0 million
and $0.6 million for the years ended December 31, 2007 and 2006, respectively. Additionally, the Company
recognized approximately $1.8 million of stock option-based compensation expense in 2005 related to the
repurchase of shares underlying certain employee stock options in connection with the issuance of its Series B
redeemable convertible preferred stock.
Restricted Stock
Pursuant to a restricted stock agreement dated January 20, 2003, the Company sold the President and
Chief Executive Officer of the Company 635,879 shares of common stock in exchange for a promissory note
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
in the amount of $940,800 (“Exchange Proceeds”). Such shares vested ratably over a four-year basis on each
anniversary of the original grant date. The underlying restricted stock agreement permitted the Company to
repurchase a portion of such shares prior to January 20, 2007, in certain circumstances. The agreement also
contained a provision allowing the shares to be “put” to the Company in an amount sufficient to retire the
entire unpaid principal balance of the promissory note plus accrued interest. On February 4, 2004, the
Company amended the restricted stock agreement to remove such “put” right. As a result of this amendment,
the Company determined that it would need to recognize approximately $3.2 million in compensation expense
based on the fair value of the shares at the date of the amendment. This expense was recognized on a graded-
basis over the four-year vesting period associated with these restricted shares.
As of January 1, 2007, the number of non-vested shares for the aforementioned restricted stock grant
totaled 158,970 shares, and the remaining unrecognized compensation cost to be recognized on a graded-basis
was approximately $11,000. Compensation expense associated with this restricted stock grant totaled approx-
imately $0.01 million, $0.2 million, and $0.5 million, for the years ended December 31, 2007, 2006, and 2005,
respectively. No additional restricted shares were granted or forfeited during these periods. During the year
ended December 31, 2007, the remaining unvested shares of the restricted stock grant vested.
Other Stock-Based Compensation
In addition to the compensation expense reflected above for the stock options granted during the year
ended December 31, 2007, the accompanying condensed consolidated financial statements include compensa-
tion expense amounts relating to the aforementioned restricted stock grant as well as certain compensatory
options that were granted in 2004. Because the Company utilized the prospective method of adoption for
SFAS No. 123R, all unvested awards as of January 1, 2006, will continue to be accounted for pursuant to APB
No. 25 and SFAS No. 123. Accordingly, the consolidated statements of operations for the years ended
December 31, 2007, 2006, and 2005 include compensation expense associated with such compensatory option
grants. The compensation expense amounts were not material in 2007, 2006, or 2005.
(4) Earnings per Share
The Company reports its net income (loss) per share in accordance with SFAS No. 128, Earnings per
Share. In accordance with SFAS No. 128, the Company excludes potentially dilutive securities in its
calculation of diluted earnings per share (as well as their related income statement impacts) when their impact
on net income (loss) available to common stockholders is anti-dilutive. For the years ended December 31,
2007, 2006, and 2005, the Company incurred net losses and, accordingly, excluded all potentially dilutive
securities from the calculation of diluted earnings per share as their impact on the net loss available to
common stockholders was anti-dilutive. Such anti-dilutive securities included outstanding stock options,
restricted shares, and, for periods prior to their conversion, the Company’s Series B redeemable convertible
preferred stock. A summary of the following potentially dilutive securities that have been excluded from the
computation of diluted net loss per share is as follows:
2007
2006
2005
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,602,228
8,339
6,965,211
1,535,289
94,070
7,390,413
1,024,695
157,396
6,502,249
Total potentially dilutive securities . . . . . . . . . . . . . . . . . . . . .
8,575,778
9,019,772
7,684,340
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
(5) Related Party Transactions
Subscriptions Receivable
The Company currently has loans outstanding with certain employees related to past exercises of
employee stock options and purchases of the Company’s common stock, as applicable. Such loans, which were
initiated in 2003, are reflected as subscriptions receivable in the accompanying consolidated balance sheet.
The notes, which were due in December 2007, were extended for one additional year. The rate of interest on
each of these loans remains at 5.0% per annum. In February 2005, approximately $0.4 million of the
outstanding loans were repaid to the Company. In 2006, the Company repurchased 121,254 shares of the
Company’s common stock held by certain of the Company’s executive officers for approximately $1.3 million
in proceeds. Such proceeds were primarily utilized by the executive officers to repay the majority of the
above-discussed subscriptions receivable, including all accrued and unpaid interest related thereto. Such loans
were required to be repaid pursuant to SEC rules and regulations prohibiting registrants from having loans
with executive officers. Finally, in 2007, approximately $0.1 million of these loans were repaid by employees.
As a result of the repayments, the total amount outstanding under such loans, including accrued interest, was
$0.2 million and $0.3 million as of December 31, 2007 and 2006.
Other Related Parties
General. During 2007, the Company paid two of its Directors, Messrs. Barone and Diaz, $1,000 per
Board meeting attended. Other Directors were not compensated during 2007 for Board services due to their
employment and/or stockholder relationships with the Company. Additionally, all of the Company’s Directors
are reimbursed for their reasonable expenses in attending Board and committee meetings.
The CapStreet Group. Fred R. Lummis, the Chairman of the Company’s Board of Directors, is a senior
advisor to The CapStreet Group, LLC, the ultimate general partner of CapStreet II and CapStreet Parallel II,
which collectively own 23.4% of the Company’s outstanding common stock as of December 31, 2007.
Additionally, prior to December 2005, The CapStreet Group owned a minority interest in Susser Holdings,
LLC, a company for whom the Company provided ATM management services during the normal course of
business. Amounts earned from Susser Holdings accounted for approximately 1.5% of the Company’s total
revenues for the year ended December 31, 2005.
TA Associates. Michael Wilson and Roger Kafker, both of whom were on the Company’s Board of
Directors during 2007, are managing directors of TA Associates, Inc., affiliates of which are Cardtronics’
stockholders and own 31.8% of the Company’s outstanding common stock as of December 31, 2007. On
December 13, 2007, Mr. Kafker resigned from our Board of Directors in connection with the closing of our
initial public offering. Mr. Kafker’s resignation was not caused by any disagreements with us relating to our
operations, policies or procedures.
Jorge Diaz, a member of the Company’s Board of Directors, is the President and Chief Executive Officer
of Personix, a division of Fiserv. In 2007 and 2006, both Personix (though indirectly) and Fiserv provided
third party services during the normal course of business to Cardtronics. During the years ended December 31,
2007 and 2006, amounts paid to Personix and Fiserv represented less than 3.1% and 0.2%, respectively, of the
Company’s total cost of revenues and selling, general, and administrative expenses. The increase in 2007 was
the result of the 7-Eleven ATM Transaction, as the Company assumed a master ATM management agreement
in conjunction with the acquisition under which Fiserv provides a number of ATM-related services for the
acquired 7-Eleven ATMs, including transaction processing, network hosting, network sponsorship, mainte-
nance, cash management, and cash replenishment.
Bansi, S.A. Institución de Banca Multiple (“Bansi”), an entity that owns a minority interest in the
Company’s subsidiary Cardtronics Mexico, provides various ATM management services to Cardtronics Mexico
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
in the normal course of business, including serving as the vault cash provider, bank sponsor, and landlord for
Cardtronics Mexico as well as providing other miscellaneous services. Amounts paid to Bansi represented less
than 0.4% and 0.1% of the Company’s total cost of revenues and selling, general, and administrative expenses
for the years ended December 31, 2007 and 2006, respectively.
Preferred Stock Conversion.
In connection with its initial public offering in December 2007, the
Company’s Series B redeemable convertible preferred stock shares were converted into shares of its common
stock. Based on the $10.00 initial public offering price and the terms of the Company’s shareholders
agreement, the 894,568 shares held by certain funds controlled by TA Associates, Inc. (the “TA Funds”)
converted into 12,259,286 shares of common stock (on a split-adjusted basis). The remaining 35,221 shares of
Series B redeemable convertible preferred stock not held by the TA Funds converted into 279,955 shares of
our common stock (on a split-adjusted basis). As a result of this conversion, no shares of preferred stock were
outstanding subsequent to the initial public offering. For additional information on the conversion of the
Series B shares controlled by the TA Funds, see Note 14.
Restricted Stock Grant.
In January 2003, the Company sold the President and Chief Executive Officer
of the Company 635,879 shares of common stock in exchange for a promissory note in the amount of
$940,800. The agreement permitted the Company to repurchase a portion of such shares prior to January 20,
2007 in certain circumstances. The agreement also contained a provision allowing the shares to be “put” to the
Company in an amount sufficient to retire the entire unpaid principal balance of the promissory note plus
accrued interest. In February 2004, the Company amended the restricted stock agreement to remove such
“put” right. The Company recognized approximately $0.01 million, $0.2 million, and $0.5 million in
compensation expense in the accompanying consolidated statements of operations for the years ended
December 31, 2007, 2006, and 2005, respectively, associated with such restricted stock grant.
(6) Prepaid Expenses, Deferred Costs, and Other Current Assets
The following table sets forth a summary of prepaid expenses, deferred costs, and other current assets as
of December 31, 2007 and 2006:
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities, at market value . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred costs and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,915
—
—
1,712
$ 6,519
4,184
4,079
396
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,627
$15,178
2007
2006
(In thousands)
The overall decrease in prepaid expenses, deferred costs, and other current assets from December 31,
2006 to December 31, 2007 was primarily attributable to the January 2007 sale of the available-for-sale
securities held as of December 31, 2006 and the change in the market value of the Company’s interest rate
swaps. The available-for-sale securities held as of December 31, 2006 consisted of approximately
310,000 shares of Winn-Dixie’s post-bankruptcy equity securities awarded to Cardtronics by the bankruptcy
court in 2006 as a part of Winn-Dixie’s plan of reorganization. The securities had an initial cost basis of
approximately $3.4 million, and the related $0.8 million of unrealized gains associated with these securities
was recorded in other comprehensive income, net of taxes, as of December 31, 2006. The Company
subsequently sold these securities in January 2007 for total gross proceeds of approximately $3.9 million.
Additionally, as a result of the decreases in domestic interest rates during the latter part of 2007, the fair value
of the Company’s interest rate swaps declined from an asset position as of December 31, 2006 to a liability
position as of December 31, 2007.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Partially offsetting these declines were higher prepaid merchant commissions and corporate income taxes
associated with the Company’s U.K. operations during 2007.
(7) Property and Equipment, net
The following table sets forth a summary of property and equipment as of December 31, 2007 and 2006:
2007
2006
(In thousands)
ATM and Vcom equipment and related costs . . . . . . . . . . . . . . . . . . . . . . . . $199,146
18,490
Office furniture, fixtures, and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114,803
9,299
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
217,636
(53,724)
124,102
(37,434)
Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $163,912
$ 86,668
The increase in property and equipment during 2007 was primarily the result of the 7-Eleven ATM
Transaction, as well as the deployment of additional ATMs by the Company’s international operations. ATMs
held as deployments in process, as discussed in Note 1(h), totaled $11.7 million and $3.1 million as of
December 31, 2007 and 2006, respectively.
(8)
Intangible Assets
Intangible Assets with Indefinite Lives
The following table depicts the net carrying amount of the Company’s intangible assets with indefinite
lives as of December 31, 2007 and 2006, as well as the changes in the net carrying amounts for the year
ended December 31, 2007 by segment:
Goodwill
U.K.
U.S.
Balance as of December 31, 2006 . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . .
Purchase price adjustments . . . . . . . . . . . .
Foreign currency translation adjustments . .
$ 86,702
62,185
1,558
$82,172
—
—
— 1,878
Trade Name
U.K.
Total
Mexico
U.S.
(In thousands)
$689
—
—
1
$200 $3,923 $173,686
— 62,185
1,558
—
1,971
92
—
—
—
Balance at December 31, 2007 . . . . . . . . .
$150,445
$84,050
$690
$200 $4,015 $239,400
The increase in goodwill for during the year-ended December 31, 2007 was primarily the result of the 7-
Eleven ATM Transaction in July 2007 (see Note 2). Additionally, certain adjustments related to deferred taxes
were made to the E*TRADE Access purchase price allocation during 2007. Such adjustments had the effect of
increasing the previously reported goodwill amount for the E*TRADE Access acquisition by $1.6 million.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Intangible Assets with Definite Lives
The following is a summary of the Company’s intangible assets that are subject to amortization as of
December 31, 2007 as well as the weighted average remaining amortization period:
Weighted
Average
Remaining
Amortization
Period
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
(In thousands)
Customer and branding
contracts/relationships . . . . . . . . . . . . . . . . .
Deferred financing costs . . . . . . . . . . . . . . . . .
Exclusive license arrangements . . . . . . . . . . . .
Non-compete agreements . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.1
5.4
5.6
2.1
7.8
$162,995
13,867
5,369
100
$(49,574)
(4,260)
(1,763)
(48)
$113,421
9,607
3,606
52
$182,331
$(55,645)
$126,686
The Company’s intangible assets with definite lives are being amortized over the assets’ estimated useful
lives utilizing the straight-line method. Estimated useful lives range from three to twelve years for customer
and branding contracts/relationships and four to eight years for exclusive license agreements. The Company
has also assumed an estimated life of four years for its non-compete agreements. Deferred financing costs are
amortized through interest expense over the contractual term of the underlying borrowings utilizing the
effective interest method. The Company periodically reviews the estimated useful lives of its identifiable
intangible assets, taking into consideration any events or circumstances that might result in a reduction in fair
value or a revision of those estimated useful lives.
Amortization of customer and branding contracts/relationships, exclusive license agreements, and non-
compete agreements, including impairment charges, totaled $18.9 million, $12.0 million, and $9.0 million for
the years ended December 31, 2007, 2006, and 2005, respectively. The increase in amortization during 2007
was primarily due to $5.7 million of additional amortization expense recorded to impair certain contract-based
intangible assets. Of this amount, approximately $5.1 million relates to the Company’s merchant contract with
Target that was acquired in 2004. The Company had been in discussions with Target regarding additional
services that could be offered under the existing contract to increase the number of transactions conducted on,
and cash flows generated by, the underlying ATMs. However, the Company was unable to make any progress
in this regard during 2007, and, based on discussions that had been held with Target, concluded that the
likelihood of being able to provide such additional services has decreased considerably. Furthermore, average
monthly transaction volumes associated with this particular contract continued to decrease in 2007 when
compared to the same period last year. Accordingly, the Company concluded that the above impairment charge
was warranted during the third quarter of 2007. The impairment charge recorded served to write-off the
remaining unamortized intangible asset associated with this merchant contract. Management is currently
working with Target to restructure the terms of the existing contract in an effort to improve the underlying
cash flows associated with such contract and to offer the additional services noted above, which the Company
believes could significantly increase the future cash flows earned under this contract. Also, contributing to the
increase in amortization expense in 2007 was the amortization of the contract intangible assets recorded in
conjunction with the Company’s acquisition of the 7-Eleven Financial Services Business. See Note 2 for
additional details on the 7-Eleven ATM Transaction.
Included in the 2006 year-to-date figure was approximately $2.8 million in additional amortization
expense related to the impairment of the intangible asset associated with the acquired BASC ATM portfolio in
the Company’s U.S. reporting segment. Such impairment relates to a reduction in anticipated future cash flows
resulting from a higher than anticipated attrition rate associated with this acquired portfolio. Additionally, the
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Company recorded a $1.2 million impairment charge in 2005 related to certain other previously acquired
merchant contract/relationship intangible assets.
Amortization of deferred financing costs and bond discount totaled $1.6 million, $1.4 million, and
$1.9 million for the years ended December 31, 2007, 2006, and 2005, respectively. During the year ended
2006, the Company wrote-off approximately $0.5 million in deferred financing costs in connection with certain
modifications made to the Company’s existing revolving credit facilities. Additionally, during the year ended
December 31, 2005, the Company also wrote-off approximately $5.0 million in deferred financing costs as a
result of an amendment to its existing bank credit facility and the repayment of its existing term loans.
Estimated amortization expense for the Company’s intangible assets with definite lives for each of the
next five years, and thereafter is as follows:
Customer Contracts
and Relationships
Deferred
Financing Costs
Exclusive
License
Agreements
Non-compete
Agreements
Total
(In thousands)
2008 . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . .
Thereafter . . . . . . . . . .
$ 16,585
16,150
14,616
12,944
11,987
41,139
Total . . . . . . . . . . . .
$113,421
$1,517
1,630
1,754
1,893
1,754
1,059
$9,607
$ 736
731
634
521
453
531
$3,606
$25
25
2
—
—
—
$52
$ 18,863
18,536
17,006
15,358
14,194
42,729
$126,686
(9) Prepaid Expenses and Other Non-current Assets
The following table is a summary of prepaid expenses and other non-current assets as of December 31,
2007 and 2006:
Interest rate swaps, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $2,994
627
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,364
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
356
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
784
2,218
1,183
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,185
$5,341
2007
2006
(In thousands)
The overall decrease in prepaid expenses and other non-current assets from December 31, 2006 to
December 31, 2007 was primarily attributable to the change in the market value of the Company’s interest rate
swaps. As a result of the decreases in interest rates during the latter part of 2007, the fair value of the
Company’s interest rate swaps declined from an asset position as of December 31, 2006 to a liability position
as of December 31, 2007. See Note 17.
(10) Accrued Liabilities
The Company’s accrued liabilities include accrued merchant fees and other monies owned to merchants,
interest payments, maintenance costs, and cash management fees. As of December 31, 2007, other accrued
expenses include marketing costs, costs associated with the Company’s initial public offering, professional
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
services, and other miscellaneous charges. The following table is a summary of the Company’s accrued
liabilities as of December 31, 2007 and 2006:
2007
2006
(In thousands)
Accrued merchant fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued armored . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued cash management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued merchant settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued processing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued ATM telecommunication fess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,486
11,257
6,970
6,098
5,879
5,574
4,254
3,832
1,477
1,424
12,273
$ 7,915
7,954
2,090
343
3,242
2,740
27
3,499
803
650
5,078
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,524
$34,341
The increased accrued liabilities balance as of December 31, 2007 was primarily the result of the
incremental expenses now being incurred related to the acquired 7-Eleven Financial Services Business. Of the
$36.2 million increase in the accrual from December 31, 2006, $16.3 million was directly related to the
acquired 7-Eleven Financial Services Business. Additionally, as of December 31, 2007, the Company had
$5.7 million in accrued liabilities (with an offset in restricted cash) associated with funds collected on behalf
of, but not yet remitted to, certain of the Company’s merchant customers, the majority of which resulted from
the timing of the settlement of funds between the Company’s third party vendors, the Company, and its
merchant customers in conjunction with the Company’s in-house processing operations. Also contributing to
the increase was the additional accrued interest associated with the Company’s Series B Notes issued in July
2007.
(11) Asset Retirement Obligations
Asset retirement obligations consist primarily of deinstallation costs of the ATM and the costs to restore
the ATM site to its original condition. The Company is legally required to perform this deinstallation and
restoration work. In accordance with SFAS No. 143, for each group of ATMs, the Company recognizes the
fair value of a liability for an asset retirement obligation and capitalizes that cost as part of the cost basis of
the related asset. The related assets are being depreciated on a straight-line basis over the estimated useful
lives of the underlying ATMs, and the related liabilities are being accreted to their full value over the same
period of time.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The following table is a summary of the changes in the Company’s asset retirement obligation liability
for the years ended December 31, 2007 and 2006:
2007
2006
(In thousands)
Asset retirement obligation as of beginning of period . . . . . . . . . . . . . . . . . . . . $ 9,989
9,805
Additional obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,122
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,551)
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,974)
Change in estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,339
2,291
272
(1,079)
—
166
Asset retirement obligation as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . $17,448
$ 9,989
The additional obligations amount reflected above for the year ended December 31, 2007 reflects new
ATM deployments in all of the Company’s markets during this period as well as the obligations assumed in
connection with the 7-Eleven ATM Transaction. The change in estimate for the year ended December 31,
2007 represents a change in the anticipated amount the Company will incur to deinstall and refurbish certain
merchant locations, based on actual costs incurred on recent ATM deinstallations.
(12) Other Long-term Liabilities and Minority Interest in Subsidiary
The following table is summary of the components of the Company’s other long-term liabilities as of
December 31, 2007 and 2006:
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations associated with acquired unfavorable contracts . . . . . . . . . . . . . . . .
Minority interest in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,155
3,380
7,626
—
3,231
$ —
481
—
112
3,471
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,392
$4,064
2007
2006
(In thousands)
The increase in total other long-term liabilities is primarily due to the $11.7 million in other long-term
liabilities recorded to value certain unfavorable equipment leases and an operating contract assumed as part of
the 7-Eleven ATM Transaction. These liabilities are being amortized over the remaining terms of the
underlying contracts and serve to reduce the corresponding ATM operating expense amounts to fair value.
During 2007, the Company recognized approximately $3.7 million of expense reductions associated with the
amortization of these liabilities. Also contributing to the increase was the Company’s interest rate swaps, the
fair value of which declined from an asset position as of December 31, 2006 to a liability position as of
December 31, 2007 as a result of the decreases in domestic interest rates during the latter part of 2007.
The minority interest in subsidiary amount as of December 31, 2006 represents the equity interests of the
minority shareholders of Cardtronics Mexico. As of December 31, 2007, the cumulative losses generated by
Cardtronics Mexico and allocable to such minority interest shareholders exceeded the underlying equity
amounts of such minority interest shareholders. Accordingly, all future losses generated by Cardtronics Mexico
will be allocated 100% to Cardtronics until such time that Cardtronics Mexico generates a cumulative amount
of earnings sufficient to cover all excess losses allocable to the Company, or until such time that the minority
interest shareholders contribute additional equity to Cardtronics Mexico in an amount sufficient to cover such
losses. As of December 31, 2007, the cumulative amount of excess losses allocated to Cardtronics totaled
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
approximately $0.2 million. Such amount is net of contributions of $0.3 million made by the minority interest
shareholders in August and December of 2007.
(13) Long-term Debt
The following is a summary of the Company’s long-term debt and notes payable as of December 31,
2007 and 2006:
2007
2006
(In thousands)
Revolving credit loan facility, including swing-line credit facility as of
December 31, 2006 (weighted-average combined rate of 8.3% and 8.7%
at December 31, 2007 and 2006, respectively) . . . . . . . . . . . . . . . . . . . . . $
4,000
$ 53,100
Senior subordinated notes due August 2013, net of unamortized discount of
$3.9 million and $1.2 million as of December 31, 2007 and 2006,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
296,088
8,527
308,615
882
198,783
1,012
252,895
194
Total excluding current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $307,733
$252,701
Credit Facility
The Company’s revolving credit facility provides for $175.0 million in borrowings, subject to certain
restrictions. Borrowings under the facility currently bear interest at the London Interbank Offered Rate
(“LIBOR”) plus a spread, which was 2.75% as of December 31, 2007. Additionally, the Company pays a
commitment fee of 0.3% per annum on the unused portion of the revolving credit facility. Substantially all of
the Company’s assets, including the stock of its wholly-owned domestic subsidiaries and 66.0% of the stock of
its foreign subsidiaries, are pledged to secure borrowings made under the revolving credit facility. Furthermore,
each of the Company’s domestic subsidiaries has guaranteed the Company’s obligations under such facility.
The primary restrictive covenants within the facility include (i) limitations on the amount of senior debt
that the Company can have outstanding at any given point in time, (ii) the maintenance of a set ratio of
earnings to fixed charges, as computed on a rolling 12-month basis, (iii) limitations on the amounts of
restricted payments that can be made in any given year, including dividends, and (iv) limitations on the
amount of capital expenditures that the Company can incur on a rolling 12-month basis. There are currently
no restrictions on the ability of the Company’s wholly-owned subsidiaries to declare and pay dividends directly
to the Company. As of December 31, 2007, the Company was in compliance with all applicable covenants and
ratios under the facility.
As of December 31, 2007, $4.0 million of borrowings were outstanding under the revolving credit facility.
Additionally, the Company had posted $7.5 million in letters of credit under the facility in favor of the lessors
under the ATM equipment leases that the Company assumed in connection with the 7-Eleven ATM
Transaction. These letters of credit, which the lessors may draw upon in the event the Company fails to make
payments under the leases, further reduce the Company’s borrowing capacity under the facility. As of
December 31, 2007, the Company’s available borrowing capacity under the amended facility, as determined
under the earnings before interest, taxes, depreciation and accretion, and amortization (“EBITDA”) and interest
expense covenants contained in the agreement, totaled approximately $163.5 million.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Senior Subordinated Notes
Series A Notes.
In October 2006, the Company completed the registration of $200.0 million in senior
subordinated notes, which were originally issued in August 2005 pursuant to Rule 144A of the Securities Act
of 1933, as amended. The Series A Notes, which are subordinate to borrowings made under the revolving
credit facility, mature in August 2013 and carry a 9.25% coupon with an effective yield of 9.375%. Interest
under the notes is paid semiannually in arrears on February 15th and August 15th of each year. The notes,
which are guaranteed by the Company’s domestic subsidiaries, contain certain covenants that, among other
things, limit the Company’s ability to incur additional indebtedness and make certain types of restricted
payments, including dividends. Under the terms of the indenture, at any time prior to August 15, 2008, the
Company may redeem up to 35% of the aggregate principal amount of the Series A Notes at a redemption
price of 109.250% of the principal amount thereof, plus any accrued and unpaid interest, subject to certain
conditions outlined in the indenture. Additionally, at any time prior to August 15, 2009, the Company may
redeem all or part of the Series A Notes at a redemption price equal to the sum of 100% of the principal
amount plus an “Applicable Premium”, as defined in the indenture, plus any accrued and unpaid interest. On
or after August 15, 2009, the Company may redeem all or a part of the Series A Notes at the redemption
prices set forth by the indenture plus any accrued and unpaid interest.
Series B Notes. On July 20, 2007, the Company sold $100.0 million of 9.25% senior subordinated notes
due 2013 — Series B pursuant to Rule 144A of the Securities Act of 1933. Net proceeds from the offering,
which totaled $95.3 million, were used to fund a portion of the 7-Eleven ATM Transaction and to pay fees
and expenses related to the acquisition. The form and terms of the Series B Notes are substantially the same
as the form and terms of the Series A Notes, except that (i) the Series A Notes have been registered with the
SEC while the Series B Notes remain subject to transfer restrictions until the Company completes an exchange
offer, and (ii) the Series B Notes were issued with Original Issue Discount and have an effective yield of
9.54%. Pursuant to the terms of the registration rights agreement entered into in conjunction with the offering,
the Company was required to file a registration statement with the SEC within 240 days of the issuance of the
Series B Notes with respect to an offer to exchange each of the Series B Notes for a new issue of our debt
securities registered under the Securities Act with terms identical to those of the Series B Notes (except for
the provisions relating to the transfer restrictions and payment of additional interest) and use reasonable best
efforts to have the exchange offer become effective as soon as reasonably practicable after filing but in any
event no later than 360 days after the initial issuance date of the Series B Notes. On February 14, 2008, the
Company filed its initial registration statement on Form S-4 with the SEC. However, if the Company fails to
satisfy its registration obligations, it will be required, under certain circumstances, to pay additional interest to
the holders of the Series B Notes.
As of December 31, 2007, the Company was in compliance with all applicable covenants required under
the Series A and Series B Notes.
Other Facilities
Bank Machine overdraft facility.
In addition to Cardtronics, Inc.’s revolving credit facility, Bank
Machine has a £2.0 million unsecured overdraft facility that expires in July 2008. Such facility, which bears
interest at 1.75% over the bank’s base rate (5.5% as of December 31, 2007), is utilized for general corporate
purposes for the Company’s United Kingdom operations. As of December 31, 2007, the full amount of this
facility had been utilized to help fund certain working capital commitments and to post a £275,000 bond.
Amounts outstanding under the overdraft facility, other than those amounts utilized for posting bonds, are
reflected in accounts payable in our consolidated balance sheet, as such amounts are automatically repaid once
cash deposits are made to the underlying bank accounts.
Cardtronics Mexico equipment financing agreements. During 2006 and 2007, Cardtronics Mexico
entered into six separate five-year equipment financing agreements with a single lender. Such agreements,
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
which are denominated in pesos and bear interest at an average fixed rate of 10.96%, were utilized for the
purchase of additional ATMs to support our Mexico operations. As of December 31, 2007, approximately
$91.2 million pesos ($8.4 million U.S.) were outstanding under the agreements in place at the time, with
future borrowings to be individually negotiated between the lender and Cardtronics. Pursuant to the terms of
the loan agreement, we have issued a guaranty for 51.0% of the obligations under this agreement (consistent
with our ownership percentage in Cardtronics Mexico.) As of December 31, 2007, the total amount of the
guaranty was $46.5 million pesos ($4.3 million U.S.).
Debt Maturities
Aggregate maturities of the principal amounts of the Company’s long-term debt as of December 31,
2007, were as follows (in thousands) for the years indicated:
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
882
1,735
2,147
2,372
5,391
300,000
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $312,527
Reflected in the 2013 amount in the above table is the full face value of the Company’s senior
subordinated notes — Series A and Series B, which have been reflected net of unamortized discounts of
approximately $3.9 million in the accompanying consolidated balance sheet as of December 31, 2007.
(14) Redeemable Convertible Preferred Stock
During 2005, the Company issued 929,789 shares of its Series B redeemable convertible preferred stock,
of which 894,568 shares were issued to the TA Funds for $75.0 million in proceeds and the remaining
35,221 shares were issued as partial consideration for the Bank Machine acquisition. The Series B shareholders
had certain preferences to the Company’s common shareholders, including board representation rights and the
right to receive their original issue price prior to any distributions being made to the common shareholders as
part of a liquidation, dissolution or winding up of the Company. In addition, the Series B shares were
convertible into the same number of shares of the Company’s common stock, as adjusted for future stock splits
and the issuance of dilutive securities. The Series B shares had no stated dividends and were redeemable at the
option of a majority of the Series B holders at any time on or after the earlier of (i) December 2013 and
(ii) the date that is 123 days after the first day that none of the Company’s 9.25% senior subordinated notes
remain outstanding, but in no event earlier than February 2010.
On June 1, 2007, the Company entered into a letter agreement with the TA Funds pursuant to which the
TA Funds agreed to (i) approve the 7-Eleven ATM Transaction and (ii) not transfer or otherwise dispose of
any of their shares of Series B redeemable convertible preferred stock during the period beginning on the date
thereof and ending on the earlier of the date the 7-Eleven ATM Transaction closed (i.e., July 20, 2007) or
September 1, 2007. Pursuant to the terms of the letter agreement, the Company amended the terms of its
Series B redeemable convertible preferred stock in order to increase, under certain circumstances, the number
of shares of common stock into which the TA Funds’ Series B redeemable convertible preferred stock would
be convertible in the event the Company completes an initial public offering. In December 2007, the Company
completed its initial public offering, and based on the $10.00 per share offering price and the terms of the
letter agreement, the 894,568 shares held by the TA Funds converted into 12,259,286 shares of common stock
(on a split-adjusted basis). Based on the $10.00 initial public offering price, the value of the incremental shares
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
received by the TA Funds in connection with this induced conversion totaled $36.0 million. Such amount is
reflected as an increase in the Company’s net loss available to common stockholders for the year ended
December 31, 2007. This induced conversion charge would typically be reflected as an increase in additional
paid-in capital and a reduction of retained earnings. However, as the Company is in an accumulated deficit
position, this reduction is recorded against additional paid-in capital instead, resulting in offsetting charges
within additional paid-in capital.
The following table shows changes in the net carrying value of the Company’s Series B redeemable
convertible preferred stock for the years ended December 31, 2007, 2006, and 2005:
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuances, net of issuance costs of $1,858 . . . . . . . . . . . . . . . . . . .
Accretion of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion into common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 76,594
—
251
(76,845)
2007
2005
2006
(In thousands)
$76,329
$ —
— 76,095
234
—
265
—
Balance as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $76,594
$76,329
(15) Employee Benefits
The Company offers a 401(k) plan to its employees but has not historically made matching contributions.
In 2007, the Company began matching 25% of employee contributions up to 6.0% of the employee’s salary
(for a maximum matching contribution of 1.5% of the employee’s salary by the Company). Employees are
immediately vested in their contributions while the Company’s matching contributions will vest at a rate of
20% per year.
(16) Commitments and Contingencies
Legal and Other Regulatory Matters
National Federation of the Blind (“NFB”).
In connection with the Company’s acquisition of the ATM
business of E*TRADE Access, the Company assumed E*TRADE Access’ interests and liability for a lawsuit
instituted in the United States District Court for the District of Massachusetts (the “Court”) by the NFB, the
NFB’s Massachusetts chapter, and several individual blind persons (collectively, the “Private Plaintiffs”) as
well as the Commonwealth of Massachusetts with respect to claims relating to the alleged inaccessibility of
ATMs for those persons who are visually impaired. After the acquisition of the E*TRADE Access ATM
portfolio, the Private Plaintiffs named Cardtronics as a co-defendant with E*TRADE Access and E*TRADE
Access’ parent — E*TRADE Bank, and the scope of the lawsuit has expanded to include both E*TRADE
Access’ ATMs as well as the Company’s pre-existing ATM portfolio.
In June 2007, the parties completed and executed a settlement agreement, which was approved by the
Court on December 4, 2007. The principal objective of the settlement is for 90% of all transactions (as defined
in the settlement agreement) conducted on Cardtronics’ Company-owned and merchant-owned ATMs, by
July 1, 2010, to be conducted at ATMs that are voice-guided. In an effort to accomplish such objective, the
Company is subject to numerous interim reporting requirements and a one-time obligation to market voice-
guided ATMs to a subset of the Company’s merchants that do not currently have voice-guided ATMs. Finally,
the settlement requires the Company to pay $900,000 in attorneys’ fees to the NFB and to make a $100,000
contribution to the Massachusetts’ local consumer aid fund. These amounts had been fully reserved for, and
the Company does not believe that the settlement requirements outlined above will have a material impact on
its financial condition or results of operations.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Other Matters.
In 2006, Duane Reade, Inc. (“Customer”), one of the Company’s merchant customers,
filed a complaint in the New York State Supreme Court alleging that Cardtronics had breached its ATM
operating agreement with the Customer by failing to pay the Customer the proper amount of fees under the
agreement. The Customer is claiming that it is owed no less than $600,000 in lost revenues, exclusive of
interests and costs, and projects that additional damages will accrue to them at a rate of approximately
$100,000 per month, exclusive of interest and costs. As the term of the Company’s operating agreement with
the Customer extends to December 2014, the Customer’s claims could exceed $12.0 million. In response to a
motion for summary judgment filed by the Customer and a cross-motion filed by the Company, the New York
State Supreme Court ruled in September 2007 that the Company’s interpretation of the ATM operating
agreement was the appropriate interpretation and expressly rejected the Customer’s proposed interpretations.
The Customer has appealed this ruling. Notwithstanding that appeal, we believe that the ultimate resolution of
this dispute will not have a material adverse impact on our financial condition or results of operations.
In March 2006, the Company filed a complaint in the United States District Court in Portland, Oregon,
against CGI, Inc. (“Distributor”), a distributor for the E*TRADE Access’ ATM business acquired by the
Company. The complaint alleged that the Distributor breached its agreement by directly competing with the
Company on certain merchant accounts. The Distributor denied such violations, alleging that an oral
modification of its distributor agreement with E*TRADE Access permitted such activities, and initiated a
counter-claim for alleged under-payments by the Company, who expressly denied the Distributor’s allegations.
On July 31, 2007, the parties executed a settlement agreement wherein neither party admitted any wrongdoing,
all differences were resolved, and both parties released each other from all claims made in the lawsuit. In
connection with this settlement, the distributor agreement was reinstated in a modified form to, among other
things, clarify the Distributor’s non-compete obligations. Additionally, the settlement provided for a nominal
payment to the Distributor relating to payments claimed under the distributor agreement. Subsequent to the
execution of the settlement agreement, both parties have operated under the revised distributorship agreement
without any material issues or disputes.
The Company is also subject to various legal proceedings and claims arising in the ordinary course of its
business. Additionally, the 7-Eleven Financial Services Business that the Company acquired is subject to
various legal claims and proceedings in the ordinary course of its business. The Company does not expect the
outcome in any of these legal proceedings, individually or collectively, to have a material adverse effect on
our financial condition or results of operations.
Capital and Operating Lease Obligations
Capital Lease Obligations. As a result of the 7-Eleven ATM Transaction, the Company assumed
responsibility for certain capital lease contracts that will expire at various times during the next three years.
Upon the fulfillment of certain payment obligations related to the capital leases, ownership of the ATMs
transfers to the Company. As of December 30, 2007, approximately $2.1 million of capital lease obligations
were included within the Company’s consolidated balance sheet.
Future minimum lease payments under the Company’s capital leases as of December 31, 2007 were as
follows for each of the five years indicated and in the aggregate thereafter (amounts in thousands):
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,147
747
235
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,129
Operating Lease Obligations.
In addition to the capital leases assumed in conjunction the 7-Eleven
ATM Transaction, the Company also assumed certain operating leases in connection with the acquisition. In
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
conjunction with its purchase price allocation related to the 7-Eleven ATM Transaction, the Company recorded
approximately $8.7 million of other liabilities (current and long-term) to value certain unfavorable equipment
operating leases assumed as part of the acquisition. These liabilities are being amortized over the remaining
terms of the underlying leases, the majority of which expire in late 2009, and serve to reduce ATM operating
lease expense amounts to the fair value of these services as of the date of the acquisition. During the period
from the acquisition date (July 20, 2007) to December 31, 2007, the Company recognized approximately
$1.7 million in lease expense reductions associated with the amortization of these liabilities. Upon the
expiration of the operating leases, the Company will be required to renew such lease contracts, enter into new
lease contracts, or purchase new or used ATMs to replace the leased equipment. Additionally, in conjunction
with the acquisition, the Company posted $7.5 million in letters of credit related to these operating and capital
leases upon which the lessors can draw in the event the Company fails to make schedules payments under the
leases. These letters of credit, which are reduced periodically as payments are made under the leases, will be
released upon the expiration of the leases.
In addition to the ATM operating leases assumed in connection with the 7-Eleven ATM Transaction, the
Company was a party to several operating leases as of December 31, 2007, primarily for office space and the
rental of space at certain merchant locations. Such leases expire at various times during the next eight years.
Total rental expense under these Company’s operating leases was approximately $5.8 million, $7.2 million,
and $8.6 million for the year ended December 31, 2007, 2006, and 2005, respectively. The $5.8 million in
2007 includes the rental expense associated with the ATM operating leases assumed in the 7-Eleven ATM
Transaction, is presented net of $1.7 million of amortization expense related to the liabilities recorded to value
the unfavorable operating leases. For additional details related to these liabilities, see Note 2.
Future minimum lease payments under the Company’s operating and merchant space leases (with initial
lease terms in excess of one year) as of December 31, 2007 were as follows for each of the five years
indicated and in the aggregate thereafter (amounts in thousands). Although the Company will receive the
benefit of the amortization of the liabilities associated with the ATM operating leases assumed in the 7-Eleven
ATM Transaction, such benefit has been excluded for the purposes of this disclosure.
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,203
7,691
2,757
2,197
2,038
4,262
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,148
Other Commitments
Asset retirement obligations. The Company’s asset retirement obligations consist primarily of deinstalla-
tion costs of the ATM and the costs to restore the ATM site to its original condition. The Company is legally
required to perform this deinstallation and restoration work. The Company had $17.4 million accrued for such
liabilities as of December 31, 2007. For additional information on the Company’s asset retirement obligations,
see Note 11.
Registration payment arrangements.
In conjunction with the issuance of its Series B Notes, the
Company entered into a registration rights agreement under which it is required to take certain steps to
exchange the Series B Notes for notes registered with the SEC within 360 days following the original issuance
date (July 19, 2007). In the event it is unable to meet the deadlines set forth in agreement, the Company will
be subject to higher interest rates on the Series B Notes in subsequent periods until the exchange offer is
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
completed. FSP EITF No. 00-19-2, Accounting for Registration Payment Arrangements, requires that
contingent obligations under registration payment arrangements be separately recognized and measured in
accordance with SFAS No. 5, Accounting for Contingencies. The Company completed the first step of the
registration process in February 2008 with the filing of a registration statement on Form S-4 with the SEC and
currently believes the exchange offer will be complete within the allotted time. As a result, the Company
believes it is not probable that incremental interest payments will be made as a result of the provisions of the
registration rights agreement. As a result, the Company has not recognized a liability as of December 31, 2007
related to the registration rights agreement. In the event is becomes probable that the Company will be unable
to affect the exchange offer in a timely manner, the Company will reevaluate the need to record a liability at
that time.
Purchase commitments. The Company had no material purchase commitments as of December 31,
2007.
(17) Derivative Financial Instruments
As a result of its variable-rate debt and ATM cash management activities, the Company is exposed to
changes in interest rates (LIBOR and the federal funds effective rate in the United States, LIBOR in the
United Kingdom, and the Mexican Interbank Rate in Mexico). It is the Company’s policy to limit the
variability of a portion of its expected future interest payments as a result of changes in the underlying rates
by utilizing certain types of derivative financial instruments.
To meet the above objective, the Company has entered into several LIBOR-based and federal funds
effective rate-based interest rate swaps to fix the interest rate paid on $550.0 million of the Company’s current
and anticipated outstanding ATM cash balances in the United States. The effect of such swaps was to fix the
interest rate paid on the following notional amounts for the periods identified:
Notional Amount
(In thousands)
$550,000
$450,000
$350,000
Weighted Average
Fixed Rate
Period
4.61%
4.68%
4.76%
January 1, 2008 — December 31, 2008
January 1, 2009 — December 31, 2009
January 1, 2010 — December 31, 2010
As of December 31, 2007, the Company had a liability of $13.6 million recorded in its balance sheet
related to the above interest rate swaps, which represented the fair value of such agreements based on third-
party quotes for similar instruments with the same terms and conditions, as such instruments are required to be
carried at fair value. These swaps have been classified as cash flow hedges pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended. Accordingly, changes in the fair
values of such swaps have been reported in accumulated other comprehensive income (loss) in the accompa-
nying consolidated balance sheets. As a result of our overall net loss position for tax purposes, the Company
has not recorded deferred tax benefits on the loss amount related to these interest rate swaps as of
December 31, 2007, as management does not believe that it will be able to realize the benefits associated with
its deferred tax positions. During the year ending December 31, 2008, the Company expects approximately
$4.5 million of the losses included in accumulated other comprehensive income (loss) to be reclassified into
cost of ATM operating revenues as a yield adjustment to the hedged forecasted interest payments on the
Company’s expected ATM vault cash balances. As of December 31, 2006, the net accumulated unrealized gain
on such swaps totaled approximately $4.4 million, which was net of taxes of $2.7 million.
Net amounts paid or received under such swaps are recorded as adjustments to the Company’s “Cost of
ATM operating revenues” in the accompanying consolidated statements of operations. During the years ended
December 31, 2007, 2006, and 2005, gains or losses incurred as a result of ineffectiveness associated with the
Company’s interest rate swaps were immaterial.
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
As of December 31, 2007, the Company has not entered into any derivative financial instruments to
hedge its variable interest rate exposure in the United Kingdom or Mexico.
As a result of the recent decline in interest rates, the Company entered into additional interest rate swaps
in March 2008 to limit its exposure to changing rates on additional amounts of its anticipated outstanding
domestic vault cash balances. The recently-executed swaps will serve to fix the interest-based rental rate paid
on the following notional amounts at the following weighted average rates for the periods identified:
Notional Amount
(In thousands)
$100,000
$200,000
$400,000
$200,000
Weighted Average
Fixed Rate
Period
2.58%
2.97%
3.72%
3.96%
January 1, 2009 — December 31, 2009
January 1, 2010 — December 31, 2010
January 1, 2011 — December 31, 2011
January 1, 2012 — December 31, 2012
As is the case with the Company’s existing interest rate swaps, the interest rate swaps executed in March
2008 have been designated as cash flow hedges pursuant to SFAS No. 133.
(18)
Income Taxes
Income tax expense (benefit) based on the Company’s loss before income taxes consists of the following
for the years ended December 31, 2007, 2006, and 2005:
2007
2006
(In thousands)
2005
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ — $ —
—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local
—
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111
—
28
30
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111
$ 58
$ —
Deferred:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,963
(153)
State and local
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(285)
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(584)
251
787
$(1,831)
332
229
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,525
454
(1,270)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,636
$ 512
$(1,270)
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Income tax expense (benefit) differs from amounts computed by applying the statutory rate to loss before
taxes as follows for the years ended December 31, 2007, 2006, and 2005:
Income tax (benefit) expense at the statutory rate of 34.0% . . . . . . . . .
State tax, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in United Kingdom statutory tax rate . . . . . . . . . . . . . . . . . . .
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential non-deductible interest of foreign subsidiary . . . . . . . . . . . . .
Impact of foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in effective state tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
2006
(In thousands)
$ (6)
$ (7,637)
195
(376)
—
(208)
21
52
— 205
(55)
81
—
—
16
21
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,098)
12,734
407
105
2005
$(1,254)
131
—
22
—
(31)
(72)
(66)
(1,270)
—
Total tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,636
$512
$(1,270)
The net current and non-current deferred tax assets and liabilities (by tax jurisdiction) as of December 31,
2007 and 2006 were as follows:
United States
2007
2006
United Kingdom
2007
2006
Mexico
Consolidated
2007
2006
2007
2006
(In thousands)
Current deferred tax asset. . . . . . . $ 2,268 $
Valuation allowance . . . . . . . . . . .
Current deferred tax liability. . . . .
(1,927)
(341)
440 $
—
(316)
216 $
—
—
Net current deferred tax asset . . . .
—
124
Non-current deferred tax asset . . .
Valuation allowance . . . . . . . . . . .
Non-current deferred tax
22,610
(15,442)
11,740
—
216
137
—
149 $ 88 $ 47 $ 2,572 $
— (88)
—
—
149
—
(47)
—
—
(2,015)
(341)
216
636
(47)
(316)
273
248
463
— (401)
187
(101)
23,210
(15,843)
12,175
(101)
liability . . . . . . . . . . . . . . . . . .
(15,534)
(16,120)
(3,251)
(3,493)
(62)
(86)
(18,847)
(19,699)
Net non-current deferred tax
liability . . . . . . . . . . . . . . . . . .
(8,366)
(4,380)
(3,114)
(3,245) —
— (11,480)
(7,625)
Net deferred tax liability . . . . . . . $ (8,366) $ (4,256) $(2,898) $(3,096) $ — $ — $(11,264) $ (7,352)
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at December 31, 2007 and 2006, were as follows:
2007
2006
(In thousands)
Current deferred tax assets:
Reserve for receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued liabilities and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
233
1,857
482
2,572
(2,015)
Current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
557
Non-current deferred tax assets:
Net operating loss carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,656
4,974
507
850
167
56
98
438
100
636
(47)
589
8,827
—
353
367
1,679
949
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,210
(15,843)
12,175
(101)
Non-current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,367
12,074
Current deferred tax liabilities:
Unrealized gain on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(341)
(341)
(293)
(23)
(316)
Non-current deferred tax liabilities:
Tangible and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deployment costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13,374)
(5,449)
—
(24)
(13,506)
(3,569)
(2,624)
—
Non-current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(18,847)
(19,699)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,264)
$ (7,352)
As noted in the table above, during the year ended December 31, 2007, the Company increased its
valuation allowance by approximately $17.7 million. Such increase was largely due to the Company’s decision
to establish a valuation allowance in 2007 for the net deferred tax asset balance associated with its domestic
operations, as the Company determined that it is more likely than not that such benefit will not be realized.
Furthermore, the Company determined that all future domestic tax benefits will not be recognized until it is
more likely than not that such benefits will be utilized. As of December 31, 2007, the Company’s domestic
valuation allowance totaled approximately $17.4 million. The Company also continues to maintain a valuation
allowance on the net deferred tax asset balance associated with its Mexico operations. As of December 31,
2007, such valuation allowance totaled approximately $0.5 million.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The deferred taxes associated with the Company’s unrealized gains on marketable securities and
unrealized gains and losses on derivative instruments have been reflected within the accumulated other
comprehensive income (loss) balance in the accompanying consolidated balance sheet, net of any applicable
valuation allowances. Accordingly, approximately $5.0 million of the $17.7 million change in the Company’s
valuation allowance during the year ended December 31, 2007, has not been reflected within the Company’s
current year tax provision line item within the accompanying consolidated statements of operations.
As of December 31, 2007, the Company had approximately $46.0 million in United States federal net
operating loss carryforwards that will begin expiring in 2021, and $12.4 million in state net operating loss
carryforwards that will begin expiring in 2008. The United States federal net operating loss amount excludes
approximately $0.2 million in potential future tax benefits associated with employee stock option exercises
that occurred in 2006 and 2007. Because the Company is currently in a net operating loss position, such
benefits have not been reflected in the Company’s consolidated financial statements, as required by
SFAS No. 123R. As noted above, the Company has established a valuation allowance for its net deferred tax
asset balance in the United States as of December 31, 2007, which includes the deferred tax effects of the
above net operating loss carryforwards.
As of December 31, 2007, the Company had approximately $1.6 million in net operating loss
carryforwards in Mexico that will begin expiring in 2009. However, as noted above, the deferred tax benefit
associated with such carryforwards has been fully reserved for through a valuation allowance. If realized,
approximately $43,000 of such valuation allowance will be applied to reduce the goodwill balance recorded in
connection with the Company’s acquisition of a majority stake in CCS Mexico.
The Company currently believes that the unremitted earnings of its United Kingdom and Mexico
subsidiaries will be reinvested in the corresponding country of origin for an indefinite period of time.
Accordingly, no deferred taxes have been provided for on the differences between the Company’s book basis
and underlying tax basis in those subsidiaries or on the foreign currency translation adjustment amounts related
to such operations.
(19) Concentration Risk
Significant Supplier. The Company purchased equipment from one supplier that accounted for 58.2%
and 74.4% of the Company’s total ATM purchases for the years ended December 31, 2007 and 2006,
respectively. As of December 31, 2007 and 2006, accounts payable to this supplier represented approximately
18.8% and 6.6%, respectively, of the Company’s consolidated accounts payable balances.
Significant Customers. For the years ended December 31, 2007 and 2006, we derived 45.4% and 46.0%,
respectively, of our total pro forma revenues from ATMs placed at the locations of our five largest merchants.
For the year ended December 31, 2007, our top five merchants (based on our total revenues) were 7-Eleven,
CVS, Walgreens, Target, and ExxonMobil. 7-Eleven, which represents the single largest merchant customer in
our portfolio, comprised 33.0% and 35.8% of our total pro forma revenues for the year ended December 31,
2007 and 2006, respectively. Accordingly, a significant percentage of our future revenues and operating
income will be dependent upon the successful continuation of our relationship with 7-Eleven and these other
four merchants.
(20) Segment Information
Prior to the 7-Eleven ATM Transaction, the Company’s operations consisted of its United States, United
Kingdom, and Mexico segments. As a result of the 7-Eleven ATM Transaction, the Company determined that
the advanced-functionality Vcom Services provided through the acquired Vcom units are distinctly different
than its other three segments and has identified the Vcom operations as an additional separate segment
(“Advanced Functionality”). Accordingly, as of December 31, 2007, the Company’s operations consisted of its
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
United States, United Kingdom, Mexico, and Advanced Functionality segments. The Company’s United States
reporting segment now includes the traditional ATM operations of the acquired 7-Eleven Financial Services
Business, including the traditional ATM activities conducted on the Vcom units. While each of these reporting
segments provides similar kiosk-based and/or ATM-related services, each segment is managed separately, as
they require different marketing and business strategies.
Management uses earnings before interest expense, income taxes, depreciation expense, accretion
expense, and amortization expense (“EBITDA”) to assess the operating results and effectiveness of its business
segments. Management believes EBITDA is useful because it allows them to more effectively evaluate the
Company’s operating performance and compare the results of its operations from period to period without
regard to its financing methods or capital structure. Additionally, the Company excludes depreciation,
accretion, and amortization expense as these amounts can vary substantially from company to company within
its industry depending upon accounting methods and book values of assets, capital structures and the method
by which the assets were acquired. 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 accounting principles generally accepted in the United States (“GAAP”). Therefore, 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
GAAP. Below is a reconciliation of EBITDA to net loss for the years ended December 31, 2007, 2006, and
2005:
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net, including amortization and write-off of
financing costs and bond discounts . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007
$ 54,439
26,859
18,870
2006
(In thousands)
$55,631
18,595
11,983
2005
$40,669
12,951
8,980
31,164
4,636
25,072
512
22,426
(1,270)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(27,090)
$ (531)
$ (2,418)
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
The following tables reflect certain financial information for each of the Company’s reporting segments
for the years ended December 31, 2007, 2006, and 2005 and as of December 31, 2007 and 2006. All
intercompany transactions between the Company’s reporting segments have been eliminated.
United States
Kingdom Mexico
Eliminations
Total
As of or For The Year Ended December 31, 2007
United
Advanced
Functionality
Revenue from external customers . . . . . .
Intersegment revenue . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . .
EBITDA. . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . .
Amortization expense . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . .
Capital expenditures, excluding
(In thousands)
$308,827
82
238,368
$63,389
—
44,925
$4,831
—
3,985
$ 1,251
—
6,065
$ —
(82)
(50)
$378,298
—
293,293
23,391
46,177
19,005
17,000
26,421
4,525
13,471
7,456
1,821
4,443
1,268
(454)
421
49
300
157
(4,971)
—
—
—
16
216
(23)
—
—
29,357
54,439
26,859
18,870
31,164
acquisitions . . . . . . . . . . . . . . . . . . . . .
$ 31,659
$33,982
$5,446
$
226
$ —
$ 71,313
Additions to equipment to be leased to
customers . . . . . . . . . . . . . . . . . . . . . .
Revenue from external customers . . . . . . . . . . .
Intersegment revenue . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . .
Capital expenditures, excluding acquisitions . . .
Additions to equipment to be leased to
customers . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
548
—
—
548
As of or For The Year Ended December 31, 2006(1)
United States
$250,425
340
193,673
17,823
45,083
14,155
10,664
21,767
$ 19,384
United
Kingdom
$42,157
—
27,157
3,206
10,932
4,401
1,274
3,300
$14,912
Mexico
(In thousands)
$1,023
—
717
641
(298)
39
45
5
$1,795
Eliminations
Total
$ —
(340)
(254)
(3)
(86)
—
—
—
$ —
$293,605
—
221,293
21,667
55,631
18,595
11,983
25,072
$ 36,901
—
—
197
—
197
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
As of or For The Year Ended December 31, 2005(1)
United States
United
Kingdom
Eliminations
Total
(In thousands)
Revenue from external customers . . . . . . . . . . . . . . . . . . .
Intersegment revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative expenses . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and accretion expense . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures, excluding acquisitions . . . . . . . . . . .
$247,143
358
195,476
15,543
35,652
10,865
8,346
20,777
$ 23,344
$21,822
—
14,208
2,326
5,136
2,086
634
1,649
$ 8,582
$ —
(358)
(236)
(4)
(119)
—
—
—
$ —
$268,965
—
209,448
17,865
40,669
12,951
8,980
22,426
$ 31,926
(1) No information is shown in 2005 and 2006 for the Company’s Advanced Functionality operations, as they
were not acquired until 2007. Additionally, no information is shown in 2005 for the Company’s Mexico
operations, as they were not acquired until 2006.
Identifiable Assets:
December 31, 2007
December 31, 2006
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced Functionality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$409,120
163,464
12,337
6,364
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$591,285
$238,127
126,070
3,559
—
$367,756
During the years ended December 31, 2006, and 2005, no single merchant customer represented 10.0% or
more of the Company’s consolidated revenues. However, as a result of the 7-Eleven ATM Transaction, the
Company’s revenues from its merchant contract with 7-Eleven comprised 17.5% (33.0% on a pro forma basis)
of its consolidated revenues for the year ended December 31, 2007. Additionally, the Company expects that
revenues from its contract with 7-Eleven will continue to represent in excess of 30% of its consolidated
revenues in future years.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
(21) Supplemental Guarantor Financial Information
The Company’s Series A and Series B Notes are guaranteed on a full and unconditional basis by the
Company’s domestic subsidiaries. The following information sets forth the condensed consolidating statements
of operations and cash flows for the years ended December 31, 2007, 2006, and 2005, and the condensed
consolidating balance sheets as of December 31, 2007 and 2006, of (i) Cardtronics, Inc., the parent company
and issuer of the senior subordinated notes (“Parent”); (ii) the Company’s domestic subsidiaries on a combined
basis (collectively, the “Guarantors”); and (iii) the Company’s international subsidiaries on a combined basis
(collectively, the “Non-Guarantors”):
Consolidating Statements of Operations
Parent
Guarantors
Eliminations
Total
Year Ended December 31, 2007
Non-
Guarantors
(In thousands)
$68,220
64,450
$
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses . . . . . . . . . . . .
$
— $310,160
302,733
1,253
(82)
(57)
$378,298
368,379
Operating income (loss) . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . .
Equity in (earnings) losses of subsidiaries . . .
. . . . . . . . . . . . . . . . . . . .
Other expense, net
(1,253)
8,269
13,206
(112)
7,427
18,152
—
1,085
(Loss) income before income taxes . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . .
(22,616)
4,713
(11,810)
207
Net (loss) income . . . . . . . . . . . . . . . . . . . . .
Preferred stock conversion and accretion
(27,329)
(12,017)
3,770
4,743
—
500
(1,473)
(284)
(1,189)
(25)
—
(13,206)
(264)
13,445
—
13,445
9,919
31,164
—
1,209
(22,454)
4,636
(27,090)
expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,272
—
—
—
36,272
Net (loss) income available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . .
$(63,601)
$ (12,017)
$ (1,189)
$ 13,445
$ (63,362)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses . . . . . . . . . . . . .
$ — $250,765
235,450
865
Parent
Guarantors
Non-
Guarantors
(In thousands)
$43,180
37,480
Eliminations
Total
$ (340)
(257)
$293,605
273,538
Year Ended December 31, 2006
Operating income (loss) . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . .
Equity in (earnings) losses of subsidiaries . . . .
Other (income) expense, net . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . .
Preferred stock accretion expense . . . . . . . . . .
Net (loss) income available to common
(865)
8,491
(8,151)
(175)
(1,030)
(584)
(446)
265
15,315
13,276
—
(5,639)
7,678
278
7,400
—
5,700
3,305
—
826
1,569
818
751
—
(83)
—
8,151
2
(8,236)
—
(8,236)
—
20,067
25,072
—
(4,986)
(19)
512
(531)
265
stockholders . . . . . . . . . . . . . . . . . . . . . . . .
$ (711)
$
7,400
$
751
$(8,236)
$
(796)
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Year Ended December 31, 2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Equity in (earnings) losses of subsidiaries . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income before income taxes . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends and accretion expense . . .
Net (loss) income available to common
Parent
Guarantors
$ — $247,501
227,682
19,819
12,715
—
830
6,274
412
5,862
—
2,547
(2,547)
8,062
(6,399)
—
(4,210)
(1,911)
(2,299)
1,395
Non-
Guarantors Eliminations
(In thousands)
$21,822
19,254
2,568
1,649
—
153
766
229
537
—
$ (358)
(239)
(119)
—
6,399
—
(6,518)
—
(6,518)
—
Total
$268,965
249,244
19,721
22,426
—
983
(3,688)
(1,270)
(2,418)
1,395
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(3,694) $
5,862
$
537
$(6,518)
$ (3,813)
Consolidating Balance Sheets
Parent
As of December 31, 2007
Non-
Guarantors
Guarantors Eliminations
(In thousands)
Total
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and advances to subsidiaries . . . . . . . . . .
Intercompany receivable . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . .
50,249
(863)
368,424
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $427,393
76
(292)
1,031
815
—
8,768
$ 11,576
20,894
8,781
41,251
99,764
106,808
— 150,445
—
6,395
2,970
$407,633
$
1,787
2,713
10,876
15,376
64,360
15,325
84,740
—
(5,532)
1,532
$175,801
$
— $ 13,439
23,248
(67)
20,098
(590)
56,785
(657)
163,912
(212)
— 130,901
— 235,185
—
(50,249)
—
—
(368,424)
4,502
$(419,542) $591,285
— $
Liabilities and Stockholders’ Equity (Deficit):
Current portion of long-term debt and notes payable . . $
Current portion of capital lease obligations . . . . . . . . .
Current portion of other long-term liabilities . . . . . . . .
Accounts payable and accrued liabilities. . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion. . . . . . . . . . . . . .
Capital lease obligations, less current portion . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . .
Other non-current liabilities and minority interest . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . .
— $
—
—
12,808
12,808
300,088
—
7,386
—
—
320,282
107,111
Total liabilities and stockholders’ equity (deficit) . . . $427,393
1,147
16,032
66,726
83,905
265,725
982
980
12,332
22,868
386,792
20,841
$407,633
882
—
169
26,027
27,078
110,343
—
3,114
5,116
524
146,175
29,626
$175,801
$
— $
—
—
(652)
(652)
(368,423)
—
—
—
—
(369,075)
(50,467)
882
1,147
16,201
104,909
123,139
307,733
982
11,480
17,448
23,392
484,174
107,111
$(419,542) $591,285
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Parent
Guarantors
As of December 31, 2006
Non-
Guarantors Eliminations
(In thousands)
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . .
$
97
3,463
544
Total current assets. . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and advances to subsidiaries . . . . . . .
Intercompany receivable. . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets. . . . . . . . . . . . .
4,104
—
6,982
—
81,076
(122)
211,175
1,818
13,068
14,069
28,955
59,512
45,757
86,702
—
5,046
5,006
Total
2,718
14,891
20,778
$
803
1,966
6,204
$
— $
(3,606)
(39)
8,973
27,326
15,024
82,861
—
(4,924)
369
38,387
(3,645)
86,668
(170)
—
67,763
— 169,563
—
—
5,375
(81,076)
—
(211,175)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $303,215
$230,978
$129,629
$(296,066) $367,756
Liabilities and Stockholders’ Equity (Deficit):
Current portion of long-term debt and notes
payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current portion of other long-term liabilities . . . . .
Accounts payable and accrued liabilities . . . . . . . .
— $
—
8,458
— $
2,458
32,202
Total current liabilities . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . .
Other non-current liabilities and minority
interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,458
251,883
3,340
—
34,660
132,351
1,040
7,673
108
3,806
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (deficit) . . . . . . . . . . . . . . . .
263,789
76,594
(37,168)
179,530
—
51,448
194
43
14,218
14,455
79,641
3,245
2,316
150
99,807
—
29,822
$
— $
—
(3,622)
194
2,501
51,256
(3,622)
(211,174)
—
—
53,951
252,701
7,625
9,989
—
4,064
(214,796)
—
(81,270)
328,330
76,594
(37,168)
Total liabilities and stockholders’ equity
(deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $303,215
$230,978
$129,629
$(296,066) $367,756
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Consolidating Statements of Cash Flows
Parent
Year Ended December 31, 2007
Non-
Guarantors
Guarantors Eliminations
(In thousands)
Total
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,509) $ 39,986
$ 19,985
$
— $ 55,462
Additional to property and equipment, net of
proceeds from sale of property and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for exclusive license agreements and
site acquisition costs . . . . . . . . . . . . . . . . . . .
Additions to equipment to be leased to
customers, net of principal payments received
under direct financing leases . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . .
Proceeds from sale of Winn-Dixie equity
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing
— (30,748)
(37,569)
—
(1,133)
(1,860)
—
—
(68,317)
(2,993)
—
—
— (135,009)
(514)
—
—
(514)
— (135,009)
—
3,950
—
—
3,950
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— (162,940)
(39,943)
— (202,883)
Proceeds from issuance of long-term debt . . . . .
Repayments of long-term debt and capital
leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of long-term notes receivable . . . . . . . .
Payments received on long-term notes
185,934
166,635
19,957
(184,782)
187,744
(140,100)
(184,782)
(33,733)
—
(192)
—
33,260
184,782
(140,765)
—
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,260
—
—
(33,260)
—
Proceeds from borrowing under bank overdraft
facility, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of capital stock . . . . . . . . . . . . . . . . . .
Minority interest shareholder capital
contribution. . . . . . . . . . . . . . . . . . . . . . . . . .
Other financing activities. . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing
—
111,552
—
(1,376)
—
(736)
547
—
642
547
—
—
—
642
— 111,363
—
—
547
(1,376)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,488
132,713
20,954
— 158,155
Effect of exchange rate changes. . . . . . . . . . . . .
—
—
(13)
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . .
(21)
9,759
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97
1,818
983
803
—
—
—
(13)
10,721
2,718
Cash and cash equivalents at end of period . . . .
$
76 $ 11,577
$ 1,786
$
— $ 13,439
113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Year Ended December 31, 2006
Non-
Parent
Guarantors
Guarantors Eliminations
(In thousands)
Total
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12,716) $ 27,485
$ 10,677
$
— $ 25,446
Additions to property and equipment, net of
proceeds from sale of property and equipment . .
Payments for exclusive license agreements and site
acquisition costs . . . . . . . . . . . . . . . . . . . . . . . .
Additions to equipment to be leased to customers,
net of principal payments received under direct
financing leases . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . .
Net cash (used in) provided by investing
— (17,534)
(14,873)
— (32,407)
—
(2,486)
(871)
—
(3,357)
—
(1,039)
—
27
(197)
—
—
1,000
(197)
(12)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,039)
(19,993)
(15,941)
1,000
(35,973)
Proceeds from issuance of long-term debt . . . . . . .
Repayments of long-term debt . . . . . . . . . . . . . . . .
Issuance of long-term notes receivable . . . . . . . . . .
Payments received on long-term notes receivable . .
Proceeds from borrowing under bank overdraft
facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of capital stock . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . .
Other financing activities. . . . . . . . . . . . . . . . . . . .
44,800
(37,500)
(18,200)
25,400
18,200
(25,400)
—
—
—
—
(50)
(716)
—
—
—
(18)
Net cash (used in) provided by financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,734
(7,218)
Effect of exchange rate changes . . . . . . . . . . . . . .
—
—
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . .
(21)
118
274
1,544
Cash and cash equivalents at end of period . . . . . .
$
97
$ 1,818
$
861
(3)
—
—
3,818
1,000
—
—
5,676
354
766
37
803
(18,200)
25,400
18,200
(25,400)
—
(1,000)
—
—
45,661
(37,503)
—
—
3,818
—
(50)
(734)
(1,000)
11,192
—
—
—
354
1,019
1,699
$
— $ 2,718
114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
Year Ended December 31, 2005
Non-
Parent
Guarantors
Guarantors Eliminations
(In thousands)
Total
Cash flows provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (4,607) $ 32,563
$ 5,271
$
— $ 33,227
Capital expenditures, net . . . . . . . . . . . . . . . . . .
Payments for exclusive license agreements and
site acquisition costs . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . .
Cash flows (used in) provided by investing
— (22,300)
(4,883)
—
(27,183)
—
(25,369)
(988)
(17,108)
(3,677)
(88,669)
—
23,034
(4,665)
(108,112)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25,369)
(40,396)
(97,229)
23,034
(139,960)
Proceeds from issuance of long-term debt . . . . .
Repayments of long-term debt . . . . . . . . . . . . . .
Issuance of long-term notes receivable . . . . . . . .
Payments received on long-term notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of preferred stock . . . . . . . . . . . . . . . .
Redemption of preferred stock . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . .
Issuance of capital stock . . . . . . . . . . . . . . . . . .
Other financing activities. . . . . . . . . . . . . . . . . .
Cash flows (used in) provided by financing
451,056
(206,600)
(215,083)
173,037
(162,141)
—
6,600
73,142
(24,795)
(46,453)
88
(7,861)
—
—
—
—
—
(2,931)
66,235
—
—
—
—
—
—
25,954
—
(212,319)
6,600
215,083
478,009
(362,141)
—
(6,600)
155
—
—
(25,953)
—
—
73,297
(24,795)
(46,453)
89
(10,792)
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,094
7,965
92,189
(23,034)
107,214
Effect of exchange rate changes. . . . . . . . . . . . .
Increase in cash and cash equivalents. . . . . . . . .
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
118
—
—
132
1,412
Cash and cash equivalents at end of period . . . .
$
118 $
1,544
$
(194)
37
—
37
—
—
—
(194)
287
1,412
$
— $
1,699
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CARDTRONICS, INC.
22. Supplemental Selected Quarterly Financial Information (Unaudited)
Financial information by quarter is summarized below for the years ended December 31, 2007 and 2006.
Quarters Ended
March 31
June 30
December 31
(In thousands, except per share amounts)
September 30
Total
2007
Total revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit(1) . . . . . . . . . . . . . . . . . . . . . . . .
Net loss(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss available to common
stockholders(2) . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted net loss per common
share(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
Total revenues . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit(3) . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss)(4) . . . . . . . . . . . . . . . . . . . .
Net income (loss) available to common
stockholders(4) . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per common share(4):
$74,518
16,985
(3,387)
$77,239
17,607
(5,615)
$110,587
24,866
(10,683)
$115,954
25,547
(7,405)
$378,298
85,005
(27,090)
(3,454)
(5,681)
(10,750)
(43,477)
(63,362)
$ (0.25)
$ (0.41)
$
(0.77)
$
(2.22)
$
(4.11)
$69,141
16,043
(3,124)
$73,254
18,370
769
$ 76,365
18,980
(327)
$ 74,845
18,919
2,151
$293,605
72,312
(531)
(3,190)
703
(394)
2,085
(796)
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (0.23)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (0.23)
$
$
0.05
0.03
$
$
(0.03)
(0.03)
$
$
0.15
0.09
$
$
(0.06)
(0.06)
(1) Excludes $8.5 million, $7.1 million, $15.7 million and $11.8 million of depreciation, accretion, and amor-
tization for the quarters ended March 31, June 30, September 30, and December 31, respectively.
(2) Includes pre-tax impairment changes of $0.1 million, $5.2 million, and $0.4 million for the quarters ended
March 31, September 30, and December 31, respectively.
(3) Excludes $8.9 million, $6.6 million, $7.1 million and $6.6 million of depreciation, accretion, and amortiza-
tion for the quarters ended March 31, June 30, September 30, and December 31, respectively.
(4) Includes pre-tax impairment charge of $2.8 million related to certain contract-based intangible assets for
the quarter ended March 31. Includes $4.8 million in other income in the quarter ended December 31 pri-
marily related to settlement proceeds received from Winn-Dixie, one of the Company’s merchant custom-
ers, as a part of that company’s emergence from bankruptcy.
116
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements on any matters of accounting principles or financial
statement disclosure between us and our independent registered public accountants.
ITEM 9A(T). CONTROLS AND PROCEDURES
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
We are responsible for establishing and maintaining effective disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) to ensure that information required to be disclosed in the
reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure
that this information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our management conducted an evaluation, with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2007.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of December 31, 2007 as a result of material
weaknesses identified in our (1) overall control environment over financial reporting, (2) expenditures and
accounts payable and (3) end-user developed applications, each of which is discussed in more detail below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over
financial reporting can only provide reasonable assurance of achieving their control objectives.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our internal control over financial reporting as of December 31, 2007. In making
this assessment, our management used the criteria described in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this
assessment and those criteria, our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that we did not maintain effective internal control over financial reporting as of
December 31, 2007, as a result of material weaknesses identified in our (1) control environment over financial
reporting, (2) expenditures and accounts payable and (3) end — user developed applications, each of which is
discussed in more detail below.
(cid:129) Control Environment over Financial Reporting. We did not maintain an effective control environment
based on the criteria established in the COSO framework, particularly in light of our recent rapid
growth and increased operating complexities. Specifically, the following deficiencies were identified as
of December 31, 2007: (1) we did not have formally documented policies and procedures in place until
the latter part of 2007, (2) we did not have a formal risk assessment and management program focusing
on internal control processes and procedures and (3) we did not sufficiently train our employees on the
importance of performing established controls and in particular, effectively evidencing and documenting
the performance of such controls. These factors, combined with our manually intensive financial
reporting processes, created an operating environment in which certain established internal controls over
financial reporting were not properly followed or sufficiently evidenced. Furthermore, our management
117
believes that the material weakness in our control environment over financial reporting was a
contributing factor in the other material weaknesses described below.
(cid:129) Expenditures and Accounts Payable. We were unable to demonstrate that the established controls
surrounding the prevention or detection of unauthorized payments to vendors were functioning as
intended as of December 31, 2007. In particular, due to a combination of employee turnover and a lack
of adequate training, our accounts payable personnel were not consistently performing or documenting
their performance of certain established controls requiring the review of invoices for appropriate
approval, in accordance with our existing expenditure authorization policy. Additionally, certain
additional review procedures, including detailed reviews of disbursements and the related supporting
documentation, were not properly evidenced.
In addition to the factors described above, we were unable to demonstrate that an effective
segregation of duties existed within our general ledger system and certain third-party treasury
management systems, as it relates to the ability of certain employees to initiate, record and/or approve
invoices for payment. Specifically, despite considerable efforts on our part, we were unable to obtain
information from our general ledger software system in sufficient detail to effectively evaluate the
rights and privileges granted in such software system to each employee. Although we purchased a
software tool during 2007 to assist management in its evaluation efforts in this regard, we were unable
to successfully implement the tool in time for management to make an informed assessment as of
December 31, 2007. Furthermore, we identified potential conflicts in the initiation and approval rights
granted to certain of our employees in selected third-party treasury management systems as of
December 31, 2007.
(cid:129) End-User Developed Applications.
In the course of preparing our consolidated financial statements,
we rely on numerous internally developed spreadsheets (“End-User Developed Applications”). We
utilize these End-User Developed Applications in calculating certain financial estimates, allocating costs
and posting journal entries, among other things. As of December 31, 2007, we identified a material
weakness resulting from the ineffective operation of the information technology general controls, such
as the physical access, logical security and processes related to program changes and data integrity (“IT
General Controls”), related to the End-User Developed Applications.
In light of these material weaknesses, we performed additional analyses and other procedures that were
designed to provide our management with reasonable assurance regarding the reliability of (1) our financial
reporting and (2) the preparation of the consolidated financial statements contained in this Form 10-K in
accordance with accounting principles generally accepted in the United States of America. Based on these
additional procedures, our management has determined that the consolidated financial statements included in
this Form 10-K present fairly, in all material respects, our financial condition, results of operations and cash
flows for the periods presented.
This Form 10-K does not include an attestation report of our independent registered public accounting
firm regarding internal control over financial reporting. Management’s Annual Report on Internal Control over
Financial Reporting was not subject to attestation by our independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only
management’s report in this Form 10-K.
Remediation Efforts and Plans for Material Weaknesses in Internal Control over Financial Reporting
Our management, with oversight from our Audit Committee, has dedicated significant resources to
implement enhancements to our internal control over financial reporting in an effort to remediate the material
weaknesses identified as of December 31, 2007. These efforts are primarily focused on (1) expanding our
organizational capabilities to improve our monitoring, communication, and training processes; (2) formalizing
our risk assessment and management processes to ensure the proper allocation of internal and external
resources to focus on internal control processes and procedures; and (3) implementing financial reporting
process and system improvements to strengthen and automate selected internal control activities. Through the
first quarter of 2008, our management has hired two full-time senior internal audit professionals, including an
118
Executive Vice President of Audit and Risk Management, as part of these efforts. The Executive Vice
President of Audit and Risk Management, who reports administratively to our Chief Executive Officer and
directly to the Chairman of the Audit Committee, is responsible for implementing programs, policies and
procedures to improve the effectiveness of our overall control environment.
The material weaknesses identified as of December 31, 2007 will not be considered remediated until
(1) the new resources described above are fully engaged and new processes are fully implemented, (2) the new
processes are implemented for a sufficient period of time, and (3) we are confident that the new processes are
operating effectively.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended
December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting, except for the remediation efforts described above.
ITEM 9B. OTHER INFORMATION
None.
119
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item the
information to be disclosed in our definitive proxy statement for our 2008 Annual Meeting of Stockholders.
Code of Ethics
We have adopted a Code of Ethics applicable to our principal executive officer, principal financial and
accounting officer, and other accounting and finance executives. A copy of the Code of Ethics is available on our
website at http://www.cardtronics.com, and you may also request a copy of the Code of Ethics at no cost, by
writing or telephoning us at the following address: Cardtronics, Inc., Attention: Chief Financial Officer, 3110
Hayes Road, Suite 300, Houston, Texas 77082, (281) 596-9988. We intend to disclose any amendments to or
waivers of the Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer, Chief Accounting
Officer, Controller, and persons performing similar functions on our website at http://www.cardtronics.com
promptly following the date of the amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item the
information to be disclosed in our definitive proxy statement for our 2008 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item the
information to be disclosed in our definitive proxy statement for our 2008 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item the
information to be disclosed in our definitive proxy statement for our 2008 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Pursuant to General Instruction G of Form 10-K, we incorporate by reference into this Item the
information to be disclosed in our definitive proxy statement for our 2008 Annual Meeting of Stockholders.
120
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 . . . . . .
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2007,
Page
62
63
64
2006, and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2007,
2006, and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66
67
68
2. Financial Statement Schedules
All schedules are omitted because they are either not applicable or required information is shown in the
financial statements or notes thereto.
3.
Index to Exhibits
(a) Exhibits. The following exhibits are filed herewith pursuant to the requirements of Item 601 of
Regulation S-K:
121
Exhibit
Number
Description
1.1
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
Underwriting Agreement (incorporated herein by reference to Exhibit 1.1 of the Current Report on
Form 8-K, filed by Cardtronics, Inc. on December 14, 2007, Registration No. 001-33864).
Share Sale and Purchase Agreement between Bank Machine (Holdings) Limited and Cardtronics Limited,
dated effective as of May 17, 2005 (incorporated herein by reference to Exhibit 2.1 of the Amendment
No. 1 to Registration Statement on Form S-4/A, filed by Cardtronics, Inc. on July 10, 2006, Registration
No. 333-131199).
Purchase and Sale Agreement Between E*TRADE Access, Inc., E*TRADE Bank, Cardtronics, LP and
Cardtronics, Inc., dated effective as of June 2, 2004 (incorporated herein by reference to Exhibit 2.2 of the
Amendment No. 1 to Registration Statement on Form S-4/A, filed by Cardtronics, Inc. on July 10, 2006,
Registration No. 333-131199).
Purchase and Sale Agreement, dated as of July 20, 2007, by and between Cardtronics, LP and 7-Eleven,
Inc. (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on July 26,
2007 Registration No. 333-113470).
Third 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 December 14,
2007, Registration No. 001-33864).
Second Amended and Restated Bylaws of Cardtronics, Inc. (incorporated herein by reference to
Exhibit 3.2 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on December 14, 2007,
Registration No. 001-33864).
Indenture dated as of July 20, 2007 among Cardtronics, Inc., the Subsidiary Guarantors party thereto, and
Wells Fargo Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.1 of the Quarterly
Report on Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
Form of Senior Subordinated Note (incorporated by reference to Exhibit A to Exhibit 4.1 hereto).
Registration Rights Agreement dated as of July 20, 2007 among Cardtronics, Inc., the Guarantors named
therein, Banc of America Securities LLC and BNP Paribas Securities Corp. (incorporated herein by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q filed by Cardtronics, Inc. on August 14,
2007).
Supplemental Indenture dated as of June 22, 2007 among Cardtronics Holdings, LLC and Wells Fargo
Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.3 of the Quarterly Report on
Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
Indenture dated as of August 12, 2005 by and among Cardtronics, Inc., the Subsidiary Guarantors party
thereto and Wells Fargo Bank, NA as Trustee (incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration
No. 333-131199).
Form of Senior Subordinated Note (incorporated by reference to Exhibit A to Exhibit 4.5 hereto).
Supplemental Indenture dated as of December 22, 2005 among ATM National, LLC and Wells Fargo
Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.4 of the Quarterly Report on
Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
ATM Cash Services Agreement between Bank of America and Cardtronics, LP, dated effective as of
August 2, 2004 (incorporated herein by reference to Exhibit 10.1 of the Amendment No. 2 to Registration
Statement on Form S-4/A filed by Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Amendment No. 1 to ATM Cash Services Agreement, dated August 2, 2004 (incorporated herein by
reference to Exhibit 10.25 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by
Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Amendment No. 2 to ATM Cash Services Agreement, dated February 9, 2006 (incorporated herein by
reference to Exhibit 10.26 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by
Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Third Amended and Restated First Lien Credit Agreement, dated as of May 17, 2005, by and among
Cardtronics, Inc., the Subsidiary Guarantors party thereto, Bank of America, N.A., BNP Paribas, and the
other Lenders parties thereto (incorporated herein by reference to Exhibit 10.2 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).
122
Exhibit
Number
10.5
10.6
10.7
10.8
10.9
Description
Amendment No. 1 to Credit Agreement, dated as of July 6, 2005 (incorporated herein by reference to
Exhibit 10.3 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 2 to Credit Agreement, dated as of August 5, 2005 (incorporated herein by reference to
Exhibit 10.4 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 3 to Credit Agreement, dated as of November 17, 2005 (incorporated herein by reference
to Exhibit 10.5 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 4 to Credit Agreement, dated as of February 14, 2006 (incorporated herein by reference
to Exhibit 10.28 of the Annual Report on Form 10-K filed on April 2, 2007).
Amendment No. 5 to Credit Agreement, dated as of September 29, 2006 (incorporated herein by reference
to Exhibit 10.29 of the Registration Statement on Form S-1 filed by Cardtronics, Inc. on September 7,
2007, Registration No. 145929).
10.10 Amendment No. 6 to Credit Agreement, dated as of May 3, 2007 (incorporated herein by reference to
Exhibit 10.1 of the Current Report on Form 8-K filed on May 9, 2007).
10.11 Amendment No. 7 to Credit Agreement, dated as of July 18, 2007 (incorporated herein by reference to
Exhibit 10.2 of the Quarterly Report on Form 10-Q filed on August 14, 2007).
10.12 Amendment No. 8 to Credit Agreement, dated as of March 19, 2008 (incorporated herein by reference to
10.17
10.14
10.13
10.15
Exhibit 10.1 of the Current Report on Form 8-K filed on March 25, 2008).
Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated effective as of January 30,
2003 (incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated
effective as of February 4, 2004 (incorporated by reference to Exhibit 10.11 of the Registration Statement
on Form S-1 filed by Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
Second Amendment to Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.8 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.16 Restricted Stock Agreement, dated as of February 4, 2004 between Cardtronics, Inc. and Jack M. Antonini
(incorporated herein by reference to Exhibit 10.9 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
First Amendment to Restricted Stock Agreement, dated as of March 1, 2004, between Cardtronics, Inc.
and Jack M. Antonini (incorporated herein by reference to Exhibit 10.10 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Second Amendment to Restricted Stock Agreement, dated as of February 10, 2005, between Cardtronics,
Inc. and Jack M. Antonini (incorporated herein by reference to Exhibit 10.11 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP and Michael H. Clinard, dated effective as of June 4,
2001 (incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004) (incorporated by reference to Exhibit 10.12 of the Registration
Statement on Form S-1 filed by Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Michael H. Clinard, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.13 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP and Thomas E. Upton, dated effective as of June 1,
2001 (incorporated by reference to Exhibit 10.13 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Thomas E. Upton, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.15 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.18
10.22
10.21
10.19
10.20
123
Exhibit
Number
10.23
10.24
10.25
10.26
Description
Employment Agreement between Cardtronics, LP and J. Chris Brewster, dated effective as of March 31,
2004 (incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-1/A filed by
Cardtronics, Inc. on May 14, 2004).†
First Amendment to Employment Agreement between Cardtronics, LP and J. Chris Brewster, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.17 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP, Cardtronics, Inc. and Drew Soinski, dated effective as
of July 12, 2005 (incorporated herein by reference to Exhibit 10.18 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP, Cardtronics, Inc., and Rick Updyke, dated effective as
of July 20, 2007.†
10.27 Amended and Restated Service Agreement between Bank Machine Limited and Ron Delnevo, dated
effective as of May 17, 2005 (incorporated herein by reference to Exhibit 10.19 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.28 Bonus Agreement between Bank Machine Limited and Ron Delnevo, dated effective as of May 17, 2005
(incorporated herein by reference to Exhibit 10.20 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of June 4, 2001 (incorporated
herein by reference to Exhibit 10.21 of the Registration Statement on Form S-4, filed by Cardtronics, Inc.
on January 20, 2006, Registration No. 333-131199).†
10.29
10.30 Amendment No. 1 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of
January 30, 2004 (incorporated herein by reference to Exhibit 10.22 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.31 Amendment No. 2 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of
June 23, 2004 (incorporated herein by reference to Exhibit 10.23 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.32 Amendment No. 3 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of May 9,
2006 (incorporated herein by reference to Exhibit 10.38 of Post-effective Amendment No. 1 to the
Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
10.33 Amendment No. 4 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of
August 22, 2007 (incorporated herein by reference to Exhibit 10.39 of Post-effective Amendment No. 1 to
the Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
10.34 Amendment No. 5 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of
November 26, 2007 (incorporated herein by reference to Exhibit 10.40 of Post-effective Amendment No. 1
to the Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
Form of Director Indemnification Agreement entered into by and between Cardtronics, Inc. and each of its
directors, dated as of February 10, 2005 (incorporated herein by reference to Exhibit 10.24 of the
Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration
No. 333-131199).†
10.35
10.36 Vault Cash Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and Wells Fargo, N.A.
(incorporated herein by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on
November 8, 2007).
Placement Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and 7-Eleven, Inc.
(incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on
November 8, 2007).
10.37
10.38 Cardtronics, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of our Quarterly
10.39
Report on Form 10-Q filed on November 8, 2007).
First Amended and Restated Investors Agreement, dated as of February 10, 2005, by and among
(incorporated herein by reference to
Cardtronics,
Exhibit 10.35 of the Registration Statement on Form S-1, filed by Cardtronics, Inc. on December 11,
2007, Registration No. 333-145929).
Inc. and certain securityholders
thereof.
124
Exhibit
Number
10.40
10.41
Description
First Amendment to First Amended and Restated Investors Agreement, dated as of May 17, 2005, by and
among Cardtronics, Inc. and certain securityholders thereof (incorporated herein by reference to
Exhibit 10.36 of the Registration Statement on Form S-1, filed by Cardtronics, Inc. on December 11,
2007, Registration No. 333-145929).
Second Amendment to First Amended and Restated Investors Agreement, dated as of November 26, 2007,
by and among Cardtronics, Inc. and certain securityholders thereof. (incorporated herein by reference to
Exhibit 10.1 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on December 14, 2007,
Registration No. 001-33864).
2007 Bonus Plan of Cardtronics, Inc., effective as of January 1, 2007.†
10.42
12.1* Computation of Ratio of Earnings to Fixed Charges
14.1* Cardtronics, Inc. Code of Business Conduct and Ethics Approved by the Board of Directors on
November 26, 2007.
14.2* Cardtronics, Inc. Financial Code of Ethics (adopted as of November 26, 2007).
21.1
Subsidiaries of Cardtronics, Inc. (Incorporated by reference to Exhibit 21.1 of the Registration Statement
on Form S-4, filed by Cardtronics, Inc. on February 14, 2008, Registration No. 333-149236).
23.1* Consent of Independent Registered Public Accounting Firm KPMG LLP.
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.
* Filed herewith.
† Management contract or compensatory plan or arrangement.
125
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on March 28, 2008.
SIGNATURES
CARDTRONICS, INC.
/s/
Jack Antonini
Jack Antonini
President, Chief Executive Officer, and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant in the capacities indicated on March 28, 2008.
Signature
Title
/s/
Jack Antonini
Jack Antonini
/s/
J. Chris Brewster
J. Chris Brewster
/s/ Fred R. Lummis
Fred R. Lummis
/s/ Tim Arnoult
Tim Arnoult
/s/ Robert P. Barone
Robert P. Barone
/s/
Jorge M. Diaz
Jorge M. Diaz
/s/ Dennis F. Lynch
Dennis F. Lynch
/s/ Michael A.R. Wilson
Michael A.R. Wilson
Chief Executive Officer, President, and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director and Chairman of the Board of Directors
Director
Director
Director
Director
Director
126
Exhibit
Number
EXHIBIT INDEX
Description
1.1
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
Underwriting Agreement (incorporated herein by reference to Exhibit 1.1 of the Current Report on
Form 8-K, filed by Cardtronics, Inc. on December 14, 2007, Registration No. 001-33864).
Share Sale and Purchase Agreement between Bank Machine (Holdings) Limited and Cardtronics Limited,
dated effective as of May 17, 2005 (incorporated herein by reference to Exhibit 2.1 of the Amendment
No. 1 to Registration Statement on Form S-4/A, filed by Cardtronics, Inc. on July 10, 2006, Registration
No. 333-131199).
Purchase and Sale Agreement Between E*TRADE Access, Inc., E*TRADE Bank, Cardtronics, LP and
Cardtronics, Inc., dated effective as of June 2, 2004 (incorporated herein by reference to Exhibit 2.2 of the
Amendment No. 1 to Registration Statement on Form S-4/A, filed by Cardtronics, Inc. on July 10, 2006,
Registration No. 333-131199).
Purchase and Sale Agreement, dated as of July 20, 2007, by and between Cardtronics, LP and 7-Eleven,
Inc. (incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on July 26,
2007 Registration No. 333-113470).
Third 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 December 14,
2007, Registration No. 001-33864).
Second Amended and Restated Bylaws of Cardtronics, Inc. (incorporated herein by reference to
Exhibit 3.2 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on December 14, 2007,
Registration No. 001-33864).
Indenture dated as of July 20, 2007 among Cardtronics, Inc., the Subsidiary Guarantors party thereto, and
Wells Fargo Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.1 of the Quarterly
Report on Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
Form of Senior Subordinated Note (incorporated by reference to Exhibit A to Exhibit 4.1 hereto).
Registration Rights Agreement dated as of July 20, 2007 among Cardtronics, Inc., the Guarantors named
therein, Banc of America Securities LLC and BNP Paribas Securities Corp. (incorporated herein by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q filed by Cardtronics, Inc. on August 14,
2007).
Supplemental Indenture dated as of June 22, 2007 among Cardtronics Holdings, LLC and Wells Fargo
Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.3 of the Quarterly Report on
Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
Indenture dated as of August 12, 2005 by and among Cardtronics, Inc., the Subsidiary Guarantors party
thereto and Wells Fargo Bank, NA as Trustee (incorporated herein by reference to Exhibit 4.1 of the
Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration
No. 333-131199).
Form of Senior Subordinated Note (incorporated by reference to Exhibit A to Exhibit 4.5 hereto).
Supplemental Indenture dated as of December 22, 2005 among ATM National, LLC and Wells Fargo
Bank, N.A. as Trustee (incorporated herein by reference to Exhibit 4.4 of the Quarterly Report on
Form 10-Q filed by Cardtronics, Inc. on August 14, 2007).
ATM Cash Services Agreement between Bank of America and Cardtronics, LP, dated effective as of
August 2, 2004 (incorporated herein by reference to Exhibit 10.1 of the Amendment No. 2 to Registration
Statement on Form S-4/A filed by Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Amendment No. 1 to ATM Cash Services Agreement, dated August 2, 2004 (incorporated herein by
reference to Exhibit 10.25 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by
Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
Amendment No. 2 to ATM Cash Services Agreement, dated February 9, 2006 (incorporated herein by
reference to Exhibit 10.26 of the Amendment No. 2 to Registration Statement on Form S-4/A filed by
Cardtronics, Inc. on August 25, 2006, Registration No. 333-131199).
127
Exhibit
Number
10.4
10.5
10.6
10.7
10.8
10.9
Description
Third Amended and Restated First Lien Credit Agreement, dated as of May 17, 2005, by and among
Cardtronics, Inc., the Subsidiary Guarantors party thereto, Bank of America, N.A., BNP Paribas, and the
other Lenders parties thereto (incorporated herein by reference to Exhibit 10.2 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).
Amendment No. 1 to Credit Agreement, dated as of July 6, 2005 (incorporated herein by reference to
Exhibit 10.3 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 2 to Credit Agreement, dated as of August 5, 2005 (incorporated herein by reference to
Exhibit 10.4 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 3 to Credit Agreement, dated as of November 17, 2005 (incorporated herein by reference
to Exhibit 10.5 of the Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006,
Registration No. 333-131199).
Amendment No. 4 to Credit Agreement, dated as of February 14, 2006 (incorporated herein by reference
to Exhibit 10.28 of the Annual Report on Form 10-K filed on April 2, 2007).
Amendment No. 5 to Credit Agreement, dated as of September 29, 2006 (incorporated herein by reference
to Exhibit 10.29 of the Registration Statement on Form S-1 filed by Cardtronics, Inc. on September 7,
2007, Registration No. 145929).
10.10 Amendment No. 6 to Credit Agreement, dated as of May 3, 2007 (incorporated herein by reference to
Exhibit 10.1 of the Current Report on Form 8-K filed on May 9, 2007).
10.11 Amendment No. 7 to Credit Agreement, dated as of July 18, 2007 (incorporated herein by reference to
Exhibit 10.2 of the Quarterly Report on Form 10-Q filed on August 14, 2007).
10.12 Amendment No. 8 to Credit Agreement, dated as of March 19, 2008 (incorporated herein by reference to
10.14
10.15
10.13
Exhibit 10.1 of the Current Report on Form 8-K filed on March 25, 2008).
Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated effective as of January 30,
2003 (incorporated by reference to Exhibit 10.10 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated
effective as of February 4, 2004 (incorporated by reference to Exhibit 10.11 of the Registration Statement
on Form S-1 filed by Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
Second Amendment to Employment Agreement between Cardtronics, LP and Jack M. Antonini, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.8 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.16 Restricted Stock Agreement, dated as of February 4, 2004 between Cardtronics, Inc. and Jack M. Antonini
(incorporated herein by reference to Exhibit 10.9 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
First Amendment to Restricted Stock Agreement, dated as of March 1, 2004, between Cardtronics, Inc.
and Jack M. Antonini (incorporated herein by reference to Exhibit 10.10 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Second Amendment to Restricted Stock Agreement, dated as of February 10, 2005, between Cardtronics,
Inc. and Jack M. Antonini (incorporated herein by reference to Exhibit 10.11 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP and Michael H. Clinard, dated effective as of June 4,
2001 (incorporated by reference to Exhibit 10.12 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004) (incorporated by reference to Exhibit 10.12 of the Registration
Statement on Form S-1 filed by Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Michael H. Clinard, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.13 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.20
10.19
10.18
10.17
128
Exhibit
Number
10.21
10.22
10.23
10.24
10.25
10.26
Description
Employment Agreement between Cardtronics, LP and Thomas E. Upton, dated effective as of June 1,
2001 (incorporated by reference to Exhibit 10.13 of the Registration Statement on Form S-1 filed by
Cardtronics, Inc. on March 10, 2004, Registration No. 333-113470).†
First Amendment to Employment Agreement between Cardtronics, LP and Thomas E. Upton, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.15 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP and J. Chris Brewster, dated effective as of March 31,
2004 (incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-1/A filed by
Cardtronics, Inc. on May 14, 2004).†
First Amendment to Employment Agreement between Cardtronics, LP and J. Chris Brewster, dated
effective as of January 1, 2005 (incorporated herein by reference to Exhibit 10.17 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP, Cardtronics, Inc. and Drew Soinski, dated effective as
of July 12, 2005 (incorporated herein by reference to Exhibit 10.18 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
Employment Agreement between Cardtronics, LP, Cardtronics, Inc., and Rick Updyke, dated effective as
of July 20, 2007.†
10.27 Amended and Restated Service Agreement between Bank Machine Limited and Ron Delnevo, dated
effective as of May 17, 2005 (incorporated herein by reference to Exhibit 10.19 of the Registration
Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.28 Bonus Agreement between Bank Machine Limited and Ron Delnevo, dated effective as of May 17, 2005
(incorporated herein by reference to Exhibit 10.20 of the Registration Statement on Form S-4, filed by
Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of June 4, 2001 (incorporated
herein by reference to Exhibit 10.21 of the Registration Statement on Form S-4, filed by Cardtronics, Inc.
on January 20, 2006, Registration No. 333-131199).†
10.29
10.30 Amendment No. 1 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of
January 30, 2004 (incorporated herein by reference to Exhibit 10.22 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.31 Amendment No. 2 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc., dated effective as of
June 23, 2004 (incorporated herein by reference to Exhibit 10.23 of the Registration Statement on
Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration No. 333-131199).†
10.32 Amendment No. 3 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of May 9,
2006 (incorporated herein by reference to Exhibit 10.38 of Post-effective Amendment No. 1 to the
Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
10.33 Amendment No. 4 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of
August 22, 2007 (incorporated herein by reference to Exhibit 10.39 of Post-effective Amendment No. 1 to
the Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
10.34 Amendment No. 5 to the 2001 Stock Incentive Plan of Cardtronics Group, Inc. dated effective as of
November 26, 2007 (incorporated herein by reference to Exhibit 10.40 of Post-effective Amendment No. 1
to the Registration Statement on Form S-1 filed on December 10, 2007, Registration No. 333-145929).†
Form of Director Indemnification Agreement entered into by and between Cardtronics, Inc. and each of its
directors, dated as of February 10, 2005 (incorporated herein by reference to Exhibit 10.24 of the
Registration Statement on Form S-4, filed by Cardtronics, Inc. on January 20, 2006, Registration
No. 333-131199).†
10.35
10.36 Vault Cash Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and Wells Fargo, N.A.
(incorporated herein by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q filed on
November 8, 2007).
Placement Agreement, dated as of July 20, 2007, by and between Cardtronics, Inc. and 7-Eleven, Inc.
(incorporated herein by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q filed on
November 8, 2007).
10.37
129
Exhibit
Number
Description
10.38 Cardtronics, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 of our Quarterly
10.39
10.40
10.41
thereof.
Inc. and certain securityholders
Report on Form 10-Q filed on November 8, 2007).
First Amended and Restated Investors Agreement, dated as of February 10, 2005, by and among
Cardtronics,
(incorporated herein by reference to
Exhibit 10.35 of the Registration Statement on Form S-1, filed by Cardtronics, Inc. on December 11,
2007, Registration No. 333-145929).
First Amendment to First Amended and Restated Investors Agreement, dated as of May 17, 2005, by and
among Cardtronics, Inc. and certain securityholders thereof (incorporated herein by reference to
Exhibit 10.36 of the Registration Statement on Form S-1, filed by Cardtronics, Inc. on December 11,
2007, Registration No. 333-145929).
Second Amendment to First Amended and Restated Investors Agreement, dated as of November 26, 2007,
by and among Cardtronics, Inc. and certain securityholders thereof. (incorporated herein by reference to
Exhibit 10.1 of the Current Report on Form 8-K, filed by Cardtronics, Inc. on December 14, 2007,
Registration No. 001-33864).
2007 Bonus Plan of Cardtronics, Inc., effective as of January 1, 2007.†
10.42
12.1* Computation of Ratio of Earnings to Fixed Charges
14.1* Cardtronics, Inc. Code of Business Conduct and Ethics Approved by the Board of Directors on
November 26, 2007.
14.2* Cardtronics, Inc. Financial Code of Ethics (adopted as of November 26, 2007).
21.1
Subsidiaries of Cardtronics, Inc. (Incorporated by reference to Exhibit 21.1 of the Registration Statement
on Form S-4, filed by Cardtronics, Inc. on February 14, 2008, Registration No. 333-149236).
23.1* Consent of Independent Registered Public Accounting Firm KPMG LLP.
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.
* Filed herewith.
† Management contract or compensatory plan or arrangement.
130
The following information is not a part of the Company’s 2007 Annual Report on Form 10-K.
DISCLOSURE OF NON-GAAP FINANCIAL INFORMATION
We sometimes use information derived from our consolidated financial information but not presented in our financial
statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) to analyze
our company. Adjusted EBITDA is a non-GAAP financial measure provided within this Annual Report as a complement
to results prepared in accordance with GAAP. Adjusted EBITDA excludes depreciation, accretion, and amortization
expenses 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.
Additionally, Adjusted EBITDA excludes certain non-recurring and non-cash items and, therefore, may not be comparable
to similarly titled measures employed by other companies. Management believes that the presentation of Adjusted
EBITDA and the identification of unusual, non-recurring, or non-cash items enhance an investor’s understanding of the
underlying trends in the Company’s business and provide for better comparability between periods in different years.
The Adjusted EBITDA 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 GAAP. A reconciliation of net income (loss) to Adjusted EBITDA is presented below:
2003
2004
2005
(In millions)
2006
2007
Net income (loss) before cumulative effect of
change in accounting principle, as reported ......................
Plus:
Income tax expense (benefit) ............................................
Interest expense, net, including amortization and
2.0
write off of financing costs and bond discounts............
2.2
Depreciation, accretion, and amortization ........................
EBITDA.................................................................................
Add back:
Other (income) expense and minority interest ..................
Effects of acquisition-related costs, stock-based
compensation, Triple-DES related costs, in-
house processing conversion costs, and other
non-cash and non-recurring items................................
$ 3.2
$ 5.8
$
(2.4)
$
(0.5)
$
(27.1)
3.6
5.2
7.5
14.9
12.3
26.9
0.1
0.2
(1.2)
22.4
21.9
40.7
1.0
0.5
25.1
30.5
55.6
(4.8)
4.6
31.2
45.7
54.4
1.4
Adjusted EBITDA ...............................................................
$ 18.4
$ 33.6
$ 45.2
$ 52.9
$
60.9
3.4
6.5
3.5
2.1
5.1
Financial Self-Service Solutions Corporate Information
Corporate Headquarters
Cardtronics, Inc.
3110 Hayes Road, Suite 300
Houston, TX 77082
800.786.9666
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held at
4:00 p.m. Central Time on June 11, 2008, at the Marriott
Westchase Hotel, 2900 Briarpark Drive, Houston, Texas.
Total Transactions
in millions
Stock Listing
Cardtronics, Inc. common stock is listed on the NASDAQ
Global Market Exchange and trades under the ticker
symbol CATM.
Transfer Agent
Wells Fargo Shareowner Services
161 North Concord Exchange
South St. Paul, MN 55075
800.767.3330
Investor Contact
Chris Brewster, Chief Financial Officer
281.892.0128
cbrewster@cardtronics.com
Media Contact
Joel Antonini, Vice President, Marketing
281.552.1131
joel.antonini@cardtronics.com
Form 10-K
A copy of the company’s form 10-K, filed with the
Securities and Exchange Commission, is available
without charge upon written request to: Cardtronics, Inc.,
Investor Relations, 3110 Hayes Road, Suite 300,
Houston, TX 77082; or by emailing
investors@cardtronics.com.
©2008 Cardtronics, Inc.
Cautionary Note Regarding Forward-Looking Statements
Except for the historical information and discussions contained herein, statements contained in this annual report may
constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Achieving the results described in these statements involves a number of risks, uncertainties and other factors that
could cause actual results to differ materially, as discussed in Cardtronics’ filings with the Securities and Exchange
Commission, and in the attached Form 10-K.
Cardtronics
3110 Hayes Road, Suite 300
Houston, TX 77082
281.596.9988
www.cardtronics.com