e424b3
The
information in this preliminary prospectus supplement and the
accompanying prospectus, which relate to an effective
registration statement under the Securities Act of 1933, as
amended, is not complete and may be changed. This preliminary
prospectus supplement and the accompanying prospectus do not
constitute an offer to sell, nor do they seek an offer to buy,
these securities in any jurisdiction where the offer or sale is
not permitted.
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Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-164395
SUBJECT TO COMPLETION DATED
MARCH 22, 2010
Preliminary Prospectus Supplement
(To Prospectus dated March 11, 2010)
6,000,000 Shares of Common
Stock
The selling stockholders identified in this prospectus
supplement are offering 6,000,000 shares of our common
stock. We will not receive any of the proceeds from the shares
of common stock sold in this offering. Our common stock trades
on the NASDAQ Global Market under the symbol CATM.
The last reported sale price of our common stock on
March 18, 2010 was $10.32 per share.
Investing in our common stock involves a high degree of risk.
You should read this prospectus supplement and the accompanying
prospectus carefully before you make your investment decision.
See Risk Factors beginning on
page S-9
of this prospectus supplement, as well as the documents we file
with the Securities and Exchange Commission that are
incorporated by reference herein for more information.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful and complete. Any
representation to the contrary is a criminal offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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The underwriters may also purchase up to an additional
900,000 shares from the selling stockholders, at the public
offering price, less the underwriting discount, within
30 days from the date of this prospectus to cover
overallotments, if any.
The underwriters expect to deliver the shares to purchasers on
or
about ,
2010.
Joint Book-Running Managers
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Piper
Jaffray |
UBS Investment Bank |
Co-Managers
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William
Blair & Company |
SunTrust Robinson Humphrey |
The date of this prospectus supplement
is ,
2010.
TABLE OF
CONTENTS
Prospectus
Supplement
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S-ii
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S-ii
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S-ii
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S-iii
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S-1
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S-9
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S-25
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S-26
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S-27
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S-28
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S-29
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S-31
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S-64
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S-78
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S-87
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S-110
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S-111
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S-115
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S-116
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S-118
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S-120
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S-123
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S-126
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S-129
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S-130
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Prospectus
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Page
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About This Prospectus
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1
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Where You Can Find More Information
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1
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Documents Incorporated by Reference
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1
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Cautionary Statement Regarding Forward-Looking Statements
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3
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Cardtronics, Inc.
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4
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The Subsidiary Guarantors
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4
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Risk Factors
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5
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Use of Proceeds
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6
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Ratio of Earnings to Fixed Charges
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6
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Description of Debt Securities
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6
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Description of Common Stock
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18
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Selling Stockholders
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22
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Plan of Distribution
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23
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Legal Matters
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25
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Experts
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25
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement, the
accompanying prospectus and any free writing prospectuses we may
provide to you in
S-i
connection with this offering. We and the selling stockholders
have not, and the underwriters have not, authorized any other
person to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. We and the selling stockholders are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. The information contained in this prospectus
supplement, the accompanying prospectus, the documents
incorporated by reference herein and any free writing
prospectuses we may provide to you in connection with this
offering is accurate only as of their respective dates. Our
business, financial condition, results of operations and
prospects may have changed since those dates.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are
part of a registration statement that we filed with the
Securities and Exchange Commission (SEC) using a
shelf registration process. We are providing
information to you about this offering in two parts. The first
part is this prospectus supplement, which describes the specific
terms of the securities that the selling stockholders are
offering and also adds to, updates or changes information
contained in the accompanying prospectus and the documents
incorporated by reference into the accompanying prospectus. The
second part is the accompanying prospectus, including the
documents incorporated by reference, which provides you with
more general information, some of which may not apply to this
offering and some of which may have been supplemented or
superseded by information in this prospectus supplement or
documents incorporated or deemed to be incorporated by reference
into this prospectus supplement that we filed with the SEC
subsequent to the date of the prospectus. Before you invest in
our securities, you should carefully read this prospectus
supplement and the accompanying prospectus and the additional
information described under the heading Documents
Incorporated by Reference.
Unless the context requires otherwise, all references in this
prospectus to Cardtronics, we,
us and our refer to Cardtronics, Inc.
and its subsidiaries.
WHERE YOU
CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may
read and copy any documents filed by us with the SEC at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. Our filings with the SEC are also available to the public
from commercial document retrieval services and at the
SECs website at
http://www.sec.gov.
We also make available free of charge on our Internet website at
http://www.cardtronics.com
all of the documents that we file with the SEC as soon as
reasonably practicable after we electronically file such
material with the SEC. Information contained on our website is
not incorporated by reference into this prospectus and you
should not consider information contained on our website as part
of this prospectus.
DOCUMENTS
INCORPORATED BY REFERENCE
We incorporate by reference information into this
prospectus supplement, which means that we disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus supplement,
except for any information superseded by information contained
expressly in this prospectus supplement, and the information
that we file later with the SEC will automatically supersede
this information. You should not assume that the information in
this prospectus supplement is current as of any date other than
the date on the front page of this prospectus supplement.
We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act) (excluding any information furnished
and not filed with the SEC), including all such documents that
we may
S-ii
file with the SEC after the date of this prospectus supplement,
until all offerings of any securities registered hereby are
completed:
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 (the 2009
Form
10-K),
including information specifically to be incorporated by
reference into our Form
10-K from
our definitive proxy statement to be prepared in connection with
the 2010 Annual Meeting of Stockholders to be held on
June 15, 2010;
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Current Report on
Form 8-K
filed on January 22, 2010;
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Current Report on
Form 8-K
filed on January 27, 2010;
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Current Report on
Form 8-K
filed on February 8, 2010;
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Current Report on
Form 8-K
filed on March 8, 2010; and
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Current Report on
Form 8-K
filed on March 22, 2010.
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Any statement contained in a document incorporated or deemed to
be incorporated by reference in this prospectus supplement will
be deemed to be modified or superseded to the extent that a
statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by
reference in this prospectus supplement modifies or supersedes
that statement. Any statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a
part of this prospectus supplement.
You may request a copy of any document incorporated by reference
in this prospectus supplement and any exhibit specifically
incorporated by reference in those documents, at no cost, by
writing or telephoning us at the following address or phone
number:
Cardtronics, Inc.
Attention: Chief Financial Officer
3250 Briarpark Drive, Suite 400
Houston, Texas 77042
(832) 308-4000
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information in this prospectus supplement and in the
documents incorporated by reference includes
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the
Securities Act) and Section 21E of the Exchange
Act. The words project, believe,
expect, anticipate, intend,
contemplate, foresee, would,
could, plan or other similar expressions
are intended to identify forward-looking statements, which are
generally not historical in nature. These forward-looking
statements are based on our current expectations 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 currently
anticipate. All comments concerning our expectations for future
revenues and operating results are based on our forecasts for
our existing operations and do not include the potential impact
of any future acquisitions. Our forward-looking statements
involve significant risks and uncertainties (some of which are
beyond our control) and assumptions that could cause actual
results to differ materially from our historical experience and
our present expectations or projections.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, those summarized below:
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our financial outlook and the financial outlook of the ATM and
financial services industry;
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our ability to expand our bank branding and surcharge-free
service offerings;
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our ability to provide new ATM solutions to financial
institutions;
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our vault cash rental needs, including potential liquidity
issues with our vault cash providers;
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S-iii
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the implementation of our corporate strategy;
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our ability to compete successfully with our competitors;
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our financial performance;
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our ability to strengthen existing customer relationships and
reach new customers;
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our ability to meet the service levels required by our service
level agreements with our customers;
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our ability to pursue and successfully integrate acquisitions;
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our ability to expand internationally;
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our ability to prevent security breaches;
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changes in interest rates, foreign currency rates and regulatory
requirements; and
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the additional risks we are exposed to in our armored courier
operations.
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The information contained in this prospectus supplement,
including the information set forth under the heading Risk
Factors, identifies factors that could affect our
operating results and performance. When considering
forward-looking statements, you should keep in mind these
factors and other cautionary statements in this prospectus
supplement and in the documents incorporated herein by
reference. Should one or more of the risks or uncertainties
described above or elsewhere in this prospectus supplement or in
the documents incorporated by reference occur, or should
underlying assumptions prove incorrect, our actual results and
plans could differ materially from those expressed in any
forward-looking statements. We urge you to carefully consider
those factors, as well as factors described in our reports filed
from time to time with the SEC and other announcements we make
from time to time.
S-iv
SUMMARY
This summary highlights selected information about us and this
offering, including information appearing elsewhere in this
prospectus supplement, the accompanying prospectus, and the
documents incorporated by reference herein, and does not contain
all of the information that you should consider in making your
investment decision. You should read this summary together with
the more detailed information appearing elsewhere in this
prospectus supplement, as well as the information in the
accompanying prospectus and in the documents incorporated by
reference or deemed incorporated by reference into this
prospectus supplement or the accompanying prospectus. You should
carefully consider, among other things, the matters discussed in
the sections titled Risk Factors on
page S-9
of this prospectus supplement and in our 2009
Form 10-K.
In addition, certain statements include forward-looking
information that involves risks and uncertainties. See
Cautionary Statement Concerning Forward-Looking
Statements on
page S-iii
of this prospectus supplement.
Our
Company
Cardtronics, Inc. provides convenient automated consumer
financial services through its network of automated teller
machines (ATMs) and multi-function financial
services kiosks. As of December 31, 2009, we operated over
33,400 devices throughout the United States (including Puerto
Rico), the United Kingdom and Mexico, of which 68% were
owned by us, making us the worlds largest non-bank owner
of ATMs. Included within this number are approximately 2,200
multi-function financial services kiosks that, in addition to
traditional ATM functions such as cash dispensing and bank
account balance inquiries, perform other consumer financial
services, including bill payments, check cashing, remote deposit
capture (which represents deposits taken using electronic
imaging at ATMs not physically located at a bank), and money
transfers.
We often partner with large, nationally-known retail merchants
under multi-year agreements to place our ATMs and kiosks within
their store locations. In doing so, we provide our retail
partners with an automated financial services solution that we
believe helps attract and retain customers, and in turn,
increases the likelihood that our devices will be utilized.
Finally, we own and operate an electronic funds transfer
(EFT) transaction processing platform that provides
transaction processing services to our network of ATMs and
financial services kiosks as well as ATMs owned and operated by
third parties.
Historically, we have deployed and operated our devices under
two distinct arrangements with our retail partners:
Company-owned and merchant-owned arrangements. Under
Company-owned arrangements, we provide the device 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 our merchant-owned arrangements, the retail merchant or
the distributor owns the device and is usually responsible for
providing cash and performing simple maintenance tasks, while we
provide more complex maintenance services, transaction
processing, and connection to the EFT networks. As of
December 31, 2009, approximately 68% of our devices were
Company-owned and 32% were merchant-owned. While we may continue
to add merchant-owned devices 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 devices
in our network due to the higher margins typically earned and
the additional revenue opportunities available to us under
Company-owned arrangements.
We partner with leading national financial institutions to brand
selected ATMs and financial services kiosks within our network,
including Citibank, N.A., HSBC Bank USA, N.A., JPMorgan Chase
Bank, N.A., SunTrust Banks, Inc. and Sovereign Bank. As of
December 31, 2009, approximately 11,100 of our
Company-owned devices were under contract with financial
institutions to place their logos on those machines, thus
providing convenient surcharge-free access for their banking
customers. We also own and operate the Allpoint network, which
we believe is the largest surcharge-free ATM network within the
United States (based on the number of participating ATMs). The
Allpoint network, which has approximately 1,200 card issuer
participants and more than 37,000 participating ATMs, including
a majority of our ATMs in the United States and all of our ATMs
in the United Kingdom, provides surcharge-free ATM access to
customers of participating financial institutions that lack a
significant ATM network. Allpoint also works with financial
institutions that manage prepaid debit card programs on behalf
of corporate entities and governmental agencies, including
general
S-1
purpose, payroll, and electronic benefits transfer cards. Under
these programs, the issuing financial institutions pay Allpoint
a fee per card or per transaction in return for allowing the
users of those cards surcharge-free access to Allpoints
participating ATM network.
More recently, we have started offering a managed services
solution to retailers and financial institutions that may prefer
to maintain ownership of their ATM fleets, but are looking for
us to handle some or all of the operational aspects associated
with operating and maintaining those fleets. Under these types
of arrangements, we will typically receive a fixed monthly
management fee in return for providing certain services,
including monitoring, maintenance, customer service, and cash
management. Additionally, we will typically charge a
per-transaction fee for any transaction processing services we
provide under these arrangements.
Our revenues are recurring in nature and historically have been
primarily derived from transaction fees, which are paid by
cardholders, and interchange fees, which are paid by the
cardholders financial institution for the use of the
devices serving customers and the applicable EFT network that
transmits data between the device and the cardholders
financial institution. We generate additional revenues by
branding our devices with the logos of leading national banks
and other financial institutions, and by collecting fees from
financial institutions that participate in the Allpoint
surcharge-free ATM network.
Our
Market Opportunity
We believe that the following industry factors result in an
increased market opportunity for us:
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the dollar volume of cash used in the United States economy is
large and growing;
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United States banks are seeking to increase customer touch
points in a cost-effective manner, and provide convenient,
surcharge-free access to ATMs;
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there has been a recent proliferation in the number of prepaid
debit cards, especially in the United States, that can be used
at our ATMs;
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recent increases in the fees charged by large United States
financial institutions for non-customers to use their ATMs have
provided us with an opportunity to increase the fees we charge
on our ATMs and increased the value proposition of our Allpoint
surcharge-free network;
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demand for automated consumer financial services beyond basic
banking services continues to increase;
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outsourcing by financial institutions of non-core operations
such as the management of their ATM fleets could provide us with
additional revenue opportunities; and
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the continuing under-penetration of ATMs in many international
markets.
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Our
Competitive Strengths
Leading Market Position. We are the
worlds largest non-bank owner of ATMs. As of
December 31, 2009, we operated over 33,400 ATMs, including
approximately 2,200 multi-function financial services kiosks,
located throughout the United States (including Puerto Rico),
the United Kingdom, and Mexico, of which 68% were owned by us.
We estimate that approximately 90% of the United States
population lives within five miles of one of the devices
operated by us. We believe the breadth of our global footprint
would be difficult to replicate and represents a significant
competitive advantage, as well as a barrier to entry for
potential competitors.
Leading ATM Debit Network. We have created one
of the largest ATM debit networks in the United States. Our
network leverages our customer relationships with well-known
retailers and issuers of debit and prepaid debit cards,
including leading national financial institutions and prepaid
debit card companies. We operate the Allpoint network, which we
believe is the largest surcharge-free network of ATMs in the
United States based on the number of participating ATMs. Our
network has enabled us to create new revenue streams, including
bank branding and surcharge-free network revenues. As a result
of the scale and reach of our network, we believe we benefit
from significant network effects as evidenced by our growth in
transactions
S-2
per device. For the three years ended December 31, 2009,
our worldwide monthly transactions per device grew from 729 to
966, representing a compounded annual growth rate of
approximately 15%.
Multi-Year Contracts with Leading Retail
Merchants. We have developed significant
relationships with leading national and regional retail
merchants within the United States (including Puerto Rico), the
United Kingdom, and Mexico. These merchants typically operate
high-traffic locations, which we have found to result in
increased transaction activity and profitability. Our long-term
retail merchant relationships can provide opportunities for us
to deploy devices in additional locations of those retailers
that do not currently have an ATM, and new locations opened by
those retailers in the future. Our contracts with our retail
merchant customers are typically multi-year arrangements with an
initial targeted term of seven years. As of December 31,
2009, our contracts with our top ten retail merchant customers
(based on 2009 revenues) had a weighted average remaining life
of 5.7 years. In addition, our top ten retail merchant
customers have worked with us, including the businesses we have
acquired, for an average of over nine years and eight of these
contracts have been renewed or extended since they were
originally acquired. We believe our retail merchant customers
value our high level of service, our
24-hour per
day monitoring and accessibility, and that our devices in the
United States are on-line and able to serve customers an average
of 99.1% of the time.
Proprietary Transaction Processing
Platform. We believe that our proprietary EFT
transaction processing platform sets us apart from our
competitors. Our platform manages the transaction processing
services to our network of devices as well as ATMs owned and
operated by third parties, substantially reducing the
incremental cost to process a transaction. Our transaction
processing platform also gives us the ability to control the
content of the information appearing on the screens of our
devices as well as those devices that we process on behalf of
financial institutions and retailers.
Recurring and Stable Revenues and Operating Cash
Flows. The long-term contracts that we enter into
with our retail merchant partners provide us with relatively
stable, recurring revenue streams. Additionally, our branding
arrangements and surcharge-free network contracts provide us
with additional revenues under long-term contracts that are
generally not based on the number of transactions per device.
For the year ended December 31, 2009, we derived
approximately 98% of our total revenues from recurring
transactions, branding, and surcharge-free fees, as well as
other access fees generated through the provision of additional
automated consumer financial services. Our recurring and stable
revenue base, relatively low and predictable maintenance capital
expenditure requirements, and minimal working capital
requirements, allow us to generate operating cash flows to
service our indebtedness and invest in future growth initiatives.
Efficient, Scalable Infrastructure and
Operations. We believe the size of our ATM
network combined with our operating infrastructure allows us to
drive substantial economies of scale. Our infrastructure allows
us to expand our operations without proportionally increasing
our fixed and semi-fixed costs. The scale of our operations
provides us with a competitive advantage in operating our own
fleet, negotiating with third-party service providers, acquiring
new ATM portfolios, and providing cost effective managed
services solutions to financial institutions and large
retailers. We believe that the operating efficiencies that
result from our scale provide us with a significant cost
advantage over our competitors. Our ATM operating gross profit
margin (exclusive of depreciation, accretion and amortization)
has increased from 22.9% in 2007 to 30.9% in 2009.
Experienced Management Team. Our management
team has significant financial services, network, and payment
processing-related experience. Our team is led by Steven A.
Rathgaber, our recently hired Chief Executive Officer, who has
over 32 years of broad payment product and network
experience. Our management team has augmented the organic growth
of our business by successfully identifying and integrating a
number of acquired businesses, both in the United States and
internationally, that have expanded our network and the products
and services we offer. We believe the strength and expertise of
our management team helps us attract new retail merchant
customers and provides us with increased acquisition, bank
branding, and managed services opportunities, thereby
contributing significantly to our growth.
Our
Growth Strategy
Our growth strategy is to expand and enhance our position as a
leading provider of automated consumer financial services in the
United States, the United Kingdom and Mexico; to leverage our
existing ATM
S-3
network with products and services that increase our revenues
per ATM; to become a significant provider of managed services to
financial institutions and retailers with significant ATM and
financial services kiosk networks; and to further expand our
network and service offerings into select international markets.
In order to execute this strategy, we will endeavor to:
Expand our Network of Devices with Leading
Merchants. We believe that we have opportunities
to further expand the number of ATMs and financial services
kiosks that we own
and/or
operate with leading merchants. With respect to our existing
merchants, we have two principal opportunities to increase the
number of deployed devices: first, by deploying devices in
existing merchant locations that currently do not have a device,
but where consumer traffic volumes and anticipated returns
justify installing a device; and second, as our merchants open
new locations, by installing devices in those locations. With
respect to new merchant customers, we believe our expertise,
national footprint, strong record of customer service, and
significant scale position us to successfully market to, and
enter into long-term contracts with, additional leading national
and regional merchants.
Expand our Relationships with Leading Financial
Institutions. We believe we are well-positioned
to work with financial institutions to fulfill many of their ATM
and automated consumer financial services requirements. Our
services currently offered to financial institutions include
branding our ATMs with their logos and providing surcharge-free
access to their customers, as well as managing their off-premise
ATMs (i.e., ATMs not located in a bank branch). In addition, our
EFT transaction processing capabilities provide us with the
ability to provide customized control over the content of the
information appearing on the screens of our ATMs and ATMs we
process for financial institutions, which we believe increases
the types of products and services that we are able to offer to
financial institutions. In the United Kingdom, our armored
courier operation, coupled with our existing in-house
engineering and EFT transaction processing capabilities,
provides us with a full suite of services that we can offer to
financial institutions in that market.
Continue to Capitalize on Surcharge-Free Network and Prepaid
Debit Card Opportunities. We plan to continue
pursuing opportunities with respect to our surcharge-free
network offerings, where financial institutions pay us to allow
their customers surcharge-free access to our ATM network on a
non-exclusive basis. We believe surcharge-free arrangements will
enable us to increase transaction counts and profitability on
our existing machines. We also plan to pursue additional
opportunities to work with financial institutions that issue and
sponsor prepaid debit card programs. We believe that these
programs represent significant transaction growth opportunities
for us, as many users of prepaid debit cards do not have bank
accounts, and consequently, have historically not been able to
utilize our existing ATMs and financial services kiosks.
Pursue International Growth Opportunities. We
have invested significant amounts of capital in the
infrastructure of our United Kingdom and Mexico operations, and
we plan to continue to selectively increase the number of our
ATMs in these markets by increasing the number of machines
deployed with our existing customer base, as well as adding new
merchant customers. Additionally, we plan to expand our
operations into selected international markets where we believe
we can leverage our operational expertise, EFT transaction
processing platform, and scale advantages. In particular, we
expect to target high growth, emerging markets where cash is the
predominant form of payment, where off-premise ATM penetration
is relatively low, and where we believe significant financial
institution
and/or
retail managed services opportunities exist. We believe Central
and Eastern Europe, Central and South America, and the
Asia-Pacific regions are examples of international markets that
meet these criteria.
Develop and Provide Additional Automated Consumer Financial
Services. Service offerings by ATMs have
continued to evolve over time. Certain ATM models are now
capable of providing numerous automated consumer financial
services, including bill payments, check cashing, remote deposit
capture, and money transfers. Certain of our devices are capable
of, and currently provide, these types of services. We believe
these non-traditional consumer financial services offered by our
devices, and other machines that we or others may develop,
provide us with additional growth opportunities as retailers and
financial institutions seek to provide additional convenient
automated financial services to their customers.
S-4
The
Offering
|
|
|
Common stock offered by the selling stockholders |
|
6,000,000 shares |
|
Common stock to be outstanding after the offering |
|
41,658,756 shares |
|
Overallotment option |
|
The selling stockholders have granted the underwriters the right
to purchase up to an additional 900,000 shares to cover
overallotments, if any, within 30 days from the date of
this prospectus. |
|
Use of proceeds |
|
We will not receive any of the proceeds from this offering. |
|
Dividend policy |
|
We do not currently and do not expect to pay dividends on our
common stock for the foreseeable future. |
|
NASDAQ Global Market symbol for our common stock |
|
CATM |
|
Risk Factors |
|
Investing in our common stock involves risks. See Risk
Factors beginning on
page S-9
of this prospectus supplement for a discussion of factors that
you should carefully consider before deciding to invest in
shares of our common stock. |
The number of shares of common stock outstanding after this
offering is based on 41,658,756 shares of common stock
outstanding as of March 15, 2010 and excludes:
|
|
|
|
|
3,763,487 shares of common stock issuable upon the exercise
of stock options outstanding as of March 15, 2010, at a
weighted average exercise price of $8.44; and
|
|
|
|
584,777 shares of common stock reserved for issuance under
our 2007 equity incentive compensation plan.
|
Unless otherwise indicated, all information in this prospectus
supplement assumes no exercise of the underwriters
overallotment option.
S-5
Summary
Selected Financial Data
The following tables set forth a summary of selected historical
financial data derived from our consolidated financial
statements. The financial information presented below is not
necessarily indicative of results to be expected in any future
period. Future results could differ materially from historical
levels due to many factors, including, but not limited to, those
discussed in Risk Factors in this prospectus
supplement. You should read the information set forth below in
conjunction with all information included and incorporated by
reference in this prospectus supplement, including our
historical consolidated financial statements and notes to those
statements from our Annual Report on
Form 10-K
for the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except share and per share information, number
of devices, and transactions per device)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
365,322
|
|
|
$
|
475,800
|
|
|
$
|
483,138
|
|
Total revenues
|
|
|
378,298
|
|
|
|
493,014
|
|
|
|
493,353
|
|
Gross profit (exclusive of depreciation, accretion, and
amortization
expense)(1)
|
|
|
84,651
|
|
|
|
114,473
|
|
|
|
148,879
|
|
Income (loss) from
operations(2)
|
|
|
7,158
|
|
|
|
(38,118
|
)
|
|
|
43,000
|
|
Net income
(loss)(2)
|
|
|
(27,857
|
)
|
|
|
(72,397
|
)
|
|
|
5,771
|
|
Net income (loss) attributable to controlling interests and
available to common
stockholders(2)(3)
|
|
|
(63,753
|
)
|
|
|
(71,375
|
)
|
|
|
5,277
|
|
Share and Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share
|
|
$
|
(4.13
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
0.13
|
|
Basic weighted average shares outstanding
|
|
|
15,423,744
|
|
|
|
38,800,782
|
|
|
|
39,244,057
|
|
Diluted weighted average shares outstanding
|
|
|
15,423,744
|
|
|
|
38,800,782
|
|
|
|
39,896,366
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
13,439
|
|
|
$
|
3,424
|
|
|
$
|
10,449
|
|
Total assets
|
|
|
590,737
|
|
|
|
480,828
|
|
|
|
460,404
|
|
Total long-term debt and capital lease obligations, including
current portion
|
|
|
310,744
|
|
|
|
347,181
|
|
|
|
307,287
|
|
Total stockholders equity (deficit)
|
|
|
106,720
|
|
|
|
(19,750
|
)
|
|
|
(1,290
|
)
|
Other Financial Data (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(4)
|
|
$
|
60,582
|
|
|
$
|
81,939
|
|
|
$
|
110,376
|
|
Capital expenditures, excluding
acquisitions(5)
|
|
|
70,959
|
|
|
|
60,133
|
|
|
|
26,031
|
|
Interest expense, net
|
|
|
29,523
|
|
|
|
31,090
|
|
|
|
30,133
|
|
Operating Data (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of transacting Company-owned
devices(6)
|
|
|
20,732
|
|
|
|
22,215
|
|
|
|
22,871
|
|
Average number of total transacting
devices(6)
|
|
|
28,277
|
|
|
|
32,856
|
|
|
|
33,059
|
|
Total transactions
|
|
|
247,270
|
|
|
|
354,391
|
|
|
|
383,323
|
|
Total cash withdrawal transactions
|
|
|
166,248
|
|
|
|
228,306
|
|
|
|
244,378
|
|
Amounts per device per month:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
1,076
|
|
|
$
|
1,207
|
|
|
$
|
1,218
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and
amortization)(7)(8)
|
|
|
829
|
|
|
|
921
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross
profit(9)
|
|
$
|
247
|
|
|
$
|
286
|
|
|
$
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (exclusive of depreciation,
accretion, and
amortization)(7)
|
|
|
22.9
|
%
|
|
|
23.7
|
%
|
|
|
30.9
|
%
|
Total transactions
|
|
|
729
|
|
|
|
899
|
|
|
|
966
|
|
Total cash withdrawal transactions
|
|
|
490
|
|
|
|
579
|
|
|
|
616
|
|
|
|
|
(1) |
|
Gross Profit amounts exclude depreciation,
accretion, and amortization expense of $43.1 million,
$52.4 million, and $51.5 million for the years ended
December 31, 2007, 2008 and 2009, respectively. |
|
|
|
(2) |
|
For the year ended December 31, 2008, amounts include a
$50.0 million goodwill impairment charge associated with
our United Kingdom operations. |
S-6
|
|
|
(3) |
|
For the year ended December 31, 2007, net loss attributable
to controlling interests and 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,
and the accretion of issuance costs associated with the
Series B redeemable convertible preferred stock. |
|
(4) |
|
Adjusted EBITDA represents net income (loss) before interest
expense, income tax expense, and depreciation, accretion and
amortization expense, as well as adjustments for certain
non-cash and non-recurring items, as defined in our revolving
credit facility. For the year ended December 31, 2008,
Adjusted EBITDA also excluded a $50.0 million impairment
charge of the goodwill associated with our United Kingdom
operation. This charge has been excluded as goodwill and
associated write-downs would be company-specific and management
believes the inclusion of such a charge in Adjusted EBITDA would
not contribute to its understanding of the operating results and
effectiveness of its business. Adjusted EBITDA, as we define it,
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 (U.S. GAAP). Adjusted EBITDA
should not be considered in isolation or as a substitute for
operating income, net income, cash flows from operating,
investing, and financing activities or other income or cash flow
statement data prepared in accordance with U.S. GAAP. |
|
|
|
We believe Adjusted EBITDA is useful to an equity investor in
evaluating our operating performance because: |
|
|
|
|
|
it is used by investors to measure a companys operating
performance without regard to items such as interest expense,
depreciation, accretion, and amortization, which 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; and
|
|
|
|
it helps investors to more meaningfully evaluate and compare the
results of our operations from period to period by removing the
impact of our capital structure and asset base from our
operating results.
|
|
|
|
|
|
Our management uses Adjusted EBITDA: |
|
|
|
|
|
as a measure of operating performance because it assists them in
comparing our performance on a consistent basis as it removes
the impact of our capital structure and asset base from our
operating results;
|
|
|
|
as a measure for planning and forecasting overall expectations
and for evaluating actual results against such expectations;
|
|
|
|
to assess compliance with financial ratios and covenants
included in our credit agreement;
|
|
|
|
in communications with lenders concerning our financial
performance; and
|
|
|
|
as a performance measure by which our management is evaluated
and compensated.
|
|
|
|
|
|
Management compensates for the limitations of Adjusted EBITDA as
an analytical tool by reviewing the comparable U.S. GAAP
measures, understanding the differences between the measures,
and incorporating this knowledge into managements
decision-making process. |
|
|
|
The following table provides a reconciliation of Adjusted EBITDA
to net income (loss), its most directly comparable
U.S. GAAP financial measure, for each of the periods
presented: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Net income (loss) attributable to controlling interests
|
|
$
|
(27,481
|
)
|
|
$
|
(71,375
|
)
|
|
$
|
5,277
|
|
Income tax expense
|
|
|
4,477
|
|
|
|
989
|
|
|
|
4,245
|
|
Interest expense, including amortization of deferred financing
costs and bond discounts
|
|
|
31,164
|
|
|
|
33,197
|
|
|
|
32,528
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
50,003
|
|
|
|
|
|
Amortization expense
|
|
|
18,870
|
|
|
|
18,549
|
|
|
|
18,916
|
|
Depreciation and accretion expense
|
|
|
26,781
|
|
|
|
39,164
|
|
|
|
39,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
53,811
|
|
|
$
|
70,527
|
|
|
$
|
100,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
$
|
2,485
|
|
|
$
|
5,807
|
|
|
$
|
6,016
|
|
Other expense
|
|
|
(626
|
)
|
|
|
93
|
|
|
|
(982
|
)
|
Noncontrolling interest
|
|
|
(169
|
)
|
|
|
(1,633
|
)
|
|
|
(1,281
|
)
|
Stock-based compensation expense
|
|
|
1,050
|
|
|
|
3,516
|
|
|
|
4,620
|
|
Adjustments to cost of ATM operating
revenues(a)
|
|
|
3,236
|
|
|
|
2,911
|
|
|
|
154
|
|
Adjustments to selling, general, and administrative
expenses(a)
|
|
|
795
|
|
|
|
718
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
60,582
|
|
|
$
|
81,939
|
|
|
$
|
110,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Adjustments to cost of ATM operating revenues for 2007 and 2008
primarily consisted of costs associated with the conversion of
our ATMs over to our in-house EFT processing platform and, in
2008,
start-up
costs associated with our in-house armored operation in the
United Kingdom. Adjustments to selling, general, and
administrative expenses primarily consisted of litigation
settlement costs in 2007, the write-off of certain
acquisition-related costs in 2008, and the recognition of
$1.2 million in severance costs associated with the
departure of our former Chief Executive Officer in 2009. |
|
|
|
(5) |
|
Capital expenditure amounts for Cardtronics Mexico are reflected
gross of any noncontrolling interest amounts. |
|
(6) |
|
The historical 2007 average number of transacting Company-owned
devices and total transacting devices include the devices
acquired in our acquisition of the 7-Eleven, Inc. financial
services business beginning from the acquisition date
(July 20, 2007) and continuing through the end of the
year. |
|
(7) |
|
Excludes effects of depreciation, accretion, and amortization
expense of $43.1 million, $52.4 million, and
$51.5 million for the years ended December 31, 2007,
2008, and 2009, 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, $133, and $130
for the years ended December 31, 2007, 2008, and 2009,
respectively. Additionally, our ATM operating gross profit
margin would have been 11.1%, 12.7%, and 20.2% for the years
ended December 31, 2007, 2008, and 2009, respectively. |
|
(8) |
|
The decline in the Cost of ATM operating revenues per ATM per
month from 2008 to 2009 was due to foreign currency exchange
rate movements between the two periods, lower vault cash
interest costs, and other operating cost reductions as a result
of better pricing terms under the renegotiated contracts with
our maintenance and armored service providers. |
|
(9) |
|
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 and
other ATM-related services are not included. |
S-8
RISK
FACTORS
Investing in our common stock involves risks. You should
carefully considering the risks described below together with
the other information contained in, or incorporated by reference
into, this prospectus supplement, before you decide to buy the
common stock offered by this prospectus supplement. We believe
that the risks and uncertainties described below are the
material risks and uncertainties facing us. Additional risks and
uncertainties that we are unaware of, or that we currently deem
immaterial, also may become important factors that affect us. If
any of the following risks occur, our business, financial
condition, results of operations or future growth prospects
could be materially and adversely affected. In that case, the
trading price of our common stock could decline, and you may
lose some or all of your investment.
Risks
Related to Our Business
We
depend on ATM and financial services transaction fees for
substantially all of our revenues, and our revenues and profits
would be reduced by a decline in the usage of our ATMs and
financial services kiosks or a decline in the number of devices
that we operate, whether as a result of global economic
conditions or otherwise.
Transaction fees charged to cardholders and their financial
institutions for transactions processed on our ATMs and
financial services kiosks, including surcharge and interchange
transaction fees, have historically accounted for most of our
revenues. We expect that transaction fees, including fees we
receive through our bank branding and surcharge-free network
offerings, will continue to account for a substantial majority
of our revenues for the foreseeable future. Consequently, our
future operating results will depend on (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 devices, (iv) continued usage of our devices by
cardholders, and (v) our ability to continue to expand our
surcharge-free and other consumer financial services offerings.
If alternative technologies to our services are successfully
developed and implemented, we will likely experience a decline
in the usage of our devices. Surcharge fees, which are
determined through negotiations between us and our merchant
partners, could be reduced over time. Further, growth in
surcharge-free ATM networks and widespread consumer bias toward
these networks could adversely affect our revenues, even though
we maintain our own surcharge-free offerings. Many of our
devices are utilized by consumers that frequent the retail
establishments in which our devices are located, including
convenience stores, malls, grocery stores, and other large
retailers. If there is a significant slowdown in consumer
spending, and the number of consumers that frequent the retail
establishments in which we operate our devices declines
significantly, the number of transactions conducted on those
devices, and the corresponding transaction fees we earn, may
also decline.
Although we experienced an increase in our monthly ATM operating
revenues per device during 2009, we cannot assure you that our
transaction revenues will not decline in the future. A decline
in usage of our devices by cardholders or in the levels of fees
received by us in connection with this usage, or a decline in
the number of devices that we operate, would have a negative
impact on our revenues and would limit our future growth.
In the
United States, the proliferation of payment options other than
cash, including credit cards, debit cards, and prepaid debit
cards, could result in a reduced need for cash in the
marketplace and a resulting decline in the usage of our
ATMs.
The United States has seen a shift in consumer payment trends
since the late 1990s, 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, 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 these
cards. According to the Nilson Report from 2003 to 2008, cash
transaction counts declined from approximately 41% of all
payment transactions in 2003 to approximately 34% in 2008, with
declines also seen in checks usage as credit and debit card
transactions increased. However, in terms of absolute dollar
value, the volume of cash used in payment transactions increased
from $1.3 trillion
S-9
in 2003 to $1.6 trillion in 2008. Furthermore, during 2009, we
saw an increase in the number of cash withdrawal transactions
conducted on our domestic ATMs, in part due to the proliferation
of prepaid debit cards, thus implying a continued demand for
cash and convenient, reliable access to that cash. Regardless,
the continued growth in electronic payment methods could result
in a reduced need for cash in the marketplace and ultimately, a
decline in the usage of our ATMs.
Interchange
fees, which comprise a substantial portion of our transaction
revenues, may be lowered at the discretion of the various EFT
networks through which our transactions are routed, or through
potential regulatory changes, thus reducing our future
revenues.
Interchange fees, which represented approximately 31% of our
total ATM operating revenues for the year ended
December 31, 2009, are set by the various EFT networks
through which transactions conducted on our devices are routed.
Interchange fees are set by each network and typically vary from
one network to the next. Additionally, certain EFT networks,
primarily Visa and MasterCard, have recently increased their
transaction fees charged to ATM operators for transactions
routed through their networks, thereby offsetting a portion of
the interchange fees received by the ATM operators. Accordingly,
if some or all of the networks through which our ATM
transactions are routed were to reduce the interchange rates
paid to us or increase their transaction fees charged to us for
routing transactions across their network, or both, our future
transaction revenues and related profits would decline.
Additionally, some federal officials have expressed concern that
consumers using an ATM may not be aware that in addition to
paying the surcharge fee that is disclosed to them at the ATM,
their financial institution may also assess an additional fee to
offset any interchange fee assessed to the financial institution
with regard to that consumers transaction. Any potential
future legislation that affects the amount of interchange fees
that can be assessed on a transaction may adversely affect our
revenues. Historically, we have been successful in offsetting
the effects of any such reductions in net interchange fees
received by us through changes in our business. However, we can
give no assurances that we will be successful in offsetting the
effects of any future reductions in the interchange fees
received by us, if and when they occur.
Deterioration
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
devices. Additionally, we rely on a small number of financial
institution partners to provide us with the cash that we
maintain in our Company-owned devices. Turmoil in the global
credit markets in the future, such as the one recently
experienced, may have a negative impact on those financial
institutions and our relationships with them. In particular, if
the liquidity positions of the financial institutions with which
we conduct business deteriorate significantly, these
institutions may be unable to perform under their existing
agreements with us. If these defaults were to occur, we may not
be successful in our efforts to identify new branding partners
and cash providers, and the underlying economics of any new
arrangements may not be consistent with our current
arrangements. Furthermore, if our existing bank branding
partners or cash providers are acquired by other institutions
with assistance from the Federal Deposit Insurance Corp.
(FDIC), or placed into receivership by the FDIC, it
is possible that our agreements may be rejected in part or in
their entirety. If these situations were to occur, and we were
unsuccessful in our efforts to enter into similar agreements,
our future financial results would be negatively impacted.
Further
consolidations within the banking industry may impact our
branding relationships as existing branding customers are
acquired by other, more stable financial institutions, some of
which may not be existing branding customers.
In recent years, an unprecedented amount of consolidation
unfolded within the United States banking industry. For example,
Washington Mutual, which had over 950 ATMs branded with us, was
acquired by JPMorgan Chase, an existing branding customer of
ours, in 2008. Additionally, Wachovia, which had 15
high-transaction ATMs branded with us, was acquired by Wells
Fargo, a bank that was not an existing branding
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customer of ours, at the end of 2008. Furthermore, in 2009,
Sovereign Bank, which currently has over 1,150 ATMs branded with
us, was acquired by Banco Santander, one of the largest banks in
Europe. Although our branding contracts were largely unaffected
by these transactions, we cannot assure you that they will
remain unaffected by future consolidations that may occur within
the banking industry, and in particular, our branding partners.
We
rely on third parties to provide us with the cash we require to
operate many of our devices. If these third parties were unable
or unwilling to provide us with the necessary cash to operate
our devices, we would need to locate alternative sources of cash
to operate our devices or we would not be able to operate our
business.
In the United States, we rely on Bank of America, N.A.
(Bank of America), Wells Fargo, N.A. (Wells
Fargo), and US Bancorp (US Bank) to
provide us with the cash that we use in over 18,000 of our
domestic devices where cash is not provided by the merchant
(vault cash). In the United Kingdom, we rely on
Alliance & Leicester Commercial Bank
(ALCB) to provide us with the vault cash that we use
in over 2,500 of our ATMs. Finally, S.A. Institución de
Banca Multiple (Bansi) is our sole vault cash
provider in Mexico and provides us with the cash that we use in
over 2,300 of our ATMs in that market. Under our vault cash
rental agreements with these providers, we pay a vault cash
rental fee based on the total amount of vault cash that we are
using at any given time. As of December 31, 2009, the
balance of vault cash held in our United States, United Kingdom,
and Mexico ATMs and financial services kiosks was approximately
$895.4 million, $194.9 million, and
$41.3 million, respectively.
Under our vault cash rental agreements, at all times during this
process, beneficial ownership of the cash is retained by the
cash providers, and we have no access or right to the cash
except for those ATMs that are serviced by our wholly-owned
armored courier operation in the United Kingdom. While our
armored courier operation has physical access to the cash loaded
in those machines, beneficial ownership of that cash remains
with the cash provider at all times.
Our existing vault cash rental agreements expire at various
times from March 2011 through December 2013. However, each
provider has the right to demand the return of all or any
portion of its cash at any time upon the occurrence of certain
events beyond our control, including certain bankruptcy events
of us or our subsidiaries, or a breach of the terms of our cash
provider agreements. Other key terms of our agreements include
the requirement that the cash providers provide written notice
of their intent not to renew. Such notice provisions typically
require a minimum of 180 to 360 days notice prior to
the actual termination date. If such notice is not received,
then the contracts will typically automatically renew for an
additional one-year period. Additionally, our contract with one
of our vault cash providers contains a provision that allows the
provider to modify the pricing terms contained within the
agreement at any time with 90 days prior written notice.
However, in the event both parties do not agree to the pricing
modifications, then either party may provide 180 days prior
written notice of its intent to terminate.
If our vault cash providers were to demand return of their cash
or terminate their arrangements with us and remove their cash
from our devices, or if they fail to provide us with cash as and
when we need it for our operations, our ability to operate our
devices would be jeopardized, and we would need to locate
alternative sources of vault cash. In the event this was to
happen, the terms and conditions of the new or renewed
agreements could potentially be less favorable to us, which
would negatively impact our results of operations.
We
derive a substantial portion of our revenue from devices placed
with a small number of merchants. If one or more of our top
merchants were to cease doing business with us, or to
substantially reduce its dealings with us, our revenues could
decline.
For the year ended December 31, 2009, we derived 49.0% of
our total revenues from ATMs and financial services kiosks
placed at the locations of our five largest merchant customers.
For the year ended December 31, 2009, our top five
merchants (based on our total revenues) were 7-Eleven, Inc.
(7-Eleven), CVS Caremark Corporation
(CVS), Walgreen Co. (Walgreens), Target
Corporation (Target), and Hess Corporation
(Hess). 7-Eleven, which is the single largest
merchant customer in our portfolio, comprised approximately
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31% of our total revenues for the year ended December 31,
2009. Accordingly, a significant percentage of our future
revenues and operating income will be dependent upon the
successful continuation of our relationship with 7-Eleven as
well as our other top merchants.
The loss of any of our largest merchants or a decision by any
one of them to reduce the number of our devices placed in their
locations would result in a decline in our revenues.
Furthermore, if their financial condition were to deteriorate in
the future and, as a result, one of more of these merchants was
required to close a significant number of their domestic store
locations, our revenues would be significantly impacted.
Additionally, these merchants may elect not to renew their
contracts when they expire. The contracts we have with our top
five merchants have expiration dates of July 20, 2017;
August 22, 2012; December 31, 2013; January 31,
2016; 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 enters bankruptcy proceedings and rejects its contract
with us, fails to renew its contract upon expiration, or if the
renewal terms with any of them are less favorable to us than
under our current contracts, it could result in a decline in our
revenues and gross profits.
In May 2009, we settled a long-standing lawsuit with one of our
merchant customers who was the seventh and fifth largest
merchant customer in our portfolio (based on revenues) during
the years ended December 31, 2009 and 2008, respectively.
In accordance with the settlement, our placement agreement with
this merchant and the related bank branding agreement associated
with those ATMs were terminated. As a result of this loss, our
revenues were negatively impacted during 2009 and will continue
to be negatively impacted in the future. Any additional losses
of our large merchant customers could result in further declines
in our revenues and gross profits.
A
substantial portion of our revenues and operating profits are
generated by our merchant relationship with
7-Eleven.
Accordingly, if 7-Elevens financial condition deteriorates
in the future and it is required to close some or all of its
store locations, or if our placement agreement with 7-Eleven
expires or is terminated, our future financial results would be
significantly impaired.
7-Eleven is the single largest merchant customer in our
portfolio, representing approximately 31% of our total revenues
for the year ended December 31, 2009. 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-Elevens 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 placement agreement
with 7-Eleven has an initial term of ten 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 placement agreement
executed with 7-Eleven contains certain terms and conditions
that, if we fail to meet 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 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 and the full year
of 2008, our results of operations were negatively impacted by a
higher percentage of downtime experienced by our ATMs in the
United Kingdom as
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a result of certain third-party service-related issues. If such
disruption of service should recur, our relationships with the
affected merchants could be materially 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.
Additionally, in February 2010, Mt. Vernon Money Center
(MVMC), one of our third-party armored service
providers in the Northeast, ceased all cash replenishment
operations for its customers following the arrest on charges of
bank fraud of its founder and principal owner. Following that
arrest, it is our understanding that the FBI seized all vault
cash in the possession of MVMC. A few days later, the
U.S. District Court in the Southern District of New York
(the Court) appointed a receiver (the
Receiver) to, among other things, seize all of the
other assets in the possession of MVMC. While we currently do
not believe that this event will have a material adverse affect
on our operations, we were required to convert over 1,000 ATMs
that were being serviced by MVMC to another third-party armored
service provider, resulting in a minor amount of downtime being
experienced by those ATMs. Further, based upon the
Receivers report dated March 1, 2010, and filed with
the Court on that same date, it appears that some of the vault
cash that was delivered to MVMC on our behalf was either
commingled with vault cash belonging to MVMCs other
customers or was misappropriated by MVMC. Regardless, we
currently believe that our existing insurance policies will
cover any cash losses that we may incur resulting from this
incident, less any deductible payments required to be paid by us
under such policies. If it is ultimately determined that we have
suffered cash losses in connection with this incident, the
timing of recognition of such losses and the related insurance
reimbursement amounts may not coincide.
If we,
our transaction processors, our EFT networks or other service
providers experience system failures, the products and services
we provide could be delayed or interrupted, which would harm our
business.
Our ability to provide reliable service largely depends on the
efficient and uninterrupted operations of our EFT transaction
processing platform, third-party transaction processors,
telecommunications network systems, and other service providers.
Accordingly, any significant interruptions could severely harm
our business and reputation and result in a loss of revenues.
Additionally, if any 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.
The
armored transport business exposes us to additional risks beyond
those currently experienced by us in the ownership and operation
of ATMs.
During 2008, we implemented our own armored courier operation in
the United Kingdom. We are currently providing armored services
to over 780 of our ATMs in that market and expect to transition
approximately 800 additional locations over to our operation
during 2010 by opening a second depot in that market. The
armored transport business exposes us to significant risks,
including the potential for
cash-in-transit
losses, as well as claims for personal injury, wrongful death,
workers compensation, punitive damages, and general
liability. While we will seek to maintain appropriate levels of
insurance to adequately protect us from these risks, there can
be no assurance that we will avoid significant future claims or
adverse publicity related thereto. Furthermore, there can be no
assurance that our insurance coverage will be adequate to cover
potential liabilities or that insurance coverage will remain
available at costs that are acceptable to us. The availability
of quality and reliable insurance coverage is an important
factor in our ability to successfully operate this aspect of our
operations. A successful claim brought against us for which
coverage is denied or that is in excess of our insurance
coverage could have a material adverse effect on our business,
financial condition and results of operations.
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Security
breaches could harm our business by compromising customer
information and disrupting our transaction processing services,
thus damaging our relationships with our merchant customers and
exposing us to liability.
As part of our transaction processing services, we
electronically process and transmit sensitive cardholder
information. In recent years, companies that process and
transmit this information have been specifically and
increasingly targeted by sophisticated criminal organizations in
an effort to obtain the information and utilize it for
fraudulent transactions. Unauthorized access to our computer
systems, or those of our third-party service providers, could
result in the theft or publication of the information or the
deletion or modification of sensitive records, and could cause
interruptions in our operations. While the security risks
outlined above are mitigated by the use of encryption and other
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 transaction
processing services, causing noncompliance 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 EFT transaction processing facilities could harm
our business and our relationships with our merchant
customers.
An operational failure in our EFT transaction processing
facilities could harm our business and damage our relationships
with our merchant customers. Damage or destruction that
interrupts our transaction 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 devices would be unable to process
transactions. In addition, a significant interruption of service
could have a negative impact on our reputation and could cause
our present and potential merchant customers to choose
alternative service providers.
Errors
or omissions in the settlement of merchant funds could damage
our relationships with our merchant customers and expose us to
liability.
We are responsible for maintaining accurate bank account
information for 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.
The
inaccurate settlement of funds between the various parties to
our ATM transactions could harm our business and our
relationships with our merchants.
As of December 31, 2009, we had transitioned a majority of
our Company- and merchant-owned devices from third-party
processors to our own EFT transaction processing platform, with
the exception of roughly 3,600 ATMs that were under contract
with a third-party processing organization through the end of
2009. These remaining ATMs are scheduled to be converted over to
our own EFT transaction processing platform by the second
quarter of 2010. If not performed properly, the processing of
transactions conducted on our devices could result in the
inaccurate settlement of funds between the various parties to
those transactions and expose us to increased liability.
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Changes
in interest rates could increase our operating costs by
increasing interest expense under our credit facilities and our
vault cash rental costs.
Interest on amounts borrowed under our revolving and swing line
credit facilities is based on floating interest rates, and our
vault cash rental expense is based on market interest rates. 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, Wells Fargo, and US Bank in the
United States and ALCB in the United Kingdom. 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 our vault
cash interest rate risk related to our operations in the United
States and in the United Kingdom through December 31,
2013, 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 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 7A. Quantitative and Qualitative Disclosures About
Market Risk Disclosure about Market Risk
Interest Rate Risk in our 2009
Form 10-K.
We
maintain a significant amount of cash within our Company-owned
devices, which is subject to potential loss due to theft or
other events, including natural disasters.
As of December 31, 2009, there was approximately
$1.1 billion in vault cash held in our domestic and
international devices. 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. We typically require that our cash service
providers maintain adequate insurance coverage in the event cash
losses occur as a result of misconduct or negligence on the part
of such providers. However, we also maintain our own insurance
policies to cover a significant portion of any losses that may
occur that may ultimately not be covered by the insurance
policies maintained by our service providers. In the event we
incur losses that are covered by our insurance carriers, we will
be required to fund a portion of those losses through the
payment of any related deductible amounts under those 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, and have
requested on a limited basis, that we remove ATMs from store
locations that have suffered damage as a result of 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. Our principal competition comes from independent
ATM companies in the United States and the United Kingdom, and
national and regional financial institutions in the United
Kingdom and Mexico. Additionally, we experience competition from
national and regional financial institutions in the United
States that are not currently bank branding customers or members
of our Allpoint surcharge-free ATM network. Our competitors
could prevent us from obtaining or maintaining desirable
locations for our devices, cause us to reduce the surcharge
revenue generated by transactions at our devices, or cause us to
pay higher merchant fees, thereby reducing our profits. In
addition to our current competitors, additional competitors may
enter the market. We can offer no assurance that we will be able
to compete effectively against these current and future
competitors. Increased competition could result in transaction
fee reductions, reduced gross margins and loss of market share.
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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 Allpoint 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 Allpoint
is dependent upon the participation by our merchant customers in
such network. In the event a significant number of our merchants
elect not to participate Allpoint, the benefits and
effectiveness of that network would be diminished, thus
potentially causing some of the participating financial
institutions to not renew their agreements with us, and thereby
negatively impacting our financial results.
We may
be unable to integrate our future acquisitions in an efficient
manner and inefficiencies would increase our cost of operations
and reduce our profitability.
We have been an active business acquirer both in the United
States and internationally, and may continue to be active in the
future. The acquisition and integration of businesses involves a
number of risks. The core risks are in the areas of valuation
(negotiating a fair price for the business based on inherently
limited due diligence) and integration (managing the complex
process of integrating the acquired companys people,
products, technology and other assets so as to realize the
projected value of the acquired company and the synergies
projected to be realized in connection with the acquisition).
The process of integrating operations could cause an
interruption of, or loss of momentum in, the activities of one
or more of our combined businesses and the possible loss of key
personnel. The diversion of managements attention and any
delays or difficulties encountered in connection with
acquisitions and the integration of the two companies
operations could have an adverse effect on our business, results
of operations, financial condition or prospects.
In addition, acquired businesses may not achieve anticipated
revenues, earnings or cash flows. Any shortfall in anticipated
revenues, earnings or cash flows could require us to write down
the carrying value of the intangible assets associated with any
acquired company, which would adversely affect our reported
earnings. For example, during the year ended December 31,
2008, we recorded a $50.0 million impairment charge to
write down the value of the goodwill associated with our
investment in Bank Machine.
Since May 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. While we have not completed any significant
acquisitions since our July 2007 acquisition of the financial
services business of 7-Eleven, we expect to continue to evaluate
selected acquisition opportunities that complement our existing
network, some of which could be material. We currently
anticipate that any such 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, 2009, approximately 16% of our devices
were located in the United Kingdom and Mexico. Those devices
contributed 17.8% of our gross profits (exclusive of
depreciation, accretion, and amortization) for the year ended
December 31, 2009. We expect to continue to expand in the
United Kingdom
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and Mexico and potentially into other countries as opportunities
arise. However, our international operations are subject to
certain inherent risks, including:
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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;
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difficulties in complying with the different laws and
regulations in each country and jurisdiction in which we
operate, including unique labor and reporting laws;
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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;
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unanticipated political and social instability that may be
experienced in developing countries;
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rising crime rates in certain of the areas we operate in,
including increased incidents of crimes against store personnel
where our ATMs are located;
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difficulties in staffing and managing foreign operations,
including hiring and retaining skilled workers in those
countries in which we operate; and
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potential adverse tax consequences, including restrictions on
the repatriation of foreign earnings.
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Any of these factors could reduce the profitability and revenues
derived from our international operations and international
expansion. For example, during the latter half of 2008 and
during 2009, we incurred reduced revenues as a consequence of
the United States dollar strengthening relative to the British
pound and Mexican peso. Additionally, the recent political and
social instability in Mexico resulting from an increase in
drug-related violence could negatively impact the level of
transactions incurred on our existing devices in that market, as
well as our ability to successfully grow our business there.
Our
proposed expansion efforts into new international markets
involve unique risks and may not be successful.
We plan to continue expanding our operations internationally
with a focus on high growth emerging markets, such as those in
Central and Eastern Europe, Central and South America, and the
Asia-Pacific region. 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 revenues. While we
have had some success in deploying non-surcharging ATMs in
selected markets, 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.
In
2008, we recognized a goodwill impairment charge of
$50.0 million. If we experience additional impairments of
our goodwill or other intangible assets, we will be required to
record an additional charge to earnings, which may be
significant.
We have a large amount of goodwill and other intangible assets
and are required to perform periodic assessments for any
possible impairment for accounting purposes. As of
December 31, 2009, we had goodwill and other intangible
assets of $254.2 million, or 55.2% 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
S-17
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 year ended December 31, 2008, we recorded a
$50.0 million goodwill impairment charge. Additionally,
during each of the years ended December 2009 and 2008, we
recorded $0.4 million in net impairment charges associated
with intangibles related to our acquired merchant
contracts/relationships. Other impairment charges in the future
may also adversely affect our results of operations.
We
have a substantial amount of indebtedness, which may adversely
affect our cash flow and our ability to operate our business,
remain in compliance with debt covenants, and make payments on
our indebtedness.
As of December 31, 2009, we had outstanding indebtedness of
approximately $307.3 million, which represents 100.4% of
our total capitalization of $306.0 million. Our substantial
indebtedness could have important consequences to you. For
example, it could:
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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;
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require us to dedicate a substantial portion of our cash flow in
the future to pay principal and interest on our debt, which will
reduce the funds available for working capital, capital
expenditures, acquisitions, and other general corporate purposes;
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limit our flexibility in planning for and reacting to changes in
our business and in the industry in which we operate;
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make us more vulnerable to adverse changes in general economic,
industry and competitive conditions, and adverse changes in
government regulation; and
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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.
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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 or limit our ability to:
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sell or transfer property or assets;
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pay dividends on or redeem or repurchase stock;
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merge into or consolidate with any third party;
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create, incur, assume or guarantee additional indebtedness;
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create certain liens;
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make investments;
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engage in transactions with affiliates;
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S-18
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issue or sell preferred stock of restricted
subsidiaries; and
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enter into sale and leaseback transactions.
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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. While we currently have the ability to borrow the full
amount available under our credit agreement, as a result of
these ratios and limits, we may be limited in the manner in
which we conduct our business in the future and may be unable to
engage in favorable business activities or finance our future
operations or capital needs. Accordingly, these restrictions may
limit our ability to successfully operate our business and
prevent us from fulfilling our debt obligations. A failure to
comply with the covenants or financial ratios could result in an
event of default. In the event of a default under our credit
agreement, the lenders could exercise a number of remedies, some
of which could result in an event of default under the
indentures governing the senior 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, we cannot assure
you that our assets would be sufficient to repay our
indebtedness in full. If we are unable to repay any amounts
outstanding under our bank credit facility when due, the lenders
will have the right to proceed against the collateral securing
our indebtedness. See Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Financing Facilities, included
elsewhere herein.
We
incurred substantial losses in the past and may incur losses
again in the future.
Although we generated a net profit of $5.3 million for the
year ended December 31, 2009, we incurred net losses in the
preceding four years. As of December 31, 2009, we had an
accumulated deficit of $96.9 million. There can be no
guarantee that we will continue to achieve profitability in the
future. Even if we continue to be profitable, 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.
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 United
States ATM industry is regulated by the rules and regulations of
the federal Electronic Funds Transfer Act, which establishes the
rights, liabilities, and responsibilities of participants in EFT
systems. The vast majority of states have few, if any, licensing
requirements. However, legislation related to the United States
ATM industry is periodically proposed at the state and local
level. Additionally, the recent increase in surcharge fees by
several large financial institutions has prompted certain
members of the United States Congress to call for a
reexamination of the interchange and surcharge fees that
consumers are charged at an ATM. 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 in the United Kingdom 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 Mexicos
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 their
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,
S-19
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.
The
passing of legislation banning or limiting surcharge fees would
severely impact our revenues.
Despite the nationwide acceptance of surcharge fees at ATMs in
the United States since their introduction in 1996, consumer
activists have from time to time attempted to impose local bans
or limits on surcharge fees. Even in the few instances where
these efforts have passed the local governing body (such as with
an ordinance adopted by the city of Santa Monica, California),
federal courts have overturned these local laws on federal
preemption grounds. 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 United Kingdom), the United
Kingdom government did not accept the committees
recommendations. Despite the rejection of the committees
recommendations, the United Kingdom government did sponsor an
ATM task force to look at social exclusion in relation to ATM
services. As a result of the task forces 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 United Kingdom
While this is less than a 2% increase in
free-to-use
ATMs throughout the United Kingdom, 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 United Kingdom were to impose limits on the
level of surcharges for ATM transactions, our revenue from
operations in the United Kingdom 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 event 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. In October 2009, Banco de Mexico adopted
new rules regarding how ATM operators disclose fees to
consumers. The objective of these rules is to provide more
transparency to the consumer regarding the cost of a specific
ATM transaction, rather than to limit the amount of fees charged
to the consumer. The effect of these rules will require ATM
operators to elect between receiving interchange fees from card
issuers or surcharge fees from consumers. As these new rules
only require an ATM operator to disclose the total fees charge
to a consumer, rather than limit the amount of fees that can be
charged to a consumer, we do not anticipate that these new rules
will have a material effect on Cardtronics Mexicos
operations. However, we cannot be sure that additional rulings
that limit the amount of fees charged to the consumer or that
may be earned on an individual ATM transaction will be not
adopted in the future.
S-20
Potential
new currency designs may require modifications to our ATMs that
could severely impact our cash flows.
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 United States
are identical in size and color, regardless of denomination. As
a consequence of this ruling, the United States Treasury
conducted a study to determine the options to make United States
paper currency accessible to the blind or visually impaired. It
is our understanding that the Bureau of Engraving and Printing
(BEP) received that study on or about July 28,
2009, and together with the United States Treasury and the
Federal Reserve, are reviewing the study. Upon the completion of
that review, these institutions will publish their
recommendations and thereafter seek public comments (in writing
and at public forums) on those recommendations. Following the
public comment period, a final recommendation will be made to
the Secretary of the Treasury, who has authority to change the
design and features of the currency notes utilized in the United
States. While it is still uncertain at this time what impact, if
any, this process will have on the ATM industry (including us),
it is possible that any changes made to the design of the paper
currency notes utilized in the United States could require us to
incur additional costs, which could be substantial, to modify
our ATMs in order to store and dispense such notes.
Noncompliance
with established EFT network rules and regulations could expose
us to fines and penalties and could negatively impact our
results of operations. Additionally, new EFT network rules and
regulations could require us to expend significant amounts of
capital to remain in compliance with such rules and
regulations.
Our transactions are routed over various EFT networks to obtain
authorization for cash disbursements and to provide account
balances. These networks include Star, Pulse, NYCE, Cirrus, and
Plus in the United States; LINK in the United Kingdom; and
PROSA-RED in Mexico. EFT networks set the interchange fees that
they charge to the financial institutions, as well as the
amounts paid to us. Additionally, EFT networks, including
MasterCard and Visa, establish rules and regulations that ATM
providers, including ourselves, must comply with in order for
member cardholders to use those ATMs. Failure to comply with
such rules and regulations could expose us to penalties
and/or
fines, which could negatively impact our financial results. For
example, in the United Kingdom, MasterCard and Visa require
compliance with the EMV security standard. This standard
provides for the security and processing of information
contained on microchips imbedded in certain debit and credit
cards, known as smart cards. While we completed our
compliance efforts in this regard in 2008, we incurred
$1.2 million in charges earlier that year due to
transactions conducted on our machines with counterfeit cards
prior to the completion of our EMV certification efforts.
In addition to the above, new rules or regulations enacted by
the EFT networks could require us to expend significant sums of
capital to ensure that our ATMs and financial services kiosks
remain in compliance with such rules and regulations. For
example, we expended significant sums of capital in recent years
to meet the Triple-DES security standards mandated by MasterCard
and Visa. Similar rules and regulations that may be enacted in
the future could result in us having to make additional capital
outlays in order to remain in compliance, some of which could be
significant.
The
passing of anti-money laundering legislation could cause us to
lose certain merchant accounts and reduce our
revenues.
Recent concerns by the United States 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
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.
S-21
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:
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changes in general economic conditions and specific market
conditions in the ATM and financial services industries;
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changes in payment trends and offerings in the markets in which
we operate;
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competition from other companies providing the same or similar
services that we offer;
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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;
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the timing and magnitude of any impairment charges that may
materialize over time relating to our goodwill, intangible
assets or long-lived assets;
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changes in the general level of interest rates in the markets in
which we operate;
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changes in regulatory requirements associated with the ATM and
financial services industries;
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changes in the mix of our current services; and
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changes in the financial condition and credit risk of our
customers.
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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.
Risks
Related to the Offering
We do
not intend to pay, and we are currently prohibited from paying,
dividends on our common stock and, consequently, your only
opportunity to achieve a return on your investment is if the
price of our stock appreciates.
We do not plan to declare dividends on shares of our common
stock in the foreseeable future. Additionally, we are currently
prohibited from making any cash dividends pursuant to the terms
of our credit facility. Consequently, your only opportunity to
achieve a return on your investment in us will be if the market
price of our common stock appreciates, which may not occur, and
you sell your shares at a profit. There is no guarantee that the
price of our common stock that will prevail in the market after
this offering will ever exceed the price that you pay.
Future
sales of our common stock in the public market could adversely
affect the market price of our common stock price, and any
additional capital raised by us through the sale of equity or
convertible securities may dilute your ownership in
us.
We may sell additional shares of common stock in subsequent
public offerings. We may also issue additional shares of common
stock or convertible securities. We cannot predict the size of
future issuances of our common stock or the effect, if any, that
future issuances and sales of shares of our common stock will
have on the market price of our common stock. Additionally, a
number of our stockholders, including the selling stockholders
offering securities in this offering, will retain a significant
amount of our common stock, even after giving effect to this
offering. Our stockholders may freely sell all or some of their
holdings in us, in one or more transactions. Sales of
substantial amounts of our common stock by us or our
stockholders (including shares issued in connection with an
acquisition), or the perception that such sales could occur, may
adversely affect prevailing market prices of our common stock.
S-22
Your
ability to influence corporate matters may be limited because a
small number of stockholders beneficially own a substantial
amount of our common stock.
CapStreet II, L.P. and CapStreet Parallel II, L.P. (together
with The CapStreet Group LLC, The CapStreet Group)
and TA Associates are our largest equity stockholders. Even
after giving effect to this offering, assuming no exercise by
the underwriters of their over-allotment option and assuming a
public offering price at the midpoint of the range set forth on
the cover of this prospectus supplement, affiliates of The
CapStreet Group will beneficially own 6,041,074 shares, or
14.5%, of our common stock, and affiliates of TA Associates will
beneficially own 8,556,886 shares, or 20.5%, of our common
stock. As a result of their ownership interests, these investors
will be in a position to exert significant influence over the
outcome of matters requiring a stockholder vote, including the
election of directors, the entering into of mergers, sales of
substantially all of our assets and other extraordinary
transactions, and amendments to our certificate of incorporation
or bylaws. In addition, this concentration of ownership may have
the effect of preventing, discouraging or referring a change of
control, which could depress the market price of our common
stock. See Selling Stockholders.
Certain
of our directors may have conflicts of interest because they are
affiliated with significant stockholders. The resolution of
these conflicts of interest may not be in our or your best
interests.
Following the closing of this offering, certain of our directors
may have conflicts of interest because of their affiliation with
significant stockholders. Fred R. Lummis is associated with The
CapStreet Group and Michael A.R. Wilson is associated with TA
Associates. This may create conflicts of interest because
Mr. Lummis has responsibilities to The CapStreet Group and
its owners and Mr. Wilson has responsibilities to TA
Associates and its owners. Their duties to TheCapStreet Group
and TA Associates may conflict with their duties as directors of
our company regarding business dealings between these investor
groups and us and other matters. The resolution of these
conflicts may not always be in our or your best interests. For
example, The CapStreet Group and TA Associates are in the
business of making investments in companies and may from time to
time acquire and hold interests in businesses that compete
directly or indirectly with us. The CapStreet Group and TA
Associates may also pursue acquisition opportunities that may be
complementary to our business and, as a result, those
acquisition opportunities may not be available to us. There is
no formal mechanism among The CapStreet Group, TA Associates,
and Cardtronics for handling potential conflicts of interest.
Anti-takeover
provisions in our third amended and restated certificate of
incorporation, our amended and restated bylaws, and Delaware law
could discourage a change of control that our stockholders may
favor, which could negatively affect our stock
price.
Provisions in our third amended and restated certificate of
incorporation, our second amended and restated bylaws, and
applicable provisions of the Delaware General Corporation Law
may make it more difficult and expensive for a third party to
acquire control of us even if a change of control would be
beneficial to the interests of our stockholders. These
provisions could discourage potential takeover attempts and
could adversely affect the market price of our common stock. Our
third amended and restated certificate of incorporation, our
second amended and restated bylaws, and the Delaware General
Corporation Law will:
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authorize the issuance of blank check preferred stock that could
be issued by our board of directors to thwart a takeover attempt;
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classify the board of directors into staggered, three-year
terms, which may lengthen the time required by a third party to
gain control of our board of directors;
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discourage, delay or prevent a change in control by prohibiting
us from engaging in a business combination with an interested
stockholder for a period of two years after the person becomes
an interested stockholder, unless such a transaction has met
certain fair market value requirements;
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prohibit cumulative voting in the election of directors, which
would otherwise allow holders of less than a majority of stock
to elect some directors;
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S-23
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require super-majority voting to effect amendments to certain
provisions of our certificate of incorporation or bylaws,
including those provisions concerning the composition of the
board of directors and the taking of action by stockholders by
written consent;
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limit who may call special meetings of both the board of
directors and stockholders;
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prohibit stockholder action by written consent, requiring all
actions to be taken at a meeting of the stockholders;
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establish advance notice requirements for nominating candidates
for election to the board of directors or for proposing matters
that can be acted upon by stockholders at stockholders
meetings; and
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require that vacancies on the board of directors, including
newly-created directorships, be filled only by a majority vote
of directors then in office.
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Our
ability to use our net operating loss carryforwards may be
subject to limitation and may result in increased future tax
liabilities to us.
Generally, a change of more than 50% in the ownership of a
corporations stock, by value, over a three-year period
constitutes an ownership change for United States federal income
tax purposes. An ownership change may limit a companys
ability to use its net operating loss carryforwards attributable
to the period prior to such change. The number of shares of
common stock sold in connection with this offering may be
sufficient, taking into account prior or future shifts in our
ownership over a three-year period, to cause us to undergo an
ownership change. If an ownership change occurs, and if we earn
net taxable income, our ability to use our pre-change net
operating loss carryforwards to offset United States federal
taxable income may become subject to limitations, which could
potentially result in increased future tax liabilities to us. In
addition, although we currently have valuation allowances
established against our net deferred tax assets, the carrying
values of any tax assets related to our net operating loss
carryforwards, to the extent recognized, could be significantly
reduced.
S-24
USE OF
PROCEEDS
All of the shares of common stock covered by this prospectus
supplement are being sold by the selling stockholders named in
this prospectus supplement. We will not receive any of the
proceeds from the sale of the shares of our common stock by the
selling stockholders, including from any exercise by the
underwriters of their over-allotment option. We will pay the
expenses of this offering other than the underwriters
discounts and commissions.
S-25
CAPITALIZATION
The following table sets forth our consolidated capitalization
as of December 31, 2009. You should read this table in
conjunction with our Selected Historical Financial
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and our
historical consolidated financial statements and related notes
thereto included in our 2009
Form 10-K,
filed with the SEC on March 4, 2010, which is incorporated
by reference in this prospectus supplement and the accompanying
prospectus. See Where You Can Find More Information.
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As of
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December 31,
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2009
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(In thousands)
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Cash and cash equivalents
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$
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10,449
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Debt (including current maturities):
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Revolving credit facility
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$
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Long-term notes payable and capital lease obligations
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10,045
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$300.0 million 9.25% senior subordinated notes due
2013, net of discounts of $2.8 million
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297,242
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Total debt
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307,287
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Stockholders deficit:
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Common stock, par value $0.0001 per share,
125,000,000 shares authorized; 46,238,028 shares
issued; 40,900,532 shares outstanding
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4
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Additional paid-in capital
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200,323
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Accumulated other comprehensive loss, net
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(57,618
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)
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Accumulated deficit
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(96,922
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)
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Treasury stock, 5,337,496 shares as cost
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(48,679
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Total parent stockholders deficit
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(2,892
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Noncontrolling interests
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1,602
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Total stockholders deficit
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(1,290
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Total capitalization
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$
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305,997
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S-26
PRICE
RANGE OF OUR COMMON STOCK
As of March 15, 2010, we had 41,658,756 shares of
common stock outstanding, held by approximately 100 holders of
record. Our common stock trades on the NASDAQ Global Market
under the symbol CATM. The following table reflects
the high and low sales prices for our common stock as reported
on the NASDAQ Global Market for the periods indicated:
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High
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Low
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Fiscal Year Ended December 31, 2010
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First Quarter (through March 18, 2010)
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$
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12.78
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$
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9.51
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Fiscal Year Ended December 31, 2009
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Fourth Quarter
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$
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12.16
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$
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7.74
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Third Quarter
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8.06
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3.47
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Second Quarter
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4.05
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1.81
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First Quarter
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2.02
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0.85
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Fiscal Year Ended December 31, 2008
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Fourth Quarter
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$
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8.16
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$
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0.47
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Third Quarter
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9.48
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3.37
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Second Quarter
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10.44
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5.88
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First Quarter
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10.30
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6.60
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S-27
DIVIDENDS
We have historically not paid, nor do we anticipate paying,
dividends with respect to our common stock. Instead, we
anticipate that all of our earnings in the foreseeable future
will be used for the operation and growth of our business. Our
ability to pay dividends to holders of our common stock is
currently prohibited by the terms of our credit facility. For
further information on restrictions regarding our ability to pay
dividends, see Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources Financing
Facilities Revolving Credit Facility,
Senior Subordinated Notes and
Part II, Item 8. Financial Statements and
Supplementary Data, Note 11 to our 2009
Form 10-K.
Any future determination to pay dividends on our common stock is
subject to the discretion of our board of directors and will
depend upon various factors, including our financial position,
results of operations, liquidity requirements, restrictions that
may be imposed by applicable law and our contracts, including
our credit facility and the indentures governing our senior
subordinated notes, and other factors deemed relevant by our
board of directors.
S-28
SELECTED
HISTORICAL FINANCIAL DATA
As a result of our acquisition of the 7-Eleven Financial
Services Business in July 2007 and Bank Machine in May 2005, our
financial results for the years presented below are not
comparable. As a result, the following selected historical
consolidated financial and operating data should be read
together with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and related notes to those
statements from our 2009
Form 10-K,
which is incorporated herein by reference. The selected
consolidated balance sheet data as of December 31, 2007,
2008, and 2009 and the selected consolidated statements of
operations data for the years ended December 31, 2006,
2007, 2008, and 2009 have been derived from our audited
consolidated financial statements from our Annual Reports on
Forms 10-K
for the years ended December 31, 2008 and 2009. The balance
sheet data as of December 31, 2005 and 2006, and the
statements of operations data for the year ended
December 31, 2005 have been derived from our consolidated
financial statements included in our Annual Report on
Form 10-K
for the year ended December 31, 2006, which is not included
in or incorporated by reference in this prospectus. Historical
results are not necessarily indicative of the results to be
expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
258,979
|
|
|
$
|
280,985
|
|
|
$
|
365,322
|
|
|
$
|
475,800
|
|
|
$
|
483,138
|
|
ATM product sales and other revenues
|
|
|
9,986
|
|
|
|
12,620
|
|
|
|
12,976
|
|
|
|
17,214
|
|
|
|
10,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
268,965
|
|
|
|
293,605
|
|
|
|
378,298
|
|
|
|
493,014
|
|
|
|
493,353
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of ATM operating revenues (excludes depreciation,
accretion, and amortization shown separately
below)(1)
|
|
|
199,767
|
|
|
|
209,850
|
|
|
|
281,705
|
|
|
|
362,916
|
|
|
|
333,907
|
|
Cost of ATM product sales and other revenues
|
|
|
9,681
|
|
|
|
11,443
|
|
|
|
11,942
|
|
|
|
15,625
|
|
|
|
10,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
209,448
|
|
|
|
221,293
|
|
|
|
293,647
|
|
|
|
378,541
|
|
|
|
344,474
|
|
Gross profit
|
|
|
59,517
|
|
|
|
72,312
|
|
|
|
84,651
|
|
|
|
114,473
|
|
|
|
148,879
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
17,865
|
|
|
|
21,667
|
|
|
|
29,357
|
|
|
|
39,068
|
|
|
|
41,527
|
|
Depreciation and accretion expense
|
|
|
12,951
|
|
|
|
18,595
|
|
|
|
26,781
|
|
|
|
39,164
|
|
|
|
39,420
|
|
Amortization
expense(2)
|
|
|
8,980
|
|
|
|
11,983
|
|
|
|
18,870
|
|
|
|
18,549
|
|
|
|
18,916
|
|
Loss on disposal of assets
|
|
|
1,036
|
|
|
|
1,653
|
|
|
|
2,485
|
|
|
|
5,807
|
|
|
|
6,016
|
|
Goodwill impairment charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
40,832
|
|
|
|
53,898
|
|
|
|
77,493
|
|
|
|
152,591
|
|
|
|
105,879
|
|
Income (loss) from operations
|
|
|
18,685
|
|
|
|
18,414
|
|
|
|
7,158
|
|
|
|
(38,118
|
)
|
|
|
43,000
|
|
Other (income) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
15,485
|
|
|
|
23,143
|
|
|
|
29,523
|
|
|
|
31,090
|
|
|
|
30,133
|
|
Amortization and write-off of financing costs and bond
discounts(3)
|
|
|
6,941
|
|
|
|
1,929
|
|
|
|
1,641
|
|
|
|
2,107
|
|
|
|
2,395
|
|
Other expense
(income)(4)
|
|
|
(68
|
)
|
|
|
(6,414
|
)
|
|
|
(626
|
)
|
|
|
93
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
22,358
|
|
|
|
18,658
|
|
|
|
30,538
|
|
|
|
33,290
|
|
|
|
32,984
|
|
Income (loss) before income taxes
|
|
|
(3,673
|
)
|
|
|
(244
|
)
|
|
|
(23,380
|
)
|
|
|
(71,408
|
)
|
|
|
10,016
|
|
Income tax expense (benefit)
|
|
|
(1,270
|
)
|
|
|
512
|
|
|
|
4,477
|
|
|
|
989
|
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(2,403
|
)
|
|
|
(756
|
)
|
|
|
(27,857
|
)
|
|
|
(72,397
|
)
|
|
|
5,771
|
|
S-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Net income (loss) attributable to noncontrolling interests
|
|
|
15
|
|
|
|
(225
|
)
|
|
|
(376
|
)
|
|
|
(1,022
|
)
|
|
|
494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interests
|
|
|
(2,418
|
)
|
|
|
(531
|
)
|
|
|
(27,481
|
)
|
|
|
(71,375
|
)
|
|
|
5,277
|
|
Preferred stock conversion and accretion expense
|
|
|
1,395
|
|
|
|
265
|
|
|
|
36,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interests and
available to common stockholders
|
|
$
|
(3,813
|
)
|
|
$
|
(796
|
)
|
|
$
|
(63,753
|
)
|
|
$
|
(71,375
|
)
|
|
$
|
5,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share basic and diluted
|
|
$
|
(0.27
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(4.13
|
)
|
|
$
|
(1.84
|
)
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
14,040,353
|
|
|
|
13,904,505
|
|
|
|
15,423,744
|
|
|
|
38,800,782
|
|
|
|
39,244,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
14,040,353
|
|
|
|
13,904,505
|
|
|
|
15,423,744
|
|
|
|
38,800,782
|
|
|
|
39,896,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
$
|
33,227
|
|
|
$
|
25,446
|
|
|
$
|
55,108
|
|
|
$
|
16,218
|
|
|
$
|
74,874
|
|
Cash flows from investing activities
|
|
|
(139,960
|
)
|
|
|
(35,973
|
)
|
|
|
(202,529
|
)
|
|
|
(60,476
|
)
|
|
|
(26,031
|
)
|
Cash flows from financing activities
|
|
|
107,214
|
|
|
|
11,192
|
|
|
|
158,155
|
|
|
|
34,507
|
|
|
|
(42,232
|
)
|
Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of devices (at period end)
|
|
|
26,208
|
|
|
|
25,259
|
|
|
|
32,319
|
|
|
|
32,950
|
|
|
|
33,408
|
|
Total transactions
|
|
|
156,851
|
|
|
|
172,808
|
|
|
|
247,270
|
|
|
|
354,391
|
|
|
|
383,323
|
|
Total cash withdrawal transactions
|
|
|
118,960
|
|
|
|
125,078
|
|
|
|
166,248
|
|
|
|
228,306
|
|
|
|
244,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,699
|
|
|
$
|
2,718
|
|
|
$
|
13,439
|
|
|
$
|
3,424
|
|
|
$
|
10,449
|
|
Total assets
|
|
|
343,751
|
|
|
|
367,756
|
|
|
|
590,737
|
|
|
|
480,828
|
|
|
|
460,404
|
|
Total long-term debt and capital lease obligations, including
current portion
|
|
|
247,624
|
|
|
|
252,895
|
|
|
|
310,744
|
|
|
|
347,181
|
|
|
|
307,287
|
|
Preferred stock
|
|
|
76,329
|
|
|
|
76,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(49,084
|
)
|
|
|
(37,168
|
)
|
|
|
106,720
|
|
|
|
(19,750
|
)
|
|
|
(1,290
|
)
|
|
|
|
(1) |
|
Costs of ATM Operating Revenues excludes
depreciation, accretion, and amortization expense of
$20.6 million, $29.2 million, $43.1 million,
$52.4 million, and $51.5 million for the years ended
December 31, 2005, 2006, 2007, 2008 and 2009, respectively. |
|
(2) |
|
Amortization expense includes pre-tax impairment
charges of $1.2 million, $2.8 million,
$5.7 million, $0.4 million, and $1.2 million for
the years ended December 31, 2005, 2006, 2007, 2008, and
2009, respectively. |
|
(3) |
|
Amortization and write-off of deferred financing costs and
bond discounts includes the write-off of $0.5 million
and $5.0 million of deferred financing costs in 2005 and
2006, respectively, as a result of (i) amendments to our
existing revolving credit facility and the repayment of our
existing term loans in August 2005, and (ii) certain
modifications made to our revolving credit facility in February
2006. |
|
(4) |
|
Other for the year ended December 31, 2006
reflects the recognition of approximately $4.8 million in
other income primarily related to settlement proceeds received
from Winn-Dixie Stores, Inc., one of our merchant customers, as
a part of its emergence from bankruptcy, a $1.1 million
contract termination payment received from one of our customers,
and a $0.5 million payment received from one of our
customers related to the sale of a number of its stores to
another party. |
S-30
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
statements that are based on managements 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 Risk Factors, which begin on
page S-9
of this prospectus supplement. Additionally, you should read the
following discussion together with the historical consolidated
financial statements and the related notes included in our 2009
Form 10-K.
Our discussion and analysis includes the following:
|
|
|
|
|
Economic and Strategic Outlook
|
|
|
|
Overview of Business
|
|
|
|
Developing Trends in the ATM and Financial Services Industry
|
|
|
|
Recent Events
|
|
|
|
Results of Operations
|
|
|
|
Liquidity and Capital Resources
|
|
|
|
Critical Accounting Policies and Estimates
|
|
|
|
New Accounting Pronouncements Issued but Not Yet Adopted
|
|
|
|
Commitments and Contingencies
|
Certain unaudited pro forma financial and operational
information has been presented herein as if the Companys
acquisition of the financial service business of 7-Eleven, Inc.
(the 7-Eleven Financial Services Business), which
was consummated in July 2007, occurred at the beginning of the
year on January 1, 2007. This 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 acquisition (the
7-Eleven ATM Transaction) been consummated on such
date. This unaudited pro forma information should be read in
conjunction with our historical consolidated financial
statements and the related notes, included in our 2009
Form 10-K.
Economic
and Strategic Outlook
Over the past several years, we made significant capital
investments in our business, including (1) the acquisition
of our United Kingdom operation in 2005, (2) our expansion
into Mexico in 2006, (3) the launch of our EFT transaction
processing platform in 2006, (4) our acquisition of the ATM
and consumer financial services business of 7-Eleven in 2007,
and (5) the launch of our armored courier operation in the
United Kingdom in 2008. Additionally, during this same period of
time, we continued to deploy ATMs in high-traffic locations
under our contracts with large, well-known retailers, which has
led to the development of relationships with large financial
institutions through bank branding opportunities and enhanced
the value of our wholly-owned surcharge-free network, Allpoint.
As a result of these strategic actions and the relatively
conservative use of capital during this time, the negative
impact of the recent economic downturn on our business has been,
and we expect will continue to be, mitigated by the following:
Stable and recurring nature of our
business. Our financial results for the year
ended December 31, 2009 demonstrate that the significant
capital investments made over the past several years have
provided us with an operating platform that we believe should
continue to generate relatively stable earnings and consistent
cash flows. Based on our recent results, transactions conducted
on our ATMs have not been negatively affected by the recent
economic downturn and we currently expect that this trend will
continue. For example, average monthly cash withdrawal
transactions per ATM increased to 616 during 2009 from 579 in
2008. Furthermore, while we have seen declines in
surcharge-related withdrawal transactions in the United States
and the United
S-31
Kingdom, we have continued to see increases in overall
withdrawal transaction levels (especially surcharge-free
withdrawal transactions), which increased by approximately 7%
from 2008 to 2009.
Strong liquidity position. We believe that we
have sufficient liquidity to meet our anticipated operating
needs for the foreseeable future. Our $175.0 million
revolving credit facility does not expire until May 2012 and is
comprised of a syndicate of leading large financial
institutions. As of December 31, 2009, we had no borrowings
outstanding under this facility and $4.7 million in letters
of credit posted under the facility, leaving us
$170.3 million in available, committed funding. Our
remaining indebtedness included $0.2 million of capital
leases in the United States, $9.8 million of secured
equipment loans in Mexico, and $300.0 million in senior
subordinated notes. The fixed-rate notes, which mature in August
2013, contain no maintenance covenants and only limited
incurrence covenants, which we continue to be in compliance
with, and require only semi-annual interest payments prior to
their maturity date.
Product diversification. Over the past few
years, we have consciously worked to diversify our product and
service offerings beyond the traditional ATM surcharging model,
which we believe will provide for future growth opportunities
that we do not expect to require significant amounts of new
capital. Examples of these growth opportunities include
(1) providing managed services offerings to financial
institutions and retailers with dispersed ATM and financial
services kiosk networks; (2) adding more third parties to
our EFT transaction processing platform, similar to the
arrangement we currently have in place to process transactions
for over 1,600 ATMs owned and operated by a third-party
convenience store chain in the United States; (3) continued
expansion and improvement in the types of services that we
currently offer through our multi-function financial services
kiosks located in 7-Eleven convenience stores across the United
States; and (4) continued growth in our bank branding and
surcharge-free offerings.
Overview
of Business
As of December 31, 2009, we operated a network of over
33,400 ATMs, including approximately 2,200 financial services
kiosks, throughout the United States (including Puerto Rico),
the United Kingdom and Mexico. Our extensive network is
strengthened by multi-year contractual relationships with a wide
variety of nationally and internationally-known merchants
pursuant to which we operate ATMs and financial services kiosks
in their locations. We deploy our devices under two distinct
arrangements with our merchant partners: Company-owned and
merchant-owned arrangements.
Company-owned Arrangements. Under a
Company-owned arrangement, we own or lease the device 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 device, 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 component 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 device, 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 device is physically located. We
operate a limited number of our Company-owned devices on a
merchant-assisted basis. In these arrangements, we own the
device and provide all transaction processing services, but the
merchant generally is responsible for providing and loading cash
and performing first line maintenance.
Typically, we deploy our devices under Company-owned
arrangements for our national and regional merchant customers.
Our customers include 7-Eleven, Chevron, Costco, CVS,
ExxonMobil, Hess, Rite Aid, Safeway, Target, Walgreens, and
Winn-Dixie in the United States; Asda, Euro Garages Ltd., Forces
Financial, IKEA, Martin McColl Ltd., Murco Petroleum Ltd., The
Noble Organisation Ltd., Tates Ltd., and Welcome Break in the
United Kingdom; and OXXO in Mexico. Because Company-owned
locations are controlled by us (i.e., we control the on-line
availability 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
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cost of installing such machines. As of December 31, 2009,
we operated approximately 22,870 devices under Company-owned
arrangements.
Merchant-owned Arrangements. Under a
merchant-owned arrangement, a merchant owns the device 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 a device from us, the merchant normally retains
responsibility for providing cash for the device. Because the
merchant bears more of the operating costs 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, 2009, we operated
approximately 10,540 devices 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 devices we add through internal growth and
acquisitions. While we may continue to add merchant-owned
devices 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 locations in our network
due to the higher margins typically earned and the additional
revenue opportunities available to us under Company-owned
arrangements.
Electronic Funds Transfer (EFT) Transaction
Processing. As of December 31, 2009, we had
substantially completed the process of converting our devices
from various third-party transaction processing companies to our
own EFT transaction processing platform, with the exception of
approximately 3,600 traditional ATMs placed in 7-Eleven stores
that are in the process of being converted in 2010. We were
historically unable to transition these ATMs over to our
platform as we were under-contract with a third party to provide
the transaction processing services for these machines through
December 2009. Our EFT transaction processing capabilities
provide us with the ability to control the processing of
transactions conducted on our network and allow us to control
the content of the information appearing on the screens of our
devices, which increases the types of products and services that
we are able to offer to financial institutions. For example,
with the ability to control screen flow, we are able to offer
customized branding solutions to financial institutions,
including
one-to-one
marketing and advertising services at the point of transaction.
Additionally, the transition of our devices to our own EFT
transaction processing platform has provided us with operational
cost savings in terms of lower overall processing costs.
As our EFT transaction processing efforts are focused on
controlling the flow and content of information on the device
screens, we typically rely on third party service providers to
handle the generic back-end connections to the EFT networks and
limited funds settlement and reconciliation processes for our
Company-owned accounts.
Components
of Revenues, Cost of Revenues, and Expenses
Revenues
We derive our revenues primarily from providing ATM and
automated consumer financial services and, to a lesser extent,
from branding arrangements, surcharge-free network offerings,
and sales of ATM equipment. We currently classify revenues into
two primary categories: ATM operating revenues and ATM product
sales and other revenues.
ATM Operating Revenues. We present revenues
from ATM and automated consumer financial 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 network offerings, and fees
earned from providing certain maintenance services. Our revenues
from ATM services have increased rapidly in recent
S-33
years due to the acquisitions we have completed since 2001, as
well as through internal expansion of our existing and acquired
networks.
ATM operating revenues primarily consist of the three following
components: (1) surcharge revenue, (2) interchange
revenue, and (3) branding and surcharge-free network
revenue.
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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, domestic surcharge fees are
generally less than those charged in the United States, except
for machines that dispense U.S. dollars, where we charge an
additional foreign currency convenience fee.
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Interchange revenue. An interchange fee is a
fee paid by the cardholders 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
cardholders financial institution. We typically receive a
majority of the interchange fee paid by the cardholders
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. However, based on recent
legislation passed in Mexico, ATM operators will be required in
the future to elect between receiving interchange fees from card
issuers or surcharge fees from consumers. In the United Kingdom,
interchange fees are earned on all ATM transactions other than
pay-to-use
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.
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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 transactions by the branding institutions
customers, we continue to earn interchange fees on those
transactions along with the monthly branding fee, and typically
enjoy an increase in surcharge-bearing transactions from users
who are not customers of the branding institution as a result of
having a bank brand on the devices. Overall, based on these
factors, 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 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 those required to offset lost surcharge
revenue, we do not expect any such variance to cause a decrease
in our total revenues.
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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 either a
fixed monthly fee per cardholder or a set fee per transaction in
exchange for us providing their cardholders with surcharge-free
access to most of our domestic owned
and/or
operated ATMs. These fees are meant to compensate us for the
loss of surcharge revenues. Although we forego surcharge
revenues on those
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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 Allpoint enables us to profitably operate in that
portion of the ATM transaction market that does not involve a
surcharge. Allpoint also works with financial institutions that
manage stored-value debit card programs on behalf of corporate
entities and governmental agencies, including general purpose,
payroll and electronic benefits transfer (EBT)
cards. Under these programs, the issuing financial institutions
pay Allpoint a fee per issued prepaid debit card in return for
allowing the users of those cards surcharge-free access to
Allpoints participating network.
In addition to Allpoint, the ATMs that we operate in 7-Eleven
stores, as well as select other merchant locations, participate
in the CO-OP network, the nations largest surcharge-free
network devoted exclusively to credit unions. Additionally, the
financial services kiosks 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 machines for members of
the FSCC network.
In addition to the above, we also earn ATM operating revenues
from the provision of more sophisticated financial services
transactions at over 2,200 financial services kiosks that, in
addition to standard ATM services, offer bill payment, check
cashing, remote deposit capture, and money transfer services.
The following table sets forth, on a historical and pro forma
basis, information on our surcharge, interchange, branding and
surcharge-free network fees, and other ATM operating revenues
per cash withdrawal transaction for the periods indicated. The
pro forma information presented below assumes the 7-Eleven ATM
Transaction occurred effective January 1, 2007.
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Pro Forma
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2009
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2008
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2007
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2007
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Per cash withdrawal
transaction(1):
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Surcharge
revenue(2)
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$
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1.04
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$
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1.17
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$
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1.36
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$
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1.31
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Interchange
revenue(3)
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0.61
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0.62
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0.59
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0.59
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Branding and surcharge-free network
revenue(4)
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0.28
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0.25
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0.21
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0.21
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Other revenue
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0.05
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0.04
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0.04
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0.07
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Total ATM operating revenues
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$
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1.98
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$
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2.08
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$
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2.20
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$
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2.18
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(1) |
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Amounts calculated based on total cash withdrawal transactions,
including surcharge cash withdrawal transactions and
surcharge-free cash withdrawal transactions. |
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(2) |
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Excluding surcharge-free cash withdrawal transactions, per
transaction amounts would have been $1.96, $1.88, and $1.88 for
the years ended December 31, 2009, 2008, and 2007,
respectively, and $1.86 for the pro forma year ended
December 31, 2007. |
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Amounts calculated based on total interchange revenues earned on
all ATM transaction types, including surcharge and
surcharge-free cash withdrawals, balance inquiries, and
transfers. |
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Amounts include all bank branding and surcharge-free network
revenues, the majority of which are not earned on a
per-transaction basis. |
The decline in our ATM operating revenues per cash withdrawal
transaction over the past three years, as reflected in the table
above, is primarily attributable to our efforts to increase the
percentage of surcharge-free cash withdrawal transactions
conducted on our network of devices. Such efforts have resulted
in a significant increase in the number of withdrawal
transactions being conducted on our devices, and thus, a
corresponding increase in the overall revenues earned per
device. However, the revenues earned per surcharge-free
transaction are typically lower than the per-transaction amounts
earned from surcharge-bearing transactions, thus contributing to
the per-transaction decline reflected in the table above.
Additionally, our ATM operating revenues per cash withdrawal
transaction were negatively impacted in 2009 when compared to
2008 due to the effects of foreign currency exchange rate
movements.
S-35
While our ATM operating revenues per cash withdrawal transaction
have declined in recent years, our ATM operating expenses per
withdrawal transaction have shown similar, if not greater,
declines during the same period. As a result, our overall
profitability per ATM during this period has increased
significantly, as reflected in the Key Operating
Metrics discussion contained below.
The following table presents, on a historical and pro forma
basis, the components of our total ATM operating revenues for
the years indicated:
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Pro Forma
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2009
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2008
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2007
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2007
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Surcharge revenue
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52.7
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%
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56.0
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%
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61.7
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%
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59.8
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%
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Interchange revenue
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31.0
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29.6
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26.7
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27.2
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Branding and surcharge-free network revenue
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14.1
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12.2
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9.7
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9.7
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Other revenue
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2.2
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2.2
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1.9
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3.3
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Total ATM operating revenues
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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ATM Product Sales and Other Revenues. We
present revenues from the sale of ATMs and other
non-transaction-based revenues as ATM product sales and
other revenues in our Consolidated statements of
Operations. These revenues consist primarily of sales of ATMs
and related equipment to merchants operating under
merchant-owned arrangements, as well as sales under our
value-added reseller (VAR) program with NCR. Under
our VAR program, we primarily sell ATMs to Associate VARs who in
turn resell the ATMs to various financial institutions
throughout the United States in territories authorized by the
equipment manufacturer. 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 network of ATMs
and financial services kiosks. These costs include merchant
fees, vault cash rental expense, other cost of cash, repairs and
maintenance expense, processing fees, communications 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 device is placed and the number of
transactions on that device. For the year ended
December 31, 2009, merchant fees represented 32.5% of our
ATM operating revenues.
Vault Cash Rental Expense. We pay a fee to our
vault cash providers for renting the cash that is maintained in
our devices. As the fees we pay under our contracts with our
vault cash providers are based on market rates of interest,
changes in interest rates affect our cost of cash. In order to
limit our exposure to increases in interest rates, we have
entered into a number of interest rate swaps on varying amounts
of our current and anticipated outstanding cash balances in our
domestic and United Kingdom operations through 2013. For the
year ended December 31, 2009, vault cash rental expense
represented 7.0% of our ATM operating revenues.
Other Cost of Cash. Other cost of cash
includes all costs associated with the provision of cash for our
devices except for rental expense, including armored courier
services, insurance, cash reconciliation, associated wire fees,
and other costs. For the year ended December 31, 2009,
other cost of cash represented 9.0% of our ATM operating
revenues.
Repairs and Maintenance. Depending on the type
of arrangement with the merchant, we may be responsible for
first and/or
second line maintenance for the device. We typically use third
parties with national operations to provide these services. Our
primary maintenance vendors are Diebold, NCR, and Pendum. For
the year ended December 31, 2009, repairs and maintenance
expense represented 8.0% of our ATM operating revenues.
S-36
Processing Fees. For processing transactions
originating on our devices that have not yet been transitioned
to our EFT transaction processing platform, we continue to pay
fees to third-party vendors. These vendors, which include Elan
Financial Services and Fidelity Information Services in the
United States, LINK in the United Kingdom, and PROSA-RED in
Mexico, communicate with the cardholders financial
institution through EFT networks to gain transaction
authorization and to settle transactions. As we have converted
most of our domestic devices over to our EFT transaction
processing platform except for approximately 3,600 traditional
ATMs in 7-Eleven stores that are currently in the process of
being converted, we expect to see a slight reduction in our
overall processing costs on a go-forward basis.
Communications. Under our Company-owned
arrangements, we are responsible for expenses associated with
providing telecommunications capabilities to the devices,
allowing them to connect with the applicable EFT network.
Other Expenses. Other expenses primarily
consists of direct operations expenses, which are costs
associated with managing our network, including expenses for
monitoring the devices, program managers, technicians, and
customer service representatives.
Cost of ATM Product Sales. 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 48.9% 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, 2009.
Therefore, we estimate that 51.1% 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 operations, unless there
was an offsetting increase in per-transaction revenues or
decrease in our fixed costs. Conversely, as a majority of our
operating costs are fixed in nature, a significant increase in
transaction volumes would lead to an increase in the
profitability of our operations. 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 6.5% for the year ended
December 31, 2009.
The profitability of any particular location, and of our entire
ATM and financial services kiosk 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 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, our senior
subordinated notes, and our equipment financing facilities. 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 and Financial Services Industry
Increase in Surcharge-Free Offerings. Many
United States banks serving the market for consumer banking
services are aggressively competing for market share, and part
of their competitive strategy is to
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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 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.
Increase in Prepaid Debit Cards. In the United
States, we have seen a proliferation in the issuance and
acceptance of prepaid debit cards as a means for consumers to
access their cash and make routine retail purchases. Based on
estimates published by Mercator Advisory Group, the number of
prepaid debit cards among open loop network-branded money and
financial services cards, payroll cards, social security cards,
and unemployment benefit cards, is expected to increase from
approximately 26.8 million cards in 2008 to
90.3 million cards in 2012. These numbers do not include
card types less likely to be used at ATMs such as gift cards,
consumer incentive cards, and transit cards.
We believe that our network of ATMs and financial services
kiosks, located in well-known retail establishments throughout
the United States, provides a convenient and cost-effective way
for holders of such cards to access their cash and potentially
conduct other financial services transactions. Furthermore,
through Allpoint, which partners with financial institutions
that issue and sponsor prepaid debit card programs on behalf of
corporate entities and governmental organizations, we are able
to provide holders of such cards convenient, surcharge-free
access to their cash. While it is difficult to measure the
precise number of cash withdrawal transactions occurring from
prepaid debit cards on our network, we believe that such number
increased significantly during 2009 and represented a
significant portion of the
year-over-year
withdrawal transaction count gains that we saw in the United
States.
In response to the recent proliferation in the issuance and
acceptance of prepaid debit cards, as well as perceived abuses
within the credit and debit card industries in general, the
United States Congress recently passed the Credit Card
Accountability, Responsibility and Disclosure Act of 2009 (the
Credit Card Act). With respect to prepaid debit
cards (in particular, gift certificates, store gift cards and
general-use prepaid cards), the Credit Card Act imposes certain
restrictions on card expiration dates and fees that can be
charged to users of those cards. Additionally, the Credit Card
Act mandates certain additional consumer disclosure requirements
by issuers of these types of prepaid debit cards. The Credit
Card Act does not apply to other types of prepaid debit cards,
including reloadable prepaid cards that are not marketed or
labeled as a gift card or gift certificate.
As a result of these new requirements, the Federal Reserve Board
recently issued amendments to Regulation E, which are
expected to become effective beginning in August 2010. Moreover,
some state attorneys general have indicated a desire to
implement specific
state-by-state
regulations on the emerging prepaid debit card industry. At this
point, it is unclear whether the increase in the use of prepaid
debit cards on our network will be negatively impacted by these
recent regulatory actions and trends.
Growth in Other Automated Consumer Financial
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 financial services to customers,
such as check cashing, remote deposit capture, money transfer,
bill payment services, and prepaid debit card reload services
through self-service kiosks. These additional consumer financial
services would result in additional revenue streams for us and
could ultimately result in increased profitability.
Managed Services. While many banks own
significant networks of ATMs that serve as extensions of their
branch networks and increase the level of service offered to
their customers, large ATM networks are costly to operate and
typically do not provide significant revenue for banks and
smaller financial institutions. As operating a network of ATMs
is not a core competency for banks or other financial
institutions, we believe there is an opportunity for a large
non-bank ATM and financial services kiosk operator such as
ourselves, with
S-38
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
institutions operational costs while extending their
customer service. Additionally, we believe there are
opportunities to provide selected services on an outsourced
basis, such as transaction processing services, to other
independent owners and operators of ATMs and financial services
kiosks.
Growth in International Markets. In most
regions of the world, ATMs are less common than in the United
States. We believe the ATM industry will grow faster in
international markets than in the United States, as the number
of ATMs per capita in those markets increases and begins to
approach the levels seen here. In addition, there has been a
trend towards growth of off-premise ATMs in several
international markets, including the United Kingdom and Mexico.
|
|
|
|
|
United Kingdom. The United Kingdom is the
largest ATM market in Europe. Until the late 1990s, most United
Kingdom 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 United Kingdom ATM operators) allowed them entry
into its network via arrangements between non-bank operators and
United Kingdom 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 64,000 ATMs were
deployed in the United Kingdom as of June 2009, of which
approximately 29,000 were operated by non-banks. This has grown
from approximately 36,700 total ATMs in the United Kingdom in
2001, with less than 7,000 operated by non-banks. Similar to the
United States, electronic payment alternatives have gained
popularity in the United Kingdom 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 United Kingdom Payment
Statistics 2009 publication.
|
|
|
|
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. However, in October 2009, the Central Bank of Mexico
adopted new rules that would require ATM operators to elect
between receiving interchange fees from card issuers or
surcharge fees from consumers, which will go into effect on
April 30, 2010. At this time, it is our expectation that
Cardtronics Mexico will elect to assess the surcharge fee to the
consumer rather than the interchange fee to that consumers
financial institution. According to the Central Bank of Mexico,
as of September 2009, Mexico had approximately 32,700 ATMs
operating throughout the country, substantially all of which are
owned by national and regional banks.
|
Increases in Surcharge Rates. In 2007 and
2008, several large financial institutions in the United States
began increasing the surcharge rate charged to non-customers for
the use of their ATMs. This increase in fees could potentially
increase the amount of transactions conducted on our ATMs, as
customers seek to minimize the amount of transaction fees paid
by using ATMs that charge lower rates (such as ours).
Alternatively, this increase by other institutions could provide
us with the opportunity to increase the surcharge rates charged
on our ATMs in selected markets and make our surcharge-free
offerings more attractive to consumers and other financial
institutions.
Recent
Events
Cash Withdrawal Transaction Trends. For the
year ended December 31, 2009, total cash withdrawal
transactions per ATM per month conducted on our domestic ATMs
increased 4% over the prior year. This increase was due to a 28%
increase in the number of surcharge-free cash withdrawal
transactions, which was primarily attributable to two factors:
1) the mix shift in transactions (and the related revenues)
that has occurred due to the continuing evolution of our product
offerings away from the traditional surcharge-based model to a
surcharge-free model, and 2) the proliferation in the use
of network-branded prepaid debit cards by employers and
governmental agencies for payroll and other benefit-related
payments. Specifically, the increase in the number of prepaid
debit cards in circulation has served to increase our potential
customer base, as these
S-39
prepaid debit cards are capable of being used in ATMs, and many
of the individuals to whom the cards are being issued are
traditionally unbanked and have not historically been able to
utilize ATMs. We expect to see a continued increase in the
number of prepaid debit cards in the future, which we believe
will result in an increase in the number of cash withdrawal
transactions conducted on our ATMs. Additionally, although our
surcharge-free offerings contributed to a 12% decline in the
number of surcharge transactions conducted on our machines in
2009 versus 2008, our bank branding and surcharge-free network
revenues, along with higher interchange revenues from the
increased number of transactions being conducted on our ATMs,
more than offset the decline in surcharge revenues.
In the United Kingdom, total cash withdrawal transactions per
ATM per month increased by approximately 17% in 2009 when
compared to 2008, due to a 44% increase in the number of
free-to-use
cash withdrawal transactions and a 4% increase in the number of
pay-to-use
cash withdrawal transactions conducted on our ATMs in that
market. Despite the overall increase in
pay-to-use
withdrawals, the actual number of
pay-to-use
withdrawals per ATM per month declined during the period. We
believe this decline is primarily the result of regulatory
changes, including requirements to place more prominent fee
notifications on
pay-to-use
ATMs, which has appeared to have caused a shift in consumer
behavior. We believe this trend will continue in the future, and
therefore have recently been installing more
free-to-use
machines in this market. Specifically, of the additional
machines that we installed in the United Kingdom during 2009,
approximately 90% were
free-to-use
as opposed to
pay-to-use.
Although we earn less revenue per cash withdrawal transaction on
a
free-to-use
machine, the increase in the number of transactions conducted on
free-to-use
machines has translated to higher interchange revenues, which
has more than offset the loss of surcharge revenues. For
example, our per-ATM operating revenues per month totaled
£1,487 during the year ended December 31, 2009, which
represents an increase of approximately 8% when compared to the
£1,377 earned per ATM per month during the previous year.
As previously noted, we expect that this trend toward
free-to-use
ATMs will continue and we anticipate installing additional
free-to-use
ATMs in this market in the future.
Foreign Currency Exchange Rates. The
strengthening of the United States dollar relative to the
British pound and Mexican peso negatively impacted our results
during 2009 and 2008 in terms of translating those foreign
earnings into United States dollars. Despite the negative impact
on our revenues and gross profits, this trend did not have a
significant negative impact on our cash flows, as we do not
currently rely on cash generated by our international operations
to fund our domestic operating needs and each operation conducts
substantially all of its business in its local currency.
Additionally, we continue to explore potential growth
opportunities in the two international markets in which we
currently operate, and the strengthening of the United States
dollar could enhance our ability to invest in those markets at
favorable exchange rates.
Revolving Credit Facility Modification. In
February 2009, we amended our revolving credit facility to
(i) authorize our repurchase of common stock up to an
aggregate of $10.0 million (further discussed below);
(ii) increase the amount of aggregate
Investments (as defined in the credit facility
agreement) that we may make in non wholly-owned subsidiaries
from $10.0 million to $20.0 million and
correspondingly increase the aggregate amount of Investments
that we may make in subsidiaries that are not Loan Parties (as
defined in the credit facility agreement) from
$25.0 million to $35.0 million; (iii) increase
the maximum amount of letters of credit that may be issued under
the facility from $10.0 million to $15.0 million; and
(iv) modify the amount of capital expenditures that may be
incurred on a rolling
12-month
basis, as measured on a quarterly basis.
Stock Repurchase Program. In February 2009,
our Board of Directors approved a common stock repurchase
program up to an aggregate of $10.0 million. To date, we
have purchased approximately 35,000 shares of our common
stock at a total cost of $0.1 million and at an average
price per share of $3.37, which were repurchased on various
dates in the open market. The share repurchase program had an
initial expiration date of March 31, 2010. However, in
March 2010, our Board of Directors extended the program through
March 31, 2011, unless further extended or terminated
earlier by our Board of Directors.
Expansion into Puerto Rico. During the third
quarter of 2009, we entered into the Puerto Rican ATM market. As
of December 31, 2009, we had installed 21 ATMs in that
market and we plan to continue to explore other growth
opportunities on the island, as well as entrance into other
Caribbean, Latin, and Central American ATM markets.
S-40
Mount Vernon Money Center. In February 2010,
MVMC, one of our third-party armored service providers in the
Northeast, ceased all cash replenishment operations for its
customers following the arrest on charges of bank fraud of its
founder and principal owner. A few days later, the
U.S. District Court in the Southern District of New York
(the Court) appointed a receiver (the
Receiver) to, among other things, seize all of the
assets in the possession of MVMC. While we currently do not
believe that this event will have a material adverse affect on
our operations, we were required to convert over 1,000 ATMs that
were being serviced by MVMC to another third-party armored
service provider, resulting in a minor amount of downtime being
experienced by those ATMs. Further, based upon the
Receivers report dated March 1, 2010, and filed with
the Court on that same date, it appears that some of the vault
cash that was delivered to MVMC on our behalf was either
commingled with vault cash belonging to MVMCs other
customers or was misappropriated by MVMC. Regardless, we
currently believe that our existing insurance policies will
cover any cash losses that we may incur resulting from this
incident, less any deductible payments required to be paid by us
under such policies. If it is ultimately determined that we have
suffered cash losses in connection with this incident, the
timing of recognition of such losses and the related insurance
reimbursement amounts may not coincide.
Factors
Impacting Comparability
7-Eleven ATM Transaction. In July 2007, we
acquired the 7-Eleven Financial Services Business for
approximately $137.3 million in cash. The acquisition
included approximately 5,500 ATMs located in 7-Eleven stores
throughout the United States. Additionally, 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 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 include the
results of the 7-Eleven Financial Services Business. Because of
the significance of this acquisition, our operating results for
the years ended December 31, 2009 and 2008 are not
comparable to our historical results for the year ended
December 31, 2007. In particular, our revenues and gross
profits for 2009 and 2008 were substantially higher, but the
increased revenue and gross profit amounts were initially
substantially offset by higher operating expense amounts,
including higher selling, general, and administrative expenses
associated with running the combined operations. In addition,
depreciation, accretion, and amortization expense amounts were
significantly higher as a result of the tangible and intangible
assets recorded as part of the acquisition. For more information
on the 7-Eleven ATM Transaction, see Part II,
Item 8. Financial Statements and Supplementary Data,
Note 3 to our 2009
Form 10-K.
Foreign Currency Exchange Rates. As noted
above, our results during 2009 and 2008 were negatively impacted
by changes in foreign currency rates. As a result, we have
provided certain information on a constant-currency basis in the
following sections in an effort to allow for more meaningful
comparisons to be made between the years presented.
S-41
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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
|
97.9
|
%
|
|
|
96.5
|
%
|
|
|
96.6
|
%
|
ATM product sales and other revenues
|
|
|
2.1
|
|
|
|
3.5
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
67.7
|
|
|
|
73.6
|
|
|
|
74.5
|
|
Cost of ATM product sales and other revenues
|
|
|
2.1
|
|
|
|
3.2
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
69.8
|
|
|
|
76.8
|
|
|
|
77.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
30.2
|
|
|
|
23.2
|
|
|
|
22.4
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
8.4
|
|
|
|
7.9
|
|
|
|
7.8
|
|
Depreciation and accretion expense
|
|
|
8.0
|
|
|
|
7.9
|
|
|
|
7.1
|
|
Amortization
expense(2)
|
|
|
3.8
|
|
|
|
3.8
|
|
|
|
5.0
|
|
Loss on disposal of assets
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
0.7
|
|
Goodwill impairment
charge(3)
|
|
|
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21.5
|
|
|
|
31.0
|
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
8.7
|
|
|
|
(7.7
|
)
|
|
|
1.9
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
6.1
|
|
|
|
6.3
|
|
|
|
7.8
|
|
Amortization of deferred financing costs and bond discounts
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
0.4
|
|
Other
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
6.7
|
|
|
|
6.8
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2.0
|
|
|
|
(14.5
|
)
|
|
|
(6.2
|
)
|
Income tax expense
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1.2
|
|
|
|
(14.7
|
)
|
|
|
(7.4
|
)
|
Net income (loss) attributable to noncontrolling interests
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interests
|
|
|
1.1
|
|
|
|
(14.5
|
)
|
|
|
(7.3
|
)
|
Preferred stock conversion and accretion expense
|
|
|
|
|
|
|
|
|
|
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interest and
available to common stockholders
|
|
|
1.1
|
%
|
|
|
(14.5
|
)%
|
|
|
(16.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes effects of depreciation, accretion, and amortization
expense of $51.5 million, $52.4 million, and
$43.1 million, for the years ended December 31, 2009,
2008, and 2007, 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
10.4%, 10.6%, and 11.4% for the years ended December 31,
2009, 2008, and 2007, respectively. |
|
(2) |
|
Includes pre-tax impairment charges of $1.2 million,
$0.4 million, and $5.7 million for the years ended
December 31, 2009, 2008, and 2007, respectively. |
S-42
|
|
|
(3) |
|
Represents a $50.0 million charge in 2008 to write-down the
value of the goodwill associated with our United Kingdom
operations. |
Key
Operating Metrics
We rely on certain key measures to gauge our operating
performance, including total transactions, total cash withdrawal
transactions, ATM operating revenues per ATM per month, and ATM
operating gross profit margin. The following table sets forth
information regarding certain of these key measures for the
years indicated.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Average number of transacting ATMs:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States: Company-owned
|
|
|
18,190
|
|
|
|
17,993
|
|
|
|
14,143
|
|
United States: Merchant-owned
|
|
|
10,066
|
|
|
|
10,695
|
|
|
|
11,632
|
|
United Kingdom
|
|
|
2,606
|
|
|
|
2,421
|
|
|
|
1,718
|
|
Mexico
|
|
|
2,197
|
|
|
|
1,747
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average number of transacting ATMs
|
|
|
33,059
|
|
|
|
32,856
|
|
|
|
28,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transactions (in thousands)
|
|
|
383,323
|
|
|
|
354,391
|
|
|
|
247,270
|
|
Total cash withdrawal transactions (in thousands)
|
|
|
244,378
|
|
|
|
228,306
|
|
|
|
166,248
|
|
Monthly cash withdrawal transactions per ATM
|
|
|
616
|
|
|
|
579
|
|
|
|
490
|
|
Per ATM per month:
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating revenues
|
|
$
|
1,218
|
|
|
$
|
1,207
|
|
|
$
|
1,076
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and
amortization)(1)(2)
|
|
|
842
|
|
|
|
921
|
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross
profit(1)(3)
|
|
$
|
376
|
|
|
$
|
286
|
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ATM operating gross profit margin (exclusive of depreciation,
accretion, and amortization)
|
|
|
30.9
|
%
|
|
|
23.7
|
%
|
|
|
22.9
|
%
|
ATM operating gross profit margin (inclusive of depreciation,
accretion, and amortization)
|
|
|
20.2
|
%
|
|
|
12.7
|
%
|
|
|
11.1
|
%
|
|
|
|
(1) |
|
Excludes effects of depreciation, accretion, and amortization
expense of $51.5 million, $52.4 million, and
$43.1 million for the years ended December 31, 2009,
2008, and 2007, 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 $130, $133, and $127
for the years ended December 31, 2009, 2008, and 2007,
respectively. |
|
(2) |
|
The decline in the Cost of ATM operating revenues per ATM per
month from 2008 to 2009 was due to foreign currency exchange
rate movements between the two periods, lower vault cash
interest costs, and other operating cost reductions as a result
of better pricing terms under the renegotiated contract with our
maintenance and armored service providers. |
|
(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 and
other ATM-related services are not included. |
S-43
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
(In thousands, excluding percentages)
|
|
|
ATM operating revenues
|
|
$
|
483,138
|
|
|
$
|
475,800
|
|
|
|
1.5
|
%
|
|
$
|
365,322
|
|
|
|
30.2
|
%
|
ATM product sales and other revenues
|
|
|
10,215
|
|
|
|
17,214
|
|
|
|
(40.7
|
)%
|
|
|
12,976
|
|
|
|
32.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
493,353
|
|
|
$
|
493,014
|
|
|
|
0.1
|
%
|
|
$
|
378,298
|
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2009 compared to year ended
December 31, 2008
ATM operating revenues. ATM operating revenues
generated during the year ended December 31, 2009 increased
$7.3 million over the year ended December 31, 2008.
Below is a detail, by segment, of changes in the various
components of ATM operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 to 2009 Variance
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
Total
|
|
|
|
Increase (Decrease)
|
|
|
|
(In thousands)
|
|
|
Surcharge revenues
|
|
$
|
(11,557
|
)
|
|
$
|
(4,978
|
)
|
|
$
|
4,712
|
|
|
$
|
(11,823
|
)
|
Interchange revenues
|
|
|
3,692
|
|
|
|
4,098
|
|
|
|
253
|
|
|
|
8,043
|
|
Branding and surcharge-free network revenues
|
|
|
9,565
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
9,560
|
|
Other revenues
|
|
|
798
|
|
|
|
|
|
|
|
760
|
|
|
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in ATM operating revenues
|
|
$
|
2,498
|
|
|
$
|
(880
|
)
|
|
$
|
5,720
|
|
|
$
|
7,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States. During the year ended
December 31, 2009, our United States operations experienced
a $2.5 million increase in ATM operating revenues over
2008. This increase was primarily due to a 16% increase in bank
branding and surcharge-free network revenues that resulted from
the continued growth of participating banks in our
surcharge-free offerings. Additionally, increased participation
in these programs and growth in the use of prepaid debit cards
contributed to the 2% increase in the number of cash withdrawal
transactions conducted on our ATMs, which resulted in a 3%
increase in interchange revenues. Offsetting the increase in
bank branding and surcharge-free network revenues and
interchange revenues during the period was a 12% decline in the
number of surcharge transactions, which resulted in an
$11.6 million decline in surcharge revenue. Since our
surcharge-free programs allow participants cardholders to
make cash withdrawals on a surcharge-free basis at our ATMs, a
decline in the number of surcharge transactions was expected.
Also contributing to the decrease in surcharge transactions was
a 6% decline in our merchant-owned account base, which
contributed $4.8 million of the $11.6 million
surcharge revenue decline but had a minimal impact on our
overall gross profit as much of the surcharge revenues generated
by those accounts are paid to the underlying merchants.
Accordingly, as surcharge revenues declined, so did the related
merchant payments.
United Kingdom. During the year ended
December 31, 2009, ATM operating revenues from our United
Kingdom operations decreased $0.9 million from the year
ended December 31, 2008, due to the unfavorable foreign
currency exchange rate movements between the years.
Specifically, during 2009, the average exchange rate between the
United States dollar and the British pound was $1.57 to
£1.00 compared to $1.85 to £1.00 in 2008. Excluding
the impact of foreign currency movements, surcharge revenues and
interchange revenues increased by $3.6 million (7%) and
$8.6 million (39%), respectively. These increases were
primarily driven by a 26% increase in cash withdrawal
transactions that resulted from an 8% increase in the average
number of transacting ATMs, which increased from 2,421 during
2008 to 2,606 ATMs during 2009. Additionally, the higher number
of cash withdrawal transactions on our
free-to-use
ATMs also contributed to the increase in the amount of
interchange revenues earned during 2009 on a constant currency
basis.
Mexico. Our Mexico operations
experienced the most significant percentage increase in ATM
operating revenues during the year ended December 31, 2009,
primarily as a result of a 26% increase in the average
S-44
number of transacting ATMs associated with these operations.
Specifically, the average number of transacting ATMs increased
from 1,747 during 2008 to 2,197 during 2009, with an ending
machine count of 2,616 as of December 31, 2009. This
increased machine count contributed to the increase in total
surcharge transactions of approximately 30%, which resulted in
an additional $4.7 million and $0.3 million in
surcharge and interchange revenues, respectively. Excluding the
impact of unfavorable foreign currency exchange rate movements,
the increases in surcharge and interchange revenues would have
been $7.3 million and $1.3 million, respectively.
ATM product sales and other revenues. ATM
product sales and other revenues for the year ended
December 31, 2009 were lower than those generated during
2008 by $7.0 million primarily due to lower equipment sales
and lower VAR program sales. Under our VAR program, we primarily
sell ATMs to Associate VARs who in turn resell the ATMs to
various financial institutions throughout the United States in
territories authorized by the equipment manufacturer. In the
current economic climate, financial institutions and others have
reduced their ATM purchases and we have, therefore, seen a
decline in these sales during 2009. Also contributing to the
decline was the completion of our Triple Data Encryption
Standard (Triple-DES) upgrades in 2008, which
generated a higher amount of product sales and service-related
revenues during 2008.
Year
ended December 31, 2008 compared to year ended
December 31, 2007
ATM operating revenues. ATM operating revenues
generated during the year ended December 31, 2008 increased
$110.5 million over the year ended December 31, 2007.
Below is a detail, by segment, of changes in the various
components of ATM operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to 2008 Variance
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
Total
|
|
|
|
Increase (Decrease)
|
|
|
|
(In thousands)
|
|
|
Surcharge revenue
|
|
$
|
33,355
|
|
|
$
|
2,273
|
|
|
$
|
5,111
|
|
|
$
|
40,739
|
|
Interchange revenue
|
|
|
32,303
|
|
|
|
8,349
|
|
|
|
2,655
|
|
|
|
43,307
|
|
Branding and surcharge-free network revenue
|
|
|
22,481
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
22,479
|
|
Other
|
|
|
3,952
|
|
|
|
1
|
|
|
|
|
|
|
|
3,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in ATM operating revenues
|
|
$
|
92,091
|
|
|
$
|
10,623
|
|
|
$
|
7,764
|
|
|
$
|
110,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States. During the year ended
December 31, 2008, our United States operations experienced
a $92.1 million (30.9%) increase in ATM operating revenues
over 2007. The majority of this increase was attributable to the
7-Eleven ATM Transaction. Specifically, our 2008 results
included $41.8 million of incremental surcharge revenue,
$29.7 million of incremental interchange revenue,
$7.6 million of incremental branding and surcharge-free
network revenue, and $4.0 million of advanced-functionality
revenue generated by the acquired operations as a result of the
inclusion of these operations in our results for the full year
of 2008. Also contributing to the increase in ATM operating
revenues were the additional branding and surcharge-free network
agreements entered into during 2007, which resulted in
$14.8 million in incremental bank branding and
surcharge-free network fees from our pre-existing domestic
operations. Finally, we also generated $4.5 million of
incremental interchange revenues from our pre-existing
Company-owned domestic operations in 2008 when compared to 2007,
the majority of which can be attributed to the additional bank
branding and surcharge-free network agreements entered into in
2007 as well as the higher number of Company-owned ATMs in 2008
compared to 2007.
The overall increase in ATM operating revenues described above
was partially offset by lower surcharge and interchange revenues
associated with our domestic merchant-owned operations. As a
result of declines in the average number of transacting ATMs,
surcharge revenues and interchange revenues generated by our
merchant-owned base were $8.0 million and $1.9 million
lower, respectively, during 2008 when compared to 2007. These
declines were primarily a result of the decline in the average
number of transacting merchant-owned ATMs in the United States,
the majority of which was attributable to attrition related to
the Triple-DES upgrades mandated by the EFT networks.
Specifically, rather than incurring the costs to update or
replace their existing machines to be Triple-DES compliant,
merchants with lower transacting ATMs decided to dispose of
their ATMs. Additionally, surcharge revenues from our
Company-owned base declined by $0.5 million during
S-45
2008, 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
2007.
United Kingdom. Our United Kingdom
operations further contributed to the higher ATM operating
revenues during the year ended December 31, 2008, as
surcharge revenues and interchange revenues increased by 4.6%
and 61.4%, respectively, over 2007 due to the additional ATM
deployments that occurred during 2007 and 2008. Specifically,
the average number of transacting ATMs in the United Kingdom
increased from 1,718 ATMs during 2007 to 2,421 ATMs during 2008.
Additionally, a higher number of
free-to-use
ATMs also contributed to the increase in the amount of
interchange revenues earned during 2008. However, the increase
in revenues was lower than originally anticipated due to lower
than expected surcharge transaction levels during 2008, which we
believe were due to a number of factors, including
(i) certain service-related issues associated with one of
our third-party armored cash providers that resulted in a higher
percentage of downtime at our ATMs during 2008, (ii) the
overall economic downturn experienced in the United Kingdom,
(iii) the installation of a significant number of new
free-to-use
ATMs in that market in 2008, and (iv) additional regulatory
changes, including requirements to place more prominent fee
notifications on
pay-to-use
ATMs.
In addition to the above factors that negatively impacted our
surcharge transaction levels, and therefore our surcharge
revenues, the strengthening of the United States dollar relative
to the British pound also negatively impacted the revenues from
our United Kingdom operations. Specifically, during 2008, the
average exchange rate between the United States dollar and the
British pound was $1.85 to £1.00 compared to $2.00 to
£1.00 in 2007.
Mexico. Our Mexico operations
contributed to the increase in ATM operating revenues during the
year ended December 31, 2008 as a result of the deployment
of additional ATMs during 2007 and 2008. Specifically, the
average number of transacting ATMs associated with these
operations increased from 784 during 2007 to 1,747 during 2008.
ATM product sales and other revenues. ATM
product sales and other revenues for the year ended
December 31, 2008 were slightly higher than those generated
during 2007 primarily due to higher VAR program sales, which
resulted from the additions of two new Associate VARs during the
latter half of 2007 and one new Associate VAR in the first
quarter of 2008.
Cost
of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
|
|
|
(In thousands, excluding percentages)
|
|
|
|
|
|
Cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization)
|
|
$
|
333,907
|
|
|
$
|
362,916
|
|
|
|
(8.0
|
)%
|
|
$
|
281,705
|
|
|
|
28.8
|
%
|
Cost of ATM product sales and other revenues
|
|
|
10,567
|
|
|
|
15,625
|
|
|
|
(32.4
|
)%
|
|
|
11,942
|
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues (exclusive of depreciation, accretion,
and amortization)
|
|
$
|
344,474
|
|
|
$
|
378,541
|
|
|
|
(9.0
|
)%
|
|
$
|
293,647
|
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2009 compared to year ended
December 31, 2008
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 year ended December 31,
2009 decreased $29.0 million from the year ended
December 31, 2008. Below is a detail,
S-46
by segment, of changes in the various components of the cost of
ATM operating revenues (exclusive of depreciation, accretion,
and amortization):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 to 2009 Variance
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
Total
|
|
|
|
Increase (Decrease)
|
|
|
|
(In thousands)
|
|
|
Merchant commissions
|
|
$
|
(7,933
|
)
|
|
$
|
(1,091
|
)
|
|
$
|
1,422
|
|
|
$
|
(7,602
|
)
|
Vault cash rental expense
|
|
|
(5,409
|
)
|
|
|
(7,575
|
)
|
|
|
154
|
|
|
|
(12,830
|
)
|
Other cost of cash
|
|
|
(3,370
|
)
|
|
|
(656
|
)
|
|
|
282
|
|
|
|
(3,744
|
)
|
Repairs and maintenance
|
|
|
(204
|
)
|
|
|
77
|
|
|
|
576
|
|
|
|
449
|
|
Communications
|
|
|
(1,050
|
)
|
|
|
(1,278
|
)
|
|
|
180
|
|
|
|
(2,148
|
)
|
Transaction processing
|
|
|
(1,936
|
)
|
|
|
76
|
|
|
|
22
|
|
|
|
(1,838
|
)
|
Stock-based compensation
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
177
|
|
Other expenses
|
|
|
1,173
|
|
|
|
(2,684
|
)
|
|
|
38
|
|
|
|
(1,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in cost of ATM revenues
|
|
$
|
(18,552
|
)
|
|
$
|
(13,131
|
)
|
|
$
|
2,674
|
|
|
$
|
(29,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States. During the year ended
December 31, 2009, the cost of ATM operating revenues
(exclusive of depreciation, accretion, and amortization)
incurred by our United States operations decreased
$18.6 million from the costs incurred during 2008. This
decrease was primarily due to lower merchant fees, which
resulted from the 6% decline in the number of our merchant-owned
accounts that resulted in an overall decline in surcharge
transactions and the related surcharge revenues, as noted above.
Also contributing to the decline in the cost of ATM operating
revenues was lower vault cash rental expense, primarily due to
reduced market interest rates on the unhedged portion of our
vault cash rental obligations, and a decrease in other cost of
cash, which was attributable to lower armored costs resulting
from fewer cash fills and the effect of better pricing terms
under the renegotiated contract with one of our primary armored
service providers. Similarly, our primary domestic maintenance
service agreement was renewed on favorable terms earlier in the
year, which resulted in a lower repairs and maintenance expense
for 2009 compared to the prior year. Our communications expense
also declined, primarily as a result of the renegotiated
contract with our telecommunications provider. Finally, we
incurred lower transaction processing costs due to the continued
conversion of the ATMs in our portfolio over to our EFT
transaction processing platform.
With respect to our domestic vault cash rental obligations, we
negotiated new pricing terms and conditions with one of our
vault cash providers, which became effective in August 2009.
Additionally, we are currently negotiating new pricing terms and
conditions with another vault cash provider in the United
States, which we expect will become effective July 1, 2010.
As a result of these negotiations, we expect to see a slight
increase in our vault cash rental costs in future periods, thus
negatively impacting our domestic ATM operating gross profit
margins. See Gross Profit Margin below
for a discussion of our expectations regarding gross margin
levels for 2010.
United Kingdom. During 2009, our United
Kingdom operations also contributed to the decrease in the cost
of ATM operating revenues (exclusive of depreciation, accretion,
and amortization). The overall $13.1 million decrease was
primarily due to foreign currency exchange rate movements
between periods. Excluding the impact of exchange rate
movements, our United Kingdom operations cost of ATM
operating revenues decreased by $3.8 million, despite an
increase in the average number of transacting ATMs in 2009 when
compared to 2008. The decrease in costs (excluding exchange rate
movements) was primarily due to lower vault cash rental expense
as a result of reduced market interest rates on our vault cash
rental obligations in 2009 when compared to 2008. Additionally,
we maintained higher cash balances in our ATMs within the United
Kingdom during the latter half of 2008 in an effort to minimize
the amount of downtime caused by service-related issues with a
third-party armored service provider, which further contributed
to the
year-over-year
decline in vault cash rental expense. Finally, our
communications expense also declined as a result of the
renegotiated contract with our primary communications provider
in the United Kingdom.
S-47
With respect to our United Kingdom vault cash rental
obligations, we renegotiated new pricing terms and conditions
during 2009 with our existing vault cash provider in that
market. The revised pricing terms and conditions are somewhat
less favorable to us than those that were in effect under the
previous agreement. As a result, the vault cash rental costs
associated with our operations in the United Kingdom are
expected to increase in future periods, thus negatively
impacting our ATM operating gross profit margins in that
segment. Additionally, during 2009, we entered into certain
interest rate swap transactions to fix the interest rate
utilized in calculating the monthly vault cash rental fees under
our vault cash rental agreement in the United Kingdom. Such
fixed rates, which became effective in January 2010, are higher
than current market interest rates as the fixed rates under the
swap contracts represent intermediate-term rates (which are
typically higher) while the current market rates are short-term
floating rates (which are typically lower). Accordingly, the
amount we pay for our vault cash rental fees in the United
Kingdom is expected to increase from current levels beginning in
2010, regardless of any changes that may occur with respect to
market interest rates. See Gross Profit
Margin below for a discussion of our expectations
regarding gross margin levels for 2010.
Mexico. Partially offsetting the
decrease in the cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization) of our United States
and United Kingdom operations were the costs incurred by our
Mexico operations. The higher costs in Mexico were attributable
to a 26% increase in the average number of transacting ATMs and
a 30% increase in the total number of transactions conducted on
these machines during 2009 when compared to 2008, which resulted
in a $2.7 million increase in the cost of ATM operating
revenues for the year ended December 31, 2009, when
compared to 2008. Excluding the impact of exchange rate
movements (which were advantageous to the costs associated with
these operations), the increase in our cost of ATM operating
revenues for Mexico for year ended December 31, 2009 were
$5.5 million higher than the same period last year.
Cost of ATM product sales and other
revenue. Relatively consistent with the 40.7%
decrease in ATM product sales and other revenues discussed
above, the cost of ATM product sales and other revenues
decreased 32.4% during 2009 compared to 2008 primarily due to
lower equipment and VAR program sales during the period.
Year
ended December 31, 2008 compared to year ended
December 31, 2007
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 year ended December 31,
2008 increased $81.2 million over the year ended
December 31, 2007. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to 2008 Variance
|
|
|
|
U.S.
|
|
|
U.K.
|
|
|
Mexico
|
|
|
Total
|
|
|
|
Increase (Decrease)
|
|
|
|
(In thousands)
|
|
|
Merchant commissions
|
|
$
|
21,928
|
|
|
$
|
7,636
|
|
|
$
|
3,103
|
|
|
$
|
32,667
|
|
Vault cash rental expense
|
|
|
7,522
|
|
|
|
2,384
|
|
|
|
1,164
|
|
|
|
11,070
|
|
Other cost of cash
|
|
|
8,628
|
|
|
|
3,035
|
|
|
|
944
|
|
|
|
12,607
|
|
Repairs and maintenance
|
|
|
9,037
|
|
|
|
1,816
|
|
|
|
722
|
|
|
|
11,575
|
|
Direct operations
|
|
|
5,423
|
|
|
|
732
|
|
|
|
505
|
|
|
|
6,660
|
|
Communications
|
|
|
3,862
|
|
|
|
672
|
|
|
|
384
|
|
|
|
4,918
|
|
Transaction processing
|
|
|
(2,497
|
)
|
|
|
(924
|
)
|
|
|
(33
|
)
|
|
|
(3,454
|
)
|
Stock-based compensation
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
|
534
|
|
Charges related to EMV certification
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
793
|
|
Other expenses
|
|
|
686
|
|
|
|
3,118
|
|
|
|
37
|
|
|
|
3,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in cost of ATM revenues
|
|
$
|
55,123
|
|
|
$
|
19,262
|
|
|
$
|
6,826
|
|
|
$
|
81,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-48
United States. During the year ended
December 31, 2008, the cost of ATM operating revenues
(exclusive of depreciation, accretion, and amortization)
incurred by our United States operations increased
$55.1 million over the cost incurred during 2007. This
increase was primarily the result of the 7-Eleven ATM
Transaction, as the operations of the acquired 7-Eleven
Financial Services Business, which were included in our results
for the full year of 2008 compared to only five and a half
months during 2007, incurred $110.3 million of expenses
during 2008 compared to $53.4 million of expenses during
2007. The incremental $56.9 million of expenses incurred by
these operations during 2008 included $28.5 million of
merchant fees, $13.8 million in costs of cash,
$7.1 million of repairs and maintenance costs,
$3.6 million in communication costs, $3.1 million of
processing costs, and $0.8 million of direct operations and
other costs. The $110.3 million of expenses incurred by the
operations of the acquired 7-Eleven Financial Services Business
during 2008 is net of $8.2 million of expense reductions
related to the liabilities we recorded in connection with the
acquisition to value certain unfavorable operating leases and an
operating contract assumed as a part of the 7-Eleven ATM
Transaction.
Our pre-existing United States operations also contributed to
the higher cost of ATM operating revenues (exclusive of
depreciation, accretion, and amortization), including
(1) $5.2 million of additional costs directly
allocable to our pre-existing domestic operations, primarily as
a result of our decision to hire additional personnel during
2007 to focus on our strategic initiatives at that time;
(2) $2.4 million of higher costs of cash, primarily
due to higher armored courier costs as a result of the increase
in the number of Company-owned machines; and
(3) $1.1 million of higher maintenance costs.
Offsetting these increases in costs was a $6.6 million
reduction in merchant fees associated with our pre-existing
domestic operations, comprised of a $7.3 million decrease
attributable to the
year-over-year
decline in the number of domestic merchant-owned ATMs and the
related surcharge revenues that was partially offset by a
$0.7 million increase in merchant fees associated with the
increased number of ATMs under domestic Company-owned
arrangements. Also offsetting these increases was a
$3.0 million decrease in processing and other costs as a
result of the conversion of a higher number of our ATMs over to
our EFT processing platform.
United Kingdom. During the 2008, our
United Kingdom operations contributed to the increase in the
cost of ATM operating revenues (exclusive of depreciation,
accretion, and amortization) with those costs increasing
$19.3 million over 2007. These increases were primarily due
to higher merchant commissions and higher costs of cash, which
resulted from the increased number of ATMs operating in the
United Kingdom during 2008 compared to 2007. With respect to
merchant commissions, although we saw a decline in surcharge
revenues, as discussed above, we did not see a corresponding
decline in merchant fees due to the fact that certain our of
merchant contracts in the United Kingdom contain fixed or
minimum yearly rentals. As a result, surcharge revenues in
certain of these merchant locations declined without a similar
decline in the related merchant fees. While we worked with a
number of our merchant customers in the United Kingdom to
restructure the terms and conditions of the underlying merchant
contracts, we expect that this trend will continue for the
foreseeable future. With respect to our cost of cash, due to the
third-party armored cash service-related issues discussed above,
we maintained higher cash balances in our ATMs within the United
Kingdom during 2008 in an effort to minimize the amount of
downtime caused by the service disruptions, thus contributing to
the overall
year-over-year
increase in our cost of cash amounts. Finally, contributing to
the increase were the costs incurred related to the
establishment of our own armored courier operation, which
formally commenced operations during the fourth quarter of 2008.
In addition to the factors described above, during the year
ended December 31, 2008, we incurred $1.2 million of
charges associated with transactions conducted with counterfeit
cards that resulted from a delay in our EMV certification
process. During the year ended December 31, 2007, we
incurred a similar charge in the amount of $0.4 million. In
the United Kingdom, the major international networks require ATM
operators and merchant acquirers be certified under the EMV
security standard. The EMV security standard provides for the
security and processing of information contained on microchips
imbedded in certain debit and credit cards, known as smart
cards. All of our ATMs in the United Kingdom are EMV
compliant, and through the second quarter of 2008, we had
successfully certified our machines and network for EMV
compliance with Link, the dominant network in the United Kingdom
through whom we clear over 95% of our transactions, as well as
one of the other two major international networks. However,
during the second quarter
S-49
of 2008, we experienced a significant increase in transactions
conducted on our United Kingdom ATMs with counterfeit credit
cards containing the brand of the network with whom we had not
yet achieved EMV certification. Because we had not yet completed
our EMV certification with this network at that time, we are
liable for the resulting claims, which totaled approximately
$1.2 million. However, during the third quarter of 2008, we
successfully achieved EMV certification with this particular
network, and thus, we do not expect to incur additional charges
related to this issue in the future.
Partially offsetting the factors described above that resulted
in an increase in the cost of ATM operating revenues incurred by
our United Kingdom operations was the strengthening of the
United States dollar relative to the British pound.
Specifically, during 2008, the average exchange rate between the
United States dollar and the British pound was $1.85 to
£1.00 compared to $2.00 to £1.00 in 2007.
Mexico. Our Mexico operations
contributed to the increase in the cost of ATM operating
revenues (exclusive of depreciation, accretion, and
amortization) 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 2008 compared to 2007.
Cost of ATM product sales and other
revenue. The cost of ATM product sales and other
revenues increased by $3.7 million during the year ended
December 31, 2008 compared to the year ended
December 31, 2007. This 30.8% increase is comparable to the
32.7% increase in ATM product sales and other revenues during
the period, the majority of which was attributable to the higher
number of Associate VARs, which resulted in higher VAR program
sales during 2008 compared to 2007.
Gross
Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
ATM operating gross profit margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exclusive of depreciation, accretion, and amortization
|
|
|
30.9
|
%
|
|
|
23.7
|
%
|
|
|
22.9
|
%
|
Inclusive of depreciation, accretion, and amortization
|
|
|
20.2
|
%
|
|
|
12.7
|
%
|
|
|
11.1
|
%
|
ATM product sales and other revenues gross profit margin
|
|
|
(3.4
|
)%
|
|
|
9.2
|
%
|
|
|
8.0
|
%
|
Total gross profit margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exclusive of depreciation, accretion, and amortization
|
|
|
30.2
|
%
|
|
|
23.2
|
%
|
|
|
22.4
|
%
|
Inclusive of depreciation, accretion, and amortization
|
|
|
19.7
|
%
|
|
|
12.6
|
%
|
|
|
11.0
|
%
|
ATM operating gross profit margin. Our ATM
operating gross profit margin exclusive of depreciation,
accretion, and amortization earned during the year ended
December 31, 2009 increased by 7.2 percentage points
over the year ended December 31, 2008. Additionally, our
ATM operating gross profit margin inclusive of depreciation,
accretion, and amortization for the year ended December 31,
2009 increased 7.5 percentage points over the prior year.
These increases were due to higher margins earned in all three
of our operating segments during 2009. However, our United
States and United Kingdom operations contributed to the
majority of the increases due to favorable cash withdrawal
transaction and related revenue trends in those markets, the
effect of lower market interest rates on our vault cash rental
costs, and lower armored and maintenance costs during 2009.
Additionally in the United States, the
year-over-year
decline in our merchant-owned account base contributed to the
increased margins in 2009, as the revenues related to those
merchant-owned accounts were replaced with higher-margin
Company-owned accounts and related services.
We expect our future ATM operating gross profit margins to
remain relatively consistent with the levels achieved during
2009, as unfavorable changes in certain operating cost line
items, including increased vault cash rental costs in the United
States and the United Kingdom, are expected to be substantially
offset by lower maintenance and armored costs in the United
States. Additionally, we expect to continue to see a shift in
our revenue mix from lower margin surcharge revenues to higher
margin interchange and bank branding and surcharge-free revenues.
S-50
For the year ended December 31, 2008, ATM operating gross
profit margins exclusive of depreciation, accretion, and
amortization increased 0.8 percentage points when compared
to 2007. Inclusive of depreciation, accretion, and amortization,
ATM operating gross profit margins increased 1.6 percentage
points compared to 2007. These increases were primarily the
result of our United States operation, which earned higher
margins in 2008, primarily due to higher bank branding and
surcharge-free network revenues and the inclusion of the
acquired 7-Eleven ATM operations for the full year of 2008.
However, these increases were partially offset by lower margins
earned by our United Kingdom operations as a result of
lower-than-anticipated
surcharge transactions without a corresponding decline in
merchant fees, as well as higher costs of cash resulting from
the previously discussed third-party armored cash service
related issues. Inclusion of depreciation, accretion, and
amortization increased the gross profit margin as these expenses
associated with our ATM operations decreased as a percentage of
revenues in 2008 compared to 2007. This decrease in 2008 was
primarily the result of a $5.2 million intangible asset
impairment charge recorded during 2008, which increased
depreciation, accretion, and amortization as a percentage of
revenues for 2008. For additional information on this charge,
see Amortization Expense below.
ATM product sales and other revenues gross profit
margin. ATM product sales and other revenues
gross profit margin during 2009 decreased by
12.6 percentage points compared to 2008 primarily due to
lower margins achieved on VAR, equipment, and other service
sales during the 2009, as we were required to lower our sales
prices in light of the reduced market demand for ATM product
sales. ATM product sales and other revenues gross profit margin
was higher in 2008 compared to 2007 primarily due to the
completion of our Triple-DES upgrade efforts. Because all ATMs
operating on the domestic EFT networks were required to be
Triple-DES compliant by the end of 2007 and early 2008, we saw
an increase during 2007 in the number of ATM sales associated
with the Triple-DES upgrade process. However, in certain
circumstances, we 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 and the early part of 2008.
Selling,
General, and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
(In thousands, excluding percentages)
|
|
|
Selling, general, and administrative expenses, excluding
stock-based compensation
|
|
$
|
37,705
|
|
|
$
|
36,173
|
|
|
|
4.2
|
%
|
|
$
|
28,394
|
|
|
|
27.4
|
%
|
Stock-based compensation expense
|
|
|
3,822
|
|
|
|
2,895
|
|
|
|
32.0
|
%
|
|
|
963
|
|
|
|
200.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
$
|
41,527
|
|
|
$
|
39,068
|
|
|
|
6.3
|
%
|
|
$
|
29,357
|
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses, excluding
stock-based compensation
|
|
|
7.6
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
7.5
|
%
|
|
|
|
|
Stock-based compensation expense
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
Total selling, general, and administrative expenses
|
|
|
8.4
|
%
|
|
|
7.9
|
%
|
|
|
|
|
|
|
7.8
|
%
|
|
|
|
|
Selling, general, and administrative expenses
(SG&A expenses), excluding stock-based
compensation. For the year ended
December 31, 2009, SG&A expenses, excluding
stock-based compensation, increased $1.5 million compared
to 2008. This increase was primarily attributable to the
recognition of $1.2 million in severance costs associated
with the departure of our former Chief Executive Officer in
March 2009. Additionally, employee-related costs increased due
to the incremental salary expense for additional personnel hired
during 2009 and higher performance-based bonuses earned by our
employees during the year. Partially
S-51
offsetting these increases was a decline in accounting and
professional services expenses due to costs incurred during 2008
that were not repeated in 2009, including $1.9 million of
incremental accounting and professional services expenses that
were primarily related to our Sarbanes-Oxley Act of 2002
compliance efforts and $0.8 million of acquisition-related
costs that were written off as a result of our decision not to
pursue selected international acquisitions.
In 2010, we expect that our SG&A expenses will continue to
increase on an absolute basis as a result of growth initiative
expenses including new hires throughout the Company, as well as
increased marketing efforts; however, we expect that our
SG&A costs will decrease slightly as a percentage of total
revenues.
For the year ended December 31, 2008, SG&A expenses,
excluding stock-based compensation, increased $7.8 million
compared to 2007. This increase was primarily attributable to
our United States operations, which experienced an increase in
SG&A expenses of $7.8 million (34.6%), primarily due
to incremental employee-related costs totaling
$3.1 million. The majority of these costs were associated
with the sales and marketing side of our business and the
employees assumed in connection with the 7-Eleven ATM
Transaction. Additionally, during 2008, we incurred
$2.0 million of incremental costs associated with
accounting and professional services, the majority of which were
associated with our Sarbanes-Oxley compliance efforts and
previously-mentioned acquisition costs that were written off
during 2008.
Stock-based compensation. The increases in
stock-based compensation during the years ended
December 31, 2009 and 2008 were due to the issuance of
additional shares of restricted stock and stock options during
the periods. For additional details on these stock and option
grants, see Part II, Item 8. Financial
Statements and Supplementary Data, Note 4 to our 2009
Form 10-K.
In 2010, we expect that our stock-based compensation costs will
increase due to additional equity grants made to certain
executive officers, including our new Chief Executive Officer
hired in February 2010, as well as an overall higher share price
(relative to prior years) of our common stock.
Depreciation
and Accretion Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
|
|
|
(In thousands, excluding percentages)
|
|
|
|
|
|
Depreciation expense
|
|
$
|
37,403
|
|
|
$
|
37,528
|
|
|
|
(0.3
|
)%
|
|
$
|
25,659
|
|
|
|
46.3
|
%
|
Accretion expense
|
|
|
2,017
|
|
|
|
1,636
|
|
|
|
23.3
|
%
|
|
|
1,122
|
|
|
|
45.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and accretion expense
|
|
$
|
39,420
|
|
|
$
|
39,164
|
|
|
|
0.7
|
%
|
|
$
|
26,781
|
|
|
|
46.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
7.6
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
6.8
|
%
|
|
|
|
|
Accretion expense
|
|
|
0.4
|
%
|
|
|
0.3
|
%
|
|
|
|
|
|
|
0.3
|
%
|
|
|
|
|
Total depreciation and accretion expense
|
|
|
8.0
|
%
|
|
|
7.9
|
%
|
|
|
|
|
|
|
7.1
|
%
|
|
|
|
|
Depreciation expense. The slight decrease in
depreciation expense during 2009 when compared to 2008 was the
effect of foreign currency exchange rate movements between
periods. Excluding the impact of exchange rate movements,
depreciation expense increased by $2.1 million
(approximately 6%) due to the increase in the number of machines
deployed under Company-owned arrangements in each of our
operating segments during 2009.
The significant increase in depreciation expense for the year
ended December 31, 2008 when compared to 2007 was primarily
attributable to our United States operations, which recognized
an additional $6.9 million of depreciation during 2008,
$3.8 million of which related to the assets acquired in the
7-Eleven ATM Transaction which were included in our results for
the full year of 2008 compared to only five and a half months in
2007. Included within the $3.8 million is the amortization
of assets associated with the capital leases assumed in the
acquisition.
S-52
We are currently in the process of evaluating the estimated
useful lives of our fixed assets, specifically related to the
lives of our devices and the related deployment costs, as well
as the assets related to our asset retirement obligations.
Depending on the outcome of such analysis, depreciation expense
may increase in 2010 and beyond, and could reduce the amount we
record for losses on disposal of assets.
Accretion expense. 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, and record this amount as
a liability on our balance sheet in the period in which it is
incurred and we are able to reasonably estimate. Accretion
expense represents the increase of this liability from the
original discounted net present value to the amount we
ultimately expect to incur. The increased accretion expense
during 2009 was primarily attributable to the higher number of
ATMs deployed under Company-owned arrangements in each of our
operating segments during 2009. The increase in accretion
expense in 2008 was primarily attributable to the 7-Eleven ATM
Transaction as well as the increase in Company-owned ATMs during
2008.
Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
% Change
|
|
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2008 to 2009
|
|
2007
|
|
2007 to 2008
|
|
|
(In thousands, excluding percentages)
|
|
Amortization expense
|
|
$
|
18,916
|
|
|
$
|
18,549
|
|
|
|
2.0
|
%
|
|
$
|
18,870
|
|
|
|
(1.7
|
)%
|
Percentage of revenues
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
5.0
|
%
|
|
|
|
|
Amortization expense is primarily comprised of the amortization
of intangible merchant contracts and relationships associated
with our past acquisitions. The increase in amortization expense
during the year ended December 31, 2009 was primarily due
to a $1.2 million impairment charge recorded by our United
States reporting segment in 2009 related to the unamortized
intangible asset associated with one of our merchant contracts.
The impairment resulted from the
higher-than-anticipated
attrition of sites in this portfolio, stemming from the
merchants decision to divest of the majority of its
domestic retail locations. Although this merchant announced its
divestiture program in 2007, it was not until the fourth quarter
of 2009 that the full impact of the sales and attrition was
evident. As a result of the anticipated reduction in future cash
flows from the portfolio, we concluded in the fourth quarter of
2009 that an impairment of the related contract intangible asset
was warranted. It should be noted, however, that we received a
one-time payment from this merchant in May 2009 totaling
$0.8 million relating to termination fees as a result of
certain divestitures made by the merchant in prior periods. At
the time, we concluded that the future cash flows under the
remaining portfolio of ATMs would be sufficient to recover the
carrying value of the related tangible and intangible assets.
Accordingly, such amount was recorded as other income in our
Consolidated Statements of Operations. As such, the net amount
impacting our consolidated results in 2009 totaled
$0.4 million.
The decrease in amortization expense during the year ended
December 31, 2008 was primarily the result of
$5.7 million in impairment charges recorded by our United
States reporting segment during 2007 to write-off the remaining
unamortized intangible asset values associated with certain
merchant contracts, the majority of which related to 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 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. Accordingly, we concluded
that an impairment charge was warranted during 2007 to write-off
the remaining unamortized intangible asset associated with this
merchant contract.
The above $5.7 million decline from 2007 to 2008 was
partially offset by higher amortization recorded in 2008
associated with the intangible assets recorded in conjunction
with the 7-Eleven ATM Transaction. Specifically, during 2008, we
recognized amortization expense of $8.1 million related to
these assets compared to $3.7 million of amortization in
2007, as the 7-Eleven ATM Transaction occurred on July 20,
2007 and, therefore, the 2007 amount included only a partial
years worth of amortization. Additionally, during 2008,
our United States reporting segment recorded approximately
$0.4 million in additional amortization expense of
S-53
intangible assets related to previously-acquired merchant
contracts/relationships that were anticipated to end prior to
our original estimation dates. Finally, our United Kingdom
operations recognized higher amortization expense during 2008 as
a result of the early deinstallation of ATMs, for which we had
to write-off the associated intangible assets.
Loss
on Disposal of Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
(In thousands, excluding percentages)
|
|
|
Loss on disposal of assets
|
|
$
|
6,016
|
|
|
$
|
5,807
|
|
|
|
3.6
|
%
|
|
$
|
2,485
|
|
|
|
133.7
|
%
|
Percentage of revenues
|
|
|
1.2
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
0.7
|
%
|
|
|
|
|
The increase in the loss on disposal of assets during 2009 when
compared to 2008 was due to certain optimization efforts
undertaken by us associated with our United Kingdom operations.
These optimization efforts resulted in the identification and
deinstallation of several hundred underperforming ATMs that we
expect to redeploy under separate ATM operating agreements. As a
result of the deinstallation of these machines, we wrote off the
associated installation costs and any remaining asset retirement
obligations related to the deinstalled machines. The increase in
2008 was also due to additional deinstallations of ATMs during
the year, as well as a write-off of previously capitalized costs
associated with our United Kingdom operations.
Goodwill
Impairment
During the year ended December 31, 2008, we recorded a
$50.0 million impairment charge to reduce the carrying
value of the goodwill balance associated with our United Kingdom
operations. This charge is reflected as a separate line item in
our Consolidated Statements of Operations. The impairment was
primarily driven by continued lower than expected results from
that portion of our business, coupled with adverse market
conditions. For additional information on this charge, including
the steps of the analysis performed to arrive at the
$50.0 million charge, see Part II, Item 8.
Financial Statements and Supplementary Data,
Note 1(j) to our 2009
Form 10-K.
Interest
Expense, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
% Change
|
|
|
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2008 to 2009
|
|
|
2007
|
|
|
2007 to 2008
|
|
|
|
(In thousands, excluding percentages)
|
|
|
Interest expense, net
|
|
$
|
30,133
|
|
|
$
|
31,090
|
|
|
|
(3.1
|
)%
|
|
$
|
29,523
|
|
|
|
5.3
|
%
|
Amortization of financing costs and bond discounts
|
|
|
2,395
|
|
|
|
2,107
|
|
|
|
13.7
|
%
|
|
|
1,641
|
|
|
|
28.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense, net
|
|
$
|
32,528
|
|
|
$
|
33,197
|
|
|
|
(2.0
|
)%
|
|
$
|
31,164
|
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of revenues
|
|
|
6.6
|
%
|
|
|
6.7
|
%
|
|
|
|
|
|
|
8.2
|
%
|
|
|
|
|
Interest expense, net. Although interest
expense, net, for 2009 remained fairly constant when compared to
2008, it decreased by $0.8 million (2.7%) on a constant
currency basis due to lower market interest rates and a
reduction in amounts outstanding under our revolving credit
facility.
During 2008, the increase in interest expense, net, was
primarily due to our issuance of $100.0 million in senior
subordinated notes Series B (the
Series B Notes) in July 2007 to partially
finance the 7-Eleven ATM Transaction. This issuance resulted in
$5.2 million of additional interest expense during the 2008
compared to 2007, excluding the amortization of the related
discount and deferred financing costs. Partially offsetting the
incremental interest associated with our Series B Notes
were the lower average outstanding balances under our revolving
credit facility and the overall decrease in floating interest
rates under our revolving credit facility during 2008 compared
to 2007.
S-54
Amortization of financing costs and bond
discounts. The increase in the amortization of
deferred financing costs and bond discounts during 2009 was a
result of the additional financing costs incurred in connection
with the amendment of our revolving credit facility in February
2009. The amendment, among other things, (i) authorizes our
repurchase of common stock up to an aggregate of
$10.0 million; (ii) increases the amount of aggregate
Investments (as such term is defined in our
revolving credit facility) that we may make in non wholly-owned
subsidiaries from $10.0 million to $20.0 million and
correspondingly increases the aggregate amount of Investments
that we may make in subsidiaries that are not Loan Parties (as
such term is defined in our revolving credit facility) from
$25.0 million to $35.0 million; (iii) increases
the maximum amount of letters of credit that may be issued under
our revolving credit facility from $10.0 million to
$15.0 million; and (iv) modifies the amount of capital
expenditures that may be incurred on a rolling
12-month
basis, as measured on a quarterly basis. Also contributing to
the increased expense amount were our senior subordinated notes,
as the deferred financing costs and discounts associated with
these notes are amortized over the contractual term of the
underlying borrowings utilizing the effective interest method.
During 2008, the amortization of deferred financing costs and
bond discounts increased as a result of the additional financing
costs incurred in connection with the issuance of the
Series B Notes in July 2007 and amendments made to our
revolving credit facility in March 2008 and May 2007 to modify
certain covenants as well as the interest rate spreads on
outstanding borrowings and other pricing terms and in July 2007
as part of the 7-Eleven ATM Transaction.
Other
Expense (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
% Change
|
|
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2008 to 2009
|
|
2007
|
|
2007 to 2008
|
|
|
(In thousands, excluding percentages)
|
|
Other expense (income)
|
|
$
|
456
|
|
|
$
|
93
|
|
|
|
390.3
|
%
|
|
$
|
(626
|
)
|
|
|
(114.9
|
)%
|
Percentage of revenues
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)%
|
|
|
|
|
Other expense in 2009 primarily related to our interest rate
hedging activities during the year. During 2009, we entered into
a number of interest rate swaps to hedge our exposure to changes
in market rates of interest on our vault cash rental expense in
the United Kingdom. The swaps were based on
1-month
LIBOR, which was the rate in place under our vault cash
agreement in the United Kingdom at the time. However, during the
fourth quarter of 2009, our vault cash provider exercised its
rights under the contract to modify the pricing terms and
changed the target vault cash rental rate within the agreement
to 3-month
LIBOR. As a result of this change, we were no longer able to
apply hedge accounting treatment to the underlying
1-month
LIBOR interest rate swap transactions, and were required to
record a $1.4 million unrealized loss through our income
statement during the fourth quarter of 2009. Such amount
represented the change in the
mark-to-market
values of the
1-month
LIBOR swaps subsequent to the date that we were no longer able
to apply hedge accounting treatment to those swaps. In December
2009, we entered into a series of additional trades, the effects
of which were to offset the existing
1-month
LIBOR swaps and establish new
3-month
LIBOR swaps to match our underlying vault cash rental rate. The
$1.4 million unrealized loss amount has been presented in
the other expense line item in our Consolidated Statements of
Operations since the underlying swaps were not deemed to be
effective hedges of our underlying vault cash rental costs.
Partially offsetting the $1.4 million unrealized loss was
the $0.8 million of other income related to the termination
penalties payment received from one of our merchants, as
mentioned above.
Other income for the year ended December 31, 2007 was
comprised of $0.6 million of gains on the sale of the
equity securities awarded to us in 2006 pursuant to the
bankruptcy plan of reorganization for Winn-Dixie Stores, Inc.,
one of our merchant customers.
S-55
Income
Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
% Change
|
|
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2008 to 2009
|
|
2007
|
|
2007 to 2008
|
|
|
(In thousands, excluding percentages)
|
|
Income tax expense
|
|
$
|
4,245
|
|
|
$
|
989
|
|
|
|
329.2
|
%
|
|
$
|
4,477
|
|
|
|
(77.9
|
)%
|
Effective tax rate
|
|
|
42.4
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
(19.1
|
)%
|
|
|
|
|
Our income tax expense increased during 2009 when compared to
2008, primarily as a result of certain deferred tax benefits
recorded in 2008 related to our United Kingdom operations that
were not recorded during 2009. Effective December 31, 2008,
we determined that a valuation allowance should be established
for the net deferred tax asset balance in our United Kingdom
jurisdiction, consistent with the policies in place with respect
to our United States and Mexico jurisdictions. Accordingly, we
do not expect to record any income tax benefits in our financial
statements for any of our operating segments until it is more
likely than not that such benefits will be utilized.
Furthermore, 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 in
2010.
During 2008, our income tax expense decreased by
$3.5 million compared to 2007. The decrease was primarily
driven by the recording of $12.4 million in valuation
allowances within our domestic provision during 2007, the result
of which was a positive domestic income tax provision totaling
$4.9 million for 2007. During 2008, we recorded an
additional $3.8 million in valuation allowances related to
our domestic operation. However, such amount was partially
offset by additional tax benefits recorded in connection with
our United Kingdom operations. Such tax benefits reflected the
net amount by which our deferred tax liabilities exceeded our
deferred tax assets in that portion of our business, as all
remaining future net deferred tax benefits were fully reserved
for in 2008 through the creation of a separate $1.6 million
valuation allowance. The recording of such valuation allowances
resulted in the negative effective tax rates reflected in the
table above. Additionally, we recorded a contingent tax
liability totaling $1.5 million in 2008 related to our
United Kingdom operations, further contributing to the overall
negative effective tax rates reflected above. Finally,
approximately $17.0 million in potential tax loss benefits
associated with the $50.0 million goodwill impairment
charge recorded during the fourth quarter of 2008 have not been
recognized as such loss benefits are not likely to be realized
in the foreseeable future.
Liquidity
and Capital Resources
Overview
As of December 31, 2009, we had approximately
$10.4 million in cash and cash equivalents on hand and
approximately $307.3 million in outstanding long-term debt
and capital lease obligations.
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 the initial public offering of
12,000,000 shares of our common stock. 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 collect a sizable portion of
our cash from sales on a daily basis but generally pay our
vendors on
30-day terms
and are not required to pay certain of our merchants until
20 days after the end of each calendar month, we are able
to utilize the excess 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.
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. The positive
operating cash flows that we generated in 2009 enabled us to
repay
S-56
all amounts that were previously outstanding under our revolving
credit facility. As we expect to continue to generate positive
operating cash flows in 2010 and beyond, we believe that our
available cash on hand will continue increase, enabling us to
fund our future cash needs through operations rather than
financing activities. See additional discussion under
Financing Facilities below.
Operating
Activities
Net cash provided by operating activities was
$74.9 million, $16.2 million, and $55.1 million
for the years ended December 31, 2009, 2008, and 2007,
respectively. The primary reason for the increase in 2009 when
compared to 2008 was the generation of substantially higher
operating profits in 2009 when compared to 2008, which
contributed significantly to the increase in net cash provided
by operating activities seen in 2009. Furthermore, the timing of
changes in our working capital balances contributed to this
increase, as we settled approximately $6.4 million less of
payables and accrued liabilities than we did during 2008. The
decrease in 2008 when compared to 2007 was also due to the
timing of changes in our working capital balances, as we settled
approximately $46.8 million more of payables and accrued
liabilities than we did during 2007.
Investing
Activities
Net cash used in investing activities totaled
$26.0 million, $60.5 million, and $202.5 million
for the years ended December 31, 2009, 2008, and 2007,
respectively. The decrease from 2008 to 2009 was due to the
reduced level of property and equipment purchases in 2009,
resulting from our decision to reduce capital spending during
the year. The decrease from 2007 to 2008 was due to our
acquisition of the 7-Eleven Financial Services Business in July
2007 for $137.3 million, which was partially offset by the
$4.0 million in proceeds from the sale of our Winn-Dixie
equity securities in January 2007 and $0.9 million of
proceeds out of an escrow account associated with a previous
acquisition received during 2007. Finally, although not
reflected in our 2009 and 2007 statement of cash flows, we
received the benefit of the disbursement of approximately
$2.5 million and $5.7 million, respectively, of funds
under 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
Statements 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.
Total capital expenditures, including exclusive license payments
and site acquisition costs and purchases of equipment to be
leased but excluding acquisitions, were $26.0 million,
$60.1 million, and $71.5 million for the years ended
December 31, 2009, 2008, and 2007, 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. We expect that
our capital expenditures for 2010 will total approximately
$45.0 million, net of noncontrolling interest, the majority
of which will be utilized to purchase additional ATMs for our
Company-owned accounts and to build out our second cash depot
facility in the United Kingdom. We expect such expenditures to
be funded with cash generated from our operations. However, we
will continue to evaluate 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.
Financing
Activities
Net cash (used in) provided by financing activities was
$(42.2) million, $34.5 million, and
$158.2 million for the years ended December 31, 2009,
2008, and 2007, respectively. In 2007 and 2008, we incurred
incremental borrowings under our revolving credit facility to
fund the higher level of capital expenditures during those
periods, as discussed in Investing Activities
section above. However, in 2009, we generated sufficient cash
flows after capital expenditures that allowed us to repay all
amounts previously outstanding
S-57
under our revolving credit facility. The increased level in 2007
was primarily attributable to our issuance of
$100.0 million in senior subordinated notes due in 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 Transaction. 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 2009 and
2007 statement of cash flows, we received the benefit of
the disbursement of approximately $2.5 million and
$5.7 million, respectively, of funds under 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 to Cardtronics Mexico but rather
remitted directly to our vendors by the finance company, on our
behalf.
Financing
Facilities
As of December 31, 2009, we had approximately
$307.3 million in outstanding long-term debt and capital
lease obligations, which was comprised of (i) approximately
$297.2 million (net of discounts of $2.8 million) of
our senior subordinated notes, (ii) approximately
$9.8 million in notes payable outstanding under equipment
financing lines of our Mexico subsidiary, and
(iii) approximately $0.2 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 0.25% 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. 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.
As of December 31, 2009, no amounts were outstanding under
the facility; however, we had posted $4.7 million in
letters of credit under the facility. As of December 31,
2009, we were in compliance with all covenants contained within
the facility and had the ability to borrow an additional
$170.3 million under the facility based on such covenants.
In February 2009, we amended our revolving credit facility to
(i) authorize our repurchase of common stock up to an
aggregate of $10.0 million; (ii) increase the amount
of aggregate Investments (as defined in the credit
facility agreement) that we may make in non wholly-owned
subsidiaries from $10.0 million to $20.0 million and
correspondingly increase the aggregate amount of Investments
that we may make in subsidiaries that are not Loan Parties (as
defined in the credit facility agreement) from
$25.0 million to $35.0 million; (iii) increase
the maximum amount of letters of credit that may be issued under
the facility from $10.0 million to $15.0 million; and
(iv) modify the amount of capital expenditures that may be
incurred on a rolling
12-month
basis, as measured on a quarterly basis.
Senior Subordinated Notes. In August 2005, we
issued $200.0 million of 9.25% senior subordinated
notes (the Series A Notes). In July 2007, we
issued $100.0 million of 9.25% senior subordinated
notes Series B (the Series B
Notes, or, collectively with the Series A Notes, the
Notes). Both the Series A Notes and the
Series B Notes were originally issued pursuant to
Rule 144A of the Securities Act of 1933 but were
subsequently registered with the SEC in October 2006 and July
2008, respectively. The Notes are subordinate to borrowings made
under the revolving credit facility, mature in August 2013, and
carry a 9.25% coupon. Interest is paid semiannually in arrears
on February 15th and August 15th of each
year. The Notes, which are guaranteed by our domestic
subsidiaries, contain certain covenants that, among other
things, limit our ability
S-58
to incur additional indebtedness and make certain types of
restricted payments, including dividends. Under the terms of the
indenture, as of August 15, 2009, we are allowed to redeem
all or a part of the Notes at the redemption prices set forth by
the indenture plus any accrued and unpaid interest.
As of December 31, 2009, we were in compliance with all
applicable covenants required under the Notes.
Other
Borrowing Facilities
|
|
|
|
|
Bank Machine overdraft facility. In addition
to Cardtronics, Inc.s $175.0 million revolving credit
facility, Bank Machine has a £1.0 million overdraft
facility. Such facility, which bears interest at 1.75% over the
banks base rate (0.5% as of December 31,
2009) and is secured by a letter of credit posted under the
our revolving credit facility, is utilized for general corporate
purposes for the Companys United Kingdom operations. As of
December 31, 2009, there was no balance outstanding under
this overdraft facility. The amount outstanding under the
overdraft facility as of December 31, 2008 was
approximately £99,000 ($145,000) and is reflected in
accounts payable in our Consolidated Balance Sheets, as any
borrowings are automatically repaid once cash deposits are made
to the underlying bank accounts.
|
|
|
|
Cardtronics Mexico equipment financing
agreements. Between 2006 and 2009, Cardtronics
Mexico entered into nine separate five-year equipment financing
agreements with a single lender. These agreements, which are
denominated in pesos and bear interest at an average fixed rate
of 10.57%, were utilized for the purchase of additional ATMs to
support our Mexico operations. As of December 31, 2009,
approximately $128.0 million pesos ($9.8 million U.S.)
were outstanding under the agreements, with any future
borrowings to be individually negotiated between the lender and
Cardtronics Mexico. Pursuant to the terms of the equipment
financing agreements, we have issued guarantees for 51.0% of the
obligations under these agreements (consistent with our
ownership percentage in Cardtronics Mexico). As of
December 31, 2009, the total amount of the guarantees was
$65.3 million pesos ($5.0 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
currently have $0.4 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, 2009, the principal balance of
our capital lease obligations totaled $0.2 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.
S-59
Contractual
Obligations
The following table and discussion reflect our significant
contractual obligations and other commercial commitments as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Long-term financings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal(1)
|
|
$
|
2,122
|
|
|
$
|
2,860
|
|
|
$
|
2,360
|
|
|
$
|
301,326
|
|
|
$
|
1,142
|
|
|
$
|
|
|
|
$
|
309,810
|
|
Interest(2)
|
|
|
28,685
|
|
|
|
28,423
|
|
|
|
28,121
|
|
|
|
27,938
|
|
|
|
56
|
|
|
|
|
|
|
|
113,223
|
|
Operating leases
|
|
|
2,598
|
|
|
|
2,089
|
|
|
|
1,978
|
|
|
|
1,946
|
|
|
|
3,919
|
|
|
|
5,163
|
|
|
|
17,693
|
|
Merchant space leases
|
|
|
2,401
|
|
|
|
2,345
|
|
|
|
2,288
|
|
|
|
2,189
|
|
|
|
365
|
|
|
|
117
|
|
|
|
9,705
|
|
Capital
leases(3)
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
Other(4)
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
37,146
|
|
|
$
|
35,717
|
|
|
$
|
34,747
|
|
|
$
|
333,399
|
|
|
$
|
5,482
|
|
|
$
|
5,280
|
|
|
$
|
451,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the $300.0 million face value of our senior
subordinated notes and $9.8 million outstanding under our
Mexico equipment financing facilities. |
|
(2) |
|
Represents the estimated interest payments associated with our
long-term debt outstanding as of December 31, 2009. |
|
(3) |
|
Includes interest related to the capital lease obligations. |
|
(4) |
|
Represents commitment to purchase $1.1 million of ATM
equipment from one of our primary ATM suppliers during 2010. |
Critical
Accounting Policies and Estimates
Our consolidated financial statements included in our 2009
Form 10-K
have been prepared in accordance with accounting principles
generally accepted in the United States (GAAP),
which require that management make numerous estimates and
assumptions. Actual results could differ from those estimates
and assumptions, thus impacting our reported results of
operations and financial position. The critical accounting
policies and estimates described in this section are those that
are most important to the depiction of our financial condition
and results of operations and the application of which requires
managements most subjective judgments in making estimates
about the effect of matters that are inherently uncertain. We
describe our significant accounting policies more fully in
Part II, Item 8. Financial Statements and
Supplementary Data, Note 1 to our 2009
Form 10-K.
Goodwill and Intangible Assets. We have accounted for our
acquisitions of the 7-Eleven Financial Services Business,
E*TRADE Access, Bank Machine, ATM National, LLC, and Deposit
Solutions, Inc. as business combinations. Additionally, due to
our purchase of a majority (51.0%) interest in CCS Mexico (i.e.,
Cardtronics Mexico), we have accounted for this acquisition as a
business combination as well. 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 U.S. GAAP 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 and
Deposit Solutions, Inc. acquisitions.
The excess of the cost of the above acquisitions over the net of
the amounts assigned to the tangible and intangible assets
acquired and liabilities assumed is reflected as goodwill in our
consolidated financial statements. As of December 31, 2009,
our goodwill balance totaled $165.2 million,
$84.5 million of which related to our acquisition of
E*TRADE Access, $62.2 million of which related to our
acquisition of the 7-Eleven Financial Services Business, and
$14.0 million of which related to our acquisition of Bank
Machine.
S-60
The remaining balance was comprised of goodwill related to our
acquisition of ATM National LLC and our purchase of a majority
interest in Cardtronics Mexico. Other intangible assets, net,
totaled $89.0 million as of December 31, 2009, and
included the intangible assets described above, as well as
deferred financing costs, exclusive license agreements, and
upfront merchant site acquisition costs.
Goodwill and other intangible assets that have indefinite useful
lives are not amortized, but instead tested at least annually
for impairment, and intangible assets that have finite useful
lives are amortized over their estimated useful lives. We follow
the specific guidance provided in U.S. GAAP for testing
goodwill and other
non-amortized
intangible assets for impairment. The guidance requires
management to make certain estimates and assumptions in order to
allocate goodwill to reporting units and to determine the fair
value of a reporting units net assets and liabilities,
including, among other things, an assessment of market
condition, projected cash flows, interest rates, and growth
rates, which could significantly impact the reported value of
goodwill and other intangible assets. Furthermore, this
requirement exposes us to the possibility that changes in market
conditions could result in potentially significant impairment
charges in the future.
We evaluate the recoverability of our goodwill and
non-amortized
intangible assets by estimating the future discounted cash flows
of the reporting units to which the goodwill and
non-amortized
intangible assets relate. We use discount rates corresponding to
our cost of capital, risk-adjusted as appropriate, to determine
the discounted cash flows, and consider current and anticipated
business trends, prospects, and other market and economic
conditions when performing our evaluations. These evaluations
are performed on an annual basis at a minimum, or more
frequently based on the occurrence of events that might indicate
a potential impairment. Examples of events that might indicate
impairment include, but are not limited to, the loss of a
significant contract or a material change in the terms or
conditions of a significant contract. During the year ended
December 31, 2008, we recorded a goodwill impairment charge
of approximately $50.0 million associated with our United
Kingdom reporting unit. For additional information on this
impairment charge, see Part II, Item 8.
Financial Statements and Supplementary Data,
Note 1(j) to our 2009
Form 10-K.
Valuation of Long-lived Assets. We place
significant value on the installed ATMs that we own and manage
in merchant locations and the related acquired merchant
contracts/relationships. Long-lived assets, such as property and
equipment and 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
quarterly, along with the related ATMs, on an individual
contract/relationship basis for our significant acquired
contracts/relationships, and on a pooled or portfolio basis (by
acquisition) for all other acquired contracts/relationships.
In determining whether a particular merchant
contract/relationship is significant enough to warrant a
separate identifiable intangible asset, we analyze a number of
relevant factors, including (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/relationships cash flows subsequent
to the acquisition through a combination of lower operating
costs, the deployment of additional ATMs, and the generation of
incremental revenues from increased surcharges
and/or new
bank branding arrangements, and (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 portfolios 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
S-61
and intangible assets exceeded the calculated fair value. During
the years ended December 31, 2009, 2008, and 2007, we
recorded approximately $1.2 million, $0.4 million, and
$5.7 million, respectively, in additional amortization
expense related to the impairments of certain
previously-acquired merchant contract/relationship intangible
assets associated with our United States 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, 2009, we
released approximately $1.9 million in valuation allowances
associated with our United States and Mexico operations to
offset current taxable income amounts in those jurisdictions. In
the United Kingdom, we established an additional
$0.9 million in valuation allowances in 2009 to reserve for
various deferred tax assets associated with that operation.
During the year ended December 31, 2008, we recorded
$3.8 million in valuation allowances to reserve for various
deferred tax assets associated with our domestic operation, and
did not recognize approximately $1.7 million in income tax
benefits related to our United Kingdom and Mexico operations as
a result of their uncertain future utilization. Furthermore,
approximately $17.0 million in potential tax loss benefits
associated with the $50.0 million goodwill impairment
charge recorded during the fourth quarter of 2008 have not been
recognized as such loss benefits are not likely to be realized
in the foreseeable future.
Asset Retirement Obligations. We estimate the
fair value of future retirement obligations associated with our
ATMs, including costs associated with deinstalling the ATMs and,
in some cases, refurbishing the related merchant locations. Such
estimates are based on a number of assumptions, including
(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 amount of the related
long-lived asset and depreciated over the assets estimated
useful life. Fair value estimates of liabilities for asset
retirement obligations generally involve discounted future cash
flows. Periodic accretion of such liabilities due to the passage
of time is recorded as an operating expense in the accompanying
consolidated financial statements. Upon settlement of the
liability, we recognize a gain or loss for any difference
between the settlement amount and the liability recorded.
Share-Based Compensation. We calculate the
fair value of stock-based instruments awarded to employees and
directors on the date of grant and recognize the calculated fair
value, net of estimated forfeitures, as compensation expense
over the requisite service periods of the related awards. In
determining the fair value of our share-based awards, we are
required to make certain assumptions and estimates, including
(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, 2009, are outlined in detail in
Part II, Item 8. Financial Statements and
Supplementary Data, Note 4 to our 2009
Form 10-K.
S-62
Derivative Financial Instruments. We recognize
all of our derivative instruments as either assets or
liabilities in our Consolidated Balance Sheets at fair value.
The accounting for changes in the fair value (e.g., gains or
losses) of those derivative instruments depends on
(i) whether such instruments have been designated (and
qualify) as part of a hedging relationship and (ii) on the
type of hedging relationship actually designated. For derivative
instruments that are designated and qualify as hedging
instruments, the Company designates the hedging instrument,
based upon the exposure being hedged, as a cash flow hedge, a
fair value hedge, or a hedge of a net investment in a foreign
operation. These instruments are valued using pricing models
based on significant other observable inputs (Level 2
inputs under the fair value hierarchy established by
U.S. GAAP), while taking into account the nonperformance
risk of the party that is in the liability position with respect
to each trade. As of December 31, 2009, the majority of our
derivatives were designated as cash flow hedges, and,
accordingly, changes in the fair values of such derivatives have
been reflected in the accumulated other comprehensive loss line
in the accompanying Consolidated Balance Sheet. Additionally, as
of December 31, 2009, we had derivatives that were
designated as economic hedges, for which the gain or loss was
recognized in the Consolidated Statements of Operations during
the year ended December 31, 2009. See Part II,
Item 8. Financial Statements and Supplementary Data,
Note 17 to our 2009
Form 10-K
for more details on our derivative financial instrument
transactions.
New
Accounting Pronouncements Issued but Not Yet Adopted
For information on new accounting pronouncements that had been
issued as of December 31, 2009 but not yet adopted by us,
see Part II, Item 8. Financial Statements and
Supplementary Data, Note 1(v) to our 2009
Form 10-K.
Commitments
and Contingencies
We are subject to various legal proceedings and claims arising
in the ordinary course of business. We do not expect that the
outcome in any of these legal proceedings, individually or
collectively, will have a material adverse effect on our
financial condition, results of operations or cash flows. See
Part II, Item 8. Financial Statements and
Supplementary Data, Note 16 to our 2009
Form 10-K
for additional details regarding our commitments and
contingencies.
S-63
BUSINESS
Company
Overview
We provide convenient automated consumer financial services
through our network of automated teller machines
(ATMs) and multi-function financial services kiosks.
As of December 31, 2009, we operated over 33,400 ATMs
throughout the United States (including Puerto Rico), the United
Kingdom, and Mexico, of which 68% were owned by us, making us
the worlds largest non-bank owner of ATMs. Included within
this number are approximately 2,200 multi-function financial
services kiosks that, in addition to traditional ATM functions
such as cash dispensing and bank account balance inquiries,
perform other consumer financial services, including bill
payments, check cashing, remote deposit capture (which
represents deposits taken using electronic imaging at ATMs not
physically located at a bank), and money transfers.
We often partner with large, nationally-known retail merchants
under multi-year agreements to place our ATMs and kiosks within
their store locations. In doing so, we provide our retail
partners with an automated financial services solution that we
believe helps attract and retain customers, and in turn,
increases the likelihood that our devices will be utilized.
Finally, we own and operate an electronic funds transfer
(EFT) transaction processing platform that provides
transaction processing services to our network of ATMs and
financial services kiosks as well as ATMs owned and operated by
third parties.
Historically, we have deployed and operated our devices under
two distinct arrangements with our retail partners:
Company-owned and merchant-owned arrangements. Under
Company-owned arrangements, we provide the device 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 our merchant-owned arrangements, the retail merchant or
the distributor owns the device and is usually responsible for
providing cash and performing simple maintenance tasks, while we
provide more complex maintenance services, transaction
processing, and connection to the EFT networks. As of
December 31, 2009, approximately 68% of our devices were
Company-owned and 32% were merchant-owned. While we may continue
to add merchant-owned devices 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 devices
in our network due to the higher margins typically earned and
the additional revenue opportunities available to us under
Company-owned arrangements.
We partner with leading national financial institutions to brand
selected ATMs and financial services kiosks within our network,
including Citibank, N.A., HSBC Bank USA, N.A., JPMorgan Chase
Bank, N.A., SunTrust Banks, Inc. and Sovereign Bank. As of
December 31, 2009, approximately 11,100 of our
Company-owned devices were under contract with financial
institutions to place their logos on those machines, thus
providing convenient surcharge-free access for their banking
customers. We also own and operate the Allpoint network, which
we believe is the largest surcharge-free ATM network within the
United States (based on the number of participating ATMs). The
Allpoint network, which has approximately 1,200 card issuer
participants and more than 37,000 participating ATMs, including
a majority of our ATMs in the United States and all of our ATMs
in the United Kingdom, provides surcharge-free ATM access to
customers of participating financial institutions that lack a
significant ATM network. Allpoint also works with financial
institutions that manage prepaid debit card programs on behalf
of corporate entities and governmental agencies, including
general purpose, payroll, and electronic benefits transfer
cards. Under these programs, the issuing financial institutions
pay Allpoint a fee per card or per transaction in return for
allowing the users of those cards surcharge-free access to
Allpoints participating ATM network.
More recently, we have started offering a managed services
solution to retailers and financial institutions that may prefer
to maintain ownership of their ATM fleets, but are looking for
us to handle some or all of the operational aspects associated
with operating and maintaining those fleets. Under these types
of arrangements, we will typically receive a fixed monthly
management fee in return for providing certain services,
including monitoring, maintenance, customer service, and cash
management. Additionally, we will typically charge a
per-transaction fee for any transaction processing services we
provide under these arrangements.
S-64
Our revenues are recurring in nature and historically have been
derived primarily from transaction fees, which are paid by
cardholders, and interchange fees, which are paid by the
cardholders financial institution for the use of the
devices serving customers and the applicable EFT network that
transmits data between the device and the cardholders
financial institution. We generate additional revenues by
branding our devices with the logos of leading national banks
and other financial institutions, and by collecting fees from
financial institutions that participate in Allpoint
surcharge-free ATM network.
The following table sets forth our leading position among ATM
owners in the United States:
|
|
|
|
|
|
|
|
|
Rank
|
|
Top U.S. ATM Owners
|
|
Number of
ATMs(1)
|
|
|
1
|
|
|
Bank of America
|
|
|
18,262
|
|
|
2
|
|
|
Cardtronics
|
|
|
18,111
|
|
|
3
|
|
|
JPMorgan Chase
|
|
|
15,406
|
|
|
4
|
|
|
Wells Fargo
|
|
|
12,363
|
|
|
5
|
|
|
PNC Financial Services Group
|
|
|
6,473
|
|
|
|
|
(1) |
|
Source: Compiled by the Company from publicly available
information, as of December 31, 2009. |
Organizational
and Operational History
We began operating in the ATM business in the early 1990s under
the name Cardpro, Inc. In June 2001, Cardpro, Inc. was converted
from a Delaware corporation into a Delaware limited partnership
and renamed Cardtronics, LP. In addition, in June 2001,
Cardtronics Group, Inc. was incorporated under the laws of the
state of Delaware to act as a holding company for Cardtronics,
LP, with Cardtronics Group, Inc. indirectly owning 100% of the
equity of Cardtronics, LP. In January 2004, Cardtronics Group,
Inc. changed its name to Cardtronics, Inc. In December 2007, we
completed the initial public offering of 12,000,000 shares
of our common stock. In December 2008, Cardtronics, LP was
converted to a corporation under the laws of Delaware and
changed its name to Cardtronics USA, Inc. Cardtronics USA, Inc.
is the primary domestic operating subsidiary of Cardtronics, Inc.
Since May 2001, we have acquired 14 ATM networks and one
operator of a surcharge-free ATM network, increasing the number
of devices we operate from approximately 4,100 as of May 2001 to
approximately 33,400 as of December 31, 2009. Two of these
acquisitions enabled us to enter international markets.
Specifically, 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 expanded our operations into the
United Kingdom and Mexico, respectively. Additionally, we
acquired the nationwide surcharge free network, Allpoint,
through our acquisition of ATM National, Inc. in December 2005,
providing us with a platform to further pursue and develop
surcharge-free offerings. In July 2007, we acquired the
financial services business of 7-Eleven, Inc. (the
7-Eleven Financial Services Business), which
included 3,500 traditional ATMs and approximately 2,000
multi-function financial services kiosks, which allowed us to
offer additional automated financial services above and beyond
those typically offered by traditional ATMs. While we have not
completed any significant acquisitions since our July 2007
acquisition of the 7-Eleven Financial Services Business, we
expect to continue to evaluate selected acquisition
opportunities that complement our existing network, some of
which could be material.
From 2001 to 2009, the total number of annual transactions
processed within our network increased from approximately
19.9 million to approximately 383.3 million.
Our
Competitive Strengths
Leading Market Position. We are the
worlds largest non-bank owner of ATMs. As of
December 31, 2009, we operated over 33,400 ATMs, including
approximately 2,200 multi-function financial services kiosks,
located throughout the United States (including Puerto Rico),
the United Kingdom, and Mexico, of which 68% were owned by us.
We estimate that approximately 90% of the United States
population lives within five miles of one of the devices
operated by us. We believe the breadth of our global footprint
would be difficult to
S-65
replicate and represents a significant competitive advantage, as
well as a barrier to entry for potential competitors.
Leading ATM Debit Network. We have one of the
largest ATM debit networks in the United States. Our network
leverages our customer relationships with well-known retailers
and issuers of debit and prepaid debit cards, including leading
national financial institutions and prepaid debit card
companies. We operate the Allpoint network, which we believe is
the largest surcharge-free network of ATMs in the United States
based on the number of participating ATMs. Our network has
enabled us to create new revenue streams, including bank
branding and surcharge-free network revenues. As a result of the
scale and reach of our network, we believe we benefit from
significant network effects as evidenced by our growth in
transactions per device. For the three years ended
December 31, 2009, our worldwide monthly transactions per
device grew from 729 to 966, representing a compounded annual
growth rate of approximately 15%.
Multi-Year Contracts with Leading Retail
Merchants. We have developed significant
relationships with leading national and regional retail
merchants within the United States (including Puerto Rico), the
United Kingdom, and Mexico. These merchants typically operate
high-traffic locations, which we have found to result in
increased transaction activity and profitability. Our long-term
retail merchant relationships can provide opportunities for us
to deploy devices in additional locations of those retailers
that do not currently have an ATM, and new locations opened by
those retailers in the future. Our contracts with our retail
merchant customers are typically multi-year arrangements with an
initial targeted term of seven years. As of December 31,
2009, our contracts with our top ten retail merchant customers
(based on 2009 revenues) had a weighted average remaining life
of 5.7 years. In addition, our top ten retail merchant
customers have worked with us, including the businesses we have
acquired, for an average of over nine years and eight of these
contracts have been renewed or extended since they were
originally acquired. We believe our retail merchant customers
value our high level of service, our
24-hour per
day monitoring and accessibility, and that our devices in the
United States are on-line and able to serve customers an average
of 99.1% of the time.
Proprietary Transaction Processing
Platform. We believe that our proprietary EFT
transaction processing platform sets us apart from our
competitors. Our platform manages the transaction processing
services to our network of devices as well as ATMs owned and
operated by third parties, substantially reducing the
incremental cost to process a transaction. Our transaction
processing platform also gives us the ability to control the
content of the information appearing on the screens of our
devices as well as those devices that we process on behalf of
financial institutions and retailers.
Recurring and Stable Revenues and Operating Cash
Flows. The long-term contracts that we enter into
with our retail merchant partners provide us with relatively
stable, recurring revenue streams. Additionally, our branding
arrangements and surcharge-free network contracts provide us
with additional revenues under long-term contracts that are
generally not based on the number of transactions per device.
For the year ended December 31, 2009, we derived
approximately 98% of our total revenues from recurring
transaction, branding, and surcharge-free fees, as well as other
access fees generated through the provision of additional
automated consumer financial services. Our recurring and stable
revenue base, relatively low and predictable maintenance capital
expenditure requirements, and minimal working capital
requirements, allow us to generate operating cash flows to
service our indebtedness and invest in future growth initiatives.
Efficient, Scalable Infrastructure and
Operations. We believe the size of our ATM
network combined with our operating infrastructure allows us to
drive substantial economies of scale. Our infrastructure allows
us to expand our operations without proportionally increasing
our fixed and semi-fixed costs. The scale of our operations
provides us with a competitive advantage in operating our own
fleet, negotiating with third-party service providers, acquiring
new ATM portfolios, and providing cost effective managed
services solutions to financial institutions and large
retailers. We believe that the operating efficiencies that
result from our scale provide us with a significant cost
advantage over our competitors. Our ATM operating gross profit
margin (exclusive of depreciation, accretion and amortization)
has increased from 22.9% in 2007 to 30.9% in 2009.
Experienced Management Team. Our management
team has significant financial services, network, and payment
processing-related experience. Our team is led by Steven
Rathgaber, our recently hired Chief Executive Officer, who has
over 32 years of broad payment product and network
experience. Our management
S-66
team has augmented the organic growth of our business by
successfully identifying and integrating a number of acquired
businesses, both in the United States and internationally, that
have expanded our network and the products and services we
offer. We believe the strength and expertise of our management
team helps us attract new retail merchant customers and provides
us with increased acquisition, bank branding, and managed
services opportunities, thereby contributing significantly to
our growth.
Our
Growth Strategy
Our growth strategy is to expand and enhance our position as a
leading provider of automated consumer financial services in the
United States, the United Kingdom and Mexico; to leverage our
existing ATM network with products and services that increase
our revenues per ATM; to become a significant provider of
managed services to financial institutions and retailers with
significant ATM and financial services kiosk networks; and to
further expand our network and service offerings into select
international markets. In order to execute this strategy, we
will endeavor to:
Expand our Network of Devices with Leading
Merchants. We believe that we have opportunities
to further expand the number of ATMs and financial services
kiosks that we own
and/or
operate with leading merchants. With respect to our existing
merchants, we have two principal opportunities to increase the
number of deployed devices: first, by deploying devices in
existing merchant locations that currently do not have a device,
but where consumer traffic volumes and anticipated returns
justify installing a device; and second, as our merchants open
new locations, by installing devices in those locations. With
respect to new merchant customers, we believe our expertise,
national footprint, strong record of customer service, and
significant scale position us to successfully market to, and
enter into long-term contracts with, additional leading national
and regional merchants.
Expand our Relationships with Leading Financial
Institutions. We believe we are well-positioned
to work with financial institutions to fulfill many of their ATM
and automated consumer financial services requirements. Our
services currently offered to financial institutions include
branding our ATMs with their logos and providing surcharge-free
access to their customers, as well as managing their off-premise
ATMs (i.e., ATMs not located in a bank branch). In addition, our
EFT transaction processing capabilities provide us with the
ability to provide customized control over the content of the
information appearing on the screens of our ATMs and ATMs we
process for financial institutions, which we believe increases
the types of products and services that we are able to offer to
financial institutions. In the United Kingdom, our armored
courier operation, coupled with our existing in-house
engineering and EFT transaction processing capabilities,
provides us with a full suite of services that we can offer to
financial institutions in that market.
Continue to Capitalize on Surcharge-Free Network and Prepaid
Debit Card Opportunities. We plan to continue
pursuing opportunities with respect to our surcharge-free
network offerings, where financial institutions pay us to allow
their customers surcharge-free access to our ATM network on a
non-exclusive
basis. We believe surcharge-free arrangements will enable us to
increase transaction counts and profitability on our existing
machines. We also plan to pursue additional opportunities to
work with financial institutions that issue and sponsor prepaid
debit card programs. We believe that these programs represent
significant transaction growth opportunities for us, as many
users of prepaid debit cards do not have bank accounts, and
consequently, have historically not been able to utilize our
existing ATMs and financial services kiosks.
Pursue International Growth Opportunities. We
have invested significant amounts of capital in the
infrastructure of our United Kingdom and Mexico operations, and
we plan to continue to selectively increase the number of our
ATMs in these markets by increasing the number of machines
deployed with our existing customer base, as well as adding new
merchant customers. Additionally, we plan to expand our
operations into selected international markets where we believe
we can leverage our operational expertise, EFT transaction
processing platform, and scale advantages. In particular, we
expect to target high growth, emerging markets where cash is the
predominant form of payment, where off-premise ATM penetration
is relatively low, and where we believe significant financial
institution
and/or
retail managed services opportunities exist. We believe Central
and Eastern Europe, Central and South America, and the
Asia-Pacific regions are examples of international markets that
meet these criteria.
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Develop and Provide Additional Automated Consumer Financial
Services. Service offerings by ATMs have
continued to evolve over time. Certain ATM models are now
capable of providing numerous automated consumer financial
services, including bill payments, check cashing, remote deposit
capture, and money transfers. Certain of our devices are capable
of, and currently provide, these types of services. We believe
these non-traditional consumer financial services offered by our
devices, and other machines that we or others may develop,
provide us with additional growth opportunities as retailers and
financial institutions seek to provide additional convenient
automated financial services to their customers.
Our
Products and Services
We typically provide our leading merchant customers with all of
the services required to operate ATMs and financial services
kiosks, 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 domestic devices
are on-line and able to serve customers an average of over 99.1%
of the time. In connection with the operation of our devices and
our customers devices, we generate revenue on a
per-transaction basis from the surcharge fees charged to
cardholders for the convenience of using our devices and from
interchange fees charged to such cardholders financial
institutions for processing the related transactions conducted
on those devices. The following table provides detail relating
to the number of devices we owned and operated under our various
arrangements as of December 31, 2009:
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Company-Owned
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Merchant-Owned
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Total
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Number of devices at period end
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22,871
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10,537
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33,408
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Percent of total
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68.5
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%
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31.5
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%
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100.0
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%
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Average monthly withdrawal transactions per average transacting
device
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776
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277
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616
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We generally operate our ATMs and kiosks under multi-year
contracts that provide a recurring and stable source of
transaction-based revenue and typically have an initial targeted
term of seven years. As of December 31, 2009, our contracts
with our top ten merchant customers (based on 2009 revenues) had
a weighted average remaining life of over 5.7 years.
Additionally, we enter into arrangements with financial
institutions to brand certain of our
Company-owned
ATMs with their logos. 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 arrangements allow a
financial institution to rapidly increase its number of branded
ATM sites and improve its competitive position. Under these
arrangements, the branding institutions customers are
allowed to use the branded ATMs without paying a surcharge fee
to us. In return, we receive monthly fees on a per-ATM basis
from the branding institution, while retaining our standard fee
schedule for other cardholders using the branded ATMs. In
addition, our branded machines typically generate higher
interchange revenue as a result of the increased usage of our
ATMs by the branding institutions customers and others who
prefer to use a bank-branded ATM. We intend to continue 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. As of December 31, 2009, we had bank branding
arrangements in place with 34 domestic financial institutions,
involving approximately 11,100 Company-owned ATMs. This growth
was the result of our increased sales efforts, our acquisition
of the 7-Eleven Financial Services Business in July 2007 (the
7-Eleven ATM Transaction), and what we believe was
the realization by financial institutions of the significant
benefits and opportunities afforded to them through bank
branding programs.
In addition to our bank branding arrangements, we offer
financial institutions another type of surcharge-free program
through our Allpoint nationwide surcharge-free ATM network.
Under the Allpoint network, financial institutions who are
members of the network pay us either a fixed monthly fee per
cardholder or a set fee per transaction in exchange for us
providing their cardholders with surcharge-free access to most
of our domestic owned
and/or
operated ATMs and our ATMs in the United Kingdom. We believe
Allpoint offers an attractive alternative to financial
institutions that lack their own distributed ATM network.
Finally, our Company-owned ATMs deployed under our placement
agreement with 7-Eleven, Inc. (7-Eleven) participate
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in
CO-OP®,
the nations 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 or financial services kiosk is its
location, our strategy in deploying our devices, particularly
those placed under Company-owned arrangements, is to identify
and deploy them at locations that provide high visibility and
high 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 and
financial services kiosks. In addition to our arrangement with
7-Eleven, we have also entered into multi-year agreements with a
number of other merchants, including Chevron Corporation
(Chevron), Costco Wholesale Corporation
(Costco), CVS, Exxon Mobil Corporation
(ExxonMobil), Hess, Rite Aid Corporation (Rite
Aid), Safeway, Inc. (Safeway), Target,
Walgreens, and Winn-Dixie Stores, Inc. (Winn-Dixie)
in the United States; ASDA Group Ltd. (a subsidiary of Wal-Mart
Stores, Inc.) (Asda), Euro Garages Ltd., Stuart
Harvey Insurance Brokers Ltd. (known under their trading name of
Forces Financial) (Forces Financial), Inter IKEA
Systems B.V. (IKEA), Martin McColl Ltd., Murco
Petroleum Ltd., The Noble Organisation Ltd., Tates Ltd., and
Welcome Break Holdings Ltd. (Welcome Break) in the
United Kingdom; and Cadena Comercial OXXO S.A. de C.V.
(OXXO) in Mexico. We believe that once consumers
establish a pattern of using a particular device, they will
generally continue to use that device.
Merchant
Customers
In each of our markets, we typically deploy our Company-owned
devices under long-term contracts with major national and
regional merchants, including convenience stores, supermarkets,
drug stores, and other high-traffic locations. Our
merchant-owned ATMs are typically deployed under arrangements
with smaller independent merchants.
The terms of our merchant contracts vary as a result of
negotiations at the time of execution. In the case of
Company-owned devices, the contract terms vary, but typically
include the following:
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a targeted term of seven years;
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exclusive deployment of devices at locations where we install a
device;
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the right to increase surcharge fees, subject to merchant
approval;
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our right to remove devices at underperforming locations without
having to pay a termination fee;
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in the United States, our right to terminate or remove devices
or renegotiate the fees payable to the merchant if surcharge
fees are generally reduced or eliminated by law; and
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provisions that make the merchants fee dependent on the
number of device transactions.
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Our contracts under merchant-owned arrangements typically
include similar terms, as well as the following additional terms:
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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;
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provisions imposing an obligation on the merchant to operate the
ATMs at any time its stores are open for business; and
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provisions, when possible, that require the assumption of our
contract in the event a merchant sells its stores.
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7-Eleven is the largest merchant customer in our portfolio,
representing approximately 31% of our total revenues for the
year ended December 31, 2009. The underlying merchant
agreement with 7-Eleven, which had an initial term of ten years
from the effective date of the acquisition, expires in July
2017. In addition to
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7-Eleven, our next four largest merchant customers (based on
revenues) during 2009 were CVS, Walgreens, Target, and Hess,
which collectively generated 18.0% of our total revenues for the
year.
Sales and
Marketing
Our sales and marketing team focuses principally on developing
new relationships with national and regional merchants as well
as building and maintaining relationships with our existing
merchants. The team is currently 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.
Finally, we recently hired additional sales and marketing
representatives that will focus exclusively on identifying
potential managed services opportunities with financial
institutions and retailers alike.
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 merchants sales at each
of its locations, foot traffic, and various demographic data to
determine the best opportunities for new ATM and financial
services kiosk placements. As of December 31, 2009, our
sales and marketing team was comprised of approximately
40 employees, of which those who are exclusively focused on
sales typically receive a combination of incentive-based
compensation and a base salary.
Technology
Our technology and operations platform consists of ATMs and
financial services kiosks, network infrastructure components
(including hardware and software used to provide real-time
device monitoring and transaction processing services), cash
management and forecasting software tools, and a full-service
customer service organization. This platform is designed to
provide our customers with what we believe is a high-quality
suite of services.
Equipment. In the United States and Mexico, we
purchase our ATMs from global manufacturers, including NCR
Corporation (NCR), Diebold, Incorporated
(Diebold), Triton Systems of Delaware, Inc.
(Triton), Wincor Nixdorf AG (Wincor
Nixdorf), and Nautilus Hyosung, Inc. (Hyosung)
and place them in our customers locations. The wide range
of advanced technology available from these ATM manufacturers
provides our customers with advanced features and reliability
through sophisticated diagnostics and self-testing routines. The
different machine types can all perform basic functions, such as
dispensing cash and displaying account information. However,
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. Additionally,
2,200 of our devices, which are manufactured by NCR and located
in selected 7-Eleven store locations, provide enhanced financial
services transactions, including bill payments, check cashing,
remote deposit capture, and money transfers.
The ATMs we operate in the United Kingdom are principally
manufactured by NCR and are categorized into three basic types:
(1) convenience, which are internal to a
merchants premises; (2) through the wall,
which are external to a merchants premises; and
(3) pods, a free-standing kiosk style ATM, also
located external to a merchants premises.
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 network. In
2006, we implemented our own EFT transaction processing
operation, which is based in Frisco, Texas. This operation
enables us to process and monitor transactions on our devices
and to control the flow and content of information appearing on
the screens of such devices. As of December 31, 2009, we
had converted substantially all of our devices over to our
processing platform with the exception of approximately 3,600
ATMs in 7-Eleven stores, though we currently expect these ATMs
to be transitioned to our platform by
S-70
the second quarter of 2010. Prior to 2010, these ATMs were
unable to be converted to our processing platform as they were
subject to a master management services agreement with a third
party, under which that party provided a number of
ATM-related
services, including transaction processing, network hosting,
network sponsorship, maintenance, cash management, and cash
replenishment. This agreement, which was assumed in conjunction
with the 7-Eleven ATM Transaction, expired at the end of 2009.
With the expiration of this agreement, the 3,600 ATMs are now
managed by us and serviced by the third parties that provide
services to the remaining devices within our domestic portfolio.
As with our existing network operation, we have carefully
selected support vendors to help provide sophisticated security
analysis and monitoring 24 hours a day to ensure the
continued performance of our EFT transaction processing
operation.
Internal Systems. Our internal systems,
including our EFT transaction processing operation, include
multiple layers of security to help protect the systems from
unauthorized access. Protection from external sources is
provided by the use of hardware and software-based security
features that prevent and report unauthorized access attempts.
Additionally, we utilize isolation techniques in order to
separate our sensitive systems from the other systems in our
internal network. We also use commercially-available encryption
technology to protect information that is stored within our
systems, as well as information that is being transmitted. On
our internal network, we employ user authentication and
antivirus tools at multiple levels. These systems are protected
by detailed security rules to only allow appropriate access to
information based on the employees job responsibilities.
All changes to the systems are controlled by policies and
procedures, with automatic prevention and reporting controls
that are placed within our processes. Our gateway connections to
our EFT network service providers provide us with real-time
access to the various financial institutions authorization
systems that allow withdrawals, balance inquiries, transfers,
and advanced functionality transactions. 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 devices in our
network, including details of transactions at each device and
expenses relating to those devices, further allowing us to
monitor our on-line availability and financial profitability at
each location. We analyze transaction volume and profitability
data to determine whether to continue operating at a given site,
to determine how to price various operating arrangements with
merchants and branding partners, and to create a profile of
successful locations to assist us in deciding the best locations
for additional deployments.
Cash Management. Our cash management
department uses commercially-available software and proprietary
analytical models to determine the necessary fill frequency and
cash load amount for each device. We project cash requirements
for each device 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 device. 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 device. Our cash
management department utilizes data generated by the cash
providers, internally-generated data, and a proprietary
methodology to confirm daily orders, audit delivery of cash to
armored couriers and devices, monitor cash balances for cash
shortages, coordinate and manage emergency cash orders, and
audit costs from both armored couriers and cash providers.
In addition, during the fourth quarter of 2008, we implemented
our own armored courier operation in the United Kingdom, Green
Team Services Limited (Green Team). This operation
consists of approximately 30 full-time employees, six
armored vehicles, and a secure cash depot facility located
outside of London, England. As of December 31, 2009, we
were servicing roughly 780 of our ATMs in that market. We
believe this operation allows us to provide higher-quality and
more cost-effective
cash-handling
services in the United Kingdom market and has proven to be an
efficient alternative to third-party armored providers. As a
result, we plan to expand these operations to service another
800 of our ATMs in the United Kingdom. We expect that the new
facility, which will be located in or around Manchester, will
become operational in the second or third quarter of 2010.
Customer Service. We believe one of the
factors that differentiates us from our competitors is our
customer service responsiveness and proactive approach to
managing any downtime experienced by our devices. We use an
advanced software package that monitors the performance of our
Company-owned devices
S-71
24 hours a day for service interruptions and notifies our
maintenance vendors for prompt dispatch of necessary service
calls.
Finally, we use a commercially-available software package in the
United States and proprietary software in the United Kingdom and
Mexico to maintain a database of transactions made on, and
performance metrics for, each of our devices. This data is
aggregated into individual merchant customer profiles that are
readily accessible by our customer service representatives and
managers. We believe our proprietary 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 cash
management, maintenance, and, in selected cases, certain
transaction processing services. Due to the large number of
devices we operate, we believe we have obtained favorable
pricing terms from most of our major vendors. We contract for
the provision of the services described below in connection with
our operations.
Transaction Processing. Although we have our
own EFT transaction processing platform, our processing efforts
are primarily focused on controlling the flow and content of
information on the device screen. As such, we rely on
third-party service providers to handle our connections to the
EFT networks and to perform certain funds settlement and
reconciliation procedures on our behalf. These third-party
transaction processors communicate with the cardholders
financial institution through various EFT networks to obtain
transaction authorizations and to provide us with the
information we need to ensure that the related funds are
properly settled. These transaction processors include Elan
Financial Services and Fidelity Information Services in the
United States, LINK in the United Kingdom, and Promoción y
Operación S.A. de C.V. (PROSA-RED) in Mexico.
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 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 devices to cardholders
by participating in as many EFT networks as practical.
Additionally, we own the Allpoint network, which we believe is
the largest surcharge free network in the United States (based
on the number of participating ATMs). Owning our own network
further maximizes ATM utility by giving cardholders a
surcharge-free option at our ATMs, as well as allowing us to
receive network-related economic benefits such as receiving
switch revenue and setting surcharge-free interchange rates on
our own devices as well as other participating ATMs.
Equipment. As previously noted, we purchase
substantially all of our devices from global manufacturers,
including NCR, Diebold, Triton, and Wincor Nixdorf. The large
quantity of machines that we purchase from these manufacturers
enables us to receive favorable pricing and payment terms. In
addition, we maintain close working relationships with these
manufacturers in the course of our business, allowing us to stay
informed regarding product updates and to receive prompt
attention for any technical problems with purchased equipment.
Although we currently purchase a majority of our devices from
NCR, we believe our relationships with our other suppliers are
good and that we would be able to purchase the machines we
require for our Company-owned operations from other
manufacturers if we were no longer able to purchase them from
NCR.
Maintenance. In the United States, we
typically contract with third-party service providers for
on-site
maintenance services. We have multi-year maintenance agreements
with NCR and Pendum in the United States. In the United Kingdom,
maintenance services are provided by our in-house technicians.
In Mexico, Diebold and Soluciones, Sistemas y Servicios para
ATM, S.A. de C.V. (INCAA) provide the majority of
maintenance services for our ATMs.
Cash Management. We obtain cash to fill our
Company-owned, and, in some cases, merchant-owned, ATMs under
arrangements with our cash providers, which are Bank of America,
US Bank, and Wells Fargo in
S-72
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. We pay 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) in the United States and in the United
Kingdom, and the Mexican Interbank Rate in Mexico. At all times,
beneficial ownership of the cash is retained by the cash
providers, and we have no access or right to the cash except for
those ATMs that are serviced by our wholly-owned armored courier
operation in the United Kingdom. While our armored courier
operation has physical access to the cash loaded in those
machines, beneficial ownership of that cash remains with the
cash provider at all times. We also contract with third parties
to provide us with cash management services, which include
reporting, armored courier coordination, cash ordering, cash
insurance, reconciliation of device cash balances, and claims
processing with armored couriers, financial institutions, and
processors.
As of December 31, 2009, we had $895.4 million in cash
in our domestic machines under these arrangements, of which
49.7% was provided by Bank of America under a vault cash
agreement that expires in October 2011 and 49.2% was provided by
Wells Fargo under a vault cash agreement that expires in July
2011. In the United Kingdom, the balance of cash held in our
ATMs was $194.9 million, and in Mexico, our balance totaled
$41.3 million as of year-end.
Cash Replenishment. We contract with armored
courier services to transport and transfer most of the cash to
our ATMs and financial services kiosks. We use leading armored
couriers such as Brinks Incorporated and Pendum in the
United States and Group 4 Securicor, Sunwin, and our own armored
carrier operation 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 device on the designated fill day.
Following a predetermined schedule, the armored couriers visit
each location on the designated fill day, load cash into each
device by either adding additional cash into a cassette or by
swapping out the remaining cash for a new fully loaded cassette,
and then balance each machine and provide cash reporting to the
applicable cash provider.
In part because of service issues experienced during 2007 and
2008 related to one of our third-party armored cash providers in
the United Kingdom, we implemented our own armored courier
operation in that market during the fourth quarter of 2008. This
operation, which is currently servicing approximately 780 of our
ATMs in the United Kingdom, reduces our reliance on third
parties and allows us greater flexibility in terms of servicing
our ATMs. Additionally, as noted above, this operation allows us
to provide higher-quality and more cost-effective cash-handling
services in that market and has proven to be an efficient
alternative to third-party armored providers. As a result, we
plan to expand these operations to service another 800 of our
ATMs in the United Kingdom. We expect that the new facility,
which will be located in or around Manchester, will become
operational in the second or third quarter of 2010. Our armored
courier operation currently consists of approximately 30
full-time
employees, six armored vehicles, and a secure cash depot
facility located outside of London, England.
In Mexico, 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
Compañía Mexicana de Servicio de Traslado de Valores
(Cometra) and Panamericano.
Seasonality
In the United States and Mexico, our overall business is
somewhat seasonal in nature with generally fewer transactions
occurring in the first quarter of the fiscal year. We typically
experience increased transaction levels during the fourth
quarter at our devices located in shopping malls and lower
volumes in the months following the holiday season. Similarly,
we have seen increases in transaction volumes during the second
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quarter at our devices located near popular spring break
destinations. Conversely, transaction volumes at our devices
located in regions affected by strong winter weather patterns
typically experience declines in volume during the first and
fourth quarters as a result of decreases in the amount of
consumer traffic through such locations. These declines,
however, have been offset somewhat by increases in the number of
our devices 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 the routine 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
Historically, we have competed with financial institutions and
other independent ATM companies for additional device
placements, new merchant accounts, and acquisitions. However,
over the past several years, we have established relationships
with leading national and regional financial institutions in the
United States through our bank branding program. Additionally,
through Allpoint, we have significantly expanded our
relationships with local and regional financial institutions as
well as large issuers of prepaid debit card programs.
Furthermore, as previously noted, we currently plan on
increasing the types of services we provide to financial
institutions in the future, including managing their off-premise
ATM networks. Accordingly, while our devices continue to compete
with the devices owned and operated by financial institutions
for underlying consumer transactions, we no longer consider many
of those financial institutions, especially in the United
States, to be competitors. However, we do continue to encounter
competition from financial institutions that are not customers
of ours to place ATMs and financial services kiosks in selected
retail locations.
With respect to independent operators of merchant-owned ATMs,
our major domestic competitors include Payment Alliance
International (PAI) and Access to Money. In the
United Kingdom, we compete with several large non-bank ATM
operators, including Cashzone (formerly 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 small ATM
operators, which are typically known by the names of their
sponsoring banks, include Banco Inbursa, Afirme, Bajio, Banco
Interacciones, and Scotia Bank.
Despite the level of competition we face, many of our
competitors have not historically had a singular focus on ATM
device management, or have targeted the merchant-owned portion
of the market as opposed to the larger, nationally-known retail
establishments that we have targeted. As a result, we believe
our primary focus on Company-owned device management and related
services, including providing bank branding and surcharge-free
ATM access to financial institutions, gives us a significant
competitive advantage. In addition, we believe the scale of our
extensive network, our EFT transaction processing services and
our focus on customer service provide us with 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. Additionally, 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.
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Americans with Disabilities Act (ADA). The ADA
requires that ATMs be accessible to and independently usable by
individuals who are visually-impaired. Additionally, the
Department of Justice may adopt new accessibility guidelines
under the ADA that could 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 apply to new purchases of
ATM equipment and could require us to retrofit existing ATMs in
our network if 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 substantially all of our
Company-owned ATMs voice-enabled in conjunction with our Triple
Data Encryption Standard (Triple-DES) security
upgrade efforts in 2007. We are currently in our final stages of
making all of our ATMs voice-enabled, by either replacing or
upgrading approximately 3,600 traditional ATMs placed in
7-Eleven stores.
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 United States are identical in size and
color, regardless of denomination. As a consequence of this
ruling, the United States Treasury conducted a study to
determine the options to make United States paper currency
accessible to the blind or visually impaired. It is our
understanding that the Bureau of Engraving and Printing
(BEP) received that study on or about July 28,
2009, and together with the United States Treasury and the
Federal Reserve, are reviewing the study. Upon the completion of
that review, these institutions will publish their
recommendations and thereafter seek public comments (in writing
and at public forums) on those recommendations. Following the
public comment period, a final recommendation will be made to
the Secretary of the Treasury, who has authority to change the
design and features of the currency notes utilized in the United
States. Additional details regarding the above process are
available on the United States Bureau of Engraving and Printing
website at
http://www.moneyfactory.gov/uscurrency/meaningfulaccess.html.
While it is still uncertain at this time what impact, if any,
this process will have on the ATM industry (including us), it is
possible that any changes made to the design of the paper
currency notes utilized in the United States could require us to
incur additional costs, which could be substantial, to modify
our ATMs in order to store and dispense such notes.
Credit Card Accountability, Responsibility and Disclosure Act
of 2009. In response to the recent proliferation
in the issuance and acceptance of prepaid debit cards, as well
as perceived abuses within the credit and debit card industries
in general, the United States Congress recently passed the
Credit Card Accountability, Responsibility and Disclosure Act of
2009 (the Credit Card Act). With respect to prepaid
debit cards (in particular, gift certificates, store gift cards
and general-use prepaid cards), The Credit Card Act imposes
certain restrictions on card expiration dates and fees that can
be charged to users of those cards. Additionally, the Credit
Card Act mandates certain additional consumer disclosure
requirements by issuers of these types of prepaid debit cards.
The Credit Card Act does not apply to other types of prepaid
debit cards, including reloadable prepaid cards that are not
marketed or labeled as a gift card or gift certificate.
As a result of these new requirements, the Federal Reserve Board
recently issued amendments to Regulation E, which are
expected to become effective beginning in August 2010. Moreover,
some state attorneys general have indicated a desire to
implement specific
state-by-state
regulations on the emerging prepaid debit card industry. At this
point, it is unclear whether the increase in the use of prepaid
debit cards on our network will be negatively impacted by these
recent regulatory actions and trends.
Encrypting PIN Pad and Triple-Data Encryption
Standards. Data encryption makes ATMs more
tamper-resistant. Two of the more advanced data encryption
methods are commonly referred to as Encrypting PIN Pad
(EPP) and 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, 2009, all
of our Company-owned and merchant-owned machines were Triple-DES
and EPP compliant.
S-75
Surcharge Regulation. Although there has been
recent criticism by certain members of the United States
Congress of the increase in surcharge fees by several financial
institutions that were recipients of federal funding under the
Troubled Asset Relief Program (TARP), the amount of
surcharge an ATM operator may charge a consumer is not currently
subject to federal regulation. However, there have been, and
continue to be, various state and local efforts to ban or limit
surcharge fees, generally resulting from pressure created by
consumer advocacy groups that believe that surcharge fees are
unfair to cardholders. Generally, United States federal courts
have ruled against these efforts. We are currently not aware of
any existing bans on surcharge fees and only a small number of
states currently impose a limit as to how much a consumer may be
charged. Regardless, there can be no assurance that surcharge
fees will not be banned or limited in the future by federal or
local governments in the jurisdictions in which we operate. Any
such bans or limits could have a material adverse effect on us
and other independent ATM operators.
EFT Network Regulations. EFT networks in the
United States are subject to extensive regulations that are
applicable to various aspects of our operations and the
operations of other ATM network operators. The major source of
EFT network regulations is the Electronic Fund Transfer
Act, commonly known as Regulation E. The federal
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 consumers 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 requires
compliance with an encryption standard called EMV Specification
(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. We completed our remaining compliance efforts in
2008 and as of December 31, 2009, all of our ATMs in the
United Kingdom were EMV compliant.
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 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 the recommendation 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
committees recommendations. Despite its rejection of the
committees recommendations, the United Kingdom government
sponsored an ATM task force to look at social exclusion in
relation to ATM services. As a result of the task forces
findings, approximately 600 additional
free-to-use
ATMs, which are ATMs that do not charge a surcharge to the
cardholder, (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 United Kingdom, 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 Mexicos 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 their
participants. As only financial institutions are allowed to be
participants
S-76
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 with 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).
In early October 2009, the Central Bank of Mexico adopted new
rules regarding how ATM operators disclose fees to consumers.
The objective of these rules is to provide more transparency to
the consumer regarding the cost of a specific ATM transaction,
rather than to limit the amount of fees charged to the consumer.
These rules, which go into effect on April 30, 2010, will
require ATM operators to elect between receiving interchange
fees from card issuers or surcharge fees from consumers. At this
time, we expect that Cardtronics Mexico will elect to assess a
surcharge fee on the consumer rather than elect to receive an
interchange fee from the consumers financial institution.
Additionally, we anticipate that Cardtronics Mexico will
increase the amount of the surcharge fee charged to the consumer
to offset the loss of interchange fees that we receive for
transactions conducted on our ATMs in that market. As these new
rules only require an ATM operator to disclose the total fees to
be charged to a consumer, rather than limit the amount of fees
that can be charged to a consumer, we do not anticipate that
these new rules will have a material impact on Cardtronics
Mexicos operations. However, it is possible that the level
of transactions currently being conducted on our ATMs in that
market may be negatively impacted by the anticipated increase in
the surcharge fees we charge consumers, and there can be no
assurances that the increased surcharge fees will be sufficient
to offset any such transaction declines, if they were to occur.
Additionally, we cannot be assured that additional rulings that
limit (i) the amount of fees that can be charged to
consumers or (ii) the amount that may be earned on an
individual ATM transaction will not be adopted in the future.
Legal
Proceedings
In June 2004, we acquired from E*Trade Access, Inc.
(E*Trade) a portfolio of several thousand ATMs. In
connection with that acquisition, we assumed E*Trades
position in a lawsuit in the U.S. District Court for the
District of Massachusetts (the Court) wherein the
Commonwealth of Massachusetts (the Commonwealth) and
the National Federation of the Blind (the NFB) had
sued E*Trade alleging that E*Trade had the obligation to make
its ATMs accessible to blind patrons via voice guidance. In June
2007, we, the Commonwealth, and the NFB entered into a class
action settlement agreement (the Settlement
Agreement) regarding this matter. The Court approved the
Settlement Agreement in December 2007. In 2009, we requested a
modification to the Settlement Agreement in order to permit us
to extend the deadline by which all of our owned ATMs had to be
voice-guided. The parties are continuing their efforts to
amicably resolve all outstanding issues within the framework of
the Settlement Agreement. If we fail to reach agreement with the
Commonwealth and the NFB regarding a mutually satisfactory
modification of the Settlement Agreement addressing all of the
above issues, the Commonwealth and the NFB have indicated that
they will seek relief from the Court. If this matter is
submitted to the Court, we may be required to expend additional
time and resources on this matter in 2010, but would not expect
such matter to have a material impact on our financial results.
In addition to the above item, we are subject to various legal
proceedings and claims arising in the ordinary course of our
business. We have provided reserves where necessary for all
claims and management 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.
Employees
As of December 31, 2009, we had approximately
460 employees, none of which were represented by a union or
covered by a collective bargaining agreement. We believe that
our relations with our employees are good.
S-77
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board of
Directors
Our Board of Directors currently has eight director positions
that are divided into three classes, with one class to be
elected at each annual meeting of stockholders to serve for a
three-year term. The term of our Class I directors expires
in 2011; the term of our Class II directors expires in
2012; and the term of our Class III Directors expires in
2010. Each director holds his office until a successor is duly
elected and qualified or until his death, retirement,
resignation or removal. Our Class I directors are Robert P.
Barone, Jorge M. Diaz and G. Patrick Phillips; our Class II
directors are J. Tim Arnoult and Dennis F. Lynch; and our
Class III directors are Fred R. Lummis, Michael A.R. Wilson
and Steven A. Rathgaber.
The following table sets forth the name and age of each person
that was serving as a director as of March 15, 2010:
|
|
|
|
|
Name
|
|
Age
|
|
Fred R. Lummis
|
|
|
56
|
|
Steven A. Rathgaber
|
|
|
56
|
|
J. Tim Arnoult
|
|
|
60
|
|
Robert P. Barone
|
|
|
72
|
|
Jorge M. Diaz
|
|
|
45
|
|
Dennis F. Lynch
|
|
|
61
|
|
G. Patrick Phillips
|
|
|
60
|
|
Michael A.R. Wilson
|
|
|
42
|
|
The following biographies describe the business experience of
our directors:
Fred R. Lummis has served as a director and Chairman of
our Board since June 2001. From March 17, 2009 through
February 1, 2010, Mr. Lummis served as our Interim
Chief Executive Officer. In 2006, Mr. Lummis co-founded
Platform Partners, LLC and currently serves as its Chairman and
Chief Executive Officer. Prior to co-founding Platform Partners,
Mr. Lummis co-founded and served as a managing partner of
The CapStreet Group, LLC, CapStreet II, L.P. and CapStreet
Parallel II, L.P., which collectively own 21.7% of the Company
as of March 15, 2010. Mr. Lummis continues to serve as
a senior advisor to The CapStreet Group, LLC. From June 1998 to
May 2000, Mr. Lummis served as Chairman of the Board and
Chief Executive Officer of Advantage Outdoor Company, an outdoor
advertising company. From September 1994 to June 1998,
Mr. Lummis served as Chairman and Chief Executive Officer
of American Tower Corporation, a nationwide communication tower
owner and operator. Mr. Lummis currently serves as a
director of Amegy Bancorporation Inc. and several private
companies. Mr. Lummis holds a Bachelor of Arts degree in
economics from Vanderbilt University and a Masters of Business
Administration degree from the University of Texas at Austin.
Mr. Lummis has developed extensive managerial and business
development skills as the co-founder of Platform Partners, the
CapStreet Group, LLC, CapStreet II, L.P. and CapStreet Parallel
II, L.P. With nearly 10 years of experience working with
our Company and his extensive operating and directorship
experience, Mr. Lummis is uniquely qualified to serve as a
director on, and Chairman of, our Board, as well as a member of
our Compensation Committee.
Steven A. Rathgaber has been our Chief Executive Officer
and has served as a director of our Company since
February 1, 2010. From January 1991 to January 2010,
Mr. Rathgaber was employed by NYCE Payments Network, LLC, a
wholly-owned subsidiary of Fidelity National Information
Services, Inc. Mr. Rathgaber most recently served as the
President and Chief Operating Officer of NYCE, a role he assumed
in September 2004. From April 1989 to January 1991,
Mr. Rathgaber served as a founding partner of Veritas
Venture, a
start-up
software development company. From May 1981 to March 1989,
Mr. Rathgaber served in a number of executive-level roles
within Automatic Data Processing, Inc., and from January 1977 to
April 1981, Mr. Rathgaber held numerous positions within
Citibank. Mr. Rathgaber also served on the board of
Everlink
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Payment Services, a joint venture between the United
States-based NYCE Payments Network and Celero, a Canadian credit
union processing company, from the companys inception in
September 2003 until December 2009. He served as Chairman of the
Everlink board from June 2004 until May 2006. Mr. Rathgaber
holds a Bachelor of Science degree in Accounting from St.
Johns University.
Mr. Rathgaber was selected to serve on our Board due to his
depth of knowledge of the financial services and payments
industry, his acute business judgment, and his extensive
leadership skills.
J. Tim Arnoult has served as a director of our
Company since January 2008. From 1979 to 2006, Mr. Arnoult
served in various positions at Bank of America, N.A., including
President of Global Treasury Services from
2005-2006,
President of Global Technology and Operations from
2000-2005,
and President of Central U.S. Consumer and Commercial
Banking from
1996-2000.
Mr. Arnoult is also experienced in mergers and
acquisitions, having been directly involved in significant
transactions such as the mergers of NationsBank and Bank of
America in 1998 and Bank of America and Fleet Boston in 2004.
Mr. Arnoult has served on a variety of boards throughout
his career, including the board of Visa USA. Mr. Arnoult
holds a Bachelor of Arts degree in psychology and a Masters of
Business Administration degree from the University of Texas at
Austin.
Mr. Arnoult brings over 30 years of banking and
financial services experience to our Board and also has
considerable experience serving as a director from his
directorships with several other large companies, including the
board of VISA USA. We believe Mr. Arnoults banking
and financial services background and past directorship
experience make him well-qualified to serve on our Board, as
Chairman of the Nominating & Governance Committee, and
on our Audit Committee.
Robert P. Barone has served as a director of our Company
since September 2001. Mr. Barone held positions at Diebold,
Inc., NCR Corporation, and Xerox Corporation, as well as the
Electronic Funds Transfer Association (EFTA). Since
December 1999, Mr. Barone has served as a consultant for
SmartNet Associates, Inc., a private consulting firm. From May
1997 to November 1999, Mr. Barone served as Chairman of the
Board of PetsHealth Insurance, Inc., a pet health insurance
provider. From September 1988 to September 1994, Mr. Barone
served as Board Vice-Chairman, President and Chief Operating
Officer of Diebold, Inc. Mr. Barone holds a Bachelor of
Business Administration degree from Western Michigan University
and a Masters of Business Administration degree from Indiana
University. A founder and past Chairman of EFTA, Mr. Barone
is now Chairman Emeritus of that organization. Currently,
Mr. Barone is the owner of The Smart Dynamics Group
Consulting Firm and a 50% partner in Southeast Locates LLC, an
underground utilities damage prevention company.
Mr. Barones more than 40 years of sales,
marketing, and executive leadership experience provide him with
the experience and skills that we believe qualify him to serve
on our Board, as Chairman of our Audit Committee, and on our
Nominating & Governance Committee. Additionally, as
founder and Chairman Emeritus of the EFTA,
Mr. Barones knowledge of the electronic funds
transfer industry and his relationships with companies within
that industry are assets to our Board.
Jorge M. Diaz has served as a director of our Company
since December 2004. Mr. Diaz is the
Division President and Chief Executive Officer of Fiserv
Output Solutions, a division of Fiserv, Inc., and has held that
position since April 1994. Fiserv Output Solutions provides card
production services, statement processing and electronic
document distribution services. In January 1985, Mr. Diaz
co-founded National Embossing Company, a predecessor company to
Fiserv Output Solutions. Mr. Diaz sold National Embossing
Company to Fiserv in April 1994. Mr. Diaz serves as a
director for the local chapter of the Boys and Girls Club, a
national non-profit organization.
Mr. Diaz extensive experience in the electronic funds
transfer processing industry, as well as his
long-standing
association with our Company, makes him uniquely qualified to
serve on our Board.
Dennis F. Lynch has served as a director of our Company
since January 2008. Mr. Lynch has over 25 years of
experience in the payments industry and has led the introduction
and growth of various card products and payment solutions.
Mr. Lynch is currently a director and chairperson of the
Secure Remote Payments Council, a cross-industry group dedicated
to accelerating more secure methods of conducting
S-79
consumer payments in the internet/mobile marketplace.
Mr. Lynch is also a principal of Future Pay, LLC, a
consulting firm focused on the next generation of consumer
payments. From 2005 to 2008, Mr. Lynch served as Chairman
and Chief Executive Officer of RightPath Payments Inc., a
company providing
business-to-business
payments via the internet. From 1994 to 2004, Mr. Lynch
served in various positions with NYCE Payments Network, LLC, an
electronic payments network that is now a wholly-owned
subsidiary of Fidelity National Information Services, Inc.,
including serving as that companys President and Chief
Executive Officer from 1996 to 2004, and as a director from 1992
to 2004. Prior to joining NYCE, Mr. Lynch served in a
variety of information technology and products roles, ultimately
managing Fleet Bostons consumer payments portfolio.
Mr. Lynch has served on a number of boards, including the
board of Open Solutions, Inc., a publicly-traded company
delivering core banking products to the financial services
market, from 2005 to 2007. Mr. Lynch was also a founding
director of the New England-wide YANKEE24 Network, and served as
its Chairman from 1988 to 1990. Additionally, Mr. Lynch has
served on the Executive Committee and the board of EFTA.
Mr. Lynch received his Bachelors and Masters degrees from
the University of Rhode Island.
Mr. Lynchs extensive experience in the payment
industry and his leading role in the introduction and growth of
various card products and payment solutions make him a valuable
asset to our Board. We leverage Mr. Lynchs knowledge
of card products and payment solutions in developing our
strategies for capitalizing on the proliferation of prepaid
debit cards. Additionally, Mr. Lynchs service on a
number of corporate boards and his experience as the Chief
Executive Officer of the NYCE Payments Network, LLC, provide him
with the background and leadership skills necessary to serve as
Chairman of our Compensation Committee and on our Audit
Committee.
G. Patrick Phillips was appointed as a director of
our Company on February 5, 2010. Mr. Phillips is a
35-year
veteran of Bank of America, most recently serving as President
of Bank of Americas Premier Banking and Investments group
from August 2005 to March 2008. During his tenure at Bank of
America, Mr. Phillips led a variety of consumer,
commercial, wealth management and technology businesses.
Mr. Phillips currently serves on the board of directors of
USAA Federal Savings Bank where he serves as Chairman of the
Finance and Audit Committee. Additionally, Mr. Phillips
previously served as a director of Visa USA and Visa
International from 1990 to 2005 and 1995 to 2005, respectively.
Mr. Phillips received a Masters of Business Administration
from the Darden School (of business) at the University of
Virginia in 1973 and graduated from Presbyterian College in
Clinton, South Carolina in 1971.
Mr. Phillips extensive experience in the banking
industry as well as the electronic payments industry makes him
uniquely qualified to serve on our Board, our Audit Committee,
and our Nominating & Governance Committee.
Michael A.R. Wilson has served as a director of our
Company since February 2005. Mr. Wilson is a Managing
Director at TA Associates, a private equity firm, which together
with its affiliates owns approximately 27.7% of the Company as
of March 15, 2010. At TA Associates, Mr. Wilson
focuses on growth investments and leveraged buyouts of financial
services, business services, and consumer products companies.
Mr. Wilson currently serves on the boards of Jupiter
Investments Group and Numeric Investors. Prior to joining TA
Associates in 1992, Mr. Wilson was a Financial Analyst in
Morgan Stanleys Telecommunications Group. In 1994,
Mr. Wilson joined Affiliated Managers Group, a TA
Associates-backed financial services
start-up, as
Vice President and a member of the founding management team.
Mr. Wilson received a Bachelors of Arts degree, with
Honors, in Business Administration from the University of
Western Ontario, and a Masters of Business Administration
degree, with Distinction, from Harvard Business School.
Mr. Wilsons strong leadership and business
experience, including his position as a Managing Director of a
private equity firm and his financial services industry
expertise, qualify him to serve on our Board, our Compensation
Committee, and our Nominating & Governance Committee.
Mr. Wilsons background in growth investments and
leveraged buyouts make him a valuable contributor to discussions
regarding possible acquisitions.
S-80
Executive
Officers
Our executive officers are appointed by the Board on an annual
basis and serve until removed by the Board or their successors
have been duly appointed. The following table sets forth the
name, age and position of each person who was serving as an
executive officer of Cardtronics as of March 15, 2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Steven A. Rathgaber
|
|
|
56
|
|
|
Chief Executive Officer
|
J. Chris Brewster
|
|
|
60
|
|
|
Chief Financial Officer
|
Michael H. Clinard
|
|
|
42
|
|
|
President of Global Services
|
Rick Updyke
|
|
|
50
|
|
|
President of Global Development
|
Carleton K. Tres Thompson, III
|
|
|
41
|
|
|
Chief Accounting Officer
|
The following biographies describe the business experience of
our executive officers:
Steven A. Rathgaber has served as our Chief Executive
Officer and a director of our Board since February 1, 2010.
For additional information on Mr. Rathgaber, please see his
biography in the Board of Directors
section above.
J. Chris Brewster has served as our Chief Financial
Officer since February 2004. From September 2002 until February
2004, Mr. Brewster provided consulting services to various
businesses. From October 2001 until September 2002,
Mr. Brewster served as Executive Vice President and Chief
Financial Officer of Imperial Sugar Company, a NASDAQ-quoted
refiner and marketer of sugar and related products. From March
2000 to September 2001, Mr. Brewster served as Chief
Executive Officer and Chief Financial Officer of WorldOil.com, a
privately-held Internet, trade magazine, book and catalog
publishing business. From January 1997 to February 2000,
Mr. Brewster served as a partner of Bellmeade Capital
Partners, LLC, a merchant banking firm specializing in the
consolidation of fragmented industries. From March 1992 to
September 1996, he served as Chief Financial Officer of
Sanifill, Inc., a New York Stock Exchange-listed environmental
services company. From May 1984 to March 1992, he served as
Chief Financial Officer of National Convenience Stores, Inc., a
New York Stock Exchange-listed operator of 1,100 convenience
stores. Mr. Brewster holds a Bachelor of Science degree in
industrial management from the Massachusetts Institute of
Technology and a Masters of Business Administration from Harvard
Business School.
Michael H. Clinard has served as our President of Global
Services since June 2008. Prior to such time, he served as our
Chief Operating Officer following his original employment with
us in August 1997. He holds a Bachelor of Science degree in
business management from Howard Payne University.
Mr. Clinard also serves as a director and Vice President of
the ATM Industry Association.
Rick Updyke has served as our President of Global
Development since June 2008. Prior to such time, he served as
our Chief Strategy and Development Officer following his
original employment with us in July 2007. From February 1984 to
July 2007, Mr. Updyke held various positions with
Dallas-based 7-Eleven, Inc., a convenience store retail company,
most recently serving as Vice President of Corporate Business
Development from February 2001 to July 2007. He holds a Bachelor
of Business Administration degree in management information
systems from Texas Tech University and a Masters of Business
Administration from Amberton University.
Carleton K. Tres Thompson, III has
served as our Chief Accounting Officer since September 2006.
Prior to such time, he served as our Director of Reporting
following his original employment with us in June 2004. From
January 2003 until May 2004, Mr. Thompson served as the
Chief Financial Officer of Sternhill Partners, a venture capital
partnership providing funding for seed and early-stage
technology
start-ups.
From October 2001 until December 2002, Mr. Thompson served
as the Chief Accounting Officer of Q Services, Inc., an oilfield
services company specializing in well enhancement and production
services. Prior to that, Mr. Thompson served in several
other corporate finance roles with both privately-held and
publicly-traded companies. Mr. Thompson began his career in
September 1990 with Arthur Andersen where he spent eight years
working in the firms audit practice. Mr. Thompson
holds a Bachelor of Science degree in accounting from Trinity
University and is a licensed certified public accountant in the
state of Texas.
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Corporate
Governance
We are committed to good corporate governance. Our Board has
adopted several governance documents, which include our
Corporate Governance Principles, Code of Business Conduct and
Ethics, Financial Code of Ethics and charters for each standing
committee of our Board. Each of these documents is available on
our website at
http://www.cardtronics.com
and you may also request a copy of each document at no cost by
writing (or telephoning) the following: Cardtronics, Inc.,
Attention: Chief Financial Officer, 3250 Briarpark Drive,
Suite 400, Houston, Texas 77042,
(832) 308-4000.
Code of Ethics. Our Board has adopted a Code
of Business Conduct and Ethics for our directors, officers and
employees. In addition, our Board has adopted a Financial Code
of Ethics for our principal executive officer, principal
financial officer, principal accounting officer and other
accounting and finance executives. We intend to disclose any
amendments to or waivers of the codes 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.
Director Independence. As required under the
listing standards of The NASDAQ Stock Market LLC
(NASDAQ), a majority of the members of our Board
must qualify as independent, as affirmatively
determined by our Board. Our Board has delegated this
responsibility to its Nominating & Governance
Committee. Pursuant to its charter, the Nominating &
Governance Committee determines whether or not each director and
each prospective director is independent.
The Nominating & Governance Committee evaluated all
relevant transactions or relationships between each director, or
any of his family members, and our Company, senior management
and independent registered accounting firm. Based on this
evaluation, the Nominating & Governance Committee has
determined that Messrs. Arnoult, Barone, Lummis, Lynch,
Phillips and. Wilson are each an independent director, under the
applicable standards set forth by the NASDAQ and SEC.
Messrs. Arnoult, Barone, Lummis, Lynch, Phillips and Wilson
constitute a majority of the members of our Board.
In making these independence determinations, our
Nominating & Governance Committee, in conjunction with
our Board, considered the relationships between the directors
and the Company, as described below:
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Mr. Lummis. Mr. Lummis co-founded
and currently serves as a senior advisor to The CapStreet Group,
LLC, CapStreet II, L.P. and CapStreet Parallel II, L.P. (the
CapStreet Funds). The CapStreet Funds collectively
own 21.7% of our common stock as of March 15, 2010. Our
Nominating & Governance Committee has reviewed
Mr. Lummis connection to the CapStreet Funds and the
CapStreet Funds influence over us and determined that the
CapStreet Funds influence over us is not material and that
Mr. Lummis relationship with the CapStreet Funds does
not impair his independence. However, on March 17, 2009,
Mr. Lummis was appointed as our Interim Chief Executive
Officer. Accordingly, Mr. Lummis was not considered to be
an independent director while he served in that position.
Effective February 1, 2010, Mr. Lummis resigned as our
Interim Chief Executive Officer, concurrent with the appointment
of Steven A. Rathgaber as the Companys Chief Executive
Officer. Because Mr. Lummis served as our Interim Chief
Executive Officer for less than a full year, he is still
considered to be an independent director.
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Mr. Wilson. Mr. Wilson is the
managing director at TA Associates, Inc., a private equity firm.
TA Associates, Inc. is the ultimate parent of TA IV, L.P,
TA/Atlantic Pacific V, L.P., TA/Atlantic Pacific IV, L.P.,
TA Strategic Partners Fund A L.P., TA Investors II, L.P.
and TA Strategic Partners Fund B L.P. (collectively, the
TA Funds). The TA Funds collectively own 27.7% of
our common stock as of March 15, 2010. Our
Nominating & Corporate Governance Committee has
reviewed Mr. Wilsons connection to the TA Funds and
the TA Funds influence over us and determined that the TA
Funds influence over us is not material and that
Mr. Wilsons relationship with the TA Funds does not
impair his independence.
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Mr. Diaz. Mr. Diaz has not been
considered independent following our initial public offering in
2007 because of his employment with Fiserv Output Solutions, a
division of Fiserv, Inc. In 2009, we paid
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approximately $23.6 million in fees to Fiserv for services
rendered to us in the ordinary course of business.
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The purpose of this review was to determine whether any such
relationships were material and, therefore, inconsistent with a
determination that the director is independent. As a result of
this review, the Nominating & Governance Committee
affirmatively determined, based on its understanding of such
relationships, that, except as discussed above, none of our
directors has any material relationship with us or our
subsidiaries.
Board Leadership Structure. Although our
current Chairman of the Board served as our Interim Chief
Executive Officer during the period of time in which we
conducted a search for our new Chief Executive Officer, the
Board has determined that having a non-executive director serve
as Chairman of the Board is in the best interest of our
stockholders at this time. Our Chief Executive Officer is
responsible for setting our strategic direction and providing us
day-to-day
leadership, while the Chairman of the Board provides guidance to
our Chief Executive Officer and sets the agenda for Board
meetings and presides over meetings of the full Board. We
believe this structure ensures a greater role for the
non-executive directors in the oversight of our Company and
active participation of the non-executive directors in setting
agendas and establishing priorities and procedures for the work
of the Board.
Meetings. Our Board held a total of ten
meetings (four quarterly and six special meetings) and also
acted through either electronic secured voting or unanimous
written consent ten times during the year ended
December 31, 2009. During this period, all directors
attended each of the regularly scheduled quarterly meetings.
With regard to the six special meetings, one director was unable
to attend two such special meetings, while two other directors
missed one special meeting each. In 2009, the committees of the
Board held a total of 24 meetings: 11 Audit Committee meetings,
eight Compensation Committee meetings and five
Nominating & Governance Committee meetings. All
committee members were present at these meetings.
Executive Sessions; Presiding
Director. According to our Corporate Governance
Principles, our independent directors must meet in executive
session at each quarterly meeting and did so during the fiscal
year ended December 31, 2009. The Chairman of the Board
presides at these meetings and is responsible for preparing an
agenda for these executive sessions. As a result of the
Companys search for a new Chief Executive Officer during
2009, the independent directors did not make a report to the
Board regarding succession planning.
Annual Meeting Attendance. One of our
directors attended our 2009 annual meeting held on June 18,
2009. We do not have a formal policy regarding director
attendance at annual meetings. However, our directors are
expected to attend all Board and committee meetings, as
applicable, and to meet as frequently as necessary to properly
discharge their responsibilities.
Limitation on Public Company Board
Service. Members of our Audit Committee are
prohibited from serving on the audit committees of more than two
other public companies. In addition, our Board monitors the
number of public company boards on which each director serves
and develops limitations on such service as appropriate to
ensure the ability of each director to fulfill his duties, as
required by applicable securities laws and NASDAQ listing
standards.
Board and Committee Self-Evaluation. Our Board
and each committee of our Board conduct an annual
self-evaluation to determine whether they are functioning
effectively. The Nominating & Governance Committee
leads the Board self-evaluation effort by conducting an annual
evaluation of the Boards performance. The committee
completed its evaluation of the Boards 2009 performance at
its March 2010 meeting and presented its findings to the Board
the following day. The Board has taken the committees
evaluation under advisement and expects to complete its
self-evaluation on or before its next regularly scheduled
meeting. Similarly, each committee reviews the results of its
evaluation to determine whether any changes need to be made to
the committee or its procedures.
Director Selection and Nomination Process. The
Nominating & Governance Committee is responsible for
establishing criteria for selecting new directors and actively
seeking individuals to become directors for recommendation to
our Board. In 2009 the Nominating & Governance
Committee developed a set of criteria that a director candidate
should possess, and used that set of criteria in the search
efforts that culminated in the election of G. Patrick Phillips
to the Board in January 2010. Furthermore, the
Nominating & Governance
S-83
Committee continually reevaluates its set of criteria to ensure
that future Board candidates complement those currently serving
on the Board. The present criteria for director qualifications
include: (1) prior corporate board experience;
(2) possessing the qualifications of an
independent director in accordance with applicable
NASDAQ listing rules; (3) demonstrated success as a past or
current senior business executive within a rapidly growing
business; (4) experience in operating in a regulated
environment; (5) experience and appreciation for corporate
risk management; (6) demonstrated skills, background and
competencies that complement and add diversity to the Board; and
(7) a proven track record of high business ethics and
integrity.
The Nominating & Governance Committee may consider
candidates for our Board from any reasonable source, including
from a search firm engaged by the Nominating &
Governance Committee or stockholder recommendations, provided
that the procedures set forth above are followed. The
Nominating & Governance Committee does not intend to
alter the manner in which it evaluates candidates based on
whether the candidate is recommended by a stockholder or not.
However, in evaluating a candidates relevant business
experience, the Nominating & Governance Committee may
consider previous experience as a member of our Board. Any
invitation to join our Board must be extended by our Board as a
whole.
Board CommitteesGeneral. Our Board
currently has three standing committees: an Audit Committee, a
Compensation Committee and a Nominating & Governance
Committee. Each committee is comprised of independent directors
as currently required under the SECs rules and regulations
and the NASDAQ listing standards, and each committee is governed
by a written charter approved by the Board. These charters form
an integral part of our corporate governance policies, and a
copy of each charter is available on our website at
http://www.cardtronics.com.
Effective March 17, 2009, in connection with his assumption
of the position of Interim Chief Executive Officer,
Mr. Lummis resigned from the Compensation Committee and the
Nominating & Governance Committee, as he no longer
qualified as an independent director under the NASDAQs
rules and regulations. Effective February 1, 2010,
Mr. Lummis resigned as our Interim Chief Executive Officer
and was re-appointed to the Compensation Committee.
The table below provides the current composition of each
committee of our Board:
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Nominating &
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Audit
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Compensation
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Governance
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Name
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Committee
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Committee
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Committee
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J. Tim Arnoult
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X
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X
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*
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Robert P.
Barone(1)
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X
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*
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X
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Fred R. Lummis
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X
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Dennis F. Lynch
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X
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X
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*
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G. Patrick Phillips
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X
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X
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Michael A.R. Wilson
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X
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X
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Committee Chairman. |
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Mr. Barone served as a member of our Compensation Committee
from March 17, 2009 through February 1, 2010, in
connection with Mr. Lummis temporary resignation from
that committee. |
Audit Committee. Our Nominating &
Governance Committee, in its business judgment, has determined
that the Audit Committee is comprised entirely of directors who
satisfy the standards of independence established under the
SECs rules and regulations and NASDAQ listing standards.
In addition, the Board, in its business judgment, has determined
that each member of the Audit Committee satisfies the financial
literacy requirements of the NASDAQ listing standards and that
its chairman, Mr. Barone, qualifies as an audit
committee financial expert within the meaning of the
SECs rules and regulations.
The Audit Committee is appointed by our Board to:
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assist the Board in fulfilling its oversight responsibilities
with respect to the conduct by our management of our financial
reporting process, including the development and maintenance of
a system of internal accounting and financial reporting controls;
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S-84
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assist the Board in overseeing the integrity of our financial
statements, qualifications and independence of our independent
registered public accounting firm, and the performance of such
firm and our internal audit function;
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prepare the annual Audit Committee report, in accordance with
applicable rules and regulations; and
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perform such other functions as the Board may assign to the
Audit Committee from time to time.
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Pursuant to its charter, the Audit Committee has the authority,
at our expense, to retain professional advisors, including
legal, accounting or other consultants, to advise the Audit
Committee in connection with the exercise of its powers and
responsibilities. The Audit Committee may require any of our
officers or employees, our outside legal counsel or our
independent registered public accounting firm to attend a
meeting of the Audit Committee or to meet with any members of,
or consultants to, the Audit Committee. The Audit Committee is
responsible for the resolution of any disagreements between the
independent registered public accounting firm and management
regarding our financial reporting. The Audit Committee meets
periodically with management and the independent registered
public accounting firm in separate executive sessions, as
needed, to discuss any matter that the Audit Committee or each
of these groups believe should be discussed privately. The Audit
Committee makes regular reports to our Board.
The Report of the Audit Committee is set forth below under the
Principal Accounting Fees and ServicesReport of
Audit Committee section.
The Audit Committee held 11 meetings and did not act by written
consent during the fiscal year ended December 31, 2009.
Compensation Committee. Our
Nominating & Governance Committee, in its business
judgment, has determined that all three directors on the
Compensation Committee currently satisfy the standards of
independence established under the SECs rules and
regulations, NASDAQ listing standards and our Corporate
Governance Principles. However, prior to December 7, 2009,
the Board had determined that it was in the best interest of the
Company that Mr. Diaz, while not considered to be
independent due to his relationship with Fiserv, continue to
serve as Chairman of the Companys Compensation Committee
through such date.
The Report of the Compensation Committee is set forth under
Executive CompensationCompensation Committee
Report section included below.
The Compensation Committee is delegated all authority of our
Board as may be required or advisable to fulfill the purposes of
the Compensation Committee as set forth in its charter. The
Compensation Committee may form and delegate some or all of its
authority to subcommittees when it deems appropriate.
Pursuant to its charter, the purposes of the Compensation
Committee are to:
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oversee the responsibilities of the Board relating to
compensation of our directors and executive officers;
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design, recommend and evaluate our director and executive
officer compensation plans, policies and programs;
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prepare the annual Compensation Committee Report, in accordance
with applicable rules and regulations;
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otherwise discharge our Boards responsibilities relating
to compensation of our directors and executive officers; and
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perform such other functions as our Board may assign to the
committee from time to time.
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In addition, the Compensation Committee works with our executive
officers, including our Chief Executive Officer, to implement
and promote our executive compensation strategy. See
Executive CompensationCompensation Discussion and
Analysis for additional information on the Compensation
Committees processes and procedures for the consideration
and determination of executive compensation and Executive
S-85
CompensationDirector Compensation for additional
information on its consideration and determination of director
compensation.
The Compensation Committee held eight meetings during the fiscal
year ended December 31, 2009.
Nominating & Governance
Committee. The Nominating & Governance
Committee identifies individuals qualified to become members of
our Board, makes recommendations to our Board regarding director
nominees for the next annual meeting of stockholders, and
develops and recommends corporate governance principles to our
Board. The Nominating & Governance Committee, in its
business judgment, has determined that it is comprised entirely
of directors who satisfy the standards of independence
established under NASDAQ listing standards and our Corporate
Governance Principles. For information regarding the
Nominating & Governance Committees policies and
procedures for identifying, evaluating and selecting director
candidates, including candidates recommended by stockholders,
see Corporate GovernanceDirector Selection and
Nomination Process above.
The Nominating & Governance Committee is delegated all
authority of our Board as may be required or advisable to
fulfill the purposes of the Nominating & Governance
Committee as set forth in its charter. More particularly, the
Nominating & Governance Committee:
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prepares and recommends to our Board for adoption appropriate
Corporate Governance Principles and modifications from time to
time to those principles;
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establishes criteria for selecting new directors and seeks
individuals qualified to become board members for recommendation
to our Board;
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seeks to implement the independence standards
required by law, applicable listing standards, our certificate
of incorporation or bylaws or our Corporate Governance
Principles;
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determines whether or not each director and each prospective
director is independent, disinterested or a non-employee
director under the standards applicable to the committees on
which such director is serving or may serve;
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reviews annually the advisability or need for any changes in the
number and composition of our Board;
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reviews annually the advisability or need for any changes in the
number, charters or titles of committees of our Board;
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recommends to our Board annually the composition of each Board
committee and the individual director to serve as chairman of
each committee;
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reports to our Board annually with an assessment of our
Boards performance to be discussed with the full Board
following the end of each fiscal year; and
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works with our Compensation Committee relating to the
evaluation, performance, development and success of the CEO and
executive officers to evaluate potential successors to the
principal executive officer.
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The Nominating & Governance Committee held five
meetings during the fiscal year ended December 31, 2009.
S-86
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Objectives. The primary objectives of our
executive compensation program are to attract, retain, and
motivate qualified individuals who are capable of leading our
Company to meet its business objectives and to increase overall
stockholder value. To achieve these objectives, our Compensation
Committees philosophy has been to implement a compensation
program that aligns the interests of management with those of
our investors and to provide a compensation program that creates
incentives for and rewards performances of the individuals based
on our overall success and the achievement of individual
performance objectives. Specifically, our compensation program
provides management with the incentive to increase our adjusted
earnings before interest expense, income taxes, and
depreciation, accretion and amortization expense, as well as
certain other non-recurring or non-cash items (Adjusted
EBITDA), as defined in our revolving credit facility, and
return on invested capital (ROIC), as defined in our
non-equity incentive compensation plan, which is described in
more detail below. For a reconciliation of Adjusted EBITDA to
net income see Summary Summary Selected
Financial Data above. In addition, we intend for our
compensation program to both compensate our executives on a
level that is competitive with companies comparable to us as
well as maintain a level of internal consistency and equity by
paying higher amounts of compensation to our more senior
executive officers based on job role and complexity, along with
individual talent and performance.
Our Compensation Committee believes that it is in the best
interests of our investors and our executive officers that our
compensation program remains relatively uncomplicated and
straightforward, which should reduce the time and cost involved
in setting our compensation policies and calculating the
payments under such policies, as well as reduce the time
involved in furthering our investors understanding of such
policies.
Named Executive Officers. The Compensation
Committees responsibility includes the establishment of
all compensation programs for our executive officers as well as
oversight for other broad-based employee benefits programs. The
compensation arrangements focused on in this Compensation
Discussion and Analysis relate primarily to our Named Executive
Officers. For the year ended December 31, 2009, our Named
Executive Officers were:
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Name
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Position
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Fred R. Lummis
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Interim Chief Executive Officer
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J. Chris Brewster
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Chief Financial Officer
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Michael H. Clinard
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President of Global Services
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Rick Updyke
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President of Global Development
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Carleton K. Tres Thompson, III
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Chief Accounting Officer
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Jack M. Antonini
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Former Chief Executive Officer
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In March 2009, we announced that Mr. Antonini would be
leaving the Company and the Board of Directors effective
March 17, 2009. Fred R. Lummis, Chairman of the Board,
agreed to serve as our Interim Chief Executive Officer while the
Board conducted a formal search for Mr. Antoninis
permanent successor. On February 1, 2010, Mr. Lummis
resigned as the Companys Interim Chief Executive Officer,
concurrent with the appointment of Steven A. Rathgaber as our
Chief Executive Officer.
Compensation Review. Historically, our
management has performed (typically every other year) an
informal market survey of the competitiveness of the total
compensation packages paid to our executive officers through a
review of compensation paid by companies with whom we believe we
compete for executive level talent. However in 2008, the
Compensation Committee engaged the independent compensation
consulting firm Pearl Meyer & Partners
(PM&P) to provide advice and counsel on
executive compensation matters, and the Compensation Committee
determined that it was in the Companys best interest to
continue PM&Ps engagement into the 2009 year.
PM&P provides no services to the Company other than those
provided directly to, or on behalf of, the Compensation
Committee. PM&P conducted a thorough review of our
executive compensation program, including base salary, annual
incentive targets and plan metrics, total cash
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compensation, long-term incentives, and total direct
compensation. In both 2008 and 2009, PM&P provided our
Compensation Committee with the following:
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updates regarding regulatory changes affecting our compensation
program;
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information on market trends, practices and other data;
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assistance in designing program elements; and
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overall guidance and advice about the efficacy of each element
of our compensation program and its fit within the
Committees developing compensation philosophy.
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While the PM&P guidance has been a valuable resource for
the Compensation Committee in identifying compensation trends
and determining competitive compensation packages for our
Company, the Compensation Committee has the final authority over
all executive compensation decisions, except for decisions
relating to our Chief Executive Officers compensation
(which rests with the Board), and is not bound to adhere to any
advice or recommendations that PM&P may provide to the
Compensation Committee. Prior to PM&Ps engagement, no
comprehensive or formal study had been conducted to review the
executives pay elements, the weighting of these elements,
and the position with respect to the competitive markets. The
data contained in PM&Ps studies during the 2008 and
2009 years provided our Compensation Committee with a
foundation for making compensation-related decisions. As a
result, the Compensation Committee decided to develop and
implement a more formal equity compensation strategy during 2009
that would govern future compensation decisions. However, as a
result of the departure of the Companys former Chief
Executive Officer in March 2009, the Compensation Committee
agreed to temporarily suspend these efforts until a new Chief
Executive Officer was hired. With the appointment of
Mr. Rathgaber as the Companys new Chief Executive
Officer effective February 1, 2010, the Compensation
Committee plans to resume its efforts to develop and implement a
more formal equity compensation program in 2010.
Use of Peer Companies. The Compensation
Committee has historically analyzed the compensation practices
of a group of companies we consider to be our peers. Composition
of the peer group is based upon a combination of the following
factors: (1) companies that are competitors for our
products and services; (2) companies that compete for our
specialized talent; (3) companies that may experience
similar market cycles to ours; (4) companies that may be
tracked similarly by analysts; and (5) companies that are
in a generally comparable bracket of market capitalization
and/or
revenue to ours.
The peer group provides meaningful reference points for
competitive practices, types of equity rewards used, and equity
usage levels for the executives as well as the total amount of
shares set aside for equity programs. The Compensation
Committees goal is to provide a total compensation package
that is competitive with prevailing practices in our industry
and within the peer group. Individual peers utilized in the peer
group are periodically reviewed and may change over time, as
needed. The peer group used for the 2009 market analysis was as
follows:
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Fiscal Year
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Company Name
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2009 Revenue
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(In millions)
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Coinstar, Inc.
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$
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1,144.8
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Euronet Worldwide, Inc.
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1,032.7
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Global Cash Access Holdings, Inc.
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667.7
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Heartland Payment Systems, Inc.
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1,652.1
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TNS, Inc.
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474.8
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Wright Express Corporation
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318.2
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In addition to studying the compensation practices and trends at
companies that are considered peers, the
Compensation Committee has also determined that it is beneficial
to our understanding of more general compensation expectations
to consider the best practices in compensation policies from
other companies that are not necessarily peers or limited to our
industry. The Compensation Committee does not react or structure
our compensation programs on market data alone, and it does not
utilize any true benchmarking techniques
S-88
when making compensation decisions. The Compensation Committee
did not use the peer group to establish a particular range of
compensation for any element of pay in 2009. Rather, peer group
and other market data were used as a general guideline in the
Compensation Committees deliberations.
Role of the Chief Executive Officer in Executive Compensation
Decisions. Our Chief Executive Officer
(CEO) has historically worked very closely with our
Compensation Committee. However, the CEO does not make,
participate in, provide input for, or make recommendations about
his own compensation. During 2009, the CEOs role in the
Compensation Committees executive compensation decisions
was somewhat limited given Mr. Lummis interim status.
The Compensation Committee also meets in executive session,
independently of the CEO and other members of senior management,
to review not only compensation issues related to the CEO, but
those of all Named Executive Officers and employees. Other than
the CEO, none of our other Named Executive Officers provide
direct recommendations to the Compensation Committee or
participate in the executive compensation setting process.
Role of the Chief Executive Officer and Chief Financial
Officer in Compiling the Compensation Discussion and Analysis
Data. The management team, with some assistance
from PM&P, compiled the tabular data for this Compensation
Discussion and Analysis. The Compensation Committee has reviewed
this data for thoroughness, consistency, and accuracy within the
framework of the general charter of the Compensation Committee
(described in Directors, Executive Officers and Corporate
Governance Corporate Governance above).
Calendar of Events and Decision Making. The
Compensation Committee meets periodically in each quarter of the
fiscal year, as well as on an as needed basis, to
address compensation administration issues and initiatives. A
general summary of the 2009 schedule is as follows:
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Quarter of 2009
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Items Associated with Plan Administration
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1st Quarter
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Reviewed financial and operational results for 2008 and based
upon that review, approved bonuses relating to 2008 performance.
Acting upon managements recommendation, agreed that due to
the uncertain economic environment, no salary increases would be
granted to employees at the mid-management level or higher.
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2nd Quarter
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With input from PM&P, submitted to the Board the
2009 director compensation plan. Commenced work with
PM&P to develop a comprehensive non-equity management
incentive compensation plan.
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3rd Quarter
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Through multiple meetings, developed and approved a
comprehensive non-equity incentive compensation plan for 2009.
Considered and approved (i) special bonuses for certain
non-executive employees for services performed during the first
and second quarters of 2009, and (ii) equity awards to certain
non-executive employees who had not previously been granted
equity awards.
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4th Quarter
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Reviewed publicly available compensation data from the
Companys peer group, as well as other similar companies to
determine what, if any, additional compensation policies or
guidelines should be recommended in the future. Began working on
the Companys 2010 non-equity and equity incentive
compensation programs. Reviewed the proposed compensation
package for the Companys new Chief Executive Officer and,
following consultation with PM&P, submitted a
recommendation to the Board for approval. On December 7, 2009,
Mr. Diaz relinquished his role as both a member and Chairman of
the Compensation Committee. Mr. Lynch replaced Mr. Diaz as
both a member and Chairman of the Compensation Committee.
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Components of Executive Compensation. Our
executive compensation program consists of three primary
elements: (1) base salary, (2) annual non-equity
incentive plan compensation awards, and (3) equity awards.
In determining the level of total compensation to be set for
each compensation component, our Compensation Committee
considers a number of factors, including market competitiveness
analyses of our compensation
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levels compared with those paid by comparable companies, our
most recent annual performance, each individual executive
officers performance, the desire to maintain internal
equity and consistency among our executive officers and any
other considerations that the Compensation Committee deems to be
relevant.
In addition to the three primary compensation components, we
provide our executive officers with discretionary bonuses (as
conditions warrant), severance, certain other generally
available benefits, such as healthcare plans that are available
to all employees, and certain limited perquisites. While our
Compensation Committee reviews the total compensation package we
provide to each of our executive officers, our Board and the
Compensation Committee view each element of our compensation
program as serving a specific purpose and, therefore, as
distinct elements. In other words, a significant amount of
compensation paid to an executive in the form of one element
will not necessarily cause us to reduce another element of the
executives compensation. Accordingly, we have not adopted
any formal or informal policy for allocating compensation
between long-term and short-term, between cash and non-cash or
among the different forms of non-cash compensation.
The table below provides a summary of each element of pay, the
form in which it is paid, the purpose or objective of each
element and any performance metrics associated with each element.
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Element
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Form of Compensation
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Purpose/Objective
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Performance Metric(s)
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Base Pay
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Cash fixed
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To recognize role, responsibilities and experience consistent
with market for comparable positions
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Not performance-based
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Annual Non-Equity Incentive Plan Awards
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Cash variable
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To reward operating results consistent with the non-equity
incentive compensation plan and to provide a strong motivational
tool to achieve earnings and other related pre-established
objectives
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Adjusted EBITDA
and ROIC
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Long-Term Incentive Awards
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Stock options and restricted stock awards variable
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To create a strong financial incentive for achieving or
exceeding long-term performance goals and encourage a
significant equity stake in our Company
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Historically, such awards have
not been performance-based.
However, the Compensation
Committee is considering in
2010 the use of performance-
based awards as a component
of future grants
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Discretionary Bonuses
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Cash variable
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To reward an executive for significant contributions to a
Company initiative or when the executive has performed at a
level above what was expected
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Varies, but typically relates
to performance with respect
to special projects that
require significant time and
effort on the part of the
executive, such as our initial
public offering in 2007
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Health, Life, Retirement Savings and Other Benefits
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Eligibility to participate in benefit plans generally available
to our employees, including retirement, health, life insurance
and disability plans generally fixed
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Plans are part of our broad-based employee benefits program
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Not performance-based
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Element
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Form of Compensation
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Purpose/Objective
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Performance Metric(s)
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Executive Severance and Change in Control Agreements
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Payment of compensation and for benefit coverage costs in the
form of separation payments subject to compliance
with restrictive covenants and related conditions. Levels are
fixed for duration of employment agreements
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To provide the executive with assurances against certain types
of terminations without cause or resulting from
change-in-control where the terminations were not based upon
cause. This type of protection is intended to provide the
executive with a basis for keeping focus and functioning in the
stockholders interests at all times
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Not performance-based
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Limited Perquisites
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Cash fixed
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To provide executive with additional benefits considered
necessary or customary for his position
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Not performance-based
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Base Salary. The base salaries for our
executive officers are set at levels believed to be sufficient
to attract and retain qualified individuals. We believe that our
base salaries are an important element of our executive
compensation program because they provide our executive officers
with a fixed income stream, based upon their roles within our
organization and their relative skills and experience. Initial
base salary levels, which for the Named Executive Officers are
set or approved by our Compensation Committee, take into
consideration, in addition to the scope of an individual
executives responsibilities, the compensation paid by
other companies with which we believe we compete for executives.
Subsequent changes in the base salaries of executive officers,
other than the CEO, are typically reviewed and approved by our
Compensation Committee based on recommendations made by our CEO,
who conducts annual performance reviews of each executive.
Subsequent changes in the base salary of the CEO are determined
by our Compensation Committee, which reviews the CEOs
performance on an annual basis, and approved by the Board. Both
the CEOs review and the Compensation Committees
review include an analysis of how an individual executive
performed against his personalized goals, which are jointly set
by the executive and the CEO at the beginning of each year, or,
in the case of the CEO, by the CEO and the Board. In terms of
weighting the factors that influence decisions related to base
salaries, the individual performance of an executive against his
goals is heavily weighted and accounts for roughly 80% of the
Compensation Committees considerations while additional
factors considered are weighted, on average, at only 20%. For a
given year, additional factors may include other achievements or
accomplishments of the individual during the year, any
mitigating priorities during the year that may have resulted in
a change in the executives goals, market conditions, an
executives participation in the development of others
within our Company, and whether additional responsibilities were
assumed by the executive during the period. Under each
executives employment agreement, base salary increases are
targeted at, but not required to be, 5% per annum.
For 2009, our former CEO proposed, and the Compensation
Committee agreed, that no merit increases be granted in 2009 for
certain employees, including our executive officers. This salary
freeze was one of the many actions taken by our Company in 2008
and 2009 in response to the deteriorating economic conditions
seen throughout the United States and elsewhere.
Annual Non-Equity Incentive Plan Compensation
Awards. To accomplish our goal of aligning the
interests of management with those of our investors, the
Compensation Committee ties a portion of the annual cash
compensation earned by our executives to a targeted level of
financial operating results. Each year, management proposes and
the Compensation Committee approves a non-equity incentive
compensation plan (the Plan). Under each annual
Plan, each executive officer has a target payout, which is
provided under the terms of his employment agreement and is
based on a percentage of his base salary (which, for each of
Messrs. Brewster, Clinard and Updyke is 50% of base salary,
and for Mr. Thompson is 40% of base salary).
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For our Named Executive Officers, the 2009 threshold, target and
maximum annual incentive payout amounts were as follows:
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2009 Incentive Payout as a % of Base Salary
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Threshold
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Target
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Maximum
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Named Executive Officer
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Performance
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Performance
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Performance
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Fred R. Lummis
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J. Chris Brewster
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25%
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50%
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100%
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Michael H. Clinard
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25%
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50%
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100%
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Rick Updyke
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25%
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50%
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100%
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Carleton K. Tres Thompson, III
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20%
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40%
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80%
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Jack M. Antonini
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25%
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50%
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100%
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To arrive at the 2009 payout number, for our Named Executive
Officers, 50% of the 2009 annual cash incentive award was
contingent upon our attainment of certain Adjusted EBITDA
targets and 50% was subject to the achievement of certain ROIC
targets. The goals are established so that attaining or
exceeding the performance targets is not assured and requires
significant effort by our executive officers.
Once the payout is determined, then the amount may be further
adjusted based on the Compensation Committees evaluation
of performance of each executive in accomplishing certain
pre-established individual performance targets or, management by
objectives (MBOs). The MBO adjustment scale for
2009, as outlined in the Plan, was:
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2009 Incentive
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MBO Rating
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Performance
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Payout Multiplier
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5
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All MBOs exceeded
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120%
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4
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All MBOs attained
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100%
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3
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Substantially all MBOs attained
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80%
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2
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Most but not all MBOs attained
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50%
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1
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Most MBOs missed
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0%
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The following is a description of the 2009 performance targets
under the Plan:
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Adjusted EBITDA. The annual Company-level
financial targets set under the Plan for 2009 were consistent
with the Adjusted EBITDA and capital expenditure ranges
reflected in our annual budget and communicated to investors at
the beginning of the year. As we expect to achieve our budgeted
Adjusted EBITDA and capital expenditure (and thus, ROIC) targets
when they are set, and the financial targets set under the Plan
are consistent with the Adjusted EBITDA and capital expenditure
(and thus ROIC) ranges reflected in our annual budget, we have
similar expectations that the targets under our Plan will be
achieved.
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For Adjusted EBITDA, the threshold level in 2009 was set at 90%
of our budgeted target and the maximum level was set at 120% of
our budgeted target. In the event the Board formally approves
actions, such as a material acquisition, that may affect the
attainment of the originally budgeted Adjusted EBITDA amount,
the budget impact is determined and presented to the
Compensation Committee for approval of a revised budgeted
Adjusted EBITDA figure for bonus calculation purposes. No such
revisions were required in 2009.
The targeted Adjusted EBITDA amount for the year ended
December 31, 2009 was $80.0 million for our
consolidated operations. The targeted Adjusted EBITDA amount for
a given period is typically set within or above the Adjusted
EBITDA range communicated to our investors at the beginning of
each year ($75.0 million to $80.0 million for 2009.)
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ROIC. For ROIC, the threshold level was set at
19.2% (which is the level achieved if the Capital Invested in
2009 was at budgeted levels and Adjusted EBITDA was 90% of
budget); the targeted ROIC level was set at 23.5% (which is the
level achieved if the Capital Invested in 2009 was at budgeted
levels and Adjusted EBITDA was 100% of budget); and the maximum
ROIC level was set at 32.0% (which was the level achieved if
Capital Invested was at budgeted levels and Adjusted EBITDA was
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120% of budget). As with the Adjusted EBITDA target, any actions
approved by the Board that may affect the attainment of the
originally budgeted ROIC amount would result in a revised
targeted ROIC figure for bonus calculation purposes. No such
revisions were required in 2009.
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The following table outlines the 2009 performance targets for
our Named Executive Officers, and the relative weighting of each
targeted performance metric, as applicable:
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Metric
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Weighting
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Threshold
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Target
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Maximum
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Adjusted EBITDA
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50%
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$
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72,000,000
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$
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80,000,000
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$
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96,000,000
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ROIC(1)
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50%
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19.2%
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23.5%
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32.0%
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(1) |
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ROIC for 2009 is defined in the 2009 Plan as follows: |
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Net Operating Profit After Tax (NOPAT) divided by
Capital Invested, where:
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NOPAT is defined as Adjusted EBITDA less depreciation for the
relevant Plan year, less adjustments for non-wholly-owned
subsidiaries, less income taxes calculated using a 35% effective
tax rate; and
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Capital Invested is defined as the average of our total assets
minus goodwill and intangible assets, minus accounts payable,
accrued liabilities, assets related to interest rate hedging
activities and asset retirement obligations, all as reported in
our quarterly reports on
Form 10-Q
and annual reports on
Form 10-K
for the trailing five quarterly periods then ended.
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For the year ended December 31, 2009, we achieved results
that exceeded the maximum payout levels for both our
consolidated Adjusted EBITDA and ROIC targets, which equated to
a 200% bonus pool funding for our Named Executive Officers.
Additionally, the Compensation Committee considered how each
executive officer performed with respect to his or her
individual MBOs and adjusted the payout threshold accordingly.
For the specific awards granted to each Named Executive Officer
under the 2009 Plan, see the Non-Equity Incentive Plan
Compensation column of our Summary Compensation
Table for 2009 included in Executive
Compensation below.
Awards under the Plan, as opposed to any equity grants, are
designed to more immediately reward our executive officers for
their performance during the most recent year. We believe that
the immediacy of these cash incentives, in contrast to our
equity grants that vest over a period of time, provides a
significant incentive to our executives towards achieving their
respective individual objectives and thus our Company-level
objectives on an annual basis. As such, we believe our
non-equity incentive compensation plans are a significant
motivating factor for our executive officers, and we believe
they have been a significant factor in attracting and retaining
our executive officers.
Although the parameters and metrics of the Plan are
straight-forward and objective, nothing construed in the Plan
constitutes a promise or other binding agreement by the Company
to pay any award to any member of the executive leadership team.
Further, although the size of any award must be calculated in
accordance with the Plan, the decision to pay any amount under
the Plan to any member of the executive leadership team remains
within the discretion of the Compensation Committee and the
Board.
Long-term Incentive Program. We have two
long-term equity incentive plans the 2007 Stock
Incentive 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 our
Company and our affiliates with additional incentive and reward
opportunities designed to enhance the profitable growth of our
Company and affiliates. Equity awards granted under both plans
generally vest ratably over four years based on continued
employment and expire 10 years from the date of grant. This
vesting feature is designed to aid in officer retention as this
feature provides an incentive for our executive officers to
remain in our employment during the vesting period.
Currently, there is no formal policy for granting equity awards
to our executive officers, nor is there a policy in place with
respect to the allocation of grants between the various types of
equity instruments eligible to be awarded under the plans.
Rather, all grants are discretionary and are made by the
Compensation Committee, who administers the plans. As most of
our Named Executive Officers have established a significant
ownership position in our stock
and/or
options, they gain significant value through the long-term
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appreciation in our stock, which we believe contributes to the
alignment of their interests with those of our stockholders. In
general, this also means that those executives incentives
will not be substantially altered by a grant of restricted stock
or stock options. As a result, we expect issuances to our
existing executive officers under our long-term incentive
program to be somewhat episodic with the focus on situations in
which the individual executive (1) is making significant
contributions to our success and is judged to not have enough
ownership to create a sufficient long-term incentive for that
executive, or (2) has made individual contributions that
significantly exceeded our expectations of Company growth. In
these situations, the Compensation Committee may decide to
provide such executive with additional equity, thereby providing
him with additional equity value for having impacted our overall
stockholder value.
In its considerations of whether or not to make equity grants to
our executive officers and, if such grants are made, in its
considerations of the size of the grants, our Compensation
Committee considers our Company-level performance, the
applicable executive officers performance, comparative
share ownership by comparable executives of comparable
companies, the amount of equity previously awarded to the
applicable executive officer, the vesting of such awards, and
the recommendations of management. While there is no formal
weighting of these elements, the Compensation Committee
considers each in its analysis.
In June 2008, our Compensation Committee awarded shares of
restricted stock to certain of our employees, including our
Named Executive Officers, under the 2007 Plan. During 2009, no
such grants were made to our Named Executive Officers. However,
in January 2010, the Compensation Committee awarded shares of
restricted stock to Messrs. Brewster, Clinard and Updyke
based on their service to the Company during the year ended
December 31, 2009. The forfeiture provisions on the
restricted stock awarded to our Named Executive Officers lapse
at a rate of 25% of the total award on each of the first four
anniversaries of the grant date. In determining the quantity of
shares to be granted to each Named Executive Officer, management
considered each such officers outstanding equity awards,
stock ownership levels, the strategic value of the
officers role to our Company, and other factors, including
(for the 2008 grants) the impact of our 2007 initial public
offering on the value of awards previously made to each officer.
Based on those factors, management made recommendations to the
Compensation Committee on the number of shares that it believed
should be award to each such Named Executive Officer. With
respect to the January 2010 grants, such recommendations were
made by Mr. Lummis in his capacity as the Companys
Interim Chief Executive Officer. The Compensation Committee
approved the recommendations and believes that these additional
grants created equity packages appropriate for each executive
and that the identified Named Executive Officers are adequately
incentivized to work to enhance the profitability of our
operations.
Discretionary Bonuses. If and when it
considers it appropriate, our Compensation Committee may grant
bonuses to our employees, including our Named Executive
Officers. Examples of circumstances in which employees may be
awarded a bonus include situations in which an employee has made
significant contributions to a Company initiative or has
otherwise performed at a level above expectations. Unlike awards
under our non-equity incentive compensation plan that our
executives officers are eligible for on an annual basis,
discretionary bonuses are not a recurring element of our
executive compensation program. Only Mr. Lummis received a
discretionary bonus for services provided during the year ended
December 31, 2009 in recognition of his services to the
Company as our Interim Chief Executive Officer. This award was
the sole compensation paid to Mr. Lummis for his service to
the Company as our Interim CEO. No discretionary bonuses were
granted to any of our Named Executive Officers during the 2008
fiscal year.
Severance and Change of Control
Arrangements. Under the terms of their employment
agreements, our executive officers are entitled to certain
benefits upon the termination of their employment. Generally,
these provisions are intended to mitigate some of the risk that
our executive officers may bear in working for a developing
company like ours, including a change in control. Additionally,
the severance provisions are intended to compensate an executive
during the non-compete period (required under the terms of each
employment agreement), which limit the executives ability
to work for a similar
and/or
competing company for a period subsequent to his termination.
For additional information of the terms of each executives
severance and change in control benefits, see
Narrative Disclosure to Summary Compensation
Table and Grants of Plan-Based Awards Table
Employment-Related Agreements of Named Executive Officers
and Potential Payments upon a Termination or
Change in Control below.
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Other Benefits. In addition to our three main
compensation elements (base salary, annual cash incentives and
long-term equity-based incentives) and potential severance
benefits, we provide the following benefits:
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401(k) Savings Plan. We have a defined
contribution 401(k) plan, which is designed to assist our
employees in providing for their retirement and allow us to
remain competitive in the market place in terms of benefits
offered to employees. Each of our executive officers is entitled
to participate in this plan to the same extent that our other
employees are entitled to participate. In 2007, we began
matching 25% of employee contributions up to 6.0% of the
employees salary (for a maximum matching contribution of
1.5% of the employees salary by us). Employees are
immediately vested in their contributions while our matching
contributions will vest at a rate of 20% per year.
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Health and Welfare Benefits. Our executive
officers are eligible to participate in medical, dental, vision,
disability and life insurance, and flexible healthcare and
dependent care spending accounts to meet their health and
welfare needs under the same plans and terms as the rest of our
employees. These benefits are provided so as to assure that we
are able to maintain a competitive position in terms of
attracting and retaining executive officers and other employees.
This program is a fixed component of compensation and the
benefits are provided on a non-discriminatory basis to all of
our employees.
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Perquisites and Other Personal Benefits. We
believe that the total mix of compensation and benefits provided
to our executive officers is competitive and perquisites should
generally not play a large role in our executive officers
total compensation. As a result, the perquisites and other
personal benefits we provide to our executive officers are very
limited in nature and are not guaranteed to be provided to any
Named Executive Officer in any given year; thus, no significant
perquisites were provided to our Named Executive Officers during
the 2009 year.
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2010
Compensation Changes
Base Salaries. For 2010, based on the
recommendations of our Interim Chief Executive Officer, the
Compensation Committee ended the salary freeze and approved
merit increases of 4% for each Messrs. Brewster, Clinard
and Updyke, and an increase of 5% for Mr. Thompson. The
increases for Messrs. Brewster, Clinard and Updyke are
slightly below the 5% targeted increases outlined in their
respective employment agreements and reflect a continued effort
on the part of senior management and the Compensation Committee
to manage the Companys overall expense structure. The 5%
merit increase for Mr. Thompson is consistent with the
targeted amount outlined in his employment agreement.
Annual Non-Equity Incentive Compensation. To
date, no changes have been made to our annual non-equity
incentive compensation plan.
Long-Term Incentive Program. Historically, our
Company has not had a formal policy regarding grants made under
our equity incentive plans. However, our Compensation Committee
is currently in the process of developing an equity policy that
will, among other things, govern the timing of grants and the
allocation among different types of equity awards granted to
executives beginning in 2010. Additionally, the Compensation
Committee will consider if certain awards granted should be
subject to performance-based vesting requirements. Finally, the
Compensation Committee is evaluating whether to seek stockholder
approval at our upcoming annual stockholder meeting for an
increase in the number of shares available for awards under our
2007 Plan.
Employment Agreement with New Chief Executive
Officer. On December 21, 2009, we announced
that Mr. Rathgaber would begin serving as our new Chief
Executive Officer, as well as a director of our Board, effective
February 1, 2010. In connection with
Mr. Rathgabers appointment, we entered into an
employment agreement with him that was also effective
February 1, 2010. His employment agreement provides for an
initial term of three years, subject to automatic one-year
renewals thereafter unless the agreement is terminated in
accordance with its terms. Pursuant to the terms of his
employment agreement, Mr. Rathgaber is entitled to receive
an annual base salary of $525,000 and is eligible for an annual
bonus based on achievement of certain performance objectives
established by the Board. The target amount of
Mr. Rathgabers annual bonus will be
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50% of his base salary, though, as with our other Named
Executive Officers, the ultimate payout of his annual award is
subject to the sole discretion of the Compensation Committee.
In addition to an annual bonus, Mr. Rathgabers
employment agreement provides for a one-time signing bonus in
the amount of $200,000, which was paid to Mr. Rathgaber on
February 1, 2010. His employment agreement also provides
for the grant of 350,000 shares of restricted stock
pursuant to our 2007 Plan. The forfeiture restrictions on these
restricted shares will lapse in four equal annual installments
on the grant date anniversary, and they will be subject to
various acceleration provisions for certain termination or
change in control scenarios, as are further described with
regard to our restricted stock awards in the Executive
Compensation Potential Termination upon Termination
or a Change in Control section below. In the event that
Mr. Rathgaber is terminated without Cause or
for Good Reason, his employment agreement also
provides for severance payments upon such a termination of
employment in the amount of two times his then-current annual
base salary and two times the average amount paid to him in the
two preceding calendar years under our non-equity incentive
plan. Mr. Rathgaber will be subject to certain
non-competition and non-solicitation restrictions for a period
of one year following the termination of his employment with us.
Stock Ownership Guidelines. At this time, we
do not have any formal stock ownership and retention guidelines
but recognize the importance of retention of shares by
executives as opposed to cashing them out routinely at maturity.
The Board and the Compensation Committee feel that retention of
equity and attaining a significant investment position is
important for true stockholder linkage. As such, we will
continue to monitor and assess the need associated with
instituting more formal guidelines. Additionally, our Insider
Trading Policy prohibits employees subject to that policy from
hedging, buying on margin or engaging in other speculative
trading practices.
Stock Option Granting and Exercise Policy and Policy against
Backdating. Under the terms of the governing
option agreements, the exercise price of each stock option
awarded to employees under our 2007 Plan is calculated as the
average of the high and the low sales prices of our stock on the
date of grant to ensure that options are not granted at less
than their fair market value. We do not backdate options and
have a specific Company policy in place along with a
notification system administered by our legal department to be
mindful of black-out periods during which the exercise of
options or other sales of stock would be prohibited or would
violate insider trading rules.
Board and Compensation Committee meetings are generally
scheduled several months in advance. The meeting dates in which
options, restricted stock or any other rewards are granted are
not established in regard to planned releases of earnings or any
other major announcements. Also, the Compensation Committee does
not currently believe that it would be appropriate to recommend
the repricing or discounting of options to any of our employees
in the event of a decline in our share price. If, at some point
in the future, the Compensation Committee believes repricing or
discounting of options is appropriate, the Compensation
Committee will submit such a proposal to a vote of our
stockholders for approval.
Tax Deductibility of Compensation. Internal
Revenue Code (the Code) Section 162(m) limits
the amount of otherwise deductible compensation to $1,000,000 of
the covered compensation paid to our CEO(s), CFO and the three
most highly compensated Named Executive Officers (other than our
CFO) unless the specifics of the plans impacted have been
previously submitted to our stockholders for approval as
performance-based compensation. While the Board and
the Compensation Committee strive to preserve the deductibility
of all eligible compensation, we have chosen to retain the
flexibility of some discretion in the long-term awards to the
executives. We will continue to assess the implications of these
rules and the trend towards performance-based awards as part of
the total reward strategy.
S-96
Compensation
Committee Report
The Compensation Committee has reviewed and discussed the
disclosure set forth above under the heading Compensation
Discussion and Analysis with management and, based on the
review and discussions, has recommended to the Board that the
Compensation Discussion and Analysis be included in
our proxy statement and a Current Report on
Form 8-K.
Respectfully submitted by the Compensation Committee of the
Board of Cardtronics, Inc.,
Dennis F. Lynch, Chairman
Fred R. Lummis*
Michael A.R. Wilson
Robert P. Barone**
Jorge M. Diaz***
|
|
|
* |
|
Effective March 17, 2009, Mr. Lummis resigned as a
member of our Compensation Committee in connection with him
assuming the role of our Interim Chief Executive Officer.
Effective February 1, 2010, Mr. Lummis resigned as our
Interim Chief Executive Officer, at which point, the Board
re-appointed Mr. Lummis to the Compensation Committee. |
|
** |
|
Concurrent with Mr. Lummis resignation from the
Compensation Committee, Mr. Barone was appointed to the
Compensation Committee. Mr. Barone served in this capacity
until resigning from the Compensation Committee effective
February 1, 2010, concurrent with Mr. Lummis
re-appointment. |
|
*** |
|
Mr. Diaz served as the Chairman of the Compensation
Committee through December 7, 2009. Effective as of that
date, Mr. Diaz resigned from the Compensation Committee due
to independence restrictions resulting from Mr. Diaz
employment with Fiserv, Inc. Mr. Lynch replaced
Mr. Diaz as the Chairman of the Compensation Committee
effective on the same date. |
Executive
Compensation
Summary Compensation Table for 2009. The
following table summarizes, for each of the fiscal years in the
three-year period ended December 31, 2009, the compensation
paid to or earned by our Named Executive Officers serving during
the year ended December 31, 2009.
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Non-Equity
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Stock
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Incentive Plan
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All Other
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Name & Principal Position
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|
Year
|
|
|
Salary
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|
|
Bonus
|
|
|
Awards(1)
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|
|
Compensation
|
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|
Compensation(2)
|
|
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Total
|
|
|
Steven A.
Rathgaber(3)
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|
|
2009
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Chief Executive Officer
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Fred R. Lummis
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|
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2009
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|
$
|
|
|
|
$
|
250,000
|
(4)
|
|
$
|
|
|
|
$
|
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|
|
$
|
|
|
|
$
|
250,000
|
|
Interim Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Chris Brewster
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|
|
2009
|
|
|
$
|
302,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
302,500
|
|
|
$
|
4,481
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|
|
$
|
609,481
|
|
Chief Financial Officer
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|
|
2008
|
|
|
|
302,500
|
|
|
|
|
|
|
|
1,521,000
|
|
|
|
104,091
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|
|
|
3,321
|
|
|
|
1,930,912
|
|
|
|
|
2007
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|
|
|
275,000
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|
|
|
30,000
|
|
|
|
|
|
|
|
133,375
|
|
|
|
3,901
|
|
|
|
442,276
|
|
Michael H. Clinard
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|
|
2009
|
|
|
$
|
370,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
370,800
|
|
|
$
|
927
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|
|
$
|
742,527
|
|
President of Global Services
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|
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2008
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|
|
|
370,800
|
|
|
|
|
|
|
|
1,132,300
|
|
|
|
134,309
|
|
|
|
2,079
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|
|
|
1,639,488
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|
|
|
|
2007
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|
|
|
243,101
|
|
|
|
20,000
|
|
|
|
|
|
|
|
129,694
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|
|
|
10,739
|
(5)
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|
|
403,534
|
|
Rick
Updyke(6)
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|
|
2009
|
|
|
$
|
291,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
291,000
|
|
|
$
|
4,125
|
|
|
$
|
586,125
|
|
President of Global Development
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|
|
2008
|
|
|
|
291,000
|
|
|
|
|
|
|
|
676,000
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|
|
|
100,134
|
|
|
|
13,045
|
(7)
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|
|
1,080,179
|
|
Carleton K. Tres
Thompson, III(8)
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|
|
2009
|
|
|
$
|
200,170
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
160,136
|
|
|
$
|
|
|
|
$
|
360,306
|
|
Chief Accounting Officer
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|
|
|
|
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|
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|
|
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|
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|
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Jack M.
Antonini(9)
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|
|
2009
|
|
|
$
|
86,910
|
(9)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
423,830
|
(10)
|
|
$
|
510,740
|
|
Former Chief Executive Officer
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|
|
2008
|
|
|
|
397,470
|
|
|
|
|
|
|
|
1,014,000
|
(11)
|
|
|
136,771
|
|
|
|
3,967
|
|
|
|
1,552,208
|
|
|
|
|
2007
|
|
|
|
364,651
|
|
|
|
30,000
|
|
|
|
|
|
|
|
176,856
|
|
|
|
2,051
|
|
|
|
573,558
|
|
|
|
|
(1) |
|
The amounts included in the Stock Awards columns
represent the aggregate grant date fair value of awards made to
our Named Executive Officers, computed in accordance with
Financial Accounting Standards Board (FASB) ASC
Topic 718. The value ultimately realized by the executive upon
the actual vesting of the award(s) may or may not be equal to
the value(s) reflected above. Assumptions used in |
S-97
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|
|
the calculation of these amounts are included in Part II,
Item 8. Financial Statements and Supplementary Data,
Note 4, Stock-Based Compensation, to our audited
consolidated financial statements for the fiscal year ended
December 31, 2009, included in our 2009 Annual Report on
Form 10-K.
We did not grant stock option awards to the listed Named
Executive Officers in any of 2007, 2008 or 2009, and no
restricted stock awards were granted with regard to the
2009 year. |
|
|
|
(2) |
|
Amounts in this column reflect the amount of Company matching
contributions made to our 401(k) Plan on behalf of the eligible
Named Executive Officer, unless otherwise noted in the
applicable footnotes below. |
|
(3) |
|
Mr. Rathgaber assumed the position of Chief Executive
Officer on February 1, 2010. Prior to such date,
Mr. Rathgaber was not employed by us. |
|
(4) |
|
Mr. Lummis served as the Companys Interim Chief
Executive Officer from March 17, 2009 through
February 1, 2010. In recognition of his significant
contributions to the Company, the Compensation Committee of our
Board of Directors awarded Mr. Lummis a one-time special
payment in the amount of $250,000. |
|
(5) |
|
The $10,739 amount presented within the All Other
Compensation column in 2007 for Mr. Clinard is
comprised of $9,750 in car allowance payments provided for under
Mr. Clinards previous employment agreement, and $989
of matching contributions made under our 401(k) plan. The
employment agreement signed by Mr. Clinard in June 2008 did
not include any car allowance payments. |
|
(6) |
|
No information is presented for Mr. Updyke for 2007, as he
did not qualify as a Named Executive Officer prior to 2008. |
|
(7) |
|
The $13,045 amount presented within the All Other
Compensation column in 2008 for Mr. Updyke is
comprised of $9,000 in car allowance payments provided for under
Mr. Updykes previous employment agreement, and $4,045
of matching contributions made under our 401(k) plan. The
employment agreement signed by Mr. Updyke in June 2008 did
not include any car allowance payments. |
|
(8) |
|
No information is presented for Mr. Thompson for 2008 and
2007, as he did not qualify as a Named Executive Officer prior
to 2009. |
|
(9) |
|
Mr. Antoninis employment and directorship with us
ended effective March 17, 2009. Accordingly, the amount
reflected in the Salary column above represents the
amount earned by Mr. Antonini for the period from
January 1, 2009 through March 17, 2009. |
|
(10) |
|
The $423,830 amount included in the All Other
Compensation column in 2009 for Mr. Antonini is
comprised of $422,427 in severance payments made to
Mr. Antonini following the termination of his employment
with the Company effective March 17, 2009, and $1,403 of
matching contributions made under our 401(k) plan. For further
information, see the discussion in Potential
Payments upon Termination or Change in Control section
included below. |
|
(11) |
|
Upon the termination of Mr. Antoninis employment with
the Company as of March 17, 2009, the stock award granted
to Mr. Antonini in 2008 was forfeited as of that date. |
S-98
Grants of
Plan-Based Awards for
2009(1)
During the fiscal year ended December 31, 2009, none of our
Named Executive Officers were granted any stock options or
restricted shares. The following table sets forth the details
regarding our non-equity incentive plan compensation awards
granted in 2009 to each of our Named Executive Officers listed
in the Summary Compensation Table for 2009:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible/Future Payouts Under
|
|
|
|
Non-Equity Incentive Plan
Awards(2)
|
|
Name
|
|
Threshold(3)
|
|
|
Target
|
|
|
Maximum(3)
|
|
|
Fred R.
Lummis(4)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
J. Chris Brewster
|
|
$
|
75,625
|
|
|
$
|
151,250
|
|
|
$
|
302,500
|
|
Michael H. Clinard
|
|
$
|
92,700
|
|
|
$
|
185,400
|
|
|
$
|
370,800
|
|
Rick Updyke
|
|
$
|
72,750
|
|
|
$
|
145,500
|
|
|
$
|
291,000
|
|
Carleton K. Tres Thompson, III
|
|
$
|
40,034
|
|
|
$
|
80,068
|
|
|
$
|
160,136
|
|
Jack M. Antonini
|
|
$
|
99,368
|
|
|
$
|
198,735
|
|
|
$
|
397,470
|
|
|
|
|
(1) |
|
On January 15, 2010, each of Messrs. Brewster, Clinard
and Updyke were granted 100,000 shares of restricted shares
for services rendered to us in 2009. |
|
(2) |
|
Represents the dollar value of the applicable range (threshold,
target and maximum amounts) of the awards granted to each Named
Executive Officer for 2009. The actual non-equity incentive plan
compensation awards paid to the Named Executive Officers for
2009 are reflected in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation
Table for 2009. |
|
(3) |
|
Under the 2009 Plan, the threshold payout amount an executive
could receive for the 2009 year was equal to 50% of his
individual target goal, while the maximum payout amount an
executive could receive for the 2009 year was equal to 200%
of his individual target goal. |
|
(4) |
|
Mr. Lummis was not eligible for an award under our 2009
Plan due to his status as Interim CEO. |
Narrative
Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table
Employment-Related
Agreements of Named Executive Officers
The terms governing each of our Named Executive Officers
employment are outlined in individual employment agreements.
Below is a description of the agreements in place with each of
our Named Executive Officers for the year ended
December 31, 2009, except for Mr. Lummis, with whom we
did not have an employment agreement during his service as our
Interim CEO.
Employment Agreements with Jack M. Antonini
Former Chief Executive Officer, J. Chris Brewster
Chief Financial Officer, and Michael H. Clinard
President of Global Services. In June 2008, following the
expiration of the previous employment agreements for
Messrs. Antonini, Brewster and Clinard, we entered into new
agreements with these executives. Under the terms of the new
agreements, Messrs. Antonini, Brewster and Clinard were to
receive annual base salaries of $397,470, $302,500, and
$370,800, respectively, in 2009. The annual base salaries are
subject to periodic review by the Board (or a committee thereof)
and may be increased at any time. Under the terms of the
agreements, each executive is eligible to receive a
performance-based bonus payable on or before
March 15th of each year. The bonus at targeted levels
of performance is equal to 50% of the executives base
salary, with the annual payout subject to approval by the Board
(or a committee thereof). However, as the ultimate payout of the
annual award is determined at the sole discretion of our
Compensation Committee, the actual amount awarded may exceed or
fall short of the targeted level. (For additional information on
the terms of our non-equity incentive compensation plan, see
Compensation Discussion and
Analysis Annual Non-Equity Incentive Plan
Compensation Awards above.) In addition, each executive is
entitled to receive perquisite benefits made available to other
senior officers, sick leave, and four weeks paid vacation time
each year. The terms of the agreements expire in June 2011 and,
unless terminated sooner, are automatically renewed annually. As
previously noted, Mr. Antoninis employment and
directorship with us ended and his employment agreement
terminated effective March 17, 2009.
S-99
Employment Agreement with Rick Updyke President
of Global Development. In July 2007, we entered
into an employment agreement with Mr. Updyke. In June 2008,
Mr. Updykes July 2007 employment agreement was
amended to extend its term to June 2011. Under his current
employment agreement, Mr. Updyke received an annual base
salary of $291,000 in 2009. Such amount is subject to annual
increases, as determined by our Compensation Committee at its
sole discretion, with such increases being targeted at 5% of the
previous years base salary. In addition, subject to our
achieving certain performance standards set by our Compensation
Committee, Mr. Updyke may be entitled to an annual award
under a non-equity incentive plan, with such award targeted as
being 50% of his base salary. However, as the ultimate payout of
the annual award is determined at the sole discretion of our
Compensation Committee, the actual amount awarded may exceed or
fall short of the targeted level. (For additional information on
the terms of our non-equity incentive compensation plan, see
Compensation Discussion and
Analysis Annual Non-Equity Incentive Plan
Compensation Awards above.) In addition, Mr. Updyke
is entitled to receive perquisite benefits made available to
other senior officers, sick leave, and four weeks paid vacation
time each year.
Employment Agreement with Carleton K.Tres
Thompson, III Chief Accounting
Officer. In June 2008, we entered into an
employment agreement with Mr. Thompson. Under his
employment agreement, Mr. Thompson received an annual
salary of $200,170 in 2009. Such amount is subject to annual
increases, as determined by our Compensation Committee at its
sole discretion, with such increases being targeted at 5% of the
previous years base salary. In addition, subject to our
achieving certain performance standards set by our Compensation
Committee, Mr. Thompson may be entitled to an annual award
under a non-equity incentive plan, with such award targeted as
being 40% of his base salary. However, as the ultimate payout of
the annual award is determined at the sole discretion of our
Compensation Committee, the actual amount awarded may exceed or
fall short of the targeted level. (For additional information on
the terms of our non-equity incentive compensation plan, see
Compensation Discussion and
Analysis Annual Non-Equity Incentive Plan
Compensation Awards above.) In addition, Mr. Thompson
is entitled to receive perquisite benefits made available to
other senior officers, sick leave, and four weeks paid vacation
time each year. The terms of our agreement with
Mr. Thompson expire in June 2011 and, unless terminated
sooner, are automatically renewed annually.
Please see Potential Payments upon a
Termination or Change of Control for a discussion of
severance benefits available under our employment agreements.
Annual Non-Equity Incentive Plan
Awards. The annual non-equity incentive plan
awards awarded to each of the Named Executive Officers for the
2009 year were paid to the executives on March 15,
2010.
Equity Incentive Plans. As noted above,
we have two long-term equity incentive plans the
2007 Plan and the 2001 Plan. Below is a brief description of
each.
2007 Plan. In August 2007, our Board and our
stockholders approved our 2007 Plan. The adoption, approval, and
effectiveness of this plan were contingent upon the successful
completion of our 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, nonqualified 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 our capital structure. The individual share
limitations that any one participant could receive for the term
of the Plan will not exceed 50% of the total number of shares
available for issuance pursuant to the 2007 Plan, and for awards
denominated in cash amounts, the amount may not exceed
$1,000,000 in a given year.
As previously noted, during 2008, the Compensation Committee
awarded shares of restricted stock to certain of our employees,
including certain of our Named Executive Officers, under the
2007 Plan. The forfeiture provisions on the restricted stock
awards granted to our Named Executive Officers lapse at the rate
of 25% of the total award on each of the first four
anniversaries of the grant date. However, under the terms of the
agreements with Messrs. Brewster and Clinard, and our
previous agreement with Mr. Antonini, if a Change in
Control occurs after the date of grant and on or before
the date of the termination of the executives employment,
then the Forfeiture Restrictions (as defined in each
of the individual award
S-100
agreements) lapse with respect to 50% of the restricted shares
effective as of the date upon which the Change in Control
occurs. Further, under the terms of the agreements with
Messrs. Brewster and Clinard (and our previous agreement
with Mr. Antonini), if following a Change of Control the
executive is subsequently terminated and such termination is an
Involuntary Termination or a Good Reason
Termination, all remaining Forfeiture Restrictions lapse
effective as of the date of such termination. The relevant terms
are defined or described further below in
Potential Payments upon a Termination or
Change in Control.
On January 15, 2010, our Compensation Committee approved
grants of 300,000 shares to three of our Named Executive
Officers with regard to their performance for us during the
2009 year. The restricted stock awards of
100,000 shares each granted to Messrs. Brewster,
Clinard, and Updyke vest in four equal installments on each of
the first four anniversaries of the January 15, 2010 grant
date. The terms of the restricted stock agreements with each of
Messrs. Brewster, Clinard and Updyke contain the same
Change in Control and Forfeiture
Restrictions as described above with regard to the 2008
grants under the 2007 Plan.
2001 Plan. In June 2001, our Board adopted our
2001 Plan. Various plan amendments have been approved since that
time, the most recent being in November 2007. The 2001 Plan
allowed for the issuance of equity-based awards in the form of
non-qualified stock options and stock appreciation rights.
However, as a result of the adoption of the 2007 Plan, at the
direction of the Board, no further awards will be granted under
our 2001 Stock Incentive Plan. As of December 31, 2009,
options to purchase an aggregate of 6,438,172 shares of
common stock (net of options cancelled) had been granted
pursuant to the 2001 Plan, all of which were non-qualified stock
options. Of that amount, 2,797,113 options had been exercised.
The type and number of awards held by each of our Named
Executive Officers as of December 31, 2009 that were
granted pursuant to each of our equity incentive plans are
described below in the Outstanding Equity
Awards at Fiscal 2009 Year-End section.
Salary
and bonus compensation in proportion to total
compensation
The following table sets forth the percentage of total
compensation that we paid in the form of base salary and
discretionary bonuses for the year ended December 31, 2009
to each Named Executive Officer listed in the Summary
Compensation Table for 2009.
|
|
|
|
|
|
|
Percentage of
|
Name
|
|
Total Compensation
|
|
Fred R. Lummis
|
|
|
100.0
|
%
|
J. Chris Brewster
|
|
|
49.6
|
%
|
Michael H. Clinard
|
|
|
49.9
|
%
|
Rick Updyke
|
|
|
49.6
|
%
|
Carleton K. Tres Thompson, III
|
|
|
55.6
|
%
|
Jack M. Antonini
|
|
|
17.0
|
%
|
S-101
Outstanding
Equity Awards at Fiscal 2009 Year-End
The following table sets forth information for each of our Named
Executive Officers regarding the number of shares subject to
both exercisable and unexercisable stock options and the number
of shares of restricted stock that have not vested as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Securities
|
|
Number of Securities
|
|
|
|
|
|
|
|
Market Value of
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
Option
|
|
Number of Shares or
|
|
Shares or Units of
|
|
|
Unexercised Options
|
|
Unexercised Options
|
|
Exercise
|
|
Expiration
|
|
Units of Stock That
|
|
Stock That Have
|
Name
|
|
(#) Exercisable
|
|
(#) Unexercisable
|
|
Price
|
|
Date
|
|
Have Not
Vested(1)
|
|
Not
Vested(2)
|
|
Fred R. Lummis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Chris Brewster
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
|
$
|
1,493,100
|
|
|
|
|
357,682
|
|
|
|
|
|
|
$
|
6.54
|
|
|
|
03-31-2014
|
|
|
|
|
|
|
|
|
|
|
|
|
89,420
|
|
|
|
29,807
|
(3)
|
|
$
|
10.55
|
|
|
|
03-05-2016
|
|
|
|
|
|
|
|
|
|
Michael H. Clinard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,500
|
|
|
$
|
1,111,530
|
|
|
|
|
98,696
|
|
|
|
|
|
|
$
|
0.74
|
|
|
|
06-03-2011
|
|
|
|
|
|
|
|
|
|
|
|
|
49,805
|
|
|
|
|
|
|
$
|
1.48
|
|
|
|
03-02-2012
|
|
|
|
|
|
|
|
|
|
|
|
|
59,614
|
|
|
|
19,871
|
(3)
|
|
$
|
10.55
|
|
|
|
03-05-2016
|
|
|
|
|
|
|
|
|
|
Rick Updyke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
$
|
663,600
|
|
|
|
|
139,098
|
|
|
|
139,099
|
(4)
|
|
$
|
13.08
|
|
|
|
07-15-2017
|
|
|
|
|
|
|
|
|
|
Carleton K. Tres Thompson, III
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
$
|
663,600
|
|
|
|
|
15,013
|
|
|
|
|
|
|
$
|
6.54
|
|
|
|
06-06-2014
|
|
|
|
|
|
|
|
|
|
|
|
|
39,742
|
|
|
|
|
|
|
$
|
10.55
|
|
|
|
02-09-2015
|
|
|
|
|
|
|
|
|
|
|
|
|
29,807
|
|
|
|
9,935
|
(3)
|
|
$
|
10.55
|
|
|
|
03-05-2016
|
|
|
|
|
|
|
|
|
|
Jack M. Antonini
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The forfeiture provisions on these shares lapse at the rate of
25% of the underlying shares on each of the first four
anniversaries of the June 20, 2008 grant date. These
restricted shares were granted pursuant to our 2007 Plan. |
|
(2) |
|
The market value of shares that have not vested is based on the
closing price of our stock as of December 31, 2009, of
$11.06 per share. |
|
(3) |
|
These stock options become exercisable as to 25% of the
underlying option shares on each of the first four anniversaries
of the grant date. 25% of the underlying option shares for the
stock options granted on March 6, 2006 became exercisable
on each of March 6, 2007, March 6, 2008 and
March 6, 2009. These remaining options vested on
March 6, 2010. These stock options were each granted
pursuant to our 2001 Plan. |
|
(4) |
|
These stock options become exercisable as to 25% of the
underlying option shares on each of the first four anniversaries
of the employees employment date. 25% of the underlying
option shares for the stock options granted on November 19,
2007 became exercisable on each of July 16, 2008, and
July 16, 2009. These remaining options will vest in two
equal annual installments, the first of which will occur on
July 16, 2010 and the last of which will occur on
July 16, 2011. These stock options were granted pursuant to
our 2007 Plan. |
Option
Exercises and Stock Vested During Fiscal Year 2009
The following table sets forth information relating to stock
options exercises and the vesting of restricted stock awards
during the year ended December 31, 2009 for each of our
Named Executive Officers. All activity
S-102
below relates to options and stock awards that were granted
pursuant to our 2001 and 2007 Stock Incentive Plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized
|
|
Number of Shares
|
|
Value Realized
|
|
|
Acquired on
|
|
Upon
|
|
Acquired on
|
|
on
|
Name
|
|
Exercise
|
|
Exercise(1)
|
|
Vesting
|
|
Vesting(2)
|
|
Fred R. Lummis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Chris Brewster
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
|
$
|
154,350
|
|
Michael H. Clinard
|
|
|
|
|
|
|
|
|
|
|
33,500
|
|
|
$
|
114,905
|
|
Rick Updyke
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
$
|
68,600
|
|
Carleton K. Tres Thompson, III
|
|
|
24,729
|
|
|
$
|
102,859
|
|
|
|
20,000
|
|
|
$
|
68,600
|
|
Jack M. Antonini
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Based on the difference between the average of the high and low
of our stock on the exercise date and the exercise price of the
option, which is the method by which we determine fair market
value. |
|
(2) |
|
Based on the average of the high and low trading price of our
common stock as of the date of vesting. |
Pension
Benefits
Currently, we do not offer, and, therefore, none of our Named
Executive Officers participate in or have account balances in
qualified or non-qualified defined benefit plans sponsored by
us. In the future, however, the Compensation Committee may elect
to adopt qualified or non-qualified defined benefit plans if it
determines that doing so is in our best interests (e.g., in
order to attract and retain employees.)
Nonqualified
Deferred Compensation
Currently, we do not offer, and, therefore, none of our Named
Executive Officers participate in or have account balances in
non-qualified defined contribution plans or other deferred
compensation plans maintained by us. In the future, however, the
Compensation Committee may elect to provide our officers and
other employees with non-qualified defined contribution or
deferred compensation benefits if it determines that doing so is
in our Companys best interests.
Potential
Payments Upon a Termination or Change in Control
In addition to the potential acceleration of our equity-based
awards upon certain events, our employment agreements with each
of our Named Executive Officers, other than Mr. Lummis,
contain severance and change in control provisions. In January
2008, our previous employment agreements with
Messrs. Antonini, Brewster and Clinard expired and we
subsequently signed new agreements with these Named Executive
Officers in June 2008. Our employment agreement with
Mr. Updyke was entered into in July 2007 but was amended in
June 2008 to extend the terms through June 2011. Our employment
agreement with Mr. Thompson was entered into in June 2008.
Jack M. Antonini. Mr. Antoninis
employment with us ended effective on March 17, 2009. As a
result of his termination, which was deemed to be a without
cause termination under the terms of the agreement that governed
his previous employment with us, Mr. Antonini was entitled
to severance pay equal to two times his current base salary plus
two times the average amount paid to him in the two preceding
calendar years under our non-equity incentive plan. This equated
to $1,108,567, based on his $397,470 salary as of his
termination date and the average of his 2008 and 2007 payout
amounts (shown in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation
Table for 2009 above). Such amount is payable in 48 equal
consecutive semi-monthly installments on the 15th and the
last day of each of the 24 calendar months following the month
in which his termination occurred (March 2009). Additionally,
Mr. Antonini has elected to continue benefits coverage
through our group health plan under the Consolidated Omnibus
Budget Reconciliation Act of 1986 (COBRA). As a
result, we have been reimbursing Mr. Antonini for his COBRA
premiums, and will continue to do so for a period of time up to
18 months from his termination date. If
S-103
Mr. Antonini elects to continue coverage for the full
18 months allowed under his prior employment agreement, the
total amount paid for his COBRA premiums would total $12,564.
Finally, Mr. Antonini is eligible to receive a pro rata
payment under our non-equity incentive plan for his services in
2009. As the payment of a pro rata bonus for 2009 would be for
actual services rendered, we do not believe such a payment would
be considered a termination payment. The
Compensation Committee is still in the process of determining
what amount, if any, will be paid to Mr. Antonini.
Other Named Executive Officers. Generally, the
employment agreements in place as of December 31, 2009
contain the following definitions for each of the possible
triggering events that could result in a termination
payment to our other Named Executive Officers:
|
|
|
|
|
Messrs. Brewster, Clinard, and Thompson may be terminated
for cause if the executive: (1) engages in gross
negligence, gross incompetence or willful misconduct in the
performance of his employment duties; (2) refuses, without
proper legal reason, to perform his employment duties and
responsibilities; (3) materially breaches any material
provision of his employment agreement, any written agreement or
a corporate policy or code of conduct established by us;
(4) willfully engages in conduct that is materially
injurious to us; (5) discloses without specific
authorization confidential information that is materially
injurious to us; (6) commits an act of theft, fraud,
embezzlement, misappropriation or willful breach of a fiduciary
duty to us; (7) is convicted of (or pleads no contest to) a
crime involving fraud, dishonesty or moral turpitude or any
felony (or a crime of similar import in a foreign jurisdiction).
|
|
|
|
Mr. Updyke may be terminated for cause if he
(1) engages in gross negligence or willful misconduct when
performing his employment duties; (2) is indicted for a
felony; (3) refuses to perform his employment duties;
(4) materially breaches any of our policies or our code of
conduct; (5) engages in conduct in which the executive
knows would be materially injurious to us; or
(6) materially breaches, and fails to cure, any provision
of his employment agreement.
|
|
|
|
|
|
Change in Control. Messrs. Brewster and
Clinards agreements state that a change in control may
occur upon any of the following events:
|
|
|
|
|
|
a merger, consolidation, or asset sale where all or
substantially all of our assets are held by a third party if
(1) the holders of our equity securities no longer own
equity securities of the resulting entity that are entitled to
60% or more of the votes eligible to be cast in the election of
directors of the resulting entity, or (2) the members of
the Board immediately prior to such transaction no longer
constitute at least a majority of the board of directors of the
resulting entity immediately after such transaction or event;
|
|
|
|
our dissolution or liquidation;
|
|
|
|
the date any person or entity, including a group as
contemplated by Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50%
of the combined voting power of the resulting entitys
outstanding securities; or
|
|
|
|
as a result of or in connection with a contested election of
directors, the members of the Board immediately before such
election cease to constitute a majority of the Board.
|
Messrs. Brewster and Clinard may be subject to a federal
excise tax on compensation they receive in connection with a
change in control of our Company. The value determined in
accordance with Section 280G of the Internal Revenue Code
of payments and benefits provided that are contingent upon a
change in control may be subject to a 20% excise tax to the
extent of the excess of such value over the executives
average annual taxable compensation from our Company for the
five years preceding the year of the change in control (or such
shorter period as the executive was employed by us), if the
total value of such payments and benefits equals or exceeds an
amount equal to three times such average annual taxable
compensation. In accordance with their employment agreements, if
such excise tax is applicable,
S-104
Messrs. Brewster and Clinard are entitled to receive a
gross-up
payment from our Company in an amount necessary to place
the executive in the same after-tax position had no portion of
such contingent payments been subject to excise tax.
Messrs. Updyke and Thompsons agreements do not
include specific information regarding severance payments due
upon a change of control or for
gross-up
payments for additional taxes imposed pursuant to
Section 280G of the Internal Revenue Code. In the event
that Messrs. Updyke or Thompson were to receive payments
that created excise taxes under Section 280G of the Internal
Revenue Code, the executives would be responsible for their own
tax obligations.
|
|
|
|
|
Messrs. Brewster and Clinard have the right to terminate
employment upon the occurrence of any of the following good
reason events: (1) a material diminution in the
executives base salary; (2) a material diminution of
the executives authority, duties or responsibilities of
his job function; and (3) without the executives
prior consent, a required involuntary relocation of more than
75 miles from our corporate headquarters in Houston, Texas.
|
|
|
|
Mr. Updyke has the right to terminate employment upon the
occurrence of any of the following good reason events:
(1) prior to the first anniversary date of employees
employment, the Company is sold and as a consequence of such
sale Mr. Updyke is (a) not retained in the same job
function; (b) required to relocate to a location that is
greater than 100 miles from Dallas, Texas; or
(c) without his prior consent, the assignment of duties
inconsistent with his current role or any significant reduction
or significant change in either position or job function, except
in connection with the termination of employment for cause or in
connection with the termination of employment by reason of him
becoming totally disabled (defined below); or (2) a
material breach by us of Article 4 of his employment
agreement (i.e., the article governing the payment of
compensation and the provision of benefits to Mr. Updyke).
|
|
|
|
Mr. Thompsons agreement does not contain a good
reason concept.
|
|
|
|
|
|
Under Messrs. Brewster, Clinard, and Thompsons
employment agreements, we have the right to terminate the
executives employment at any time if the employee is
unable to perform his duties or fulfill his obligations by
reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than six
months, as certified by a competent physician (without this
specifically being deemed as totally disabled).
|
|
|
|
Under Mr. Updykes employment agreement, we have the
right to terminate his employment at any time if he becomes
Totally Disabled. The executive will be considered totally
disabled if, by reason of his illness, incapacity or other
disability, the executive fails to perform his duties or fulfill
his obligations under his employment agreement, as certified by
a competent physician, for 180 days in any 12 month
period.
|
|
|
|
|
|
Without Cause Termination. A termination
without cause shall mean a termination of the executives
employment other than for death, voluntary resignation, total
disability, or cause.
|
Messrs. Brewster, Clinard, Updyke and Thompson also
received restricted stock grants pursuant to our 2007 Stock
Incentive Plan on June 20, 2008, the award agreements of
which contained provisions permitting accelerated lapsing of
forfeiture restrictions upon certain termination and change in
control scenarios. Each of the executives receive partial (25%)
accelerated lapsing upon a termination of employment for death
or disability. Messrs. Brewster and Clinard will also
receive partial (50%) accelerated lapsing upon the occurrence of
a change in control; this acceleration will be increased to 100%
if a termination other than for cause or a good reason
termination follows such a change in control. The definitions of
the applicable terms in the restricted stock agreements are
substantially similar to the same terms as described above
within the executives employment agreements.
S-105
The table below reflects the amount of compensation payable to
our Named Executive Officers in the event of a termination of
employment or a change in control of our Company on
December 31, 2009. For purposes of calculating the
potential payments, we have made certain assumptions that we
have determined to be reasonable and relevant to our
shareholders. Upon the occurrence of any of the termination
events listed, or in the event of a for-cause termination or a
voluntary termination (neither of which are shown in the above
below), the terminated executive would receive any base salary
amount that had been earned but had not been paid at the time of
termination. In the event of a without cause termination, a
termination for good reason, or a termination in connection with
a change in control, the executive would also be entitled to
receive payment of any prior year amount earned under our
non-equity incentive plan (if not already paid) and a pro rata
portion of the amount earned under our non-equity incentive plan
for the year in which the termination occurred. However, such
amounts would not be considered termination payments
but rather would represent compensation earned by the executive
for services rendered, and we, therefore, have not reflected the
amount of earned but unpaid salary and non-equity inventive
compensation awards in the table below. The executives are also
entitled to receive reimbursement payments for reasonable
business expenses, and we have assumed that for purposes of the
calculations below, all expense reimbursements were current as
of December 31, 2009.
The amount of compensation payable to each Named Executive
Officer for each situation is listed below based on the
employment agreements in place for each executive as of
December 31, 2009. The amounts shown assume that such
termination event was effective as of December 31, 2009 and
that the closing price of our common stock on that date was
$11.06. The amounts below are our best estimates as to the
amounts that each executive would receive upon that particular
termination event; however, exact amounts that any executive
would receive could only be determined upon an actual
termination of employment.
Potential
Payments upon a Termination or Change in Control
Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination in
|
|
|
|
|
|
|
|
|
Without
|
|
|
Good Reason
|
|
|
Change in
|
|
|
Connection
|
|
|
|
|
|
|
|
|
Cause
|
|
|
Termination
|
|
|
Control (No
|
|
|
with a Change
|
|
|
Death or
|
|
Executive
|
|
Benefits
|
|
Termination
|
|
|
By Executive
|
|
|
Termination)
|
|
|
in Control
|
|
|
Disability
|
|
|
J. C. Brewster
|
|
Base salary
|
|
$
|
605,000
|
(1)
|
|
$
|
605,000
|
(1)
|
|
$
|
|
|
|
$
|
605,000
|
(1)
|
|
$
|
|
|
|
|
Non-equity incentive compensation
|
|
|
237,466
|
(1)
|
|
|
237,466
|
(1)
|
|
|
|
|
|
|
237,466
|
(1)
|
|
|
|
|
|
|
Post-employment health care
|
|
|
27,474
|
(1)
|
|
|
27,474
|
(1)
|
|
|
|
|
|
|
27,474
|
(1)
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
746,550
|
(2)
|
|
|
1,493,100
|
(3)
|
|
|
497,700
|
(4)
|
|
|
Tax gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
869,940
|
|
|
$
|
869,940
|
|
|
$
|
746,550
|
|
|
$
|
2,363,040
|
|
|
$
|
497,700
|
|
M. H. Clinard
|
|
Base salary
|
|
$
|
741,600
|
(1)
|
|
$
|
741,600
|
(1)
|
|
$
|
|
|
|
$
|
741,600
|
(1)
|
|
$
|
|
|
|
|
Non-equity incentive compensation
|
|
|
264,003
|
(1)
|
|
|
264,003
|
(1)
|
|
|
|
|
|
|
264,003
|
(1)
|
|
|
|
|
|
|
Post-employment health care
|
|
|
27,329
|
(1)
|
|
|
27,329
|
(1)
|
|
|
|
|
|
|
27,329
|
(1)
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
555,765
|
(2)
|
|
|
1,111,530
|
(3)
|
|
|
370,510
|
(4)
|
|
|
Tax gross-up
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,841
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,032,932
|
|
|
$
|
1,032,932
|
|
|
$
|
555,765
|
|
|
$
|
2,554,303
|
|
|
$
|
370,510
|
|
R.
Updyke(6)
|
|
Base salary
|
|
$
|
291,000
|
(7)
|
|
$
|
291,000
|
(7)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Post-employment health care
|
|
|
8,604
|
(7)
|
|
|
8,604
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,200
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
299,604
|
|
|
$
|
299,604
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
221,200
|
|
C. K. Tres
Thompson, III(6)
|
|
Base salary
|
|
$
|
200,170
|
(8)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Post-employment health care
|
|
|
18,316
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,200
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
218,486
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
221,200
|
|
S-106
|
|
|
(1) |
|
In the event of a without cause termination, a good reason
termination by Messrs. Brewster or Clinard, or a
termination in connection with a change in control, the
executive indicated would be entitled to receive severance pay
equal to two times his then-current base salary plus two times
the average amount paid to him in the two preceding calendar
years under our non-equity incentive plan. The average of each
executives 2008 and 2007 payout amounts were used to
calculate the values in the table above. Additionally, in the
event the executive elected to continue benefits coverage
through our group health plan under COBRA, we would reimburse
the executive for the COBRA premiums for up to 18 months.
For each executive, all amounts would be payable in bi-monthly
installments; provided, however, that if the executive is a
specified employee under Section 409A of the
Internal Revenue Code at the time of his termination, the
amounts will be delayed for a period of six months to the extent
required to avoid additional federal income taxes for the
executive. |
|
(2) |
|
Pursuant to the terms of Messrs. Brewster and
Clinards restricted stock agreements, in the event of a
change in control, 50% of all remaining forfeiture restrictions
lapse effective as of the date the change in control occurs. The
amounts presented above represent the product of (a) the
number of restricted shares that would have vested as of
December 31, 2009 upon the change in control, and
(b) $11.06, the closing price of our common stock as of
December 31, 2009. |
|
(3) |
|
Pursuant to the terms of Messrs. Brewster and
Clinards restricted stock agreements, in the event the
executive is terminated following a change in control, and such
termination is an Involuntary Termination or a Good Reason
Termination, all remaining forfeiture restrictions lapse
effective as of the termination date. The amounts presented
represent the product of (a) the number of then unvested
restricted shares that each executive held as of
December 31, 2009, and (b) $11.06, the closing price
of our common stock as of December 31, 2009. |
|
(4) |
|
Pursuant to the terms of Messrs. Brewster, Clinard, Updyke
and Thompsons restricted stock agreements, in the event
the executive dies or becomes disabled during the term of his
employment, the percentage of the total number of restricted
shares as to which the forfeiture restrictions shall lapse shall
automatically increase by 25% of the shares awarded. The amounts
presented represent the product of (a) the number of
restricted shares that would have vested as of December 31,
2009 upon the aforementioned events, and (b) $11.06, the
closing price of our common stock as of December 31, 2009. |
|
(5) |
|
Federal excise tax
gross-up
payments were calculated pursuant to Section 280G of the
Code. Only the severance amount payable to Mr. Clinard
exceeded his Section 280G safe harbor amount; therefore, he
is the only Named Executive Officer that would have received a
gross-up
payment for federal excise taxes in the event his employment was
terminated on December 31, 2009 following a change in
control of our Company. Mr. Clinards potential
gross-up
payment was calculated based upon an excise tax rate under
Section 4999 of the Internal Revenue Code of 20%, a 35%
federal income tax rate and a 1.45% Medicare tax rate. |
|
(6) |
|
In the event of a termination of employment for any reason other
than cause, Messrs. Updyke and Thompson would be entitled
to receive payment of any prior year bonus earned under our
non-equity incentive plan (if not already paid) and a pro rata
portion of the amount earned under our non-equity incentive plan
for the year in which the termination occurred. However, such
amounts would not be considered a termination
payment but rather would represent compensation earned by
the executive for services rendered, and we, therefore, have not
reflected these amounts in the table. |
|
(7) |
|
In the event of a termination without cause or a good reason
termination by the executive, Mr. Updyke would be entitled
to receive severance pay equal to 12 months of his current
base salary. This amount would be payable in bi-monthly
installments. However, in the event he accepts another full-time
employment position (defined as 20 hours per week) within
one year after termination, remaining payments to be made by us
would be reduced by the gross amount being earned under his new
employment arrangement. Additionally, if Mr. Updyke elected
to continue benefits coverage through our group health plan
under COBRA, we would partially subsidize Mr. Updykes
incremental healthcare premiums. Specifically, we would
reimburse Mr. Updyke on a monthly basis for the difference
between the amount he must pay to continue such coverage and the
employee contribution amount that active senior executive
employees would pay for the same or similar coverage under our
group health plan. Amounts shown |
S-107
|
|
|
|
|
above represent the difference in Mr. Updykes current
insurance premiums and current COBRA rates for a similar plan. |
|
(8) |
|
In the event of a termination without cause, Mr. Thompson
would be entitled to receive severance pay equal to
12 months of his current base salary. This amount would be
payable in bi-monthly installments. However, in the event he
accepts another full-time employment position (defined as
20 hours per week) within one year after termination,
remaining payments to be made by us would be reduced by the
gross amount being earned under his new employment arrangement.
Additionally, in the event the Mr. Thompson elected to
continue benefits coverage through our group health plan under
COBRA, we would reimburse Mr. Thompson for the COBRA
premiums for up to 12 months. |
Our employment agreements with Messrs. Brewster and Clinard
require the executives to sign a full release within
50 days of the executives termination of employment
waiving all claims against us, our subsidiaries, and our
officers, directors, employees, agents, representatives or
stockholders before receiving any severance benefits due under
the employment agreements. Messrs. Updyke and Thompson are
also required to promptly report any subsequent full-time
employment during the period in which the executive is receiving
severance payments, for we are entitled to reduce the
executives severance payments by the amount of the new
salary the executive is receiving from a third party.
The employment agreements with our executive officers also
contain non-competition and non-solicitation provisions. Our
employment agreements with Messrs. Brewster and Clinard
have a
12-month
non-compete and non-solicitation period, during which the
executives may not (1) directly or indirectly participate
in or have significant ownership in a competing company;
(2) solicit or advise any of our employees to leave our
employment; or (3) solicit any of our customers either for
his own interest or that of a third party. In addition to these
three prohibited items, our employment agreement with
Mr. Updyke, which has a
24-month
non-compete and non-solicitation period, also prohibits the
executive from calling upon an acquisition candidate of ours
either for his own interest or that of a third party. In the
event that Mr. Updyke is terminated without cause, for a
good reason event or the expiration of the employment agreement
term, however, the non-compete period will end contemporaneously
with the termination of Mr. Updykes employment.
Mr. Thompsons non-solicitation provisions prevent him
from soliciting either our employees or our customers for a
period of 12 months following termination.
Additionally, pursuant to the terms of our 2001 and 2007 Stock
Incentive Plans (the Plans), the Compensation
Committee, at its sole discretion, may take action related to
and/or make
changes to stock options and the related option agreements upon
the occurrence of an event that qualifies as a Corporate Change
under the Plans (such definition of which is substantially
similar to the definition of Change in Control in the employment
agreements described above). Such actions
and/or
changes could include (but are not limited to)
(1) acceleration of the vesting of the outstanding,
non-vested options; (2) modifications to the number and
price of shares subject to the option agreements;
and/or
(3) the requirement for mandatory cash out of the options
(i.e., surrender by an executive of all or some of his
outstanding options, whether vested or not, in return for
consideration deemed adequate and appropriate based on the
specific change in control event). The Compensation Committee
also has discretion to make changes to any awards and the
related agreements under the 2007 Plan in the event of a change
in our outstanding common stock by reason of a recapitalization,
a merger, a reorganization or other similar transaction, in
order to prevent the dilution or enlargement of rights under the
Plans. Such actions
and/or
changes, if any, may vary among plan participants. As a result
of their discretionary nature, these potential changes have not
been estimated and are not reflected in the above table.
Risk
Assessment Related to Our Compensation Structure
We have reviewed our compensation policies and practices for all
employees, including executive officers, and determined that our
compensation programs are not reasonably likely to cause
behaviors that would have a material adverse effect on the
Company. Moreover, we believe that several design features of
our compensation programs and policies reduce the likelihood of
excessive risk-taking:
|
|
|
|
|
The program design provides a balanced mix of cash and equity,
annual and longer-term incentives, and performance metrics.
|
S-108
|
|
|
|
|
Our 2009 non-equity incentive compensation plan has a cap.
|
|
|
|
Compliance and ethical behaviors are integral factors considered
in all performance assessments.
|
|
|
|
We set the proper ethical and moral expectations through our
policies and procedures and provide various mechanisms for
reporting issues.
|
|
|
|
We maintain an aggressive internal and external audit program,
which enables us to verify that our compensation policies and
practices are aligned with expectations.
|
|
|
|
We also perform extensive financial analysis work before
entering into new contracts or ventures thus making it more
difficult for individuals to act against the Companys
long-term interest by attempting to manipulate earnings results
in the short term.
|
We have determined that, for all employees, our compensation
programs do not encourage excessive risk and instead encourage
behaviors that support sustainable value creation.
S-109
DIRECTOR
COMPENSATION
The following table provides compensation information for each
individual who served as a member of our Board during the year
ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock
|
|
|
Name
|
|
Paid in Cash
|
|
Awards(1)
|
|
Total
|
|
J. Tim Arnoult
|
|
|
65,000
|
|
|
|
72,500
|
|
|
|
137,500
|
|
Robert P. Barone
|
|
|
62,698
|
|
|
|
72,500
|
|
|
|
135,198
|
|
Jorge M. Diaz
|
|
|
54,036
|
|
|
|
72,500
|
|
|
|
126,536
|
|
Dennis F. Lynch
|
|
|
62,074
|
|
|
|
72,500
|
|
|
|
134,574
|
|
Michael A.R. Wilson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In May 2009, the Company granted Messrs. Arnoult, Barone,
Diaz and Lynch 25,000 shares of restricted stock each. The
grant date fair value of each grant, as computed in accordance
with FASB ASC Topic 718, was $72,500. The full fair value of
these awards was recognized as compensation expense under FASB
ASC Topic 718 during 2009. Messrs. Arnoult, Barone, Diaz
and Lynch had no unvested stock awards outstanding as of
December 31, 2009. |
In 2009, each of our non-employee directors, with the exception
of Messrs. Lummis and Wilson, earned a $40,000 annual
retainer for their services. Additionally, each non-employee
director received an additional $10,000 annual retainer for each
committee on which he served during the year and $5,000 for
chairing a committee. These amounts were paid on a monthly basis
in the form of cash. Additionally, during 2009,
Messrs. Arnoult, Barone, Diaz and Lynch were each granted
25,000 shares of restricted stock, the forfeiture
restrictions on which lapsed in December 31, 2009.
Messrs. Lummis and Wilson have waived their rights to
receive payment for services rendered as members of our Board as
each of these directors are affiliated with
and/or
employed by companies that have a significant ownership interest
in us. All of our directors are reimbursed for their reasonable
expenses in attending Board and committee meetings.
2010 Director Compensation. The
above-described compensation structure that was in place during
2009 will remain in place during 2010. Additionally, on
March 3, 2010, the Compensation Committee of our Board
approved a restricted stock grant in the amount of
5,988 shares to each of our non-employee directors, with
the exception of Messrs. Lummis and Wilson, in return for
services to be provided as a director of the Company during
2010. Forfeiture restrictions on the shares lapse on
February 15, 2011.
Compensation
Committee Interlocks and Insider Participation
During 2009, Fred R. Lummis, Robert P. Barone, Jorge M. Diaz,
Dennis F. Lynch and Michael A.R. Wilson served on our
Compensation Committee. In March 2009, Mr. Lummis became
our interim Chief Executive Officer, at which time he resigned
from our Compensation Committee. During 2009, no member of our
Compensation Committee served as an executive officer or
employee (current or former) while serving on our Compensation
Committee, other than a brief period between
Mr. Lummis appointment as our Interim Chief Executive
Officer and his resignation from our Compensation Committee.
Additionally, none of our executive officers has served as a
director or member of the Compensation Committee of any other
entity whose executive officers served as a director or member
of our Compensation Committee.
S-110
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, (the Exchange Act) requires our officers
and directors, and persons who own more than 10% of a registered
class of our equity securities, to file reports of ownership on
Form 3 and changes in ownership on Form 4 or
Form 5 with the SEC. Such officers, directors and 10%
stockholders are also required by securities laws to furnish us
with copies of all Section 16(a) forms they file.
For the fiscal year ended December 31, 2009, to our
knowledge and based solely on a review of copies of reports
furnished to us or filed with the SEC and written
representations from these individuals that no other reports
were required, all of our officers, directors and 10%
stockholders complied with applicable reporting requirements of
Section 16(a).
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2009, with respect to the compensation plans
under which our common units are authorized for issuance,
aggregated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of
|
|
|
Weighted-
|
|
|
Remaining Available
|
|
|
|
Securities to be
|
|
|
Average Exercise
|
|
|
for Future Issuance
|
|
|
|
Issued Upon
|
|
|
Price of
|
|
|
Under Equity
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Compensation Plans
|
|
|
|
Outstanding
|
|
|
Options,
|
|
|
(Excluding Securities
|
|
|
|
Options, Warrants
|
|
|
Warrants and
|
|
|
Reflected in Column
|
|
Plan Category
|
|
and Rights
|
|
|
Rights
|
|
|
(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security
holders(1)
|
|
|
349,500
|
|
|
$
|
7.06
|
|
|
|
1,302,717
|
|
Equity compensation plans not approved by security
holders(2)
|
|
|
3,454,271
|
|
|
|
8.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,803,771
|
|
|
$
|
8.34
|
|
|
|
1,302,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents our 2007 Stock Incentive Plan. For additional
information on the terms of this plan, see Executive
Compensation Narrative Disclosure to Summary
Compensation Table and Grants of Plan-Based Awards
Table Equity Incentive Plans 2007
Plan. |
|
(2) |
|
Represents our 2001 Stock Incentive Plan. For additional
information on the terms of this plan, see Executive
Compensation Narrative Disclosure to Summary
Compensation Table and Grants of Plan-Based Awards
Table Equity Incentive Plans 2001
Plan. |
Security
Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the
beneficial ownership of our common stock as of March 15,
2010 for:
|
|
|
|
|
each person known by us to beneficially own more than 5% of our
common stock;
|
|
|
|
each of our directors and director nominees;
|
|
|
|
each of our Named Executive Officers (as such term is defined by
the SEC); and
|
|
|
|
all directors and executive officers as a group.
|
Footnote 1 to the following table provides a brief explanation
of what is meant by the term beneficial ownership.
The number of shares of common stock and the percentages of
beneficial ownership are based on 44,845,245 shares of
common stock, which are comprised of 41,658,756 shares of
common stock outstanding as of March 15, 2010, and
3,186,489 shares of common stock subject to options held by
beneficial owners that
S-111
are exercisable or that will be exercisable within 60 days
of March 15, 2010. The amounts presented may not add due to
rounding.
To our knowledge and except as indicated in the footnotes to
this table and subject to applicable community property laws,
the persons named in this table have the sole voting power with
respect to all shares of common stock listed as beneficially
owned by them.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
Percent of Common
|
Name and Address of Beneficial Owner(1)(2)
|
|
of Beneficial Ownership
|
|
Stock Beneficially Owned
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
TA Associates,
Inc.(3)
|
|
|
11,556,886
|
|
|
|
25.8
|
%
|
TA IX,
L.P.(4)
|
|
|
7,148,958
|
|
|
|
15.9
|
%
|
TA/Atlantic and Pacific V
L.P.(5)
|
|
|
2,859,597
|
|
|
|
6.4
|
%
|
TA/Atlantic and Pacific IV
L.P.(6)
|
|
|
1,232,709
|
|
|
|
2.7
|
%
|
TA Strategic Partners Fund A
L.P.(7)
|
|
|
146,417
|
|
|
|
*
|
|
TA Investors II,
L.P.(8)
|
|
|
142,954
|
|
|
|
*
|
|
TA Strategic Partners Fund B
L.P.(9)
|
|
|
26,251
|
|
|
|
*
|
|
The CapStreet Group,
LLC(10)
|
|
|
9,041,074
|
|
|
|
20.2
|
%
|
CapStreet II,
L.P.(11)
|
|
|
8,091,222
|
|
|
|
18.0
|
%
|
CapStreet Parallel II,
L.P.(12)
|
|
|
949,852
|
|
|
|
2.1
|
%
|
Columbia Wanger Asset Management,
L.P.(13)
|
|
|
2,976,000
|
|
|
|
6.6
|
%
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Michael A.R.
Wilson(14)
|
|
|
11,556,886
|
|
|
|
25.8
|
%
|
Fred R.
Lummis(15)
|
|
|
9,041,074
|
|
|
|
20.2
|
%
|
Michael H.
Clinard(16)
|
|
|
1,205,222
|
|
|
|
2.7
|
%
|
J. Chris
Brewster(17)
|
|
|
756,909
|
|
|
|
1.7
|
%
|
Steve
Rathgaber(18)
|
|
|
350,000
|
|
|
|
*
|
|
Rick
Updyke(19)
|
|
|
313,808
|
|
|
|
*
|
|
Carleton K. Tres
Thompson, III(20)
|
|
|
179,207
|
|
|
|
*
|
|
Jorge M.
Diaz(21)
|
|
|
57,605
|
|
|
|
*
|
|
Robert P.
Barone(22)
|
|
|
44,169
|
|
|
|
*
|
|
Dennis F.
Lynch(23)
|
|
|
34,863
|
|
|
|
*
|
|
J. Tim
Arnoult(24)
|
|
|
29,738
|
|
|
|
*
|
|
G. Patrick
Phillips(25)
|
|
|
5,988
|
|
|
|
*
|
|
All directors and executive officers as a group
(12 persons)
|
|
|
23,575,469
|
|
|
|
52.6
|
%
|
|
|
|
* |
|
Less than 1.0% of our outstanding common stock |
|
(1) |
|
Beneficial ownership is a term broadly defined by
the SEC in
Rule 13d-3
under the Exchange Act and includes more than the typical forms
of stock ownership, that is, stock held in the persons
name. The term also includes what is referred to as
indirect ownership, meaning ownership of shares as
to which a person has or shares investment or voting power, or a
person who, through a trust or proxy, prevents the person from
having beneficial ownership. For the purpose of this table, a
person or group of persons is deemed to have beneficial
ownership of any shares as of March 15, 2010, if that
person or group has the right to acquire shares within
60 days after such date. |
|
(2) |
|
The address for each Named Executive Officer and director set
forth in the table, unless otherwise indicated, is
c/o Cardtronics,
Inc., 3250 Briarpark Drive, Suite 400, Houston, Texas
77042. The address of The CapStreet Group, LLC, CapStreet II,
L.P., CapStreet Parallel II, L.P., and Mr. Lummis is
c/o The
CapStreet Group, LLC, 600 Travis Street, Suite 6110,
Houston, Texas 77002. The address of TA Associates, Inc., TA IX,
L.P., TA/Atlantic and Pacific V L.P., TA/Atlantic and
Pacific IV L.P., TA Strategic |
S-112
|
|
|
|
|
Partners Fund A L.P., TA Investors II, L.P., TA Strategic
Partners Fund B L.P., and Mr. Wilson is
c/o TA
Associates, John Hancock Tower, 56th Floor, 200 Clarendon
Street, Boston, Massachusetts 02116. The address of Columbia
Wanger Asset Management, L.P. is 227 West Monroe Street,
Suite 3000, Chicago, Illinois 60606. The address of
Mr. Clinard is 3306 Chartreuse Way, Houston, Texas 77082. |
|
(3) |
|
The shares owned by TA Associates, Inc. are owned through its
affiliated funds, including TA IX L.P., TA/Atlantic and
Pacific IV L.P., TA/Atlantic and Pacific V L.P., TA
Strategic Partners Fund A L.P., TA Strategic Partners
Fund B L.P., and TA Investors II, L.P., which we
collectively refer to as the TA Funds. |
|
(4) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates IX LLC. is the general partner of TA IX, L.P., and
each may be considered a beneficial owner, with sole voting and
dispositive power of the shares listed. |
|
(5) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates, Inc. is the general partner of TA Atlantic and
Pacific V L.P., and each may be considered a beneficial owner,
with sole voting and dispositive power of the shares listed. |
|
(6) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates, Inc. is the general partner of TA/Atlantic and
Pacific IV L.P., and each may be considered a beneficial
owner, with sole voting and dispositive power of the shares
listed. |
|
(7) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates, Inc. is the general partner of TA Strategic Partners
Fund A L.P., and each may be considered a beneficial owner,
with sole voting and dispositive power of the shares listed. |
|
(8) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates, Inc. is the general partner of TA Investors II,
L.P., and each may be considered a beneficial owner, with sole
voting and dispositive power of the shares listed. |
|
(9) |
|
As reported on Schedule 13G dated as of December 31,
2009 and filed with the SEC on February 12, 2010, TA
Associates, Inc. is the general partner of TA Strategic Partners
Fund B L.P., and each may be considered a beneficial owner,
with sole voting and dispositive power of the shares listed. |
|
(10) |
|
The shares owned by The CapStreet Group, LLC are owned through
its affiliated funds, CapStreet II, L.P. and CapStreet Parallel
II, L.P. |
|
(11) |
|
As reported on Schedule 13G/A dated as of December 31,
2008 and filed with the SEC on February 13, 2009, The
CapStreet Group, LLC is the general partner of CapStreet GP II,
L.P., which is the general partner of CapStreet II, L.P., and
each may be considered a beneficial owner, with shared voting
and dispositive power of 8,091,222 shares. CapStreet GP II,
L.P. has not sold or purchased any additional Cardtronics stock
since the February 2009 filing. |
|
(12) |
|
As reported on Schedule 13G/A dated as of December 31,
2008 and filed with the SEC on February 13, 2009, The
CapStreet Group, LLC is the general partner of CapStreet
Parallel II, L.P., and each may be considered a beneficial
owner, with shared voting and dispositive power of
949,852 shares. CapStreet Parallel II, L.P. has not sold or
purchased any additional Cardtronics stock since the February
2009 filing. |
|
(13) |
|
As reported on Schedule 13G/A dated as of December 31,
2009 and filed with the SEC on February 9, 2010, Columbia
Wanger Asset Management, L.P. is considered a beneficial owner,
with sole voting and dispositive power of 2,976,000 shares.
The shares reported therein include the shares held by Columbia
Acorn Trust, a Massachusetts business trust that is advised by
Columbia Wanger Asset Management, L.P. Columbia Acorn Trust
holds 6.43% of our shares. |
|
(14) |
|
The shares indicated as being beneficially owned by Michael A.R.
Wilson are owned directly by the TA Funds. Mr. Wilson
serves as a Managing Director of TA Associates, Inc., the
ultimate general partner of the TA Funds. As such,
Mr. Wilson may be deemed to have a beneficial ownership of
the shares owned by the TA Funds. Mr. Wilson disclaims
beneficial ownership of such shares, except to the extent of his
pecuniary interest therein and 22,316 shares of our common
stock. |
|
(15) |
|
The shares indicated as being beneficially owned by Fred R.
Lummis are owned directly by CapStreet II, L.P. and CapStreet
Parallel II, L.P. Mr. Lummis serves as a senior advisor of
The CapStreet Group, |
S-113
|
|
|
|
|
LLC, the ultimate general partner of CapStreet II, L.P. and
CapStreet Parallel II, L.P. As such, Mr. Lummis may be
deemed to have a beneficial ownership of the shares owned by
CapStreet II, L.P. and CapStreet Parallel II, L.P.
Mr. Lummis disclaims beneficial ownership of such shares. |
|
(16) |
|
Includes 100,280 shares owned directly; 100,500 restricted
shares, the forfeiture restrictions on which lapse as to
33,500 shares on each of the three remaining anniversaries
of the grant date beginning in June 2010; 100,000 restricted
shares, the forfeiture restrictions on which lapse as to
25,000 shares on each of the first four anniversaries of
the grant date beginning in January 2011; and 227,986 options
that are exercisable within 60 days of March 15, 2010.
Also included in the shares indicated as being beneficially
owned by Mr. Clinard are 541,164 shares owned by the
Ralph Clinard Family Trust and 135,292 shares owned by a
trust for the benefit of Mr. Clinard, of which
Mr. Clinard is a co-trustee of and has shared voting power
of and of which he may be deemed to be the beneficial owner. |
|
(17) |
|
Includes 45,000 shares owned directly; 135,000 restricted
shares, the forfeiture restrictions on which lapse as to
45,000 shares on each of the three remaining anniversaries
of the grant date beginning in June 2010; 100,000 shares of
restricted shares, the forfeiture restrictions on which lapse as
to 25,000 shares on each of the first four anniversaries of
the grant date beginning in January 2011; and 476,909 options
which are exercisable within 60 days of March 15, 2010. |
|
(18) |
|
The shares indicated are restricted shares, the forfeiture
restrictions on which lapse as to 87,500 shares on each of
the first four anniversaries of the grant date beginning in
February 2011. |
|
(19) |
|
Includes 14,710 shares owned directly; 60,000 restricted
shares, the forfeiture restrictions on which lapse as to
20,000 shares on each of the three remaining anniversaries
of the grant date beginning in June 2010; 100,000 shares of
restricted shares, the forfeiture restrictions on which lapse as
to 25,000 shares on each of the first four anniversaries of
the grant date beginning in January 2011; and 139,098 options
which are exercisable within 60 days of March 15, 2010. |
|
(20) |
|
Includes 24,710 shares owned directly; 60,000 restricted
shares, the forfeiture restrictions on which lapse as to
20,000 shares on each of the three remaining anniversaries
of the grant date beginning in June 2010; and 94,497 options
which are exercisable within 60 days of March 15, 2010. |
|
(21) |
|
Includes 23,875 shares owned directly; 5,988 restricted
shares, the restrictions on which lapse on February 15,
2011; and 27,742 options that are exercisable within
60 days of March 15, 2010. |
|
(22) |
|
Includes 18,875 shares owned directly; 5,988 restricted
shares, the restrictions on which lapse on February 15,
2011; and 19,306 options that are exercisable within
60 days of March 15, 2010. |
|
(23) |
|
Includes 28,875 shares owned directly and 5,988 restricted
shares, the restrictions on which lapse on February 15,
2011. |
|
(24) |
|
Includes 23,750 shares owned directly and 5,988 restricted
shares, the restrictions on which lapse on February 15,
2011. |
|
(25) |
|
The shares indicated are restricted shares, the forfeiture
restrictions on which lapse on February 15, 2011. |
S-114
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Transactions
with our Directors and Officers
Jorge M. Diaz, a member of our Board of Directors, is the
Division President and Chief Executive Officer of Fiserv
Output Solutions, a division of Fiserv, Inc. In 2009, Fiserv
provided us with third-party services during the normal course
of business, including transaction processing, network hosting,
network sponsorship, maintenance, cash management, and cash
replenishment. The $23.6 million amount paid to Fiserv
represented approximately 6.1% of our total cost of revenues and
selling, general, and administrative expenses for the year.
Approval
of Related Person Transactions
In the ordinary course of business, we may enter into a related
person transaction (as such term is defined by the SEC). The
policies and procedures relating to the approval of related
person transactions are set forth in our Related Persons
Transactions Policy, which we adopted on February 19, 2009
and amended on January 25, 2010. The Audit Committee is
charged with the responsibility of reviewing all the material
facts related to any such proposed transaction and either to
approve or disapprove of the entry into such transaction. Our
Related Persons Transaction Policy is available on our website
at
http://ir.cardtronics.com.
S-115
PRINCIPAL
ACCOUNTING FEES AND SERVICES
Report of
the Audit Committee
Each member of the Audit Committee is an independent director as
such term is defined under the current listing requirements. The
Audit Committee is governed by an Audit Committee Charter, which
complies with the requirements of the Sarbanes-Oxley Act of 2002
and corporate governance rules of NASDAQ. The Audit Committee
Charter may be further amended to comply with the rules and
regulations of the SEC and NASDAQ listing standards as they
continue to evolve. A copy of the Audit Committee Charter is
available on our website at
http://www.cardtronics.com.
In fulfilling its responsibilities, the Audit Committee has
reviewed and discussed the audited consolidated financial
statements contained in Cardtronics, Inc.s Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2009 with
Cardtronics, Inc.s management and independent registered
public accounting firm. Management is responsible for the
financial statements and the reporting process, including the
system of internal controls. The independent registered public
accounting firm is responsible for expressing an opinion on the
conformity of those audited financial statements with accounting
principles generally accepted in the United States.
The Audit Committee discussed with the independent registered
public accounting firm their independence from Cardtronics, Inc.
and its management including the matters in the written
disclosures required by applicable requirements of the Public
Accounting Oversight Board regarding the independent
auditors communications with the Audit Committee
concerning independence, and considered the compatibility of
non-audit services with the registered public accounting
firms independence. In addition, the Audit Committee
discussed the matters required to be discussed by Statement on
Auditing Standards No. 114, The Auditors
Communication with Those Charged with Governance.
In reliance on the reviews and discussions referred to above,
the Audit Committee recommended to the Board, and the Board
approved, the inclusion of the audited consolidated financial
statements in Cardtronics, Inc.s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 for filing with
the SEC.
Respectfully submitted by the Audit Committee of the Board of
Directors of Cardtronics, Inc.,
Robert P. Barone (Chairman)
Tim Arnoult
Dennis F. Lynch
Independent
Registered Public Accounting Firm Fee Information
Fees for professional services provided by our independent
registered public accounting firm, KPMG LLP, in each of the last
two fiscal years in each of the following categories were:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Audit Fees
|
|
$
|
1,196
|
|
|
$
|
1,288
|
|
Audit-Related Fees
|
|
|
27
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,223
|
|
|
$
|
1,288
|
|
|
|
|
|
|
|
|
|
|
Audit fees include fees associated with the annual audit and
quarterly review of our financial statements and the separate
statutory audits of Bank Machine Ltd. in the United Kingdom and
Cardtronics Mexico in Mexico. The audit-related fees in 2009
represent fees paid to KPMG for work performed on a SAS 70 audit
of our EFT transaction processing operation. The Audit Committee
considers whether the provision of these services is compatible
with maintaining the registered public accounting firms
independence, and has determined such services for fiscal year
2009 were compatible.
S-116
No other services were provided by KPMG LLP during the year
ended December 31, 2008.
Policy on
Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Registered Public Accounting Firm
Among its other duties, the Audit Committee is responsible for
appointing, setting compensation, and overseeing the work of the
independent registered public accounting firm. The Audit
Committee has established a policy regarding pre-approval of all
audit and non-audit services provided by the independent
registered public accounting firm. On an as-needed basis,
management will communicate specific projects and categories of
service for which the advance approval of the Audit Committee is
requested. The Audit Committee reviews these requests and
advises management if the committee approves the engagement of
the independent registered public accounting firm. On a periodic
basis, management reports to the Audit Committee regarding the
actual spending for such projects and services compared to the
approved amounts. The Audit Committee approved 100% of the
services provided by KPMG LLP in 2009 and 2008.
S-117
SELLING
STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock held as of
March 15, 2010 by the selling stockholders, the number of
shares being offered by this prospectus supplement, and
information with respect to shares to be beneficially owned by
the selling stockholders subsequent to this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
Offered
|
|
Shares Beneficially Owned
|
|
|
Prior to the Offering
|
|
Hereby
|
|
After the
Offering(1)
|
|
|
Number
|
|
Percentage(2)
|
|
Number
|
|
Number
|
|
Percentage(2)
|
|
CapStreet II, L.P.
|
|
|
8,091,222
|
|
|
|
19.4
|
%
|
|
|
2,684,821
|
|
|
|
5,406,401
|
|
|
|
13.0
|
%
|
CapStreet Parallel II, L.P.
|
|
|
949,852
|
|
|
|
2.3
|
|
|
|
315,179
|
|
|
|
634,673
|
|
|
|
1.5
|
|
TA IX, L.P.
|
|
|
7,148,958
|
|
|
|
17.2
|
|
|
|
1,855,766
|
|
|
|
5,293,192
|
|
|
|
12.7
|
|
TA/Atlantic and Pacific V L.P.
|
|
|
2,859,597
|
|
|
|
6.9
|
|
|
|
742,310
|
|
|
|
2,117,287
|
|
|
|
5.1
|
|
TA/Atlantic and Pacific IV L.P.
|
|
|
1,232,709
|
|
|
|
3.0
|
|
|
|
319,993
|
|
|
|
912,716
|
|
|
|
2.2
|
|
TA Strategic Partners Fund A L.P.
|
|
|
146,417
|
|
|
|
*
|
|
|
|
38,008
|
|
|
|
108,409
|
|
|
|
*
|
|
TA Investors II, L.P.
|
|
|
142,954
|
|
|
|
*
|
|
|
|
37,109
|
|
|
|
105,845
|
|
|
|
*
|
|
TA Strategic Partners Fund B L.P.
|
|
|
26,251
|
|
|
|
*
|
|
|
|
6,814
|
|
|
|
19,437
|
|
|
|
*
|
|
|
|
|
* |
|
Less than 1.0% of the outstanding common shares. |
|
(1) |
|
Assumes that the selling stockholder disposes of all the shares
of common stock covered by this prospectus (assuming no exercise
of the underwriters over-allotment) and does not acquire
beneficial ownership of any additional shares. The registration
of these shares does not necessarily mean that the selling
stockholder will sell all or any portion of the shares covered
by this prospectus. |
|
(2) |
|
Based on 41,658,756 shares of our common stock outstanding
as of March 15, 2010. |
Common Stock Issuances to Selling
Shareholders. During 2001, we issued
1,320,898 shares of our common stock to CapStreet II, L.P.
and CapStreet Parallel II, L.P. (collectively, The
CapStreet Group) for an aggregate amount of $132.09.
During 2002, we issued an additional 170,439 shares of our
common stock to The CapStreet Group for an aggregate amount of
$17.04. In February 2005, concurrent with the investment made by
TA Associates, Inc. (TA Associates) and the issuance
of our Series B Redeemable Convertible Preferred Stock
(Series B Stock) (discussed below), we
repurchased 353,878 common shares from The CapStreet Group. In
conjunction with our initial public offering in December 2007,
the remaining 1,137,459 common shares held by The CapStreet
Group converted into the 9,041,074 common shares it holds as of
the date of this prospectus.
Series B Redeemable Convertible Preferred Stock
Issuances to Selling Shareholders. In February
2005, we issued 894,568 shares of our Series B Stock
to investment funds controlled by TA Associates (the TA
Funds) for a per share price of $83.8394, resulting in
aggregate gross proceeds of $75.0 million. The
Series B shares were convertible into the same number of
shares of the Companys common stock, as adjusted for
future stock splits and the issuance of dilutive securities. In
June 2007, we entered into a letter agreement with the TA Funds
pursuant to which the TA Funds agreed to (i) approve our
acquisition of the financial service business of 7-Eleven, Inc.
and (ii) not transfer or otherwise dispose of any of their
shares of Series B Stock during the period beginning on the
date thereof and ending on the earlier of the date the
acquisition closed (i.e., July 20, 2007) or
September 1, 2007. Pursuant to the terms of the letter
agreement, we amended the terms of our Series B Stock in
order to increase, under certain circumstances, the number of
shares of common stock into which the TA Funds shares of
Series B Stock would be convertible in the event we
completed an initial public offering. In December 2007, we
completed our 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).
In connection with our issuance of Series B Convertible
Preferred Stock to the TA Funds in February 2005, all our
existing stockholders entered into an investors agreement
relating to several matters, only the registration rights
provision of which survived our initial public offering in
December 2007. Pursuant to the
S-118
investors agreement, CapStreet II, L.P. (on behalf of itself,
CapStreet Parallel II, L.P. and permitted transferees thereof)
and TA Associates have the right to demand that we file a
registration statement with the SEC to register the sale of all
or part of the shares of common stock beneficially owned by
them. Subject to certain limitations, we are obligated to
register these shares upon CapStreet II, L.P.s or TA
Associates demand, for which we will be required to pay
the registration expenses. In connection with any such demand
registration, the stockholders who are parties to the investors
agreement may be entitled to include their shares in that
registration. In addition, if we propose to register securities
for our own account, the stockholders who are parties to the
investors agreement may be entitled to include their shares in
that registration. All holders of registrable securities, other
than The CapStreet Group and TA Associates, elected not to
register their securities as part of our registration statement,
effective as of March 11, 2010.
Directors Affiliated with Selling
Stockholders. Fred R. Lummis, a senior advisor of
The CapStreet Group, LLC, the ultimate general partner of
CapStreet II, L.P. and CapStreet Parallel II, L.P., and Michael
A.R. Wilson, a Managing Director of TA Associates, Inc., the
ultimate general partner of the TA Funds, are members of our
Board of Directors. For a description of the beneficial
ownership of these individuals see footnotes (14) and
(15) to the table under the heading Security
Ownership of Certain Beneficial Owners and Management.
S-119
MATERIAL
UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S.
HOLDERS
The following discussion is a summary of material United States
federal income and, to a limited extent, estate tax
considerations applicable to
non-U.S. holders
(as defined below) relating to the purchase, ownership and
disposition of our common stock, which does not purport to be a
complete analysis of all the potential tax considerations
relating thereto. This summary is based on the Internal Revenue
Code of 1986, as amended, or Code, Treasury regulations, rulings
and pronouncements of the Internal Revenue Service, or IRS, and
judicial decisions as of the date of this prospectus supplement.
These authorities may be changed, perhaps retroactively, so as
to result in United States federal income and estate tax
consequences different from those described in this discussion.
We have not sought any ruling from the IRS with respect to the
statements made and conclusions reached in this summary, and
there can be no assurance that the IRS will agree with these
statements and conclusions.
This summary is addressed only to persons who are
non-U.S. holders
who hold our common stock as a capital asset (generally,
property held for investment). As used in this discussion,
non-U.S. holder
means a beneficial owner of our common stock that for United
States federal income tax purposes is not:
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
a partnership, or any other entity treated as a partnership for
United States federal income tax purposes;
|
|
|
|
a corporation, or any other entity subject to tax as a
corporation for United States federal income tax purposes,
created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
|
|
|
|
an estate whose income is subject to United States federal
income taxation regardless of its source; or
|
|
|
|
a trust (1) if it is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) that has a valid election in effect
under applicable Treasury regulations to be treated as a
United States person.
|
This summary does not address the tax considerations arising
under the laws of any foreign, state or local jurisdiction or
the effect of any tax treaty. In addition, this discussion does
not address tax considerations that are the result of a
holders particular circumstances or of special rules, such
as those that apply to holders subject to the alternative
minimum tax, financial institutions, tax-exempt organizations,
insurance companies, dealers or traders in securities or
commodities, certain former citizens or former long-term
residents of the United States, or persons who will hold our
common stock as a position in a hedging transaction,
straddle or conversion transaction. If a
partnership (including an entity treated as a partnership for
United States federal income tax purposes) holds our common
stock, then the United States federal income tax treatment of a
partner will generally depend on the status of the partner and
the activities of the partnership. Such a partner is encouraged
to consult its tax advisor as to its consequences.
THIS DISCUSSION DOES NOT CONSTITUTE LEGAL ADVICE TO ANY
PROSPECTIVE PURCHASER OF OUR COMMON STOCK. INVESTORS CONSIDERING
THE PURCHASE OF OUR COMMON STOCK ARE ENCOURAGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL
AS TO ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Distributions
on Our Common Stock
We do not expect to declare or pay any dividends on our common
stock for the foreseeable future. However, if we do make
distributions on our common stock, such distributions will
constitute dividends for United States federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under United States federal
income tax principles. To the extent not paid from our current
or accumulated earnings and profits, distributions on our common
stock will constitute a return of capital and will be applied
against and reduce a holders adjusted basis in our common
stock, but not below
S-120
zero, and then the excess, if any, will be treated as gain from
the sale of common stock and will be treated as described under
Dispositions of Our Common Stock, below.
Dividends paid on our common stock to a
non-U.S. holder
generally will be subject to withholding of United States
federal income tax at a 30% rate or a lower rate specified by an
applicable treaty. However, dividends that are effectively
connected with the conduct of a trade or business within the
United States by the
non-U.S. holder
(and, where a tax treaty applies, are attributable to a United
States permanent establishment or fixed base of the
non-U.S. holder)
are not subject to the withholding tax, provided certain
certification and disclosure requirements are satisfied.
Instead, such dividends are subject to United States federal
income tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or a lower rate specified by an
applicable treaty.
A
non-U.S. holder
of our common stock that wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will generally be required to
complete IRS
Form W-8BEN
(or valid substitute or successor form) and certify under
penalties of perjury that such holder is not a United States
person as defined under the Code and is eligible for treaty
benefits.
A
non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax may obtain a refund or credit of any excess
amounts withheld by timely filing an appropriate claim with the
IRS.
Dispositions
of Our Common Stock
A
non-U.S. holder
will generally not be subject to United States federal income
tax on any gain realized on the sale, exchange, redemption,
retirement or other disposition of our common stock unless:
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the gain is effectively connected with the conduct of a trade or
business in the United States (and, where a tax treaty applies,
is attributable to a United States permanent establishment or
fixed base of the
non-U.S. holder);
in these cases, the
non-U.S. holder
will be subject to tax on the net gain derived from the
disposition in the same manner as if the
non-U.S. holder
were a United States person as defined in the Code, and if the
non-U.S. holder
is a foreign corporation, it may be subject to the additional
branch profits tax at a 30% rate or a lower rate
specified by an applicable treaty;
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the
non-U.S. holder
is an individual present in the United States for 183 days
or more in the taxable year in which the disposition occurs and
certain other conditions are met; in these cases, the individual
non-U.S. holder
will be subject to a flat 30% tax on the gain derived from the
disposition, which tax may be offset by United States source
capital losses, even though the individual is not considered a
resident of the United States; or
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we are or have been a United States real property holding
corporation for United States federal income tax purposes
at any time during the shorter of the
non-U.S. holders
holding period for our common stock and the five year period
ending on the date of disposition.
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We are not currently and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes. If we become a
United States real property holding corporation, a
non-U.S. holder
may, in certain circumstances, be subject to United States
federal income tax on the disposition of our common stock.
Certain
United States Federal Estate Tax Considerations
Our common stock beneficially owned by an individual who is not
a citizen or resident of the United States (as defined for
United States federal estate tax purposes) at the time of death
will generally be includable in the decedents gross estate
for United States federal estate tax purposes, and thus may be
subject to United States estate tax, unless an applicable treaty
provides otherwise.
S-121
Information
Reporting and Backup Withholding
Dividends paid to a
non-U.S. holder
may be subject to information reporting and United States backup
withholding. We must report annually to the IRS and to each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available under the provisions of an applicable tax treaty or
agreement with the tax authorities in the country in which the
non-U.S. holder
resides. A
non-U.S. holder
will be exempt from backup withholding if such
non-U.S. holder
properly provides IRS
Form W-8BEN
(or valid substitute or successor form) certifying that such
stockholder is not a United States person (as defined in the
Code) or otherwise establishes an exemption.
The gross proceeds from the disposition of our common stock may
be subject to information reporting and backup withholding. If a
non-U.S. holder
sells its common stock outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to such stockholder outside the
United States, then the United States backup withholding and
information reporting requirements generally will not apply to
that payment. However, United States information reporting will
generally apply to a payment of sale proceeds, even if that
payment is made outside the United States, if a
non-U.S. holder
sells our common stock through a
non-U.S. office
of a broker that has certain relationships with the United
States, unless the beneficial owner properly certifies that it
is not a United States person or otherwise establishes an
exemption. In such circumstances, backup withholding will not
apply unless the broker has actual knowledge or reason to know
that the seller is not a
non-U.S. holder.
If a
non-U.S. holder
receives payments of the proceeds of a sale of our common stock
to or through a United States office of a broker, the payment is
subject to both United States backup withholding and information
reporting unless such
non-U.S. holder
properly provides IRS
Form W-8BEN
(or valid substitute or successor form) certifying that such
stockholder is a
non-U.S. person
or otherwise establishes an exemption.
Backup withholding is not an additional tax. A
non-U.S. holder
generally may obtain a refund of any amounts withheld under the
backup withholding rules that exceed such stockholders
United States tax liability, if any, by timely filing a properly
completed claim for refund with the IRS.
Recent
Legislative Developments Affecting Taxation of Common Stock Held
By or Through Foreign Entities
Recently enacted legislation will generally impose a withholding
tax of 30 percent on the gross proceeds of a disposition of
common stock paid to a foreign financial institution, unless
such institution enters into an agreement with the
U.S. government to collect and provide to the U.S. tax
authorities substantial information regarding U.S. account
holders of such institution (which includes certain equity and
debt holders of such institution, as well as certain account
holders that are foreign entities with U.S. owners). The
legislation will also generally impose a withholding tax of
30 percent on the gross proceeds of a disposition of our
common stock paid to a non-financial foreign entity unless such
entity provides the withholding agent with the required
certification, which will generally require the identification
of the direct and indirect U.S. owners of the entity.
Finally, subject to the reporting requirements discussed herein,
the legislation will impose a withholding tax of 30 percent
on dividends paid on our common stock. Under certain
circumstances, a
non-U.S. holder
of our common stock might be eligible for refunds or credits of
such taxes. The legislation will be effective for amounts paid
after December 31, 2012. Investors are encouraged to
consult with their tax advisors regarding the possible
implications of this legislation on their investment in our
common stock.
S-122
UNDERWRITING
The selling stockholders are offering the shares of our common
stock described in this prospectus supplement and the
accompanying prospectus through the underwriters named below.
Piper Jaffray & Co. and UBS Securities LLC are the
joint book-running managers of this offering and the
representatives of the underwriters. We and the selling
stockholders have entered into an underwriting agreement with
the representatives. Subject to the terms and conditions of the
underwriting agreement, each of the underwriters has severally
agreed to purchase, and the selling stockholders have severally
agreed to sell to the underwriters, the number of shares of
common stock listed next to its name in the following table.
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Number of
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Underwriters
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shares
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Piper Jaffray & Co.
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UBS Securities LLC
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William Blair & Company, L.L.C.
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SunTrust Robinson Humphrey, Inc.
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Total
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6,000,000
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The underwriting agreement provides that the underwriters must
buy all of the shares if they buy any of them. However, the
underwriters are not required to take or pay for the shares
covered by the underwriters over-allotment option
described below.
Our common stock is offered subject to a number of conditions,
including:
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receipt and acceptance of our common stock by the
underwriters, and
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the underwriters right to reject orders in whole or in
part.
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In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
Over-Allotment
Option
The selling stockholders have granted the underwriters an option
to buy up to an aggregate of 900,000 of additional shares of our
common stock. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in
connection with this offering. The underwriters have
30 days from the date of this prospectus supplement to
exercise this option. If the underwriters exercise this option,
they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.
Commissions
and Discounts
Shares sold by the underwriters to the public will initially be
offered at the public offering price set forth on the cover of
this prospectus supplement. Any shares sold by the underwriters
to securities dealers may be sold at a discount of up to
$ per share from the public
offering price. Sales of shares made outside the US may be made
by affiliates of the underwriters. If all the shares are not
sold at the public offering price, the representative may change
the offering price and the other selling terms. Upon execution
of the underwriting agreement, the underwriters will be
obligated to purchase the shares at the prices and upon the
terms stated therein.
The following table shows the per share and total underwriting
discounts and commissions the selling stockholders will pay to
the underwriters assuming both no exercise and full exercise of
the underwriters option to purchase additional shares of
our common stock from the selling stockholders.
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No Exercise
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Full Exercise
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Per share
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$
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$
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Total
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$
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$
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S-123
We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and commissions,
will be approximately $ .
The maximum compensation to be received by any FINRA member or
independent broker/dealer will not be greater than 8% for the
sale of any securities being offered pursuant to SEC
Rule 415.
No Sales
of Similar Securities
We and our executive officers and directors and the selling
stockholders have entered into
lock-up
agreements with the underwriters. Under these agreements, we and
our executive officers and directors and the selling
stockholders agree not to (i) sell, offer to sell, contract
or agree to sell, hypothecate, pledge, grant any option to
purchase or otherwise dispose of or agree to dispose of,
directly or indirectly, or file (or participate in the filing
of) a registration statement with the Securities and Exchange
Commission (other than any registration statement on
Form S-8)
in respect of, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position
within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the
Commission promulgated thereunder (the Exchange Act)
with respect to, any common stock (other than the common stock
to be sold in this offering and securities issued pursuant to
employee benefit plans, qualified stock option plans or other
employee compensation plans existing on the date hereof) or any
other securities of the Company that are substantially similar
to common stock, or any securities convertible into or
exchangeable or exercisable for, or any warrants or other rights
to purchase, the foregoing, (ii) enter into any swap or
other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of common
stock or any other securities of the Company that are
substantially similar to common stock, or any securities
convertible into or exchangeable or exercisable for, or any
warrants or other rights to purchase, the foregoing, whether any
such transaction is to be settled by delivery of common stock or
such other securities, in cash or otherwise or
(iii) publicly announce an intention to effect any
transaction specified in clause (i) or (ii) except for
(a) the registration of the offer and sale of common stock
as contemplated by this offering, (b) bona fide gifts, so
long as the recipient agrees in writing with the underwriters to
be bound by the terms of the lock up agreement,
(c) dispositions to partners, members or shareholders, so
long as the recipient agrees in writing with the underwriters to
be bound by the terms of the
lock-up
agreement, (d) dispositions to any trust for the direct or
indirect benefit of the undersigned
and/or the
immediate family of the undersigned, so long as that such trust
agrees in writing with the underwriters to be bound by the terms
of the
lock-up
agreement, (e) dispositions by the executive officers and
directors of the Company of shares of common stock for the
purpose of satisfying tax liabilities associated with the
vesting or exercise of awards granted pursuant to an equity plan
of the Company existing as of the date hereof, provided that
such dispositions shall not exceed 50,000 shares of Common
Stock in the aggregate, (f) dispositions by an officer of
any shares of common stock made under his existing
Rule 10b5-1
trading plan, so long as the dispositions do not exceed
200,000 shares of common stock in the aggregate and
(g) the establishment of a trading plan pursuant to
Rule 10b5-1
under the Exchange Act for the transfer of shares of common
stock, so long as the plan does not provide for the transfer of
common stock during the
lock-up
period. These restrictions will be in effect for a period of
90 days after the date of this prospectus supplement. This
90-day
restricted period will be automatically extended if:
(a) during the last 18 days of the initial
90-day
restricted period, the Company issues an earnings release or
material news or a material event relating to the Company
occurs; or (b) prior to the expiration of the initial
90-day
restricted period, the Company announces that it will release
earnings results during the
16-day
period beginning on the last day of the initial
90-day
restricted period, then in each case the initial
90-day
restricted period will be automatically extended until the
expiration of the
18-day
period beginning on the date of the earnings release or the
announcement of the material news or material event, as
applicable. At any time and without public notice, Piper
Jaffray & Co. and UBS Securities LLC, may, in their
sole discretion, release some or all of the securities from
these
lock-up
agreements.
S-124
Indemnification
We and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including certain
liabilities under the Securities Act. If we are unable to
provide this indemnification, we have agreed to contribute to
payments the underwriters may be required to make in respect of
those liabilities.
NASDAQ
Stock Market Listing
Our common stock is listed on the NASDAQ Global Market under the
symbol CATM.
Price
Stabilization, Short Positions
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our common stock, including:
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stabilizing transactions;
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short sales;
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purchases to cover positions created by short sales;
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imposition of penalty bids; and
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syndicate covering transactions.
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Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common stock while this offering is in progress.
These transactions may also include making short sales of our
common stock, which involve the sale by the underwriters of a
greater number of shares of common stock than they are required
to purchase in this offering, and purchasing shares of common
stock on the open market to cover positions created by short
sales. Short sales may be covered short sales, which
are short positions in an amount not greater than the
underwriters over-allotment option referred to above, or
may be naked short sales, which are short positions
in excess of that amount.
The underwriters may close out any covered short position by
either exercising their over-allotment option, in whole or in
part, or by purchasing shares in the open market. In making this
determination, the underwriters will consider, among other
things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase
shares through the over-allotment option.
Naked short sales are short sales made in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares in the open market. A naked
short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price
of the common stock in the open market that could adversely
affect investors who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representative has repurchased shares sold by or for the account
of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock
may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be
discontinued by the underwriters at any time. The underwriters
may carry out these transactions on the NASDAQ Stock Market, in
the
over-the-counter
market or otherwise.
Affiliations
Certain of the underwriters and their affiliates have in the
past provided, are currently providing and may in the future
from time to time provide, investment banking and other
financing, trading, banking, research, transfer agent and
trustee services to the Company or its subsidiaries, for which
they have in the past received, and may currently or in the
future receive, customary fees and expenses. The parent of one
of the underwriters, SunTrust Banks, Inc., partners with the
Company under a bank branding arrangement, as described
elsewhere in this prospectus supplement.
S-125
NOTICE TO
INVESTORS
Notice
to Prospective Investors in the European Economic
Area
In relation to each Member State of the European Economic Area,
or EEA, which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from, and
including, the date on which the Prospectus Directive is
implemented in that Relevant Member State the Relevant
Implementation Date), an offer to the public of our
securities which are the subject of the offering contemplated by
this prospectus may not be made in that Relevant Member State,
except that, with effect from, and including, the Relevant
Implementation Date, an offer to the public in that Relevant
Member State of our securities may be made at any time under the
following exemptions under the Prospectus Directive, if they
have been implemented in that Relevant Member State:
(a) to legal entities which are authorized or
regulated to operate in the financial markets, or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in our securities;
(b) to any legal entity which has two or more of:
(1) an average of at least 250 employees during the
last (or, in Sweden, the last two) financial year(s); (2) a
total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last (or, in Sweden, the last two) annual or
consolidated accounts; or
(c) to fewer than 100 natural or legal persons (other
than qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representative for
any such offer; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive provided that no
such offer of our securities shall result in a requirement for
the publication by us or any underwriter or agent of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
As used above, the expression offered to the public
in relation to any of our securities in any Relevant Member
State means the communication in any form and by any means of
sufficient information on the terms of the offer and our
securities to be offered so as to enable an investor to decide
to purchase or subscribe for our securities, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
The EEA selling restriction is in addition to any other selling
restrictions set out in this prospectus.
Notice
to Prospective Investors in the United Kingdom
This prospectus is only being distributed to and is only
directed at: (1) persons who are outside the United
Kingdom; (2) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order);
or (3) high net worth companies, and other persons to whom
it may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
falling within (1)-(3) together being referred to as
relevant persons). The shares are only available to,
and any invitation, offer or agreement to subscribe, purchase or
otherwise acquire such shares will be engaged in only with,
relevant persons. Any person who is not a relevant person should
not act or rely on this prospectus or any of its contents.
Notice
to Prospective Investors in Switzerland
The Prospectus does not constitute an issue prospectus pursuant
to Article 652a or Article 1156 of the Swiss Code of
Obligations (CO) and the shares will not be listed
on the SIX Swiss Exchange. Therefore, the Prospectus may not
comply with the disclosure standards of the CO
and/or the
listing rules (including any prospectus schemes) of the SIX
Swiss Exchange. Accordingly, the shares may not be offered to
the public in or from Switzerland, but only to a selected and
limited circle of investors, which do not subscribe to the
shares with a view to distribution.
S-126
Notice
to Prospective Investors in Australia
This offering memorandum is not a formal disclosure document and
has not been, nor will be, lodged with the Australian Securities
and Investments Commission. It does not purport to contain all
information that an investor or their professional advisers
would expect to find in a prospectus or other disclosure
document (as defined in the Corporations Act 2001 (Australia))
for the purposes of Part 6D.2 of the Corporations Act 2001
(Australia) or in a product disclosure statement for the
purposes of Part 7.9 of the Corporations Act 2001
(Australia), in either case, in relation to the securities.
The securities are not being offered in Australia to
retail clients as defined in sections 761G and
761GA of the Corporations Act 2001 (Australia). This offering is
being made in Australia solely to wholesale clients
for the purposes of section 761G of the Corporations Act
2001 (Australia) and, as such, no prospectus, product disclosure
statement or other disclosure document in relation to the
securities has been, or will be, prepared.
This offering memorandum does not constitute an offer in
Australia other than to wholesale clients. By submitting an
application for our securities, you represent and warrant to us
that you are a wholesale client for the purposes of
section 761G of the Corporations Act 2001 (Australia). If
any recipient of this offering memorandum is not a wholesale
client, no offer of, or invitation to apply for, our securities
shall be deemed to be made to such recipient and no applications
for our securities will be accepted from such recipient. Any
offer to a recipient in Australia, and any agreement arising
from acceptance of such offer, is personal and may only be
accepted by the recipient. In addition, by applying for our
securities you undertake to us that, for a period of
12 months from the date of issue of the securities, you
will not transfer any interest in the securities to any person
in Australia other than to a wholesale client.
Notice
to Prospective Investors in Hong Kong
Our securities may not be offered or sold in Hong Kong, by means
of this prospectus or any document other than (i) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (ii) in circumstances
which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
or (iii) in other circumstances which do not result in the
document being a prospectus within the meaning of
the Companies Ordinance (Cap.32, Laws of Hong Kong). No
advertisement, invitation or document relating to our securities
may be issued or may be in the possession of any person for the
purpose of issue (in each case whether in Hong Kong or
elsewhere) which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong
Kong) other than with respect to the securities which are or are
intended to be disposed of only to persons outside Hong Kong or
only to professional investors within the meaning of
the Securities and Futures Ordinance (Cap. 571, Laws of Hong
Kong) and any rules made thereunder.
Notice
to Prospective Investors in Japan
Our securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and our securities will
not be offered or sold, directly or indirectly, in Japan, or to,
or for the benefit of, any resident of Japan (which term as used
herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan, or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Financial Instruments and Exchange Law
and any other applicable laws, regulations and ministerial
guidelines of Japan.
Notice
to Prospective Investors in the Singapore
This document has not been registered as a prospectus with the
Monetary Authority of Singapore and in Singapore, the offer and
sale of our securities is made pursuant to exemptions provided
in sections 274 and 275 of the Securities and Futures Act,
Chapter 289 of Singapore (SFA). Accordingly,
this prospectus and
S-127
any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of our
securities may not be circulated or distributed, nor may our
securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than (i) to an
institutional investor as defined in Section 4A of the SFA
pursuant to Section 274 of the SFA, (ii) to a relevant
person as defined in section 275(2) of the SFA pursuant to
Section 275(1) of the SFA, or any person pursuant to
Section 275(1A) of the SFA, and in accordance with the
conditions specified in Section 275 of the SFA or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA, in
each case subject to compliance with the conditions (if any) set
forth in the SFA. Moreover, this document is not a prospectus as
defined in the SFA. Accordingly, statutory liability under the
SFA in relation to the content of prospectuses would not apply.
Prospective investors in Singapore should consider carefully
whether an investment in our securities is suitable for them.
Where our securities are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
(a) by a corporation (which is not an accredited
investor as defined in Section 4A of the SFA) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or
(b) for a trust (where the trustee is not an
accredited investor) whose sole purpose is to hold investments
and each beneficiary of the trust is an individual who is an
accredited investor,
shares of that corporation or the beneficiaries rights and
interest (howsoever described) in that trust shall not be
transferable for six months after that corporation or that trust
has acquired the shares under Section 275 of the SFA,
except:
(1) to an institutional investor (for corporations
under Section 274 of the SFA) or to a relevant person
defined in Section 275(2) of the SFA, or any person
pursuant to an offer that is made on terms that such shares of
that corporation or such rights and interest in that trust are
acquired at a consideration of not less than S$200,000 (or its
equivalent in a foreign currency) for each transaction, whether
such amount is to be paid for in cash or by exchange of
securities or other assets, and further for corporations, in
accordance with the conditions, specified in Section 275 of
the SFA;
(2) where no consideration is given for the
transfer; or
(3) where the transfer is by operation of law.
In addition, investors in Singapore should note that the
securities acquired by them are subject to resale and transfer
restrictions specified under Section 276 of the SFA, and
they, therefore, should seek their own legal advice before
effecting any resale or transfer of their securities.
S-128
LEGAL
MATTERS
The validity of our shares of common stock offered in this
prospectus will be passed upon for us by Vinson &
Elkins L.L.P., Houston, Texas. Certain legal matters will be
passed upon for the underwriters by Cleary Gottlieb
Steen & Hamilton LLP, New York, New York.
S-129
EXPERTS
The consolidated financial statements of Cardtronics, Inc. as of
December 31, 2009 and 2008, and for each of the years in
the three-year period ended December 31, 2009, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2009
have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing.
S-130
PROSPECTUS
CARDTRONICS, INC.
Debt Securities
Common Stock
Guarantees of Debt Securities
We may offer and sell from time to time up to $300,000,000 of
the following securities in one or more transactions, classes or
series and in amounts, at prices and on terms to be determined
by market conditions at the time of our offerings: (1) debt
securities, which may be senior debt securities or subordinated
debt securities; and (2) common stock, $0.0001 par
value. In addition to those securities that we may issue, the
selling stockholders may offer and sell up to
20,700,360 shares of our common stock from time to time
under this prospectus. We will not receive any proceeds from the
sale of common stock by the selling stockholders.
One or more of our subsidiaries may fully and unconditionally
guarantee any debt securities that we issue.
We and/or
the selling stockholders may offer and sell these securities to
or through one or more underwriters, dealers and agents, or
directly to purchasers, on a continuous or delayed basis. This
prospectus describes the general terms of these securities and
the general manner in which we will offer the securities. The
specific terms of any securities we
and/or the
selling stockholders offer will be included in a supplement to
this prospectus. The prospectus supplement will also describe
the specific manner in which we
and/or our
selling stockholders will offer the securities.
Investing in our securities involves risks. You
should carefully consider the risk factors described under
Risk Factors beginning on page 5 of this
prospectus and in the applicable prospectus supplement or any of
the documents we incorporate by reference before you make an
investment in our securities.
Our common stock is traded on The Nasdaq Global Market, or the
Nasdaq, under the symbol CATM. The last
reported sales price of our common stock on the Nasdaq on
February 17, 2010 was $10.47 per share. We will provide
information in the prospectus supplement for the trading market,
if any, for any other securities we may offer.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is March 11, 2010.
TABLE OF
CONTENTS
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This prospectus is part of a registration statement that we
have filed with the Securities and Exchange Commission, or the
SEC or Commission. In making your
investment decision, you should rely only on the information
contained in this prospectus, any prospectus supplement and the
documents that we incorporate by reference. We have not
authorized anyone to provide you with any other information. If
you receive any unauthorized information, you must not rely on
it. Our business, financial condition, results of operations and
prospects may have changed since those dates. We are not making
an offer of these securities in any jurisdiction where the offer
is not permitted.
You should not assume that the information contained in this
prospectus or any prospectus supplement, as well as the
information that we have previously filed with the SEC that is
incorporated by reference into this prospectus or any prospectus
supplement, is accurate as of any date other than the date of
such document, regardless of the time of delivery of this
prospectus or any supplement to this prospectus or any sales of
our securities.
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the SEC using a shelf registration
process. Under this shelf registration process, we may, over
time, offer and sell any combination of the securities described
in this prospectus in one or more offerings. This prospectus
generally describes Cardtronics, Inc. and the securities that we
may offer. Each time we sell securities with this prospectus, we
will provide you with a prospectus supplement that will contain
specific information about the terms of that offering. The
prospectus supplement may also add to, update or change
information in this prospectus. Before you invest in our
securities, you should carefully read this prospectus and any
prospectus supplement and the additional information described
under the heading Documents Incorporated by
Reference. To the extent information in this prospectus is
inconsistent with information contained in a prospectus
supplement, you should rely on the information in the prospectus
supplement. You should read both this prospectus and any
prospectus supplement, together with additional information
described under the heading Documents Incorporated by
Reference, and any additional information that you may
need to make your investment decision. Unless the context
requires otherwise, all references in this prospectus to
Cardtronics, we, us and
our refer to Cardtronics, Inc. and its subsidiaries.
The selling stockholders also may use the shelf registration
statement to sell an aggregate of 20,700,360 shares of our
common stock from time to time in the public market. We will not
receive any proceeds from the sale of common stock by the
selling shareholders. The selling shareholders will deliver a
supplement with this prospectus, to the extent appropriate, to
update the information contained in this prospectus. The selling
stockholders may sell their shares of common stock through any
means described in the section entitled Plan of
Distribution.
We and the selling stockholders have not authorized any dealer,
salesman or other person to give any information or to make any
representation other than those contained or incorporated by
reference in this prospectus and the accompanying supplement to
this prospectus. You must not rely upon any information or
representation not contained or incorporated by reference in
this prospectus or the accompanying prospectus supplement. This
prospectus and the accompanying prospectus supplement do not
constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which
they relate, nor do this prospectus and the accompanying
prospectus supplement constitute an offer to sell or the
solicitation of an offer to buy securities in any jurisdiction
to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. You should not assume that
the information contained in this prospectus and the
accompanying prospectus supplement is accurate on any date
subsequent to the date set forth on the front of the document or
that any information we have incorporated by reference is
correct on any date subsequent to the date of the document
incorporated by reference, even though this prospectus and any
accompanying prospectus supplement is delivered or securities
are sold on a later date.
WHERE YOU
CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may
read and copy any documents filed by us with the SEC at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
room. Our filings with the SEC are also available to the public
from commercial document retrieval services and at the
SECs website at
http://www.sec.gov.
We also make available free of charge on our Internet website at
http://www.cardtronics.com
all of the documents that we file with the SEC as soon as
reasonably practicable after we electronically file such
material with the SEC. Information contained on our website is
not incorporated by reference into this prospectus and you
should not consider information contained on our website as part
of this prospectus.
DOCUMENTS
INCORPORATED BY REFERENCE
We incorporate by reference information into this
prospectus, which means that we disclose important information
to you by referring you to another document filed separately
with the SEC. The information incorporated by reference is
deemed to be part of this prospectus, except for any information
superseded by
1
information contained expressly in this prospectus, and the
information that we file later with the SEC will automatically
supersede this information. You should not assume that the
information in this prospectus is current as of any date other
than the date on the front page of this prospectus.
We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act) (excluding any information furnished
and not filed with the SEC), including all such documents that
we may file with the SEC after the date of the initial
registration statement and prior to the effectiveness of the
registration statement, until all offerings under this
registration statement are completed:
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Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, including
information specifically incorporated by reference into our
Form 10-K
from our definitive proxy statement prepared in connection with
the 2009 Annual Meeting of Stockholders held on June 18,
2009;
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Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2009;
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Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2009;
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Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2009;
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Current Report on
Form 8-K
filed on February 8, 2010;
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Current Report on
Form 8-K
filed on January 27, 2010;
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Current Report on
Form 8-K
filed on January 22, 2010;
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Current Report on
Form 8-K
filed on December 21, 2009;
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Current Report on
Form 8-K
filed on August 14, 2009;
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Current Report on
Form 8-K
filed on August 4, 2009;
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Current Report on
Form 8-K
filed on March 26, 2009;
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Current Report on
Form 8-K
filed on March 18, 2009;
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Current Report on
Form 8-K/A
filed on March 10, 2009;
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Current Report on
Form 8-K
filed on March 6, 2009;
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Current Report on
Form 8-K
filed on February 24, 2009;
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Current Report on
Form 8-K/A
filed on July 17, 2007; and
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description of our common stock contained in our registration
statement on
Form 8-A,
filed pursuant to Section 12 of the Exchange Act on
December 3, 2007 (Registration
No. 001-33864).
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Any statement contained in a document incorporated or deemed to
be incorporated by reference in this prospectus will be deemed
to be modified or superseded to the extent that a statement
contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference in
this prospectus modifies or supersedes that statement. Any
statement so modified or superseded will not be deemed, except
as so modified or superseded, to constitute a part of this
prospectus.
You may request a copy of any document incorporated by reference
in this prospectus and any exhibit specifically incorporated by
reference in those documents, at no cost, by writing or
telephoning us at the following address or phone number:
Cardtronics, Inc.
Attention: Chief Financial Officer
3250 Briarpark Drive, Suite 400
Houston, Texas 77042
(832) 308-4000
2
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The information in this prospectus, any prospectus supplement
and in the documents incorporated by reference includes
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the
Securities Act) and Section 21E of the Exchange
Act. The words believe, expect,
anticipate, plan, intend,
foresee, should, would,
could or other similar expressions are intended to
identify forward-looking statements, which are generally not
historical in nature. These forward-looking statements are based
on our current expectations 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 currently
anticipate. All comments concerning our expectations for future
revenues and operating results are based on our forecasts for
our existing operations and do not include the potential impact
of any future acquisitions. Our forward-looking statements
involve significant risks and uncertainties (some of which are
beyond our control) and assumptions that could cause actual
results to differ materially from our historical experience and
our present expectations or projections.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include,
but are not limited to, those summarized below:
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our financial outlook and the financial outlook of the ATM
industry;
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our ability to expand our bank branding and surcharge-free
service offerings;
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our ability to provide new ATM solutions to financial
institutions;
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our ATM vault cash rental needs, including potential liquidity
issues with our vault cash providers;
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the implementation of our corporate strategy;
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our ability to compete successfully with our competitors;
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our financial performance;
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our ability to strengthen existing customer relationships and
reach new customers;
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our ability to meet the service levels required by our service
level agreements with our customers;
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our ability to pursue and successfully integrate acquisitions;
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our ability to expand internationally;
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our ability to prevent security breaches;
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changes in interest rates, foreign currency rates and regulatory
requirements; and
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the additional risks we are exposed to in our armored courier
operations.
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The information contained in this prospectus, including the
information set forth under the heading Risk
Factors, identifies factors that could affect our
operating results and performance. When considering
forward-looking statements, you should keep in mind these
factors and other cautionary statements in this prospectus, any
prospectus supplement and in the documents incorporated herein
and therein by reference. Should one or more of the risks or
uncertainties described above or elsewhere in this prospectus,
any prospectus supplement or in the documents incorporated by
reference occur, or should underlying assumptions prove
incorrect, our actual results and plans could differ materially
from those expressed in any forward-looking statements. We urge
you to carefully consider those factors, as well as factors
described in our reports filed from time to time with the SEC
and 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 they
are made. We undertake no responsibility to publicly release the
result of any revision of our forward-looking statements after
the date they are made.
3
CARDTRONICS,
INC.
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, 2009, we operated approximately 33,400 ATMs
throughout the United States, the United Kingdom, Mexico, and
Puerto Rico, making us the worlds largest non-bank
operator of ATMs. Additionally, we operate the largest
surcharge-free network of ATMs within the United States (based
on the number of participating ATMs) and work with financial
institutions to place their logos on our ATM machines, thus
providing convenient surcharge-free access to the financial
institutions customers. Our surcharge-free network, which
operates under the Allpoint brand name, has more than 37,000
participating ATMs, including a majority of our ATMs in the
United States and all of our ATMs in the United Kingdom.
Finally, we provide electronic funds transfer (EFT)
transaction processing services to our network of ATMs as well
as over 1,500 ATMs owned and operated by a third party.
We deploy and operate ATMs under two distinct arrangements with
our merchant customers: company-owned and merchant-owned
arrangements. 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, a
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 EFT networks. As of December 31, 2009,
approximately 68% of our ATMs were company-owned and 32% 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 revenues are recurring in nature and are primarily derived
from ATM surcharge fees, which are paid by cardholders, and
interchange fees, which are paid by the cardholders
financial institution for the use of the applicable EFT network
that transmits data between the ATM and the cardholders
financial institution. We 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 the banks customers as well as
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., SunTrust Banks, Inc. and Sovereign 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.
Our principal executive offices are located at 3250 Briarpark
Drive, Suite 400, Houston, Texas 77042, and our telephone
number is
(832) 308-4000.
THE
SUBSIDIARY GUARANTORS
One or more of Cardtronics, Inc.s subsidiaries, whom we
refer to as the subsidiary guarantors in this
prospectus, may fully and unconditionally guarantee our payment
obligations under any series of debt securities offered by this
prospectus. The prospectus supplement relating to any such
series will identify any subsidiary guarantors. Financial
information concerning our subsidiary guarantors and any
non-guarantor subsidiaries will be included in our consolidated
financial statements filed as part of our periodic reports filed
pursuant to the Exchange Act to the extent required by the rules
and regulations of the SEC.
Additional information concerning our subsidiaries and us is
included in reports and other documents incorporated by
reference in this prospectus. Please read Where You Can
Find More Information.
4
RISK
FACTORS
Our business is subject to uncertainties and risks. You should
carefully consider and evaluate all of the information included
and incorporated by reference in this prospectus, as well as
those contained in any applicable prospectus supplement, as the
same may be updated from time to time by our future filings with
the SEC. Our business, financial condition, liquidity or results
of operations could be materially adversely affected by any of
these risks. For more information about our SEC filings, please
see Where You Can Find More Information and
Documents Incorporated by Reference. See also
Cautionary Statement Regarding Forward-Looking
Statements.
5
USE OF
PROCEEDS
Unless otherwise indicated in the applicable prospectus
supplement, we intend to use the net proceeds from the sale of
the securities offered by us under this prospectus and any
prospectus supplement for our general corporate purposes, which
may include repayment of indebtedness, the financing of capital
expenditures, future acquisitions and additions to our working
capital.
Our Management will retain broad discretion in the allocation of
the net proceeds from the sale(s) of the offered securities. If
we elect at the time of issuance of the securities to make a
different or more specific use of the proceeds other than as
described in this prospectus, the change in use of proceeds will
be described in the applicable prospectus supplement.
We will not receive any proceeds from any sale of shares of
common stock by the selling stockholders.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of consolidated
earnings to fixed charges for the periods presented:
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Nine Months
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Ended
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September 30,
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Fiscal Year Ended December 31,
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2009
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2008
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2007
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2006
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2005
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2004
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Ratio of earnings to fixed charges
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1.3
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(a)
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(a)
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(a)
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(a)
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2.2x
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(a) |
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Earnings before fixed charges were inadequate to cover fixed
charges by $71.4 million, $23.4 million,
$0.2 million and $3.7 million for the years ended
December 31, 2008, 2007, 2006 and 2005, respectively. |
For purposes of calculating the ratio of consolidated earnings
to fixed charges:
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earnings is the aggregate of the following
items: pre-tax income from continuing operations before
adjustment for income or loss from equity investees; plus fixed
charges; plus amortization of capitalized interest; plus
distributed income of equity investees; plus our share of
pre-tax losses of equity investees for which charges arising
from guarantees are included in fixed charges; less interest
capitalized; less preference security dividend requirements of
consolidated subsidiaries; and less the noncontrolling interest
in pre-tax income of subsidiaries that have not incurred fixed
charges; and
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fixed charges means the sum of the following:
(1) interest expensed and capitalized, (2) amortized
premiums, discounts and capitalized expenses related to
indebtedness, (3) an estimate of the interest within rental
expense and (4) preference security dividend requirements
of consolidated subsidiaries.
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DESCRIPTION
OF DEBT SECURITIES
The Debt Securities will be either our senior debt securities
(Senior Debt Securities) or our subordinated debt
securities (Subordinated Debt Securities). The
Senior Debt Securities and the Subordinated Debt Securities will
be issued under separate indentures among us, the Subsidiary
Guarantors of such Debt Securities, if any, and a trustee to be
determined (the Trustee). Senior Debt Securities
will be issued under a Senior Indenture and
Subordinated Debt Securities will be issued under a
Subordinated Indenture. Together, the Senior
Indenture and the Subordinated Indenture are called
Indentures.
The Debt Securities may be issued from time to time in one or
more series. The particular terms of each series that are
offered by a prospectus supplement will be described in the
prospectus supplement.
Unless the Debt Securities are guaranteed by our subsidiaries as
described below, the rights of Cardtronics and our creditors,
including holders of the Debt Securities, to participate in the
assets of any subsidiary upon the latters liquidation or
reorganization, will be subject to the prior claims of the
subsidiarys creditors, except to the extent that we may
ourself be a creditor with recognized claims against such
subsidiary.
6
We have summarized selected provisions of the Indentures below.
The summary is not complete. The form of each Indenture has been
filed with the SEC as an exhibit to the registration statement
of which this prospectus is a part, and you should read the
Indentures for provisions that may be important to you.
Capitalized terms used in the summary have the meanings
specified in the Indentures.
General
The Indentures provide that Debt Securities in separate series
may be issued thereunder from time to time without limitation as
to aggregate principal amount. We may specify a maximum
aggregate principal amount for the Debt Securities of any
series. We will determine the terms and conditions of the Debt
Securities, including the maturity, principal and interest, but
those terms must be consistent with the Indenture. The Debt
Securities will be our unsecured obligations.
The Subordinated Debt Securities will be subordinated in right
of payment to the prior payment in full of all of our Senior
Debt (as defined) as described under
Subordination of Subordinated Debt
Securities and in the prospectus supplement applicable to
any Subordinated Debt Securities. If the prospectus supplement
so indicates, the Debt Securities will be convertible into our
common stock.
If specified in the prospectus supplement respecting a
particular series of Debt Securities, one or more subsidiary
guarantors identified therein (each a Subsidiary
Guarantor), will fully and unconditionally guarantee (the
Subsidiary Guarantee) that series as described under
Subsidiary Guarantee and in the
prospectus supplement. Each Subsidiary Guarantee will be an
unsecured obligation of the Subsidiary Guarantor. A Subsidiary
Guarantee of Subordinated Debt Securities will be subordinated
to the Senior Debt of the Subsidiary Guarantor on the same basis
as the Subordinated Debt Securities are subordinated to our
Senior Debt.
The applicable prospectus supplement will set forth the price or
prices at which the Debt Securities to be issued will be offered
for sale and will describe the following terms of such Debt
Securities:
(1) the title of the Debt Securities;
(2) whether the Debt Securities are Senior Debt Securities
or Subordinated Debt Securities and, if Subordinated Debt
Securities, the related subordination terms;
(3) whether any Subsidiary Guarantor will provide a
Subsidiary Guarantee of the Debt Securities;
(4) any limit on the aggregate principal amount of the Debt
Securities;
(5) each date on which the principal of the Debt Securities
will be payable;
(6) the interest rate that the Debt Securities will bear
and the interest payment dates for the Debt Securities;
(7) each place where payments on the Debt Securities will
be payable;
(8) any terms upon which the Debt Securities may be
redeemed, in whole or in part, at our option;
(9) any sinking fund or other provisions that would
obligate us to redeem or otherwise repurchase the Debt
Securities;
(10) the portion of the principal amount, if less than all,
of the Debt Securities that will be payable upon declaration of
acceleration of the Maturity of the Debt Securities;
(11) whether the Debt Securities are defeasible;
(12) any addition to or change in the Events of Default;
(13) whether the Debt Securities are convertible into our
common stock and, if so, the terms and conditions upon which
conversion will be effected, including the initial conversion
price or conversion rate and any adjustments thereto and the
conversion period;
7
(14) any addition to or change in the covenants in the
Indenture applicable to the Debt Securities; and
(15) any other terms of the Debt Securities not
inconsistent with the provisions of the Indenture.
Debt Securities, including any Debt Securities that provide for
an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity
thereof (Original Issue Discount Securities), may be
sold at a substantial discount below their principal amount.
Special U.S. federal income tax considerations applicable
to Debt Securities sold at an original issue discount may be
described in the applicable prospectus supplement. In addition,
special U.S. federal income tax or other considerations
applicable to any Debt Securities that are denominated in a
currency or currency unit other than U.S. dollars may be
described in the applicable prospectus supplement.
Subordination
of Subordinated Debt Securities
The indebtedness evidenced by the Subordinated Debt Securities
will, to the extent set forth in the Subordinated Indenture with
respect to each series of Subordinated Debt Securities, be
subordinate in right of payment to the prior payment in full of
all of our Senior Debt, including the Senior Debt Securities,
and it may also be senior in right of payment to all of our
Subordinated Debt. The prospectus supplement relating to any
Subordinated Debt Securities will summarize the subordination
provisions of the Subordinated Indenture applicable to that
series including:
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the applicability and effect of such provisions upon any payment
or distribution respecting that series following any
liquidation, dissolution or other
winding-up,
or any assignment for the benefit of creditors or other
marshalling of assets or any bankruptcy, insolvency or similar
proceedings;
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the applicability and effect of such provisions in the event of
specified defaults with respect to any Senior Debt, including
the circumstances under which and the periods during which we
will be prohibited from making payments on the Subordinated Debt
Securities; and
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the definition of Senior Debt applicable to the Subordinated
Debt Securities of that series and, if the series is issued on a
senior subordinated basis, the definition of Subordinated Debt
applicable to that series.
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The prospectus supplement will also describe as of a recent date
the approximate amount of Senior Debt to which the Subordinated
Debt Securities of that series will be subordinated.
The failure to make any payment on any of the Subordinated Debt
Securities by reason of the subordination provisions of the
Subordinated Indenture described in the prospectus supplement
will not be construed as preventing the occurrence of an Event
of Default with respect to the Subordinated Debt Securities
arising from any such failure to make payment.
The subordination provisions described above will not be
applicable to payments in respect of the Subordinated Debt
Securities from a defeasance trust established in connection
with any legal defeasance or covenant defeasance of the
Subordinated Debt Securities as described under
Legal Defeasance and Covenant Defeasance.
Subsidiary
Guarantee
If specified in the prospectus supplement, one or more of the
Subsidiary Guarantors will guarantee the Debt Securities of a
series. Unless otherwise indicated in the prospectus supplement,
the following provisions will apply to the Subsidiary Guarantee
of the Subsidiary Guarantor.
Subject to the limitations described below and in the prospectus
supplement, one or more of the Subsidiary Guarantors will
jointly and severally, fully and unconditionally guarantee the
punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all our payment obligations under
the Indentures and the Debt Securities of a series, whether for
principal of, premium, if any, or interest on the Debt
Securities or otherwise (all such obligations guaranteed by a
Subsidiary Guarantor being herein called
8
the Guaranteed Obligations). The Subsidiary
Guarantors will also pay all expenses (including reasonable
counsel fees and expenses) incurred by the applicable Trustee in
enforcing any rights under a Subsidiary Guarantee with respect
to a Subsidiary Guarantor.
In the case of Subordinated Debt Securities, a Subsidiary
Guarantors Subsidiary Guarantee will be subordinated in
right of payment to the Senior Debt of such Subsidiary Guarantor
on the same basis as the Subordinated Debt Securities are
subordinated to our Senior Debt. No payment will be made by any
Subsidiary Guarantor under its Subsidiary Guarantee during any
period in which payments by us on the Subordinated Debt
Securities are suspended by the subordination provisions of the
Subordinated Indenture.
Each Subsidiary Guarantee will be limited in amount to an amount
not to exceed the maximum amount that can be guaranteed by the
Subsidiary Guarantor without rendering such Subsidiary Guarantee
voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of
creditors generally.
Each Subsidiary Guarantee will be a continuing guarantee and
will:
(1) remain in full force and effect until either
(a) payment in full of all the applicable Debt Securities
(or such Debt Securities are otherwise satisfied and discharged
in accordance with the provisions of the applicable Indenture)
or (b) released as described in the following paragraph;
(2) be binding upon each Subsidiary Guarantor; and
(3) inure to the benefit of and be enforceable by the
applicable Trustee, the Holders and their successors,
transferees and assigns.
In the event that (a) a Subsidiary Guarantor ceases to be a
Subsidiary, (b) either legal defeasance or covenant
defeasance occurs with respect to the series or (c) all or
substantially all of the assets or all of the Capital Stock of
such Subsidiary Guarantor is sold, including by way of sale,
merger, consolidation or otherwise, such Subsidiary Guarantor
will be released and discharged of its obligations under its
Subsidiary Guarantee without any further action required on the
part of the Trustee or any Holder, and no other person acquiring
or owning the assets or Capital Stock of such Subsidiary
Guarantor will be required to enter into a Subsidiary Guarantee.
In addition, the prospectus supplement may specify additional
circumstances under which a Subsidiary Guarantor can be released
from its Subsidiary Guarantee.
Form,
Exchange and Transfer
The Debt Securities of each series will be issuable only in
fully registered form, without coupons, and, unless otherwise
specified in the applicable prospectus supplement, only in
denominations of $1,000 and integral multiples thereof.
At the option of the Holder, subject to the terms of the
applicable Indenture and the limitations applicable to Global
Securities, Debt Securities of each series will be exchangeable
for other Debt Securities of the same series of any authorized
denomination and of a like tenor and aggregate principal amount.
Subject to the terms of the applicable Indenture and the
limitations applicable to Global Securities, Debt Securities may
be presented for exchange as provided above or for registration
of transfer (duly endorsed or with the form of transfer endorsed
thereon duly executed) at the office of the Security Registrar
or at the office of any transfer agent designated by us for such
purpose. No service charge will be made for any registration of
transfer or exchange of Debt Securities, but we may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in that connection. Such transfer or
exchange will be effected upon the Security Registrar or such
transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the
request. The Security Registrar and any other transfer agent
initially designated by us for any Debt Securities will be named
in the applicable prospectus supplement. We may at any time
designate additional transfer agents or rescind the designation
of any transfer agent or approve a change in the office through
which any transfer agent acts, except that we will be required
to maintain a transfer agent in each Place of Payment for the
Debt Securities of each series.
9
If the Debt Securities of any series (or of any series and
specified tenor) are to be redeemed in part, we will not be
required to (1) issue, register the transfer of or exchange
any Debt Security of that series (or of that series and
specified tenor, as the case may be) during a period beginning
at the opening of business 15 days before the day of
mailing of a notice of redemption of any such Debt Security that
may be selected for redemption and ending at the close of
business on the day of such mailing or (2) register the
transfer of or exchange any Debt Security so selected for
redemption, in whole or in part, except the unredeemed portion
of any such Debt Security being redeemed in part.
Global
Securities
Some or all of the Debt Securities of any series may be
represented, in whole or in part, by one or more Global
Securities that will have an aggregate principal amount equal to
that of the Debt Securities they represent. Each Global Security
will be registered in the name of a Depositary or its nominee
identified in the applicable prospectus supplement, will be
deposited with such Depositary or nominee or its custodian and
will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the applicable
Indenture.
Notwithstanding any provision of the Indentures or any Debt
Security described in this prospectus, no Global Security may be
exchanged in whole or in part for Debt Securities registered,
and no transfer of a Global Security in whole or in part may be
registered, in the name of any Person other than the Depositary
for such Global Security or any nominee of such Depositary
unless:
(1) the Depositary has notified us that it is unwilling or
unable to continue as Depositary for such Global Security or has
ceased to be qualified to act as such as required by the
applicable Indenture, and in either case we fail to appoint a
successor Depositary within 90 days;
(2) an Event of Default with respect to the Debt Securities
represented by such Global Security has occurred and is
continuing and the Trustee has received a written request from
the Depositary to issue certificated Debt Securities;
(3) subject to the rules of the Depositary, we shall have
elected to terminate the book-entry system through the
Depositary; or
(4) other circumstances exist, in addition to or in lieu of
those described above, as may be described in the applicable
prospectus supplement.
All certificated Debt Securities issued in exchange for a Global
Security or any portion thereof will be registered in such names
as the Depositary may direct.
As long as the Depositary, or its nominee, is the registered
holder of a Global Security, the Depositary or such nominee, as
the case may be, will be considered the sole owner and Holder of
such Global Security and the Debt Securities that it represents
for all purposes under the Debt Securities and the applicable
Indenture. Except in the limited circumstances referred to
above, owners of beneficial interests in a Global Security will
not be entitled to have such Global Security or any Debt
Securities that it represents registered in their names, will
not receive or be entitled to receive physical delivery of
certificated Debt Securities in exchange for those interests and
will not be considered to be the owners or Holders of such
Global Security or any Debt Securities that is represents for
any purpose under the Debt Securities or the applicable
Indenture. All payments on a Global Security will be made to the
Depositary or its nominee, as the case may be, as the Holder of
the security. The laws of some jurisdictions may require that
some purchasers of Debt Securities take physical delivery of
such Debt Securities in certificated form. These laws may impair
the ability to transfer beneficial interests in a Global
Security.
Ownership of beneficial interests in a Global Security will be
limited to institutions that have accounts with the Depositary
or its nominee (participants) and to persons that
may hold beneficial interests through participants. In
connection with the issuance of any Global Security, the
Depositary will credit, on its book-entry registration and
transfer system, the respective principal amounts of Debt
Securities represented by the Global Security to the accounts of
its participants. Ownership of beneficial interests in a Global
Security will
10
be shown only on, and the transfer of those ownership interests
will be effected only through, records maintained by the
Depositary (with respect to participants interests) or any
such participant (with respect to interests of Persons held by
such participants on their behalf). Payments, transfers,
exchanges and other matters relating to beneficial interests in
a Global Security may be subject to various policies and
procedures adopted by the Depositary from time to time. None of
us, the Subsidiary Guarantors, the Trustees or the agents of us,
the Subsidiary Guarantors or the Trustees will have any
responsibility or liability for any aspect of the
Depositarys or any participants records relating to,
or for payments made on account of, beneficial interests in a
Global Security, or for maintaining, supervising or reviewing
any records relating to such beneficial interests.
Payment
and Paying Agents
Unless otherwise indicated in the applicable prospectus
supplement, payment of interest on a Debt Security on any
Interest Payment Date will be made to the Person in whose name
such Debt Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date
for such interest.
Unless otherwise indicated in the applicable prospectus
supplement, principal of and any premium and interest on the
Debt Securities of a particular series will be payable at the
office of such Paying Agent or Paying Agents as we may designate
for such purpose from time to time, except that at our option
payment of any interest on Debt Securities in certificated form
may be made by check mailed to the address of the Person
entitled thereto as such address appears in the Security
Register. Unless otherwise indicated in the applicable
prospectus supplement, the corporate trust office of the Trustee
under the Senior Indenture in The City of New York will be
designated as sole Paying Agent for payments with respect to
Senior Debt Securities of each series, and the corporate trust
office of the Trustee under the Subordinated Indenture in The
City of New York will be designated as the sole Paying Agent for
payment with respect to Subordinated Debt Securities of each
series. Any other Paying Agents initially designated by us for
the Debt Securities of a particular series will be named in the
applicable prospectus supplement. We may at any time designate
additional Paying Agents or rescind the designation of any
Paying Agent or approve a change in the office through which any
Paying Agent acts, except that we will be required to maintain a
Paying Agent in each Place of Payment for the Debt Securities of
a particular series.
All money paid by us to a Paying Agent for the payment of the
principal of or any premium or interest on any Debt Security
which remains unclaimed at the end of two years after such
principal, premium or interest has become due and payable will
be repaid to us, and the Holder of such Debt Security thereafter
may look only to us for payment.
Consolidation,
Merger and Sale of Assets
Unless otherwise specified in the prospectus supplement, we may
not consolidate with or merge into, or transfer, lease or
otherwise dispose of all or substantially all of our assets to,
any Person (a successor Person), and may not permit
any Person to consolidate with or merge into us, unless:
(1) the successor Person (if not us) is a corporation,
partnership, trust or other entity organized and validly
existing under the laws of any domestic jurisdiction and assumes
our obligations on the Debt Securities and under the Indentures;
(2) immediately before and after giving pro forma effect to
the transaction, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of
Default, has occurred and is continuing; and
(3) several other conditions, including any additional
conditions with respect to any particular Debt Securities
specified in the applicable prospectus supplement, are met.
The successor Person (if not us) will be substituted for us
under the applicable Indenture with the same effect as if it had
been an original party to such Indenture, and, except in the
case of a lease, we will be relieved from any further
obligations under such Indenture and the Debt Securities.
11
Events of
Default
Unless otherwise specified in the prospectus supplement, each of
the following will constitute an Event of Default under the
applicable Indenture with respect to Debt Securities of any
series:
(1) failure to pay principal of or any premium on any Debt
Security of that series when due, whether or not, in the case of
Subordinated Debt Securities, such payment is prohibited by the
subordination provisions of the Subordinated Indenture;
(2) failure to pay any interest on any Debt Securities of
that series when due, continued for 30 days, whether or
not, in the case of Subordinated Debt Securities, such payment
is prohibited by the subordination provisions of the
Subordinated Indenture;
(3) failure to deposit any sinking fund payment, when due,
in respect of any Debt Security of that series, whether or not,
in the case of Subordinated Debt Securities, such deposit is
prohibited by the subordination provisions of the Subordinated
Indenture;
(4) failure to perform or comply with the provisions
described under Consolidation, Merger and Sale
of Assets;
(5) failure to perform any of our other covenants in such
Indenture (other than a covenant included in such Indenture
solely for the benefit of a series other than that series),
continued for 60 days after written notice has been given
by the applicable Trustee, or the Holders of at least 25% in
principal amount of the Outstanding Debt Securities of that
series, as provided in such Indenture;
(6) any Debt of ourself, any Significant Subsidiary or, if
a Subsidiary Guarantor has guaranteed the series, such
Subsidiary Guarantor, is not paid within any applicable grace
period after final maturity or is accelerated by its holders
because of a default and the total amount of such Debt unpaid or
accelerated exceeds $20.0 million;
(7) any judgment or decree for the payment of money in
excess of $20.0 million is entered against us, any
Significant Subsidiary or, if a Subsidiary Guarantor has
guaranteed the series, such Subsidiary Guarantor, remains
outstanding for a period of 60 consecutive days following entry
of such judgment and is not discharged, waived or stayed;
(8) certain events of bankruptcy, insolvency or
reorganization affecting us, any Significant Subsidiary or, if a
Subsidiary Guarantor has guaranteed the series, such Subsidiary
Guarantor; and
(9) if any Subsidiary Guarantor has guaranteed such series,
the Subsidiary Guarantee of any such Subsidiary Guarantor is
held by a final non-appealable order or judgment of a court of
competent jurisdiction to be unenforceable or invalid or ceases
for any reason to be in full force and effect (other than in
accordance with the terms of the applicable Indenture) or any
Subsidiary Guarantor or any Person acting on behalf of any
Subsidiary Guarantor denies or disaffirms such Subsidiary
Guarantors obligations under its Subsidiary Guarantee
(other than by reason of a release of such Subsidiary Guarantor
from its Subsidiary Guarantee in accordance with the terms of
the applicable Indenture).
If an Event of Default (other than an Event of Default with
respect to Cardtronics, Inc. described in clause (8) above)
with respect to the Debt Securities of any series at the time
Outstanding occurs and is continuing, either the applicable
Trustee or the Holders of at least 25% in principal amount of
the Outstanding Debt Securities of that series by notice as
provided in the Indenture may declare the principal amount of
the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Debt Security, such
portion of the principal amount of such Debt Security as may be
specified in the terms of such Debt Security) to be due and
payable immediately, together with any accrued and unpaid
interest thereon. If an Event of Default with respect to
Cardtronics, Inc. described in clause (8) above with
respect to the Debt Securities of any series at the time
Outstanding occurs, the principal amount of all the Debt
Securities of that series (or, in the case of any such Original
Issue Discount Security, such specified amount) will
automatically, and without any action by the applicable Trustee
or any Holder, become immediately due and payable, together with
any accrued and unpaid interest thereon. After any such
acceleration and its consequences, but
12
before a judgment or decree based on acceleration, the Holders
of a majority in principal amount of the Outstanding Debt
Securities of that series may, under certain circumstances,
rescind and annul such acceleration if all Events of Default
with respect to that series, other than the non-payment of
accelerated principal (or other specified amount), have been
cured or waived as provided in the applicable Indenture. For
information as to waiver of defaults, please read
Modification and Waiver below.
Subject to the provisions of the Indentures relating to the
duties of the Trustees in case an Event of Default has occurred
and is continuing, no Trustee will be under any obligation to
exercise any of its rights or powers under the applicable
Indenture at the request or direction of any of the Holders,
unless such Holders have offered to such Trustee reasonable
security or indemnity. Subject to such provisions for the
indemnification of the Trustees, the Holders of a majority in
principal amount of the Outstanding Debt Securities of any
series will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the
Trustee with respect to the Debt Securities of that series.
No Holder of a Debt Security of any series will have any right
to institute any proceeding with respect to the applicable
Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder, unless:
(1) such Holder has previously given to the Trustee under
the applicable Indenture written notice of a continuing Event of
Default with respect to the Debt Securities of that series;
(2) the Holders of at least 25% in principal amount of the
Outstanding Debt Securities of that series have made written
request, and such Holder or Holders have offered reasonable
security or indemnity, to the Trustee to institute such
proceeding as trustee; and
(3) the Trustee has failed to institute such proceeding,
and has not received from the Holders of a majority in principal
amount of the Outstanding Debt Securities of that series a
direction inconsistent with such request, within 60 days
after such notice, request and offer.
However, such limitations do not apply to a suit instituted by a
Holder of a Debt Security for the enforcement of payment of the
principal of or any premium or interest on such Debt Security on
or after the applicable due date specified in such Debt Security
or, if applicable, to convert such Debt Security.
We will be required to furnish to each Trustee annually a
statement by certain of our officers as to whether or not we, to
their knowledge, are in default in the performance or observance
of any of the terms, provisions and conditions of the applicable
Indenture and, if so, specifying all such known defaults.
Modification
and Waiver
We may modify or amend an Indenture without the consent of any
holders of the Debt Securities in certain circumstances,
including:
(1) to evidence the succession under the Indenture of
another Person to us or any Subsidiary Guarantor and to provide
for its assumption of our or such Subsidiary Guarantors
obligations to holders of Debt Securities;
(2) to make any changes that would add any additional
covenants of us or the Subsidiary Guarantors for the benefit of
the holders of Debt Securities or that do not adversely affect
the rights under the Indenture of the Holders of Debt Securities
in any material respect;
(3) to add any additional Events of Default;
(4) to provide for uncertificated notes in addition to or
in place of certificated notes;
(5) to secure the Debt Securities;
(6) to establish the form or terms of any series of Debt
Securities;
13
(7) to evidence and provide for the acceptance of
appointment under the Indenture of a successor Trustee;
(8) to cure any ambiguity, defect or inconsistency;
(9) to add Subsidiary Guarantors; or
(10) in the case of any Subordinated Debt Security, to make
any change in the subordination provisions that limits or
terminates the benefits applicable to any Holder of Senior Debt.
Other modifications and amendments of an Indenture may be made
by us, the Subsidiary Guarantors, if applicable, and the
applicable Trustee with the consent of the Holders of not less
than a majority in principal amount of the Outstanding Debt
Securities of each series affected by such modification or
amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each
Outstanding Debt Security affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Debt Security;
(2) reduce the principal amount of, or any premium or
interest on, any Debt Security;
(3) reduce the amount of principal of an Original Issue
Discount Security or any other Debt Security payable upon
acceleration of the Maturity thereof;
(4) change the place or currency of payment of principal
of, or any premium or interest on, any Debt Security;
(5) impair the right to institute suit for the enforcement
of any payment due on or any conversion right with respect to
any Debt Security;
(6) modify the subordination provisions in the case of
Subordinated Debt Securities, or modify any conversion
provisions, in either case in a manner adverse to the Holders of
the Subordinated Debt Securities;
(7) except as provided in the applicable Indenture, release
the Subsidiary Guarantee of a Subsidiary Guarantor;
(8) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose
Holders is required for modification or amendment of the
Indenture;
(9) reduce the percentage in principal amount of
Outstanding Debt Securities of any series necessary for waiver
of compliance with certain provisions of the Indenture or for
waiver of certain defaults;
(10) modify such provisions with respect to modification,
amendment or waiver; or
(11) following the making of an offer to purchase Debt
Securities from any Holder that has been made pursuant to a
covenant in such Indenture, modify such covenant in a manner
adverse to such Holder.
The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series may waive
compliance by us with certain restrictive provisions of the
applicable Indenture. The Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any
series may waive any past default under the applicable
Indenture, except a default in the payment of principal, premium
or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of the
Holder of each Outstanding Debt Security of such series.
14
Each of the Indentures provides that in determining whether the
Holders of the requisite principal amount of the Outstanding
Debt Securities have given or taken any direction, notice,
consent, waiver or other action under such Indenture as of any
date:
(1) the principal amount of an Original Issue Discount
Security that will be deemed to be Outstanding will be the
amount of the principal that would be due and payable as of such
date upon acceleration of maturity to such date;
(2) if, as of such date, the principal amount payable at
the Stated Maturity of a Debt Security is not determinable (for
example, because it is based on an index), the principal amount
of such Debt Security deemed to be Outstanding as of such date
will be an amount determined in the manner prescribed for such
Debt Security;
(3) the principal amount of a Debt Security denominated in
one or more foreign currencies or currency units that will be
deemed to be Outstanding will be the United States-dollar
equivalent, determined as of such date in the manner prescribed
for such Debt Security, of the principal amount of such Debt
Security (or, in the case of a Debt Security described in
clause (1) or (2) above, of the amount described in
such clause); and
(4) certain Debt Securities, including those owned by us,
any Subsidiary Guarantor or any of our other Affiliates, will
not be deemed to be Outstanding.
Except in certain limited circumstances, we will be entitled to
set any day as a record date for the purpose of determining the
Holders of Outstanding Debt Securities of any series entitled to
give or take any direction, notice, consent, waiver or other
action under the applicable Indenture, in the manner and subject
to the limitations provided in the Indenture. In certain limited
circumstances, the Trustee will be entitled to set a record date
for action by Holders. If a record date is set for any action to
be taken by Holders of a particular series, only persons who are
Holders of Outstanding Debt Securities of that series on the
record date may take such action. To be effective, such action
must be taken by Holders of the requisite principal amount of
such Debt Securities within a specified period following the
record date. For any particular record date, this period will be
180 days or such other period as may be specified by us (or
the Trustee, if it set the record date), and may be shortened or
lengthened (but not beyond 180 days) from time to time.
Satisfaction
and Discharge
Each Indenture will be discharged and will cease to be of
further effect as to all outstanding Debt Securities of any
series issued thereunder, when:
either:
(1) (a) all outstanding Debt Securities of that series
that have been authenticated (except lost, stolen or destroyed
Debt Securities that have been replaced or paid and Debt
Securities for whose payment money has theretofore been
deposited in trust and thereafter repaid to us) have been
delivered to the Trustee for cancellation; or
(b) all outstanding Debt Securities of that series that
have been not delivered to the Trustee for cancellation have
become due and payable or will become due and payable at their
Stated Maturity within one year or are to be called for
redemption within one year under arrangements satisfactory to
the Trustee and in any case we have irrevocably deposited with
the Trustee as trust funds money in an amount sufficient,
without consideration of any reinvestment of interest, to pay
the entire indebtedness of such Debt Securities not delivered to
the Trustee for cancellation, for principal, premium, if any,
and accrued interest to the Stated Maturity or redemption date;
(2) we have paid or caused to be paid all other sums
payable by us under the Indenture with respect to the Debt
Securities of that series; and
15
(3) we have delivered an Officers Certificate and an
Opinion of Counsel to the Trustee stating that all conditions
precedent to satisfaction and discharge of the Indenture with
respect to the Debt Securities of that series have been
satisfied.
Legal
Defeasance and Covenant Defeasance
To the extent indicated in the applicable prospectus supplement,
we may elect, at our option at any time, to have our obligations
discharged under provisions relating to defeasance and discharge
of indebtedness, which we call legal defeasance, or
relating to defeasance of certain restrictive covenants applied
to the Debt Securities of any series, or to any specified part
of a series, which we call covenant defeasance.
Legal
Defeasance
The Indentures provide that, upon our exercise of our option (if
any) to have the legal defeasance provisions applied to any
series of Debt Securities, we and, if applicable, each
Subsidiary Guarantor will be discharged from all our
obligations, and, if such Debt Securities are Subordinated Debt
Securities, the provisions of the Subordinated Indenture
relating to subordination will cease to be effective, with
respect to such Debt Securities (except for certain obligations
to convert, exchange or register the transfer of Debt
Securities, to replace stolen, lost or mutilated Debt
Securities, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit in trust for the benefit of
the Holders of such Debt Securities of money or
U.S. Government Obligations, or both, which, through the
payment of principal and interest in respect thereof in
accordance with their terms, will provide money in an amount
sufficient (in the opinion of a nationally recognized firm of
independent public accountants) to pay the principal of and any
premium and interest on such Debt Securities on the respective
Stated Maturities in accordance with the terms of the applicable
Indenture and such Debt Securities. Such defeasance or discharge
may occur only if, among other things:
(1) we have delivered to the applicable Trustee an Opinion
of Counsel to the effect that we have received from, or there
has been published by, the United States Internal Revenue
Service a ruling, or there has been a change in tax law, in
either case to the effect that Holders of such Debt Securities
will not recognize gain or loss for federal income tax purposes
as a result of such deposit and legal defeasance and will be
subject to federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such
deposit and legal defeasance were not to occur;
(2) no Event of Default or event that with the passing of
time or the giving of notice, or both, shall constitute an Event
of Default shall have occurred and be continuing at the time of
such deposit or, with respect to any Event of Default described
in clause (8) under Events of
Default, at any time until 121 days after such
deposit;
(3) such deposit and legal defeasance will not result in a
breach or violation of, or constitute a default under, any
agreement or instrument (other than the applicable Indenture) to
which we are a party or by which we are bound;
(4) in the case of Subordinated Debt Securities, at the
time of such deposit, no default in the payment of all or a
portion of principal of (or premium, if any) or interest on any
Senior Debt shall have occurred and be continuing, no event of
default shall have resulted in the acceleration of any Senior
Debt and no other event of default with respect to any Senior
Debt shall have occurred and be continuing permitting after
notice or the lapse of time, or both, the acceleration
thereof; and
(5) we have delivered to the Trustee an Opinion of Counsel
to the effect that such deposit shall not cause the Trustee or
the trust so created to be subject to the Investment Company Act
of 1940.
Covenant
Defeasance
The Indentures provide that, upon our exercise of our option (if
any) to have the covenant defeasance provisions applied to any
Debt Securities, we may fail to comply with certain restrictive
covenants (but not with respect to conversion, if applicable),
including those that may be described in the applicable
prospectus
16
supplement, and the occurrence of certain Events of Default,
which are described above in clause (5) (with respect to such
restrictive covenants) and clauses (6), (7) and
(9) under Events of Default and any that may be
described in the applicable prospectus supplement, will not be
deemed to either be or result in an Event of Default and, if
such Debt Securities are Subordinated Debt Securities, the
provisions of the Subordinated Indenture relating to
subordination will cease to be effective, in each case with
respect to such Debt Securities. In order to exercise such
option, we must deposit, in trust for the benefit of the Holders
of such Debt Securities, money or U.S. Government
Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms,
will provide money in an amount sufficient (in the opinion of a
nationally recognized firm of independent public accountants) to
pay the principal of and any premium and interest on such Debt
Securities on the respective Stated Maturities in accordance
with the terms of the applicable Indenture and such Debt
Securities. Such covenant defeasance may occur only if we have
delivered to the applicable Trustee an Opinion of Counsel to the
effect that Holders of such Debt Securities will not recognize
gain or loss for federal income tax purposes as a result of such
deposit and covenant defeasance and will be subject to federal
income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and
covenant defeasance were not to occur, and the requirements set
forth in clauses (2), (3), (4) and (5) above are
satisfied. If we exercise this option with respect to any series
of Debt Securities and such Debt Securities were declared due
and payable because of the occurrence of any Event of Default,
the amount of money and U.S. Government Obligations so
deposited in trust would be sufficient to pay amounts due on
such Debt Securities at the time of their respective Stated
Maturities but may not be sufficient to pay amounts due on such
Debt Securities upon any acceleration resulting from such Event
of Default. In such case, we would remain liable for such
payments.
If we exercise either our legal defeasance or covenant
defeasance option, any Subsidiary Guarantee will terminate.
Notices
Notices to Holders of Debt Securities will be given by mail to
the addresses of such Holders as they may appear in the Security
Register.
Title
We, the Subsidiary Guarantors, the Trustees and any agent of us,
the Subsidiary Guarantors or a Trustee may treat the Person in
whose name a Debt Security is registered as the absolute owner
of the Debt Security (whether or not such Debt Security may be
overdue) for the purpose of making payment and for all other
purposes.
Governing
Law
The Indentures and the Debt Securities will be governed by, and
construed in accordance with, the law of the State of New York.
The
Trustee
We will enter into the Indentures with a Trustee that is
qualified to act under the Trust Indenture Act of 1939, as
amended, and with any other Trustees chosen by us and appointed
in a supplemental indenture for a particular series of Debt
Securities. We may maintain a banking relationship in the
ordinary course of business with our Trustee and one or more of
its affiliates.
Resignation
or Removal of Trustee
If the Trustee has or acquires a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee must either
eliminate its conflicting interest or resign, to the extent and
in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and the applicable Indenture. Any
resignation will require the appointment of a successor Trustee
under the applicable Indenture in accordance with the terms and
conditions of such Indenture.
17
The Trustee may resign or be removed by us with respect to one
or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to any such series. The holders of
a majority in aggregate principal amount of the Debt Securities
of any series may remove the Trustee with respect to the Debt
Securities of such series.
Limitations
on Trustee if It Is Our Creditor
Each Indenture will contain certain limitations on the right of
the Trustee, in the event that it becomes our creditor, to
obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as
security or otherwise.
Certificates
and Opinions to Be Furnished to Trustee
Each Indenture will provide that, in addition to other
certificates or opinions that may be specifically required by
other provisions of an Indenture, every application by us for
action by the Trustee must be accompanied by an Officers
Certificate and an Opinion of Counsel stating that, in the
opinion of the signers, all conditions precedent to such action
have been complied with by us.
DESCRIPTION
OF COMMON STOCK
Our authorized capital stock is 135,000,000 shares. Those
shares consist of: (1) 10,000,000 shares of preferred
stock, par value $0.0001 per share, none of which are
outstanding; and (2) 125,000,000 shares of common
stock, par value $0.0001 per share, of which
41,609,532 shares were outstanding as of February 12,
2010.
This section describes the general terms of our common stock.
For more detailed information, you should refer to our Third
Amended and Restated Certificate of Incorporation and our Second
Amended and Restated Bylaws, copies of which have been filed
with the SEC.
Listing
Our outstanding shares of common stock are listed on The Nasdaq
Global Market under the symbol CATM. Any additional
shares of common stock that we issue also will be listed on The
Nasdaq Global Market.
Dividends
Subject to the rights of any then outstanding shares of
preferred stock that we may issue, the holders of our common
stock may receive such dividends as our board of directors may
declare in its discretion out of legally available funds.
Fully
Paid
All outstanding shares of common stock are fully paid and
non-assessable. Any additional shares of common stock that we
issue will also be fully paid and non-assessable.
Voting
Rights
Subject to any special voting rights of any series of preferred
stock that we may issue in the future, the holders of our common
stock may vote one vote for each share held in the election of
directors and on all other matters voted upon by our
stockholders. Under our bylaws, unless otherwise required by
Delaware law, action by our stockholders is taken by the
affirmative vote of the holders of a majority of the votes cast,
except for elections, which are determined by a plurality of the
votes cast, at a meeting of stockholders at which a quorum is
present. Holders of common stock may not cumulate their votes in
the elections of directors.
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Other
Rights
We will notify common stockholders of any stockholders
meetings according to applicable law. If we liquidate, dissolve
or wind-up
our business, either voluntarily or not, holders of our common
stock will share equally in our net assets upon liquidation
after payment or provision for all liabilities and any
preferential liquidation rights of any preferred stock then
outstanding. The holders of common stock have no preemptive
rights to purchase shares of our common stock. Shares of common
stock are not subject to any redemption or sinking fund
provisions and are not convertible into any of our other
securities.
Anti-Takeover
Provisions
Certain provisions in our certificate of incorporation and
bylaws may encourage persons considering unsolicited tender
offers or other unilateral takeover proposals to negotiate with
the board of directors rather than pursue non-negotiated
takeover attempts.
Classified
Board of Directors and Limitations on Removal of
Directors
Our board of directors is divided into three classes. The
directors of each class are elected for three-year terms, and
the terms of the three classes are staggered so that directors
from a single class are elected at each annual meeting of
stockholders. Stockholders may remove a director only for cause
and only by the affirmative vote of the holders of at least
662/3%
of the voting power of the then outstanding capital stock of
Cardtronics entitled to vote generally in the election of
directors, voting together as a single class. In general, our
board of directors, not the stockholders, has the right to
appoint persons to fill vacancies on the board of directors.
No
Stockholder Action by Unanimous Consent
Under the Delaware General Corporation Law, unless a
companys certificate of incorporation specifies otherwise,
any action that could be taken by stockholders at an annual or
special meeting may be taken, instead, without a meeting and
without notice to or a vote of other stockholders if a consent
in writing is signed by holders of outstanding stock having
voting power that would be sufficient to take such action at a
meeting at which all outstanding shares were present and voted.
Our certificate of incorporation and bylaws provide that any
action required or permitted to be taken by stockholders must be
taken at an annual or special meeting of such stockholders and
may not be taken by any consent in writing of such stockholders.
Blank
Check Preferred Stock
Our certificate of incorporation authorizes the issuance of
blank check preferred stock from time to time in one or more
series. The board of directors can set the powers, voting
powers, designations, preferences and relative, participating,
optional or other rights, if any, of each series of preferred
stock and the qualifications, limitations or restrictions, if
any, of such preferences
and/or
rights relating to such preferred stock and could issue such
stock in either private or public transactions. In some
circumstances, the blank check preferred stock could be issued
and have the effect of preventing a merger, tender offer or
other takeover attempt that the board of directors opposes.
Business
Combinations Under Delaware Law
We are a Delaware corporation and are subject to
Section 203 of the Delaware General Corporation Law.
Section 203 prevents a person who, together with any
affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of our outstanding voting
stock (an interested stockholder) from engaging in
certain business combinations with us for three years following
the date that the interested stockholder became an interested
stockholder. These restrictions do not apply if:
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before the person became an interested stockholder, our board of
directors approved either the business combination or the
transaction in which the interested stockholder became an
interested stockholder;
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upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of our outstanding
voting stock at the time
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the transaction commenced, excluding stock held by directors who
are also officers of the corporation and stock held by certain
employee stock plans; or
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at or subsequent to such time the interested stockholder became
an interested stockholder, the business combination is approved
by our board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the
affirmative vote of at least
662/3%
of the outstanding voting stock that is not owned by the
interested stockholder.
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Section 203 defines a business combination to
include (1) any merger or consolidation involving the
corporation and an interested stockholder; (2) any sale,
lease, transfer, pledge or other disposition involving an
interested stockholder of 10% or more of the assets of the
corporation; (3) subject to certain exceptions, any
transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to an interested
stockholder; (4) any transaction involving the corporation
that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially
owned by the interested stockholder or (5) the receipt by
an interested stockholder of any loans, guarantees, pledges or
other financial benefits provided by or through the corporation.
Special
Certificate of Incorporation and Bylaw Provisions
Our bylaws contain provisions requiring that advance notice be
delivered to the secretary of Cardtronics of any business to be
brought by a stockholder before an annual or special meeting of
stockholders, including the nomination and election of
directors. Generally, such advance notice provisions provide
that the stockholder must give written notice to the secretary
of Cardtronics not less than 120 days prior to the first
anniversary date of the annual meeting for the preceding year in
the case of an annual meeting and not later than the close of
business on the tenth day following the first day on which the
date of the special meeting is publicly announced in the case of
a special meeting. The notice must set forth specific
information regarding such stockholder and such business or
director nominee, as described in our bylaws. Such requirement
is in addition to those set forth in the regulations adopted by
the SEC under the Exchange Act. Our certificate of incorporation
and bylaws provide that the number of directors shall not be
fewer than three. Each director shall hold office for the term
for which that individual is elected and thereafter until that
individuals successor is elected or until such
individuals earlier death, resignation, retirement,
disqualification or removal.
Special meetings of the stockholders for any purpose or purposes
may be called at any time by the Chairman of the Board, if any,
by a special committee that is duly designated by the Board, or
by resolution adopted by the affirmative vote of the majority of
the Board of Directors.
Subject to the provisions of our bylaws relating to the voting
powers, designations, preferences and relative, participating,
optional or other special rights of each class of our capital
stock, our bylaws may be amended by the board of directors. Such
authority shall not limit the ability of the stockholders to
adopt, amend or repeal bylaws.
The foregoing provisions of our certificate of incorporation and
bylaws, together with the provisions of Section 203 of the
Delaware General Corporation Law, could have the effect of
delaying, deferring or preventing a change in control or the
removal of existing management, of deterring potential acquirors
from making an offer to our stockholders and of limiting any
opportunity to realize premiums over prevailing market prices
for our common stock in connection therewith. This could be the
case notwithstanding that a majority of our stockholders might
benefit from such a change in control or offer.
Limitation
of Liability of Officers and Directors
Delaware law authorizes corporations to limit or eliminate the
personal liability of officers and directors to corporations and
their stockholders for monetary damages for breach of
officers and directors fiduciary duty of care. The
duty of care requires that, when acting on behalf of the
corporation, officers and directors must exercise an informed
business judgment based on all material information reasonably
available to them. Absent the limitations authorized by Delaware
law, officers and directors are accountable to corporations and
their stockholders for monetary damages for conduct constituting
gross negligence in the exercise of their duty
20
of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission.
Our certificate of incorporation limits the liability of our
officers and directors to us and our stockholders to the fullest
extent permitted by Delaware law. Specifically, our officers and
directors will not be personally liable for monetary damages for
breach of an officers or directors fiduciary duty in
such capacity, except for liability:
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for any breach of the officers or directors duty of
loyalty to us or our stockholders;
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for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
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for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
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for any transaction from which the officer or director derived
an improper personal benefit.
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The inclusion of this provision in our certificate of
incorporation may reduce the likelihood of derivative litigation
against our officers and directors, and may discourage or deter
stockholders or management from bringing a lawsuit against our
officers and directors for breach of their duty of care, even
though such an action, if successful, might have otherwise
benefitted us and our stockholders. Our certificate of
incorporation provides indemnification to our officers and
directors and certain other persons with respect to certain
matters to the maximum extent allowed by Delaware law as it
exists now or may hereafter be amended. These provisions do not
alter the liability of officers and directors under federal
securities laws and do not affect the right to sue (nor to
recover monetary damages) under federal securities laws for
violations thereof.
We entered into an indemnification agreement with each of our
directors. The indemnification agreements provide that we
indemnify each of our directors to the fullest extent permitted
by Delaware General Corporation Law. This means, among other
things, that we must indemnify the indemnitee against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement that are actually and reasonably incurred in
an action, suit or proceeding by reason of the fact that the
person is serving or has served (1) as a director of
Cardtronics, (2) in any capacity with respect to any
employee benefit plan of Cardtronics, or (3) as a director,
partner, trustee, officer, employee, or agent of any other
entity at the request of Cardtronics if the indemnitee acted in
good faith and, in the case of conduct in his or her official
capacity, in a manner he or she reasonably believed not opposed
to the best interests of Cardtronics and with respect to any
criminal action or proceeding, the indemnitee had reasonable
cause to believe that his or her conduct was lawful. Also, the
indemnification agreements require that we advance expenses in
defending such an action provided that the indemnitee undertakes
to repay the amounts if the person ultimately is determined not
to be entitled to indemnification.
In general, the disinterested directors on the board of
directors or a committee of the board of directors designated by
majority vote of the board of directors have the authority to
determine an indemnitees right to indemnification.
However, such determination may also be made by (1) if
there are no such directors, or if such directors so direct,
independent legal counsel in a written opinion or (2) the
stockholders.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers or persons controlling the registrant pursuant to the
foregoing provisions, the registrant has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
Transfer
Agent and Registrar
Our transfer agent and registrar of the common stock is Wells
Fargo Shareowners Services.
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SELLING
STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock held as of
February 17, 2010 by the selling stockholders, the number
of shares which may be offered from time to time and information
with respect to shares to be beneficially owned by the selling
stockholders. The selling stockholders may from time to time
offer and sell shares of our common stock pursuant to this
prospectus or an applicable prospectus supplement. We prepared
this table based solely on information provided to us by the
selling stockholders, and we have not independently verified
such information. At the time of an offering, we will update
this table to disclose the number of shares beneficially owned
prior to the offering, the number of shares offered in the
offering and the number of shares beneficially owned after the
offering.
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Shares Beneficially Owned
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Shares Offered
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Shares Beneficially Owned
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Prior to the Offering
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Hereby
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After the Offering(1)
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Number
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Percentage(2)
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Number
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Number
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Percentage(2)
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CapStreet II, L.P.
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8,091,222
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19.4
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%
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CapStreet Parallel II, L.P.
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949,852
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2.3
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TA IX, L.P.
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7,212,298
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17.3
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TA/Atlantic and Pacific V L.P.
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2,884,931
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6.9
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TA/Atlantic and Pacific IV L.P.
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1,243,637
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3.0
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TA Strategic Partners Fund A L.P.
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147,707
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*
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TA Investors II, L.P.
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144,224
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*
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TA Strategic Partners Fund B L.P.
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26,489
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*
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* |
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Less than 1.0% of the outstanding common stock. |
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(1) |
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Assumes that the selling stockholder disposes of all the shares
of common stock covered by this prospectus and does not acquire
beneficial ownership of any additional shares. The registration
of these shares does not necessarily mean that the selling
stockholder will sell all or any portion of the shares covered
by this prospectus. |
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(2) |
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Based on 41,613,339 shares of our common stock outstanding
as of February 17, 2010. |
Common Stock Issuances to Selling
Shareholders. During 2001, we issued
1,320,898 shares of our common stock to CapStreet II, L.P.
and CapStreet Parallel II, L.P. (collectively, The
CapStreet Group) for an aggregate amount of $132.09.
During 2002, we issued an additional 170,439 shares of our
common stock to The CapStreet Group for an aggregate amount of
$17.04. In February 2005, concurrent with the investment made by
TA Associates, Inc. (TA Associates) and the issuance
of our Series B Redeemable Convertible Preferred Stock
(Series B Stock) (discussed below), we
repurchased 353,878 common shares from The CapStreet Group. In
conjunction with our initial public offering in December 2007,
the remaining 1,137,459 common shares held by The CapStreet
Group converted into the 9,041,074 common shares it holds as of
the date of this prospectus.
Series B Redeemable Convertible Preferred Stock
Issuances to Selling Shareholders. In February
2005, we issued 894,568 shares of our Series B Stock
to investment funds controlled by TA Associates (the TA
Funds) for a per share price of $83.8394, resulting in
aggregate gross proceeds of $75.0 million. The
Series B shares were convertible into the same number of
shares of the Companys common stock, as adjusted for
future stock splits and the issuance of dilutive securities. In
June 2007, we entered into a letter agreement with the TA Funds
pursuant to which the TA Funds agreed to (i) approve our
acquisition of the financial service business of 7-Eleven, Inc.
and (ii) not transfer or otherwise dispose of any of their
shares of Series B Stock during the period beginning on the
date thereof and ending on the earlier of the date the
acquisition closed (i.e., July 20, 2007) or
September 1, 2007. Pursuant to the terms of the letter
agreement, we amended the terms of our Series B Stock in
order to increase, under certain circumstances, the number of
shares of common stock into which the TA Funds shares of
Series B Stock would be convertible in the event we
completed an initial public offering. In December 2007, we
completed our initial public offering, and based on the $10.00
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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).
In connection with our issuance of Series B Convertible
Preferred Stock to the TA Funds in February 2005, all our
existing stockholders entered into an investors agreement
relating to several matters, only the registration rights
provision of which survived our initial public offering in
December 2007. Pursuant to the investors agreement, CapStreet
II, L.P. (on behalf of itself, CapStreet Parallel II, L.P. and
permitted transferees thereof) and TA Associates have the right
to demand that we file a registration statement with the SEC to
register the sale of all or part of the shares of common stock
beneficially owned by them. Subject to certain limitations, we
are obligated to register these shares upon CapStreet II,
L.P.s or TA Associates demand, for which we will be
required to pay the registration expenses. In connection with
any such demand registration, the stockholders who are parties
to the investors agreement may be entitled to include their
shares in that registration. In addition, if we propose to
register securities for our own account, the stockholders who
are parties to the investors agreement may be entitled to
include their shares in that registration. All holders of
registrable securities, other than The CapStreet Group and TA
Associates, have elected not to register their securities as
part of this registration statement.
PLAN OF
DISTRIBUTION
We and any selling stockholders may sell the offered securities
in and outside the United States (1) through underwriters,
brokers or dealers; (2) directly to purchasers, including
our affiliates and stockholders; (3) through agents,
(4) at prevailing market prices by us directly or through a
designated agent, including sales made directly or through the
facilities of The Nasdaq Global Market or any other securities
exchange or quotation or trading service on which such
securities may be listed, quoted or traded at the time of sale
or (5) through a combination of any of these methods. The
prospectus supplement will include the following information:
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the terms of the offering;
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the names of any underwriters, brokers, dealers or agents;
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the name or names of any managing underwriter or underwriters;
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the purchase price or public offering price of the securities;
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the net proceeds to us from the sale of the securities;
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any delayed delivery arrangements;
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any underwriting discounts, commissions and other items
constituting underwriters compensation;
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any discounts or concessions allowed or reallowed or paid to
dealers;
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any commissions paid to agents;
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any securities exchange or market on which the securities may be
listed.
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Sale
Through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will
acquire the securities for their own account for resale to the
public, either on a firm commitment basis or a best efforts
basis. The underwriters may resell the securities from time to
time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying
prices determined at the time of sale. Underwriters may offer
securities to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by
one or more firms acting as underwriters. Unless we inform you
otherwise in the prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to
certain conditions. The underwriters may change from time to
time any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers.
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We may also make direct sales through subscription rights
distributed to our existing stockholders on a pro rata basis,
which may or may not be transferable. In any distribution of
subscription rights to our stockholders, if all of the
underlying securities are not subscribed for, we may then sell
the unsubscribed securities directly to third parties or may
engage the services of one or more underwriters, dealers or
agents, including standby underwriters, to sell the unsubscribed
securities to third parties.
During and after an offering through underwriters, the
underwriters may purchase and sell the securities in the open
market. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that
selling concessions allowed to syndicate members or other
broker-dealers for the offered securities sold for their account
may be reclaimed by the syndicate if the offered securities are
repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or
otherwise affect the market price of the offered securities,
which may be higher than the price that might otherwise prevail
in the open market. If commenced, the underwriters may
discontinue these activities at any time.
Some or all of the debt securities that we offer though this
prospectus may be new issues of securities with no established
trading market. Any underwriters to whom we sell such securities
for public offering and sale may make a market in those
securities, but they will not be obligated to do so and they may
discontinue any market making at any time without notice.
Accordingly, we cannot assure you of the liquidity of, or
continued trading markets for, any debt securities that we offer.
If dealers are used in the sale of securities, we and any
selling stockholders will sell the securities to them as
principals. The dealers may then resell those securities to the
public at varying prices determined by the dealers at the time
of resale. We will include in the prospectus supplement the
names of the dealers and the terms of the transaction.
Direct
Sales and Sales through Agents
We and any selling stockholders may sell the securities
directly. In that case, no underwriters or agents would be
involved. We and any selling stockholders may also sell the
securities through agents designated from time to time. In the
prospectus supplement, we will name any agent involved in the
offer or sale of the offered securities, and we will describe
any commissions payable to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to
use its reasonable best efforts to solicit purchases for the
period of its appointment.
We and any selling stockholders may sell the securities directly
to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act with
respect to any sale of those securities. We will describe the
terms of any such sales in the prospectus supplement.
Remarketing
Arrangements
Offered securities may also be offered and sold, if so indicated
in the applicable prospectus supplement, in connection with a
remarketing upon their purchase, in accordance with a redemption
or repayment pursuant to their terms, or otherwise, by one or
more remarketing firms, acting as principals for their own
accounts or as agents for us. Any remarketing firm will be
identified and the terms of its agreements, if any, with us and
its compensation will be described in the applicable prospectus
supplement. Remarketing firms may be deemed to be underwriters,
as that term is defined in the Securities Act, in connection
with the securities remarketed.
Delayed
Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize
agents, underwriters or dealers to solicit offers from certain
types of institutions to purchase debt securities from us at the
public offering price under delayed delivery contracts. These
contracts would provide for payment and delivery on a specified
date in the
24
future. The contracts would be subject only to those conditions
described in the prospectus supplement. The prospectus
supplement will describe the commission payable for solicitation
of those contracts.
Additional
Provisions Applicable to Selling Stockholders
The selling stockholders are subject to the applicable
provisions of the Exchange Act and the rules and regulations
under the Exchange Act, including Regulation M. This
regulation may limit the timing of purchases and sales of any of
the shares of common stock offered in this prospectus by the
selling stockholders. The anti-manipulation rules under the
Exchange Act may apply to sales of shares in the market and to
the activities of the selling stockholders and their affiliates.
Furthermore, Regulation M may restrict the ability of any
person engaged in the distribution of the shares to engage in
market-making activities for the particular securities being
distributed for a period of up to five business days before the
distribution. The restrictions may affect the marketability of
the shares and the ability of any person or entity to engage in
market-making activities for the shares.
General
Information
We or the selling stockholders may have agreements with the
agents, dealers, underwriters and remarketing firms to indemnify
them against certain civil liabilities, including liabilities
under the Securities Act, or to contribute with respect to
payments that the agents, dealers, underwriters or remarketing
firms may be required to make.
Agents, dealers, selling stockholders, underwriters and
remarketing firms may be customers of, engage in transactions
with or perform services for us in the ordinary course of their
businesses.
LEGAL
MATTERS
Our counsel, Vinson & Elkins L.L.P., Houston, Texas,
will pass upon certain legal matters in connection with the
offered securities. Any underwriters will be advised about other
issues relating to any offering by their own legal counsel.
EXPERTS
The consolidated financial statements of Cardtronics, Inc. as of
December 31, 2008 and 2007, and for each of the years in
the three-year period ended December 31, 2008, and
managements assessment of the effectiveness of internal
control over financial reporting as of December 31, 2008
have been incorporated by reference herein and in the
registration statement in reliance upon the reports of KPMG LLP,
independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing. The audit report covering the
December 31, 2008 financial statements refers to a change
in the method of accounting for fair value measurements of
financial instruments in 2008 and a change in the method of
accounting for income tax uncertainties in 2007.
The audited financial statements of the 7-Eleven Financial
Services Business as of December 31, 2005 and 2006, and for
each of the three years in the period ended December 31,
2006, incorporated in this prospectus by reference to the
Current Report on
Form 8-K/A
of Cardtronics, Inc. dated July 17, 2007, have been audited
by PricewaterhouseCoopers LLP, independent accountants. Such
financial statements have been incorporated in reliance on the
report (which contains an explanatory paragraph relating to the
7-Eleven Financial Services Business restatement of its
financial statements as described in Note 1 to the
financial statements) of such independent accountants given on
the authority of such firm as experts in auditing and accounting.
25
Common Stock
PRELIMINARY PROSPECTUS SUPPLEMENT
,
2010